Investment Archives - Page 2 of 2

2020 has been an eventful year for investment markets. Impacted by the Covid-19 pandemic and government responses to this, there have been many valuable investment lessons that will apply in 2021 and beyond.

As the extent of the pandemic became known in March, stock markets around the world suffered sharp falls. In fact, fears of a recession meant the FTSE suffered its biggest fall since the 2008 financial crisis and trading was temporarily suspended on Wall Street as circuit breakers were triggered, according to the Guardian.

Since then, markets have bounced back but continued to experience volatility. The uncertainty of the situation, with governments changing restrictions and support as they try to control the virus, affected markets throughout the summer and autumn.

So, 2020 has been useful in highlighting the investment lessons we should keep in mind.

1. The unexpected does happen

A year ago, who would have predicted that a global pandemic would have occurred? It’s probably not something you’ve ever considered when weighing up investment risks. Yet, it’s had a huge impact on investment volatility and opportunity in 2020.

This year has taught us that the unexpected does happen. We can’t consider every eventuality but preparing for the unexpected can improve your financial resilience. In terms of investing, this may mean having liquid assets or a rainy-day fund you can use if investment values fall. This is particularly important if you’re drawing an income from investments. Having options for when the unexpected does occur should be part of your financial plan.

2. Volatility is part of investing

No one wants to see the value of their investments fall. But volatility is part of investing. When you invest, you need to be aware of the risk that values can fall.

This is why a long-term time frame and goal is so important when investing. Short-term volatility is often smoothed out once you look at investment performance over a longer time frame. It can be frustrating to see that investment values fell in 2020, but when you look at performance over the last five years, for example, you’ll probably still see an upward trend.

3. Diversifying is important

We all know we should diversify our portfolio. Investing in a range of assets, industries and geographical locations can help spread the risk. When one investment falls, another may perform better helping to create balance.

Covid-19 has had a far-reaching impact, with countries around the world affected by the virus. However, some industries have been affected far more than others. Travel and hospitality businesses, for instance, have been forced to close for weeks at a time in many places. In contrast, the pandemic has created opportunities for some firms too. While a balanced portfolio will still have suffered volatility, it can lessen the impact.

4. Financial bias can affect us all

Investment markets have featured in the news more heavily than usual this year, thanks to the volatility experienced. If headlines or talk about the markets meant you considered changing your strategy, financial bias is likely to have played a role.

Financial bias simply means other factors besides facts have influenced your investment decisions. When markets fell sharply at the beginning of the pandemic, an emotional reaction that means you considered taking money out of the markets is normal. However, recognising where bias occurs and limiting the impact is important. Working with a financial adviser can help you with this as you have a professional you trust and one that understands your situation to talk to.

5. You can’t time the market

Finally, the events of 2020 have supported the saying: It’s time in the market, not timing the market.

If you’d tried to guess when to put your money into the stock market and exit this year, you’d probably have ended up making mistakes. Trying to time the market to maximise returns is incredibly difficult, as so many factors play a role. Even investment professionals with a huge number of resources make mistakes.

Rather than trying to time the market, creating a long-term plan and sticking to it is usually the most appropriate strategy for investors.

What to expect in 2021

So, what lies ahead for the next 12 months? With lockdowns and restrictions continuing around the world, we expect further investment volatility as we head into 2021. But if 2020 has taught us anything, it’s that we can’t predict what’s around the corner. Think about your aspirations and build a long-term financial plan around these, including investing where appropriate.

Please get in touch if you’d like to review your investment portfolio for the year ahead.

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.

Global stock markets continued to be affected by Covid-19, but there was good news mixed among the negative.

While the International Monetary Fund (IMF) warned the global economic recovery was ‘losing momentum’, markets rallied during the month based on the news that a vaccine was on the way. Pfizer was the first to announce a vaccine, closely followed by AstraZeneca. While it could be some time until a vaccine allows us to return to normal, it’s a light at the end of the tunnel.

UK

Throughout much of November, the UK was in a second lockdown, fuelling fears of a double-dip recession.

In line with these concerns, the Covid-19 furlough scheme was extended until March 2021 to protect jobs and businesses.

