Month: June 2023

Economies and businesses still face challenges, but statistics indicate some of the pressure, including rising inflation, is starting to ease. Read on to find out what affected investment markets in May 2023.

Remember, you should have a long-term outlook when investing. You should have an investment portfolio that reflects your goals and you feel confident in. Please contact us if you have any questions about your investments and what the current circumstances mean for you.  

UK

Official figures show the UK narrowly avoided a recession after the economy grew slightly in the last two quarters to March 2023.

While the government said the figures were positive, the UK is still bottom in the G7 for growth since the pandemic. In fact, the UK economy was still 0.5% smaller in the first quarter of 2023 than it was in the final quarter of 2019. 

However, both the Bank of England (BoE) and the International Monetary Fund (IMF) have upgraded the UK’s growth forecasts, which could be positive news for investors. 

The BoE no longer expects a contraction, but rather for the economy to be stagnant this year.

The IMF also revised its previous prediction. The organisation’s managing director Kristalina Georgieva said authorities have taken “decisive and responsible” steps. The IMF now predicts the UK economy will grow by 0.3% this year, rather than contracting by 0.4% as previously forecast.  

Inflation is still stubbornly high but in the 12 months to April 2023, it fell from 10.1% to 8.7%. Yet, the BoE has said inflation will fall slower than previously anticipated. The central bank doesn’t expect to hit its 2% inflation target until early 2025, reports suggest. 

In response to high inflation, the BoE increased its base interest rate to 4.5% – the highest it’s been since October 2008. 

Amid high inflation, energy firms are being accused of profiteering. BP reported bumper profits of $5 billion (£4.05 billion) and outstripped forecasts in the first three months of the year. Shell also posted first-quarter profits of $9.6 billion (£7.7 billion). The profits have led to fresh calls for a tougher windfall tax on energy giants. 

According to S&P Global’s Purchasing Managers’ Index (PMI), business outlook is improving but some areas are still in contraction. The UK’s service sector posted its strongest growth in a year. However, the manufacturing industry is still in decline, although the pace of contraction is falling. 

Reforms to the London Stock Exchange could mean greater risks for investors in British companies, the Financial Conduct Authority (FCA) has warned.

The regulator has plans to abolish stricter “premium” class London stock market listings. This would make it easier for company founders to retain control of their business in a bid to stop the decline of the London stock market, which has struggled to attract new companies over the last decade.

However, the FCA acknowledged that helping the UK economy would lead to higher risks for investors due to fewer checks on listed companies. 

Europe

Inflation increased in the eurozone in April to 7%, figures from Eurostat revealed. The rise paved the way for the European Central Bank to make its seventh consecutive interest rate hike – it increased the base rate by 25 basis points. 

Despite the rising cost of living, the European Commission (EC) said the eurozone economy “continues to show resilience in a challenging global context”, as fears of a recession start to ease. 

The EC now expects member countries to grow, on average, by 1% in 2023, and by 1.7% in 2024.

Similar to the UK, PMI data indicates factories are struggling. Across the eurozone, factory output declined for the 10th consecutive month. However, the readings also suggest that the rising cost of raw materials, driven up by inflation, is starting to ease which could be good news for businesses. 

Germany, the bloc’s largest economy, in particular, is facing challenges. Industrial orders fell by 10.7% month-on-month in March. The figures were significantly more than the 2.2% fall expected and the biggest slump since April 2020 when the pandemic led to businesses halting operations. 

US

Headline figures paint an optimistic picture of the US.

Inflation fell slightly in April to 4.9% and the US unemployment rate fell to 3.4%, suggesting businesses are feeling confident enough to make new hires. 

However, a survey from the National Federation of Independent Businesses suggests small businesses are worried about the economic outlook and worker shortages. 

There are also growing concerns about banks failing in the US. The crisis started with Silicon Valley Bank collapsing in March. At the start of May, trading in the shares of two regional banks was temporarily suspended after dramatic drops. 

Central banks maintain the current situation is not similar to the 2008 financial crisis, and, with the exception of Swiss bank Credit Suisse, the crisis hasn’t affected European banks. 

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.

You may have heard about digital currencies in the news. And now, the Bank of England (BoE) is exploring the possibility of introducing a digital pound. Read on to find out what it means and why a digital currency could come to the UK.

