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The value of a home

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The best time to plant a tree is 20 years ago, the second-best time is now

 

I am currently getting used to the idea that my daughter is leaving home.  It’s not an easy process, mainly because she doesn’t know about it yet.
To be honest, I’m not throwing her out, she’s just 16, but at some point, in the not too distant future, independence will become her ideal, or, it will, if she’s anything like me.

 

Then we have the difficult reality check of cost and access to a mortgage.  Living in the South-East means a flat is going to cost in excess of £300k, which means a minimum deposit of £30k to £40k plus legal expenses

 

This leads us to the perennial question: Buy or Rent

Over the course of my career, I have met many people who have been told by a mortgage lender, that they cannot afford a mortgage
Truth is, they can afford a mortgage, but it’s normally the mortgage of their landlord (by way of rent), rather than their own property
It’s interesting to note that the maximum mortgage is normally 4.5 times your income (or incomes if joint) and, of all the mortgages taken using these maximums, over 50% were in London and the south-east

 

Rental sector facts

Private renters have grown by 4.5 million from 1998
However, the introduction of less attractive tax reliefs and increased stamp duty tax on second homes has led to a decline in properties being purchased by landlords in 2019 by approx. 40% from 2015
Unsurprisingly, this tightening rental supply on lower levels of new investment and continued growth in demand has resulted in rent growth accelerating

 

 

 

 

House prices are a figment of The Bank of England’s imagination

Since the Financial Crisis in 2008, The Bank of England eased monetary policy (printed more money), which then boosted asset prices, including house prices.
Low cost borrowing and access to easy money was always going to have this result, but the sting in the tail, is that as house prices rise, so do the deposits required to buy one
Trouble is incomes did not rise at the same level, meaning that we are now in a position where transferring from rented to private ownership has become much harder

Added to this, during 2014 the Financial Conduct Authority implemented swinging changes to stress testing how lenders make decisions

This is designed by The Bank of England’s Financial Policy Committee (FPC) and currently looks like this

  1. Lenders check that borrowers would be able to meet mortgage payments if mortgage rates moved 3% higher in the first 5-years (affordability)

  2. A soft cap that limits high-income multiple loans (those at or above 4.5) to no more than 15% of new loans (flow limit)

Working in tandem, these limits, mean higher deposits, in a time when people find it harder to save the higher loan to value lending as upward pressure on house prices pulls income multiples higher, restricting those borrowers with small deposits

 

 

 

So, what does the future hold for Parents trying to get their house back?

The cost of entering the UK housing market lies in a mix of economics, demographics, and tax
Most important is shift to a low rate of inflation which means households cannot rely on inflation to reduce the value of their debt in real terms.  High levels of inflation
 in the 1980’s together with higher growth in incomes, created the capacity for households to move more often and this supported higher levels of housing market liquidity
Today’s low-inflation environment combined with longer mortgage terms, increased life expectancy, an ageing population and social policy focussed on caring for elderly households at home means fewer moves
The latter point is compounded by the structure of housing supply with a relative undersupply of 1 and 2 beds.  This creates a system of higher prices of 2 & 3 beds which limits the ability of households to extract sufficient levels of equity to make downsizing an attractive option
Although various governments talk about new housing, housing stock has grown by 191k homes on average in last 25-years.
That’s a shortfall of 177,300 p.a

 

Bank of mum and dad (gran and grandad)

Lengthening mortgage terms have been a consistent trend for the last 15-years.  30-year plus terms are now commonplace
Lifetime mortgages and product innovation in the over 55 age market has grown exponentially in recent years.  Many later life mortgages are being used to find deposits for adult children trying to fly the nest

 

What does the future hold?

Artificial Intelligence and data science will become more widespread to segment parts of the borrowers to enhance underwriting.
This will ultimately mean certain types of buyer will benefit over others (high vs low deposit and income security)
Several groups remain less well served – small deposits – single person households – households with complex incomes – older households
One shining beacon of hope, is that as more borrowers opt for longer-term rates (5-year deals), and average moves are further apart, competition within the market will intensify between lenders

 

So, when will I get another spare room?

Well, as per my previous blogs, I have been saving for some time now, so that Lucy has a head start on the house deposit treadmill

The rest is up to her and the job market.  Consistency of income will become a key facet of proving lendability (not sure if that’s a word).  As the Gig economy becomes a more fluid part of incomes, lenders will need to embrace structural changes.

The historic reliance on Guarantors will become more difficult, as parents are often mortgage holders later into life and more often into their own retirements.

