Category: Blog

Investment market update: January 2024

While a new year started, many of the key factors affecting economies and markets in January were the same as those in 2023, namely high levels of inflation and recession fears.

The World Bank warned the global economy is set to slow for a third successive year in 2024 and is on course for the weakest half-decade of growth since the early 1990s. It added there was a risk that the 2020s would be a “wasted” decade following a series of setbacks, including the pandemic.

Tensions in the Red Sea are also affecting businesses and economies around the world. The German Economic Institute said global trade fell by 1.3% in December as a result of attacks on merchant ships. The volume of container transport in the Red Sea fell by more than half at the end of 2023 and could have implications for many businesses relying on goods.

Read on to find out what else affected markets at the start of 2024.

UK

There was positive news when the Office for National Statistics (ONS) released the latest GDP figures at the start of the year. November posted growth of 0.3%, after a contraction in October. However, experts warned the UK was still at risk of a technical recession – defined as two consecutive quarters of negative growth.

Yet, EY Item Club said it expects UK economic growth to rebound in late 2024 as both inflation and interest rates are predicted to fall.

Data indicates that inflation in the UK is stabilising, but it’s still above the Bank of England’s (BoE) 2% target. In the 12 months to December, inflation was 4%, a slight increase on the 3.9% recorded in the previous month.

Higher interest rates to tackle inflation have been placing pressure on both households and businesses, but they’ve also presented an opportunity for investors with government bonds becoming more attractive. The sale of £2.25 billion of 20-year bonds attracted bids for 3.62 times the volume on offer.

Chancellor Jeremy Hunt is preparing to deliver the Budget on 6 March 2024. According to reports, government borrowing halved year-on-year in December, which has reportedly given Hunt the scope to make around £20 billion worth of tax cuts if he chooses. With a general election looming, it could be an opportunity to ease the tax burden.

Businesses as well as households may look to the budget to ease some of the pressure they’re facing.

Insolvency experts at Begbies Traynor warned that more than 47,000 UK businesses are on the “brink of collapse” as the number of firms in “critical” financial distress increased by 25% in the final three months of 2023 when compared to the previous quarter.

Some other businesses plan to make cuts in the coming months too. One such firm is Tata Steel, which announced plans to cut up to 2,800 jobs by the end of the year. The news was met with strong words from union Unite, which pledged to use “everything in its armoury” to defend steel workers.

Some businesses are posting positive news though. Retailer Next saw a 10% jump in sales in the two weeks before Christmas, which led to its shares hitting an all-time high of more than £85.30 at the start of January.

Europe

As the European Central Bank (ECB) predicted, inflation across the eurozone increased in January. In the 12 months to December 2023, the rate of inflation was 2.9%, official statistics show. The ECB said it expects inflation to remain between 2.5% and 3% throughout 2024.

ECB vice president Luis de Guindos went on to warn that the eurozone may have already fallen into a technical recession and prospects remain weak.

Data from Germany’s national statistics office, Destatis, paints a pessimistic outlook. The country is on track for its first two-year recession since the early 2000s as the economy shrank by 0.3% in 2023. The decline was linked to higher energy costs and weaker industrial demand.

Low demand looks set to plague the eurozone’s largest economy into 2024 too. In December, industrial output was weaker than expected and fell by 0.7% month-on-month.

While many economies have battled double-digit inflation over the last couple of years, in many cases, they’ve now started to fall. One outlier is Turkey, which saw an inflation rate of almost 65% in the year to December 2023.

The huge rise is partly attributed to an almost 50% increase in the nation’s minimum wage. Demand from tourists is also having an effect. For example, hotel prices jumped 93% year-on-year.

US

US inflation also increased in the 12 months to December 2023 to 3.4%, compared to 3.1% recorded a month earlier. The rise was linked to higher housing and energy costs.

Similar to economies in Europe, some sectors in the US are struggling due to weak demand. The Institute for Supply Management found that US factories contracted in December for the 14th consecutive month. Yet, job data indicates that businesses are feeling optimistic, as they added 216,000 new jobs at the end of 2023.

