Monthly Archives

December 2020

Jar of money fallen over with green shoot growing out of pile of money

Why 2020 hasn’t been such a nightmare year for investors

By | Investments

Although 2020 has had more twists than a Stephen King novel, many of our clients have been pleasantly surprised by the performance of their investment portfolios. We look at the reasons behind such a strong year in investment terms.

In stark contrast to the negative headlines we have all grown accustomed to during 2020, it’s been very pleasing for us to be able to tell our clients that the performance of their investment portfolios has been so resilient over the last few months. The fact is that global investment portfolios – particularly cautious managed – have continued to deliver strong returns.

Of course, this good performance has not been the case throughout all of this year. Back in March, sharp stock market falls were causing widespread panic. After COVID-19 was officially recognised as a pandemic, and the impact of strict lockdowns on global trade became clear, investment markets responded by falling heavily. The suspension of all but essential activities across Asia, Europe and the US has caused investment analysts to change their outlook on the global economy from positive to extremely negative. As a result, global stock markets in March fell by more than 35% from their February highs. Even traditional ‘safe haven’ assets, like government bonds and gold, fell heavily in value. The sell-off in investment markets was then worsened by a dramatic fall in the oil price, when Saudi Arabia and Russia disagreed about oil production volumes, adding more pressure to an already nervous environment.

But the anxiety demonstrated in investment markets caused governments across the world to respond and make superlative efforts to restore confidence. They did this by introducing extremely large measures designed to inject money into economies and support business continuity. These monetary support measures gave investors the belief that widespread business bankruptcies could be avoided, and that the global economy was not really in freefall, but in temporary hibernation.


Global investment portfolios recovered well

As the year continued, although the outlook for people coping with the coronavirus lockdown was bleak, global investment markets – particularly equities – continued to climb. While large proportions of the population were worrying about their jobs, about a deepening global recession, and with no indication on when a coronavirus vaccine would be discovered, investment markets were looking almost rosy. By August, global equities had recovered all of the losses from earlier in the year and were back to a positive return for the year to date. From an investment perspective, perhaps the word that best sums it up would be ‘disconnect’.

Looking in from the outside, with a second wave of the virus looming, and with no sign of a vaccine anytime soon, that disconnect may have looked puzzling. But there was a clear logic behind it. Ultimately it was always felt that the crisis would eventually pass without totally destroying the global economy and that governments and central banks worldwide were fully committed to plugging the gap with capital in the meantime. As a result, global investors stopped being fearful and instead started to focus on identifying those companies and regions that would benefit in the short-term and once the global recovery was underway.

Technology stocks, particularly in the US, did extremely well from this renewed optimism, as investors recognised that lockdown and ‘stay at home’ orders would prove beneficial to companies with a big digital or online presence. Elsewhere, investors were looking at Emerging Markets and the Far East as the two regions where the recovery was most likely to accelerate. China in particular benefited from being the first country hit by coronavirus and the first to start opening up – backed by extensive government and central bank support.


Even the chaotic US election didn’t upset stock markets

Over the last four years, investors have largely managed to set aside concerns over the Twitter rants of President Trump and focus instead on the positive benefits of a Republican-led administration. Conventional wisdom is that markets prefer the low-tax, business-friendly policies of the Republican Party, and would prefer this over the higher taxation and tougher regulation stance of the Democrats. But even so, as the US Presidential election approached, markets were warming to the prospect of a Joe Biden victory. And, even after the chaos caused by the time it took to announce the winner, global investment markets managed to take this uncertainty in their stride. Part of this relaxed stance could be due to the belief that a Democrat President could have the impact of his taxation policies blocked by a Republican-controlled Senate, which in investors’ eyes would be the best possible outcome. Two Senate seats are still up for grabs and will be decided in January, but it is already clear that investors have – for now at least – ruled out political upheaval in the US as one of their biggest fears or likely causes of instability.


But the UK has been a disappointment

While global investment portfolios performed well, UK-focused investments found the going much tougher. There are several reasons for this. First, the UK is a service-based economy, which means that lockdown has had a particularly negative impact. Second, the UK has not led the way in terms of dealing with the coronavirus or supporting its economy – and this has meant its economic activity levels have remained lower than other major economies. And of course, the prolonged uncertainty over a Brexit deal between the UK and the European Union continued to dampen down the prospects of UK companies, and the UK as a whole.

The key question is whether businesses and consumers can survive ‘Lockdown Part 2’ long enough to rebound strongly on the back of their pent-up demand when restrictions are lifted. That relies on employment levels and incomes being maintained. On that front, Chancellor Rishi Sunak’s extension of the furlough scheme through to next year comes as much-needed relief. Some sectors – such as travel, retail and leisure companies – will feel the pain well into next year, not helped by the tightening of restrictions in the lead up to Christmas. This extension is recognition that continued support is needed to see the UK through a difficult winter, and hopefully towards growth in early 2021.


