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Neil Woodford and the lessons it tells us

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Neil Woodford and the lessons it tells us

Wednesday, June 12th, 2019

If you read the financial press, this is big news. ‘Star fund manager’, Neil Woodford, stopped investors withdrawing money out of his Woodford Equity Income Fund on 4th June, after the sum total of investment withdrawn from the fund reached a staggering £560m in less than four weeks. Kent County Council wanted to withdraw a further £263m, but was unable to do so before trading halted.

Investment analysts have attributed this action to the significant poor performance of the fund over recent months. Neil Woodford was once the darling fund manager who could do no wrong. A few years ago he was riding high when he left his employer, Invesco Perpetual, to set up his own company, Woodford Funds. With a reputation for having the midas touch, he’d built a large following amongst both retail and institutional investors, many of whom followed him to his new venture.

Once the blue-eyed boy, his public apology probably hasn’t gone far enough in the minds of some investors who are unable to withdraw their funds and are now nursing significant losses.

There are a number of issues at play here which, as advisers, we seek to address when managing client portfolios.  

Don’t put all your eggs in one basket

Investing is about managing risk and diversification is a key part of this. Committing all your money to one investment manager is never a great idea. By selecting a range of funds, we spread the risk within portfolios.

Good governance is essential

A robust governance process is important when managing client portfolios. When selecting funds as part of a portfolio, our established investment governance process ensures that these are regularly reviewed and action is taken where and when appropriate. This framework ensures that we act early on managing any potential risks that may impact portfolio performance.

Asset allocation is a key driver to performance

It is not just about selecting the right funds. When constructing client portfolios, we take into account the importance of asset allocation. This is the split between different types of investments such as UK and overseas equities, fixed interest and cash.  Asset allocation is as important as fund selection.

Follow the fund, not the manager

Fund managers are human, they don’t get it right all the time. The most sensible approach is to consider the fundamentals governing the fund itself, not the individual investment manager. We want to understand the answers to questions such as what process and approach does the fund take to manage risk and the stock selection process? What governance process and framework is in place to ensure a fund delivers against its stated objectives. Fund managers can be flavour of the month, it’s the fundamentals of the fund itself that provide better insight.

If you have any queries regarding your portfolio or would just like to find out more about our investment approach, do not hesitate to get in touch.

May markets in brief

Wednesday, June 12th, 2019

The calm of the previous month ended sharply as May began, with Brexit arguments rolling on, the UK Prime Minister resigning, the European elections crushing the main parties, and Donald Trump imposing tariffs on Mexico and China. There was some positive light, however, from the emerging markets, with India, Russia and Brazil seeing economic gains.

UK

The British high street took a hit this month with the loss of Jamie Oliver’s chain of Italian restaurants, Boots’ decision to review the future of 200 stores and Marks and Spencer’s decision to close an as yet unspecified number of stores. Thomas Cook also revealed a loss of £1.45bn, seeing its shares fall 40%. Overall, retail shop vacancies are at a four year high.

There was better news away from the high street with the UK economy growing 0.5% in the first quarter and the Bank of England raising its growth forecast for the year from 1.2% to 1.5%. However, it also warned that interest rate rises might become more frequent.

The FTSE 100 Index closed down 3% at 7,162 while the pound was down against the dollar, closing the month at $1.2633.

Europe

Much of the continent’s news in May covered the European elections which saw the ‘Grand Coalition’ – the Centre-Right and Centre-Left groupings – lose significant numbers to more radical parties. In France, Marine Le Pen’s National Rally party defeated Emmanuel Macron by 24% to 22.5%. While in Italy, Matteo Salvini is reportedly preparing a new ‘parallel currency’, announcing ‘I do not govern a country on its knees’. Could this be the first step in taking Italy out of the EU?

