danielashby

The World In A Week - Prorogue

You may think that the title of this week's 'World in a Week' relates to the protagonist of a play, disappointingly this is not the case. Prorogue is the technical terminology for the discontinuation of a parliamentary session without formerly dissolving parliament. This is what Boris did next, when he announced that parliament would be suspended from mid-September to mid-October, in order to push through Brexit. In a move which received approval from the Queen, Remainers will now have significantly less time to prevent a disorderly Brexit. While it has been cited that Boris will have much greater leverage and credibility in the EU renegotiation of a Brexit deal, he is also at risk of facing a vote of no-confidence, which could trigger a possible election. The Pound came under pressure against the US Dollar on Boris' announcement, be sure to stay tuned for the next act...

Staying in Europe, equity markets rose steadily last week. The reasons for this were two-fold; firstly, the US/China trade discussions showed signs of improvement, which was positive for Germany whose economic data demonstrated that they had managed to stave off a recession, for now at least. Secondly, Italian markets received a significant fillip when populist party 5-Star Movement and the centre-left democratic party agreed to formalise their plans to build a coalition government. The Italian stock exchange, the FTSE MIB, rose nearly 4% on the back of this news. This positive news was marred by the fact that the coalition will face immediate and tough challenges such as the country's mounting debt, a stagnating economy, and the expectation that they are likely to breach their target budget deficit in 2020. Italy have already come under scrutiny by the EU in May of this year. It is broadly expected that the coalition will go ahead but with political views that are poles apart, it is questionable whether the coalition will be sustainable over the longer-term.

by danielashby

The World In A Week - The G7, and other Sticky Wickets

Market volatility continued for the week ending 23^rd August 2019, with global equities down -1.6% in GBP terms as measured by MSCI ACWI - this was primarily driven by ongoing concerns regarding the US economy as well as a weakening Dollar. Global bonds fell -0.1% over the week, while Sterling bonds fell -0.3%. Sterling rose against all major currencies, having weakened significantly for the year to date.

While England simultaneously basked in a sweltering bank holiday weekend and victory over Australia in the cricket & Ireland in the rugby; the leaders of the major western democracies gathered in Biarritz for the annual G7 summit. In spite of some rather superficial gestures regarding advancing the Iranian nuclear talks and the establishment of a fund to combat Amazonian forest fires, the summit was broadly as dysfunctional as it has been over the Trump era. President Macron attempted a charm offensive with Mr Trump, hoping to appear statesmanlike. Prime Minister Johnson spent the weekend portraying the UK as open, outward looking and ready for new international trade deals in a post-Brexit world.

We can expect market volatility to continue into this week as the London markets re-open (with the air-conditioning up full blast no doubt). Worries over the US-China trade war persist, Italian political drama drags on and the depth of the economic slowdown in Germany is a serious cause for concern. The upside for equity markets is now potentially more limited than that of England's prospects in The Ashes.

by danielashby

The World In A Week - Rebel Without A Cause

The US and China are both playing hardball, with neither wishing to lose face, but so far, there is no winning, only losing. On a topic that we have written extensively about in the past, trade wars continue to fluctuate between resolution and escalation. Following Trump's announcement of further tariffs on Chinese goods last week, which initially, were planned to be implemented on 1^st September 2019, China allowed its currency to devalue, falling through 7 Yen to 1 US Dollar. The tit for tat continued, with the US proclaiming China a currency manipulator. Trump later announced that he would defer some of his new tariffs, those specifically linked to consumer goods. China agreed to further talks within the next two weeks, in a move likely focussed at calming some of their tensions, as protests in Hong Kong escalated.

While stock markets responded positively to the softening stance of China, the same cannot be said of bond markets. Last week, we witnessed an event that has not been seen in over a decade; the event in question is the inversion of the US Treasury market's yield curve. It has been over 10-years since the yield curve inverted; this means that the yield on 10-year notes fell below that of 2-year notes. The last time we witnessed this move was in 2007 and the Great Recession duly followed in December 2008. Despite the inversion being rather brief, historically, this has been a reliable precursor of a recession. But, bond markets, like equity markets, can get it wrong. However, we must be cognisant that the chances of recession have now greatly increased.

by danielashby

Could your property boost your retirement fund?

Property is increasingly being seen as an asset that's vital for funding retirement. It's no surprise, after all, our homes are often one of the largest assets we have, but what are your options and the drawbacks of doing this?

