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Financial planning in your forties

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Financial planning in your forties

Thursday, August 16th, 2018

It’s well known life begins at forty. Doesn’t it?

It should be an exciting decade, full of plans and aspirations. It’s also likely to be a time of optimum earning potential.

What’s more, it’s a crucial decade to take a step back and make sure your finances are on track to meet your goals.

There’ll be some decisions you’ll already have taken in your twenties or thirties, which will have had an impact. You may have bought your own home, for example, or put some savings away in cash, investments or pensions.

If things don’t look quite as rosy as you’d hoped, though, your forties are a good time to take stock, as there’s still time to make adjustments and give your investments time to grow.

Don’t forget, whatever savings you can make now will enable you to pursue your dreams later on.

Here are four key tips for shrewd financial planning at this important time of life.

Budget ruthlessly

Just because life may feel comfortable with regular pay rises and bonuses don’t fall into the temptation of spending more than you need. Do you really need that Costa coffee or M&S lunch every day?

Apps like Money Dashboard or Moneyhub can be helpful in showing you where your money’s going. Simple steps like cancelling subscriptions or switching bill providers can make a significant difference.

Historic studies show that investments usually outperform cash savings so any disposable income you can invest will be beneficial. If you can put money aside in a pension you’ll also be taking advantage of the tax relief available. Make sure you use your ISA allowance too for more accessible funds.

Carry out a protection audit

Think about what if the unexpected happened. Your forties are a time of life where you may find yourself part of what’s known as ‘the sandwich generation’ i.e. caring for elderly parents at the same time as looking after young children. This can put extra pressure on you. Make sure you’re protected should the worst happen by ensuring you have a good emergency fund in place. Also think about critical illness cover and life insurance.

Property plans

Your home will be a fundamental part of your financial planning at this time of life. If you feel you need a larger property, these are likely to be your peak earning years so now is the time to secure the best mortgage you can and find your dream home. On the other hand, if you’re quite happy where you are, it may be a good time to remortgage to get a better deal.

Family spending

Everyone’s situation is different. You may have children at university or you may still be having to pay for nursery fees. Whatever your position, make sure you budget accordingly and allow for inflation, especially if you’re paying private school fees. Work out the priorities for your family – the best education now or a house deposit in the future. It’s important not to derail your own life savings for the sake of your children as no one will benefit in the long run.

By doing some sound financial planning now, you’ll have more hope of continuing in the style you want to live, well beyond your forties.

The end of LISA?

Thursday, August 16th, 2018

The new girl on the block, in terms of saving products, seems like she may not actually be around for much longer. LISA, or the lifetime ISA, is being threatened with abolition by a Treasury committee, having only been on the market for 16 months.

The LISA allows those aged between 18 and 50 to save up to £4,000 a year towards a pension or a first home tax free, with the promise of a 25% government bonus capped at £1,000 a year.

However, a panel of MPs have highlighted significant drawbacks with the scheme. Some of the negative feedback has centred around the scheme’s complexity and that is confusing to customers.

The LISA has always seemed a somewhat odd product in that it has two very different target audiences; those saving for a house and those saving for a pension. It’s difficult to see how one product could hold the same appeal for both.

In fact, it has worked better as a vehicle for those saving for a deposit on a house than those using it as a pension allowance. After all, what first time buyer wouldn’t want an extra 25% from the government? It hasn’t been as appealing to those looking for a pension replacement.

The main problem is the 25% exit penalty imposed if you withdraw money from the scheme for any purpose other than retiring or buying a house. This is viewed as exceptionally high, especially as many savers do not realise the penalty is 25% of the entire pot. Those who have had to withdraw money earlier, for whatever reason, have lost more money than they expected.

It’s true that demand for the LISA not been strong and there has been relatively little take-up. What’s more, very few advisers have been keen to offer them.

To some extent, though, it seems a shame to talk about scrapping the scheme when it has only really just got started. If you or a family member fall into the age range and do qualify for a LISA, it could be worth investigating one now and make the most of the government bonus before time runs out.

Interest rate rise: What does this mean?

Thursday, August 9th, 2018

The Bank of England has raised interest rates from 0.5% to 0.75%, only the second rise in a decade. Currently, interest rates stand at their highest since 2009 and reflect what the Bank of England perceive as a general pick-up in the economy.

The Bank said that a rise in household spending has strengthened the British economy. Economic growth for the year is predicted to be 1.4% this year and the unemployment rate is expected to fall further below 4.2%, where it currently stands.

How does the rise affect you?

If you are on a variable rate ‘tracker’ mortgage, your repayments will increase. For example, if you have a £100,000 mortgage, this will add £12 to your monthly repayments.

It’s important to highlight that if you are on a fixed rate mortgage, your payments will stay the same until your base rate comes up for renewal. The Bank of England’s announcement does not mean that your rates immediately rise.

For prospective borrowers, the interest rate rise signals a change in the Bank of England’s tone. Further rate rises are a definite possibility. However, the Bank’s governor took a rather cautious tone which indicates that there are unlikely to be any more rises until 2019.

For the time being, base rates on mortgages are unlikely to rise above 3%. That said, the demand for rate fixes will be higher than usual this year.

Unfortunately for those of you going on holiday, after the announcement the pound fell by 0.9% against the dollar. This is due to the extreme political uncertainty surrounding the sterling with Brexit taking an unchartable track.

Reactions from U.K. businesses have been a mixed bag. The Institute of Directors, which represents about 30,000 members in the U.K., has said, ‘the Bank has jumped the gun’, whilst the British Chamber of Commerce similarly described the decision as ‘ill-judged’ at an uncertain time.