Overall, the Eurozone economy grew in the first three quarters by 0.4%, though business confidence was said to have ‘crumbled’ according to a survey of more than 1,400 chief financial officers by Deloittes. Across the Eurozone, 65% reported the level of uncertainty as ‘high’ or ‘very high,’ with the US/China trade dispute and Brexit cited as the main reasons. Both major European markets fell in May. The German DAX index was down 5% to 11,727 while the French index fell by 7% to close the month at 5,208.

US

Strong labour data convinced the Fed to keep rates on hold as the US economy added 263,000 more jobs in April, with the unemployment rate now at its lowest since 1969. In company news, Facebook announced plans to launch a cryptocurrency to rival Bitcoin, and Ford said that it would need to shed 7,000 jobs as it looked to cut costs. On Wall Street, the Dow Jones index fell in the month, ending May down 7% at 24,815.

Far East

The trade war between the US and China intensified as the US re-imposed tariffs on $200bn of Chinese goods. China retaliated on 1st June by imposing tariffs of up to 25% on $60bn of US goods.

To add to the worries of a slowdown, analysts have started to ask if ‘winter is coming’ to the booming Chinese tech sector, with electric vehicles, industrial robots and microchip production all slowing down recently. In addition, big companies like Alibaba, Tencent and Baidu have all cut jobs, with one in five Chinese tech companies now planning staff cuts.

All the major stock markets in the region were down due to the trade war. Hong Kong was the worst affected, falling 9% to 26,901. The Japanese and South Korean markets were both down by 7% to 20,601 and 2,042 respectively, while China’s Shanghai Composite Index was down by 6% to end May at 2,899.

Emerging Markets

India saw the world’s largest democratic vote with 600m voting for a new Prime Minister – the victory went to the incumbent Narenda Modi by a landslide. One of the big questions is how Modi will handle the Indian economy. In his first term, India became the world’s fastest growing economy as he cut red tape and reformed the bankruptcy laws. But his biggest gamble, banning more than three-quarters of the notes in circulation in a bid to tackle corruption, backfired badly and delivered a significant blow to economic growth.

Brazil’s economy fell by 0.2% in the first three months of the year, the first decline since 2016. Despite this bad news, the Brazilian market still managed a gain of 1% in the month, closing May at 97,030. The Indian stock market rose 2% to 39,714 but the star performer this month was the Russian market, which rose 4% to finish the month at 2,665.

We hope you have great June and are preparing for a warm summer. If you have any questions about the latest stock market news, please don’t hesitate to get in touch.

6 bad habits to avoid during retirement

Wednesday, May 8th, 2019

Planning for retirement can be complicated, as anyone approaching the end of their working life will tell you. However, navigating the myriad of choices, both financially and socially, doesn’t have to be such an enigma. Here are a few tips to help you avoid common bad habits that retirees often fall into:

1. Spending your pension fund money

Yes, that’s right. If you delay spending your pension and spend other available cash and investments first, you could keep your money safe from the taxman. Not spending your pension fund money until you have to may also help the beneficiaries of your estate avoid a large inheritance tax bill.

2. Taking the full brunt of inheritance tax

Inheritance tax can cost your loved ones vast sums if you were to pass away. There are plenty of ways to protect them from losing a large portion of your estate. Strategies such as making gifts or leaving assets to your spouse are an effective way to avoid the tax, among other valuable strategies.

3. Failing to have a plan

Many retirees have multiple avenues of income to provide for them during retirement. Making the most out of those streams of revenue is key to a stress free retirement, as unwise investment or poor planning can lead to unnecessary worries. We recommend contacting a financial adviser in order to set out a plan that’ll let you focus less on worrying about income and more on enjoying your well-earned retirement.

4. Not taking advantage of the discounts

There is an absolute boatload of price slashes available to retirees over a certain age. This ranges from discounts on train fares to reduced prices of cinema tickets. We recommend that all pensioners takes full advantage of these discounts as every penny saved provides more financial security for yourself and your loved ones.

5. Thinking property is the only asset worth having

Property can be a valuable source of retirement revenue, but it’s not the only way to create more income. Property can often incur maintenance expenses for landlords and take up time to resolve that could be spent making the most out of your retirement (though there are many pros and cons to the pension vs property discussion).

