Struggling to make ends meet? Here are seven ways you can rein in your outgoings
Around 10.7 million Brits have “low financial resilience”, according to the Financial Conduct Authority (FCA). That means nearly one in five UK adults would struggle financially if their income dropped by £50 a month or they were hit with an unexpected bill. The best way to give yourself some more breathing space is to give your finances a spring clean.
Here are a few ways you can shrink your outgoings and lower your stress levels.
Track your spending
It may sound obvious, but understanding where your money goes every month is a good first step in trying to limit your outgoings. You’ll be surprised how little things add up. If your bank doesn’t offer detailed spending breakdowns, go through recent current account and credit card statements to see what you’re spending your money on. Make a note of these in a spreadsheet and track your spending on a monthly basis to keep on top of finances. Once you’ve done that, it’s a good idea to create a budget and to set spending limits for things like food shopping, leisure, holidays and other items.
Always go shopping with a list
Supermarkets are experts at making us spend money on things we hadn’t planned on buying or have no real need for. To avoid being lured into spending money you don’t have, make a shopping list before you go to the supermarket and stick to it.
Make meals at home
Everyone likes the odd takeaway treat or going out for meals with family and friends, but it can take its toll on your wallet if you indulge too often. Instead, why not try making your restaurant favourites at home? The internet is awash with free recipe ideas catering for beginner cooks, all the way to seasoned pros.
Cancel unused subscriptions
Many of us have unused subscriptions or memberships that we don’t really need, whether it be Netflix, Amazon Prime or a monthly recurring pass to the gym. If you don’t use it, why not cancel it? It’s amazing how much money you can save over the course of a year by doing so. You can always restart your subscription further down the line if you want to.
Switch energy/broadband providers
Nearly one in four of us have never switched energy company, according to Moneysupermarket, meaning millions of Brits are overpaying for gas and electricity. The comparison website claims the average Brit could save £250 off their annual energy bills by switching to a lower cost provider. At the very least, it’s worth a look.
Consolidate your debts
If you have lots of loans and credit card payments going out each month, it might be worth consolidating your debts. Personal loan rates are very low at the moment, so there’s a good chance you could save some money by paying them off with a lump sum which you then repay in one payment. By having one repayment, instead of multiple, it’s also easier to keep tabs on your finances.
Remortgage
Mortgage rates have tumbled in recent years, meaning there is a very good chance you could save money by remortgaging. However, before you go ahead, check if you’ll have to pay any penalties for breaking your current agreement.
Top tips for getting the most out of your money online
There is no question that money is going digital, with the pandemic speeding the switch away from cash. But how can you make your money go further in a digital world? Here are some ideas to help you stay safe and get the most out of your money online.
Internet usage has surged during the pandemic, from online food shopping to banking and much more. Among older age groups in particular, Age UK has found many who may not have used online services before are now doing so, with one in four (24%) pensioners using the internet more in 2020 than the year before. But like all things, there are pros and cons, especially when it comes to handling your finances online. While using the internet can be very easy and efficient, it also opens up risks to things like scammers and making inadvertent mistakes. Luckily, there are some steps we can all take to stay safe online, and to get the most out of the internet for our hard-earned money.
Take advantage of online tools
When it comes to taking out financial products such as loans or credit cards, the internet is your friend. Gone are the days of nervy conversations with credit card companies and accidental marks on your credit file. Instead, there is now a plethora of online tools that perform so-called ‘soft checks’ that will help you understand whether you are eligible for certain products based on your credit history. There are several to choose from, but in particular we like MoneySavingExpert’s as it is a trustworthy financial brand.
Keep an eye on your credit history
Speaking of credit histories, keeping yours in check is also vital. It is no secret that often, the big credit checking firms like Experian and Equifax make mistakes on individual’s’ credit files. It could be that your address is listed slightly wrong, or information such as the electoral register is missing. Unfortunately, this can have a significant impact on your credit history. Therefore, it is important to keep an eye on it – while some services charge for you to see your history on a regular basis, others, such as ClearScore or CreditKarma, give you free monthly access to your report.
Use comparison sites
Price comparison sites sometimes have a mixed reputation but for the most part they are extremely useful ways to hunt down the best deals online. From mobile phone contracts to insurance, you can find the cheapest deals possible on these websites. The trick is to not necessarily buy the very cheapest product on offer though. The cheapest deals will often come with caveats, but if you read the small print and weigh up the benefits of new policies, comparison sites can make shopping around very efficient. We’d recommend looking on the comparison site, then comparing directly with the providers that get listed – sometimes even better deals can emerge, and then you have a comparative price to think about too. Good comparison sites we like include Moneysupermarket, uSwitch and GoCompare.
If in doubt, step away
Financial scams are a big problem with the internet these days. All it takes is for you to click the wrong link or reply to the wrong email and the losses could be devastating. Therefore, the safest way to navigate the internet can be to step away from the offer or deal you’ve just seen and then try the old-fashioned way by calling up a provider if you want to know more. If you’re contacted by someone who seems to be from a reputable company out of the blue, tell them you’d rather discuss what they want to speak about at a different time. If you are the one making contact rather than them, you can make sure you are in control of the conversation. The message more broadly is to always have your guard up. The internet has given us all access to an array of options and choice has never been greater, but unscrupulous people are a fact of life.
The BoE and the future of interest rates
This article first appeared in Professional Adviser.
Simon Goldthorpe takes a look back at the Bank of England's history and how its past may shape the future of interest rates.
With many people panicking at the thought of their savings being quietly eroded by negative interest rates, history could provide some valuable perspective. You might even be surprised by the important role that banks have played in shaping our national financial habits and influencing government policies.
The Georgian era encouraged a culture of saving
It was really in the 18th century that the central bank began to impact the lives of ordinary people - chiefly by encouraging widespread saving.
Before this period, people tended to keep their money in physical cash or movable goods. But with stable interest rates throughout the century, many switched to saving in banks or investing in gilts (what Jane Austen would have called "the five percents").
The steady interest rates wouldn't last forever, but the effect that they had on the growing British middle classes would. The impetus for saving over simply hoarding cash saw many achieve the financial resilience that would later enable them to invest in industry when the opportunity arose.
