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Businessman using laptop to look at dividends

What are the prospects for dividend income in 2021?

By | Investments

After a traumatic 2020 for dividend-paying companies, when a number of traditional stalwarts were forced to cut or suspend their dividends, we look at whether we can expect a return to dividend payments in the year ahead.


Why are dividends important?

UK investors have always had a love-affair with dividend-paying companies. For example, many retirees invest in companies known for their dividend payments because they can be relied on to pay a consistent and strong level of income, year in, year out.

But it is not just the man in the street who is attracted to income-paying companies. Most pension funds own large quantities of dividend payers for the same reasons. One of the reasons the FTSE 100 index has been historically popular with investors is that its average dividend yield is usually between 4% and 4.5%. During an extended period of low interest rates, this makes dividend-paying companies very attractive within any investment portfolio.

What’s more, earning a regular income through dividend-paying companies can help you to grow the value of your investment pot significantly over the years, especially if you use the income payments to purchase additional shares – which in turn also pay out future dividends.

So, it is no surprise that investing for dividends is important to UK investors, and no coincidence that the UK has long stood out as offering a higher dividend yield (how much a company pays out compared to its stock price) than most other countries.


A difficult period for companies

Dividends are usually considered to be a good sign that a company is doing well, and has plenty of spare cash in the bank. But the UK’s reputation for dividend payments took a battering during 2020.

The coronavirus pandemic caused a global shutdown during the first few months of last year, forcing companies to take widespread, and often drastic, measures to keep operating during a period of uncertainty.

Dividends were an obvious place to start, and according to research carried out by GraniteShares, almost 500 companies listed on the FTSE 100, FTSE 250, and AIM stock markets either cut, cancelled, or suspended their dividend payments during 2020. As a result, the FTSE 100 average dividend yield for 2020 overall ended up at a significantly lower 2.98%.


Which companies were affected?

Some of the biggest dividend payers come from the oil, banking, and property sectors. Within the oil sector, after a year when travel became a non-starter for millions of people, BP cut its dividend by half after reporting a $6.7 billion loss in the second quarter of 2020, while Shell reduced its dividend by two-thirds – the first time it cut its dividend since World War Two. After the shock of 2020, and the increased pressure on oil producers to invest in the transition towards renewable energy, the prospects for a return to past dividend highs looks uncertain for now.

However, a return to normality looks more promising in those two other sectors. Companies operating within the UK banking sector – including HSBC, NatWest, Lloyds, and Barclays – stopped paying dividends in March, following recommendations from their regulator. The concern was that banks needed to keep more capital on hand in order to absorb financial losses from non-payment of loans. This concern appears to have been overstated, and following upbeat reports in the third quarter of 2020, the Bank of England has said banks are cleared to announce dividends as part of their next financial results in 2021.

Within the property sector, companies such as Land Securities and British Land cancelled their dividend pay-outs to conserve cash early during the pandemic, after heightened fears that their tenants would fail to keep up with rent repayments. But both have announced they intend to restart dividend payments in 2021.


What’s likely to happen now?

A return of companies paying dividends would be an important and positive development in 2021, and with banks and property companies expected to return to making payments soon, the signs are encouraging.

That said, expecting a return to previous levels of dividend payments seems optimistic. The coronavirus has made life difficult and even accelerated the decline of companies in certain industries – which is likely to reduce the average dividend yield in the UK market for some time to come. Most companies are likely to start paying dividends at more sensible levels to protect their business in the long run, which is no bad thing.


What should investors be thinking about?

Stocks with a good history of paying consistent and growing dividends will always be appealing to investors. But you should avoid investing for the promise of a dividend alone – it is just one of many factors to bear in mind, and companies can change their dividend policies at short notice, as seen during 2020.

If you hold some UK shares that are there solely for their dividend-paying prospects, now might be a good time to reassess their place in your portfolio, and consider some of the other investment options available to you. For example, the UK is no longer the only place to find great dividend-paying companies. You might be better off switching your investment into a fund that looks at other countries, such as the US, Japan, and the Asia-Pacific region. There are other income-generating investment options available too, so this might be a good time to refresh and refocus your portfolio.


