The World In A Week - Entering The Final Furlong Of 2019
The sustained rise in the value of Sterling vs other major global currencies was the main story of the last week from the perspective of a UK-based investor, much as it has been for the year to date. The US Dollar was down -1.3% vs Sterling last week (-2.8% for the year to date) while the Euro was down -1.1% (-6.1% for the year to date).
Mr Market clearly likes the idea of a Tory majority capable of passing Johnson's Brexit deal. We have not just seen this in the currency market, Global Bonds have outperformed Sterling bonds since we launched our MAB Funds in July and domestically-focused UK Equity has strongly outperformed firms listed in London but with little UK economic exposure over the same period. This is a strong reversal of the trends we have seen over the last four years.
Across other Equity asset classes, Emerging Markets and Japanese Equity have been the only positive contributors over the last month, but we should take this opportunity to reflect on how strong returns have been this year across both Equity and Fixed Income. The MSCI ACWI Index of Global Equities is up +19.2% in GBP terms, while the Bloomberg Barclays Global Aggregate Bond Index is up +6.5% when hedged to GBP. As investors, it is probably wise to brace ourselves to the reality that these exceptional returns across asset classes are unlikely to be replicated in 2020.
The World In A Week - Much Of The Same
Politics, trade wars and mixed data took up headlines last week.
Away from politics in the US and Europe, Hong Kong's pro-democracy party won 85% of seats at the local elections, more than trebling the number of seats that they won in 2015. Turnout was also significantly higher at 71%, up from 47% in 2015. According to sources in Hong Kong, 17 councils out of a total of 18 will now be controlled by pro-democracy councillors. Local elections are normally of little interest, but these polls were the first time people were able to express their opinion over how the crisis in Hong Kong has been handled.
Several days later, and never one to be out of the limelight for long, Trump defied China when he signed the Hong Kong Rights & Democracy Act into law; the agreement effectively supports demonstrators and was condemned by China's foreign ministry. In recent weeks, the US-China trade deal was on target to reach phase-1. However, Trump's latest move will likely strain relations, making it difficult to finalise a trade truce. Regardless, the US equity market hit another all-time high.
Data in China last week was broadly positive, providing a fillip to global equity markets; one pocket of disappointment was industrial profits, which fell to 9.9% on an annualised basis, the worst contraction since 2011. Retail sales in both Japan and the US showed signs of weakness; in Japan sales fell c.7% year-on-year following a VAT hike. European data bucked the trend; manufacturing showed signs of stabilisation and French consumer confidence was better than expected at 106.
The World In A Week - Pavlov's Dogs
Last week gave us nothing new to ruminate on; it was a week of recycling the same political stories of trade deals, impeachments and elections.
The stock markets around the world reacted favourably to constructive discussions around the 'phase one' trade deal between the US and China. We find It interesting to note how the same piece of news can continue elicit positive stock market reactions. The two dark linings to this silver cloud are the proposed 15% tariff hike on $160 billion of imports from China, set for 15th December, and the bill passed by the US Senate that requires the US State Department to annually assess Hong Kong's autonomy.
The latter has drawn criticism from China, who have threatened retaliation if the bill becomes law, although they have not confirmed in what form the retaliation will take. The former does seem less of a stumbling block and could be used as an important distraction for President Trump, as the impeachment process continues unabated.
Two weeks of impeachment hearings have certainly been damaging for President Trump, with claims from witnesses that he pressured Ukraine to probe his potential political opponents. It is clear the Democrats are keen to impair the presidential election campaign for Trump, but it is also clear that this episode has solidified the Republican support for him.
In the UK, our own general election went up several gears, with televised debates between the main political parties and the launch of their manifestos. Now the dust has settled, not much has changed in the polls. According to YouGov Labour supporters favour Corbyn, while Conservative supporters favour Johnson. Those floating voters remain floating.
Experience has taught us not to make early conclusions, as with past elections and referendums, the polls have been a poor indicator of the actual outcome. We still have 17 campaigning days left until voting day and the doors behind this year's advent calendar are sure to have some surprises.
7 Things That Could Slow Down Buying A Property
Buying a property can be a slow and frustrating process at times. Understanding when these obstacles might occur could help you minimise them and speed the process up.
Buying a property can feel like a marathon. If you're hoping to move in quickly it can seem as though everything moves incredibly slowly, from waiting for a mortgage to be approved to hearing back from solicitors. However, being prepared and knowing what can slow down a potential sale may help you keep everything moving along smoothly.