On 22 January, the US stock market reached a record high. The S&P 500 index, which tracks the 500 largest companies listed on stock exchanges in the US, increased by 0.5% as technology stocks rallied.

US company Microsoft also started the year strong when it overtook Apple to become the world’s  most valuable company on 11 January. The firm’s share price increased by 1.5% to boost its market valuation to $2,888 trillion (£2,272 trillion).

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

The value of your investments (and any income from them) 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.

A Lasting Power of Attorney could offer protection at every life stage

Naming a Lasting Power of Attorney (LPA) is often associated with the elderly. But it could provide vital protection and peace of mind at every life stage.

An LPA gives someone you trust the ability to make decisions on your behalf if you’re unable to do so. When you think about the scenarios that might happen, it may be something you think you don’t need until your later years. However, ill health and accidents can occur at any stage of your life.

Without an LPA in place, it can be difficult for loved ones to act on your behalf. So, whether you’re in your 20s or 80s, naming an attorney could be a valuable way to create protection should something happen.

Your next of kin cannot automatically make decisions on your behalf

It’s a common misconception that your next of kin would be able to make decisions for you if you cannot. However, no one has the automatic right to do so, including your spouse or civil partner.

Without an LPA there may be no one to make health decisions if you’re ill or manage your financial affairs if you cannot.

Overlooking an LPA could also lead to complications if you have joint assets. For example, joint bank accounts could be frozen until your partner gains control through the courts.

If you haven’t completed an LPA, your loved ones would have to apply to the Court of Protection for a Deputyship Order. This process can be time-consuming and more costly than naming an attorney. In addition, the Court of Protection might name someone to act on your behalf that you would not choose.

A Lasting Power of Attorney can be used to cover health and financial affairs

There are two different types of LPA. Ideally, you should have both types in place – you can choose the same person or people to act on your behalf in both cases.

A health and welfare LPA will give someone you trust the ability to make decisions related to your daily routine, medical treatment, or moving into a care home. A property and financial affairs LPA will cover areas like managing your bank account or other assets, and selling your home.

An LPA is often associated with long-term illness in old age. However, they could be used to give someone the ability to make decisions for you temporarily. For example, if you were involved in an accident, your attorney might handle your affairs while you receive treatment until you’ve recovered enough to take back responsibility.

You can name more than one attorney and specify whether they must make decisions together or if they can do so separately.

Deciding who to name as your attorney may be an important decision – who do you trust to act in your best interests, and would they be willing to take on the role of attorney?

Having a conversation with your loved ones about what being an attorney would involve and your wishes could be valuable. It may give you peace of mind and provide some guidance to your attorney should you ever lose mental capacity.

If family or friends cannot fulfil the role of attorney, you could choose a professional attorney, such as a solicitor.

You cannot register an LPA if you’ve already lost mental capacity. So, if it’s a task you’ve been putting off, you may want to make it a priority.

You must register a Lasting Power of Attorney with the Office of Public Guardian

You can download the necessary forms, along with an information pack, from the Office of Public Guardian, or use the online service to start the process of naming an LPA.

Read the forms carefully. A mistake could mean your LPA is rejected and you’ll need to pay a fee to reapply.

You’ll need to sign the forms, along with your attorney, and a “certificate provider” (this is someone who confirms you understand what you’re signing and haven’t been placed under pressure to do so). Your certificate provider must be someone you’ve known well for at least two years or a professional person, like a solicitor or doctor. Some people cannot be your certificate provider, including your partner or family members.

Once you’ve completed the forms, you must register the LPA with the Office of Public Guardian, and the process can take several weeks.

Most people will need to pay a fee of £82 for registering one LPA. So, if you need to register both a financial and health LPA, the cost will be £164.

While you don’t need to engage the services of a solicitor to register an LPA, it could prevent delays and issues, particularly if your affairs are complex.