So, what can we expect in 2021?

It is impossible to predict what is going to happen but with the approval and administration of both the Pfizer and Oxford-AstraZeneca vaccines, there is finally light at the end of the tunnel. This, combined with the welcome EU-UK Brexit trade deal, means that governments can turn their attention to economic recovery with a degree of optimism and strive for a better future.

But overall, if 2020 has taught investors anything, it is that global investment markets are increasingly resilient and that negative headlines and market volatility does not necessarily mean long-term damage to investment portfolios. That is why we believe it’s so important to resist the temptation to sell your investments during volatile times because markets have a way of bouncing back quicker than expected.


If you are interested in discussing your financial plan or investment strategy with us, please get in touch with one of our experienced financial planners here.

This content is for information purposes only. It does not constitute investment advice or financial advice.

Someone signing divorce papers - capital gains simplification for divorced couples

Pensions and divorce – what you need to know

By | Divorce

A ‘divorce boom’ has been predicted as a result of the coronavirus lockdown, and one of the most complicated – and most hotly disputed – areas in divorce proceedings involves pensions. But there are some other divorce pitfalls that good financial planning can help you to avoid.


According to Citizens Advice, life in lockdown during 2020 has placed an “enormous strain” on relationships. Since April it has noticed a sharp spike in website searches for guidance on divorce proceedings. And, on the first weekend of September, views of its divorce webpage shot up 25% compared to last year. In response to the increasing demand, a number of family solicitors are now advertising ‘fixed fee’ divorces that will help couples to end their marriage without spending an exorbitant amount on legal fees.


Most people understand the value of using a solicitor to work through the legal aspects of their divorce, but a professional financial planner can really prove their worth also if you have more complicated financial arrangements that could take time – and money – to resolve. Worryingly, however, research from Legal & General found just 3% of couples in the process of divorcing have sought financial advice, but they were four times as likely to take divorce advice from their friends. That could prove to be very costly in the long run.


Getting your financial affairs in order

Once a solicitor has been appointed and the divorce petition is drafting, one of the next key steps should involve both parties (the petitioner and the respondent) completing Form E, which is available to download on the website. Both parties are encouraged to volunteer their financial information, including all of their pension holdings, at an early stage, as it will help to move negotiations along and increases the likelihood of reaching an amicable agreement and avoiding having to go to court.


Of course, making a full list of everything you own, including where your pensions and other financial assets are kept and how much they are worth, can be a very time-consuming and daunting prospect. This is especially true if you were not heavily involved or familiar with managing the finances during your marriage. But failing to make full disclosure can have serious consequences during a divorce case, particularly if one party tries to conceal pension assets from negotiations. Engaging a financial planner early on can help you to avoid any oversights that could come back to bite you.


Non-disclosure can also sometimes happen by mistake, particularly in the area of pensions, so getting a financial planner involved at this point can make the whole process a lot easier. It means you can trust them to gather all of the information you need about your finances and assets, including contacting pension providers to find out how much your pensions are worth, leaving you with more time to focus on other things.


Making the most of your finances

Seeking financial advice early on in the divorce process can prove beneficial in other ways too. During the divorce process, your solicitor is focused on ensuring that the necessary legal steps are taken to end the marriage. It’s not their role or responsibility to ensure your finances are kept in order. A financial planner, on the other hand, will be able to recommend some important and valuable changes to your finances that could improve your financial situation after the divorce. If you leave it until the settlement stage, you may miss opportunities for a financial planner to recommend some important and valuable changes.


For example, if any assets are liable to capital gains tax (CGT), a financial planner might be able to help you organise an ‘inter spouse CGT exemption’ (assuming any transfer of assets is completed before the end of the tax year in which the separation occurred). And there are other areas where a financial planner might be able to give you valuable impartial advice about your situation, and can help you to avoid some of the most common financial mistakes that people end up living to regret after their divorce.


Mistake one – focusing on the home and neglecting other areas

One of the most difficult aspects of any divorce is figuring out what to do with the marital home. Many people become highly attached to the family home during a divorce, especially where children are involved. This can often lead to many taking over the mortgage borrowing during a divorce settlement in order to keep the family home, but at the expense of losing a proportion of their spouse’s pension.


You may want to consider whether keeping the family home is the most sensible decision. In most cases, the better course of action is to sell the marital home, buy something more affordable, and take a slice of the former partner’s pension. Of course, this may not always be the right choice for everyone, which is why seeking professional guidance on your own personal circumstances is essential.


Mistake two – accepting an equal pension split

While equally splitting your partner’s pension provision might seem the fairest course of action, you should carefully consider this option before agreeing to it. This will not necessarily result in an equal level of income in retirement. Quite often, it is better to push for an equal income share, rather than a simple 50/50 split of the capital, as this may give you a higher level of income in retirement. In light of this, working with a suitably qualified financial planner can help you understand how the different options available to you could affect your retirement planning.