6. Buying into scams

When you retire, it seems that all kinds of people come crawling out of the woodwork to give you a “great” investment opportunity or insurance policy. Tactics can include contact out of the blue with promises of high / guaranteed returns and pressure to act quickly. The pensions regulator has a comprehensive pensions scam guide that’s definitely worth a read.

April markets in brief

Wednesday, May 8th, 2019

April was, on the whole, a positive month for global stock markets. All major stock markets gained over the month, with the notable exception of China. The thawing of Chinese-American trade relations and the expectation of a recovery of growth in China has meant that global markets saw a largely buoyant month overall.

UK

Despite the political turmoil at the beginning of the month, there was plenty of good news. The EU agreed to a flexible Brexit extension until 31st October, taking some of the pressure off firms who would be hit hard by a ‘no deal’ scenario. The manufacturing PMI jumped to 55.1, its highest reading in a year and Britain’s labour market remained in fine form, with unemployment staying at 3.9% and basic wages rising 3.4% year on year. The FTSE rose by a buoyant 2%, up at 7,418.

Europe

The continental markets enjoyed a strong month. However, there were some worrying signs for the French and German economies. French President Macron finally agreed to cut taxes following the Yellow Jacket protest which have caused widespread disruption across the country. Worryingly, French public debt is soaring – the country is on course to overtake Italy as the world’s fourth most indebted country.

The news was also concerning in France’s eastern neighbour. Germany’s growth forecast has been slashed to 0.5% and the country’s usually robust car industry looks like it could suffer over the coming years. Worrying news indeed for Europe’s strongest economy.

These dark clouds on the horizon did little to hinder the countries’ stock markets. The German DAX was up 7% in April to end at 12,344 and the French stock market was up 4% to 5,586.

US

The first two months of the year showed some worrying signs in the American economy, prompting many to fear a coming recession as the government shutdown and cold weather hit economic data. However, the March labour report helped to calm these fears somewhat. 196,000 jobs were added in March and year on year wage growth stands at 3.3%. On Wall Street, the Dow Jones index enjoyed a healthy month, rising by 3% to close the month at 26,593.

The Far East

After being hit hard by heightening trade tensions with America, the Chinese economy appears to be en route to recovery. Official manufacturing figures indicated a boost in activity and overall production rose from 5.3% to 8.5% in March, compared to a year previously. The Chinese economy grew by 6.4% in the first three months of the year, slightly higher than predictions.

As we previously mentioned, China’s Shanghai Composite Index didn’t gain over the month, and dropped 13 points back to 3,078. The other major Far Eastern stock markets enjoyed a strong month. The market in South Korea was up 3% to 2,204 and the Hong Kong index rose 2% to 29,699.

Whatever you’re doing in May, we hope you have a pleasant month and enjoy the (hopefully!) warmer weather. If you have any questions about the latest stock market news, please get in touch.

The UK is struggling to save; what are the implications?

Wednesday, May 8th, 2019

study found in 2018 that one in four adults have no savings. Many residents in the UK wish that they had cash to save, however high monthly outgoings and debt clearance seem to take priority. Saving for the little curveballs that life throws your way is a good way to maintain a sound mind, but poor money management and large monthly payments can get in the way. So is this issue localised to the UK, or is the struggle to save an international issue?

Across the pond

Households in the US are currently able to save 6.5% of their disposable income, down from the previous figure of 7.3% after estimates were made by Trading Economics. However, earlier in 2018 a report was made, finding that 40% of US adults don’t have enough savings to cover a $400 (est £307) emergency.

The current UK savings figure sits at 4.8%, one of the lowest since records began in 1963. The Office for National Statistics has come up with an even lower figure of 3.9%, which actually is the lowest recorded. Further to this, a report was also made by the Financial Conduct Authority in 2017 that millions of UK residents would find it difficult to pay an unexpected bill of £50 at the end of the month, and little has changed since then.