This negative perspective wasn’t unanimous among all lobbying groups. The Confederation of British Industry, the country’s biggest business lobby, welcomed the rise saying the case for higher rates had been building.

A small rise of 0.25% is likely to have a minimal impact on your finances. However, larger hikes down the line could have a substantial effect on the British financial landscape.

Monthly Market Summary – July 2018

Thursday, August 9th, 2018

Despite a brewing trade war between China and the U.S. and an increasingly uncertain post-Brexit future, on the whole, July was a buoyant month for global stock markets.

In the U.K., World Cup fever and hot weather propelled the retail and hospitality sectors to a successful month. In fact, the Centre for Retail Research estimated that every England goal was worth £165.3 million to the nation’s retailers.

Overall, the FTSE-100 index of leading shares was up slightly in the month. Having closed June at 7,637, it ended the month at 7,749 for a rise of just 1%.

On the continent, July was an unusually quiet month. Mainland Europe’s two major stock markets grew confidently during the month; both the French and German markets rose by 4% during July.

Whilst Europe saw a subdued July, Trump’s America had a chaotic month – something most of us have come to expect.

After imposing a 25% tariff on $34bn of Chinese goods in July, which provoked retaliatory measures by China, Trump is now proposing a colossal tariff that will affect $200bn of Chinese imports.

In typically brash American fashion, however, Wall Street has shrugged off the wide uncertainty these “Trump Tariffs” have caused , with the Dow Jones rising 5% in July.

Elsewhere, the Asian markets had a mixed bag. Shanghai and Tokyo closed up by 1%, whilst Hong Kong and Seoul fell by 1%.

This general upward trend could continue. However, the simmering U.S.-China trade war plus an, as of yet, directionless Brexit could bring some turbulence into global stock markets over the coming month.

On the subject of turbulence, if you’re flying somewhere abroad this month, we wish you a pleasant holiday.

How best to help your grandchildren financially

Wednesday, July 25th, 2018

Being a grandparent is an exciting time of life. You get all the enjoyment of doing fun activities with your grandchildren but can hand them back at the end of the day. Part of that pleasure is knowing that you can help them financially. Often you’re at a stage of your life where you’re comfortably off and in a position where you want to give a helping hand to the next generation.

The plus side of this is that you get the opportunity to make a real difference to your grandchildren’s lives. The downside is that the regulations around inheritance tax (IHT) can be confusing and the red tape overwhelming at times. By taking steps to find out what the rules are though, you can make life easier for family members and still be confident that you have enough money for your own retirement dreams.

One important consideration is the timing of your gift. If there’s a new arrival in the family, the financial needs will be very different than if it is to help older children. For example, the priority may be to help the newborn’s family move to a more spacious home or to help with private school fees for a primary school-aged child. Later on, it may be to help with driving lessons, pay for school or university fees or enable them to get on the housing ladder. You may decide you want to leave your money to your grandchildren in your will, in which case it is vital to plan your giving in advance in a tax efficient way.

IHT will be levied on your estate at 40% when you die, so if you’re giving money away now that will have an impact later. The nil-rate band is a threshold of £325,000 for the value of your estate. Anything above that will be taxed. Making monetary gifts can take the money out of the ‘IHT net‘ but remember this only applies for the seven years after you made the gift. It’s worth exploring some extra allowances such as being able to give £3,000 of gifts per tax year (your annual exemption) as well as an allowance for small gifts and wedding/birthday gifts.

There are a number of alternatives to make your gift. If the money is needed before age 18, a trust structure is a tax-efficient way to give money, while still giving you some control on how it is used. A Junior ISA can also be a good option as it grows tax-free, building up a fund for driving lessons or university fees. You can’t open the JISA on your grandchild’s behalf but you can pay into it up to their annual limit, currently £4,260. If they’re older, you might want to consider a lifetime ISA for a housing deposit. Again, you can’t open it for them as a Lifetime ISA can only be opened by someone between the ages of 18-39 but if your grandchild opens one, it’s a way for them to save up to £4,000 a year and get a 25 per cent government bonus on top.

Whatever you opt for, you’ll have the feel-good factor of helping the next generation in a way that is right for both you and them.

July market commentary

Wednesday, July 18th, 2018

Introduction
Let us invite you to travel back in time to June 2016, to the day after the Brexit referendum. Meanwhile, across the Atlantic, campaigning in the US Presidential election is in full swing.

You are offered two glimpses into the future. The first is that two years on, the UK has apparently made no real progress in the Brexit negotiations. The second is that Donald Trump has been elected President and has had a successful meeting with Kim Jong-un. You would have dismissed both of them as ridiculous and yet that is exactly what June brought us, as Theresa May called yet another Brexit crisis meeting and President Trump met the leader of North Korea in Singapore.

…And then the President went on to announce a raft of tariffs on imported goods – from both China and Europe – which may well see the threatened global trade war develop. Both China and the EU were swift to announce retaliatory tariffs, and (unsurprisingly) June was a month in which none of the major stock markets we cover managed to gain any ground.

June was also another bad month for the virtual currency Bitcoin. The price has been in steady decline over the last two months and, over the weekend, stood at $6,369 (£4,822). There were two main reasons for the fall as the South Korean cryptocurrency exchange Bithumb revealed that it had lost 35bn won (£24m) in a cyber-attack, and governments and regulators around the world – the US Securities and Exchange Commission is the latest – made ominous noises about cutting down on Bitcoin fraud.

