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Geopolitical shocks and sudden tech sell-offs are leaving UK investors exposed. Charles Schwab’s Richard Flynn breaks down how to protect your wealth from sudden market tumbles, the reality behind the AI bull run, and how to prepare your portfolio for the next major economic shift.
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0:00
When there's a lot of noise in the market, it's when people can tend to make emotional decisions rather than logical decisions
0:05
And so, you know, with the market where it is, with people's portfolios likely where they are
0:09
if they have been invested over the last 10 years, they will have likely done pretty well
0:13
We would urge clients to always consider, OK, is it the right thing for you and why
0:17
You know, why does this fit into your portfolio? You know, what is it about this company that's attractive to you
0:22
And a lot of people around recent IPOs, when you ask them a couple of questions about that
0:26
find themselves pretty short on answers. It's just that they're interested in the big shiny thing that everyone else is talking about
0:31
The days of people looking at their portfolio once a quarter when it lands onto the doormat through the letterbox, they've gone
0:36
So people of all generations now are more engaged with monitoring their portfolios
0:40
It has been a rollercoaster first six months of the year with investors having to navigate the Iran war, mass tech sell offs and a blockbuster IPO
0:49
But how do they handle that? And how will they handle the second half of the year with the knowledge that we have two more mega cap IPOs potentially listing
0:56
Here to discuss this all with me is Richard Flynn, Managing Director at Charles Schwab. Richard, thank you for joining me
1:01
Thanks for having me, Macy. Thank you very much. I think just to start, let's go back to the beginning. Let's go back to when the Iran war started, because in the first quarter of the year, we started quite well
1:11
Things were quite level. Retail investment was picking up in the UK. Things were churning along quite nicely
1:16
Then the war started, and people got a little bit jumpy. And I'm curious, how do you think the markets reacted to that
1:22
How did investors handle that? Yeah, I think there has always been a sense of geopolitical risk around the markets
1:29
and it's been pretty pervasive in the last few years. If you took a step back to a lot of the predictions for 2026
1:36
a lot of people felt that some kind of escalation could happen, and what would that mean specifically for energy markets, for defence, etc
1:44
It probably was a bit more abrupt than people would have imagined
1:48
But nonetheless, the relatively muted response in the following weeks after the first attacks were probably predictable, actually
1:59
You'd hope that the market had priced in some element of risk around what ultimately took place in Iran
2:05
And how did investors handle that in your regard? Because there were some mornings where we would log on
2:09
and we'd check the stock market and things would just tumble or the oil price would jump again and people would be quite scared
2:16
at how that was looking for their portfolios. Well, we got quite lucky with our timing, Maisie
2:19
because we surveyed 1,000 UK investors over the course of that week
2:24
We do it every year. But it was pretty interesting to get direct feedback from UK investors
2:30
And what we found was that they were actually remaining engaged with the markets. There was no mass retreat
2:35
There was no sense of panic, which is probably to the credit of UK investors
2:40
who can see the bigger picture, see the longer-term trends, and who price in geopolitical events to their risk management
2:47
and their portfolio management. And on risk management, does that come back to the need to be an active investor
2:53
Because I've been having discussions recently where a lot of people in the industry have started to raise the alarm around passive investing
2:59
and allowing your portfolio just to follow market moves and how that can create its own sense of danger, even if you're not looking at it every day
3:06
Yeah it an interesting phrase being an active investor because a lot of people might assume that that means day trading moving in and out of the market very very rapidly I think what we would promote is being actively engaged And that is just the same for people with longer term investment strategies as
3:22
it would be for people trading regularly. So, you know, there has been a difference in the last few
3:28
years, particularly with the immediate availability of information, both market information, also
3:33
portfolio information, that the days of people looking at their portfolio once a quarter when
3:38
it lands onto the doormat through the letterbox, they've gone. So people of all generations now
3:44
are more engaged with monitoring their portfolios, monitoring their performance and risk management
3:50
as well, which is good. We do see higher levels of engagement across younger investors. So when