Closer to home

In France and Germany, the savings ratio sits at 15.25% and 10.9% respectively, that’s triple the UK’s value for France and over double for Germany! The Managing Director of Sparkasse bank points to cultural idealsas the main influencers for the high German saving rate, saying that: “Saving is seen as the morally right thing to do. It is more than simple financial strategy.” This stance seems typical for the country that’s home to the first ever savings bank, opening in Hamburg in 1778.

Why do we not save as much as we used to?

The idea of saving for a rainy day in the UK may not be totally lost but for many, the rainy days are happening as we speak. Another reason relates to the tendency of UK households to borrow more money in order to maintain lifestyle choices. For all quarters in 2018, households were net borrowers, drawing on loans and savings to fund spending and investment decisions.

Comments have been made referring to current Brexit uncertainty as a reason for the change, alongside rising rental prices and increased costs of living. Whether this new change in spending and saving is wholly due to current cultural or economic factors is yet to be confirmed. Another case has been made for poor interest rates making it a less lucrative option for savers to save.

Be it cultural or economic, it is undeniable that the country has lost faith in the ethos of saving their pennies. In the end, as more and more studies come to light, it seems that only time will tell.

April Market Commentary

Wednesday, April 3rd, 2019

Introduction

We have commented before on the difficulty of ‘hitting a moving target.’ Sometimes in writing this commentary you run the risk of what you write being overtaken by events, and that has never been more true than this month. In the short time between us publishing notes and you reading them it is possible that the Brexit section will be different.

Given the fact that Brexit continues to dominate the news headlines it’s tempting to think it is the only important story. Nothing could be further from the truth. There were clear signs that the US/China trade dispute might be moving to an end, and it was an interesting month in the US with clear pointers to a sea-change in the car industry – something that has worldwide implications.

In the UK we had Chancellor Philip Hammond’s Spring Statement, the usual gloom from the high street and continuing good news on employment.

World stock markets had a reasonably good month, buoyed by hopes of an agreement between the US and China. We have also taken a look at the performance of all the major markets in the first quarter of 2019. Let’s look at all the detail…

UK

There was, of course, the usual round of gloom from the UK retail sector. Debenhams issued a profit warning – failing to meet forecasts it made just two months ago – and Sports Direct boss Mike Ashley duly contemplated a £61m bid for the company. As of April 1st, the Debenhams board appears to have secured refinancing to fend off Mr Ashley’s amorous advances, but you suspect it is only a matter of time…

More widely the high street suffered its worst February for ten years with sales down 3.7% and John Lewis paid its lowest bonus to staff since the 1950s. What was once Staples and is now Office Outlet went into administration. There was also a very clear sign of things to come from the traditional high street travel agent as Thomas Cook announced plans to close 21 shops and cut 300 jobs.

Elsewhere in the UK there was the usual mixture of good and bad news…

Chancellor Philip Hammond delivered his Spring Statement: he made his opposition to a ‘no deal’ Brexit very clear, promising a £26bn ‘deal dividend’ if agreement was reached with the EU.

But despite the undeniable uncertainty, the UK economy continued to turn in some impressive figures as unemployment fell to its lowest level for 45 years and 32.7m people were in work. Figures from the Office for National Statistics showed that the economy had grown by 0.5% during January – more than double economists’ predictions of 0.2% – with the important services sector up by 0.3%.

Toyota announced that it would build its new hybrid car in Derbyshire – a welcome shot-in-the-arm for the UK car industry which saw manufacturing fall for the 9th month in a row. The BBC also reported that UK manufacturers were cutting jobs at a ‘record pace thanks to Brexit uncertainty’ as companies stockpiled raw materials ‘at a record pace’.

There was also bad news in the housing market, with prices in England falling by 0.7% in the first three months of the year, compared to the same period last year. This was the first fall since 2012, but Nationwide’s survey showed that rises in Northern Ireland, Wales and Scotland meant that the average price of a house across the whole UK was still increasing. UK inflation in February inched backed up to 1.9%, with increases in the cost of food and wine contributing.