In what is surely a sign of things to come, the Canadian province of Quebec halted approvals for Bitcoin mining as it worried about being able to supply electricity to the province.

UK
Sadly, the big story in the UK in June is one which has been written about often in recent times – the continuing decline of retail and the national high street. On the morning of Monday July 2nd, both the Mirror and the Daily Mail led with ‘the battle to save Britain’s high streets’.

Can anything be done? June brought us almost uninterrupted sunshine, and it may well be that the retail figures – like those for May – will show a rebound from the depressing figures disclosed in the Spring. The Mail is reporting that 50,000 retail jobs were lost over the last six months and is calling for an urgent review of ‘crippling business rates’.

Even that may not be enough: the simple fact is that it is easier, quicker, more convenient and cheaper to shop online. Even Costa is starting to struggle, reporting a 2% fall in like-for-like sales in the first three months of the year, which it blamed squarely on a lack of shoppers.

The long term trend was neatly captured by the problems of House of Fraser. On June 4th, it ‘rejected talk of a collapse’: three days later it was announcing that 31 of its stores would close. With M&S also planning a programme of store closures, Debenhams issuing constant profit warnings and 60 bank branches closing every month, the UK high street increasingly looks like it could be an idea whose time has passed.

But let us try and find some good news…

June was a good month for the economic numbers in the UK. Unemployment was down, falling by 38,000 between February and April, and the number of people in work rose to a record 32.4m – up 440,000 on the previous 12 months. That said, wage growth slowed again, so it is to be hoped that inflation does not also start to rise, otherwise we will be back in the realm of falling real wages.

The UK also earned the unofficial title of tech ‘unicorn’ capital of Europe. For those of you that don’t know the term, a ‘unicorn’ is a tech start-up valued at more than $1bn (£757m). The UK is home to 37% of the continent’s ‘unicorns’ and, according to a report for London Tech Week, is the number 1 destination for Europe’s top tech talent.

Rather more mundanely, the Bank of England voted to hold interest rates at their current level, but it is looking increasingly likely that base rates will rise to 0.75%, possibly as early as August.

The month ended with MPs voting overwhelmingly for the expansion of Heathrow airport – but do not expect the diggers to move in for a few years. The move will be widely challenged in the courts by local and environmental campaigners.

Finally, what of the UK stock market? The FTSE 100 index of leading shares had a quiet month. It started June at 7,678 and fell by just 41 points to end the month at 7,637. And it is down just 51 points for the year as a whole, having started 2018 at 7,688.

The pound was also down slightly against the dollar, falling from $1.3299 to $1.3211.

Brexit
As noted in the introduction, June brought us the second anniversary of the vote to leave the EU but we remain no closer to knowing what the final shape of Brexit will be. Airbus and BMW made veiled warnings about the consequences of ‘no deal’ but with Theresa May’s cabinet still squabbling about the shape of the eventual customs partnership, that exact outcome appears to be looking ever more possible.

At the time of writing, the newspaper headlines are telling us that this month’s meetings will be ‘make or break for May’, although it would not be a surprise to see that, once again, a last minute compromise will be cobbled together and that this time next month we will still be no further forward.

Europe
The Italian coalition government has survived its first month in office, even giving an impression of normality as new finance minister Giovanni Tria said that the government was “clear and unanimous” in its decision to remain in the Eurozone.

The main news in Europe was the decision of the ECB to end its huge programme of bond-buying which was introduced in a bid to stimulate the economy of the Eurozone. In a statement, the ECB said that it would halve the current scheme – worth €30bn (£26.6bn) a month – after September “as long as the data remained favourable” and end it completely in December. ECB President, Mario Draghi, acknowledged that Eurozone growth had stuttered recently, but was adamant that the underlying growth “remained strong”.

There was big news for jobs in the steel industry as German industrial group Thyssenkrupp signed a deal with Tata Steel to combine the two companies’ European businesses. The new company will be headquartered in Amsterdam and will have a total workforce of 48,000 – but there are fears of up to 4,000 redundancies.

There could be one more redundancy as well… It is hard to escape the feeling that we are approaching the end of Angela Merkel’s time as German Chancellor as key ally Horst Seehofer, the interior minister, threatened to resign over her immigration policy. In Turkey, Recep Erdogan won a new five year term as president, with some commentators arguing that it effectively spelled the end of the country as a democracy.

On the stock markets, the German DAX index ended June down 2% at 12,306, while the French index was down just 1% at 5,324. At the halfway point in 2018, the German index is down by 5% for the year as a whole, while the French index has risen by just 11 points.

US
Threatened trade war or not, the US announced better than expected data on jobs as unemployment fell to an 18 year low. Forecasters had been expecting 190,000 jobs to be added in May, but that figure was comprehensively beaten as the economy added 223,000 jobs in the month.

As had been expected, the US Federal Reserve announced a rise in interest rates, moving the target rate up from 1.75% to 2%, and going so far as to forecast a further two rate rises this year, reflecting the strength of the US economy. It is the seventh time that rates have been increased since 2015 and takes them to their highest level since 2008.

In company news, there was more gloom for Facebook as it wrestled with yet another ‘privacy bug’ – this time affecting the data of 14m people. And there was bad news for Google as the EU announced that it would fine the company up to $11bn (£8.33bn) over the dominance of its Android system.

Tesla, Elon Musk’s car making company, announced that it would cut 9% of its workforce – mostly ‘salaried employees’ – as it bids to finally make a profit. The company employs 37,000 people and has never made a profit in the 15 years it has existed.