If you are interested in discussing your investment strategy with us, 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.

clouds shaped in numbers reading '2021' in the sky

Five positives for 2021

By | Investments

Now that 2020 is behind us, everyone is ready for a fresh start. We wanted to share five reasons why 2021 may well be positive for investment markets, and why now’s a good time to get your finances in the best working order.


One: The economic recovery is in sight

Repeated lockdowns during 2020 led to a sharp slowdown in economic activity and as we move into the third national lockdown, the economic uncertainty may well continue in the short term. However, with vaccines being introduced globally in 2021, we expect to see a sharp rebound in economic activity later in the year. But even if activity comes back strongly, that does not necessarily mean companies and markets will benefit. As markets tend to be forward-looking, current equity valuations already now include expectations of the ‘2021 rebound’.

Markets did surprisingly well during 2020, but much of this was due to the support offered by governments and central banks to prevent companies from going under. To make headway from here, investors will want to see that already-expected economic growth clearly translate into company profits. For us, the biggest factor that makes the equity outlook positive is central bank policy. Since government bonds should remain at historically low levels for the foreseeable future, equities have the yield advantage, which means investors will continue to favour buying stocks over bonds. Provided central bankers keep their nerve and continue to offer support (instead of withdrawing it too soon), equity markets should make forward progress, although at a slower rate than in 2020 overall.


Two: Brexit means UK businesses can finally look forward

Regardless of how you voted during the referendum back in June 2016, Brexit has become an unhealthy preoccupation over the past five years, casting a shadow over the economy and UK equity markets. Now we have finally said our goodbyes, at last, there is an end to the constant state of uncertainty that was causing so much damage to British businesses. Clarity on transition conditions will finally allow businesses to plan for the future.

Many investment analysts believe that this uncertainty has been holding British companies back and that from here, things can only get better. UK equities have been so unloved by investors in recent years that it looks hard to justify their lowly relative valuations. Even if UK growth lags behind the rest of the world, there are many good British businesses that will continue to prosper after Brexit, which could see UK stock markets do surprisingly well in 2021. That said, much will depend on the economic policies that the UK decides to pursue. The Bank of England certainly played its part during the worst of the coronavirus pandemic, by lowering interest rates and providing liquidity for markets. But Brexit means more expansionary policies will now be needed.


Three: The US election result has been well received by investors

US investors took heart that a decisive result was determined in the election and that a smooth transition of power is now likely. Whilst some would question policy decisions made by the White House of late, action taken by the US Federal Reserve has been more decisive. As well as setting short-term interest rates at zero and keeping long-term bond rates low through extensive asset purchases, the Fed also used the tools at its disposal to offer emergency funding for companies that saw most of them through the economic shutdown. Even so, the US is by no means out of the woods, so we expect the Fed will stick with a ‘lower for longer’ policy on interest rates, and continue to commit to supportive economic policies, even as growth begins to return. We consider this to be a positive for long term US economic growth, and for investment markets on the whole.

Incoming President Joe Biden will have his work cut out, especially during the early months of his presidency. But environmental policy is one area where Biden could make a real difference, repairing international relationships and accelerating some of the investment trends (around technology, commodities, and energy) that ‘green’ policies demand.


Four: China and the rest of Asia can set the pace

Asian countries in general have suffered less economic damage due to the pandemic, as highlighted by China’s early and substantial return to growth. South Korea and Taiwan also handled the spread of the virus well and have been able to keep economic activity at a level considerably above the US and Europe. It was also helpful for them that both their stock markets are heavy on technology companies that did well on a global basis during lockdown. As a result, the Asia-Pacific region looks well placed to grow strongly in 2021.

Economically speaking, the ingredients are all there for continued Chinese growth. The real difficulty lies in its political relationships with the West. China faced heavy international criticism in 2020 over alleged human rights abuses in Xinjiang and the effective crushing of any democratic rule in Hong Kong. Further acts of aggression could result in sanctions from other nations, which would lead to investors being forced to pull their money out of Chinese companies. A lot will therefore depend on whether Joe Biden can form a stable working relationship with his Chinese counterpart Xi Jinping.