What did the UK’s FTSE 100 index of leading shares make of all this confusion? It had a good month, rising by 3% to 7,279 where it is up by 8% for the first quarter of 2019. The pound fell slightly, ending March 2% down at $1.3036 – however, it is up by 2% for the first quarter of the year.

Brexit

Yet again, all the really important news regarding Brexit came at the end of the month as Theresa May brought her Withdrawal Agreement back to Parliament for a third time on 29th March – the day on which the UK should have left the EU – only to see it defeated yet again. The margin this time was 58 votes, with the DUP once again refusing to support it.

There were plenty of high profile Brexit supporters, such as Boris Johnson and Jacob Rees-Mogg, who did support the WA. They feared the only option left was to accept a bad deal or risk losing Brexit altogether – but in truth the Prime Minister never looked likely to do enough to convince either the DUP or 25 die-hard Brexit MPs.

So where does that leave us now? On Monday 1st April there will be another series of indicative votes as MPs look for something they can agree on. The Prime Minister has no control over this and – having promised to stand down if her deal passed – she will face plenty more calls for her immediate resignation as her deal lies in ruins.

If nothing is agreed – such as a further extension to Brexit – then the UK will leave the EU on 12th April. Depending on your point of view we will ‘crash out’ with no deal, or we will move to trading on World Trade Organisation terms. The situation is further complicated by European elections, due to be held in late May: if the UK is still in the EU then it must send MEPs to Brussels.

Europe

The news in Europe was not good. March began with the revelation that EU manufacturing was facing its worst downturn for six years. The European Central Bank was once again forced to act, offering banks cheap loans to try and revive the Eurozone economy.

But will it get any better? For decades there have been three basic facts of life about cars: cars were driven by people, they were owned by people (or the companies that employed those people) and they were powered by internal combustion engines. Now all of those are under threat and the implications are serious and wide-ranging. The German economy has been the engine powering Europe for the last 10 to 20 years. As countries like Italy have had a decade of virtually no growth, Germany has produced a remorseless balance of payments surplus.

The German car industry employs more than 800,000 people: it accounts for around 20% of the country’s exports. If car production switches to driverless cars made in the Far East and/or California, then the implications for Europe are severe.

So, given their less than cordial relationship with the EU of late, it was no surprise to see Italy roll out the red carpet for Chinese Premier Xi Jinping. We have written previously about China’s ‘Belt and Road’ initiative and – with worries about the German car industry and the French economy stagnating – why wouldn’t the populist government in Italy look to closer ties with China? Despite the concerns of her European neighbours the upside for Italy is clear – a flood of Chinese investment and greater access to Chinese markets and raw materials.

Meanwhile in the Netherlands a new populist, anti-immigration party led by Thierry Baudet – inevitably dubbed the ‘Dutch Donald Trump’ – became the largest party in the Dutch Senate. With European elections due in May we can certainly expect to see far more Eurosceptic MEPs returned – which perhaps explains why the EU would prefer the UK not to take part in those elections…

On European stock markets the German DAX index had a very quiet month, rising just 10 points to 11,526. The French market did better, rising 2% in March to 5,351 where it is up by an impressive 13% for the year to date. The German index is up by 9% for the first three months of 2019.

US

It’s interesting to note that as the German car industry faces its biggest-ever threat, most of my notes for the US section of the Bulletin also concern their car industry. But it is not the traditional players like Ford and Chrysler – rather it’s the new kids on the block: Tesla, Uber and Lyft.

March got off to a bad start in the US as figures showed that the US had created just 20,000 jobs in February, well below expectations of 180,000 and the lowest figure since September 2017 when employment was impacted by Hurricanes Harvey and Irma. It was therefore little surprise later in the month when the Federal Reserve announced that it does not expect to raise interest rates for the rest of this year, voting unanimously to keep the US interest rate range between 2.25% and 2.5%.

