Category: News

The last couple of years have been challenging for investors. Factors outside of your control are likely to have led to your portfolio experiencing volatility.

However, while market performance often grabs news headlines and your attention, the short-term movements of your portfolio shouldn’t be your main focus.

Market volatility characterised the first half of 2022

While markets experienced a sharp fall at the start of the pandemic in 2020, the majority recovered over the following 12 months.

However, volatility has characterised the first half of 2022 for many investors.

A perfect storm of factors has led to some investments falling in value. Among the reasons are the war in Ukraine, post-pandemic inflation, rising interest rates, and soaring energy prices.

According to Forbes, the FTSE 100 index, which is an index of the largest 100 companies on the London Stock Exchange has fared well. The relatively modest 3% decline was attributed to stocks in the commodities, energy, and financial sectors making up a large proportion of the index.

In contrast, the US S&P 500 stock index fell by more than 20% in the first half of 2022.

The volatility isn’t expected to calm in the coming months. There’s also a risk that economies, including the UK, could face a recession.

Seeing the value of your investments fall can be a cause for concern. You may be tempted to make changes to your portfolio as a result.

However, you should keep in mind the common saying: “It’s time in the market, not timing the market.”

If you think back to last year, how many of the events now affecting the markets did you predict? How quickly the economic and geopolitical circumstances have changed demonstrates why trying to time the market consistently is impossible – there are too many factors outside of your control to consider.

For most investors, a long-term plan that’s designed to ride out the ups and downs of the investment market makes more sense. Historically, investments have delivered returns over the long term, but you should keep in mind this cannot be guaranteed.

3 things you should focus on instead of market volatility

Volatility is part of investing. While it can be tempting to check how your portfolio has performed frequently, it can mean you’re more tempted to make changes.

Instead of checking how your portfolio is performing every day, or even every week or month, try to focus on these three things.

1. Your goals

When you start investing, you should do so with a long-term goal in mind.

This could be retiring, supporting your children in buying their first homes, or travelling more in the future. Ideally, it should be at least five years away to allow the peaks and troughs of the market to smooth out.

Focusing on your goal can help you stick to your plan when investment values fall in the short term. An investment strategy can give you confidence in reaching your goal, even when markets are experiencing volatility.

2. Whether the risk profile is right for you

Remember, all investments will experience volatility and there is always some risk. Choosing investments that are appropriate for you could help put your mind at ease.

There are many factors to consider when creating your risk profile, from your goal to your financial circumstances. It’s a step we can help you with and could ensure you pick investment opportunities that are right for you. By avoiding investing in companies that present a higher risk than your profile from the outset, it can help you screen out the concerns that volatility may cause. 

3. Long-term performance

It can be easy to focus on daily or weekly market movements. It’s often the focus of media headlines and it can seem exciting. However, it’s also more likely to lead to knee-jerk decisions that may not be right for you.

Instead, look at how your investments have performed over the long term: what’s the annual rate of return delivered? And how have investments performed over the last five or 10 years?

Over a longer period, portfolios should aim to deliver steady returns. Historically, this is what the markets have done, although it cannot be guaranteed.

So, in most cases, ignoring short-term market movements and focusing on the bigger picture makes sense. Remember, when market values fall, the loss is only on paper until you sell.

Arrange a meeting to talk about your long-term plans

If you’re ready to invest to achieve your long-term goals, please contact us. We’ll help you understand how it can fit into your wider financial plans, the level of risk that’s appropriate for you, and answer your questions about volatility.

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.

The cost of living is rising. Reviewing your finances now is crucial for understanding what effect inflation could have on your lifestyle and long-term plans.

Inflation was at an almost 40-year high. In the 12 months to August 2022, it was 9.9%.

There are several factors contributing to rising inflation, including the conflict in Ukraine, which has disrupted energy and food supplies.

Rising inflation means now is the ideal time to review your budget

Keeping track of your finances during the cost of living crisis is crucial.

In the short term, you should review your budget. Can your budget absorb the higher costs or do you need to make lifestyle changes?

The Bank of England expects inflation to peak at around 13%. It’s also said it doesn’t expect the rate to fall to its target of 2% for several years.

So, you should look at what that means for you in the coming years. Will rising energy prices mean you need to be more mindful of energy use or cut back expenses in other areas?