“Profit is not what motivates us,” Musk posted on Twitter. Wall Street does occasionally like to see companies making a profit, but it was a quiet month for the Dow Jones index, which drifted down 1% to close the month at 24,271. Looking at the year as a whole, it is down 2% from its opening level of 24,719.

Far East
China seems well on course to become the world’s most influential economy as the One Belt, One Road infrastructure project continues to extend its influence through Africa and towards Europe, with Chinese leader Xi Jinping committed to creating ‘a paradigm of globalisation that favours China’. The country is now the world’s second largest consumer of crude oil, with 25% of the imports coming from Sudan and the Gulf of Guinea.

For this month though, it was a disappointing performance from China’s Shanghai Composite Index which fell 8% to close at 2,847. Hong Kong followed Shanghai’s example, falling 5% to 28,955 and the South Korean market was down by 4% to 2,326. The Japanese market was more or less unchanged in the month, moving up very slightly to 22,304.

Unsurprisingly, given the threat of a trade war, all four markets are down over the first six months of the year. The Chinese market leads the way with a fall of 14%: South Korea is down 6% and the Hong Kong and Japanese stock markets are down by 3% and 2% respectively.

Emerging Markets
Could North Korea one day feature in this section of our report? It seems that these days the only way to predict the future is to think the previously unthinkable. Kim Jong-un is 34 (or 36, depending on which ‘official’ source you believe) and it is not hard to see him one day taking North Korea down a similar road to China while maintaining rigid state control of the economy.

For now, though, we will look at only the usual suspects – India, Russia and Brazil. The first two saw their stock markets largely unchanged in June, closing at 35,423 and 2,296 respectively. The Brazilian market was down 5% at 72,763. For the first six months of the year, Russia – with future tourism surely buoyed by a successful World Cup – has seen its market rise by 9%, the Indian stock market is up 4% but the Brazilian index is down by the 5% it fell in June.

And finally…
Sadly, the high street seems to be taking a further thumping from consumers as newspapers report that supermarket groups are ‘losing millions’ as ‘cunning shoppers’ buy expensive items such as avocados and put them through the self-service tills as cheaper items like carrots.

It sounds like there is a gap in the market for an app which tells you how many 60p per kg. carrots weigh the same as a £1.50 ready-to-eat avocado…

New shopping techniques aside, a shortage of CO2 (carbon dioxide) was also making the news. It turns out that CO2 is not just something you vaguely remember from school, but a vital component in the food and drink industry.

It is used to add the ‘fizz’ in beer and fizzy drinks, and to extend the shelf life of meat and other food products. Scotland’s biggest abattoir has closed and Asda rationed the supply of fizzy drinks to online customers.

There are also real fears that there could be a beer shortage this summer as Europe continues to struggle with the CO2 shortage and “beer crazy football fans” threaten to drink Russia dry during the World Cup.

But things can always get worse – and back in the UK we could now be facing a shortage of… lettuce. The heatwave has apparently boosted demand for lettuce but – according to the brilliantly-named British Leafy Salad Growers Association – the soaring temperatures have stopped the crop growing. Broccoli and cauliflower crops have also been affected and the shortage could hit the supermarket shelves as early as this week.

Expect the Iceberg Lettuce to replace Bitcoin as the new default currency of the internet. Maybe it’s time to get out there and plant lettuce in the back garden… or perhaps instead you should be considering a crop of avocados…

June market commentary

Wednesday, June 6th, 2018

Harold Wilson famously said that, ‘a week is a long time in politics.’ A month is a very long time when we come to write this commentary.

Looking back to the first few days of May, the Royal Bank of Scotland was announcing plans to close 162 high street branches in the UK, Facebook said it was going to launch a dating service and, in Europe, there were rumours of a final, final (and this time they really meant it) deal on Greek debt.

But that was all simply froth and noise. The real news came right at the end of May with political crises in Spain and Italy – with the Italian one threatening to become an economic crisis at any moment – and Donald Trump’s sudden announcement of steel tariffs on virtually any country you care to name. May ended with Europe swiftly announcing retaliatory measures and the world once again looking at a damaging trade war.

Unsurprisingly, this had a negative effect on world stock markets, although with the news coming at the very end of the month much of the uncertainty may be reflected in June. Only two of the major stock markets we cover managed a gain during May, with the UK leading the way – albeit only rising by 2%. Most of the other markets were slightly down although, as you will see below, there were two markets which fell significantly.

UK
May was another month with the usual mix of good and bad news in the UK. As we have just noted, RBS kicked off the month by announcing the closure of 162 bank branches. As online banking and mobile apps continue to bite into retail banking you do wonder just how many high street branches there will be in ten years’ time.

The gloom for high streets up and down the country as April proved to be another bad month for the retail sector, with footfall down by 3.3% following the 6% fall in March. Add in the store closures announced by M&S and warnings of thousands of betting shop closures as the Government reduced the maximum stake on fixed odds betting terminals and you question whether town centres as we know them will survive.

There was more bad news for RBS as it agreed to a $4.9bn (£3.65bn) fine from the US authorities for mis-selling and BT announced plans to cut 13,000 jobs – around 12% of its workforce – in an attempt to cut costs.

…But there was plenty to report on the ‘good news’ page. Consumer confidence rose in April, reaching its highest level since January 2017 as wages rose by 2.9% in the first quarter of the year, finally starting to pull ahead of inflation. Unemployment was also down, falling by another 46,000 in the first three months of the year and still at its lowest level since 1975.

There was also positive news in the corporate sector as the Share Centre released data showing that UK corporate profits rose to a record high in 2017 as a buoyant world economy boosted UK multinationals. The profits recorded by the survey – £153bn – were 0.2% ahead of the previous record, set in 2011.