The 19th century
By the 19th century, the Bank of England was beginning to assert much greater influence over monetary policy, and the rate of inflation could now be controlled in a meaningful way to influence the economy.
In the 1840s, low interest rates coincided with growth in major UK industries, and many people wondered if they might get better returns through private investment than through gilts.
The established culture that valued saving and prudence meant that many members of the middle class had enough wealth to invest without risking their financial wellbeing. In turn, the boom of investing helped to fund yet further growth in manufacturing and transport links, including the railway network.
The UK's first housing boom
In the 20th century, the Bank of England's dominance in the UK financial sector allowed the Government to use its control of interest rates as a political tool.
Low rates for borrowing helped the Government begin the recovery from the Great Depression by investing in British businesses and funding construction projects, which boosted employment and created a house-building boom. They also proved useful in the years before and during the Second World War, as the fight against Hitler required production of materials on an unheard-of scale.
However, the best-known example of the Government using interest rates to influence the economy is perhaps Margaret Thatcher's fight against the rampant inflation of the 1970s.
The monetarist policies pursued by the Conservative government resulted in official interest rates being raised to 17% in order to reduce inflation, which peaked at 25% in 1975.
The paradigm shifted once again under Tony Blair in the 1990s, when the Government handed control of interest rates back to an independent Bank of England. They hoped to lay the groundwork for economic prosperity, with the Bank now free to decide monetary policy irrespective of politics.
Whilst control of interest rates is a useful tool for any administration, political meddling isn't always best for the economy.
Cheap credit could boost investment
So where are we today? Unfortunately, like so many nations, we are drowning in debt. A situation made substantially worse by the coronavirus pandemic.
Rumours are rife that the Bank is considering negative interest rates as a way of encouraging economic growth, and the logic of doing so is simple enough: if it costs you money to keep large amounts of cash in the bank, you're probably going to withdraw it and spend it.
But of course, the potential negative impact of this move on many ordinary households is one of the reasons why it's often seen as a weapon of last resort.
For a start, while keeping money in cash isn't the best way to grow it, cash savings do provide a useful financial cushion when times get tough. Incentivising people to remove some of the stuffing from that cushion at a time of economic uncertainty may not be wise.
Furthermore, encouraging people to withdraw their cash can reduce banks' liquidity and affect their ability to lend, which could itself detract from economic growth.
Nevertheless, it is worth noting that negative interest rates - while sounding extreme - have already been used in several first-world economies, such as Switzerland, Germany and Denmark, without disastrous consequences.
Although negative rates can punish savers, they can also facilitate cheap loans. A small number of negative-interest loans are already available in Germany for those with good credit, albeit with a cap of €1,000.
Loans like these could enable the investment that would allow UK businesses to expand and adapt to the brave new world of the post-pandemic economy.
While we may be moving into uncharted territory, our national past and our economic present prove that there is no need to panic. Throughout history, changing interest rates have posed both challenges and opportunities for those who are able to change with the times - and now is no exception.
Should you invest in an IPO? Lessons from the Deliveroo stock market launch
Should you invest in companies through IPOs? Deliveroo’s recent stock market flop is a perfect example why it may be best to steer clear.
The market for Initial Public Offerings (IPOs) has been strong in recent times, with particularly well-known company names entering the fray. But is it worth ‘getting in at the ground floor’ of a company’s stock market listing?
As the most recent high-profile example, Deliveroo’s IPO can be a valuable lesson for investors. Its IPO took place on 31 March and quickly went down as one of the ‘worst’ IPOs in stock market history – with the share price losing over 30% from its initial starting point of £3.90 per share.
Deliveroo’s stock market launch got off to a shaky start with a price that many investors seemed unwilling to pay. This is why the price kept lowering before it even launched on the market – not a good sign.
It also came under pressure from a chorus of fund managers who declared their unwillingness to participate in the IPO – citing concerns about how it treats its workers, the fact it’s unprofitable and questioning the sustainability of its business model.
The saga has quickly become the posterchild of failed IPOs in recent times – but is far from the only example of a failed share offering launch. Other firms such as Uber – a competitor to Deliveroo in the food delivery space – have had spectacular failed launches too.
This is not to say all IPOs are failures – far from it. Recent listings such as The Hut Group have been relatively successful. Another interesting example is that of home workout equipment firm Peloton – which on its stock market debut saw its price crumble quickly.
The firm has however performed admirably since, thanks in particular to the coronavirus crisis which has led to demand from homeworkers desperate to exercise in their living rooms.
This is the essential quandary for any long-term investor considering participating in an IPO – doing so is something of a gamble. If you’re convinced of the investment case for the company then you should be willing to back it over a long-term horizon.
In the short term the price could fall significantly and lose the investor a lot of money though. Those investors without the stomach for short-term falls will sell and crystalise their losses. For every Peloton or Hut Group there are also plenty of Deliveroos or Ubers.
A such there are a few lessons from the Deliveroo IPO and others that investors should heed:
- Which IPO is right for you? Some company listings such as Deliveroo’s receive large amounts of media attention – but that doesn’t mean they are the best ones to go for.
- Are there clear signals that the IPO might have issues? Deliveroo’s IPO for instance received widespread negative attention before it even listed, with the price lowering repeatedly – a bad sign from the get-go.
- Read the detail. Companies looking to list have to offer investors a prospectus. As was the case with WeWork IPOs can unravel quickly when this document is proven to be written on shaky ground.
- Take a critical view. Deliveroo was given significant criticism of its work practices which led to fund managers declaring themselves uninterested. If someone else is trying to spin a different picture, ask why that might be.
- Wait and see. Investing right at the outset might seem exciting, but waiting for the market to make its value judgement of the share price might leave you with a cheaper entry point to ownership
If you don’t have the time to dedicate to research on a company IPO, you may want to stick to investing through a mix of funds and other diversified asset classes. Investing this way outsources the work of assessing the best investment options for a generally small fee.
Even if you own a fund that has invested in Deliveroo this will be done as one part of a larger range of company stocks that ensure you’re not overly exposed in one place. Investing for most people should focus on long-term diversified growth using a range of products that ensure successful wealth growth – with no gambles whatsoever.