How we use money has changed enormously over the last few decades. 

It wasn’t too long ago that most transactions involved cash. Now, using your card, paying for goods online, or tapping your phone at a checkout are common. 

According to UK Finance, 57% of all payments in the UK were made using cards in 2021. The Covid-19 pandemic, when many businesses encouraged contactless payments, and an increased limit of £100 mean use of contactless has soared. In 2015, just 3% of payments were contactless, but by 2021 this had increased to 32%. 

In contrast, cash was used in just 15% of all payments in 2021 after an annual decline of 1.7%. 

So, what’s next for money in the UK? By the end of the decade, you could be using a digital pound to pay for goods and services. 

What does the digital pound mean?

The digital pound has been referred to as “digital sterling” or “Britcoin” in the press. It would be a type of central bank digital currency (CBDC) issued by the BoE.

While it’d be a new type of money, it would be linked to sterling and its value would be stable. 10 digital pounds would have the same value as a £10 note. 

CBDCs are often confused with cryptocurrency, but they are not the same. A cryptocurrency is issued privately and the value is often volatile. In comparison, the digital pound would be issued by the BoE and backed by the government, so the value would be far more stable. 

The currency would be held in a digital pound wallet, which you could use to pay for services by tapping your smartphone, like you do with contactless payments, or entering details online. You would also be able to transfer money to another person, a business, or between your own accounts. 

The BoE added it recognises how important cash is to many people – the digital pound wouldn’t replace the coins and notes in your wallet. 

The Bank of England says the digital pound is needed to fulfil its mission

Answering why a digital pound is needed, the BoE says: “There are new forms of money on the horizon. Some of these could pose risks to the UK’s financial stability.”

It adds: “The money we issue as the UK’s central bank is the anchor of confidence in our monetary system. This type of money supports the UK’s monetary and financial stability. Today, banknotes are the only type of money we provide for the public to use. Having a digital pound could help us to keep providing this anchor for the UK.”

As more payments become digital, the digital pound could also help keep “uniformity”. This is where you can exchange one type of money for another. For instance, you can withdraw money from your bank account as cash at an ATM. 

The digital pound could be in use by the end of the decade 

The introduction of the digital pound is still at least several years away, but it could be in use by the end of the decade. The BoE is currently reviewing the technology and policy requirements for its introduction. 

Other countries are further along in the process of introducing a CBDC. 

In October 2020, the Bahamas launched the first nationwide CBDC, known as the “Sand Dollar”. So far, four CBDCs have been launched in 11 countries. Sweden is also in the testing phase of launching its “e-krona”, and China is expected to start using the “digital yuan” later this year.  

From a consumer perspective, the digital pound would mean you have more choice and transactions may be faster, if not immediate. 

A House of Commons report suggests the technology may also open up a range of innovations that could benefit consumers and businesses, including: 

• “Programmable money” that enables transactions to occur according to certain conditions, rules or events
• Automatic payment of taxes at the point of sale
• Allowing the government to make direct transfers to individuals
• Automatic payment of dividends directly to shareholders
• Electricity meters paying suppliers directly, based on power usage
• Making “micropayments” at much lower costs, allowing further innovations, such as paying a few pence rather than a subscription to read an online newspaper article. 

Of course, there are challenges too. The report noted the possible risk of cyberattacks and breaches in data privacy, as electronic payment systems are less anonymous. It also stated concerns that unreliable internet connectivity might affect accessibility.

While some way off, the digital pound could revolutionise how we use money in the coming years. 

Please note:

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

When you think about investing, it’s probably the actions you take that come to mind. That could be researching a fund or actively investing in a company by purchasing shares. However, the steps you don’t take are just as important for your portfolio to be successful.

That may sound strange, but not acting on impulses or short-term market movement is a crucial part of investing. And it can be more difficult than you think. 

Reacting to market movements could harm your long-term returns 

Investing should be logical. Yet, emotions and bias play a huge role in how investors feel and act towards their portfolios.

Think about when you read a headline that states the economy is on track for recession, or markets are plummeting. It’s natural to worry about what that means for your investments, and it can lead you to feel that you need to respond in some way by making changes to your portfolio.

Yet, long-term trends show that creating an investment portfolio that suits your long-term goals and then sticking with it often makes sense for the average investor. So, recognising when not to act is essential when you’re investing for long-term growth. 