Will those successful companies be paying more for any borrowing in the future? Almost certainly, as the Bank of England hinted at a series of interest rate rises over the next three years. However, inflation fell to 2.4% in April – the lowest since March 2017 – meaning that threats of a rate rise have receded in the short term.

The UK stock market decided this was all good news, and the FTSE 100 index of leading shares was up 2% in May, the best rise recorded by any of the markets we monitor. It closed the month at 7,678 having ended April at 7,509. However, the pound went in the opposite direction, falling 3% in the month to $1.3299.

Brexit
Looking back over my Brexit notes for May they seem to cancel each other out. ‘Tory backbenchers deliver ultimatum over customs partnership’ ran one headline. ‘Jobs at risk without a customs partnership’ ran another. The month ended with suggestions of a ten mile wide trade buffer zone in a bid to break the deadlock over the soft/hard Irish border question.

We are now ten months away from the date when the UK is supposed to leave the EU and still virtually nothing has been agreed. That agreement may be even harder to find after the Republic voted to legalise abortion, leaving Northern Ireland as the only place in the British Isles where abortion is illegal. The DUP remains fiercely opposed to any legalisation – and Theresa May remains fiercely dependent on DUP support, presumably meaning that the DUP now hold a much larger bargaining chip in any discussions on the border.

What a mess. It almost makes Italy look like a model of considered government.

Europe
…Except of course, that Italy is anything but considered. Or stable…

Wishing for a stable government in Italy is probably akin to wishing for an end to the Greek debt crisis, but that is what might happen in June. Later this month a team of EU debt inspectors will arrive in Athens and begin poring over the Greek government’s books. If they like what they see, then apparently Europe’s leaders will settle on a long term plan for Greece to repay the billions of euros it owes.

Were it not for Italy that sort of news might make the headline writers turn to drink, but Italy seems to be a more than adequate stand-in.

For now, the country has a government. Giuseppe Conte, an academic and relative political novice, is the Prime Minister, heading a coalition of the anti-establishment Five Star Movement (M5S) and the far-right League party. It has been dismissed as ‘populist’ – which to this writer at least simply means it won the most votes in the election. It is, though, undeniably sceptical of the EU and how long a coalition between a party that believes in a universal basic income and another that believes in cuts to government expenditure can last is anyone’s guess.

Meanwhile, Spain was losing its Prime Minister after Mariano Rajoy lost a vote of no confidence following allegations of corruption. Plenty of drivers also expressed ‘no confidence’ in their BMW cars, which stalled while they were being driven, forcing the company to recall 300,000 vehicles. And there wasn’t much confidence behind Air France either, as another wave of strikes forced the country’s economy minister to warn that the airline could go out of business.

What of the main European stock markets? Like many markets in this month’s Bulletin, the German DAX index was virtually unchanged, falling just seven points in May to close the month at 12,605. The French market was down 2% at 5,398 but the Greek market tumbled dramatically, down 11% to 756. Does that suggest those debt inspectors may not like what they find?

US
The beginning of the month was ‘business as normal’ in the US. Apple showered its investors with cash as it announced plans for a $100bn (£75bn) share buyback – and said that it had sold 52.2m iPhones in the three months to March.

Legendary investor, Warren Buffet, liked what he saw and bought 75m shares in the company, sending the shares to a record high.

Over at Facebook, Mark Zuckerberg, fresh from surviving the Congressional hearings, said that Facebook would be launching a dating service, and fellow billionaire Elon Musk remained optimistic about Tesla’s future – despite the company posting a record loss of $710m (£523m) for the three months to March. The company’s target is to produce 5,000 electric cars a week – so far, it is producing just 2,270 as it continues to burn cash at an alarming rate.

The wider US economy added 164,000 jobs in April. That was slightly below expectations, but it still saw US unemployment fall to 3.9% – the first time it has dipped below 4% since 2000.

…And then, right at the end of the month, President Trump announced tariffs on imports of steel and aluminium. Among the countries and trading blocs affected were the EU, Canada and Mexico, all of whom announced retaliatory measures. The President said that the move was to secure “‘fair trade” adding, “they are our allies but they take advantage of us economically.”

The retaliation from the EU saw tariffs imposed on a raft of US imports from Harley Davidson motorbikes to bourbon. There were no tariffs on Chinese goods as trade talks continued, but it now appears that the US will impose 25% tariffs on $50bn worth of Chinese imports shortly after mid-June, with Treasury Secretary Steve Mnuchin saying that a final list of goods would be published by 15th June.

The Dow Jones index took all the news in its stride and – along with the UK – was the only other market we cover to rise during May. It was up by just 1% to close the month at 24,416.

Far East
There was bad news for the Japanese economy in May, with figures for the first quarter of 2018 showing that the economy had contracted by an annualised rate of 0.6%, worse than the expected contraction of 0.2%. This was the first time the Japanese economy had shrunk in two years, ending the longest stretch of economic growth since the 1980s.

‘Shrinking economy’ is a phrase which doesn’t appear to translate into Chinese, but the government there did finally agree to ‘significantly’ increase the number of goods it buys from the US. A joint statement between the US and China said the two countries had agreed to ‘a meaningful increase in US agriculture and energy exports.’