Elsewhere within emerging markets, Latin America, the Middle East, Africa, and the Indian sub-continent face a more complicated picture. In general, a global cyclical rebound with a weaker dollar should be viewed as positive conditions. But much depends on how well governments can continue to contain the spread of the virus, and whether they are able to provide fiscal support without drastically increasing their debt costs.


Five: ESG is now firmly centre stage

One of the biggest positives during 2020 has been the increase in popularity of environmental, social, and governance (ESG) investing. According to the Investment Association, investments made into ESG and sustainable funds quadrupled in 2020, with £7.1 billion invested in the first three quarters of the year compared with £1.9 billion last year.

As well as mounting fears around climate change, the coronavirus has also played a major role in raising awareness among investors, as well as creating a major change in corporate behaviour. Companies have had to re-assess the relationships with their customers, employees, suppliers, and the wider community, instead of just addressing the short-term needs of shareholders. Research by Bank of America Merrill Lynch shows that companies that performed well during the height of the COVID crisis demonstrated superior product, health and safety scores, as well as better workforce policy scores.

After 2020, there’s now an even stronger case to suggest sustainable investment funds offer enormous potential, not solely for the sake of ethical or environmental issues, but because of their ability to invest in companies that manage risks more effectively during times of crisis and do so while delivering more resilient returns. Doing the right thing can be (and should be) a profitable way to do business.


Now is a great time to get your finances in order

It’s understandable to feel apprehensive about what the year ahead might bring. Whatever happens over the coming months, the pandemic is likely to have a lasting impact on our lives and finances. So, now is a good time to reassess and make changes, such as ensuring your savings work harder and protecting the things that matter. One of our qualified financial planners will be able to talk through the options available to you, assess your attitude towards investment risk, and come up with a plan to help you achieve the best possible outcome. There’s really no better time to start than right now.


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.

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

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.

Receipt from HMRC reading Capital Gains Tax

Explaining the government’s Capital Gains Tax review

By | Tax Planning | No Comments

A recent review of Capital Gains Tax suggests changes that could rake in £14 billion in additional revenue for the Treasury. We look at the implications for you.


Chancellor Rishi Sunak has earned lots of praise for his wide-ranging and unprecedented measures to help the UK combat the damaging effects of the coronavirus lockdowns. But already he is looking at ways to pay for them. One recent review of Capital Gains Tax (CGT) has recommended cutting the annual CGT allowance, and changing the rates at which CGT is taxed – moves which could earn billions of pounds for the Treasury, but could result in headaches and higher taxes for many of us.


What is CGT?

CGT is the tax people are expected to pay on the profit they make when they sell or dispose of an asset. The tax is calculated on the gain that is made rather than the total amount received. For CGT purposes, ‘chargeable’ assets will include property that is not your main home, shares that are not held in an ISA, and most personal possessions valued at more than £6,000 (with the exception of cars).


What is the annual CGT allowance?

Everyone is entitled to an annual CGT allowance of £12,300. This means that you will only have to pay CGT if the gains you have made on your assets are above this amount. So, if you sold shares at a profit of £15,000 this year, you would only pay CGT on £2,700 (the amount over the annual allowance).


What is the CGT rate?

According to the Treasury, some 265,000 individuals in the UK paid a combined total of £8.3 billion in CGT in the 2017/2018 tax year (the latest available figures). By comparison, in the same tax year, more than 31.2 million taxpayers paid a combined £180 billion in income tax. Higher rate taxpayers are expected to pay CGT at 28% on gains made from residential property, and at 20% on gains from other chargeable assets. Basic rate taxpayers usually pay CGT at 18% on residential property gains, and at 10% on other assets. But that could all be set to change.


The CGT review

In early November, the Office of Tax Simplification (OTS) published its eagerly anticipated report into CGT, commissioned by Rishi Sunak back in July. The report suggests that current CGT rules are “counter-intuitive” and have created “odd incentives” in several areas. It noted that the annual exemption could also “distort investment decisions”, pointing to 2017-18 tax year data showing that 50,000 people reported net gains just below the annual threshold.

