2017
Investment conundrums – 10 guidelines for investing after startling elections results and during Brexit
David Flowers / 1 Comments /
Ten years ago we were casually coasting into the credit crunch. Within months investment philosophies and savings strategies were sorely tested and most were found wanting. The golden rules of diversification and of not timing the market would eventually prove true but, for a while, seemed to have lost their trustworthiness.
There seemed to be no safe havens save a few banks in which we nervously placed our funds like first time parents dropping their precious child at nursery. We daren’t ask for any reward and indeed some banks charged for the privilege of securing our money. And for those with funds and pensions to invest, what to do? What a conundrum!
Ten years on and we’ve seen the investment patient rise miraculously from their sick bed and bound into hardly credible but nevertheless healthy activity with stock and bond markets showing positive returns since the depths of their illness nine years ago. Despite a million refugees, the rise of the Trump and the surprises of UK plebiscites, the average investor or pensioner has consistently enjoyed investment returns which have kept them ahead of inflation, at least.
Looking to the future, this near death followed by resurrection investment experience belies the irrefutable underlying trend, namely that actual returns from cash, shares, bonds and property are all gradually falling (older investors may remember when interest rates hit 15% and adverts used to claim double-digit investment returns).
Looking at the next ten years, what advice do we give our clients in order to be successful in achieving their goals as we live with a hung parliament and the retreat of the British bulldog to its island kennel? Here are ten particular recommendations for you:
- Resist the attempt to time the markets. Many an investor tried to play the General Election, hovering, expecting juicy bargains the morning after the night before. Most were foiled as the stockmarkets rose rather than fell. Markets are unpredictable. So, whether you are putting money in or taking money out, take the long-term view and don’t be intimidated into a hasty action.
- Spread the risk. If you are a lower-risk investor and if the ups and downs of the stock and bond markets worry you, then invest or withdraw in stages. Do it over several months or even years. This is a remarkably effective way of smoothing out the effect of rises and falls and yet giving you a positive result at the same time.
- Don’t sweat the decimal points! Interest rates remain below 1% and are likely to remain relatively low for some time. We no longer live in an era in which putting money on deposit is expected to be part of our investment return (in fact it’s the opposite now, money on deposit reduces in value against inflation). Unless you have very large balances (in which case security is a greater issue than the interest rate) it’s not worth the time and hassle to chase marginally better interest rates. If you were able to find an additional 0.25% return for £10,000 of savings (no mean feat) you would earn a princely £25 in additional interest over a year – and that’s provided it stays 0.25% ahead for the whole year. Is it worth the hassle?
- Be wary of the allure of cheap credit. If you are re-mortgaging or buying your house or car, now is a great time to be arranging a deal. But don’t be tempted into borrowing more than is necessary to achieve your main life goals. As the book of Proverbs says, “the borrower is the servant of the lender.”
- Don’t lose sleep over falling house prices (if you happen to own your own home). Homes are for living in not speculating upon. If you don’t happen to make as much money when you come to sell, the likelihood is that you’ll be able to buy or rent more cheaply at that time than now anyway.
- If stock and bond markets are upsettingly unpredictable, then currency prices are menacingly mysterious! If you are planning to use foreign currency (say for a fortnight on Fuerteventura) then you can ride the waves by buying some currency well in advance, some just before you go and some (if you use a currency card) once you’ve got there. By the way, if you use a currency card, they’re very useful, always use the local currency when you are given the option of local or sterling.
- Prepare to pay more tax. Adjust your spending plan for the year ahead accordingly. A forced adjustment of political and economic philosophy by the government (any government) will inevitably lead to increased taxes over the coming months and years. It may not be in the form of higher income tax but it could easily amount to 2% of your spending/income. So, if your spending is £50,000 per annum, we would suggest that you lower your spending plans by £1,000 for the year.
- Charities and faith communities are going to be working as hard as ever and will need your support more than ever. There are huge tax and financial planning benefits to be gained in philanthropy and charitable giving – both in your regular allocation of your money and in your estate planning.
- Pensions are good for you. The changes introduced by George Osborne in 2015 have transformed the humble personal pension into a potent trans-generational planning tool from which you can derive your retirement income and pass on unused funds free of Inheritance Tax to future generations of your family.
- Make use of your ISA allowance. In a season of low returns paying less tax makes a big difference to investment returns and this renders ISAs very compelling. See our separate note on the additional attraction of the new lifetime ISA.
Ten years ago we were faced with an investment conundrum of not knowing where to invest funds because all options seemed to be failing. Today we are again faced with an investment conundrum but this time it is because Brexit and a hung parliament present us with an ambiguous future.
But you’ll have heard us quote another scripture which says that “there is nothing new under the sun”. So true, and consequently our advice doesn’t change. Our financial planning and investment counsel is designed to withstand these conundrums and we’ll help you plan for your preferred future within a framework for good decision-making and so achieve peace of mind.
David Flowers
September 2017
Comments 1
Paul knight
30 November, 2017 11:12 am ·Sound advice .. see you soon
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