Setting up a Lasting Power of Attorney is just one way to improve your security

An LPA could protect you if you ever become too ill or injured to make decisions for yourself, but it’s just one step you can take to create security in case the unexpected happens. Depending on your life and concerns, you might want to consider taking out income protection, creating a care fund, or building a financial safety net.

A tailored financial plan could help you assess which steps could provide you with peace of mind. Please contact us to arrange a meeting.

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

The ups and downs of the FTSE 100 40-year history demonstrates time in the market matters

This year the FTSE 100 index turns 40. Over the last four decades, it’s become a way to measure the health of the UK stock market. During that time there have been highs that investors no doubt celebrated, and lows that serve as a reminder that there’s some truth in the saying: it’s time in the market, not timing the market.

In 1984, Margaret Thatcher was serving as prime minister and, similar to today, interest rates were increasing in a bid to reduce inflation – the base interest rate exceeded 12.8% in July 1984. The country was also grappling with miners’ strikes and high levels of unemployment. Yet, it was also a time of technological advancement and scientific discoveries.

Against this backdrop, the FTSE 100 index launched.

The FTSE 100 is made up of the biggest 100 companies that are listed on the London Stock Exchange. The market capitalisation of each company is reviewed every quarter, and the index is adjusted accordingly.

More than 20 companies that were listed when the FTSE 100 launched are still on it today, including NatWest, Unilever, and Shell.

While you might think 100 companies were selected for being a round number, it was chosen because it was the maximum number of stock symbols that could be displayed on a single page of the electronic information terminals at the time. The technology’s improved, but the 100 figure has stuck.

As an investor, you might hold individual stocks in some of the companies included in the FTSE 100. You might also be invested in FTSE 100 firms through a fund, which would pool your money with that of other investors to invest in a range of companies.

The FTSE 100 has experienced volatility in the last 40 years

One of the first substantial falls the FTSE 100 recorded was in 1987 during the “Black Monday crash”.

The global stock market crash was unexpected and severe. Some analysts have suggested it was due to significantly overvalued stocks, rising interest rates, or persistent trade and budget deficits in the US.

On 19 October 1987, the FTSE 100 fell by 10.8% and then a further 12.2% the following day. While it took several years, the index recovered and was reaching new highs in the 1990s.

More recently, the FTSE 100 experienced a fall following the 2008 financial crisis, the Brexit referendum, and the Covid-19 pandemic. There have been many smaller dips and corrections too.

Yet, historically, the FTSE 100 has recovered from downturns.

The FTSE 100 hit 8,000 points in February 2023

On the first day, the FTSE 100 launched at 1,000 points. Over four decades, the overall trend has been an upward one, despite periods of volatility.

Indeed, on 16 February 2023, the index hit an all-time high when it exceeded 8,000 points even though the UK economy was expected to fall into a recession at the time. According to the Guardian, the boost was partly attributed to energy firms making significant gains in light of the war in Ukraine.

Over 40 years, the annualised rate of returns from the FTSE 100 is just above 8%. That’s far above the average rate of inflation of around 3% over the same period.

So, if investors had been spooked during the 1987 crash and withdrew their money from the stock market, they could have missed out on future gains. The ups and downs of the FTSE 100 highlight why a long-term view is often important when you’re investing.

Short-term volatility is part of investing and is impossible to consistently predict. So, rather than trying to time the market, holding assets over a long time frame makes sense for many investors.

Get in touch to talk about your investments

The FTSE 100 has become a useful tool for investors over the last 40 years and it’s often used to provide a snapshot of the investing market. However, there are other opportunities to weigh up too.

We could help you build an investment portfolio that suits you and aligns with your risk profile. Please get in touch to arrange a meeting.

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

The value of your investments (and any income from them) 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.

4 excellent reasons you may want to boost your ISA now

If you haven’t used your ISA allowance for the 2023/24 tax year, it could be wise to review your options over the next few weeks before the 2024/25 tax year starts. Read on to discover some of the reasons why an ISA could make sense for you.

Government statistics show that ISAs are a popular way to save and invest. Indeed, the latest data shows 11.8 million adult ISAs benefited from a deposit during the 2021/22 tax year. Collectively, ISA holders added around £66.9 billion to their accounts throughout the year.