Among the report’s findings, it suggested that the government should consider reducing the £12,300 annual CGT allowance, reducing it to between £2,000 and £4,000. It also suggested aligning CGT rates more closely with Income Tax, in a move that could raise up to £14 billion for the Exchequer. For higher rate taxpayers, that could mean the CGT tax rate increasing from 20% to something closer to 45%.


Who should be worried about changing the CGT rules?

The OTS proposals would most likely affect individuals with second homes, as well as those with large share portfolios sitting outside of tax-efficient ISAs. The proposals are also likely to cause bigger problems for owners of small companies who hold large sums of cash within their business with the aim of using the cash as a pension when they retire. The OTS also suggested that business owners should pay Income Tax rates on share-based remuneration and earnings retained in their companies. Other recommendations included changing Entrepreneurs’ Relief — recently renamed ‘Business Asset Disposal Relief’ — with an allowance focused on business owners approaching retirement.


How concerned should you be?

Firstly, there is no guarantee that these OTS proposals will end up as legislation. Yes, Rishi Sunak is keen to raise money to fill the fiscal hole left by the Covid-19 crisis. But any far-reaching CGT reforms are likely to prove unpopular with voters, and in particular those entrepreneurs and small business owners that do so much for the UK economy – and have faced such a difficult 2020. For now, the Treasury is keeping its cards close to its chest, saying only that “The government’s priority right now is supporting jobs and the economy”.

Secondly, it is very difficult to make future tax revenue calculations based on a ‘discretionary’ tax such as CGT. If the annual allowance is set too low, or CGT rates are too high, it may encourage individuals to hold onto their assets instead of selling them. If fewer people end up paying CGT, then the Treasury may find their hoped-for additional tax revenue predictions were over-optimistic, and that the CGT reforms have discouraged taxpayers from selling their assets and “distorted investment decisions” even further.


What actions should I be thinking about?

It is hard to predict what the Chancellor will ultimately decide, but with a coronavirus vaccine due for widespread distribution in 2021, it is fair to assume that the government’s attention will be turning from supporting jobs and the economy towards attempting to pay down some of the debt that has been run up this year. So, we feel now may well be a sensible time to undertake a review of your existing investment portfolios, to consider your CGT position and ensure your investments are as tax-efficient as possible.

In particular, this is a good time to focus on investments that have been held for some time, which may carry substantial gains. Whilst CGT is only one consideration when deciding on appropriate changes to an investment portfolio, the result of the OTS review may well mean that now is an ideal opportunity to consider existing investment portfolios in light of potential changes to come.


If you are interested in discussing your investments or tax planning with one of our experienced financial planners at FAS, please get in touch here.

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

Mature woman writing a Will

Make November the month you write your Will

By | Uncategorised | No Comments

If you’ve been putting off making a Will, now might be the right time to put it back on your to-do list. Throughout November, Will Aid is helping thousands of people to get their Wills written professionally, while also contributing to several charitable causes.


According to research from Royal London published in 2018, 54% of UK adults haven’t made a Will, and a worryingly high 5.4 million people in the UK don’t know how to go about making one. There are several reasons most people give for not making a Will. Procrastination is the most common reason, with lots planning to make one ‘when they get older’. A large proportion of people without a Will simply seem to believe that they don’t need to make one –  either because they feel they have very little value to leave behind or they are confident their estate would end up where they intended it to without one. But this may prove to be a mistake.


What does a Will do?

Your Will gives you the opportunity to clearly state your wishes about what should happen to your money, your possessions, and your property after you die. It also allows you to name the person or people you want to be in charge of organising your estate after your death (called your ‘executor’), and lets you give them specific instructions on how to carry out your wishes. This could be anything from appointing legal guardians for your children, making gifts of your possessions to family and friends, making arrangements for your pets, and your specific requests for your funeral.


Why is having a Will important?

Writing a Will puts the control over your wishes in your hands. But it also removes most of the complexity that comes with sorting out a person’s estate after their death, which is a particularly difficult and stressful period at the best of times. Knowing that you have a Will already in place can give you and your family peace of mind that the process of dealing with your estate has already been taken care of. And leaving a Will that states clearly who should get your possessions and your property when you die can prevent unnecessary distress for your loved ones after you’ve gone.