3:57
we look at the demographics, we see Gen Zs and millennials typically are checking their
4:03
portfolios or making adjustments to their portfolios, at least on a monthly basis. Roughly, I think
4:08
58% of investors in that cohort do significantly lower for older investors, the boomers and Gen X
4:16
Yeah. I mean, it does kind of feel that Gen Z millennials are going to be more clued on because
4:20
the story of the year away from Iran is AI and tech. And we have seen that in the past few months
4:25
on a very quick and fast scale growing off the back of the SpaceX IPO
4:29
But then also we've had quite a few tech sell-offs, which over in Asia has really, really impacted the Cosby
4:35
So I'm curious about your take on the tech sell-off. And if we do have some more earning results that come through
4:40
that make investors feel a little bit iffy, how should they react to that and how should they balance their portfolio
4:46
So a lot of younger investors wouldn't remember the dot-com crash in 2000
4:51
I don't think so, no. Yeah. So, but there are big differences in how the market looks now with AI and a lot of the kind of the sectoral leaders, really
5:02
If you look at who is leading market performance at the moment, it is driven by AI and tech and digital platforms
5:09
Now, that leaves little room for error. But the fundamental difference between where the market is today and where it was at the time of the dot-com crash is that this is driven by earnings
5:20
You know, these companies are reporting significant earnings growth. In fact, 2026 so far, we've seen a 26% increase year on year in terms of earnings
5:28
If you look back at those valuations in around the turn of the century, they were all kind of fictitious
5:33
You know, they were based on potential future earnings and not actual earnings
5:37
So there's a big difference there. That said, it is a pretty narrow leadership group
5:42
And so that carries risk. And there is a tendency for investors to sometimes get carried away and over, you know, they'll have significant exposure to one or two big companies just based on performance or based on successful performance that they've actually invested in and seen ultimately grow and become a bigger part of their portfolio
6:03
You know, our recommendation to every investor is just maintain appropriate allocation and diversification
6:10
I think that's a really crucial point to make going forward. As we just said, we have the Spaces IPO
6:15
and it is being reported that both OpenAI and Anthropic are also going to enter the market
6:20
which is very very dominated by AI and tech So again that creates the risk doesn it And the risk is that at some point earnings may disappoint you know and and the market might react in an outsized way
6:32
to those earnings so there's always going to be a lot of focus a lot of attention put on those
6:37
earnings earnings announcements from the companies that are leading the field and then on that
6:40
conversation you know what other sectors are also having quite a good year that may be of getting
6:45
lost within this AI story that we're having at the moment yeah so I mean nearly every sector is going
6:50
to be disrupted by AI one way or another, and some are better positioned than others
6:55
So when we look at sector ysis, and we give our clients at Schwab sector ysis
7:00
on a regular basis to say who we think will outperform and who we feel may perform less well
7:07
At the moment, we look at communications. We look at healthcare. You know, if you look at, for example, diagnostics, if you look at operational efficiencies that
7:15
AI will bring, they're very, very important. And IT obviously is well positioned to benefit ultimately from the huge capital expenditure into AI
7:26
And materials, you know, if you look at the amount of industrial growth, you look at the building of data centers
7:33
they will require significant material investment. So we look at those four sectors as something that will likely have potential to outperform at the moment
7:41
And what about defense as well? Because that's been the word in everyone's lips in the past few weeks, hasn't it
7:45
They haven't had all the news about the defense investment plan. And people seem to be going back into defense stocks quite recently
7:52
Yeah, I mean, you know, it's been a pretty common play in the last couple of years based on Ukraine, based on the Middle East
7:58
I think when you look at those companies, obviously there are AI benefits to those companies as well
8:05
Fundamentally, they rely on significant government expenditure. And there is the geopolitical risk that that can wane at certain points in the future
8:12
So defence is currently, we're kind of mid on defence. We don't see it as something that's likely to outperform
8:20
but we would certainly recommend it as part of a diversified portfolio. And then just coming back to retail investment
8:25
and the culture that's going on right now, as we were saying earlier in the conversation, the government and the industry have put so much focus
8:32