There is no guaranteed time to complete the process of buying a house. According to research, the average aspiring home-buyer will need six months and 24 days to purchase a property. This figure starts with viewing the house online, right through to that moment when you get the keys. By far the lengthiest process is exchanging contracts, which took an average of five months and 10 days after an offer was made.
There are many reasons why a house purchase may be slowed down, including these seven:
1. The seller's circumstances
With the house buying process taking months, circumstances can change significantly. Your seller may change their mind about selling the property or decide to delay for a range of reasons. If this does happen, it can be bitterly disappointing. But more than that you might be left out of pocket too. If you've already spent money on conveyancing and local searches, you're unlikely to be able to get this back.
2. Conveyancing delays
This is often a frustration among home-buyers. You've found the house you want to purchase but it seems as though your solicitor is impossible to get hold of or moving far slower than you'd like. There can be a lot of back and forth between your solicitor and that of the seller's that goes on behind the scenes. But if you're not being kept informed, it can seem as though nothing is happening at all. Take care when choosing your solicitor and do a little research. Asking family and friends for recommendations is a good option. Alternatively, a quick search online should bring up reviews.
3. Local searches
The local searches make up part of the conveyancing process but will involve your local authority. These searches aim to reveal potential issues that could affect the property in the future. This could include planning permission or environmental restrictions. How long these take will depend on your local council and activity in the market. Typically, you can expect local searches within a couple of weeks. However, if many applications have been made and there's a backlog, expect this to take longer. There's little you can do in this situation other than wait.
4. Securing a mortgage
If you're taking out a mortgage, it can take several weeks to be approved even in straightforward circumstances. However, this is one area that you have greater control over. Before you start searching for a home, make sure you're mortgage ready. This means checking your credit score and getting the appropriate paperwork in order. Usually, you'll need to provide the last three months of payslips and bank statements.
You should also carefully choose a lender based on their likelihood of approving your application. If you have a good credit rating and typical employment this isn't usually a problem. However, if your credit score is poor or you're self-employed, for example, it can be more difficult. A mortgage broker can help you go through the process more smoothly and handle any issues that come up. If you'd like support with your mortgage application, please contact us.
5. Broken chains
A chain breaking down is one of the most common reasons for a house purchase to take longer than expected. You might be ready to move, but what about your seller? And your seller's seller? The longer the chain is, the more likely that the chain will collapse, or you encounter delays. Unfortunately, there's little you can do in this situation other than patiently wait if you've fallen in love with a house that's in a chain. Keeping in contact with your conveyancer so you know how things are progressing can ease the feeling that nothing is happening.
6. Leasehold property
Are you thinking of buying a leasehold property? Then expect the entire process to take a little longer. Your solicitor will need to review the leasehold for a start. This can lead to questions about covenants and areas like maintenance charges. Whilst a delay is annoying, it's best to be absolutely clear about your responsibilities and restrictions. You may also find that a mortgage lender won't release funds until they've clarified Land Registry records, which can add another few weeks to the entire process.
7. Other offers are made
In England, there's nothing to stop other prospective buyers putting in an offer even if you're quite far into the process; this can happen right up to exchanging contracts. Known as gazumping, someone putting in a higher offer may mean you have to renegotiate the sale prices if you're certain you want the property or walk away and start looking all over again.
If you're hoping to speed up the house buying process, having your finances in order can help. Whether you're applying for a mortgage or a cash buyer, being prepared can get things going. To discuss your needs, please get in touch.
Financial Bias: How Caution Could Be Affecting Your Future
Research has highlighted how being cautious with pension investment can be as damaging as taking too much risk. In some cases, a cautious approach is appropriate. But, in others, it'll be the result of subconscious financial bias affecting the decisions we make.
Research from Cass Business School found women are more risk-averse than men. It's a trend that could be affecting how much women have in their pensions and other investments. The research also found that young people and those that are single are more likely to be risk-averse too.
Professor David Black, co-author of the paper and Director of the Pensions Institute at Cass, said: Women, because they are more risk-averse than men, would be more comfortable with lower-risk investments. Over a long investment horizon, such as that involved in building up a pension pot, this behaviour has been described as 'reckless conservatism' - women with the same salary history as men would, on average, have lower pensions as a result.
On the other hand, men's investment overconfidence can lead to 'reckless adventurism'. This is not necessarily desirable at older ages close to retirement, since there is less time to recover from a severe fall in stock markets.
What is financial bias?
Financial bias is simply a human tendency that affects our behaviour and perspective. These may be based on beliefs and experiences. In financial terms, bias may affect your ability to make decisions objectively. For instance, you may make a choice based on emotional bias rather than evidence.