The White House added that the move would ‘substantially reduce’ the $335bn (£251bn) annual trade deficit the US has with China – although telling there was no mention of the $200bn (£150m) deficit reduction target that had previously been mentioned. And quite what impact June’s tariffs will have is anyone’s guess…

In company news, Chinese smartphone maker Xiaomi (it’s pronounced ‘show-me’ and it is a brand name you’ll become increasingly familiar with) announced plans for a $10bn listing on the Hong Kong stock market, while TenCent – China’s biggest social media company and now worth more than Facebook – posted a 61% year-on-year jump in profits to $3.7bn (£2.7bn).

It was a quiet month on the region’s stock markets. China’s Shanghai Composite index was up just 13 points to 3,095 while the markets in Hong Kong and Japan both drifted down by 1% to 30,469 and 22,202 respectively. There was less good news in South Korea, where the stock market fell by 4% to end the month at 2,423.

Emerging Markets
It was a quiet month for Emerging Markets news and – for two of the three major markets this section covers – a quiet month on the stock markets too. Both the Russian and Indian markets were unchanged in percentage terms, with the Russian market down just four points to 2,303 and the Indian stock market ending the month up 162 points at 35,322.

There was, though, no such calm in Brazil with the stock market falling 11% to 76,754 and undoing all the gains made so far in 2018.

And finally…
‘Close but no cigar’ probably sums up the final section of our commentary for May. There were some interesting stories but sadly, no security engineers locking themselves in ATM machines or cutting-edge AI robots drowning themselves in swimming pools…

Still, TSB boss Paul Pester would have had an easier month if he had locked himself inside one of the bank’s ATMs. ‘Computer chaos at TSB’ screamed the headlines, in a month which almost certainly saw the bank set a record for the number of times its customers heard, “Your call is important to us, but we are experiencing heavy call volumes at the moment.”

The chaos saw TSB customers given access to pretty much anyone’s account but their own, and one couple were actually able to see their life savings removed from their account while they were kept on hold.

Speaking to a committee of MPs, Mr Pester said that the migration to a new computer system had been “a terrible decision.” He would, he said charitably, be foregoing his £2m ‘integration bonus.’

There was bad news for all of us as the Great British Summer approaches. The cost of vanilla has sky-rocketed over the last two years, meaning that the cost of your ice-cream will be going up. At $600 (£450) per kilo vanilla now costs more than silver: it may be time to invest in mint chocolate chip shares…

In the ‘good news’ column a small town in Carmarthenshire has been named as one of the best places for coffee in the world. Coaltown Coffee in Ammanford (population 5,293) was named on Lonely Planet’s list of best roasteries. So wherever you are in the world, you’ll be able to enjoy Welsh coffee – at least until you-know-who imposes a tariff on it…

May market commentary

Thursday, May 3rd, 2018

Introduction
It looked for a long time that the main headline for this commentary would be the opening salvos in a trade war between China and the USA. The International Monetary Fund published a bullish report on world trade, saying that global growth will hit a 7 year high of 3.9% this year – giving a stark warning at the same time that trade risked being ‘torn apart’ by a protracted trade war.

But then came the news of North Korean leader Kim Jong-un’s, historic visit to South Korea and his meeting with President Moon Jae-in. There followed a bromance which would have been impossible just a few months ago, and a commitment to rid the Korean peninsula of nuclear weapons. The meeting would have been unthinkable at the beginning of the year when North Korea was boasting of being able to reach the US mainland with its rockets: now Pyongyang says it will invite US observers to witness the shutdown of its nuclear site in May.

By the end of the month even the China/US threats and counter-threats seemed to have receded a little and most of the major stock markets which we cover made up losses suffered early in the month on fears of a trade war. There was, however, one significant fly in the ointment as the price of oil continued to climb: Brent crude went past $72 a barrel in light of the continuing troubles in Syria and the instability in the region.

UK
Let’s start the UK section with some really good news: 2017 was a record year for the UK wine industry, as figures showed 64% more bottles of UK-made wine reached the market than in 2016. The Wine and Spirit Association said the industry was reaping the benefits of ‘huge’ investment over the last decade.

…But if April brought good news for wine, it brought yet more bad news for retail as the wet Easter proved a washout for the UK high street, following the bad weather which kept shoppers at home in March. Carpetright announced the closure of 92 stores – and you have to think that the merger of Asda and Sainsbury’s, announced at the end of the month, will ultimately lead to store closures and job losses. There have been plenty of warm words from both sides but it is hard to see that the merger can be good for jobs or, in the long term, for consumers as the number of big supermarket groups in the UK reduces from four to three.

We have commented above on the IMF forecast for world trade: that same forecast included a prediction that UK growth this year would be 0.1% higher than originally thought at 1.6%. HSBC also predicted that UK exports would rise this year by their fastest rate since 2011.

Other numbers for the UK made mixed reading: a slowdown in construction and the effects of the ‘Beast from the East’ meant that UK growth in the first quarter of the year was just 0.1% – the lowest figure since 2012. Mortgage lending was also down, as figures for March showed it falling 2.3% to £20.5bn.

There were some positive figures: wages finally climbed above inflation as the year long squeeze on pay showed signs of ending earlier than expected, and unemployment fell to 4.2% – its lowest level since 1975. And London was voted the world’s top financial centre, finally climbing above New York for the first time in five years.

The vote was presumably taken without reference to TSB: April ended with TSB taking the phrase ‘banking chaos’ to a whole new level. The bank upgraded its systems – inevitably in order ‘to improve customer service’ – and ended up seemingly giving customers access to anyone’s account except their own.

Fortunately, there was no such chaos for the FT-SE 100 index of leading shares. After some lacklustre months, it rose 6% in April to end the month at 7,509. As so often happens, the pound went in the opposite direction, falling 2% to end the month trading at $1.3754.

