June 2021 - Agile IFA

Search the internet and you’ll find a myriad of self-help sites aimed at helping you to improve your life and get the most out of it. Our latest guide explores some practical steps you can take to improve your overall wellbeing now and in the future.

Among the steps that can help create a better you are:

Setting out your goals
Making your mental wellbeing a priority
Spending time on the things you enjoy
Getting outdoors
Creating a financial plan.

Download “10 simple but effective ways to create a better you” to discover some of the things you can do to improve your life in the short and long term.

The Bank of England interest rate has been below 1% for 12 years. If you’re a saver, you may think there’s little point in shopping around for the best deal or opening an ISA. But there are still valid reasons for making the most of your ISA allowance.

Each tax year, you can deposit up to £20,000 into an ISA. If you don’t use this allowance during the tax year, you lose it. In the past, ISAs offered an effective way to save with interest rates that helped your money grow. However, the low-interest rate environment means that savings have been earning little for more than a decade. But that doesn’t mean you should discount your ISA just yet, here are five reasons to use your allowance.

1. ISAs provide a tax-efficient way to save

Most people benefit from the Personal Savings Allowance, the amount you can earn in interest from your savings before Income Tax is due. Your Personal Savings Allowance depends on your Income Tax band:

Basic-rate taxpayers: £1,000
Higher-rate taxpayers: £500
Additional-rate taxpayers: No allowance

If the interest earned in a tax year exceeds your allowance, or you don’t have an allowance, the interest earned will count as income and increase your tax bill. ISAs are a tax-efficient way to save, so you won’t have to pay any Income Tax on the interest you earn.

2. A fixed-rate ISA could give you access to higher interest rates

If you opened an ISA a couple of decades ago, you may have expected an interest rate of 5%, but now the rates on offer are much lower. However, by shopping around, you can find some accounts that are higher than the average. Often, these ISAs will mean you need to lock your money away for a certain period. If you’re saving for medium- or long-term goals, this type of savings account could suit you.

3. It provides a way to invest tax-efficiently

ISAs aren’t just an efficient way to save. You can use them to invest tax-efficiently too. The money you earn in returns is not subject to Capital Gains Tax. So, if investing is part of your financial plan, it makes sense to use your ISA allowance first.

A Stocks and Shares ISA offers you a way to invest your money, which can help you generate higher returns than a savings account. However, investing does come with some risks and the value of your investments may fall as well as rise. To smooth out the volatility of the investment markets, it’s advisable to invest with a long-term timeframe in mind.

4. A Lifetime ISA could boost your savings

If you’re eligible for a Lifetime ISA (LISA), it could provide a 25% boost to your savings. To open a LISA, you must be between 18 and 40. You can only deposit £4,000 each year into a LISA, but you’ll receive a 25% bonus from the government so it’s worth taking advantage of if you can.

One thing to keep in mind is when you’ll want to access your savings in a LISA. If you make a withdrawal before you turn 60 for a purpose other than buying your first home, you’ll lose the bonus and a portion of your own savings. Money in a LISA can either be held in a cash account or invested.

5. An ISA can make financial sense as part of your estate plan

If you’re married or in a civil partnership, an ISA can make sense as part of your estate plan. When you pass away, a surviving spouse will automatically receive a one-off additional ISA allowance. For instance, if your partner has £100,000 held in ISA when they pass away, you’d be able to deposit this amount in your own ISA, alongside using your usual £20,000 allowance.

This means your partner will be able to inherit your savings or investments and continue to hold them in a tax-efficient way. The additional prescription applies even if the money is intended for someone else. So, even if you want to leave your ISA savings to your children, your spouse will benefit from an increased ISA allowance.

Don’t forget about Junior ISAs

As well as an effective way to save and invest for yourself, a Junior ISA (JISA) offers a way to build a nest egg on behalf of a child. Each tax year, a child can have up to £9,000 deposited on their behalf into a JISA. Like adult ISAs, they offer a tax-efficient way to save and invest. However, keep in mind, the money will be locked away until the child turns 18.

If you’d like to discuss how ISAs can help you reach your goals, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investing has been around for centuries and the basics haven’t changed as much as you might think. Technology has changed how we invest, but some of the investment lessons from the past are just as relevant today as they were in the 1600s.

Our latest guide looks at the foundations of modern investing, and what you can learn from the past, including:

How the first stock markets came to be
Why you should focus on the long term
Why it’s important to diversify
Why it’s impossible to consistently predict market movements
How following the crowd can mean you don’t choose investments that are right for you.

Download “The history of investing and what you can learn from the past” to learn more about how investing began and why some of the lessons still apply today.