The Chancellor also delivered his Spending Review, which sets out plans for the 2021/22 tax year. The statistics painted a gloomy picture. The government is now borrowing at its highest level in peacetime history and the economy is predicted to shrink by 11.3% this year. The new year isn’t expected to bring relief either. Unemployment levels are forecast to reach a peak of 7.5% in the second quarter of 2021 and the economic output isn’t expected to reach pre-crisis levels until the end of the year.

Unsurprisingly, shares in UK travel companies, pub chains, retailers and hotel operators all fell sharply with the news of a second lockdown. Among those affected were:

Wetherspoons (-7%)
Whitbread, owner of Premier Inn (-3.7%)
JD Sports (-5.8%)
IAG, parent company of British Airways (-6.3%)

A survey conducted by the Office for National Statistics also highlighted the challenges businesses are facing. One in seven companies (14%) fear they will not last until next spring. This sentiment was particularly high among hospitality firms.

Not all firms have been negatively impacted by lockdown through. Some, such as supermarkets, takeaway delivery firms and DIY retailers, saw stocks rise.

The Bank of England has also commented on another risk to businesses – Brexit. The central bank warned that disruption caused by firms being unready for the transition period with the EU coming to an end will shave 1% off growth in the first quarter of 2021.

Europe

Looking to the EU, it is again a mixed bag of good and bad news.

Eurozone GDP increased by 12.6% in the third quarter. However, investment bank Goldman Sachs predicts economic growth will be negatively affected by the new restrictions across Europe. As a result, the bank expects the European economy to shrink again in the final quarter of 2020 and warned this is a trend that could continue into 2021.

Technology companies have largely been resilient during the Covid-19 volatility but that doesn’t mean they’re ‘safe’. In November, the EU hit Amazon with anti-trust charges over merchant data. Following an investigation by the European Commission, Amazon has been charged with distorting competition in the online retail sector. A second investigation is also pending. The firm faces a potential fine as high as 10% of its global turnover, about £15 billion.

US

The big news from the US in November was, of course, the presidential election. Uncertainty over who had won and whether legal action would be taken led to volatility in the markets in the days following the vote. However, the markets did enjoy a Biden bounce as it became clear that Joe Biden will be the 46^th President of the United States.

While the US still battles to control Covid-19, headline figures suggest the economy is recovering at a stronger pace than expected. According to the Institute of Supply Management, US manufacturing grew at its fastest pace in almost two years in October. Output was 59.3, compared to the 55.8 forecast on a scale where a reading above 50 signals growth.

This was also reflected in the unemployment rate dropping to 6.9%, down from 7.9% in September.

Asia

In Asia, there were also positive signs of recovery, but fears remain. Japan was the latest country to exit a recession after posting 5% growth in the third quarter. However, concerns that the country now faces a third wave of Covid-19 dampened the news.

Moving away from Covid news, the largest technology firms in China saw the value of their shares fall sharply this month. Beijing’s market regulator took its first major step in tackling the monopolistic power of tech giants. E-commerce firm Alibaba was one of those affected, with shares falling 9%.

Keep up to date with market and financial news by keeping an eye on our blog. Please get in touch if you have any questions about your investments or financial plan.

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.

Hello out there. It’s the weekend again. Where did that go?! I hope you’re all well and safe, spirits up and eager to learn of your next investment opportunity. This week I’m going to take a look at tax and more importantly saving it. It’s topical this week thanks to dear old President Trump and what seems like a great team of advisers he has. $750 income tax for a man of his wealth. Wow! Firstly though, I have a confession to make. The title of this post may be a little misleading. I am no magician and I’m not prepared to be ‘creative’ with the truth – that would be illegal. So, if you are a billionaire expecting me to get you a £750 tax bill this year, you will be sorely disappointed.

For most people out there however, spanning from those with a modest nest egg to those with millions, there is hope. Plenty of ways exist in which you can very legally keep your hard earned cash away from the dreaded tax man. This isn’t dodgy. This is just about making use of the allowances available to each and every one of us.

This list certainly isn’t exhaustive and should not be taken as individual advice, but here are a few of the main ways that you could get a little bit closer to paying tax like Trump…

1. Use your ISA allowance

OK, cash ISA’s offer very little return at the moment. I know. In fact, in some cases if all you can do is cash, you may be better off without the ISA – but only if you have relatively modest savings and don’t invest outside of cash at all. Otherwise, you should consider making use of your full allowance if you can do so. Why? Two reasons.