If you’d like to discuss your investments or have any questions from subjects raised in this article don’t hesitate to get in touch with your financial adviser.
Is the UK the best place to put your money over the next decade?
With the economy rebounding and the vaccine roll-out gathering pace, experts are tipping the UK as an increasingly attractive place for investors to put their cash.
The UK has been unloved by investors ever since the Brexit referendum in 2016. But sentiment towards UK shares is changing as the economy begins to emerge from the pandemic. US fund manager GMO believes the UK will be the best developed world destination for investors in the next seven years, with British ‘value’ stocks of particular interest. Value stocks are companies that trade at share price levels noticeably below their fundamental factors such as dividend levels, earnings or sales.
Why? Firstly, GMO believes UK shares are undervalued. And secondly, it believes shares in other developed markets are overvalued to the point where investors may no longer be willing to pay the premium attached to them.
The S&P 500, for instance, reached an all-time high over 4,000 points on Thursday, 1 April. The UK’s investment case has also been bolstered by the fact its economy is bouncing back strongly from the pandemic.
An International Monetary Fund report on future economic growth release on 6 April said the UK was set to outstrip all other developed economies in 2022 – growing by 5.3% this year and 5.1% next year, higher than the US and EU. This would be the strongest annual GDP growth for the UK since 1988. The IMF says this predicted bumper bounce back from the coronavirus crisis is largely down to the Government’s spending blitz to support the economy and prevent long-term scarring. But there are other factors that make the UK an attractive destination for investors too. For example, one of the big drags on the UK’s collective share prices has been Brexit for the past half decade.
It would appear the country is putting this issue firmly behind itself as it has agreed a long-term deal with the EU at the end of 2020 and has already put pen to paper on other trade deals around the world. In the wake of Brexit’s finalisation, the UK is also trying to position itself as a future leader for tech company listings and attracting other new business to its valuable financial hubs. The Chancellor Rishi Sunak is looking at reforms to listing rules to make it easier for fast growing companies to float on the London Stock Exchange. The net effect of this, if successful, is that the UK could play host to some of the most attractive growing companies to invest in in the future.
There are however counter arguments to GMO’s position on UK markets. The FTSE 100 and 250 have performed admirably when considered over 12 months, but still sits relatively low compared to historic averages - it may be that the value drag caused by Brexit has become permanent.
It would require a significant bull run – and for the shine to come off other major nations’ markets -for it to outperform in growth terms. It is also an argument that GMO are not the first to make – for some time UK-focused fund managers have pronounced it to be the most-undervalued market in the world. The upswing has yet to materialise.
The make-up of the index is also an issue. It is not geared toward ‘growth’ in quite the same way, with many firms stronger in terms of dividend income rather than exponential growth. This is partly why Rishi Sunak wants to change the constituents of the FTSE with more tech, but how easy it would be to unseat the incumbents is unclear.
Of course, nothing is certain. While the aforementioned factors all play into a positive outlook for the UK, there are always going to be bumps along the road.
If you’d like to discuss your investment options in the UK or anywhere else more, don’t hesitate to get in touch with your adviser.
Tax Day 2021: inheritance tax changes and tax-as-you-go self-employment on the cards
Tax Day 2021 was hyped up for big changes to the tax system, but instead households were given small tweaks.
Households were braced for a series of tax hikes on so-called ‘Tax Day’ earlier this month – but their finances were left largely untouched. After Chancellor Rishi Sunak’s Budget on 3 March led with a raft of allowance changes, the rumour mill began churning once again as the Treasury announced its intention to publish tax-related measures on 23 March.
What was announced?
The most concrete announcement from the Treasury related to the reporting of estates for inheritance tax (IHT). Currently all estates have to file paperwork to HMRC whether or not they fall above or below the thresholds for paying IHT. The Treasury has scrapped this requirement for estates that sit below the £325,000 threshold to pay. The Treasury says as a result 90% of estates will no longer have to fill out IHT forms but in practice this is a little unclear as it hasn’t explicitly said what the requirement will be to fill one out. With plans to be implemented by 1 January 2022, households will have to wait and see for more detail.
The taxation of trusts was also raised in the update. The Government has been looking at how trusts work for tax purposes with a view to potentially cracking down on some of the methods used to avoid paying more tax from estates. It has however decided to back away from making any changes thanks to what it sees as a lack of ‘desire for comprehensive reform’. While less often used as a means to avoid tax these days, trusts do have some IHT advantages. Individuals can set up trusts worth up to £325,000 every seven years as a means to avoid paying any IHT on that amount of their overall estate without incurring a 20% charge.
Elsewhere, inquiries into changing the way self-employed people pay tax and a closer look at tax avoidance schemes have been announced. While neither of these offer concrete policies, both indicate a direction of travel in government when it comes to obtaining people’s tax in future.
If you would like to discuss any of the themes in this article don’t hesitate to get in touch with your adviser.
How to spot and protect yourself from investment scams
Financial scams are at record highs. Here’s how to know the signs and protect yourself from a scammer.
The number of investors duped by fraudsters into handing over money for fictional investments skyrocketed by nearly a third (32%) last year, new figures reveal. In a bombshell report on financial fraud in the UK, trade body UK Finance reveals nearly 9,000 victims lost more than £135 million to investment scams last year. Not only are investment scams an increasing problem, but also, they can be devastating for the victims. According to Action Fraud, the UK’s fraud reporting service, victims of investment fraud lose more than £45,000 each on average.
Below we set out what investment scams are and how you can avoid falling for them.
What is an investment scam?
An investment scam is where a fraudster tricks a victim into transferring them money to pay for an investment opportunity that doesn’t exist. Typically, scammers try to persuade you to invest in property, fine wine, crypto currencies or any other asset, usually with the promise of sky-high returns. Once the victim makes a transfer, the scammers run off with the cash and the victim never hears from them again.
How do they trick people out of their money?