Facebook suffered its longest ‘down’ time for more than ten years as the company’s main social network plus Instagram and message-sharing were all down for 14 hours. Meanwhile Levi’s – a company that has been around for rather longer than Facebook – returned to the US stock market and saw its shares leap by 32% on the first day of trading.

But the really interesting news was in the car industry as ride-sharing app Lyft made its stock market debut valued at $24bn (£18.5bn), making it the biggest IPO since China’s Alibaba. However, that figure will be dwarfed when Uber comes to the market, with early indications that the ride-sharing company – which is still losing billions of dollars – will be valued at around $120bn (£92bn). With the news that Tesla is also on course to outsell BMW and Mercedes in the US, there are very clear warning signs for the traditional car industry – and for the places it is based and the people it employs.

On Wall Street the Dow Jones index had a quiet month: it finished March up just 13 points at 25,929. It is, though, another market which has done really well in the first three months of the year, rising by 11% since 1st January.

Far East

March ended with real optimism about the US/China trade talks, so it was no surprise to see China’s stock market up by 5% in the month.

At the beginning of March there was much less optimism, and some continuing tension as China temporarily stopped customs clearance for Tesla’s new M3 car.

The trade dispute had certainly taken its toll as figures revealed that Chinese exports in February suffered their biggest fall for three years – down nearly 21% on the previous year.

Unsurprisingly, the Chinese government looked to domestic demand to counter this, unveiling a raft of tax cuts. China’s de facto number two, Li Keqiang, warned that the country faced “a tough struggle” as he laid out plans to bolster the economy. Opening the annual session of China’s parliament, he forecast slower growth of 6% to 6.5% this year, down from the 2018 target of 6.5%. He duly unveiled plans to boost spending with tax cuts totally $298bn (£229bn).

Meanwhile the soap opera around Chinese telecoms company Huawei rumbled on as the US told Germany to drop the company, warning that any deal to let Huawei participate in the German 5G network could ‘harm intelligence sharing.’ Huawei continued to deny that their products posed any security threat, and had the last laugh as figures for 2018 showed that their sales had passed $100bn. Total revenues were 720bn yuan ($107bn £82bn) with profits up by 25%.

The Shanghai Composite Index’s 5% rise meant that it closed March at 3,091 where it is up by an impressive 24% for the year to date. The Hong Kong Market was only up 1% in the month to 29,051 but is up by 12% for the first quarter of the year. The Japanese and South Korean markets turned in much more subdued performances, falling by 1% and 2% to end the month at 21,206 and 2,141 respectively. For the first three months of the year Japan is up by 6% and South Korea by 5%.

Emerging Markets

March was a relatively quiet month for the Emerging Markets section of the Bulletin with two of the major markets we cover unchanged in percentage terms. The Brazilian stock market closed the month down just 169 points at 95,415 while the Russian market managed a gain of just 12 points to 2,497. However both markets have done well in the first quarter of the year, with the Brazilian market up by 9% and Russia up by 5%.

It was a much better month for the Indian stock market, which rose 8% to close March at 38,673. It is up by 7% for the first quarter of the year.

And finally…

Gloucestershire pensioner Stephen Mckears was baffled. Every night he left a few things out on his workbench (in his garden shed, where else) and every morning they were neatly back in their plastic tub.

It wasn’t Mrs Mckears doing some late night cleaning and neither was it a friendly neighbourhood ghost. So what was it? Questioning his own sanity, Stephen set up a camera in his garden shed with the help of a neighbour.

He discovered that a mouse was tidying his workbench. Whatever Stephen left out, the mouse duly tidied away in the plastic tub. “I’ve started calling him Brexit Mouse,” quipped Stephen, “As he’s stockpiling things for Brexit!”

Sadly, all too many of us are addicted to the occasional McDonald’s and, to help us with our choice, the chain has just spent $300m (£227m) on an Israeli technology company that specialises in artificial intelligence. According to McDonald’s CEO Steve Easterbrook “It [the AI] can know the time of day and it can know the weather” thereby helping the chain serve the right food for both the time of day and the weather.

