The World In A Week - Inching Towards A Deal
It was a rather lively week in financial markets, from the perspective of a UK-based investor. Sterling strengthened considerably against all major currencies, as markets anticipated a break-through in the long march to a Brexit deal. As Sterling strengthened, Global Equities as measured by MSCI ACWI were down -2.7% in GBP terms and the FTSE All Share index of UK Equities rose +1.61%. On the Fixed Income side of our portfolios, Global Bonds hedged to GBP returned -0.9% - but this considerably outperformed Sterling Bonds which returned -1.75% for the week.
Market developments were primarily driven by tentative advances in negotiations surrounding two prospective deals. Of major global importance, is the ongoing trade dispute between China and the US. Markets reacted favourably to news on Friday that the US had agreed a limited phase one trade deal with China which would delay tariff increases scheduled for this week. The agreement was positive, but light on detail and is widely seen as a truce in the ongoing trade war.
Closer to home, an outburst of optimism regarding the possibilities of a Brexit deal shot through financial markets towards the end of the week. The Irish Taoiseach, Leo Varadkar, met with Boris Johnson in 11th hour talks. Much was made of the reaffirmation of the possibility of a Brexit deal, even at this late stage. Sterling and UK assets rallied strongly on the news, and we expect volatility to persist into next week following the Queen's speech on Monday.
The World In A Week - Elephant In The Room
Last week, ISM data was released, this is a measure of new orders, production, employment, supplier deliveries and inventories; in essence, a measure of productivity. The key number to be cognisant of is 50, above 50 indicates an economy is in expansionary territory, below 50 indicates contraction and potential recession. Data for US and China did not make for happy reading, with German manufacturing data especially worrying, falling to 45.7 from 47.
While contraction has been evident for several months in bond markets, it has taken some time for this to filter through to equity markets, which had a negative week; in Sterling terms, most indices fell sharply midweek, limping back towards positive territory by Friday. In the US, ISM data plumbed the lowest depths in 3-years, heightening expectations of a further interest rate cut of 25bps this month, and a fourth rate cut probability of 50-50 by year-end.
On the tedium that is Brexit, there was little news. The next key date in the Brexit calendar is 19th October, when a deal must be agreed by Parliament; MP's are expected to agree to a no-deal Brexit, which we believe is highly unlikely and will result in the Benn Act being employed, which will anger hard-Brexiteers. The Benn Act was passed last month and requires the Prime Minister to ask for an extension to the Article 50 negotiating period, which would avoid a no-deal Brexit on 31st October.
Chinese equity markets reopen this week following celebrations marking the 70th anniversary of the Popular Republic. Investors will be keenly focussed on US-China statements ahead of their meeting on 10th-11th October in Washington, where trade talks will recommence.
The World In A Week - Getting Our Priorities Straight
The UK Supreme Court ruled that the prorogation of Parliament by Boris Johnson was unlawful, which resulted in a swift restarting of Parliament last week. It would appear the battling forces within British politics are becoming more entrenched and the cross-party support needed to strike a deal with the EU fading. A request to extend the deadline for Article 50 is now most likely, after which we can expect an election or fresh referendum.
Politics escalated even further in the US, with an announcement of the start of an impeachment enquiry into the actions of President Trump. This is centred around a telephone call with President Zelensky of Ukraine, in which it is alleged that Trump asked for an investigation into the activities of the son of Joe Biden, who just happens to be one of the front runners for next year's Presidential election.
The process is as much political as it is legal, with proceedings needing to pass through both the House and the Senate; the latter being controlled by the Republicans, with a two-thirds majority. It is worth remembering that a President has never actually been impeached; although it was a close shave for President Nixon, who resigned before Congress could vote him out of office.
So, with global data suggesting that growth is slowly dissipating and in much need of both fiscal and monetary stimulus, the governments either side of the Atlantic seem to currently prefer the distraction of playing politics.