Firstly, because it’s a use it or lose it situation. You may not think the ISA is worth it now, but the returns will always be tax free (subject to no rule changes). That’s a very valuable benefit for those that have managed to, or are likely to, build more substantial sums.

Secondly, ISA’s can make use of many more investments than just cash. Most offer you a much better potential for return if you are prepared to accept even a cautious amount of risk and invest for a little bit longer. This can substantially increase tax free income.

2. Use your pension allowances and tax reliefs

By using a pension to save for retirement, you’ll also avoid paying some tax. That’s because your pension contributions qualify for tax relief. So if you’re a basic rate taxpayer, you’ll qualify for tax relief at a rate of 20%. Meanwhile, higher rate taxpayers qualify for tax relief at a rate of 40%.

Do you own your own private company? Great news, pension contributions in most cases will count as a business expense, therefore a saving of 19% corporation tax can be made.

You should note that the amount you can contribute to your pension is now limited to £40,000 a year, but your allowance for a limited number of previous years can be carried forward, so where funds exist this can be a substantial win. But this again could be classed as a use it or lose it situation.

Pensions grow tax free too, so they are are a great way to build up a tax-free nest egg for your retirement. That said, once you start to claim your pension income, you will have to pay income tax. Don’t worry! You do get the first 25% of your pot to withdraw tax free and you can structure your income appropriately – more later.

3. Use your personal income tax allowance.

Every one of us currently has a personal tax allowance, a nil rate tax band if you like, of £12,500. If you are part of a couple (that is in a good place I should add!) this presents you with a couple of opportunities to use it!

Firstly, just taking the pension issue a little further, it may be useful to structure some of your contributions to reflect that this allowance can be used by you both when you start to draw retirement income, but only if you’ve got sufficient funds to draw. This could be a useful tool for example if you are both directors of a family company or have excess income.

Secondly, if you are married or if tax and personal circumstances allow, you could transfer any income producing assets to his/her name and receive a nil or lower tax rate by using his/her personal allowance.

This means that for a couple, with the right investments and structuring of contributions to pensions, in retirement you could bag yourself an income of £25,000 before you start paying any tax and this could be drastically increase by also having a properly structured investment portfolio.

You can find info about personal tax allowances here.

4. Use your other allowances – all of which most people have!

Savings Allowance

Since April 2016, savers have been able to grow their money tax free, thanks to the ‘personal savings allowance’. This allows you to earn interest up to £1,000 interest tax-free if you’re a basic-rate (20%) taxpayer, or £500 if you’re a higher-rate (40%) taxpayer. Additional-rate taxpayers don’t receive a personal savings allowance, so if you earn more than £150,000 each year, you’ll need to pay tax on all your savings.

All interest from savings is now paid gross, which means tax will no longer be deducted by your bank or building society. At today’s rates you could have a fair amount invested in cash before you start paying tax on the returns. I would of course suggest that this is a terrible idea given inflation would eat away at your capital quite readily. All is not lost however, as some investment funds offering higher potential returns (with some risk) are also ‘interest’ producing. This means you can structure your investment portfolio accordingly to make use of this allowance.

Dividend Allowance

Everyone has a tax free dividend allowance of £2000 per year. This means that for owners of private limited companies taking company profits as dividend, or investors in public shares receiving dividends this is a valuable allowance.

Taking regular dividends over time from an income producing share portfolio or share based fund portfolio can add a healthy amount onto your retirement income. These could be phased into ISA’s over time, further reducing tax and giving you a slice of the profit from the great companies of the world. For the well informed investor this strategy is a must.

Capital Gains Tax Allowance

You only have to pay Capital Gains Tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount). The Capital Gains tax-free allowance is £12,300. This gives you the opportunity to purchase investments with readily available capital at any time and then phase them, as detailed above, into more tax efficient environments such as ISA’s.

This also gives you the ability to realise amounts of capital for one off expenditure, such as those kitchens, cars and cruises!

So what now?

OK so that’s it. Nothing hard there at all?! But even with some of the more experienced savers and investors out there, in most client meetings I can usually manage to save some tax. It’s all about structure and it’s all better off in your pocket than with the tax man.

If however what you’ve just read means nothing to you, but you have pensions and other assets that you’ve worked hard to build over time, you could probably use some advice. Structuring your future wealth and income properly could quite literally save you thousands and I always find it is well worth it.