The value of property has grown enormously over the last few decades. If you're approaching retirement now, you've likely benefited from this at some point. According to figures from Nationwide, the average home cost £59,534 at the beginning of 1989. Over a 30-year period, it increased to £212,694. As a result, property has become an integral asset to consider when planning for retirement or thinking about how you'll pass your estate on to loved ones.

Property and retirement: A growing trend

Some retirees are already exploring how they can use property wealth to enhance their lifestyle and supplement other financial provisions. Research suggests it's a trend that's set to continue. According to analysis by Canada Life younger generations are three times more likely to plan to use property wealth to fund retirement:

• Almost one in ten (9%) people aged between 16 and 54 expect the wealth stored in their homes to be their main source of income in retirement
• This compared to just 3% of those aged over 55

Alice Watson, Head of Marketing and Communications at Canada Life Home Finance, said: It is good the younger generation recognises that they can unlock wealth from their property in retirement. This openness is likely driven by the reality that many under 50s will receive less generous pensions under the Defined Contribution scheme, compared to the majority of the older generation on the Defined Benefit plan.

Notably, the research also illustrates the evolving profile of retirement income, and lends further weight to the argument that Equity Release is moving into mainstream financial planning.

The findings suggest the majority of over 55s are confident in their financial security. Half believe their State or Workplace Pension will provide sufficient income, whilst one in five are relying on savings. However, with 21% underestimating how long they'll live for, more could be reliant on property wealth than expected in the future.

What are your options?

With a significant portion of your wealth likely locked in property, it's natural to wonder what you can do to access it should you need to.

One of the most obvious answers here is to downsize. Selling your home to purchase a cheaper property to spend retirement in can free up some of the investment you've made in property. This used to be the traditional route retirees went down. But what if you can't or simply don't want to move? Or what if downsizing wouldn't release as much capital as you need?

Equity Release is an option that more retirees are choosing. There are several different types of Equity Release products, but they typically allow you to take either a lump sum or several smaller sums though a loan secured against your property which you pay interest on. This money is then repaid when you die or move into long-term care, as a result, you don't usually make payments to reduce the loan during your lifetime, though some products allow you to pay off the interest.

Equity Release can seem like a fantastic way to fund retirement, but there are some crucial things to consider; it isn't the right option for everyone.

1. As you don't usually pay the interest, the amount owed can rise rapidly
2. Accessing the equity may mean you're liable for more tax and affect means-tested benefits
3. You may not be able to move in the future or face a high cost for doing so
4. Equity Release will reduce the inheritance you leave behind for loved ones
5. You will not be able to take out other loans that use property as security

Before you look at Equity Release products it's important that you explore the alternatives to ensure it's the right route for you. There may be different options that are better suited to your circumstances and goals.

Building a retirement income that suits you

Whilst property wealth is set to play a growing role in funding retirement, it's important that other sources aren't neglected. Retirement income is typically made up of multiple sources and may include:

• State Pension
• Workplace and/or Personal Pensions
• Investments
• Savings
• Property

Choosing property over contributing to a pension can be tempting if retirement still seems far away, especially when you factor in property growth over the last 30 years. However, once you consider tax relief, employer contributions and investment returns, as well as tax efficiency, pensions should still play an important role in holistic retirement planning.

If you're starting to think about retirement, whether the milestone is close or you want to understand how your current contributions will add up, we're here to help. We'll work with you to help you understand the different income streams that could provide a comfortable, fulfilling retirement that matches your aspirations.

by danielashby

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.

by danielashby

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 the MSCI World Index fell by 13.9%, the 11^th worst 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 Schroders indicates 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.

by danielashby

Ethical pensions: Considering where your money is invested

Considering ethics when investing has slowly been on the rise over the last couple of decades. However, even if it's something you think about with your investment portfolio, you may not have factored in your pension(s). As contributions are often deducted from your salary automatically, they can slip your mind.

Yet, whether you have one or multiple pensions, they're likely to be one of your largest assets. After all, employee contributions typically span decades over your working life, coupled with employer contributions, tax relief and investment returns. As a result, if ethical investing is something you're interested in, including your pension in such decisions is worthwhile.

What is ethical investing?

Put simply, ethical investing is about incorporating your personal views into how and where you invest. Much like ethical shopping means actively choosing some products and avoiding others for ethical reasons, it's the same concept with investing, Whilst you might choose the Fairtrade fruit at the supermarket, for example, you'd choose the companies that pay a fair wage to invest in.