While the headline inflation figure can give you an idea of how prices are changing, your personal inflation rate may be very different. If you commute long distances, for instance, the steep rise in fuel costs may mean your outgoings rise more than you expect.

Going through your budget and calculating how your regular costs have changed in the last year can help you better manage your finances.

In some cases, you may decide to draw on savings or other assets to bridge a gap if your expenses rise. You should ensure this is sustainable.

The steps you take could affect your long-term plans

While it’s important to focus on how the cost of living crisis is affecting your finances now, don’t forget to consider the long-term effects too.

Decisions you make now could affect your income and financial security for years to come.

If you’re using assets to create an income, such as your pension, you need to be aware of how increased withdrawals may affect you. Could taking a higher income from your pension now to cover costs mean that you deplete your savings faster than you expect? If so, it could mean you face an income shortfall later in life.

Research also suggests that some people are cutting back outgoings that could improve long-term financial security.

According to Canada Life, 5% of adults have already stopped contributing to their workplace pension due to budget pressures. A further 6% are actively thinking about pausing their pension contributions.

While pausing contributions for a few months may seem like it will have little effect on your retirement, it can be larger than you think. The power of compounding means that pausing pension contributions for just a year could reduce the value of your pension at retirement by 4%.

It’s not just stopping pension contributions that could affect your long-term plans. Things like reducing how much you add to your savings account or investment portfolio could affect whether you can reach your goals in the future, whether that’s to support children through university or retire early.

Contact us to review your finances

Amid the current economic uncertainty, reviewing your financial plan can give you peace of mind and confidence. We’ll help you understand how your current budget has been affected and the steps you can take now to create long-term financial security.

Please contact us to arrange a meeting to discuss your goals and the effect the cost of living crisis could have.

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

Rising inflation and concerns about recession risks continue to place pressure on households and affect economies around the world.

The World Bank has slashed its 2022 global growth forecasts from 4.1% to 2.9%. The organisation also warned the global economy is at risk of experiencing stagflation, where economic growth is stagnant, but inflation is high.

As an investor, you may be worried about the effect the current situation could have on your portfolio and long-term plans. Remember, short-term volatility is part of investing, and you should focus on investment performance over years rather than months.

If you have any questions, please contact us.

UK

Once again, inflation reached another 40-year high in the 12 months to May. The rate of 9.1% is slightly higher than the 9% recorded the previous month.

The conflict in Ukraine is significantly affecting both energy and food prices, which is likely to place pressure on household budgets.

The latest economic data has led to some experts suggesting the economy will be stagnant, or even contract, in the coming quarters. The British Chambers of Commerce now expects GDP to contract by 0.2% in the last three months of 2022, while the CBI has warned there is a risk of a recession.

The Bank of England (BoE) increased its base interest rate for the fourth time this year to 1.25% in a bid to tackle inflation. The Bank also commented that it expects inflation to hit 11% in October.

In May, chancellor Rishi Sunak unveiled a package of measures designed to support families through the period of high inflation, paid for through a one-off windfall tax on energy firms.

British Gas has criticised this step saying it will “damage investor confidence” while the industry is trying to build up green energy supplies.

Rising inflation is affecting both consumer and business confidence.

According to a survey from the Office for National Statistics (ONS), three-quarters of British adults are worried about the cost of living crisis.

It’s not surprising that many households are feeling anxious about their financial security. Further ONS data found that once inflation is considered, regular pay, which excludes bonuses, has fallen by 2.2% in the last 12 months.

A consumer confidence index from GfK suggests that people have a gloomier outlook now than they did during the pandemic or the 2008 financial crisis.

The Institute of Directors’ economic confidence index found that business confidence is at its lowest level since October 2020, which was just before the successful Covid-19 vaccine trial results were released. The pessimism was linked to inflation and the effects of Brexit.

S&P Global’s purchasing managers index (PMI) data shows the current situation is affecting businesses:

• In May 2022, UK factory growth expanded at its weakest rate since January 2021 when Covid restrictions were still affecting operations. The slowdown has been blamed on weak domestic demand, falling exports, disruptions to supply chains, and rising costs.
• The service sector is also experiencing weak growth as profit margins are being squeezed by rising prices.

Strikes across the UK are affecting business operations as well.

Public transport has been particularly affected, with train and Tube strikes expected to continue over the summer months. Barristers are also striking over legal aid fees, while other unions, including the country’s largest teaching union, are considering balloting members.