Now call us old-fashioned but we wonder whether you really need to spend over £200m to know that you should take the breakfast menu off at three in the afternoon.

Maybe we’re wrong…

The perks of saving into a Junior ISA

Wednesday, March 20th, 2019

There are so many factors for a parent to consider in doing their best to make sure their children are prepared for the world when they reach adulthood. A lot of those things will be out of your control, but one thing you can consider that could make a real difference is investing into a Junior ISA. If you start early you could accumulate a pot of over £40,000; that’s a birthday present that no 18 year old would be disappointed with.

Entering adulthood with that level of finances comes with life changing opportunities and great freedom of choice. Depending on their priorities, your child could put down a deposit on a property, start a business, pay for training or tuition fees, or even travel the world to their heart’s content.

On April 6th 2019, the amount that can be saved annually into a Junior ISA or Child Trust Fund account will increase from £4,260 to £4,368. Just like an adult ISA, your contributions are free from both income and capital gains tax and often come with relatively high interest rates. For example, Coventry Building Society offer an adult ISA with an interest rate of 2.3% per annum, whereas their equivalent Junior Cash ISA comes with a 3.6% per annum interest rate. Junior ISAs are easy to set up and easy to manage: as long as the child lives in the UK and is under the age of 18, their parent or legal guardian can open the ISA on their behalf. On their 18th birthday, the account will become an adult ISA and the child will gain access to the funds.

Both Junior Cash ISAs and Junior Stocks and Shares ISAs are available, and you can even opt for both, but your annual limit will remain the same across both ISAs. When making that decision there are a few considerations to make; cash investments over a long period of time are unlikely to overtake the cost of inflation but come at a lower risk than their stocks and shares equivalent. With a Junior ISA, however, you can benefit from a long term investment horizon. Although the stock market comes with a level of volatility, you can ride out some of the dips and peaks over a long period. Combined with good diversification, it’s possible to mitigate a fair amount of risk.

Taking a look at potential gains, had you invested £100 a month into the stock market for the last 18 years, figures from investment platform Charles Stanley suggests that a basic UK tracker fund would have built you a pot worth £39,313. In comparison, had you saved the same amount into cash accounts, you’d be closer to £24,000, a considerable difference of nearly £16,000.

With this latest hike in the saving allowance, it’s time to make the most of Junior ISAs and prepare to swap bedtime reading from Peter Rabbit and Hungry Caterpillar to stories of how a stocks and shares portfolio can secure your child’s future.

Tips on how to avoid ‘FOMO’ investing

Wednesday, February 20th, 2019

We’ve all experienced FOMO at one point in our lives, or to give it its full name; fear of missing out. It’s the feeling you get when there’s an event taking place that you can’t attend. It’s the “But, what if?” when considering whether to turn down an opportunity. It’s the anxiety that is all too common when we want to agree to something but are over-committed.

In an age of social media and 24 hour news cycles, where there’s a missed opportunity or the promise of ‘the next big thing’ right under our noses, it’s impossible to avoid FOMO without becoming a hermit. (We’d hazard a guess that even the most ascetic cave-dwelling philosophers wonder what they’re missing out on!)

There’s no shame in experiencing a fear of missing out, it’s how you act on that feeling that makes all the difference. How often do we step out of our slow-moving supermarket queue to join what seems to be the fast-track only for it to grind to a halt as we watch our old queue fly past us? The same is often true when we switch lanes in the motorway. Getting your shopping home a few minutes later is hardly the end of the world, but when we apply the same principles to investing, the results can be much more severe.

Chasing a star performing fund is always going to be a risk. Trying to perfectly time your moves in and out of markets is extremely difficult, and even the greatest investors out there get it wrong more often than they get it right. The temptation that comes from FOMO is to make knee-jerk reactions and focus on the volatility of the markets, looking at the daily ups and downs. This can lead to irrational decisions. Your returns are not going to be a perfectly straight line from the bottom left to the top right of a graph, but that doesn’t mean you should jump ship and change lane at every inevitable up and down along the way. Patience is key to a sound investment philosophy and although it can be very tempting to try the quick-fix, if it sounds too good to be true, it usually is.