Providing clarity on your financial affairs

Writing a Will is particularly important for anyone who has children or other family members that depend on you financially, or if you would like to leave some of your possessions to people who are not considered part of your immediate family.


Writing a Will can also make your financial affairs clear to the taxman, and help reduce the amount of inheritance tax that could otherwise be payable on the value of the property and money you leave behind. For example, by specifying you are leaving the family home to your children or grandchildren, your estate can claim the main residence nil-rate band, which would allow it to benefit from up to an additional £175,000 in tax-free allowances in the 2020-2021 tax year.

Life Interests

Leaving a Will can also be tremendously important in more complicated family circumstances. For example, you can use a Will to provide a ‘Life Interest’ – which can prevent unpleasant and expensive legal battles between your loved ones after your death. Creating a Life Interest is particularly important for people who have divorced and have children from their first marriage. With a Life Interest, the deceased can make sure their new partner is legally entitled to stay in their home while ensuring it will be passed on to the children as part of their inheritance.


What happens if you don’t write a Will?

If you die without leaving a valid Will, this is called ‘intestacy’ or ‘dying intestate’. This means that if you live in England or Wales (the rules are different in Scotland), everything you own will be shared out under standard intestacy rules. In other words, the law gets to make the decisions on who gets what from your estate. Here are some of the most common problems that can arise from letting the law decide:

  • If you’re married, your husband or wife can inherit all of your estate even if you were separated at the time of your death. Your children might not get anything.
  • If you’re unmarried, and not in a civil partnership, your partner will not be legally entitled to anything when you die, no matter how long you were together.
  • If there is inheritance tax due on your estate, it could be significantly higher than necessary.
  • If you have children or grandchildren, the amount they are entitled to may depend on where you live in the UK.
  • If you die with no living close relatives, thanks to a law called bona vacantia, your entire estate could be handed to the Crown.


Stop putting it off

Some people worry about the costs involved with writing a Will, but in most cases it is not as expensive as you might think. And in November, you can arrange to have your Will written through Will Aid and make a charitable donation to several good causes at the same time.


What is Will Aid?

Will Aid is a partnership set up between the legal profession and nine of the UK’s best-loved charities. Since 1988, it has enabled helped raise more than £21 million for good causes, while ensuring that more people in the UK get peace of mind from having their Will professionally written. More than 500 solicitor firms nationwide took part in Will Aid last November, raising over £900,000 for charities working with some of the most vulnerable people in the UK and around the world.


How does Will Aid work?

Solicitors who are taking part in Will Aid will draw up a basic Will for clients without charging their usual fee. Instead, clients are invited to make a voluntary donation. The suggested donation is £100 for a single Will or £180 for couples. The donations are then given to nine of the UK’s biggest charities, including the NSPCC, Save The Children, Age UK, British Red Cross, and more.


Over the years, Will Aid has helped more than 300,000 people to put their financial affairs in order, make their last wishes known, and give them and their families peace of mind. If you would like to have your Will written through Will Aid, you can find your nearest participating solicitor and book an appointment on the Will Aid website.

Robo advice vs financial adviser

Why robo-advice won’t be taking over the world just yet

By | Financial Planning | No Comments

Trusting your finances to a digital investment platform might be cheap, but you can’t put a price on the peace of mind that personal financial advice gives you.

Technology has had an outsized impact on our lives for several years now. Every time you use a computer, your mobile phone, or take a trip in your car, algorithms are there, behind the scenes, helping to shape your decisions, whether you realise it or not. Algorithms even choose what we see on social media, they dictate which films we watch on Netflix, or what ends up in our basket when we shop online.

But when it comes to providing financial advice, algorithms are still lagging behind. Back in 2015, the introduction of ‘robo-advice’, which relied on computer-generated investment portfolios, was predicted to spell the beginning of the end for financial advisers. But five years later, although we have all grown used to doing most of our daily activities online, the machines don’t look like they’re winning this particular battle.


So, what exactly is robo-advice?

As you would expect, robo-advice is an online investment service where clients are asked a number of questions, including how much they wish to invest, how long they plan to invest the money for, and their general attitude towards risk. The answers to these questions are then used to invest the client’s money into one of several available investment portfolios. The money is then managed digitally for as long as the client wants to remain invested.