Research from Schroders demonstrates how emotional investing could harm outcomes.

If you invested £1,000 in the FTSE 250 at the start of 1986 for 35 years, you’d have received returns of 11.4% a year on average. 

However, if you responded to news or other information and disinvested, returns could be lower. Investors that missed out on just the 10 best days of the FTSE 250 during that period would have annual returns of 9.5%. Miss out on the best 30 days over the 35 years and returns fall to 7%. 

During those 35 years, there were periods of volatility. Investors that held their nerve and didn’t act may have benefited in the long run. 

That’s why when it comes to investing, deciding not to act can be a positive action in itself. 

4 useful ways you can curb impulsive actions when investing 

1. Take your time when making a decision 

One of the simplest ways to prevent action that could harm your long-term wealth is to take your time.

Sensationalist headlines can make it seem like you need to be quick to get the most out of investments. However, making snap decisions is more likely to lead to outcomes that aren’t right for you because you haven’t had time to think through the consequences.

Don’t feel pressured to make speedy decisions when it comes to investing – give yourself the time to weigh up the pros and cons. 

2. Focus on the long-term results 

Everyone would love to choose an investment that delivers an immediate return, but you need to take a long-term approach to investing.

Historically, markets have delivered real terms growth over long time frames. So, next time you read about markets falling or experiencing volatility, remember to focus on the bigger picture. The value of your investments could fall in the short term, yet history suggests if you hold tight, markets bounce back.

Of course, investment returns cannot be guaranteed and it’s important that your portfolio reflects your risk profile.

3. Try to ignore the noise

One of the reasons investors make impulsive decisions is that there’s often a lot of noise about what you should be doing. Whether you read the newspaper that informs you of an impending market crash or speak to a colleague about an investment opportunity you “must” get involved in, it can be difficult not to act. Try to tune out this noise. 

Having confidence in your long-term investment strategy can make it easier. If you know your portfolio reflects your aspirations and circumstances, dismissing calls to action is less challenging. 

4. Speak to us

As financial planners, we can help you manage your investment and wider financial plan.

We’ll take the time to understand what you want to achieve, so your investment portfolio and strategy are built with this in mind. The peace of mind that comes from working with a professional could mean you feel more comfortable taking an inactive approach to investing for the long term. 

If you’re worried you should be doing something, we’re also here to answer questions and offer guidance. Simply having someone that has your best interest in mind to talk to could prevent hasty decisions that you may regret later. 

Please contact us to arrange a meeting. 

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.

Over the last 18 months, interest rates have increased and the rate your savings could earn has slowly been rising. However, with some experts predicting they will begin to fall towards the end of the year, should you lock in an interest rate now?

Double-digit inflation figures have led to the Bank of England increasing interest rates 

The Bank of England (BoE) has gradually increased its base interest rate since the end of 2021. In November 2021, the base rate was just 0.1%. This meant the cost of borrowing was low, but savers suffered.

After a series of increases, the base rate stood at 4.5% as of May 2023. For savers, this is good news as it provides an opportunity for their savings to work harder. 

The steps taken by the BoE are in response to high levels of inflation. The after-effects of the Covid-19 pandemic and the ongoing war in Ukraine mean the cost of goods and services have increased well above the BoE’s 2% inflation target. In fact, for much of 2022 and the start of 2023, the figure has been in double digits. 

As a way to try and slow the pace of inflation, the BoE started to increase its base rate. Other central banks around the world, including the EU and US, have taken similar steps. 

While the inflation rate has remained stubbornly high at the start of 2023, the BoE expects it to “fall quickly” overall this year. It stated there are a few reasons for this, including:

• Wholesale energy prices have fallen a lot
• An expected sharp fall in the price of imported goods
• The cost of living crisis means households will spend less.

So, as inflation stabilises and starts to fall, what does that mean for interest rates and your savings? 

The UN financial agency predicts interest rates will return to pre-pandemic levels 

The International Monetary Fund (IMF), a financial agency of the UN, expects interest rates to start to fall once inflation is tackled. 

According to the organisation, since the mid-1980s, real interest rates across advanced economies have been steadily declining. The graph below shows that while interest rates did sharply decline during the pandemic, it was part of a wider trend. Instead, the current rising rate we are experiencing could be a blip. 