I appreciate some of you may like to see this in practice, so at the end of this post I’ve added a case study example. It’s an easy one I know and I fully appreciate that everyone is different and the world is not ideal. So why not drop me a line? I am always on hand to answer any questions you may have – just email advice@agileifa.co.uk or use our contact form and we will gladly contact you.

Thanks for reading . Until next week.

Chris @ Agile

Case Study David & Rachel, both 66. Target after tax income – £30,000.

David and Rachael are ready to retire, they have just celebrated their 66th birthdays. They each have money purchase pension pots, David has a sum £200,000 whilst Rachael has £150,000. Their children left home a while ago and since then they have done a great job at saving. They also inherited a small amount from parents. Having managed to fund ISA’s to some extent for a number of years they recently decided these should be invested rather than held in cash given terrible cash rates. They are currently worth £75K each. They like to keep a cash buffer too, so have £50,000 in a savings account paying 1%.

Knowing that their spending habits will change now that they are no longer working, Rachel set out to create a budget that would fit their lifestyle in retirement. They no longer have a mortgage so it’s really as simple as day to day spending, the occasional holiday and social. This comfortably comes within £2500 per month.

The zero tax solution…

	David	Rachael	Tax	Notes
State Pension	£9,110	£9,110	£0	Within Tax Free allowance
Pension Drawdown Income	£4,520	£4,520	£0	Uses remainder of personal allowance as taxable income and includes the tax free cash available on the payment.
ISA 3% Withdrawal	£2,250	£2,250	£0	Income and capital gains both tax free
Savings Interest	£250	£250	£0	Within personal savings allowance.
Total Income & Tax	£32,260		£0

This allows them to live comfortably to their lifestyle and have money left in pensions and investments for the ‘big things’. Of course, if you are younger than state pension age great – just replace it with private pension withdrawals. They’ve even got a little Brucie Bonus on top of their desired 30K. Happy days!

Hello again readers! I hope you are all well and getting to grips with the second new normal. Over the last few months we have been trying to ‘control the virus’ and I have been trying, probably with more success, to ensure that this temporary blip in the road doesn’t lead to irrational investor behaviour. What I’m failing at is the urge to link these posts to coronavirus. I’ll stop soon I’m sure, but for now, here’s another insight that could help you to use the impending further lock down to take positive steps for your financial future. This week the topic is inflation, the silent killer of your nest egg.

What’s your number?

Everyone should have a number. For everyone it’s different. What number? Your number. The one that represents the amount of money you’re going to need for retirement. The one that let’s you answer ‘yes’ to the question ‘am I going to be OK’? The number is the answer to the sum of your life. It’s based on the lifestyle you want in the future and have become accustomed to after your years of toil. So what if slowly and silently the value of the money it represents was siphoned off? So sneakily and slowly that you never realised, until all of a sudden you hit 70 and find that your three weeks in the Caribbean have turned into a caravan in Cleethorpes?

There are a few predators that can deviously devour your retirement nest egg if they aren’t kept in check. Some of these you can control, such as the charges on your investment portfolio. There are others such as tax, which you can control to a certain extent, by making use of your tax efficient allowances such as ISA’s and pensions. Don’t worry, I intend to delve deep into these topics on future blog posts so sit tight! For today however, I will concentrate on one killer that you unfortunately have absolutely no control over – and that’s inflation.

Headline returns

Every investor hopefully wants to generate real returns after charges and tax and should do everything in their power to keep these as low as possible. This is just a no brainer. But what else? The media spends much of it’s time giving us headlines and never more than over the last few months. I’ll give you two examples of this.

Savings rates

We are always aware of changes in the Bank of England rate and the subsequent change in savings rates. During the first few weeks of recent government support for firms and individuals, some of the best rates around could be found at National Savings. I never thought I would be saying to clients that for funds held in instant cash (and this should only be your emergency funds people!) they should use premium bonds. Alas, the amazing return of 1.4% has now come to an end and has reduced to a mere 1%. It was only kept high because the government needed your money. Now it appears they want it less and last week has seen commentators jump all over this.

The markets

For the investors out there (and even if your only asset is a workplace pension you are an investor) you may have been paying more attention to the level of the stock market. We have recently had daily headlines of ups and downs, sometimes in the region of 9%. You always hear about the downs more than the ups! Of course you shouldn’t have been giving this more than a passing glance. These are temporary falls. If this ever isn’t temporary, capitalism will have failed. We will have much more to worry about.