There are many reasons why workers are striking, but pay failing to keep up with inflation is among them.

The aviation industry is also facing staff challenges. A shortage in workers has led to flight chaos across the country. Hundreds of flights have already been cancelled as airlines and airports struggle to operate effectively with fewer employees. It’s left some holidaymakers stranded or out of pocket.

Mike Ashley, chief executive of the Fraser Group, continues to expand his retail empire despite the challenges facing the sector. He has purchased online fashion retailer Missguided out of administration in a £20 million deal.

Europe

Factory growth in the eurozone hit an eight-month low. Germany, often seen as a European powerhouse, saw factory orders fall by 2.3%. It’s the third consecutive monthly fall and could suggest the country will enter a recession.

While the European Central Bank (ECB) has been slower than the BoE and Federal Reserve in the US to increase interest rates to tackle rising inflation, it’s indicated that it will act in July. The plan will see key rates increase by 0.25 percentage points. It’s the first time the ECB will have increased interest rates in more than a decade.

US

Inflation in the US reached a four-decade high in the 12 months to May 2022 at a rate of 8.6%.

Matching the pattern seen in the UK and Europe, US factory growth also slowed. Production rates and new orders are still increasing but at a slower pace. Again, this was caused by falling demand and a shortage of some essential materials.

In previous months, business confidence has remained high despite the challenges. However, the rising number of jobless claims in the US could indicate that companies are letting staff go.

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.

More people than ever are embracing lifestyle changes to reduce the negative effect they have on the environment. As the effect of our choices becomes more widely known, some feel guilty about the decisions they make.

According to an Aviva survey, 64% of adults in the UK have experienced “green guilt” after carrying out environmentally-unfriendly actions.

If you’ve felt guilty about your lifestyle, there are some simple things you can do to have a more positive effect, including these eight steps.

1. Reduce how much plastic you buy at the supermarket

The effect of plastic pollution on wildlife and ecosystems is huge. So, it’s not surprising that using single-use plastic products is one of the most common things to cause green guilt.

The use of plastic shopping bags has fallen drastically since the charge was introduced in 2015 – 28% of people feel guilty when they buy one today. Choosing products that use less plastic packaging or purchasing reusable muslin produce bags to cut back further can make your weekly shop more environmentally friendly.

2. Choose paperless bills

If you’ve already set up direct debits and manage your accounts online, switching to paperless contact makes sense. Not only does it reduce waste, but the letters don’t need to travel to reach you.

When using paperless billing, make sure your account details are secure, regularly check that the bills are accurate, and download and save any necessary files.

3. Be mindful of your energy use

With utility bills soaring this year, cutting back on how much energy you use might be something that’s already on your mind.

Simple steps like switching gadgets off at the wall, rather than leaving them on standby, choosing energy-efficient light bulbs, and turning down your thermostat really do add up.

If you have a smart meter, you can easily track how the changes you’re making are affecting your energy use.

If you want to invest in your home and reduce bills in the long term, taking steps to improve its energy efficiency can make sense. From insulating your loft to upgrading windows and doors, these steps could dramatically cut how much energy you need to heat your property.

4. Cut back on using your car for short journeys

Hopping in the car when you need to pick up some milk or to drop the children off at school is convenient, but we know that a short journey can unnecessarily harm the environment.

More than a fifth of Brits said they feel guilty after using the car for a short journey. Committing to walking more will boost your eco-credentials, and there are lots of health benefits too. 

5. Reduce how much meat and fish you eat

There are more options than ever for vegetarians and vegans, and you don’t have to give up meat entirely to have a positive effect on the planet.

Rearing animals is an intensive process that contributes to climate change in several ways, including deforestation and the release of greenhouse gases.

14% of people said they feel guilty about how much meat or fish they eat. Cutting out animal products just a few days a week can really add up. It’s also a chance to explore new dishes.

6. Choose local produce when you can

More people are choosing to support local businesses when they shop. It’s a step that can improve your community and means that items don’t have to travel as far to get to you. So, shopping at local butchers or greengrocers where possible can reduce your carbon footprint.

7. Add flowers to your garden

One simple way to help nature thrive is to make your garden more wildlife-friendly. Adding flowers can support the local ecosystem, from birds to insects, and brighten up your garden.