Mistake three – failing to check pension valuations

As we mentioned earlier, it’s very important that both parties complete their Form E, and legally disclose all of their assets. Even so, this is one of the areas where financial planners frequently deliver the most value to clients. Money brings out the worst in people, and you might be surprised at the number of spouses who attempt to conceal the value of their pensions or their businesses during divorce proceedings. An experienced financial planner will be able to help you obtain all of the relevant documents needed to value these assets, and help to ensure you get the fairest deal in the final settlement.


Helping you to move forward

No one who gets married thinks it will end in divorce. And whether the decision to separate is taken by you or your spouse, it is one of the most difficult and emotionally draining experiences anyone can go through. Over the years, we have supported a large number of clients during their divorce and our experience tells us that seeking financial advice early on can help to put your mind at ease and help to bring some much-needed clarity and stability.


But one of the best parts of financial planning during divorce is that it gives you the chance to start thinking of life beyond your divorce. It means you can take charge of your own finances, and focus on the things that matter to you most. This is a key time for you to review your assets thoroughly, help to establish your own personal financial goals, particularly around retirement, and to work on a plan to help you achieve them.


If you would like further information on the above, please get in touch with one of our experienced financial planners here.


This content is for information purposes only. It does not constitute investment advice or financial advice.

Buy to let market

Buy to let is now looking much less attractive for investors

By | Investments | No Comments

Is buy to let past its sell-by date? With the Stamp Duty holiday due to expire in April 2021, some tough questions are being asked about the longer-term outlook for the buy to let market.


Back in July 2020, the UK’s buy to let market was handed a surprise boost by the Chancellor after he announced that the newly-introduced stamp duty holiday would also apply to buy to let investors. The tax holiday meant that buy to let investors buying a £500,000 property would have the rate of stamp duty halved from £30,000 to £15,000.

In recent years, the government has been focused on first-time buyers and encouraging homeownership, and measures affecting the private rental market such as mortgage interest tax reform or changes to private residence relief and tenancy regulations have been put in place to make buy to let – and being a landlord – much more difficult and significantly less profitable. The ‘surprise’ therefore was that the stamp duty move treated first-time buyers and experienced landlords alike.  The decision to create a level playing field has proven largely successful, in terms of stabilising house prices and boosting transactions during the pandemic.


The post-COVID landscape

The buy to let sector was already facing challenges before COVID hit, particularly due to the new regulations being implemented during the current tax year. The coronavirus has simply added to the uncertainty. But as the government has continued to exert pressure on landlords down the years, many have started questioning whether the negatives of owning buy to let properties now outweigh the benefits.

It’s worth noting that the economic outlook for 2021 remains uncertain, and although the pandemic itself might begin to dissipate, the economic impacts are likely to be around for much longer. It’s no surprise that confidence among landlords is low. According to research published in October by the National Residential Landlords Association, almost two-thirds of private landlords in England and Wales expect rentals to continue to be negatively impacted by COVID-19. Despite efforts by the government to protect homeowners, landlords have been forced to confront a sudden drop in demand for rental property or to have difficult conversations with tenants who may not be in a position to make rental payments, due to redundancies and other challenges.

The supply/demand characteristics of the UK property market are also shifting, thanks to COVID-19. So many people have learned to adapt to working from home, and London, which was once considered a prime buy to let location – thanks to its high rental income and stellar capital growth – has seen a rapid exodus of business professionals who are willing to give up city life and instead find larger properties outside of the capital. Since June, the number of monthly London lettings has been down by a quarter compared to last year, according to LonRes, and London landlords have been slashing rental prices by 20% to secure new tenants.


So, what are the alternatives?

Setting aside the incentive of owning property, it’s a good idea to think about the investment returns that a buy to let traditionally offers – a reliable stream of income that should rise slowly over time, combined with long-term capital growth. The downside includes increased costs and higher taxes, lower returns as rental yields fall, an increased likelihood of renter defaults or the property being empty for longer periods, and the added hassle of managing the property.

You might want to consider whether it would be better to find alternative investments that offer reliable income and capital growth, without the other burdens. For example, you could want to steer clear of volatility, bond funds can offer a steady income with a much lower likelihood of default. If you’re after growth, you might want to think about investing in funds that focus on dividend growth, which offer a combination of rising income and capital appreciation over time. On a global basis, dividend-paying companies have done surprisingly well this year.


Has buy to let had its day?

The impending demise of the UK buy to let market has been signalled countless times before – and yet has managed to carry on regardless. After all, for most Britons, bricks and mortar will always be viewed as a ‘safe as houses’ long-term investment. But COVID-19 has created new challenges that may be the final nail in the coffin for landlords already unhappy with the obstacles they have to face.