For the financially informed, the stock market (and by this I mean global businesses) represent the best long term return available. You just have to be well behaved and accept the ups and downs, but I invite you to look around you right now. You are surrounded by everyday products that represent your support for global businesses. Do you plan to stop buying things? Do you think anyone else does? Why wouldn’t you want your share in the profit of all of our spending, magically compounded over time? I’ll leave that thought with you.

Inflation should be much more of a worry for you now, but we don’t tend to spend a lot of time talking about inflation rates. BBC and Sky news don’t show us a lovely inflation graph every day, but they should. Why don’t they? Because it’s not a headline, it’s just there every day, slowly and sneakily stealing the buying power from your wealth.

Inflation isn’t like it used to be

The 1970s to the 1990s were a time of high inflation, but by and large this has been off the table as an issue for investors since then. Just have a think back to this time though. In 1990 the rate of inflation was a whopping 9.46%, but if you were savvy you could get interest on a bank account of 14%. That is a real return. From cash. Who would believe that now! Let’s take a look at today. We have an RPI inflation rate of 1.5% and the most you can get from a bank account (if you are lucky) is 1% and that’s for premium bonds or locking your money away for a lengthy amount of time. The majority of cash accounts now pay next to nothing.

I refer to RPI specifically, because this is the rate of inflation more related to the things we spend on a day to day basis. You may also hear the term CPI also used. Why is this important? CPI usually measures lower, but RPI is your main concern! Confused? Check out this handy ONS explainer.

Why you should be concerned

A lot of savers these days are holding large cash balances in the hope of riding out current market volatility. The problem is, with the return on cash hovering around 0% in nominal terms and -1.5% in real terms, this puts investors in a pretty deep hole. If you believe the inflation predictions this will only get worse.

The reality is unless you are getting over 1.5% net (current rate of RPI) then you are guaranteed to lose money. So, if you’ve got your maximum £50K in premium bonds this means a real loss per year from now of at least £250. This may not seem so bad to you. But if your remaining 50K is paying no interest at all, in total you are losing £750 a year in real terms. £100K in a normal savings account paying nothing? You’ve lost £1500.

Inflation is by far the biggest investment risk over your lifetime

Take a step back and say to yourself. “I put my money in the safest place I thought I could and I’ve lost a grand.”

Does this sound mad? Are you hearing yourself right? Yes, you damn well are.

This is money that would and should have been spent on you. It was part of ‘your number’ and was for whatever makes you happy. It’s been stolen. It hasn’t been taken away from your balance on paper, but ‘your number’, that amount you need for a great life, just went up. Same difference. This is the wrong kind of compounding, the reverse of what you have become accustomed to.

The answer

So, what can you do about it? This is very simple in principle. You can have a proper financial plan. A plan which carefully considers your current and future lifestyle. One with a carefully selected set of investments designed to provide you with access to capital and income exactly when you need it. A plan which includes a long term investment strategy that can allow your nest egg to create real returns. It should pin down and focus on what you want out of life and make certain that you’ll have ‘your number’.

It doesn’t matter where you are in your financial life or where your capital is invested at present. A plan is a mandatory, crucial and responsible thing to do if you want to ensure the continued prosperity of your family isn’t pilfered by inflation. If you’re thinking about getting something together you can find some things to think about in our retirement blog post.

The best time to make your plan was 20 years ago. The second best time is now.

Thanks for reading.

Until next week…

Chris @ Agile

A good financial planner could be your most valuable asset. OK, I would say that I know, but it’s true – I promise you! I often take on new clients who don’t understand what financial planning involves or the benefit it can bring. It’s very simple – financial certainty.

This post should help you understand the benefit of great financial planning. I will look at the different types of adviser and some pro’s and cons. You should find this useful whether you need help for the first time, or if you want to know yours is up to scratch.

Firstly, I think it would be best to manage expectations and dispel some myths about what the best financial planners do.