Brexit
Throughout April, the debate raged about whether the UK should stay in some sort of customs union with the EU after March next year. Doing so would avoid a ‘hard border’ between Northern Ireland and Eire – but would severely limit the UK’s ability to do trade deals with countries outside the EU.

It would, sadly, be possible to write an entire 2,500-word commentary on the various models of customs union – or partnerships – that are currently being discussed: we will attempt to do it in less than 200.

The first option – favoured by the Brexit supporters and known in Whitehall as ‘Max Fac’ (short for Maximum Facilitation) would see the UK and EU agree to minimise all checks, using smart technology and building on best practice from around the world (for example, the USA and Canada do not have a customs union). This means that there would be a border between the UK and the EU, but it would be as light touch as possible.

The second option is a hybrid model – the Customs Partnership – which rests on the EU recognising UK customs checks as equivalent to their own, so that goods entering the EU at say, Rotterdam, could in theory travel on to the EU without further checks.

This appears to be Theresa May’s favoured option, but has been described by hard right Tory Jacob Rees-Mogg, as ‘cretinous’ while the International Trade Secretary Liam Fox, has come out firmly against any form of customs union. With eleven months to go until March 2019, the debate will undoubtedly rumble on: but we have reached the 200 word limit, we promised. Don’t worry, the politicians will undoubtedly still be discussing it next month…

Europe
April was a busy month for French President Emmanuel Macron, who made a high-profile visit to Washington and, earlier in the month, made a speech in Strasbourg calling for ever-closer union between the EU’s member states and, as the EU faced up to the loss of the UK’s contribution, more tax and revenue raising powers for the EU.

Many commentators perceived this as Macron’s bid for the de facto leadership of the EU, with German Chancellor Angela Merkel widely seen to be in a weaker position following her eventual coalition agreement with the Social Democrats. German dominance no longer a safe bet, ran a headline in City AM.

Away from the corridors of power and in the banking halls, the European Central Bank announced it would leave interest rates unchanged, despite the pace of growth in the Eurozone starting to slow. There was bad news from Deutsche Bank, which announced ‘significant’ job cuts as it scaled back its corporate and investment banking operations. Christian Sewing, the new CEO of Germany’s biggest lender, said that the cuts were ‘painful but unavoidable’ as the bank reported a sharp drop in first quarter corporate and investment banking revenues.

Fortunately, there was no pain on the German stock market, as the DAX climbed 4% in the month to end April at 12,612. The French stock market had an even better month as it rose 7% to 5,520 – and there was even good news from Greece, with the Athens stock market up 10% to 858.

US
All the attention at the beginning of the month focused on the war of words – and potential trade war – between the US and China. It ended with the historic meeting in Korea and South Korean President Moon Jae-in suggesting that Donald Trump be awarded the Nobel Peace Prize.

Away from that potential plaudit, the US President had some troubling numbers to contend with. The US trade deficit widened in February to $57.6bn (£42bn) and there are suggestions that the US could have a trade deficit of a trillion dollars a year by 2020.

Jobs growth slowed in March, with just 103,000 jobs created in the month, and there were disappointing figures for the first quarter, as annualised growth slowed to 2.3%. Those figures are unlikely to be helped by suggestions that the US could get as many as four interest rate rises this year, as the Federal Reserve pursues a more aggressive line in a bid to keep inflation under control.

April was, however, a good month for both Alphabet (the parent company of Google) and Amazon as their sales and profits surged ahead. But it was a lot less fun for Facebook’s Mark Zuckerberg: he endured an uncomfortable month as he apologised for his company’s massive data breach at a Congressional hearing. Not a good month for Wells Fargo either, as the bank was fined a record $1bn (£730m) for failing to resolve investigations into car insurance and mortgage lending breaches.

What did the Dow Jones index make of it all? Virtually nothing. Having opened the month at 24,103, the Dow closed April up just 60 points at 24,163.

Far East
The news from the Korean border rather overshadowed China’s news in the month – specifically that the country had seen its economy grow at 6.8% in the first quarter, ahead of the government’s growth target for the year of ‘around 6.5%’ – although obviously, this figure would be under pressure from a prolonged trade war with the US.

In Chinese company news, Didi Chuxing, China’s equivalent of Uber, the world’s largest ride-hailing app and currently reckoned to be worth nearly £40bn, announced modest plans for world-wide expansion.

The Economist Intelligence Unit published an interesting article, listing the countries which were most ready for the robotics revolution: South Korea headed the list, with Japan and Singapore joining it in the top four. (The UK was in 8th place, just ahead of the USA.)

Obviously, the news of the détente between North and South Korea had a positive influence on the region’s stock markets. Only China – perhaps still worrying about a possible trade war – saw its stock market fall during the month, with the Shanghai Composite down 3% at 3,082. Hong Kong went in the opposite direction, up 2% to 30,808 and the South Korean market rose 3% to 2,515. Japan, free of the worry of North Korean missiles flying over its islands, saw the Nikkei Dow rise 5% to close April at 22,468.

Emerging Markets
US sanctions hit Russian shares said a BBC headline in the middle of the month, reporting that sanctions imposed by the US had hit the shares of companies controlled by Russian oligarchs, ‘as the Russian stock market tumbled in the wake of the sanctions.’ This followed the diplomatic crisis sparked by the poisoning of former spy Sergei Skripal and his daughter, and President Trump’s threats of tariffs on aluminium and steel.

Well, sanctions or no sanctions the Russian stock market had recovered by the end of month, closing April up 2% at 2,307. There was an even better performance from the Indian stock market, up 7% in April to end the month at 35,160 – and Brazil completed our Emerging Markets hat-trick as the market there rose 1% to close at 86,115.