Until it expires on March 31st 2021, the stamp duty holiday will continue to control the direction of the UK’s property market and bolster house price growth. The question is whether buy to let still looks like a solid investment thereafter. It’s just possible that 2020 may well prove to be the peak of our fascination with buy to let.


If you would like to discuss your investment opportunities please get in touch with one of our experienced financial planners here.


The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

Broken piggy bank on the shelf. National Savings

National Savings rates are dropping – should you take action?

By | Financial Planning | No Comments

We are living in an era of historically low interest rates, which is particularly bad news for anyone with NS&I Premium Bonds, ISAs, and other cash savings products. Now might be the time to look at getting a better return.


If you were looking for a secure and responsible home for your savings, it used to be hard to beat National Savings & Investments (or NS&I for short). For decades, NS&I was the place where people kept their cash savings, either in Direct Savings Accounts, Cash ISAs, or if you wanted the thrill of winning a possible jackpot, Premium Bonds. One of its biggest selling points has always been that its purpose is to provide money for the UK Government and that all its products are backed by a 100% guarantee from the Treasury.


A long-standing institution

NS&I might seem like a bit of a relic from a past age, and in many ways it is. This is, after all, the same establishment that issued War Bonds and Defence Bonds during the First and Second World Wars. However, today the role that NS&I plays in raising funds for the government is much reduced and represents only a small part of the government’s borrowing plans. Instead, it is far more likely to raise billions of pounds by selling Government Bonds (Gilts) on the open market.

But even if its best days are behind it, NS&I still stands as one of the largest – and most popular – savings institutions in the UK, with 25 million customers trusting it with more than £179 billion. And the problem is that the majority of these customers are being short-changed by the rate of interest they are earning on their savings. That’s because recently NS&I has been trying to discourage people from investing with them. In September, it announced sharp reductions to interest rates across its product range, and these new rates came into effect on 24 November:

  • Direct Saver interest rates are being cut from 1.00% to 0.15%
  • The interest rate on Income Bonds is cut from 1.15% to 0.01%
  • The interest rate on Direct ISAs is reduced from 0.90% to 0.10%
  • Junior ISAs don’t escape either – the interest rate is being cut from 3.25% to 1.50%
  • Even the monthly odds of your numbers coming up on the Premium Bonds are being slashed – from 24,500 to 1 to 34,500 to 1.

An era of historically low interest rates

It’s worth remembering, of course, that the UK base rate of interest is currently 0.1%. The Bank of England opted to reduce it from 0.25% to 0.1% in March 2020, as part of its measures to control the economic impact of the coronavirus lockdown. So, NS&I is simply making changes that reflect the current state of affairs. But from a savings perspective, things could get worse.


Are negative interest rates on the way?

You might be forgiven for thinking that with the base rate at 0.1%, it couldn’t go much lower. But you would be wrong. The Bank of England has recently started discussing the prospect of negative interest rates, which could take interest rates below 0.0%. Negative interest rates are not unheard of and have already been put in place in the Eurozone, Japan, and Switzerland. Whether negative interest rates are any more effective at encouraging economic support and stability, is still very much open to debate.

In October, the Bank issued a letter to the chief executives of all UK banks and building societies, as well as large international banks and insurers, asking them to identify any “operational challenges” associated with the implementation of zero or negative interest rates. Dave Ramsden, the Deputy Governor at the Bank of England, recently pointed out that negative rates are “certainly in the toolbox for potential use in future”, adding that the Bank “will keep the appropriateness of all tools, including negative rates, under review”.


So, what does this mean for cash savers?

Anyone holding cash in a standard deposit or savings account should understand that their money is already earning a paltry rate of interest – and this is only likely to continue for the time being. Even though inflation is also relatively low at the moment (The Consumer Price Index measured inflation at 0.7% in September), this still means that the value of the cash you hold in the bank is being eroded – it is literally worth less than it used to be. Negative interest rates would mean receiving zero return on your savings, ensuring your money would shrink even faster as it sits on deposit.

So, with savings offering little or no value, should you be looking elsewhere for an income on your money? We think so. If you rely on your savings for an income, it is certainly a good idea to look at some of the alternatives available. For example, investing in a cautiously managed portfolio of stocks and shares could be a way of earning a better rate of return, and growing the value of your investment over time, without taking too many risks with your money. In fact, a zero interest rate environment could even be a positive for UK stocks. This is because it allows companies to borrow more, and should increase the value of its future earnings paid out to shareholders.

There are other investment options available too, so this might be a good time to work out how much cash you hold and whether it could be put to better use to keep your long-term financial plans on track.


If you have cash on deposit, we would be pleased to hear from you to discuss possible alternatives that might be more suitable. Please get in touch with one of our experienced financial planners here.

The value of your investment and income from it can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.