The media often dubs February and March “ISA season” as savers and investors are encouraged to deposit money into their ISAs before a new tax year starts on 6 April. Some ISA providers might also offer more attractive terms during this time, such as a higher interest rate, to entice potential customers.

In the 2023/24 tax year, you can add up to £20,000 to an ISA. If you haven’t already used this allowance, here are four excellent reasons you might want to do so.

1. A Cash ISA could be a tax-efficient way to save

One of the reasons Cash ISAs make up an important part of many financial plans is that they’re tax-efficient – the interest paid on savings held in a Cash ISA is not liable for Income Tax.

Many savers have welcomed rising interest rates over the last year. Yet, it could also mean you face an unexpected tax bill.

According to the Telegraph, 2.7 million savers will pay tax on their savings in 2023/24 as a result of frozen thresholds and higher interest rates. The findings suggest that almost 1 million additional savers could face a tax bill on their savings when compared to just a year earlier.

Around 1.4 million basic-rate taxpayers are expected to pay tax on their savings this year, a figure that has quadrupled in the last four years.

If the interest your savings earn exceeds the Personal Savings Allowance (PSA), you might be liable for tax on the portion above the threshold. Your annual PSA depends on the rate of Income Tax you pay:

  • Basic-rate taxpayers: £1,000
  • Higher-rate taxpayers: £500
  • Additional-rate taxpayers: £0

As additional-rate taxpayers don’t benefit from a PSA, an ISA could be a useful way to manage your tax bill.

Even if you’re not an additional-rate taxpayer, the amount you can hold in your savings account before you could face a tax bill might be lower than you expect.

According to MoneySavingExpert, if your savings account had an interest rate of 5.22%, assuming the account balance was constant, you might need to pay tax if your savings exceed:

  • £19,158 if you are a basic-rate taxpayer
  • £17,242 if you are a higher-rate taxpayer.

So, placing your savings into a Cash ISA could reduce your potential tax liability.

2. A Stocks and Shares ISA could help you invest efficiently

Similarly, Stocks and Shares ISAs could also be tax-efficient if you want to invest. The returns your investments deliver when they’re held in a Stocks and Shares ISA are free from Capital Gains Tax (CGT).

Investments held outside of a Stocks and Shares ISA could be liable for CGT if they exceed the Annual Exempt Amount, which is £6,000 in the 2023/24 tax year for individuals. You should note the Annual Exempt Amount will halve to £3,000 for the 2024/25 tax year.

The rate of CGT you pay depends on which tax band the gains fall into when added to your other income. In 2023/24:

  • Higher- or additional-rate taxpayers have a CGT rate of 20% (28% for residential property)
  • Basic-rate taxpayers may benefit from a lower CGT rate of 10% (18% for residential property) if the gains fall within the basic-rate Income Tax band.

According to the Financial Times, the latest HMRC figures show that a record £16.7 billion was collected through CGT in 2021/22. As the Annual Exempt Amount has fallen since then and will be cut again in 2024/25, it’s likely the amount collected through CGT will rise further.

As a result, if you’re investing, doing so through a Stocks and Shares ISA could be efficient from a tax perspective.

3. You’ll lose your ISA allowance if you don’t use it before the start of a new tax year

An ISA could reduce your potential tax liability whether you want to save or invest. So, why should you review your ISA over the coming weeks? Simply, the allowance will reset when a new tax year starts.

If you don’t use the current tax year’s allowance before 6 April 2024, you’ll lose it.

Not reviewing whether to use your ISA allowance could mean you overlook an opportunity to reduce your tax bill.

4. You could receive a government bonus with a Lifetime ISA

For some people, a Lifetime ISA (LISA) could prove a valuable way to save or invest thanks to a government bonus.

You must be aged between 19 and 39 to open a LISA, although you can continue to contribute to a LISA until you’re 50. You can deposit a maximum of £4,000 each tax year into a LISA, and can choose between a Cash LISA and a Stocks and Shares LISA.