What are the positives of robo-advice?

First of all, robo-advice promises to keep the cost of the investment lower than you would expect if you tried to manage a diversified portfolio of investments yourself, or through a financial adviser. And by keeping things simple, it’s a very quick process to get a portfolio up and running. Once the questions have been answered, the client can have their funds invested within a day or so. For investors who have relatively small amounts to invest, it’s a good way of setting aside regular amounts without having to worry too much about keeping an eye on the investments.


What are the negatives of robo-advice?

Despite the name, robo advisers don’t usually offer financial advice. They use algorithms to know just enough about someone to place their money into a particular savings pot, but that’s about the extent of their ability to solve clients’ financial problems. For most people, robo-advice can only get them so far.


Why is robo-advice limiting?

If the events of 2020 have taught us anything, it is that life is unpredictable and sometimes more complicated than we would like it to be. The companies that offer robo-advice to customers want to convince people that financial advice can be stripped down to a computer-generated, algorithmic ‘paint by numbers’ approach. But the reality is that people’s needs are usually far more complex.

One of the most valuable aspects of having a relationship with a financial adviser or financial planner is that it goes far beyond just recommending and overseeing a specific investment.


It pays to have someone to talk to about money

Most people have an emotional relationship with money. Financial issues are the number one cause of arguments rows between married couples. It gives people sleepless nights, and can have a significant impact on their mental health. So, having a financial planner to talk to, someone to listen to your financial needs, hopes and fears, is still an essential part of the advice process – and not something that an algorithm can deal with (yet).


Keeping calm during a crisis

One of the ways that financial planners can really demonstrate their worth is through the value of their experience. This has been a strange year in investment terms. In the early months of the year, when the coronavirus pandemic – and subsequent lockdown – became a global threat, stock markets plunged in value. Inexperienced investors, or those without a financial adviser, often respond in times of crisis by selling their investments, and crystallising their losses.

But a good financial planner can take the emotion out of your financial decisions, help to put ‘apocalyptic’ media headlines into perspective, and make sure that your portfolio is best-positioned to take advantage of recent stock market falls, while also capitalising on longer-term trends. Financial planners can help to reduce the overall risk within your investment portfolio by recommending sophisticated investments, such as tax-efficient Venture Capital Trusts or Enterprise Investment Scheme plans, that simply aren’t available on robo-advice platforms.

In short, during volatile investment conditions, financial planners get the opportunity to get creative, demonstrate their experience and specialist skills, and to really prove their value to their clients. A robo adviser portfolio will just carry on regardless.


Financial planning that goes beyond investment

And of course, investment advice is just one aspect of what our financial planners do. The questions we ask during our fact-finding stage are not just restricted to finding out how much you want to invest and for how long. We are more interested in hearing you talk about your life goals, your plans for your retirement, the wealth you want to pass on to your children and grandchildren. We’re asking these questions because we want to help you plan your financial journey through life. All this information helps us to create a much deeper, lasting relationship with our clients throughout their relationship with us. And it means we’re ready to help when something unexpected happens.


Summary: a matter of trust

While algorithms have improved our way of life in many areas, often in areas we’re not even aware of, it’s also becoming more apparent that algorithms can themselves be flawed or contain hidden biases – after all, they are still programmed by humans.

The lack of take-up of the services offered by robo-advice companies suggests that most people are still deeply sceptical about leaving their financial future in the hands of computer programmes that don’t understand them or care about them.

For some people, using digital-only robo-advice is a cost-effective and simple way to start setting money aside for the future. But for the vast majority, there’s really no substitute to having an experienced financial planner giving you the confidence to make better informed investment decisions. When it comes to the really important questions, or those life-changing decisions, people will always prefer to talk to someone they trust. So, here’s our prediction for the future: financial planning will always be a people-first business.


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

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

Big tech companies icons on phone

Taking a closer look at tech stocks

By | Investments | No Comments

Tech stocks have led the global equity market recovery since the spring. Some argue that valuations are becoming stretched, but this doesn’t look like a repeat of the dotcom bubble in 2000.