Fraudsters use incredibly sophisticated and elaborate methods in order to trick investors out of their cash. To seem legitimate, scammers often steal the identities of genuine, reputable companies, which is known as ‘cloning’. That way, victims think they are dealing with the genuine firm. Criminals tend to target their victims by cold calling and using high-pressure sales tactics to persuade them to part with their cash. Crooks also use a technique called ‘spoofing’ during phone calls which makes the number they are dialing from seem genuine - as if it were from your bank - when it isn’t. It’s also not unusual to see scammers use social media, email or even letters to hook their victims. In most cases, the crooks will try to force the victim into action by claiming there is only a small window to invest before the opportunity disappears.
How to avoid becoming a victim
- Reject unsolicited approaches
The most effective way to guard yourself against investment scams is to avoid all unsolicited calls and emails encouraging you to invest your money. Put simply, if you get a call out of the blue, hang up; and if someone emails you, delete it and don’t click on any of the links.
- Do some digging
If you are approached by a firm you are familiar with – say, your ISA or pension provider – check it is really them before parting with your cash. For example, you can call their customer service line to find out if the offer is legitimate. However, if you are emailed an offer, don’t call the number in that email – it might be fake. Search for the number instead on the company’s website.
- Use ScamSmart
If you think an investment or pension opportunity could be a scam, use the Financial Conduct Authority’s ScamSmart test. After just a few short questions, the test will tell you whether or not you’re at risk of being defrauded.
- Report it
If you think you’ve spotted a scam, report it so others don’t fall for it. You can do that by calling Action Fraud on 0300 123 2040 or by using its online reporting tool.
Simon Goldthorpe: Cautionary lessons from bitcoin, steam trains, and tulips
This article first appeared in Professional Adviser
Why you should be careful where you invest.
As bitcoin booms, Simon Goldthorpe revisits some historical investment bubbles including the Victorian rush to locomotives and the first futures market in tulip bulbs...
If you've been paying any attention to the headlines at all these last few months, you'll be aware of the latest ‘boom' in bitcoin.
You might have first heard about the cryptoasset in December 2017, when its value surged to almost $20,000 per coin. And although its price fell sharply in the months that followed, it's recently grown to over double that amount.
They say that those who don't learn from history are doomed to repeat it. So I thought it might be time to look at some historical parallels and see what we can learn about the bitcoin bubble.
‘Tulip mania': the first financial bubble?
When bitcoin's explosive rise in value first came to my attention, what also sprang to mind was not something new and revolutionary, but the so-called ‘tulip mania' of the 17th century.
At the time, the Dutch Republic had some of the most sophisticated financial institutions in Europe (if not the world), including the first official stock exchange, capital market and central bank.
This advanced financial system encouraged investment and trade in ways that had never been seen before, and one of the innovations that resulted was the formal trading of futures.
Unfortunately for the Dutch, all new ideas have teething trouble, and when merchants began trading futures of tulip bulbs - a luxury commodity at the time - a bubble quickly began to form.
Supposedly, at the height of the frenzy, futures contracts for tulips were exchanged as many as ten times per day, driving their price up, often to several dozen times their intrinsic value.
Of course, the bubble couldn't last forever and when it popped, the price collapsed overnight. Merchants who had sold their houses for a slice of the action suddenly found themselves completely empty-handed, and theirs is a tale whose cautionary lessons should still be heeded by investors today.
There's certainly a parallel with the crypto crash of 2018 when the price of bitcoin plunged 80% between January and September. Once again, a bubble had burst and dealt a heavy blow to the casual investors who had bought in late - many of whom had only heard about bitcoin when it hit the national headlines.
The same thing happened recently with struggling US retailer GameStop, whose vastly inflated share price tumbled after a week of breathless, ill-informed investment. And as bitcoin climbs to brand new heights, one can't avoid a very worrying sense of déjà vu.
Tracing the market conditions of today in the railway boom of the 1840s
Tulip-mania is an excellent example of commodity speculation gone wrong, but there are many useful bad examples of business speculation, too.
According to a recent article in Forbes, Tesla trades at fifteen times its projected 2021 revenue and 175 times its projected earnings. While the firm may well play an important role in the future of clean energy, one has to question whether its stock may still be somewhat overinflated.
Here, too, we have a telling historical precedent - in this case, the railway-mania of the Victorian era, when the market conditions and makeup of investors were broadly similar to those of today.
The mid-19th century was a period of particularly low UK interest rates, which made gilts - the go-to investment for many affluent Victorians - much less attractive than they had been previously. Furthermore, the industrialisation of Britain had created a strong middle class, who had capital to invest and financial knowledge to make informed decisions.
When the Liverpool and Manchester Railway opened in 1830, it was an undeniable commercial success and prompted a flurry of similar applications for the building of additional lines. In 1843, there were 63 applications to Parliament; in 1844, there were 199; and by the end of 1845, there were another 562.
This new and exciting investment attracted many members of the middle class, whose confidence was buoyed by the continued success of the original line from Liverpool to Manchester.
However, when many smaller railways were found to be commercially unviable, consumer confidence evaporated and their stock prices fell accordingly. Once again, the bubble burst, leaving legions of investors empty-handed.
Tesla shares have risen by more than 700% in the past two years, but in the same period, they have also reduced their earnings forecasts for every year from 2020 to 2024.
This has led some analysts to question whether its stock is simply surging on ‘speculative fervour' - in which case, prospective investors should take care to consider the risks of buying in.
Studying bubbles
Studying previous bubbles is a useful way to avoid exposing yourself to excessive risk. It's easy to spot a financial bubble with hindsight, but less so when you're living through one.
For instance, Tesla's stock price surge in recent years may not be backed by a corresponding increase in earnings, but its potential as a manufacturer of green technologies could still mean that it isn't as inflated as it first appears.
Its price might see a drastic fall, or it might just prove itself a valuable long-term investment as the world transitions towards renewable energy. Only time will tell.
Nevertheless, if you want to ensure that you don't fall foul of financial bubbles, one of the best ways to prepare for the risk is by learning from past mistakes.
The specifics might be different, but the fundamentals are the same, and the tulip and railway manias are only two good cases; there are dozens of similar crashes to consider, many of which faced market conditions similar to our own.
Where there are investors, there will be bubbles: that much we know for sure. But by learning from history and avoiding past mistakes, you can ensure you're in the clear when the enthusiasm fades and they inevitably burst.
