Guessonomics: Do the media pundits really know what’s going on?

Stephen Desmond

3 min read

There’s such a glut of economic commentaries and forecasts out there that digesting them can be time-consuming and bewildering at times, even for the most savvy among us. So how can we focus in on the useful stuff and filter out the scaremongering and political posturing?

Guessonomics - do the financial media pundits really know what they're talking about

When it comes to slicing through the figures and painting a picture of the future economy, the web is crammed with bloggers and so-called experts who claim to have it sussed. TV and radio outlets don’t fare much better, while the newspapers that matter can often dilute the most insightful views with the sheer volume of opinion they put out.

Back to the future

It’s sensible to take on board any forecasting opinion with caution. Even economists and other investment experts rely on retrospective data to predict what the economy holds in store. If their confidence levels matched their success rate, many of them would most likely be spending more time actually trading and less time writing about it.

The problem? Analysing lagging economic indicators, or looking backwards, really just tells us what’s already happened or what the situation is now. Only leading indicators can give any idea of what may lie ahead.

Basing decisions on leading indicators still involves plenty of guesswork, but you may be able to see a clearer view of the big picture for your savings and investments.

Much like one of the best weather forecasts you’re ever likely to get (“stick your hand out of the window”) it’s also worth taking a look around you for signs of economic recovery because, when they come, they will be visible on the street.

Five-star hotels at full capacity, new upmarket restaurants and a buoyant market for holiday homes – excluding Eurozone bargains – are tangible signs of an economy on the up.

Economic indicators

Over the past six months, we’ve heard about inflation missing its target, yo-yo employment figures and wages failing to keep up with the cost of living.

Further quantitative easing was expected earlier this year in a bid to stimulate growth. But the Budget didn’t deliver the anticipated £25bn boost. In June, the Monetary Policy Committee again voted against printing more money.

Instead, the Government has set its sights firmly on reducing inflation to a more manageable 2%. There’s still a big gap between what we earn and what we spend – but it’s shrunk. The Consumer Price Index (CPI) fell in April for the first time since autumn, to 2.4%.

Interest rates are plumbing uncharted depths and are set to stay at 0.5%, where they’ve been since March 2009. Good news for those of us with mortgages, but a basic rate taxpayer needs a savings account paying 3% to beat inflation.

The double whammy of high inflation and low interest rates means savings will struggle to maintain their value in real terms and makes long-term investing even more appealing.

Keeping a cool head

But never mind getting ahead of the game – how to keep up?

Investing in a diverse portfolio over the long term can be preferable to watching the value of savings simply erode. And, in fact, with the economic outlook still uncertain, many investors are turning to higher risk investments to stand the best chance of reaching their goals.

However, high risk investments come with, well, high risk. There is no point losing your life savings on one bet – instead you need to find a balance between what you would like to earn and how much you can afford to lose. Keep this in mind when a salesman is excitedly telling you about potential returns on a singular brand new investment opportunity.

New to Nutmeg?

If you’re looking to invest but are not sure where to start, Nutmeg can help. We build an investment portfolio for you based on financial information you provide and your personal attitude to risk. And our online tool is data driven, not opinion driven, to give you a clear idea of risk and return. With our fast, straightforward online tools, you can always see where your money has been allocated and how it’s performing.

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Risk warning

The views and opinions expressed herein are for informational purposes only. They are not personal recommendations and should not be regarded as solicitations or offers to buy or sell any of the securities or instruments mentioned. The views are based on public information that Nutmeg considers reliable but does not represent that the information contained herein is accurate or complete. With investment comes risk. The price and value of investments mentioned and income arising from them may fluctuate. Past performance is not an indicator of future results, and future returns are not guaranteed.

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Stephen Desmond

Stephen regularly contributes to the Nutmegonomics blog – writing about investment and personal finance.

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