Nellie the Elephant

To steal a line from the Toy Dolls c1983… “Trump, Trump, Trump”.

As most of us already realise, the world is bonkers; however, the fundamentals of investment have not changed in centuries.

Global market volatility has been rising over the years as more ‘shorting’ of assets takes place, and more automated trading systems are put in place.

The recent ‘Trump Slump’ (or insert your own derogatory phrase) is only expected to be relatively short-lived.

The majority of asset classes and major markets were not over valued (based on 30 year averages) at the start of this debacle, hence the expectation that recovery should be fairly swift.

No one can predict the future, but one thing is for certain, the global investment markets have always previously recovered when a bump in the road has come along (world wars, dotcom crash, crash of 2008/9, terrorist acts, global pandemics etc. etc.).

So, to steal another line, this time from Lance Corporal Jones…“Don’t panic Mr Mainwaring”.

If you don’t need to disinvest, don’t. The most common mistake made by private investors is buying high and selling low, the complete opposite of the professional investor.

If you’re over-exposed to cash, then now may be a good opportunity to invest?

Ultimately, none of us know what’s around the corner, but I as I’ve already said, the fundamentals of investment haven’t changed in centuries.

As ever, please talk to your financial adviser – it’s what we’re here for!

David

David Hinch is the Managing Director of David Burnell Financial Services.

There’s a new government and a budget coming. What should I change?

There’s a new government and a budget coming. What should I change?

A question that I’ve heard a lot recently. Many clients are concerned that their hard-earned savings and investments will be raided by taxation after the next budget. They feel that if they don’t do something now, they’ll regret it.

So, what should you do? Crystallise Pensions? Take all of your tax-free cash? Sell anything with Capital Gains Tax (CGT) liability? Sell anything with income tax liability? Move investment to cash on deposit?

Well, my personal opinion, is that you don’t do anything differently to what you are currently doing or planning. Why? Because I unfortunately get to speak to too many people who have made significant financial decisions based on what they thought might happen at various points in the past. Many of these decisions are like firing a bullet from a gun, you pull the trigger and there’s no going back.

The UK is one of the most protected places in the world to be a private investor (if you use FCA authorised and regulated products and services!); arguably at the pinnacle of that protection is the modern Personal Pension. Within the pension, monies grow free of all taxes; any value is outside of your estate for inheritance tax (IHT) purposes; monies can be left to any beneficiary of your choice in the event of your death, and they may receive the money tax-free for the rest of their lives (if you are under the age of 75 on death). All of these things are incredible and should be treated very, very carefully.

The bottom line?

Don’t make irreversible decisions on precious investments like your Personal Pension. Make decisions based on facts, not guesses.

However, if you have assets that have exposure to CGT, and you were planning on selling them anyway(!), that might be a good idea.

David

David Hinch is the Managing Director of David Burnell Financial Services.

Cash Vs Investing

The Bank of England’s Base Rate is currently 5.25%; we’re hearing National Savings and Investments offering 6.2% interest rates on deposits, nearly 5% after tax; First Direct offering 7%; these aren’t levels we’ve heard or experienced since 2008!

My question to you is: are these interest rates attracting you away from investing?

Firstly, I think it is worth remembering that the general principles of the economy haven’t changed:

Governments have to pay higher returns than cash to borrow money.

Governments need to raise money through debt; if cash rates are 5%, Government Bonds have to offer more than that to make it attractive for people to buy them. If you can get a higher interest rate in a fixed rate account with your high street bank, why would you lock your money up for 5 or even 10 years in a Government Bond?

Companies have to pay more than Governments to borrow.

Similar to the above, companies must make it attractive for you to lend to them rather than the Government. For example, if cash is at 5% and Government Bonds are 6%, Corporate Debt (Corporate Bonds) must be higher, otherwise, why take the additional risk? This all comes back to risk vs reward and our own attitude to risk.

Equities have to offer the chance of more than, you guessed it, Corporate Bonds.

And again, just further down the chain, companies need to generate a return for their shareholders, as they are taking an increased risk compared to bondholders. Think about it, if shareholders achieve a better return with their money in the banks, soon there would be no shareholders.

What we’re trying to explain here is cash sets the bar, everything else just needs to jump over it.

Of course, it would be lovely to think that this time is different, and today’s investment circumstances are unique: Government debt levels have soared, political turmoil in Ukraine and the Middle East. Include the fast-developing technology of AI…

But is it really?

Between 1993-2007 interest rates averaged at 5.35%, Government debt had risen from 20% of GDP in the 90’s to over 50% in the 00’s, political issues in Middle East and Russia, and the internet was changing society as we knew it.

So, should we have just stayed in cash for all this time? No of course not!

Quilter Investing for the Long Term

If you’d have invested £10,000 in 1992 and invested as per the Bank of England base rate, at the end of 2022 you would have had £26,325.

Now, if you’d invested that in a multi-asset solution (Bonds and Equities) you would have averaged a return of £89,032.

Which would you rather?