It's about having a goal that goes beyond simply delivering returns on your money. For example, encouraging green energy innovation, fairer working practices across the global supply chain, or reducing environmental degradation. Some refer to ethical investing as having a double bottom line; the returns and the positive impact you hope it will encourage.

Ethical investing is often filled with jargon and you may have heard the practice of incorporating values into investing as sustainable, responsible or green investing; they all broadly mean the same thing. Ethical investing can then be broken down into three key areas, referred to collectively as ESG:

• Environmental: These link to sustainability and the depletion of resources. Environmental considerations may be using energy efficiently, managing waste, or reducing deforestation.
• Social: The social issues that relate to how a company treats people. This could cover relationships in communities where they operate, diversity policies, and labour standards throughout supply chains.
• Governance: This term focuses on corporate policies and how a company is run. Among the areas covered are tax strategy, executive remuneration and protecting shareholder interests.

When it comes to pensions, incorporating ethics may mean switching to a different fund or actively selecting ethical investments if you have a SIPP (Self-Invested Personal Pension).

Growing interest in Ethical Pensions

Research conducted by Invesco highlights a growing demand for pension products that reflect ESG principles in some way:

• 82% of people would favour part of their pension(s) automatically going to a company which meets a certain ethical standard
• 72% of defined contribution (DC) pension members want their scheme to include ethical investments in its default fund
• 46% would choose a fund that only invests in 'socially and environmentally responsible companies' with returns of 6%, rather than a fund that delivers returns of 6.5% but invested in all types of companies
• If a fund only investing in 'socially and environmentally responsible companies' and one investing in all types of companies both had the same historic returns of 6%, 60% would rather invest in the responsible option

The drawbacks of investing ethically

Whilst ethical investing does allow you to back companies that align with your values, there are drawbacks to consider.

First, ethics are highly subjective. Whilst your pension provider may offer an ethical fund to choose from, it might not align with your values. As a result, you may have to compromise.

Second, considering ethics is a growing trend among businesses, but you will be limiting your investment opportunities. This may mean that returns are lower due to choosing ethical investments.

Finally, validating claims that companies make in their corporate social responsibility (CSR) reports can be difficult, as can measuring the positive impact of investments.

As demand for ethical investment continues to grow, it's likely these issues will become smaller. However, they are worth considering if you're interested in investing your pension ethically. Remember, your pension should provide you with an income throughout retirement. Other factors need to be considered alongside ethics too.

Investing your pension ethically

If you decide you want to invest your pension ethically, how you do so will depend on the type of pension you have.

• If you have a Workplace Pension, you'll be automatically enrolled in the default fund. However, many providers now offer an ethical option that you can easily switch to, often through logging in online. Here, you should be able to see the ESG criteria set out, as well as historic performance.
• A Personal Pension typically works in the same way as a Workplace Pension, except you can choose which provider you want to use. As a result, you can screen out those that don't offer an ethical fund.
• If you have a SIPP, you can either choose investments personally or select a fund, giving you far more control over the ESG elements you want your investment to incorporate.
• With a Defined Benefit pension, you don't have control over how your pension is invested. However, many have begun to embed some ESG practices into their investing principles, having responded to action from members to do so.

If you'd like to discuss how your pension is invested and the income it's projected to deliver at retirement, please contact us.

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.

by danielashby

The World In A Week - Thucydides' Trap

Last week we wrote about the deterioration in outlook and this week we write about the actual fallout. We saw safe havens rallying as fears of a recession increased markedly; gold hit a six-year high and US stocks had their worst trading day in 2019.

This was led by lacklustre economic data for global manufacturing and exports. Commodity prices continued to fall, and inflation pressures remained low. Escalating trade tensions threaten to turn into a full-blown currency war, as China retaliated from Trump's threat of additional tariffs beginning next month. Global recession risks are firmly on the mind of central banks, if not the markets, which is why the interest rate cuts from New Zealand, Thailand and India came as a surprise.

What does this have to do with Thucydides' Trap? Thucydides was a Greek historian who wrote about the inevitable war between Sparta and Athens, which was caused by the growth of the latter and fear of the former. The trap is being replayed between the rise of China and the fear of the incumbent US, which initially manifested itself as a trade war and looks set to evolve into a currency war.

To add to the current climate of woes, the UK's economy contracted for the first time in seven years. The second quarter shrunk 0.2% compared to the previous three months, predicated on increasing Brexit concerns, stock-piling ahead of the original Brexit date and of course and the effect of global trade tensions. The signs could not be clearer for the Conservative government not to take any undue risks with the economy.