The World In A Week - Judgement Day
Geopolitical tensions escalated last week following the attack on Saudi Arabia's oil production facilities. It has been estimated that the attack destroyed c.50% of Saudi production, although there were assured statements from the capital that oil exports would be maintained, and lost capacity would be expediently rebuilt. Following a huge initial jump in the oil price, volatility in the commodity subsided towards the end of last week. However, while the volatility in the oil price subsided, new US sanctions against Iran meant that tensions in the Middle East increased markedly with the US also pledging military support to Saudi Arabia to boost their air and missile defences. Iranian-backed Houthi rebels have claimed responsibility for the drone and missile attacks although Iran denies any involvement. We expect tensions to remain elevated.
The Federal Reserve moved in line with consensus last week, cutting interest rates by 25bps; Trump was quick to lambast Chairman Powell for lacking guts. While a twitter outburst from Trump is of little surprise, what is a surprising is how the decision to cut interest rates has caused division with the Federal Open Market Committee; seven members voted to cut, two members voted to maintain, and one member voted to cut further. Powell cited that a second cut was necessary due to slowing political growth and worsening trade tensions however, the dissent within the committee will make it more difficult to decipher the trajectory of interest rate policy, resulting in polls for further rate cuts falling from 100% to 80%.
Several weeks ago, we wrote about the suspension of parliament, titled Prorogue and in the UK, parliament remains suspended as a result of the invocation of prorogation. In the week ahead, we expect a decision from the Supreme Court over whether Boris Johnson acted unlawfully by suspending parliament; to be clear, this is not about Brexit, it is a legal argument. After all, there is no one place where all the rules of government are written down, which means the Supreme Court must decide between the competing legal arguments, providing a stress-test of another kind, that of our unwritten constitution.
5 staycation destinations perfect for autumn
With summer over, the nights are already starting to draw in and the colder weather is arriving after months of record-breaking temperatures. That doesn't mean you have to shelve your UK holiday plans until the spring though. Throughout autumn, there is still plenty of places to head without having to step on a plane when you want to enjoy a break.
Whether getting outdoors to take in the stunning autumn views or being cosy inside with a cup of tea is your idea of an excellent autumn break, these five staycation destinations may be just what you're looking for.
1. Aviemore, Scotland
Scotland is known for its breathtaking scenery and Aviemore is beautiful. Surrounded by mountains and the Cairngorms National Park. If you love to be outdoors, it's the perfect place to consider for your staycation. You can try your hand at skiing, canoeing and even dog sledding. There are gentler outdoor pursuits to take in, from trails around its stunning national park to wildlife watching.
When the weather turns or you want to head indoors, there are more than enough options for dining, shopping or stopping to have a drink. You can watch, or even take part in, traditional ceilidh dancing too. There's a chance to step back to the 1700s at the Highland Folk Museum or enjoy a trip on a steam train by taking the Strathspey Railway.
2. Dartmouth, Devon
Dartmouth is situated on the mouth of the River Dart and is one of Devon's most popular towns thanks to its historic streets and scenic location. As it's surrounded by countryside, it's in an excellent location for taking a brisk autumn walk and there are many traditional English pubs to stop at for lunch or dinner to get your energy back too.
Other landmarks to keep an eye out for when you're exploring Dartmouth include the 14th-century castle, which offers views of the estuary and Baynard's Cover Fort, which dates back to the 16th century. If you love the picturesque views of the water, why not head out onto the river? The Dartmouth Paddle Steamer is one of the last coal-fired steamers in the UK. Along the way, you'll be able to take in many iconic Dartmouth landmarks at a leisurely pace too.
3. Whitby, Yorkshire
Why not head to the seaside on your next staycation? Whitby might not offer warm Mediterranean waters this autumn, but it's got plenty more going for it. Strolls along the coast are guaranteed to offer great views and are even better when you have traditional fish and chips at the end too. The harbour is a great place to end up, the atmospheric Abbey towers, which is said to have inspired Dracula author, Bram Stoker, over the cobbled streets as you walk along the beach.
Not too far from the harbour is a whale bond arch that was erected sometime after 1853, paying homage to the history of Whitby. If you're lucky, you may even get a chance to see whales in the wild too. In autumn, vast shoals of herring migrate to the Yorkshire coast, attracting a plethora of other animals. Head out on a boat and you could spot seals, whales, dolphins and much more.