What they will do…

Understand you, your family and the life you want.
Work with you to put a financial plan in place to achieve it.
Simplify your financial affairs and make them easy to understand.
Hold your feet to the fire when it comes to the plan and check progress regularly.
Filter all of the financial ‘noise’ and help you focus on what’s important.
Tell you how it is rather than what you want to hear.
Make your finances as tax efficient as possible.
Be agile and work with you to change the plan when needed.
Be a sounding board for any of your future financial decisions.
Ultimately give you peace of mind and increase your long term prosperity.
Oh… and…ensure you have all the right financial products at the right time.

What they should never do…

Recommend products without understanding you and your financial plan.
Time the investment markets.
Recommend the latest investment craze or hot pick.
Allow you to sell investments in a declining market – unless absolutely necessary.
Claim to be able to provide high returns with low risk.
Find reasons to sell you a product.
Tell you they know which way the markets are going to go.
Recommend you do anything that they would not do themselves.

So, if you’re thinking “crikey what they do sounds good” read to the end. If not, just bear in mind the next bit…

The do it yourself option

Tiny little rant alert. Please hear me out for a few seconds…

Unless you know your stuff in all things financial or are prepared for the probability of having less money, please don’t do this!

Over the years I’ve seen numerous DIY investment plans go miserably wrong – it’s seriously counterproductive to try and save money here. Those that I have seen go well have mainly been due to a certain amount of luck and have been singular events in a wider plan that doesn’t usually exist.

If however you remain fastidiously DIY, just please remember three things…

You don’t know what you don’t know.
Investment craze’s and hot picks end in disaster. Don’t put all your money in them.
If it seems too good to be true it probably is!

I know that might all seem like a no-brainer, but you would not believe the number of normally sensible people who turn into the Mad Hatter when it comes to financial planning. It’s complex. Don’t use google to plan your retirement – you could end up old and broke.

OK, mini rant over! And breathe…

Seeking out some good financial planning advice

Still reading? Great! So, how do you find the right adviser? Google can now be your friend! Well, maybe. A local search will undoubtedly pull up hundreds of options including local firms and other directories with hundreds more advisers. Too much choice!

The problem is there are vast differences in advice offerings and quality. As a result, I regularly take on new clients who have had an experience which was less than ideal or quite frankly rubbish. This often comes at significant cost in time and stress.

Another quick note – not all advisers do everything, so make sure you have found one who can help with your initial problem (mortgage, retirement, inheritance etc) and remember the old saying ‘jack of all trades master of none’.

Questions to ask

Now I obviously think that, if we specialise in your area, Agile would be the best choice. I am unbelievably biased of course – and quite rightly so! However, everyone is different and you should always, always make an informed decision on your planner. It’s got to be someone you are comfortable with because a poor relationship won’t be good for either party. It’s also easy to get on like a house on fire with an adviser that has a terrible offering and ultimately you’ll probably be worse off financially.

Five words to remember here – Independent, Qualified, Transparent, Genuine. Let me explain using a few questions you should ask about an adviser…

Are they independent or restricted?

An ‘independent’ adviser must make a search from across the market to make sure you have suitable financial solutions for your needs. They are therefore on your side. They can focus on your life, your plan and getting the best outcomes for you. Importantly, it means policies can usually be changed in future as your life does, without the need to move firm. Yes!

Other advisers are ‘restricted’ and in the worst case you may have someone that only recommends their own products or a very short selection. Whilst it isn’t always the case, the adviser can be compelled to recommend their product knowing full well that you could do better elsewhere. Undoubtedly they will tell you theirs is the best to ever grace this earth and that this will be true forever. Why? Because otherwise they won’t get paid. No!

I reckon you’re getting the gist here. When you add up the cost (more on this later) independent financial planning isn’t more expensive than restricted. There are plenty of independent firms of all sizes to choose from if that’s a concern for you. So why wouldn’t you use them? It’s better advice and better value for money. Think of it like this – would you ever want to see a doctor (no matter how good they might be) knowing they could only prescribe a limited range of medicine? In my view there is absolutely no need to use a restricted adviser – but don’t just take my word for it. You can find the views of BBC 4’s money man Paul Lewis here, but ask most financial commentators and they will tell you the same thing.

A firms website and introductory documents should make their independence or the detail of any restriction clear.

Do they hold higher level qualifications? Are they Chartered or Certified?

I will start by saying this isn’t the be all and end all. I know many very experienced planners without a raft of letters after their name. But, just like many other professions, higher qualifications would in most cases indicate quality advice and a good level of knowledge and experience.