Source: International Monetary Fund 

So, while you may think of low interest rates as unusual, especially when you consider the higher rates you may have experienced in the 1970s and 1980s, they could be the “new normal”. 

In fact, the IMF projects the UK’s natural interest rate will remain below 0.5% over the coming decades. 

Even economies that are emerging and rapidly developing with a higher natural interest rate are expected to follow the same trend. The IMF projects China and India will experience a steady decline in interest rates and will fall below 1% during the 2030s. 

You may be able to lock in an interest rate, but it isn’t always the right decision 

With the IMF’s predictions in mind, it could make sense to lock in the interest rate on your savings now. 

Choosing an account that guarantees an interest rate for a defined period could be attractive. However, these types of accounts may require you to deposit a certain amount each month or mean you can’t access your savings during this period. So, it’s important to understand the terms first. 

You should also keep in mind that the predictions aren’t a guarantee. A huge range of factors affect interest rates, so they could also remain where they are or even rise further. In these circumstances, locking in an interest rate could mean you miss out.

What’s most important when deciding whether to lock in an interest rate, or, indeed, when you’re making other financial decisions, is your goals. 

Set out what you want to achieve with your savings first.

Your goals play a pivotal role in deciding where to place your savings. You may even find that saving isn’t the right option for you – perhaps investing would be suitable if you’re saving with a 10-year goal in mind. Alternatively, reducing debt could be a more effective way to improve your long-term finances.

Call us to talk about your saving goals 

There’s no one-size-fits-all solution when considering how to get the most out of money. Contact us to talk about your goals and concerns. We will talk through your different options and help you understand what could be right for you.  

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.

Retiring early is an aspiration for many workers looking forward to greater freedom. If early retirement is something you’re dreaming about, a survey suggests financial planning could help you turn it into a reality and enjoy the next chapter of your life more. 

A Standard Life study found, on average, people receiving financial advice plan to retire at 66 – three years earlier than those that aren’t seeking professional guidance. 

As you’ll often be responsible for creating a sustainable income in retirement, it’s essential you understand how long your savings will last – you don’t want to risk running out of money in your later years. If you want to retire early, considering life expectancy is even more important.

According to the Office for National Statistics, a man aged 66 has an average life expectancy of 85 and has a 1 in 4 chance of celebrating his 92nd birthday. For a 66-year-old woman, the average life expectancy is 87, with a 1 in 4 chance of reaching 94. 

So, if you’re planning an early retirement, you need to consider how your pension could provide an income over several decades. 

The Standard Life survey also suggests that those working with a financial planner are more confident about their finances in retirement. Advised workers believe their pension and other assets can fund their lifestyle for 23 years. Among those not taking advice, this falls to 17 years.

Creating a tailored financial plan could mean you retire early with greater certainty about the lifestyle your pension will deliver. 

A financial plan could boost your wellbeing in retirement too

While a financial plan can help get your pension and other assets in order, the survey also revealed it could improve your overall wellbeing.

A huge 96% of people who said they did a “great deal” of financial planning before retiring say they are enjoying the next chapter of their life. In comparison, 72% of people who didn’t do any financial planning said the same. 

Engaging with your finances and thinking about what you want your lifestyle to look like in retirement before the milestone could help you get more out of life. 

Non-advised retirees are also more likely to have regrets. 23% of people that didn’t work with a financial planner say they need more money. The same proportion says they wished they’d planned more thoroughly. 

3 amazing reasons why financial planning could help you retire early 

1. It can help you create a long-term plan

Often, you’ll be saving for retirement over decades. The long time frame can make it difficult to understand if you’re doing enough to retire when you want.

As well as calculating if you’re contributing enough to your pension, you may need to consider how investment returns will affect its value, or how you could use other assets to create an income. A financial plan can pull together all these different aspects, so they support your aspiration of early retirement. 

With the steps you need to take to be financially secure in retirement clearly set out, you’re more likely to remain on track. 

2. It can highlight ways to get the most out of your money

The funds you need to build to create a sustainable income for retirement can be daunting, especially if you hope to retire sooner than average. 

One of the ways a financial plan can add value is by highlighting how to get the most out of your money. For example, if you’re a higher- or additional-rate taxpayer are you claiming all the available tax relief from your pension contributions? Or is your investment portfolio aligned with your goals and risk profile?