4. Stratford-upon-Avon, Warwickshire
Celebrated for being the birthplace of playwright William Shakespeare, you'll find plenty of history and attractions at Stratford-upon-Avon. The market town is easy to navigate if you want to walk the Shakespeare trail, taking in plenty of sights, including his wife's Anne Hathaway's cottage, the family home, which is now a working museum, and his final resting place in the Holy Trinity Church.
Don't worry though, it's not all about the famous playwright. Amongst the other things to do at Stratford-upon-Avon include the MAD museum, a butterfly farm and the 18th-century mansion of Compton Verney, which is home to an award-winning gallery and museum, is just a 20-minute car journey away and set in 120 acres of parkland.
5. Cambridge, Cambridgeshire
Cambridge is synonymous with the university in the city, but it isn't just students that will love visiting here. The stunning building that seems unchanged for centuries makes it the ideal place for an autumn walk as you take in the view. Walking alongside the River Cam, where you can find many college gardens, are Backs as they're known, is a must. Of course, if you're visiting Cambridge for the first time, you should go punting on the river too; wrap up warm and relax as a guide navigates.
If you're a fan of delving into history, a university tour is a great way to explore the nooks and crannies of the world-famous institution. There are several arts venues to take in too, including the Fitzwilliam Museum, as well as plenty of traditional pubs and shops to browse.
4 reasons ISAs are still worthwhile
Changes to how savings are taxed means ISAs (Individual Savings Accounts) may not be as attractive as they once were. However, there are still plenty of reasons why ISAs should be part of your financial plan.
ISAs were first introduced 20 years ago in a bid to encourage more people to save. An ISA is essentially a tax-efficient wrapper for your savings. You don't pay tax on the interest or returns generated within an ISA. Over the years there have been new ISA products introduced, which may offer additional incentives to save. You can either choose a Cash ISA, which will pay interest, or a Stocks and Shares ISA, where your deposits will be invested.
Since their introduction, the ISA allowance has gradually increased. You can currently place up to £20,000 into ISAs each tax year. This allowance may be used for a single ISA or spread across several accounts. If you don't use your ISA allowance by the end of the tax year, you lose it.
Why are ISAs less attractive now?
ISAs remain popular products; official statistics show that around 10.8 million adult ISA accounts were subscribed to in 2017/18. However, this is down from 11.1 million during the previous tax year.
One of the reasons for this is the introduction of the Personal Savings Allowance (PSA). Introduced in 2016, the PSA means individuals can earn up to £1,000 in interest tax-free if they're a basic rate taxpayer or £500 if they're a higher rate taxpayer. For those saving using a cash account, it may mean that using an ISA has lost one of the main benefits.
Complexity around choosing an ISA product may also mean the saving vehicle is falling out of favour. This is an issue that's been highlighted by AJ Bell, with the investment platform calling for the rules around ISAs to be simplified.
In a letter to the new Chancellor Sajid Javid, Andy Bell, Chief Executive of AJ Bell, states: ISAs started life as a very simple, tax-efficient savings products. Over the years, various changes and additions to the products have made them unnecessarily complicated, with at least six variations in existence depending on how you look at it. People now have to choose which ISA suits their specific needs and often they can't decide, which leads to them doing nothing and not saving.
We believe a much simpler system, based around a single ISA product would mean that the only decision people need to make is to open an ISA and start saving.
So, why should you still make an ISA part of your financial plan?
1. Take advantage of tax-free interest and returns
Whilst the PSA means this advantage isn't as appealing as it once was, it'll still be attractive for many people.
First, if you're an additional rate taxpayer, you don't benefit from the PSA. As a result, an ISA can provide you with a tax-efficient place to deposit your cash savings. Even if you're a basic or higher rate taxpayer, depending on your level of savings, you may find you exceed the PSA. An ISA can boost how much you can earn in interest tax-free.
Secondly, the PSA does not cover investments. In contrast, investing through a Stocks and Shares ISA can deliver returns that are free from Capital Gains Tax.
2. Potentially access additional bonuses
As well as offering interest and returns on deposits, some ISAs may offer additional bonuses. These aren't available to everyone and may not match your saving goals. However, if you're saving for your first home or retirement, they are worth considering.