Cashflow planning key to advisers' 'biggest challenges'
Simon Goldthorpe encourages advisers to double down on cashflow modelling as the answer to a "surge" of clients facing financial hardship in the wake of the coronavirus crisis.
NS&I Green Savings Bonds: what are they and will they offer a good return?
The Chancellor’s Spring Budget unveiled a new savings scheme from the Government’s National Savings & Investments (NS&I) arm, focusing on ‘green bonds’.
Green bonds are a new form of investment issued by governments and companies which aim to use the proceeds to improve the environment. This can manifest in a broad range of ways – from investing in clean energy facilities to helping carbon-intensive companies reduce the levels of pollution they create. As with government bonds, if you invest in these you agree to effectively lend the government money for a set period of time, in exchange for an interest payment. At the time of writing, detail is still fairly scant on what kinds of green bonds will be available, how much they would pay in interest, or how long you might have to stow your money away for. But there were hints in the detail of the Treasury’s announcements that suggest these bonds may be more competitive than current dismal rates.
Dire savings market
The savings market has been in decline, in terms of rates on offer, for years. But this dire situation has been accelerated by the coronavirus crisis, seeing many savings accounts now paying as little as 0.1% interest. NS&I’s products are no different. In the second half of 2020 the Government-backed savings provider slashed its own rates to all-time lows. This was ostensibly done to discourage households to hoard their cash and encourage spending to help the economy and is not a new concept during crises.
Sovereign green bonds
The new green bonds are being introduced here, and by other governments, to support what is being called the ‘green recovery’ and includes the recent announcement of green sovereign bonds, also confirmed in the Budget. These bonds will be sold to investors as ethical, environmentally focused investments. But the Government, not content with offering such assets to professional investors, also wants consumers to have an option to put their savings towards meaningful green initiatives. The consumer-focused NS&I bonds will be 100% government guaranteed, but there is little detail as to whether they will offer a meaningfully better rate than normal non-green NS&I accounts. The Treasury has said, however, that these deposits will sit outside the normal remit of NS&I deposits, which could imply a different set of goals in terms of how much it tries to attract.
Alternatives
Speculation is rife over what rates will be offered. That being said, it is highly unlikely the bonds will pay significantly more than the current NS&I savings products, especially when the Government is providing 100% guarantees and the rest of the savings market is so poor.
There is no concrete timeline for these accounts to launch either, with NS&I sticking to a “coming soon” position for now. In the meantime, if you’re keen to invest your savings with the planet’s greater good in mind, there are a range of alternative ways to do so.
Please get in touch with your financial adviser to discuss the options for ethical investing.
Budget 2021: four frozen tax allowances that could catch savers unawares
This year’s Spring Budget is as noteworthy for what wasn’t announced, as for what was. Having been set to be a big one given the state of the public finances, Chancellor Rishi Sunak has effectively raised taxes via the backdoor thanks to a series of stealth tax allowance changes.
Much debate was made around the contents of the Budget and whether Sunak would raise taxes in order to pay the extraordinary debt accrued during the coronavirus crisis – some £400 billion in extra government borrowing. But in the event the Chancellor only opted for one upfront tax rise – to corporation tax. The levy on company profits will be raised from 19% to 25% from 2023. Businesses with profits of £50,000 or less will not be liable for any increases and above that a taper will be in effect – so only firms with profits of £250,000 or more will be hit with the full 25% rate.
The Treasury has, however, opted for a raft of tax hikes by the backdoor – by freezing a series of allowances, including income tax, inheritance tax, capital gains tax and the lifetime allowance. By freezing these allowances, the Government isn’t presenting an ‘in your face’ tax rise. Instead, it is reducing the benefit of tax-free allowances as your income and savings grow over time.
Here are the key numbers and implications for each:
Income tax allowance – This has increased to £12,570 for the tax-free allowance and higher rate payer threshold held at £50,000, but rates will then be kept at that level until 2026.
Inheritance tax allowance – frozen at £325,000. This allowance hasn’t changed for years, although extra nil rate bands relating to family homes have been introduced over time. But every year that the rate has been held at the same rate has seen more estates grow enough in value to be liable to then pay tax.
Capital gains tax (CGT) allowance – frozen at £12,300. Many expected much more sweeping changes to CGT after the Chancellor commissioned a review, but instead the allowance has just been held, a much less ambitious change.
Lifetime allowance (LTA) – frozen at £1,073,100. This is clearly relevant for those with larger wealth and dictates how much savers can put into pensions without incurring extra tax charges. Those who breach the LTA face a tax of 55% on any lump sum withdrawals above the threshold, or 25% if you take an income.
What you can do
There are various ways to mitigate the worst of these tax freezes. The effects won’t be immediately felt – this means it is possible to plan financially to minimise the extra tax burden. This can include apportioning more to other, unaffected, areas such as ISAs, spreading allowances between yourself and a spouse, making extra gifts out of your estate, or sacrificing income in to pensions to avoid higher tax bands.
If you are concerned by any of these tax changes don’t hesitate to get in touch with your financial adviser to discuss your options.
Hundreds of thousands of women entitled to £13,500 from unpaid State Pension
Around 200,000 women could be entitled to an average back payment of £13,500 thanks to an error made by the Department for Work and Pensions (DWP).
The Treasury has announced it is setting aside some £2.7 billion to pay back these women in Rishi Sunak’s latest Budget, with a further £90 million set aside every year to keep up with the adjusted higher payouts. The details were not announced by Sunak, but mentioned in the Office for Budget Responsibility’s (OBR) fiscal report accompanying the Budget. The DWP says that following an internal investigation of old State Pension data it found many women had been paid less than their State Pension entitlement over many years.
Who is eligible for back payments?
Women who are owed money from their State Pension entitlement fall into one of the following groups, as explained by DWP:
- People who are married or in a civil partnership who reached State Pension age before 6 April 2016 and may be entitled to a Category BL uplift based on their partner’s National Insurance contributions.
- Following a change in the law in 2008, when their spouse became entitled to a State Pension, some people should have had their basic State Pension automatically reviewed and uplifted. Underpayments occurred in cases when this did not happen.