Lucy

Lucy Gilbert – Pension, Investment, Equity Release and Mortgage Adviser at DBFS

Note: Slide included from our friends at Quilter (just for context), but we are fully independent and whole of market, and not promoting Quilter’s products or services.

Is it really time for cash?

Investment values have been flat for what feels like forever, and savings accounts are currently offering 5% (or even more). Should you cash in your investments and enjoy the guaranteed comfort blanket of interest on your cash?

Well, as always that depends, but probably not.

In previous articles I’ve written about how having an appropriate amount of cash is fundamental to having a balanced investment portfolio and not being over-exposed to investment and its associated volatility. An appropriate amount of cash is the foundation stone on which everything else is built.

Global investment markets have had a difficult and turbulent time over the last few years, in fact, the events that we’ve experienced, and the sequence of those events, have been truly remarkable; the phrase that I’ve heard more than any other from fund and portfolio managers has been “you couldn’t make it up”.

September last year was the icing on the cake. Due to government naivety the value of the pound crashed, along with the Bank of England Gilt markets. Bank of England Gilts have always underpinned any cautious or even remotely cautious investment; they are like the Super Tanker heading across the Atlantic, they don’t really deviate too much and are very predictable. Or were, until that moment last September. One of the many bizarre situations that we’ve experienced in the last few years, is that last September, the more cautiously you were invested, the more adversely you were affected. Bonkers.

Historically, investment markets have always recovered and have outperformed the returns available on cash. Investment markets also have the ability to turn and move very swiftly (even the humble FTSE 100). Of course, I’m not suggesting that will always continue; I can’t predict what will happen in one minute’s time, let alone one year’s time.

One of the mistakes private investors typically make is investing money when asset values are high and selling assets when their values are low. This is 180 degrees out from what a professional fund or portfolio manager tries to do; they buy low and sell high. So, selling well-managed assets that currently may be undervalued, to move that money to cash, is unlikely to be a good idea (as long as you were appropriately provisioned with cash in the first place).

Due to how swiftly investment markets and market sentiment can change, the timing of when to sell, and when to reinvest is incredibly difficult; even fund managers take a long-term strategic view, and there’s an often used saying when it comes to investment returns, “it’s time in the market, not market timing”.

Even missing just the first couple of days of being invested, when ‘the market turns’ can have a significant impact on the value of a portfolio. Statistics have shown that missing the best 10 days of market movement can have a 50% detrimental effect of the value of a portfolio after 15 years!

My suggestion is that if you already have an appropriate amount of cash and are appropriately invested, then leave that investment to do its job.

The nights are already drawing in… it’ll soon be Christmas!

David

David Hinch is the Managing Director of David Burnell Financial Services.

Is investment right for me?

With the distractions of the festive period behind us, thoughts often become focused on the year ahead and trying to make improvements to our hectic lives. In my previous two articles I discussed cash savings and how they should be used (if possible, in these increasingly expensive times) to form the foundation stone of our financial planning.

Let’s now imagine that we’re fortunate enough to have an appropriate level of cash savings and feel that we should be doing something else with the extra. Should we invest? Well, just as nearly all of my answers begin… it depends.

As soon as we want to do something with money, that involves trying to get a return that’s better than what is being offered by a Bank or Building Society (in interest), we generally need to make some sort of investment, and virtually all investment comes with an element of risk. Risk is one of those words that can mean something very different to each of us, and there’s also a large spread of different levels of risk. Risk can be something very minimal, that may see the value of our investment go up and down by very small amounts, or, at the other extreme, may see the value of our investment fall to zero (very extreme[!] and only appropriate for a tiny minority).

Because of the spread of different risk levels, and how each of us feel about investment risk, then working out what is appropriate for each of us is crucial. There is so much choice available when it comes to investment, that no one should ever feel uncomfortable with where they’ve invested their money. If they do, it’s almost certainly the wrong investment.

Working out what level of investment risk is appropriate, starts with completing an Attitude to Risk questionnaire. Attitude to Risk is not actually a term that I’m fond of, I much prefer ‘comfort with investment’. Anyway, once the questionnaire is complete (very straightforward, multi-choice and only takes a few minutes), then a conversation is required to explore the answers, to get a better understanding of how someone feels about investment.

One of the common misconceptions about investment and the appropriate level of risk, is concerned with the time available until the invested monies are required. Many times, I’ve sat with clients who are adamant that they are comfortable targeting significant returns (and quite high levels of risk), yet only have a few months before the invested monies are required. In most cases, the shorter the available timescale, then the lower the level of risk probably needs to be.

The reason why the risk level and timescale should usually be considered together, is because of what is known as investment volatility. This is the amount that the investment could go up and down in value; the higher the risk, the more that it could go up and down. If the timescale is relatively short, you usually wouldn’t want it going up and down in value by a large degree, or it could mean that when you come to take the money out, it might be worth significantly less than what you invested.

Anyway, that’s enough for now; my very best wishes for the new year.

David

David Hinch is the Managing Director of David Burnell Financial Services.

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To steal a line from the Toy Dolls c1983… “Trump, Trump, Trump”.