The Help to Buy ISA is available for all aspiring first-time buyers. It offers a government bonus of 25% on deposits. You can open an account with up to £1,200 and can contribute up to £200 each month. You can add up to £12,000 to a Help to Buy ISA, leading to a maximum bonus of £3,000. You apply for the bonus when you're at the point of buying a property. Help to Buy ISAs are a type of Cash ISA, so you receive interest.
A Lifetime ISA (LISA) may be an option if you're saving for a first home or retirement. Each tax year, you can place up to £4,000 into a LISA, receiving a 25% bonus. You must be aged between 18 and 40 to open a LISA, and can continue to pay into it until you turn 50. This means the maximum bonus available is £33,000. The bonus is applied at the end of each month. A LISA can either be a Cash or Stocks and Shares account. However, there are some restrictions to keep in mind. Should you make a withdrawal before the age of 60 for a purpose other than buying your first home, you'll lose the bonus and may get back less than you paid in.
3. Start investing with small amounts
If you want to start investing, a Stocks and Shares ISA can be a good starting point. You won't have to pay tax on the returns generated and there are multiple options to suit how hands-on you want to be. A Stocks and Shares ISA may be right for you if you want to gradually grow your investment portfolio by adding regular, smaller sums over the long term.
For beginner investors and those that want a more hands-off approach, there are platforms that will make investment decisions for you. You'll usually be asked some questions relating to your attitude to risk, investment goals and what you can afford to invest.
If you're confident making investment decisions, you can choose your own investments that will be held within an ISA wrapper. You'll need to take responsibility for researching investments, building a portfolio and keeping track of performance, as well as aligning decisions with your financial plan.
4. Shop around for the best interest rate
For the last decade, interest rates have been low. It may mean that your cash savings are struggling to keep up with inflation, effectively decreasing in value in real terms. Saving into an ISA doesn't automatically mean you'll access better rates, but it's worth including them when you're shopping around. Typically, a fixed rate ISA, where your money is locked away for a defined period of time, will offer the best returns.
Remember, if you don't use your ISA allowance, you will lose it. If you'd like to discuss why it should be part of your financial plan and how it fits in with other options, please contact us.
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.
Are you taking enough risk financially?
When you think of financial risk, it's probably potential investment losses that come to mind. But not taking enough risk with your wealth can be just as damaging financially.
News that UBS, the world's largest wealth manager, will introduce a penalty for clients that hold a large portion of their assets in cash accounts gives the perfect opportunity to look at whether you're taking enough investment risk.
From November, wealthy clients of UBS will face an additional annual fee of 0.6% on cash savings of more than ‚Ǩ500,000 (£458,000). The penalty rises to 0.75% for those with savings that exceed two million Swiss francs (£1.7 million). The minimum fee is ‚Ǩ3,000 (£2,746) a year. A UBS client holding two million Swiss francs in cash would face an additional annual charge of 15,000 francs (£12,624).
The negative interest rates set by the Swiss National Bank and the European Central Bank are behind the decision for the new penalty. Negative interest rates mean cash deposits incur a charge for using an account, rather than receiving interest.
Whilst the UK does not have negative interest rates, they have remained low since the 2008 financial crisis. The Bank of England base rate is just 0.75% and has been below the 1% mark for the last decade. As a result, it's likely your cash savings are generating lower returns than they may have in the past.
Why cash isn't always king
You've probably heard the phrase 'cash is king' but this isn't always the case.
Cash is often viewed as a safe haven for your money. After all, it won't be exposed to investment risk and under the Financial Services Compensation Scheme (FSCS) up to £85,000 is protected per person per authorised bank or building society. If you're worried about the value of your assets falling, cash can seem like the best option.
However, that's a view that fails to consider one important factor: inflation.
The rising cost of living means that your cash effectively falls in value in real terms over time. In the past, you may have been able to use cash accounts to keep pace with inflation. But low-interest rates mean that's now unlikely. Over time, this means the value of your savings is slowly eroded.
At first glance, the annual inflation rate can seem like it will have little impact on your savings. But, over the long term, the effect can be significant. Let's say you had a lump sum of £10,000 in 1988. To achieve the same spending power 30 years later you'd need £26,122. If you'd simply left that initial lump sum in a cash account generating little interest, it'll be worth less today.