3. It can give you the confidence to take the next step

Retiring early successfully isn’t just about ensuring you have your finances in order – you need to prepare mentally too.

It can be more difficult than you expect to give up work. Perhaps you’re worried about whether you’ll have enough income? Or you might delay plans because you’re nervous about what the next chapter of your life will look like?

A retirement plan that’s been tailored to you can give you the confidence to take the plunge and retire when you’re ready. As you’ll already have considered areas like how you’ll spend your time and how long your savings need to last, you can retire with confidence.  

Contact us to talk about your retirement plans

Whether you want to understand if you have enough to retire early or how long your pension will last, please contact us. We’re here to help you get to grips with your retirement savings and have the confidence to look forward to the milestone. 

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 not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.  

Investing is often a crucial part of creating a long-term financial plan. Over the next few months, you can read about the investment essentials you need to know if it’s something you want to start doing or simply learn more about.  

Read on to find out what investing means, and why it’s something you should consider if you want to build long-term wealth. 

What does “investing” mean?

In simple terms, investing means using your money to buy assets to generate a return over time.

Often, when people say they are investing, they mean they’re purchasing stocks and shares, either individually or through a fund. 

When you buy a company’s stock, you’re buying a fractional part of the company and become a shareholder. If the value of the company rises, so too will the value of the stock you hold. You could then sell it for a higher price than you purchased it for to create a return.

Some companies will also share some of the company’s profits through dividends. As a result, investing can also be used to create an income. Dividend-paying companies are often well-established businesses. 

There are other ways to invest too.

You may purchase property with the expectation you’ll be able to sell it for more money in the future. Or you may buy bonds, which is where you purchase debt obligations from governments or businesses, in return for interest payments. 

Investing could deliver real terms growth in the long run

One of the reasons to invest is that it’s a way to grow the value of your assets in real terms over the long run.

When you place money in a savings account, it earns interest. However, the interest rate is likely to be below the rate of inflation. So, in real terms, the value of your savings is decreasing because you can buy less with it.

Over time, inflation erodes the value of your savings and can really add up.

According to the Bank of England, £10,000 placed in a savings account in 2012 would need to have grown to £12,669.57 in 2022 just to maintain its value. If the interest earned during those 10 years was less than almost £2,700, your savings have fallen in value in real terms. 

During a period of high inflation, as we have now, the effects are even more pronounced. 

So, how does investing provide a solution?

By investing, you have an opportunity to secure returns that are above the rate of inflation and, so, grow the value of your assets in real terms. Historically, markets have delivered above-inflation returns when you look at a long time frame, even after periods of volatility. 

Of course, investment returns cannot be guaranteed and all investments carry some risk. The value of your assets can fall as well as rise. Understanding your risk profile and what opportunities are right for you is a key part of investing. 

This is something we’ll cover in next month’s blog, or you can contact us if you want to discuss your options now. 

3 times when you shouldn’t invest your money

While investing can be a great way to grow your wealth, it’s not always the right option. There are times when adding money to a savings account or taking other steps will be more appropriate. So, understanding your personal circumstances is essential when you’re deciding whether to invest.

Here are three examples of when investing may not be the right decision. 

1. You’re saving for a short-term goal

As investment markets are volatile, it’s usually advised that you invest with a minimum time frame of five years. If you’re saving for a goal that is less than five years away, like going on holiday or buying your first home, a savings account could be more appropriate. 

2. You don’t have an emergency fund

Ideally, you should have a financial safety net to fall back on before you start investing. You may not be able to sell assets instantly and you may be forced to sell during a volatile period if you face a financial shock. How much you should have in your emergency fund will depend on your circumstances, but enough to cover three months of expenses is a good general rule. 

3. Your financial security would be affected if the value of assets fell

Historically, investment markets have increased in value over the long term. However, returns cannot be guaranteed, so you need to consider the risk of the value of your assets falling or losing your money. If that could place you in a vulnerable position financially, you may want to explore other options. 

Contact us to talk about your investments 

Over the next few months, check our blog to find out more about the investing basics you need to know, from how to start investing to what you need to consider when understanding your risk profile. 

If you’d like to arrange a meeting to talk about your investment strategy, 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.