As countries around the world began to tentatively reopen businesses and lift Covid-19 restrictions, there are strong signs of growth and recovery. However, this has been tempered with concerns around inflation and long-term growth prospects.

UK

In May, the Bank of England Governor Andrew Bailey increased the UK’s growth forecast to 7.25% for this year. While good news, he still noted that it means the UK has lost two years of output growth due to the pandemic. The Bank of England has also lowered its unemployment forecast. Thanks to the furlough scheme, it now expects unemployment to peak at below 5.5% in the third quarter of this year. This compares to its earlier forecast of 7.75%.

Economic thinktank NIESR has also increased GDP expectations, but warned of the long-term impact of Covid-19 on the economy. According to the organisation, the combined effects of Covid-19 and Brexit mean the UK will lose £700 billion in output over the next five years. Despite positive signs, it predicts GDP will be almost 4% lower in 2025 than it would have been without the pandemic.

The latest data suggests sectors across the UK are beginning to recover:

Markit’s PMI (Purchasing Manager’s Index) for manufacturing data increased to 60.9 in April, up from 58.9 in March. Any reading over 50 indicates growth and the latest figures show activity is accelerating. It’s the highest reading since 1994, but the rise is partly due to longer delivery times as factories struggle to get hold of raw materials and parts.
Within the construction sector, output reached a six-and-a-half-year peak, leading to the biggest boost in job creation since 2015.
The service sector also saw its growth reach its fastest pace since 2013, with a PMI reading of 51 in April.

As retail reopened in April following months of closures, retail sales jumped by 9.2%, according to the Office for National Statistics (ONS). Retail sales were higher than pre-Covid levels, delivering a much-needed boost to the sector.

Another sector reopening and expecting a boost is hospitality. However, hotel technology provider Avvio has warned that last-minute cancellations could affect hotels and place further pressure on businesses. The firm said holidaymakers are hoarding bookings to ensure they can have a break, even if travel abroad is restricted again. Cancellation rates are running at about 4%, far below the usual 30%.

The property market continued to receive a boost from the Stamp Duty holiday. Data from the Bank of England shows mortgage lending has reached a record high. Net mortgage borrowing was £11.8 billion in March, the strongest reading since the series began in 1993.

ONS figures suggest UK-EU trade is beginning to recover. But the statistics office also cautioned that the Brexit transition period has caused higher levels of volatility than usual in the last two years. In March, exports and imports with the EU (excluding precious metals) increased by £1 billion (8.6%) and £800 million (4.5%), respectively. However, figures also show the UK’s total trade with the EU has fallen below trade with the rest of the world. Between January and March 2021, total trade in goods with the UK fell by 23% when compared to the same period in 2018. Over the same period, trade with non-EU countries declined by just 0.8%.

Europe

Last month, the eurozone entered a technical recession. However, growth forecasts suggest economies are recovering as lockdown restrictions ease. Eurozone companies grew at their fastest pace since last July and this could help to pull the bloc into growth territory.

The EU Commission has also raised growth forecasts following the ongoing progress of the vaccination programme across the continent. The EU is now expected to grow 4.2% this year and 4.4% next year.

One of the challenges now facing many businesses is issues within supply chains after some sectors were forced to close for months. The German DAX Stock Index has recently highlighted this. The index was affected by chipmaker Infineon saying that ongoing shortages and other supply chain problems were hitting car production.

US

There have also been positive signs in the US. Companies across the country created 742,000 new jobs in April. While slightly less than forecast, it’s still an indication that businesses are confident and investing. On top of this, the US service sector PMI surged from 60.4 to 64.7. The latest reading is the highest since the survey began in 2009.

American company Pfizer, which co-developed a Covid-19 vaccine with Germany’s BioNTech, has raised its sales forecast following successful vaccine programmes around the world. The company now expects vaccine sales of $26 billion in 2021. That’s a sharp increase from its previous forecast of $15 billion.

Despite figures pointing towards stability and growth, US consumer confidence has fallen. According to the University of Michigan’s Index of Consumer Sentiment, confidence fell from 88.3 in April to 82.8 in May. The fall has been linked to expectations that long-term inflation will reach 3.1%, well above the Federal Reserve’s target of 2%.

Asia

China was one of the first economies to post signs of recovery following the impact of the pandemic. However, there have been concerns that inflation will rise. The latest Producers Price Index (PPI), which measures the cost of goods sold by manufacturers, suggests inflation is increasing. Year-on-year, prices have increased by 6.8%.