Of course, that's not to say there isn't a place for cash accounts in your financial plan. For an easily accessible emergency fund, a cash account may be the best home for your savings, for example. Yet, in some cases, taking the right level of investment risk is essential for not only growing but maintaining wealth.
How much investment risk should you be taking?
Whilst holding your wealth in cash is potentially harming the outlook of your financial plan, you may be wondering how much investment risk you should be taking.
Unfortunately, it's not a question we can answer here. It's a decision that's personal and should be made taking your circumstances and aspirations into account. For some people, investing in relatively low-risk investments that aim to match inflation will be the right path. For others, taking greater risk will be considered worth it when the potential for higher returns is considered.
When deciding how much risk your investment portfolio should take, areas to think about include:
- The reason you're investing
- How long you'll remain invested for
- Other assets you have and the risk profile of these
- Your capacity for loss
- Where investing fits into your wider financial plan
- Your overall attitude to risk
Understanding the level of investment risk that's right for you and the portion of your wealth that should be invested can be challenging. This is where we, as financial planners, can help you. We aim to work with you to create a financial plan that puts your short, medium and long-term goals at the centre of decisions. If you're unsure if you're taking enough, or indeed too much, risk financially, please get in touch.
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.
What to do if you think you'll never retire
More people are paying into a pension than ever before. Yet, millions are still worried they'll never be able to retire. If you have concerns about the retirement lifestyle you will be able to afford, there are often steps you can take to improve this.
First, the good news: the number of people saving enough for retirement has hit its highest ever level, according to Scottish Widows. Almost three in five Brits are deemed to be putting enough aside for retirement, calculated at 12% of an individual's income. However, a worrying number expect they'll never be able to afford to give up work. Around a fifth of people believe they won't be financially secure enough to retire, equating to eight million individuals.
With fewer Defined Benefit (DB) schemes available, which offer a guaranteed income for life, individuals need to take more responsibility for their retirement finances. But the research indicates a large portion of the population don't have confidence in the steps they're taking.
Peter Glancy, Head of Policy at Scottish Widows, said: While the past 15 years alone have proved that things have been changed for the better, auto-enrolment alone won't avert a pension crisis in the UK. Government and industry need to take the next step together and also stop pretending the long-term savings challenge can be solved in isolation.
6 things to do if you're worried about pension savings
In recent years, the responsibility for creating a retirement income has shifted to individuals. The number of Defined Benefit (DB) pensions schemes has been falling. Also, Pension Freedoms mean retirees are now often responsible for how and when they access pension savings. As a result, it's natural to have some concerns about how your retirement provisions will provide for you.
If you're worried you won't be able to afford retirement or are unsure of the lifestyle you'll be able to enjoy, these six steps may help.
1. Assess your current savings
Whilst the Sottish Widows research highlights millions are worried about retirement, it doesn't state how much these people have put away. It may be that some are in a better position than they believe, particularly when looking at the long term.
The first thing to do is look at the amount you have already saved. The majority of workers will have several pensions due to switching jobs; getting a current value for them all is important. This will give you a figure to assess whether or not you're on track. Remember, most pensions are invested, and the value will hopefully grow between now and when you hope to retire. Providers will give you a projected value at traditional retirement age, however, this cannot be guaranteed.
2. Check contributions
Next, how much are you contributing to your pension? If you've been auto-enrolled into a pension by your employer, the minimum you contribute is currently 5% of qualifying earnings. However, you can choose to increase this. The end goal for pension savings can seem daunting, but it's worth remembering your employer will also be contributing at least 3% and you'll benefit from tax relief. These two incentives can significantly boost the amount you're putting away.
With a baseline for how much you're already putting away, you may want to consider increasing contributions. Even a small rise in how much you put away each month can have a big impact. When saving for life after work, a pension is often the most efficient way to save. Some employers will also increase their contributions in line with yours.
3. Don't forget the State Pension
It's not just your Personal and Workplace Pensions that will provide an income in retirement. For many, the State Pension will be the foundation. Once you've factored in how much you can expect to receive from the State Pension, the amount you need to take responsibility for can seem far less challenging.