Taking the above example; why are women more likely to take less risk with investments? It's likely that bias is having an impact. Whilst the research didn't show their personal circumstances, pre-conceived ideas will be affecting some women when they decide how much risk to take.
There are many forms of financial bias that may affect your decisions, including these three:
1. Loss aversion
This is the financial bias that the above research looked at. It's an emotional tendency to prefer avoiding losses over making gains. Past research has indicated that the pain of losses is greater. As a result, investors may choose lower-risk options than appropriate to avoid this.
Another example of loss aversion is selling stocks to prevent further losses before you planned. Whilst doing so may protect you from further falls, it can be damaging. Selling stocks and shares effectively lock in your losses. Remember, over the long-term, investments typically deliver returns.
2. Confirmation bias
Let's say you're looking at pension opportunities and decide one option is too high risk. But you decide to do some research anyway. Confirmation bias leads you to seek out information that supports your view. So, you'd discard the figures that suggest it could actually suit you. As a result, research simply backs up what you already believe.
Confirmation bias can lead to a one-sided financial view. It can make it difficult to objectively balance the pros and cons. Being aware of this can go some way to improving your research process, as can working with a financial planner.
3. Herd behaviour
If you've ever found your action mimicking those of a larger group, herd behaviour could be to blame. In some instances, it's right to follow what others are doing. But it should align with your own reasoning, plans and wider goals. With so much noise in investment markets, it can be difficult to focus on what's right for you.
For example, if markets start to decline, you may pull out investments if others are doing so. This is because you believe that the majority must be right. Yet, their circumstances and aspirations may be very different from yours. It's important to build a financial plan you have the confidence to stick to.
How can financial planning help?
Working with a financial planner can help you remove some of the bias from decisions. It allows you to view your options through another's eyes. You may have a clear idea about the best way to invest for retirement, for example. But after talking with a financial planner, you discover that taking more or less risk is appropriate.
Financial bias can also mean making snap decisions. For instance, when the value of stocks begins to fall you may consider selling. Having a long-term financial plan in place can give you the confidence to hold steady. This, in turn, can help keep you on track for your goals.
If you'd like to discuss your financial future, please get in touch. Our goal is to create a financial plan that reflects you and that you have confidence in.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Why Protection Should Be Part Of Your Financial Plans To Stay On Track
Financial protection products can provide essential cash injections when it's needed most to keep your plans on track. There are many reasons why policies can be useful and provide you with peace of mind.
You may think of financial protection products as something that's removed from your overall financial plan. But they are an essential part of keeping you on track. Even the best-laid plans can go off course and many outside influences could affect your financial situation. Protection can act as a capital injection at times when you need it most.
There is a range of financial protection products that can provide you with security at uncertain times.
Even carefully crafted plans can be hit by unexpected events and outside influences. Thinking about how these could affect you now, means you're able to put in place a safety net that provides financial security for your future and plans. Becoming ill, for example, doesn't have to mean you're unable to support your children through university if you have the right protection in place.
Protection can provide certainty and security when you need it most. But despite this, many don't have any protection at all or are not confident in their policies. Just 27% of consumers are confident that the cover they have in place will meet their needs. Among the circumstances where financial protection can keep you moving towards goals are:
Being involved in an accident
Accidents occur every day. Fortunately, most don't cause long-term effects, but some can mean taking a long time off work or have a life-changing impact. If you're unable to work, it could affect your finances, and therefore plans, in the short, medium and long-term. If you'd struggle without a regular income, you should consider how financial protection could act as a safety net.
Income protection can provide a portion of your salary, usually around 70%, if an accident or illness means you're unable to work. This should mean you don't have to worry about immediate financial concerns, such as paying bills, and allow you the time to get better. Often, income protection will continue to pay out until you're able to return to work or retire. One important thing to note here is that income protection will usually have a deferred period. You should ensure your employer's sick pay or your own savings are enough to cover this period.
On the diagnosis of a critical illness
Could you afford to maintain your lifestyle if you were unable to work for a long period of time? Critical illness can affect us at any age and can have a significant impact on aspirations. It may mean you need to make adjustments to your current employment and, in some cases, could mean you're unable to work at all.
Critical illness can be difficult to come to terms with. Worrying about money can make it even more challenging. A protection policy paying out here can give you the time needed to consider adjustments where necessary and, most importantly, recover. Critical illness cover will pay out a lump sum on the diagnosis of specified illnesses.
On death
If your income is essential for your family's security, you may be worried about how they'd cope without you. Financial protection can't help with the emotional stress a death causes, but it can relieve some of the worries around money and give families time to grieve.