Reports from Malaysia could also have an impact on global businesses. The country’s disgraced state investment fund 1MDB is reportedly suing Deutsche Bank, Coutts and JP Morgan in a bid to recover some of the billions lost in a huge corruption scandal.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Cinemas are now starting to reopen after months of closure. If you’re a film fan, many cinemas are showing classic films to enjoy but new blockbusters are coming to the big screen too. Some of the most anticipated releases of 2020 and early 2021 are now scheduled for release in the coming months. Which of these 10 films are on your need-to-watch list?

1. Black Widow

The latest instalment of the huge Marvel franchise, Black Widow, is expected to be released in July. This time the story focuses on former KGB assassin Natasha Romanoff as she deals with her history and confronts a conspiracy. As you’d expect from a Marvel film, there’s plenty of action, a fast-paced story, and a few laughs along the way. For superhero fans, Marvel has a further three films coming out in 2021: Shang-Chi and the Legend of the Ten Rings, Eternals, and Spider-Man: No Way Home.

2. No Time to Die

James Bond fans have had to wait through repeated delays for this film to hit the cinema, but the 25th instalment of the James Bond series will be worth waiting for. Daniel Craig reprises his role as the suave MI6 agent for what is thought to be the last time, with the plot seeing him search for a missing scientist and confront a villain, played by Rami Malek. Expect the usual Bond close calls, cool gadgets, and explosive scenes.

3. A Quiet Place Part II

Fans of the horror genre should add A Quiet Place Part II to their watch list. Picking up where part one left off, we once again follow a family that is trying to survive in a post-apocalyptic world filled with blind monsters with a keen sense of hearing. This time, the family departs their home in search of human communities and pick up radio signals from a nearby island – will the family make it there safely?

4. Dune

The rights to produce a Dune film based on the popular novel have been held since the 1970s and fans of Frank Herbert’s science-fiction story will now get to enjoy an update film version with the latest technology, bringing it to life for a new generation of fans. Dune is set in the distant future where noble houses control planetary fiefs with politics, religion, and technology all playing an important role in the story of young Paul Atreides, who accepts the stewardship of the planet Arrakis. There’s already a planned sequel and spin-off series.

5. Jungle Cruise

The Jungle Cruise is a great option for a family-friendly trip to the cinema. It’s based on a ride at the Disney World theme park. Set in the early 20th century, a riverboat captain, played by Dwayne Johnson, takes a scientist on a mission into a jungle to find the tree of life. Along the way, they must battle dangerous animals and try to get to their destination before a rival expedition.

6. The Green Knight

Based on Arthurian legend, The Green Knight is an epic fantasy. It tells the story of reckless Sir Gawain as he embarks on a quest to confront a green-skinned creature. The journey sees the knight contend with an array of mythical creatures and thieves as he’s tested by the Green Knight to prove his worth by facing the ultimate challenge.

7. West Side Story

If you love a musical, the classic West Side Story has had a remake and will be released just in time for the festive period later this year. It follows the Broadway script as teenagers Tony and Marie fall in love in the 1950s in New York City despite being part of rival street gangs. You’ll be able to sing along to all your favourite songs from the stage version, including ‘Somewhere’, ‘Something’s Coming’, and, of course, ‘America’.

8. Top Gun: Maverick

Tom Cruise and Val Kilmer return to reprise their roles in the sequel to the 1986 film Top Gun. Pete “Maverick” Mitchell is still one of the Navy’s top aviators after years of service but will need to confront his past while training a new squad for a dangerous mission. After more than 30 years since the original movie was released, the latest edition offers a bit of nostalgia for fans with high-intensity thrills and drama.

9. The King’s Man

The King’s Man was originally scheduled for release at the end of 2019 but has suffered numerous delays. It serves as a prequel to the 2015 film Kingsman, this time set during World War I and following Conrad, a top-secret operative tasked with protecting the British Empire against some of history’s worst tyrants and masterminds, with Ralph Fiennes taking on the mentor role as the Duke of Oxford.

10. Nomadland

Nomadland is already out in cinemas and has received positive reviews. It follows a woman in her 60s who loses everything during the Great Recession, forcing her to live the life of a nomad as she embarks on a journey across the American West. It’s a slow-paced film but one that’s beautiful and a reminder of the forgotten and downtrodden that were left in the wake of the Great Recession.

Does FOMO – the fear of missing out – affect your investment decisions? It can lead to you making investment decisions that aren’t right for you and potentially mean you take more risk than is appropriate.

At times, it can seem like everyone is investing in a particular company or sector. Perhaps you’ve seen a company feature on the news after share prices have skyrocketed. Or you’ve heard friends and family talking about how everyone is investing in a certain industry with the expectation that prices will rise quickly. If you’re not following these trends, it can seem like you’ll miss out on significant returns.