- People who have been widowed and whose State Pension was not uplifted to include amounts they are entitled to inherit from their late husband, wife or civil partner.
- People who have not been paid the Category D State Pension uplift as they should have been from age 80.
The Government says no action needs to be taken by individuals who think they may be affected as the DWP will be in touch to arrange repayment.
If you think you have been affected however, there are a few things you can do to ensure you receive what you are entitled to. This includes making sure your information is up to date with the government Pensions Service so you don’t miss any letters.
But you can also proactively speak to the Pensions Service (using the same link above) if you think you or a loved one are entitled to the uplift.
Of course, if you are unsure or would like to discuss the issues raised in this article, or for any other pensions-related queries, please don’t hesitate to get in touch with your financial adviser for help.
Market turbulence: inflation ‘fears’ give investors the jitters
Bond and stock markets have had a troubled few weeks as investors watch for signs of an economic recovery which could finally end the near decade-and-a-half of record low interest rates.
The recovery in countries from the US to China, spurred by increasing vaccination programs, have sparked comments from central banks about ending the unprecedented support for markets. This in turn has caused bond values to fall, with a knock-on effect in the stock market as risk-averse investors cash out.
But why is this happening when global economic news is getting more positive?
Well, it is precisely because of positive economic news that investments are suffering. This comes down to how investors anticipate changes to both interest rates and other support from central banks around the world, including the US Federal Reserve and the Bank of England.
Economic recovery
As economies recover from the coronavirus pandemic and countries open up it is widely expected that cash - which has been pent up by a lack of anywhere to spend - will be unleashed. In the UK, for example, households saved £18.5 billion in January this year alone – an extraordinary amount of money. When this cash is let out of lockdown, it is likely that prices will rise faster than normal as the economy balances supply and demand of goods and services. This means, essentially, that inflation is going to increase, possibly by up to 2-3%.
This is where the ‘fear’ in markets stems from. If inflation rises significantly central banks may be forced to take action and they only have a few things they can do to quell inflation, the primary one being to raise interest rates. Raising rates can cool down an overheating economy as it encourages more people to save their money instead of spending it, thanks to increased savings rates from banks. Plus, if central banks raise rates this makes certain investments less attractive than simple savings accounts where money is guaranteed. That causes the value of bonds to fall, and the yields of bonds to rise. This reflects that the company – or government – issuing the bond has to offer a higher return to compete with savings accounts and incentivise an investor to lend them their money.
Why are bonds and stocks both falling in value now?
In recent times both bonds and stocks have risen in value. This is down to an excess of ‘liquidity’ in markets. Essentially, there is so much free cash looking for somewhere to invest, so both types of investment soak it up, causing more growth in values. The opposite is true when that liquidity dries up. When this happens, cash retreats away from those markets and both – as we are seeing now – experience falls. This sends bond yields higher as explained previously, while the prices of bonds and shares go lower. In normal circumstances it wouldn’t be a bad thing to see rising yields on bonds. Many investment institutions anticipate and plan for this eventuality in the wake of an economic crisis.
But right now, yields are shooting up too fast – reflecting a market that has become overly sensitive to the changing conditions. In essence ‘fear’ has overtaken the market in anticipation of central banks, most notably the US Federal Reserve, raising its interest rates to combat spiking inflation. Stocks are also falling as more conservative money moves out of company shares and into either relatively safer bonds, or even into cash as investors attempt to avoid losses.
What you should do about it
In short, nothing. Investing your personal savings and wealth is a long-term activity. It is not worth worrying about short-term issues in markets taking place over a matter of weeks when your horizon is ten years or more ahead. Selling out of investments when markets are falling is never advisable as this can crystalise losses, leaving a portfolio permanently worse off. If anything, it is a good time to put more money into a portfolio to take advantage of temporarily cheaper investments.
If you have any concerns about your portfolio or want to discuss any of the themes in this article, don’t hesitate to get in touch with your financial adviser for more information.
National Insurance contributions impact state pension - Britons may need to act urgently
Simon Goldthorpe is quoted in the Daily Express warning people that now is the time to take action to avoid missing out on annual allowances this tax year as 5 April falls on Easter Monday this year.
Increasing client referrals in 2021
This article first appeared in Professional Adviser.
How to improve?
Receiving referrals from clients or, rather, introductions is an important way to grow your business. I take a look at how to improve your 'introduction rate'.
Back in the nineties, when advisers were subjected to an observed interview from a supervisor, one of the key competencies was asking for a client referral.
But the adviser didn't just have to ask for a referral. They also had to hand the client a business card and ask them to pass it onto any colleagues, friends or family who might benefit from advice. So they did.
In the real world, however, IFAs would never have done this. The rest of the time they felt too uncomfortable, nervous, or just plain daft trying to generate a lead from the client in front of them.
In many ways, little has changed when it comes to asking for referrals. Many advisers still find it confronting or presumptuous to ask for business, even from clients they know very well.
In actual fact, ‘referrals' is the wrong word to use here. A referral is where a client gives your name to someone else, which may well result in a new enquiry, but will never beat an ‘introduction'.
An introduction is a physical or email interaction and is much more likely to result in a prospect - not least because you have the chance to follow up.
So, for the purposes of this piece, let's talk ‘introductions'.
There are many reasons why an introduction is the best type of prospect. To name just a handful: the person has an immediate need; they are pre-sold on the benefits of working with you; they are the ‘lowest cost' among all other sources of new business; and, ultimately, they have the highest conversion rate of any type of new enquiry.
Importantly, introductions are the only type of new enquiry over which you have complete control. Your own actions will dictate whether clients become advocates and refer you to others. Every other type of marketing is affected by outside influences.
Which begs the question. How can you improve your rate of introductions?
Building introductions into your process
The first way to improve your introduction rate is to have better, dedicated and more intentional conversations with new and existing clients.
Perhaps clients don't know who best to introduce you to. Perhaps they don't know the value you could bring to people in different circumstances. Or maybe they simply don't know whether you would like them to make those introductions.