The minimum standard for financial advisers in the UK is DipPFS (or similar) which is a level 4 diploma. More qualified advisers will hold titles such as APFS or FPFS which are level 6 and equivalent to a degree.

A Chartered or Certified financial planner has shown a commitment to getting to level 6 and that they have experience. The status is awarded by their professional body and you can be sure this means the adviser has been put through their paces. It can help you to differentiate those who are passionate about giving the right advice from those pesky product pushers.

More information on adviser qualifications can be found here and you would usually find all this info displayed on a firms website or literature. The good news is that in lots of cases this won’t increase advice costs, but ask my next questions to be sure…

What are the costs for initial financial planning?

Good financial planning advice costs money and is well worth it for those who need it. It’s sometimes a pain to compare costs as there is a big difference between advisers. Things are much more transparent than they used to be, although unfortunately some still fall way below the mark.

For initial advice you could pay a fixed fee, hourly rate, percentage of assets advised upon or a mixture of these. Your adviser should always highlight costs in ‘pounds and pence’ so you can compare. Unfortunately, some of the more expensive advisers are the more restricted and least transparent. It’s quite frankly scandalous. You could be paying £1000’s more for less – be very careful and always get a full picture of the cost of advice and implementation.

To confuse things more, some firms only charge if you go ahead. This might be explained to you as a great thing but it certainly isn’t. This is known as ‘contingent charging’ and again, its bad. The adviser is compelled to recommend a solution that means you need to change things in order to get paid. Be wary and avoid if possible! There are plenty of firms that charge fairly and provide better advice.

What are the costs for ongoing financial planning?

Understanding what you will be charged on an ongoing basis is very important. Higher ongoing charges mean fewer pounds in your pocket in the long run. Just half a percent difference in total ongoing costs per year would reduce an average pension pot by tens of thousands over a working life. This would be compounded much more with a poor investment.

What you need to understand is the total ongoing expense of your solution. This is important, because some firms quoting lower ongoing advice fees will actually be charging higher investment fees on their own products. The total ongoing expense should include the ongoing advice, product, fund manager and any extra expenses or transaction costs in the fund. You should receive this in both percentage and ‘pounds and pence’ terms for comparison on an illustration.

My advice – get a piece of paper and table all of the costs. Scrutinise it all. If you are concerned about your current situation we offer a free second opinion service to compare your plans on an independent basis.

Can I work with this adviser now and in the long term?

Most advisers will offer a free initial meeting and I advise you to take it! Make sure you will get along, whilst asking as many questions as possible. First impressions count and your adviser will hopefully be with you for life. Most initial meetings will give you lots of useful information and you’ll leave with a much better understanding of what’s on offer and the costs.

It’s worth speaking to two or three firms to get a feel for how they work, considering all of the questions above. You’ll then be able to choose which one is a fit for you. Why am I telling you to speak to other advisers? Because it’s about you not us! I want our clients to work with us because they know we are a good fit for them and we get along.

It’s also important to understand the type of firm you are using and where the adviser is in their career. Many firms see clients as a commodity and their business structure relies on advisers selling clients to each other internally. They probably also have high sales targets and a high adviser turnover to go with it. No! Both of these things are bad and mean you get passed from pillar to post. I have more than a few clients with me now who have experienced this with previous firms.

In Summary

For a good adviser, and there are many, the focus is the client and their plan. They will always be transparent and will always give value for what they charge. That means being independent and making sure they know their stuff. Choose carefully.

As always, you can contact us for a chat about any of the above, whether you want to use Agile or feel like another firm or specialism would be right for you. We will always be happy to point you in the right direction.

Thanks for reading, I hope this was helpful and good luck with planning your financial future!

Until next time…

Chris @ Agile

A common saying in financial planning is “it’s about time in the markets, not timing the markets.” But why is this?

When investments start to fall I often take calls from clients who are rightly worried and want to try and time the market. Some reassurance on how markets operate can often put their mind at rest. In this post I’ll take a look at why timing the market is something I would rarely recommend.

The ups and downs

Markets carry a lot of unknowns.

While steep falls can be unnerving, it’s important to bear in mind that ups and downs are actually a good thing. Short-term volatility is the price you must pay for the chance of higher long-term returns. Extremely low volatility is worrying – it often suggests investors are being complacent.