It has been a colossal, if uneven, year for the world’s largest technology companies. The NASDAQ index, home to America’s most prominent tech names, has increased by more than 30% since the beginning of 2020, consolidating a rise of more than 400% over the past decade. And, in what’s been an extremely turbulent year for most companies, the continued strong performance of tech giants such as Apple and Microsoft have been a major reason why the headline US S&P 500 index remains in positive territory over the year to date. Apple’s share price has doubled in value in the past six months, and with the valuation of the company passing $2tn USD in August, the company is worth more than the UK’s 100 biggest companies combined.

It is not hard to see why tech stocks have done so well this year. Lockdown has caused significant changes to people’s lifestyles, and accelerated trends that were already well underway. As well as spending large amounts of time in front of their phones, computers and tv screens, people are shopping online more, storing their personal and business information remotely in the cloud, and companies are increasingly relying on data to make their business decisions. These areas were already expanding rapidly before the coronavirus lockdowns forced people to stay at home, and businesses to rapidly alter their working practices.

In a period when a large number of sectors of the economy have seen profits shrink and businesses come under pressure, tech stocks, along with pharmaceuticals and household goods, are sectors that have continued to see growth.


The rally heats up during the summer

During the summer, tech stocks enjoyed a renewed surge, with a number of additional factors contributing to the outperformance. One reason appears to be the actions of Softbank, a tech-driven investment company in Japan which took large derivative positions in seven of the most high-profile tech stocks (Facebook, Microsoft, Salesforce, Netflix, Alphabet, Adobe and Amazon). Softbank apparently carried out a series of enormous, aggressive trades, costing an estimated $50 billion, that drove up valuations during August and whipped up investor appetite.

Another reason for the rise of tech stocks during the summer, although this one is more open to speculation, is that they were due in part to the numbers of ‘day traders’ in the US. These were people who had considerably more time on their hands to play the stock markets during the summer – the high number of coronavirus cases in the US caused a number of strict lockdowns across most states – and opted to make short-term bets on tech stocks.

After the strong gains seen this year, it was, therefore, not unexpected to see some consolidation in the tech sector over recent weeks, with some profit taking in companies such as Tesla, which have enjoyed a stellar performance this year. That said, US software stock Snowflake attracted significant demand at its initial public offering in September, rising substantially above the expected offer price amidst interest from Warren Buffett’s Berkshire Hathaway. This can be viewed as a positive sign that momentum in the sector remains intact.


Are we seeing a replay of the dotcom bubble?

Some people have drawn unfavourable comparisons of the performance of tech stocks over the last year to the dotcom ‘boom and bust’ that took place in the late 1990s and early 2000s. Back then, excessive speculation and wild valuations for internet-based start-ups such as, and helped to cause a huge market crash that cost investors more than $5 trillion.

But one of the biggest differences between then and now is that today’s tech companies are established names, not ambitious start-ups. Even if valuations appear stretched, their popularity is based on their widespread adoption globally, and they are already making huge profits, and should these profits continue to increase over future years, current valuations may be justified.


Political headwinds ahead for ‘Big Tech’

One of the biggest issues facing tech companies is that some of them are now just too big. In the US and Europe, politicians have expressed concerns that companies such as Facebook and Amazon are too dominant in their sectors, and may have to have their activities curbed and their monopolies broken up in the interests of fair competition and stronger rights for consumers and smaller businesses. These concerns have been overtaken by COVID-19 this year, but could return and have an impact on the value of affected tech stocks now that the US presidential election has passed.


What should investors think or do?

No one can predict with any certainty what is going to happen to tech stocks in the next five years. But if you believe in the long-term case for technology companies, one of the better ways to invest is to spread the investment risk by choosing a dedicated technology fund that offers a blend of established names and future potential winners. That way, even if some of the larger tech names underperform, newer entrants could still do well. Active fund managers are well aware of the speculation over the future of tech stocks and will be positioning their portfolios to ensure they don’t rely too heavily on a concentrated pool of companies. As always, our experienced financial planners can help to find the right fund to help you take advantage of the investment opportunities out there.


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


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