You can make those conversations easier to have if you think of the process, not as ‘referring', but as ‘a grown-up discussion about your business'. Follow these five steps:
- Add a ‘business update' to your client meeting agenda and ask their permission to spend a few minutes sharing your latest news;
- Deliver the update - e.g. on new team members, exam success, charity fundraising, etc.;
- Explain your plans for growth, reassuring clients that you'll maintain service standards;
- Check that they are happy to introduce you to others;
- Explain who you'd like the client to introduce you to.
Build these steps into your process and they will soon become second nature within your firm. Clients will start to understand exactly who you want them to introduce, why, and what you can do for them.
If you're nervous, start with your best clients. Familiarity should make it easier to broach the topic and they're also more likely to introduce you to the type of prospect you are looking for.
Other ways to improve your introduction rate
It's always worth considering why clients might not be recommending you already.
Yes, it might just be an issue of communication, but there could be other underlying reasons. You may need to take a harder look at your business.
Perhaps, in truth, your clients aren't satisfied with the service provided. If your standards have slipped, they might feel uncomfortable introducing you to others. A poor experience would not reflect well on the person who made the recommendation.
Equally, your online presence might be putting people off. If a client introduces you, the first thing their contact will probably do is try to find you online. If they can't find you or your presence is poor, they might have second thoughts about getting in touch. For example, is your website and Google My Business listing portraying your business in the right light?
Or maybe it's something so much simpler: maybe you forgot to thank your client when they last introduced you. I'm not suggesting that you send them champagne after every recommendation. But a simple ‘thank you' card or email can go a long way in showing your appreciation for the trust that they have placed in you.
Respect the power of ‘no'
Ultimately, however, some clients simply won't want to make introductions. Often because they've had a bad experience in the past or because they're unsure how their contacts will react to their name being shared.
However well you follow the steps above, ‘no' will sometimes be a reasonable answer, and it's never worth jeopardising an existing relationship by pressuring your client into something they're not comfortable with.
Reddit, GameStop and the new retail investment army – why chasing ‘trends’ is best avoided
January saw one of the most widely covered stories for years in financial markets after a group of online retail investors clubbed together to, in their own words, “take on the hedge funds”.
The story goes like this: A retail investor and some like-minded fellow traders got chatting on popular internet chat forum Reddit, and noticed that a number of hedge funds were betting on the price of a retail business’ shares falling (a process known as “shorting”).
The retailer in question, GameStop, is a little-known business outside the US. The firm has been suffering the same as many retailers in the pandemic, with a huge reduction in customers in its stores.
The traders, fuelled as much by boredom as anything else, decided to start buying up as many shares as they could in GameStop, in one of the very few incidences ever of co-ordinated retail investor behaviour.
As the shares started to soar, more and more people flocked to join them but, crucially, the vast majority of them held on to their shares rather than sold them as the price started to rocket.
On the other side of the equation - the hedge funds that had bet on the company’s shares falling -started to lose millions of pounds as GameStop’s share price rose more than 800% in a week.
GameStop was not the only company under the microscope, with other businesses, and even commodities shorted by the assortment of hedge funds then targeted by this same army of retail investors, with similar outcomes.
Did the retail investors win?
The saga continues. Following the huge rise in share prices of these businesses, regulators stepped in to monitor the situation. The ability of retail investors to actually trade the shares via popular US platforms such as Robinhood was then curtailed as the firms halted trading of GameStop and its peers for a time.
The outcome of this was swift. From its peak price, GameStop shares crashed back down to earth, losing around 80% of their value.
However, whilst that sounds like the end of the story, a week or more on the situation is not yet resolved. Trading restrictions have been lifted on a number of platforms, and while share prices are back near where they began, there are some renewed signs of activity as traders locked out of the market are allowed back in.
Lessons learned
The big lesson here is about trends and hype. It can be tempting to jump on the bandwagon when it comes to investing, buying something because it is soaring in the hope of making a quick return.
However, the whole event flies in the face of long-term wealth building. The actual true valuations of these businesses have not been contemplated by the retail investor army buying up shares – everyone was simply jumping on the bandwagon to push the price higher.
There are examples of this time and again across markets, and more often than not the end result is the same.
The best way to approach investing is to have a clear plan, make sure your investments are aligned with your end goals, and to avoid making short-term decisions.
Your money is typically invested for the long term, and your investment approach should reflect this. Otherwise, you can end up like those unwitting buyers of GameStop shares just before they collapsed.
Early end to the tax year? Get your skates on to fulfil your allowances
The tax year ends on 5 April, but thanks to the Easter holiday, many won’t be around to process that last minute deposit this year. Therefore, now is the time to be planning this so you don’t miss the deadline.
The last day of the tax year is always 5 April, with the tax year 2021/22 starting on 6 April. But a quirk in the annual public holidays this year means that 5 April is the Easter Monday bank holiday.
On top of that, the Friday before, 2 April, is also a bank holiday. This means realistically if there is anything you need to get sorted; it should be arranged before the last working day – 1 April.
With that in mind, there are several allowances and limits you need to look at to be ready for the unusually early tax year end.
Pension - Make sure you’ve contributed as much as you can to a pension. The annual limit is £40,000 per person. If you’ve maxed yours and have spare cash, consider adding to a spouse’s annual allowance if they have spare.
ISA - Make sure you’ve topped up your ISAs to their maximum potential of £20,000.
JISA - If you have kids under 18, make sure they’ve had their full allowance contribution. The allowance was more than doubled last year from £4,368 to £9,000 – if you’ve missed that it would be easy to not realise you could add more.
CGT – Make sure if you have any investments or assets that are due for disposal that you do it ahead of the new tax year to maximise your £12,300 allowance. This is especially important in light of possible CGT changes from the government
State pension – Less well-known but still important is if you’ve missed any National Insurance contributions in the last five years and would like to make up the difference. You can do so by paying for extra State Pension entitlement. It’s important to note that this has a limit of six years for the end of the tax year for which the contributions are paid.
Marriage allowance – If your spouse earns under the annual allowance of £12,500 you can transfer up to £1,250 to them each year to spread the load. Marriage tax allowance can be claimed back up to five years assuming you qualified in each of those years.