Having the right financial protection can mean your hopes and dreams for loved ones are still possible even if you're not there. It could, for instance, help pay school fees for children, support grandchildren getting on the property ladder and ensure your family doesn't have to give up their home. It's not a situation anyone wants to think about. But effective planning can provide a safety net for those you care about the most. If this is a concern for you, it's worth looking at life insurance policies.
Visualising the benefit of financial protection
Understanding how unexpected obstacles could affect your circumstances and plans can be difficult. Working with a financial planner can help you visualise the impact and see how an injection of capital would help at these points.
Modelling your current finances and making assumptions about the steps you'll take and other areas, such as investment performance, can help you see how you'll achieve goals if everything goes to plan. But cashflow modelling also allows you to model concerns you may have. For instance, what would happen if you were forced to give up work five years earlier than expected due to illness? Or would your family still be financially secure if you were to pass away?
By modelling these scenarios you'll be able to see where a shortfall may occur. Your capital and assets may mean you're still able to achieve aspirations, even when things go off course. But, for many people, a capital injection is essential if they're still to achieve goals. Through using cashflow modelling, we can demonstrate the benefit of having the right financial protection in place for you with the right level of cover. It can give you peace of mind that, even if the unexpected should happen, your finances can remain on track.
If you're worried about how your lifestyle and aspirations could be affected, please get in touch. We're here to help manage your current finances and put safeguards in place to protect your plans where necessary.
5 Ways Financial Planning Can Help If You're Self-Employed
Being self-employed comes with many benefits. But it often means taking more responsibility for your finances now and in the future, this is an area financial planning can help with.
Millions of people in the UK are now self-employed. Whether you work for yourself or are part of an industry where contracting is commonplace, it can place pressure on your finances. You need to manage your financial situation and potentially plan for periods where you're not earning an income. Working with a financial planner can give you confidence in your career and future security.
There's been rapid growth in self-employment in the UK in recent years. According to official official statistics:
- 3 million people (12% of the labour force) were self-employed in 2001
- By 2017, this had increased to 4.8 million people (15.1% of the workforce)
There are many benefits to being self-employed, but it often means you need to take greater control of finances in order to ensure you meet goals. So, how can a financial planner help you?
1. Paying into and managing a pension
The majority of UK employers will now benefit from a Workplace Pension. However, if you're self-employed, you'll need to set up and manage your own pension. Whilst you won't benefit from employer contributions, you're still entitled to tax relief. For many self-employed individuals, a pension will be the most efficient way to save for retirement.
There are a variety of ways of setting up your own pension and you may have many questions.
Should you invest through a fund or select your own investments?
How much should you aim to put away each month?
What kind of income will your contributions afford you?
A financial planner can help create a long-term financial plan that considers your lifestyle now and the one you want to achieve in retirement.
2. Creating a financial safety net
When you're self-employed, there is a chance that your income will stop or reduce. As a result, it's important to create a financial safety net that you can fall back on should something happen. This could be a period of illness, meaning your income stops in the short-term or a contract coming to an end.
Financial planning should give you confidence that you're financially secure even if these 'what if' scenarios did happen. The right solution will depend on you and your priorities. It may involve building up an emergency fund and taking out an appropriate insurance policy, for example.
3. Building suitable savings and investments
We all know we should be putting some of our income aside. But it can be challenging to know what to do with it. Should you hold in cash or invest? There's no right or wrong answer to this. It'll depend on your personal situation and attitude to risk.
With so many different providers and products on the market for both cash savings and investments, it can be just as daunting to decide where to put it. Again, this will depend on you and what you're saving for. If you're saving for a goal that's a year away, you'll need a very different product if you plan to save for 15 years. Our goal is to help clients pick out the right products for them.
4. Getting to grips with tax liability
As you'll be responsible for organising your own Income Tax, it's worth spending some time understanding it. There are often steps you can take to reduce your liability depending on your circumstances. However, there are other areas of tax to be aware of too; could your income from investments be liable for tax, for example?
Knowing your tax responsibilities enables you to avoid potentially hefty penalties and set realistic expectations. Tax regulations can often be complex and difficult to apply to your situation. This is where working with a financial planner comes in useful. We're here to help you get to grips with tax and make the most out of your money.
5. Understanding your long-term goals
Financial planning isn't just about looking at figures though. It helps you to see how your money habits can help you achieve short, medium and long-term aspirations. People often know what they want in the short-term but planning further ahead can be difficult.