And finally…
April was a good month for the ‘And finally’ section of the commentary – but we start with something that is probably best not read while you are eating breakfast.

NASA, America’s space agency has been looking for a material that can be transported into space and used for the spare parts that are inevitably needed on a long space mission. The idea is that the parts would be made using a 3D printer: but what material to use? The rocket scientists at NASA have decided that, well… human waste would be ideal. Transported into space and put to use: that’s an idea that Major Tom never discussed with ground control…

There had been widespread rumours of an exodus of London’s leading bankers after Brexit. Apparently, that is not now going to happen. A report in Politico said that the bankers’ wives – and one husband – had been to inspect Frankfurt, the rumoured new banking capital of Europe, and found it to be ‘dark, grey and dull’. So there you are: David Davis and Michel Barnier can huff and puff all they like – in the end it looks like bankers’ wives will decide the shape of Brexit.

Sadly, one wife who had rather less influence was the wife of Tanzanian gambler, Amani Stanley. So sure was Amani that his beloved Manchester City would clinch the Premier League title by beating Manchester United at home that he bet his wife on the result. All was looking good when City were leading 2-0 at half-time. Unfortunately, United stormed back in the second half to win 3-2 and Amani lost his wife for a week to his United supporting friend Shilla Tony. As yet there is no news on her husband’s gambling from Mrs Stanley…

What is pound cost averaging?

Wednesday, April 18th, 2018

If you’re unclear on what the term ‘pound cost averaging’ means, the simplicity of what it describes is perhaps best demonstrated through an example. Abbie is an investor who has already decided where she wants to make a long-term investment. She also earns money through her job and invests more each month. Abbie therefore has three options as to how to invest her money. Firstly, she could invest all the money she currently has immediately, then invest the rest as she earns it. Alternatively, Abbie could hold on to her investment money and add to it as she earns more, waiting for the optimum time to invest a larger sum all in one go. Abbie’s third option is to stagger her investment, pacing herself so that the money is invested gradually over time.

This third approach is ‘pound cost averaging’ – staggered investment of relatively small sums of money in a regular schedule. It’s a method of investment which has a number of benefits. First of all, it reduces your exposure to falling markets which you might experience when investing a lump sum all in one go. Investing according to an established routine means you’ll be purchasing a larger number of shares when prices are low and fewer shares when prices are high.

A second advantage of pound cost averaging is the cushion it provides for you if the market falls. Let’s consider a scenario where Abbie had £10,000 and invested it all in one go into a diversified portfolio. If the market consistently fell over the course of twelve months so that Abbie’s portfolio was worth only £9,000 a year after her initial investment, she would have lost 10% and would need to grow that investment by more than 11% to regain her portfolio’s original value.

Using a pound cost averaging strategy investing £1,000 each month over a sustainable savings routine, Abbie is able to buy more assets at a lower price each month as the market falls. The assets purchased later also spend less time in the falling market. As such, Abbie’s portfolio has a greater value after twelve months than it would have had under the scenario where she invested a lump sum all at once.

Another benefit of pound cost averaging is the good behaviour it instills in investors. By having an established routine, investors overcome the temptation to attempt to time the markets, a method which often leads to worse returns than sticking with a long-term investment. Pound cost averaging can be achieved through automation such as a direct debit from your bank account. As such, investment feel less like a gamble dictated by short-term gains and losses, and more like the ongoing and disciplined activity it needs to be for long-term success.

Warren Buffett runs a website… for your kids!

Thursday, April 12th, 2018

As one of the most successful investors of all time and currently the third richest person in the world with a net worth of over $88 billion, it’s likely that you’ll know Warren Buffett’s name. You might even have visited his website at WarrenBuffett.com, perhaps giving particular attention to the page entitled ‘Warren’s 10 Ways To Get Rich’. What you might not know, however, is that Buffett has another website – one which is aimed not at you, but at your children and grandchildren.

The site, ‘Warren Buffett’s Secret Millionaires Club’, is based around an animated television series of the same name which ran in the US from 2011 to 2014. In the series, Buffett acted as a wise mentor to a group of four children, helping them make positive decisions about earning and investing money. Whilst the series has now finished and has never aired outside America, the site gives you access to twenty-six ‘webisodes’, all no more than five minutes long, giving your youngster the chance to get to know the characters whilst picking up some child-friendly financial advice.

The ‘Games’ section of the site is one your kids are likely to enjoy whilst also helping them hone some valuable numeracy and business skills. ‘Number Blaster’ and ‘Counting Money’ will help your child work on their addition and subtraction, whilst ‘What Do You Know About Business?’ and ‘Business-Building Brainstorm’ aim to give a basic grounding in what a business is and how someone might go about successfully setting one up.

Another page you might want to look at with your youngster is ‘Ask Warren Buffett’s Secret Millionaires Club’, which gives them the opportunity to submit a question to one of the four characters mentored by Buffett in the series in order to get some advice. Even if your child doesn’t have a question they want to ask, the page offers plenty of questions from other kids and the answers provided. Currently there are questions answered about how to start investing in the stock market, how to start up a fashion business, and why it’s a good idea to save money.

Hopefully, you’ll find something on Buffett’s site for your children or grandchildren to explore, on their own or with you. Whilst there’s no guarantee that visiting the site will be the first step to your child becoming a millionaire in the future, starting their financial education early in a way that makes it fun is always a good idea. Warren Buffett’s Secret Millionaires Club can be found at www.smckids.com.