The State Pension alone won't usually provide you with enough to secure the retirement lifestyle you want. But it does provide a level of security and maybe enough to cover essential outgoings. How much you'll receive will depend on your National Insurance record. To qualify for the full amount, paying out £8,767.20 annually in 2019/20, you'd need to have 35 qualifying years on your National Insurance record. You can check how much your State Pension is likely to be here.
4. Calculate other sources of income
Whilst pensions are the most common way to create an income in retirement, they're not the only option. Other assets you've built up throughout your working life can also be used and may be important to your personal financial plan. Yet, when initially looking at how affordable retirement is, you may have missed these out.
Among the assets to consider are savings, investments and property. How these assets can be used in retirement will depend on your situation and goals, but it's important they're not overlooked. Even if you don't intend to use them in retirement, knowing you have assets to fall back on if necessary, can give you the confidence needed to approach this important milestone.
5. Consider the costs of retirement
If you think you can't afford to retire, what are you basing this on? If you're looking at your current expenditure, you may be overestimating how much you need. Most people find their necessary income falls in retirement as some significant costs decrease. You may, for instance, no longer have a mortgage to pay or save each month on travel costs once you're not commuting.
The cost of retirement is individual and is linked to your plans. Taking some time to figure out how much you need can help you identify if there is a shortfall or where adjustments can be made if needed. According to Which? research, the average retired household spends around £27,000 a year. This is made up of basic areas of expenditure (£17,800 annually) and some luxuries.
6. Speak to a financial adviser
We often find that people are in a better position than they think when they consider the above five factors. We're here to help you pull together the different sources of income that can be used in retirement and understand how they'll provide for you. Using cashflow modelling, we'll be able to demonstrate how your current provisions will last throughout retirement and how changes to your saving habits will have an effect in the short, medium and long term. If you're worried about financial security in retirement, please get in touch.
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 regulations which are subject to change in the future.
Equity Release will reduce the value of your estate and can affect your eligibility for means-tested benefits.
Using Your Savings To Achieve Aspirations
What's on your bucket list? Whether incredibly exciting experiences, exotic travel destinations or something entirely different features on your list, it's likely finances will play some role in how achievable they are. Could your savings be used to tick a few of your aspirations off?
You may have been saving with specific goals in mind or simply putting money to one side for the future. However, dipping into savings can be something people find difficult. To have built up a healthy savings fund you've likely established good money habits and accessing savings can go against this. However, it may mean you miss out on opportunities to achieve aspirations, even if you're in a financial position that allows for it.
As a result, it's important to understand your savings and how dipping into them will affect your plans, giving you the confidence to make decisions.
If you have big plans ahead, from helping younger generations get on to the property ladder to a once in a lifetime trip, there are a few things to consider. Your savings are likely to be spread across multiple products, how do you know where you should take the money from and when should you do it? Among the areas to consider are:
- Accessibility:When looking at various savings, the first step should be to see how accessible they are. Are any of them fixed term accounts? Or are some of them invested? If you're planning ahead for a few years' time, accessibility is less likely to be an issue, but if you want the money soon, it may limit your options. Be sure to check that you won't lose any of your savings, interest or returns by taking money out. Some accounts may lower interest rates, for example, if you make a withdrawal before a set date.
- Tax efficiency:Would accessing your savings affect your tax position? There are some instances where taking a lump sum from savings may mean an unexpected tax bill. Let's say you decide to use some of your pension after the age of 55 savings to kick-start retirement; the first 25% can usually be withdrawn tax-free, but, take out more than this and it may be considered income for tax purposes. If you sell stocks and shares, you may be liable for Capital Gains Tax too. Looking at the tax efficiency of different options allows you to maximise your savings.
- Allowances:As you've been saving for the future, you may have made use of allowances. Your ISA (Individual Savings Account) allowance means you can save £20,000 each tax-year tax-efficiently. If you take money out of an ISA, you can't return the money without using the current year's allowance, which may limit you. In some cases, allowances will have little impact on your decisions, but in others they are important. This will depend on your personal circumstances and plans.
- Potential for future growth:Which of your saving pots has the biggest potential for growth in the future? Accessing savings that are invested over a cash account with a low-interest rate may not be in your best interests financially when you look at the long term, for example.