Adding plants to your outdoor space doesn’t have to be a lot of hard work. There are low maintenance options, such as wildflower seeds you can scatter. Planters are a good choice if you have limited space.  

8. Offset your emissions

If you’re worried about your carbon footprint, offsetting emissions can reduce your impact. You may want to regularly offset your emissions or after one-off events, like going on holiday, as 12% of people said they feel guilty about travelling by aeroplane.

When you offset your emissions, your money will be used to fund projects like reforestation. However, be cautious as some projects may not have the positive effect you hope for, and some scams pose as offsetting projects.

Key tax allowances like the Personal Allowance and Capital Gains Tax (CGT) annual exempt amount can help your money go further. As research shows that overall tax allowances have been cut, it’s more important than ever to understand what allowances make sense for you, and how they can complement your financial plan.

According to calculations by Quilter, over the last decade, eight key tax allowances have fallen by 6% in total. As many of the allowances have failed to grow in line with inflation, in real terms, tax allowances have shrunk at a much sharper pace.

So, which allowances have changed the most in the last 10 years?

The 2 allowances that have increased since 2012/13

Two important allowances have increased in the last decade, which could reduce how much tax you pay.

1. Personal Allowance

The Personal Allowance is the threshold for paying Income Tax. You don’t pay Income Tax on any income that is below the threshold.

It was £7,475 in 2012/13 and has increased to £12,570 for the 2022/23 tax year – a 68% increase.

2. Capital Gains Tax annual exempt amount

If you’re disposing of some assets, such as stocks not held in an ISA, you may be liable for CGT.

The rate of CGT depends on your Income Tax rate, but it can be as high as 20%, or 28% if you’re selling some types of properties. Making use of the annual exempt amount can minimise how much tax you pay when selling assets.

For the 2022/23 tax year, the allowance is £12,300, up from £8,105 10 years ago.

The 6 tax allowances that have fallen in the last decade

1. Pension Annual Allowance

The pension Annual Allowance is the maximum you can contribute to your pension each tax year while still benefiting from tax relief (not including any “carry forward”). In the last decade, the allowance has fallen by 20% to £40,000 in 2022/23.

Some high earners may have an even lower Annual Allowance if they’re affected by the Tapered Annual Allowance. For every £2 you earn over £240,000 (adjusted income), your Annual Allowance falls by £1 to a minimum allowance of £4,000.

2. Pension Lifetime Allowance

The Lifetime Allowance is the total value your pension can be before you may face additional tax charges when you access it. Over the last 10 years, it’s fallen by 28%. So, how much you can save for retirement tax-efficiently has been significantly reduced.

For the 2022/23 tax year, the Lifetime Allowance is £1,073,100.

3. Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) affects how much you can tax-efficiently add to your pension if you’ve already withdrawn an income from it. So, it may affect people who have flexibly retired or plan to return to work after taking some time off.

The MPAA is now just £4,000. It was £10,000 a decade ago.

4. Nil-rate band for Inheritance Tax

The nil-rate band is the threshold for paying Inheritance Tax (IHT). If the value of all of your assets is below the threshold, you don’t need to pay IHT. If it’s above the threshold your estate may be liable for IHT at a standard rate of 40%.

The nil-rate band hasn’t changed in the last 10 years and is £325,000 for the 2022/23 tax year. While that may seem positive, when you consider inflation and how the value of assets may have grown, particularly property, it’s fallen in real terms.

5. The Inheritance Tax (IHT) annual exemption

Much like the nil-rate band, the annual IHT gifting exemption is the same as it was 10 years ago. So, in real terms, it’s become less valuable.

The annual exemption is £3,000 for the 2022/23 tax year. This is the amount you can gift each tax year without it potentially being considered for IHT purposes, as it’s considered immediately outside of your estate.

6. Dividend Allowance

Dividends are a common way for investors to generate an income from their portfolio or for business owners to pay themselves.

The Dividend Allowance is how much you can receive in dividends before tax is due. When it was introduced in the 2016/17 tax year it was £5,000, but it’s now just £2,000.

How can you get the most out of your tax allowances?

With some allowances now frozen until 2026, understanding which ones make sense for you and will help cut your tax bill is important. We’re here to help you understand how to use the eight allowances above, as well as others that may be appropriate, in your financial plan.

Please contact us to arrange a meeting with our team.

Please note: This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

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.

The Financial Conduct Authority does not regulate estate planning or tax planning.