If you're self-employed, it's worth thinking about whether you ever want to return to traditional employment, when you'd like to retire, and what the future holds. Talking with a financial planner about your wider goals can help put in place a plan that sets you on the right path.
If you have any questions about the above issues or any other financial matter, please get in touch. We aim to work with all clients, including those that are self-employed, to have confidence in their future.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
The Financial Conduct Authority does not regulate Tax and Estate Planning.
The World In A Week - Never A Dull Moment
While violent clashes and political rhetoric filled the airwaves last week, markets were considerably more sedate. The Pound Sterling rose against all major global currencies. It appears the markets prefer the possibilities of a Conservative majority government as indicated in the polls to a hung parliament or Corbyn government. This left global equity indices marginally down in Sterling terms, with MSCI ACWI losing -0.44%. Global bonds hedged to Sterling were up marginally, with Barclays Global Aggregate up +0.37%.
Forces driving markets included the stalling of ongoing US-China trade talks, but sentiment remains sanguine that a deal will be reached with some roll back in tariffs forming part of this. Otherwise, the world's attention turned to the various protest movements taking place across the globe. The situation in Hong Kong continues to deteriorate, as stunning footage emerged over the weekend of police being met with a barge of Molotov cocktails as they tried to clear protesting students out of a university. The risk of a Beijing-orchestrated crackdown remains high. Social unrest is also being experienced across South America, particularly in Chile, Bolivia and Ecuador. Venezuela remains dire and there is speculation that unrest could spread to Columbia too.
An inconclusive election result in Spain and dormant political risk in Italy caused peripheral European government bonds to sell off slightly - which had been a popular investment amongst fixed income managers recently. Saudi Arabia are continuing to press on with the IPO of Aramco - the state-owned oil company. It will be interesting to see how the growing focus from investors on ESG factors influence this process.
The World In A Week - Is This The Beginning Of The End?
The election machines for the main political parties rolled into action last week, and with just 31 days until the general election, politicians are keen to get their messages across, while taking carefully worded pot-shots at the opposition.
This meant that Parliament was officially dissolved on Tuesday so electioneering could commence the following day. However, the relief from Brexit and UK politics will be short-lived, as whatever the outcome of the general election, uncertainty will continue to prevail for the UK.
According to YouGov's political tracker, the Conservatives lead in the poll with 39%, while Labour sits second with 26%, up from 21% at the beginning of the month. It should come as no surprise, that with 59% of the poll, the most important issue to voters is Britain leaving the EU.
If the polls are correct, which based on recent experience is wildly optimistic, then we may see a Conservative majority. That could mean Brexit takes place on or before 31st January 2020. The uncertainty here is the original transition period is due to finish at the end of 2020, which does not give much time to complete a comprehensive trade deal with the EU. Anything other than a Conservative majority would bring the uncertainty around Brexit front and centre.
Trade is also in the headlines across the Atlantic, with both the US and China having confirmed that if a phase one trade agreement happens, then it would include some reductions in tariffs. Whether this is a reduction in the actual tax rate or in the number of goods being taxed, was unclear. However, the time being taken around the negotiations does suggest a significant deal is in the pipeline.
It would seem the timing is equally convenient for both Presidents; one needs a good story to tweet about as his impeachment gains momentum, while the other needs to replenish his countries pork reserves. According to UBS China's pork prices have soared 100% over the past 12 months, as the country has had to cull its pigs in the face of African Swine Fever. Pork is the most consumed meat in China and its importance cannot be understated.
The World In A Week - The New Boss, Same As The Old Boss?
It was a relatively sedate week in financial markets, as Sterling strengthened against most major global currencies. Equities were up slightly in GBP terms, while Fixed Income also rose by +0.25% in GBP hedged terms. Brexit related metrics were largely unchanged, as markets await the results of the forthcoming festive election. Global bonds maintained their gains vs Sterling bonds, as did domestically-focused UK equities vs their more international peers. The Dollar has begun to weaken against its main trading partners, which has given a nice boost to our local currency emerging market debt holdings.
One of the major developments in the world of finance was the changing of the guard at the European Central Bank. Christine Lagarde took over the position of President of the ECB from Mario Draghi. She begins her tenure at a time when storm clouds gather over the Eurozone economy and the monetary policy tools at her disposal are less and less effective at boosting economic growth. In that sense, Mr Draghi may have picked an opportune time to depart, as much of Madame Lagarde's political capital will likely be expended in trying to convince the creditor nations of the Eurozone (namely Germany) to enact a fiscal stimulus to pick up the reins from monetary policy. This is not a task many would envy…