Where a LISA is different to traditional ISAs is that deposits benefit from a 25% government bonus. So, if you deposit the annual maximum of £4,000 into a LISA, you’d receive £1,000 as a bonus.

However, if you take money out of a LISA before you’re 60 for a purpose other than buying your first home, you’ll be charged 25% of the amount withdrawn. This means you’d lose the bonus and a portion of your own deposit, equivalent to a loss of just over 6%.

Get in touch to talk about your ISA and long-term plans

If you have any questions about how to use the ISA annual allowance to support your financial plan, we’re here to help. Please contact us to arrange a meeting.

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

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

The value of your investments (and any income from them) 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.

3 insightful research findings that could help you navigate your “second 50”

A report suggests that life after 50 will be radically different for those who have recently celebrated the milestone or are nearing it when compared to previous generations, and it could have implications for your financial plan.

The research from Aegon looks at how lifestyles are changing for over-50s, dubbing this chapter of life the “second 50”. It states vast prospect changes mean those in their 50s can’t simply look at what’s gone before to navigate the next stage of their life.

Traditionally, many people followed a three-stage life model of education, work, and retirement. However, that’s changed over the last few decades. It’s now not uncommon to retrain to swap careers during your working life, come out of retirement, or even take extended breaks from work.

So, what’s driving the change and how could it affect the next stage of your life? Here are three interesting insights from the report.

1. Longer lives mean retirement has more possibilities

Life expectancy has increased, and it’s led to retirees embracing new prospects.

According to the report, between 2015 and 2020, the number of people aged 65 and over increased by 12%, while the number of people aged 85 and over jumped by 18%. Life expectancy is anticipated to continue improving too. In fact, 1 in 4 children born today can expect to live to almost 100.

Being retired for longer has opened up new possibilities. When workers were asked how they hope to enjoy their time after work, the top answers were:

  • Spending more time with loved ones (53%)
  • Travelling (45%)
  • Pursuing new hobbies (33%).

While retirement might be associated with putting your feet up, that doesn’t have to be your focus. The milestone is a great chance to think about what gives your life purpose or makes you happy.

A longer retirement comes with challenges too – 45% of workers said they worry that they’ll run out of money. Alongside thinking about your retirement lifestyle, considering how you’ll use the wealth you’ve accumulated is crucial.

2. A “hard stop” retirement is becoming less common

Given that the average retirement is lasting longer, it’s perhaps unsurprising that a “hard stop”, where you give up work completely on a set date, is becoming less popular. Indeed, only 27% of people currently in employment expect to follow this route.

While money may be a factor for transitioning into retirement for some, the main reasons were positive – 57% said they enjoyed working life and 54% cited a desire to keep their mind active.

Those who are weighing up alternatives to a hard stop retirement are most likely to consider working part-time or on temporary contracts before they eventually retire. 1 in 10 people state they plan to continue working as they currently do throughout their life.

Greater flexibility in how you retire could mean you’re able to create a work-life balance that suits you during your second 50.

If easing into retirement is attractive to you, financial planning could be useful. You might want to consider whether you’ll still pay into a personal pension, if you should defer your State Pension, and how to manage your tax liability, which we could help with.

3. Workers in their 50s expect to spend a fifth of their retirement in ill health

While longer life expectancy is good news, many people in their 50s are worried about ill health.

Those aged between 50 and 59 expect to spend a fifth of their retirement in ill health. It can be difficult to think about, but considering your preferences and how you’d cope could provide security if you do need support later in life.

Despite people in their 50s predicting they’ll need support for a significant proportion of retirement, just 25% have factored future care into their saving needs. In many cases, people receiving care will need to cover at least a portion of the cost themselves.

Setting aside some of your pension or other assets to cover a potential care bill could provide you with peace of mind if you’re among the 82% who are very concerned about health in older age. It might also mean that, if care is required, you’ll have more choices, such as choosing a care home that’s close to your family or has facilities that suit your needs.

We can work with you to make a care fund part of your wider retirement plan.