Short-term market movements are often the result of changes in sentiment – how investors feel about the stock market. You need a crystal ball to predict this! Particularly recently, we’ve seen volatility on a daily basis.

This is in contrast to long-term market movements, which are the result of changes to companies’ fundamental worth. This is more predictable.

What is timing the market?

Nobody I’ve ever met wants to lose money, so it’s natural to feel uneasy when markets move significantly. This is why some people suggest trying to time the market.

Timing the markets involves trying to second-guess the ups and downs in the hope that you will buy when prices are low and sell when they are high. This can be lucrative if you get it right consistently, but this is very difficult to do. Getting it wrong means locking in losses and missing out on gains and I rarely find this strategy goes well.

Selling out of volatile markets

Some people prefer to sit out during periods of volatility, waiting for conditions to improve. This could be by selling all of your investments or holding back from investing new money. I’ve had more requests for this, particularly political issues such as Brexit or the Covid-19 pandemic causing stock market volatility. I don’t believe this is a good idea for most people. Here’s why…

Missing the best days when timing the market

Not only is timing the market difficult to get right, it also poses the risk of missing the ‘good’ days when share prices increase significantly. Historically, many of the best days for stock markets have occurred during periods of extreme volatility and straight after falls.

Anybody who pulls money out in the early stages of a volatile period and particularly after a fall could miss these good days and will be locking in losses. For instance, between May 2008 and February 2009 in the depths of the global financial crisis the MSCI World index dropped by -30.4%. By the end of 2009 it had bounced back +40.8%.

The risk of inflation when timing the market

Inflation is a risk when keeping your money out of the stock market. It’s power can be seen in the steady increase in the price of goods – from a pint of milk to a brand new car.

When your money is kept in cash, it will not keep pace with inflation. You won’t lose money on paper, but you’ll actually be losing in ‘real’ terms via a loss of spending power. Investing money outside of cash has the potential to outpace inflation and give you a ‘real’ return over the long term.

‘Time in’ the market is important

“The best time to plant a tree was 20 years ago. The second best time is now.” Chinese Proverb

The quote above also rings true for investments. Instead of trying to time the market, spending more ‘time in’ the market is likely to give you better returns over the long term. At Agile, our investment decisions are based on what works long-term, rather than short-term market noise.

This does mean experiencing the ‘rough with the smooth’, but markets and wider economies have a tendency to go up over time. This applies to everything from share prices to the price of goods.

The following chart shows the long term performance of the FTSE World Index, FTSE All Share Index (UK), UK Retail Prices Index and money market cash. Look around you right now, I guarantee that you are surrounded by products of companies who’s shares will be found in some of your pensions and investments. It might not be surprising, therefore, that global shares have been the better performer. This of course cannot be guaranteed to happen again in the future.

The chance of losses reduces over long periods of time

Although the past can’t be taken as a reliable indicator of the future, investing for longer periods of time decreases the chance of overall losses. On top of this, it suggests that short-term stock market volatility tends to cancel itself out over longer periods of time. This gives the possibility of more consistent long-term returns.

Compounding is your friend!

“Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it.” Albert Einstein

One of the reasons that long-term investing has the potential to deliver such great returns is the power of compounding. It’s essentially the snowballing effect of your returns generating more returns over time.

It is mainly seen through the reinvestment of dividend payments into more shares – to subsequently receive more dividend payments and buy even more shares. However, you can also see its effect when companies reinvest their profits in advertising, more staff or better services and subsequently see their profits increase.

How we invest at Agile…

I believe in the power of investing for the long term, and the key aspects of the investment philosophy are that we…

Take the long view, analysing the long term fundamentals. Timing the market is something we refuse to get involved in!
Use our investment committee to set asset allocations aligned to our clients view on risk.
Independently research the market to find the leading fund managers and review these constantly.
Look to find our investors real returns, bearing in mind effects of inflation, fees and tax.
Don’t let emotions, cognitive bias or short term noise cloud our judgments.
Believe in designing portfolios that have the highest potential returns for a given level of risk.
Find the level of risk that clients are comfortable with, we will never encourage more than is necessary.

If you would like to understand more about how we manage our investments and how we may be able to help you create a long term investment strategy then please get in touch. Alternatively, I’m always happy to give an opinion on how you have things set up. Our initial discussions are completely free, but may just result in a strategy that can stand the test of time!

Thanks for reading!

Chris @ Agile