FOMO isn’t a new phenomenon, but it’s become easier than ever to share information. From social media posts to the investment segments of media, you can get an insight into how others are investing and it can shape how you view your own investments. It’s also easier than ever to act on these impulses. In the past, FOMO may have made you tempted to invest but it’s not something you could do straight away, providing you with some time to think. Now, you can transfer your money and invest in a matter of minutes.

If you’ve ever made an investment decision after hearing about a trend, FOMO could have influenced you.

Why does it happen?

No one wants to be the investor that missed out on an incredible opportunity. How would you feel if colleagues invested in a start-up that delivered huge returns within a year, but you hadn’t followed the crowd? You’d no doubt be frustrated. Thinking about “what if” scenarios like this can encourage you to invest in companies that you may have otherwise avoided.

While investments decisions should be logical and based on fact, your emotions and experiences do have an impact. It means that financial bias can influence how you invest and feel about opportunities. In the case of FOMO, the “bandwagon effect” can have an impact.

We’ve all heard the phrase “jumping on the bandwagon” meaning that someone is supporting a cause only because it’s popular to do so. In investment terms, the meaning is similar – that investment decisions are made simply because others are doing the same. If you’ve invested based on “hot tips” or suggestions that stocks will soar alone, you may have experienced the bandwagon effect.

Following a trend can provide reassurance that you’re making the “right” decision. It’s a bias that can also lead to you deciding to sell an investment because others believe the value of these stocks will fall. FOMO can mean you make investment mistakes because the decisions are driven by worries, not by what is right for you.

How to avoid investing FOMO

1. Remember why you’re investing

You should invest with a goal in mind and tailor your portfolio to reflect this. Remember, your reason for investing may be very different from that of friends or people speaking in the media. What is right for one investor may not be right for you. Keeping your goal in mind can help you focus on why you’re making certain investment decisions.

2. Try to screen out the day-to-day noise

Often, investment trends are short-lived. While a company may be “hot” now, will it still be in a year? For the majority of investors, decisions should be made with a long-term outlook. Jumping from trend to trend can mean you’re exposed to more risk and that you miss out on long-term growth. While it can be difficult to do, try to screen out the day-to-day market news and instead focus on the bigger picture.

3. Keep investment risk in mind

Usually, investments with the potential to deliver high returns are also high risk. Don’t just focus on the potential gains but the risk that you could lose your money; would you still want to invest in a start-up that everyone is talking about if there’s a high level of risk? Always consider the risk of the investments you make. Overlooking risk could mean some of your investments don’t align with your risk profile and wider investment portfolio.

4. Be patient

Finally, investing isn’t a way to get rich quick. While stories of investors seeing their net worth soar may feature in the media, they are few and far between in real life. For most, investing is a marathon, not a sprint. Be patient with your investments and focus on your long-term goal.

It can be difficult to remove financial bias from the investment process. However, working with a financial planner means you have another view on your investments, helping you to highlight where FOMO may be driving your decisions. Working with us can help you build a balanced portfolio that reflects your circumstances. Please get in touch with us to discuss your investment portfolio.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

While the mantra might be “life begins at 40”, over 55s are planning to live their life to the fullest as Covid-19 restrictions lift. Retirement might be associated with taking it easy and putting your feet up, but over 55s are planning to explore new places and tick other items off their bucket list in the coming years. However, finances could hold some back.

With more free time and fewer commitments, retirees are finding they have an opportunity to pursue their dreams. According to a Royal London survey, 64% of over 55s are planning to travel more once the pandemic is over, and many others are hoping to tick off once in a lifetime experiences. The survey found the top bucket list items are:

Seeing the Northern Lights (53%)
Travelling on the Orient Express (42%)
Visiting one of the seven wonders of the world (36%)
Moving or purchasing a home abroad (25%)
Going on safari (22%)
Taking a hot air balloon ride (20%)
Going to a major sporting event (20%)
Driving a supercar (16%)
Volunteering for charity (13%)
Going to a festival (13%).

How do you want to spend your 50s and 60s?

Thinking about what you want to achieve in your 50s and beyond can set you on the right track for reaching your goals. Whether you want to travel more in the next few years or spend time on a hobby, creating a plan means you’re far more likely to be able to tick off your aspirations and live the lifestyle you want.

Setting out your goals now means you can put a plan in place to achieve them. While the research found over 55s are keen to carry on experiencing new things, it also discovered they could be held back.

Nearly half (43%) of over 55s said they’d regret not achieving their bucket list items. A third (36%) cited lack of money for the reason they haven’t yet achieved goals. For others, work and family commitments, or poor health was holding them back.