The impact on your long-term financial security
Of course, it's important to consider what impact using savings now will have on your long-term financial security. If you're worried about how taking money out of savings could affect future plans, this is an area financial planning can help with.
Often people find they're in a better financial position to start accessing their savings than they first think, but it's normal to have some concerns. Cashflow modelling can help you visualise the short, medium and long-term impact of using your savings. It can also model how taking savings out of different saving products will have an effect, allowing you to choose the right option for you.
It's also an opportunity to weigh up how your financial security will be affected. Would using a portion of savings mean your emergency fund is depleted, for example? Understanding the long-term implications gives you the tools needed to decide how much and when you should make a withdrawal from your savings. Taking the time to consider the long-term impact of your decision means you can proceed with confidence and really enjoy spending the money on turning aspirations into a reality.
If you're thinking of accessing some of your hard-earned savings to work through your bucket list and have concerns, please contact us. Our goal is to work with you to help you get the most out of your money by creating a financial plan that reflects aspirations and boosts confidence.
Just A Fifth Of Investors Stuck To Their Plan During 2018 Volatility
2018 proved a difficult year for investors. Volatility meant many saw the value of their investments fluctuate and it led to the majority tinkering with their long-term financial plans amid concerns. However, it's a step that may not be right for them and could mean lower returns over the long term.
During a year that was characterised by global economic concerns and uncertainty, from Brexit to a trade war between the US and China, investment markets were volatile. In the last quarter of 2018 alone theMSCI World Indexfell by 13.9%, the 11thworst quarterly fall since 1970. As a result, it's not surprising that some investors felt they had to respond by changing plans they'd initially set out.
Responding to market volatility
Whilst investing should form part of a long-term financial plan,research from Schrodersindicates that many investors decided to take action after experiencing volatility in the short term. Just 18% of investors stuck to their plans in the last three months of 2018. Seven in ten investors said they made some changes to their portfolio risk profile:
- 35% took more risk
- 56% moved into lower-risk investments (36%) or into cash (20%)
Despite many making changes to their plans, more than half of investors said they have not achieved what they wanted with their investments over the past five years. Interestingly, many attribute their own action or inaction as the main cause of this failure. The findings indicate that investors may recognise that deviating from long-term plans can have a negative impact, as well as judging decisions with the benefit of hindsight.
Claire Walsh, Schroders Personal Finance Director, said: No-one likes to lose money so it is not surprising that when markets go down investors feel nervous. Research has repeatedly shown that investors feel the pain of loss more strongly than the pleasure of gains. That can affect decision making.
As our study shows even just three months of rocky markets led many investors to make changes to what should have been long-term investment plans. That could potentially lead them into making classic investment mistakes. These include selling at the bottom when things feel bad or moving their money into cash in an attempt to protect their wealth, but then leaving it there too long where it can be eaten away by inflation over time.
Why should investors have held their nerve?
It's easy to see why investors might be tempted to tinker with financial plans after seeking investment values fall. But, for many, it's likely to have been the wrong decision.
Investing should be done with a long-term outlook, generally a minimum of five years. Volatility is a normal part of investing and any financial plan should have considered how the ups and downs of the market would affect your goals. A long-term outlook allows for dips and peaks to smooth out. Changing your position whilst experiencing volatility could mean selling at low points and missing out on a potential recovery in the future.
Of course, there are times when it's appropriate to change your investment position. For example, a change in your income or investment goals may mean that your risk profile has changed. However, changes shouldn't be made in response to normal investment volatility alone, they should consider the bigger picture.
Creating a financial plan that considers volatility
When you create a financial plan, it's impossible to guarantee the returns investments will deliver. However, your decisions should consider potential volatility and what's appropriate for you. With the right approach, you should feel confident in the plans you've set and hold your nerve next time investment values fall.
Among the areas to consider when building a financial plan with a risk profile and level of volatility that suits you are:
- What are you investing for?
- How long do you intend to remain invested?
- What is the risk profile of other investments or assets that you hold?
- How likely is it that your situation will change in the short or medium-term?
- What's your overall attitude to risk?
If you're worried about investment volatility, please get in touch. Our goal is to work with you to create a long-term financial plan that you have confidence in, even when markets are experiencing a downturn.
Please note:The value of investments 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.