One way to counter any FOMO concerns is to have a properly diversified multi-asset fund. In the words of Harry Markowitz, pioneer economist, “diversification is the only free lunch in finance”, so don’t put all your eggs in one basket.

What is the Innovative Finance ISA?

Thursday, February 14th, 2019

Innovative Finance ISAs (IFISA) are a little-known type of ISA that can see great returns. Here’s a summary of what they are and how they use P2P lending to secure steady rates of growth:

P2P lending

P2P lending stands for peer to peer. It’s founded on a pretty straightforward idea: you lend your money to individuals or businesses using a P2P platform as a middleman. Because the interest rates on loans are considerably higher than on savings accounts, they are often an attractive option. With P2P lending, you can expect returns of between 3% and 7% depending on the account you choose.

The IFISA

Three years ago this coming April, the government introduced the IFISA. This allows consumers to invest part or all of their £20,000 ISA allowance in P2P lending. On the surface, the IFISA seems perfect. It’s a tax efficient way of achieving high returns with relatively low volatility.

However, so far the IFISA has been a bit of damp squib.

In the 2017-2018 tax year, £290 million was invested in IFISAs, with an average of £9,355 per person. This might sound like a lot of money, but when you compare it to the £69.3 billion invested in adult ISAs the same year, it pales in comparison.

Industry surveys point the finger at a lack of awareness about the IFISA. Just 6% of Brits are aware of them. Whereas 75% were aware of traditional cash ISAs and 40% knew about stocks and shares ISAs in the same research.

Part of the issue is that P2P platforms have taken a while to bring their IFISAs to the marketplace. Almost three years after their introduction, only 36 IFISA products are available with regulatory delays cited as a reason for this slow uptake by major P2P platforms.

People who are already aware of P2P lending are far more likely to invest in IFSAs. More and more people are investing in IFISAs and it’s thought that much of this growth has been driven by existing P2P investors converting their existing accounts into IFISAs.

Converting a Help to Buy ISA to a Lifetime ISA

Wednesday, January 16th, 2019

With help-to-buy ISAs being phased out on 30th November 2019, many people are considering transferring their funds into a Lifetime ISA. You’ll still be able to access existing help-to-buy accounts until 30th November 2029, but it’s worth knowing which option is right for you.

Help-to-buy ISAs have been around since before the Lifetime ISA was introduced – each have different conditions. With a help-to-buy ISA, you can use your savings and the government bonus to purchase a home that costs up to £250,000 outside of London, or £450,000 in London. With a Lifetime ISA, the property price limit is £450,000 whether the home is inside or outside of London. With a help-to-buy ISA, your government bonus is paid upon completion, whereas with a Lifetime ISA you can use that bonus towards your deposit when you exchange contracts. You may have previously set up a help-to-buy ISA but are now looking at properties outside of London that exceed that £250,000 limit – so what can you do?

You are free to transfer the savings in your help-to-buy ISA over to a Lifetime ISA, increasing your property price limit outside of London by £200,000; however, you must wait 12 months to access those savings and the associated bonus. The 12 month countdown begins from the date of the first payment, and that includes transferring money from a different type of ISA. If you were to transfer savings from one Lifetime ISA to another, however, the 12 month countdown would not be reset.

Converting to a Lifetime ISA can be a savvy move, but it may not be the right one for you. The help-to-buy ISA is still an option at the moment, and although the Lifetime ISA bonus is added regularly, rather than at the point of purchase, it comes with its own caveats. If the saver decides to use their funds for a different purpose (for long term savings for later in life, for example), there can be penalties.

Both options are helpful for encouraging first time buyers to build their savings, but your personal situation will be unique. If you have any questions around this topic, please feel free to get in touch with us directly.