How to build and maintain wealth for the long term in the middle of a recession


The UK is now in a recession but keep calm – having a clear idea of your investment goals and talking to us will help you ride it out 

The Bank of England has declared that the UK is now in recession and that it will extend deep into 2023.1 For anyone looking to build or maintain their wealth in these circumstances, advice is essential. 

While speaking to your adviser is always a good idea no matter what’s going on in the wider world, during a recession it becomes even more important. Watching stock markets turn into rollercoasters can prompt some investors to make knee-jerk decisions that could cause damage to their long-term plans.

How can we manage through a recession in 2023? 

Tony Clark, Senior Propositions Manager at St. James’s Place, says: “You have to look at how you will achieve your long-term goals and think about how you overcome both of these short-term and long-term needs.

“It’s important to think about time in the market, not timing the market, and understand that long-term investing isn’t the preserve of the wealthy. What tends to lead to success is having a clear idea of your goals, and building a focused plan, so you know how to achieve what you want.”

One important thing to remember is that we’ve seen crises before, says Tony. While they’re uncomfortable at the time, we get through them. How you can do that will largely depend on your personal circumstances.

What do you do with money in a recession? Is it good to have cash?

In a higher interest rate and higher-inflation environment, one thing to consider is reducing any debt you have, if possible, especially if you have expensive credit-card debt. But you should also look at increasing your emergency savings.

Inflation in August reached 9.9%2, so paying for, say, a new boiler may be more expensive than it was at the start of the year. Britons may already be starting to save more, as there was £3.9 billion deposited in banks in July according to official figures, with a further £3.2 billion being added in August3.

When you talk to us, we can guide you on how much you may need to add to your cash savings.

How do you make money in a recession?

If you have money you can invest, then market volatility can be beneficial, even in a recession. Falling stock prices can be considered a ‘sale’, but trying to time the bottom of the market is rarely a good idea. Having your money in the market makes most sense. 

While there’s no way to predict what markets will do, some examples from past recessions show just what can be achieved if you’re committed and invest for the long term. The Association of Investment Companies (AIC) calculated how a £1,000 investment at the start of various previous recessions would have performed over time. 

For example, £1,000 invested in the average investment company at the start of the recession in the 1990s, which lasted five quarters, would have been worth £999 within a year. Within five years, it would have been worth £1,694 and after ten years, £3,369. 

For the financial crash in 2008, after one year, the £1,000 would have been worth £651, rising to £1,334 in five years and to £2,167 in ten years. The COVID-19 pandemic recession wasn’t sufficiently long ago to give completely comparable data, but within one year the £1,000 would have been worth £1,138 and within two years and nine months – the point at which this data was collated – it would have been worth £1,048, having fallen back slightly.

Annabel Brodie-Smith, Communications Director of the Association of Investment Companies (AIC), says: “Clearly, we don’t know at the time when a recession begins, as it’s only confirmed in hindsight. However, our data shows that investing in recessions isn’t necessarily something to be feared as long as you have time on your side. 

“Of course, economic downturns and falling markets are a worry for investors, but it’s important to keep calm and carry on with your investment plan for the long term. There are going to be periods of volatility, but all the evidence demonstrates that over time stock markets outperform cash deposits.”

Both Tony and Annabel suggest drip-feeding money regularly into the markets over time to benefit from ‘pound-cost averaging’. This means that by investing the same amount each month into a fund or market, when prices are high you buy fewer units, but when prices are low you buy more. As markets recover, the assets held will average out, smoothing the volatility you would have suffered had you put all your investment into the market in one go.

Annabel adds: “This is a sensible way to reduce your risk profile.”

Get advice

Recessions are concerning for all, but with the right advice and by keeping your long-term goals in mind, you should be able to weather any financial storm on the horizon.

Source: AIC/Morningstar. *COVID-19 recession only (as three years have not elapsed since the beginning of this recession). Figures are based on an average of 331 investment companies, excluding VCTs. Figures include charges within the funds but do not include any buying costs or stamp duty.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.


1Monetary Policy Report, Bank of England, August 2022
2Consumer Price Inflation, UK: August 2022, Office for National Statistics, September 2022
3Money and Ceredit – August 2022, Bank of England, September 2022

SJP APPROVED 31/10/2022


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