on getting people into the stock market. We need to boost the domestic economy and, you know, revitalise
8:37
And at the moment, the UK, we are currently at a bit of a crossroads. We don't know who the next Prime Minister will be
8:41
it's had anticipated that it will be Andy Burnham, but at the moment, nothing's been confirmed. But just in the knowledge that we are going to get a new cabinet
8:48
and a new government, what does the industry need to see policy-wise to keep this momentum going and make sure that retail investors
8:55
don't go back to cash? Well, you know, the government has made great strides
9:00
in committing to retail investment as a key cornerstone of not just financial services, but in terms of our future social spending
9:09
You know, really, the government has a vested interest in ensuring that people have financial independence from government
9:16
And so, you know, the announcement earlier this year with Savvy the Squirrel and, you know, the marketing around personal investing, we think that will have a very, very positive impact
9:29
And in fairness, over the last five years, retail participation in the UK has grown quite a lot
9:34
We are still lagging I think we the lowest of the G7 in terms of retail investment but um that said we just need people to participate and then to turn that participation into engagement so
9:46
people actually take control and be comfortable with managing money themselves and then just to
9:50
conclude i know we've discussed mega cap ipos coming up but we also just touched on the first
9:54
six months of the year what's the story for the second half going to look like is it going to be
9:58
just these mega cap ipos that are just going to dominate people's retail investment intentions or
10:03
or is there really little aspects there going forward as well? Well, there's always going to be a lot of noise in the industry
10:08
That's one of the things, Macy, that we always guide our clients to be wary of
10:12
There's a lot of noise out there. There has never been more commentary and ysis on companies
10:18
individual companies, on governments, on what's happening in the market on a day-to-day basis
10:22
With 24-hour trading and a truly globally interconnected stock market now, it's very easy to get drowned in all the noise
10:30
big IPOs often you know have an outsized percentage of that noise make an outsized
10:36
percentage of that noise so we you know we would urge clients to always consider okay is it the
10:42
right thing for you and why you know why does this fit into your portfolio you know what is it about
10:48
this company that's attractive to you and a lot of people around recent IPOs when you ask them a
10:53
couple of questions about that find themselves pretty short on answers it's just that they're interested in the big shiny thing that everyone else is talking about um so you know for us
11:01
diversification is key i think you know at the moment we always we're talking to clients about
11:07
how to just just manage risk you know the market has been on an exceptional bull run um bull runs
11:13
don't last forever um this one we do believe is is strong it is backed by earnings um but people
11:19
should be aware that you know when there's a lot of noise in the market that's when people can tend
11:24
to make emotional decisions rather than logical decisions and so you know with the market where
11:28
it is with people's portfolios likely where they are if they have been invested over the last 10
11:32
years um they will have likely done pretty well out of the stock market and that's the time when
11:37
there's when you know when the sun is shining it's time you want to fix the roof um that's the time to
11:41
again be engaged and manage your portfolio carefully definitely i like the point you made
11:46
a lot beyond the shine because there's always something just beyond those big names that can also bring you some good returns there. Exactly. And in fact, you know, talking about recent IPOs
11:54
you know, a lot of our clients were very interested in, we have a fantastic product called Schwab
11:58
Investing Themes, which allows you to identify, you know, 25 companies that are operating in space
12:04
exploration, not just the big shiny ones. And many of other themes as well, like, you know
12:08
cybersecurity, pets, aging populations, cancer treatments. So investors can actually look beyond
12:15
sector ysis to think, okay, what's interesting? What over the next decade is likely to take a more
12:20
prominent role in society and the economies that we live in and that could offer a good
12:24
investment opportunity? So, you know, we find that these IPOs create a good entry point to
12:31
actually looking a bit further at what else might be out there for you. Definitely. Well
12:35
there's a lot to unpack there and we definitely covered a lot of ground. So Richard, thank you very much for joining me. I really appreciate it. Pleasure. Thank you. And for everything that you
12:42
need to know about the markets stick with cityam.com
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