There are some silver linings if you dig deep enough. The weak second quarter was payback for a strong first quarter, which saw manufacturers accelerating production ahead of the March Brexit date. These inventories have now unwound, as well as many factories scheduling routine maintenance for April, all of which reduced output for the second quarter. The contraction cannot be fully laid at the feet of Brexit though, as manufacturing and services globally are struggling, amid the trade war tensions and mixed signals from the Federal Reserve.

What is clear though, is the obvious solution for the government in order to give the UK economy a restorative boost, is to avoid the precipice of a no-deal Brexit.

by danielashby

The World in a Week – Dialling Down

The US Federal Reserve was in the limelight last week; Fed Chairman, Jerome Powell, delivered an unsurprising rate cut at his press conference, the first reduction in a decade. The 25bps clip was termed a 'mid-cycle adjustment' with Powell emphasising that the cut was not part of a steady trajectory of rate reductions and was merely a means of 'insurance'. Markets fell sharply on this news, which was not the 50bps that some had hoped for. While markets initially took a dive, towards the end of his speech, Powell clarified that this did not mean further cuts are completely ruled out.

Other key news from Powell's press conference was the Federal Open Market Committee announcing that they would bring quantitative easing to a standstill, selling off bonds previously bought in quantitative easing purchases. Originally, this move was scheduled for September but has been brought forward to August, Powell was clear that this move was to demonstrate that the Fed were exercising prudence, and not with a view that a potential recession was looming. The US economy remains in rude health, although trade wars continue to weigh on general sentiment.

On the topic of Trade Wars, Trump confirmed a further 10% of tariffs on £300bn worth of Chinese imports to the US, effective on 1^stSeptember 2019, which was delivered by tweet, of course. Markets reacted badly, stocks and commodities, notably oil, toppled, on the gloomy implications this could have for economic growth. It is uncertain how China will respond, but given their intervention in their currency market, firstly preventing the currency from strengthening too quickly, and more recently, weakening too quickly, currency could well be China's chosen method of retaliation or more fittingly, their Trump card. As we write, the symbolic level of 7 Yuan to 1 US Dollar was breached, this is the lowest level since the Global Financial Crisis, which indicates at best a Superpower showdown and at worst, a full-blown trade war.

The question we are asking ourselves is whether Trump's recent increase in tariffs, was a strategic move to force the Fed to cut interest rates further and stimulate the US economy, the fallout of this action will be seen in the coming weeks.

by danielashby

The World In A Week - The Greatest Showman?

Headlines were dominated by the Conservative Party leadership contest, which saw the expected outcome of a victory for Boris Johnson. In his inaugural speech as Prime Minister, Johnson said his priorities were to deliver Brexit, unite the country and defeat Jeremy Corbyn.

With around 14 weeks in which to deliver Brexit, Johnson wasted no time in reshaping the Cabinet, culling 15 ministers in order to surround himself with a team that share his views. There will be a lot of hard worked required, for both the UK and EU, to find a resolution in just three months that could not be achieved over the past three years. Particularly when Parliament is only scheduled to be in session for around 21 days during this period and the EU already reiterating its hard stance.

When it comes to rhetoric, Mario Draghi has the crown amongst central bankers. The current head of the European Central Bank (ECB) signalled that he would be prepared to cut interest rates in order to tackle a slowdown in the eurozone economy. He said the risk of a recession was low, however the outlook is worsening, blaming the trinity of Brexit, trade wars and geopolitical uncertainty. His comments also marked the seventh anniversary of this infamous I will do what it takes speech, in which he pledged to keep the eurozone intact in the summer of 2012, the height of the sovereign crisis that was sweeping throughout Europe. These words were enough to see off the spectre of collapse and action did not have to follow for several years. However, the ECB's greatest showman has his final curtain call, stepping down in October, but looking to leave a clear path for this successor.

The final showman is also a central banker. Jerome Powell, the chair of the Federal Reserve, meets with his fellow members of the Federal Open Market Committee on Tuesday and Wednesday. Having spent the previous week building expectations for a significant rate cut, last week saw this being walked back with the art of managing expectations being stretched beyond creditability. Prospects are for a 0.25% cut to US interest rates, given us some substance to the continuing and increasingly confusing rhetoric over the past seven months.

Politicians have always been showmen of a sort, but now we have the heads of the world's most influential central banks joining them on the front burner. We expect to be inundated with forward guidance during the summer, but it is autumn that we need to see action with Brexit as well as the central bankers.

by danielashby