IHT – Every year you have an allowance of £3,000 for cash gifts. If you miss a year you can carry it forward, but only for 12 months. You can also gift £5,000 to a child getting married, or £2,500 to a grandchild.
If you think you need to fulfil any of these allowances before 1 April, get in touch with your adviser right away to discuss your options.
Too late to beat the stamp duty deadline?
If you’re buying a home, time is ticking if you want to take advantage of the Government’s stamp duty holiday and save yourself up to £15,000. The tax break means that anyone buying a home worth up to £500,000 doesn’t have to pay property taxes. However, after 31 March, the threshold reverts back to £125,000, meaning you will have to pay potentially thousands more in taxes.
While anecdotal, there are some indications that the property market is cooling as the deadline looms and people abandon hope of making it across the line. Halifax Bank for instance published its latest house price figures showing asking prices suffered their biggest fall in January since April 2020. There is also a question hanging over the market as to whether Rishi Sunak will extend the holiday. At the time of writing, a chorus of voices is assembling calling on the Chancellor to extend the holiday and avoid a cliff edge.
Ways to beat the deadline
Unfortunately, we won’t know until 3 March what the Chancellor decides (read our full piece on 'what’s in store for the Budget'). With that in mind, and less than two months to go until the deadline, have you missed the boat? And what can you do to ensure that your purchase completes on time? If you haven’t already started the purchase process, then in all honesty the likelihood that you’ll beat the deadline now is slim, unless you’re buying with cash and are not part of a chain. However, if you are part way through the process, here is what you can do to speed things up.
Find a solicitor with capacity - Many property lawyers, or conveyancers, are reporting that they are swamped at the moment because of the wave of buyers looking to beat the deadline. If you don’t have a conveyancer lined up, then call around until you find a reputable one that has the capacity to complete all of the necessary paperwork by the deadline.
Book your survey as soon as possible - A survey is a vital part of the homebuying process and can’t be skipped. Like conveyancers, surveyors are likely to be very busy right now. Take the initiative and line one up as soon as you possibly can.
Stay in regular contact with your estate agent - As time is not on your side, your estate agent will be one of your best friends over the next few weeks. If you’re relying on the stamp duty savings, and are in a chain, tell your estate agent to stress to the others in that chain that it’s vitally important to work as quickly as possible. That’s a little bit out of your control, but it may inspire a bit of urgency to others in the chain.
Get expert mortgage advice - A good mortgage broker will not only find you a good interest rate, but they will also be able to tell you which lenders are suffering delays and which ones can give you an offer quickly. Ask you adviser what documents you need at the very beginning so you can save time further down the road.
Be organised and pushy - Your broker, solicitor, lender and surveyor all have a vital role to play in making sure you beat the deadline, but so do you. It’s your job to make sure that you act quickly and provide the necessary documents as quickly as possible when asked for them. And if things are delayed, don’t be afraid to apply pressure on whichever part is holding things up.
If you’re ultimately unsure at whether it is worth it to try and beat the rush or perhaps wait and see if the Chancellor gives you extra time, get in touch to discuss your options.
Spring Budget 2021: what to expect in Rishi Sunak’s financial address
Rishi Sunak delivers his second Budget on 3 March against the backdrop of record government spending and escalating national debt. There is much speculation that the Chancellor will use the Budget to balance the books and introduce tax hikes. Increases to income tax and VAT seem to be off the table, as it could hinder much-needed economic growth. However, there are a number of other lesser-known rates that he could target that would produce significant windfalls for HM Treasury – so called stealth taxes.
Capital Gains Tax
Capital Gains Tax (CGT) – the levy you have to pay when you make a profit on an asset sale –is one tax thought to be in Sunak’s sights. CGT is currently charged at 10% for basic rate taxpayers and 20% for higher rate payers. This rises to 18% or 28% respectively if you’re selling a second property. It is thought the Treasury is toying with the idea of reforming the tax, bringing it in line with income tax. That would mean raising the rates to 20% for basic rate taxpayers and 40% for higher rate taxpayers. According to a review by the Office for Tax Simplification this could net an extra £14 billion for the Treasury, and bring to an end what it calls various ‘distortions’ caused by differing rates between CGT and income tax.
Pensions tax relief
Pensions tax relief reform is something that has been discussed in political circles for some time. The relief is designed to incentivise people to save for their retirement by diverting some of the money you would have paid in tax into your pension instead. At present, higher rate taxpayers have a better deal, gaining 40% relief on their pension contributions, compared to 20% for basic rate taxpayers. It has been suggested the Treasury could introduce a flat 20% rate of relief, saving it more than £20bn a year.
Property wealth tax
HM Treasury is said to be looking at the idea of an annual property ‘levy’ or wealth tax. This would replace council tax and stamp duty completely and be revenue neutral – meaning that the treasury would not bring in extra cash from the changes. It would, however, hit hardest those people living in areas where house prices are higher, such as London and the South East. A 0.48% annual levy has been proposed. A homeowner in London with a property worth £516,000 – the average for the area – could expect to pay £2477 a year under the new system. Someone with a property worth £140,000 in North East of England would pay just £672.
One-off wealth tax
Another idea recently touted was that of a one-off wealth tax – amounting to 5% of an individual’s wealth, paid in 1% increments over five years. The plans, suggested by the Wealth Tax Commission, would see anyone with wealth over £500,000 impacted. This idea is however less likely to gain traction than others, considering the Conservative Party’s generally reticent attitude to creating new taxes, particularly on older, wealthier voters.
While these ideas have all been either leaked or touted in the press in one way or another, none are guaranteed as of yet. If you would like to discuss the potential implications of any of these changes with your adviser, don’t hesitate to get in touch.
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Built by IFAs for IFAs, Beaufort Financial is a nationwide partnership of advisers with a common goal of building successful businesses.
Joining, or moving to a new network might seem a daunting prospect, but we know what needs to be done to make the transition really easy. We have created an onboarding process which makes it really simple - by doing the hard work for you!
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Get in touch with us today!
Andrew Bennett, Joint Executive Chairman Dave Allen, Partner Services Manager
andrew.bennett@beaufortgroup.co.uk dave.allen@beaufortgroup.co.uk