Making your goals part of your financial plan can mean you have the confidence to pursue them.

Do you have enough to complete your bucket list?

As you retire, it can be difficult to understand how your assets will create an income. Often, you’ll need to bring together multiple sources of income and consider how your needs will change over decades. As a result, you may not be sure if you’re able to tick off bucket list items without placing your financial security at risk.

Financial planning can help you understand if you have enough to reach all your retirement goals. It can help you understand how all your assets, including pensions, savings, and property, can work together to provide an income in retirement.

However, for those unsure if they have enough for once in a lifetime experiences, the real value of financial planning comes in understanding how their decisions in early retirement will affect the rest of their life. If you withdraw a £30,000 lump sum from your pension to travel the world, would you still have enough for the rest of your retirement? What would happen if you needed care later in life? Would spending now to turn a dream into a reality mean you’d have less choice?

We can help you put these decisions into perspective. Using cashflow modelling, we can help you visualise how spending to complete your bucket list will affect your income in the short and long term. This means you understand the full implications of the decisions you make.

In many cases, we find retirees can meet their goals or that there are steps they can take to release capital from other assets. Financial planning can give you the confidence to pursue your dreams, whether that’s booking an exotic holiday or booking tickets to a sporting event you’ve always wanted to attend.

If you’d like advice as you retire that considers your aspirations, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.

Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.

When you review your pension, it’s likely to be the forecast that you focus on. This figure is designed to give you an idea of how much your pension will be worth when you reach retirement age. However, the sum is based on certain calculations, and a report suggests some results could be too optimistic, potentially leaving you with less money in retirement than you expect.

What is a pension forecast?

Most workers are now paying into a defined contribution (DC) pension. This is when you and, in most cases, your employer make contributions that are then invested. Once you reach retirement age, you’re able to access this lump sum to create an income. As a result, the amount you have for retirement depends on contributions and investment returns.

You should receive an annual statement from your pension provider, which will include a pension forecast. However, this sum is not guaranteed and is based on certain assumptions. These assumptions could include investment returns, your contributions rising due to pay increases, or the rate of inflation. These assumptions differ between pension providers.

The assumptions made can have a huge impact on the forecast that’s given.

Pension investment returns have fallen, and it could affect the accuracy of your forecast

A new report from Interactive Investor suggests the assumptions made about investment returns can vary widely and some providers are being too optimistic, especially as returns have fallen in recent years.

The Financial Conduct Authority (FCA) publishes pension investment performance figures every four to five years to ensure projections are realistic.

The findings show return assumptions are not consistent, ranging from 4% to 7% for shares. In fact, data shows the average real rate of returns could be significantly below this range. In 2007, the average rate of return on pension statements was 4.2%, and in 2017 had fallen to 2.4%.

Lower than expected returns when saving for a pension could have a huge impact on how much you have. An example in the report highlights this:

A worker automatically enrolled into a pension at age 22 and on a typical wage for someone in their twenties, would have a pension forecast of £131,000 assuming an investment return rate of 4.2%. However, using the most recent return assumptions (from 2017) of 2.4%, the forecast would fall to £85,000.

Basing your retirement plans solely on a pension forecast could mean you fall short and need to make adjustments.

How does your pension forecast relate to your retirement plans?

As well as assumptions affecting pension forecasts, it’s also important to consider what a pension forecast means for your retirement lifestyle. How much do you need to save to secure the retirement you want?

There are lots of “rules”, such as needing two-thirds of your working income to maintain your lifestyle in retirement. But this doesn’t consider your circumstances or what you want your retirement lifestyle to look like.

To understand if your expected pension lump sum is enough for you, you first need to think about the retirement you want. If you will still have debt when you enter retirement, such as a mortgage, the amount you need once giving up work is likely to be higher than the rules suggest. On the other hand, you may plan to spend more in retirement if you want to travel or upgrade your home.

You’ll also need to think about other factors when assessing your pension lump sum, such as:

How long will your pension need to last?
Will your income needs change throughout retirement?
Do you need to plan for potential care costs?

So, it’s not just how the pension forecast is calculated that you need to work out if you’re saving enough, but what you want your retirement to look like.

How financial planning can help you understand your pension savings

Financial planning can help you understand both how your pension contributions may increase over your working life and the lifestyle you can then look forward to. By taking a tailored approach, you can make sure your pension is on track to achieve the retirement you want.

It also provides you with an opportunity to consider potential risks to your plans and take steps to minimise them. For instance, what would happen if your pension investments underperformed? And could you afford to retire early if you become ill?

Financial planning can help you have confidence in the steps you’re taking to prepare for retirement. If you’d like to discuss your pension, please contact us.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.