Get in touch to create a financial plan that considers your “second 50” goals

Turning 50 can be an exciting milestone and might signal the start of changes in your life, whether you plan to retire or not. Working with a financial planner could help you set out your goals for the next chapter of your life and create a financial plan that may help you achieve them.

Please contact us to arrange a meeting.

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

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

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

Workplace pensions are regulated by The Pension Regulator.

Retirement planning: The importance of setting out your lifestyle goals

When you start thinking about the steps you need to take when retiring, your focus might be on the financial side. Yet, it’s often a good idea to start with your lifestyle aspirations.

Last month, you read about the different options when deciding how you’ll retire. Now, it’s time to consider what your ideal retirement lifestyle would look like.

Setting out your retirement lifestyle may be useful for several reasons, including:

  • Giving your retirement plan a focus
  • Helping ensure your financial plan reflects your aspirations
  • Informing the financial decisions you make.

So, if you’ve yet to think about what your life will look like once you stop working, it could be a rewarding task.

3 useful questions to answer when setting out your retirement lifestyle

Being clear about what you’d like your retirement to look like could help turn it into reality. These three questions may be a useful place to start.

1. What are you most looking forward to about retirement?

One of the main reasons people often look forward to retirement is that they’ll have more free time – so it’s worth thinking about what you’re most looking forward to spending time on.

According to an Aegon report, more than half of those nearing retirement are hoping to spend more time with loved ones. In addition, 45% plan to use retirement to see more of the world by travelling, and a third are looking forward to having the free time to pursue new hobbies.

Focusing on what brings you joy can help you build a life after work that is rich and fulfilling.

2. What does your ideal daily retirement routine look like?

When you set out what you’re looking forward to, you might focus on the larger aspects, like exploring a new destination for several weeks each summer. Yet, you shouldn’t overlook daily life that will make up much of your time – how do you want to spend your average day?

3. How will you maintain social connections?

According to Age UK, 1.4 million older people in the UK are often lonely. Social connections are important for wellbeing and could help you enjoy the next stage of your life much more.

Your working relationships might play an important role in your life now. So, it may be valuable to consider how you’ll maintain existing social connections and forge new ones.

For example, you could arrange to see your grandchildren after school each week or provide childcare during the school holidays. Or you may want to join a social club that allows you to meet new people who have similar interests.

Clear lifestyle goals could help ease the emotional challenges of retiring too

When you assess the retirement challenges you could face, financial matters could once again top the list.

You might be concerned about running out of money in your later years, or the effect inflation could have on your spending power. Indeed, in a Legal & General survey, 94% of people said their most important retirement dream was to feel financially secure for the rest of their life. Money worries were also the biggest cause of pre-retirement angst.

Yet, the emotional side of retiring can present obstacles too. It can be difficult to step away from the routine and social side of work that may have played an important role in your life for decades.

It’s normal to feel some apprehension about the milestone or to face emotional challenges once you retire. Putting your lifestyle goals at the centre of your retirement plan could ease some of the concerns you might have.

Contact us to talk about turning your retirement plans into a reality

Financial plans often start with understanding your goals and lifestyle aspirations. If you’re approaching retirement and want to create a plan you could have confidence in, please contact us to arrange a meeting.

Next month, read our blog to learn more about the financial decisions you might make, including how to use your pension, as you approach retirement.

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

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

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

Guide: Everything you need to know about annuities when creating a retirement income

When you retire, you will often have a range of choices available to you about how you access your pension. One such method is an annuity, which could provide you with a reliable income. 

If you’re not sure how annuities work or if they could be right for you, this guide explains the essentials you need to know. It could help you feel more confident making decisions about your pension and retirement income. 

Read the guide to discover:

1. How an annuity works

2. The different types of annuities available

3. The advantages and disadvantages of choosing an annuity

4. Some key questions to consider if you think an annuity is right for you. 

Download Everything you need to know about annuities when creating a retirement income’ now to read about annuities and how they could create financial security in retirement. 

If you have any questions about annuities and how they could fit into your retirement plan, please contact us.