Renting will increasingly hinder her ability to save, so implementing a short-term saving strategy is acute, as will be giving her more flexibility to live at home and save

Utilising Government sponsored footholds will be necessary (Help to Buy or Equity Loan scheme and Shared Ownership)

We will need more Government and House Builder innovation to help First Time Buyers, because without new homes and new home owners, the housing market could become a stagnant pond

 

 

 

The proof of love is the obsession to protect

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When she was little, I read my daughter fairy tales with dragons in them. Not because I wanted her to believe they existed, but to believe they could be defeated

 

Being a parent working in financial services, I strive to make sure my daughter embraces financial wellbeing, because the foundation of her future relies on the consistency and integrity of her ability to make financial decisions, whatever the external pressures she faces

 

 

Harnessing the power of financial education and experience

Consistency of income

When income is secure and consistent, it is easier to make critical decisions to save, invest, insure and look long-term

Insure your income and insure your partners income

Life assurance only pays out if one of you dies
Income protection & serious illness insurance will keep you solvent when you or your partner are too ill to work
Maintaining savings, debts & day to day bills at all times is a fundamental of long-term financial wellbeing

 

When a partner is too ill to work for an extended period, the pressures on reduced income have a detrimental effect on the whole family
Savings are halted, pension payments stopped, mortgage payments squeezed.  Maybe high interest cards used, credit score damaged

 

Create a foundation so that life can continue even when your income cannot

Insure your children’s future

We cannot guarantee we will live to see our children become adults
That doesn’t mean that our expectations for their financial security, housing and education cannot continue
Protecting their future with simple life assurances, to gve them security of housing and income, built into Wills and Trusts gives them a foundation on which they build their future and that of your grandchildren

 

Perks of being a wall flower?

 

Some insurance providers actively help you engage with fitness goals, providing discounted access to health trackers and Apps 
Discounted gym memberships, health check-ups, 24 hr GP access
Lifestyle discounts, including Amazon, Starbucks, Cinema’s and much more
Careful engagement and getting the correct cover and monthly premiums, means we can help you use perks to subsidise costs

 

 

Invest in your future

Do you save what’s left after spending, or spend what’s left after saving?

  • Saving needs to become a habit and then a lifestyle
  • Whether you are saving for yourself or your children, it is important to build rainy day money
Younger generations are finding it more difficult to buy property following the rapid rise in prices between 1996 and 2006
Almost 60% of baby boomers owned their own homes by the time they were 30, whereas just 30% of Millennials meet that statistic
The transfer of wealth through inheritance is unlikely to help, on average, millennials will have to wait until they’re 61 to inherit the family silver
A consequence of high property prices is that millennials are spending more of their incomes on accommodation than previous generations. By the age of 30, almost a quarter of their after-tax income pays the rent or mortgage, compared with 15% for baby boomers

Keep it in the family

Across the UK, every five-year cohort since those born in the mid-1950s has accumulated less wealth than the preceding group had done at the same age
Student debts put additional financial pressures on the ability to save for retirement
Since the government removed the cap in 2010, most English universities now charge annual tuition fees of more than £9,000. Add in maintenance loans and interest payments, and a student who started a three-year course in 2017 is likely to graduate with £51,700 debt.
Meanwhile, we’re all living longer, which means our pension pots will need to support everyday spending for many years, together with care costs in later life for ourselves and our families.
You would think that based on the above, we would share family resources and parents & grandparents would set up savings plans, to teach children the value of savings
I still see many families paying large sums of Inheritance Tax, rather than making lifetime gifts or using equity in their homes to spread wealth more evenly
Something as simple as a Will or Trust can help reduce the 40% Inheritance Tax charge, but 80% of the UK don’t use them.
Often children only find out what savings their parents had when they calculate how much inheritance tax is due on it

Tackling the advice gap

There is a clear gap between those who take advice and those who don’t.  The emergence of App based investment and savings portals has helped those start to save, that otherwise would not.
An adviser is more likely to create a more educated and targetted approach, helping you to understand the risks inherent in the decisions you make.  Product knowledge is really important when choosing any insurance product, especially where a mix of styles is important and keeping within budgets is key

 

Our journey to date

Lucy was born in 2004, has experienced a Financial Crisis and the effects it had on her family and friends, worry, job loss, divorces, financial hardships
She is now experiencing a global pandemic and recession, working to understand the daily news that again, has the same concerns as 2008.  Except, this time, she is getting her own mind steady for College and her next steps in her future

As parents, we have to set the example, talk about the future, what is in place to make sure they have security of mind and self

If we build their confidence in planning for the future and whatever it brings, they will take it more seriously and work towards strengthening their own financial foundations

We are working to end generation rent, generation debt and build generation financially insecure

It’s not all TikToks and Likes

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When all is said and done, there is often more said than done

Following on from my previous blog “Teaching children the value of money”, I have reached a new chapter;
As an adviser, I live the statement above, clients do not always take our advice, or may only take parts of it.  As I am also a parent to a 16-year old, I get to live this reality at home too
I have been teaching the merits of saving for children for many years, sometimes in the hope that these practices would also guide the grown-ups to do the same.  Over the last 26 years or so of my career, I have guided clients at both ends of life (and everywhere in between)
If I have learnt anything, it is that we need to think more as families and groups when it comes to money, rather than as individuals left to our own devices.  The advice I give often comes from my career knowledge and a great deal of lived and learned experiences

Financial education is unfortunately often taught by experience, rather than by the experienced

Savings are more important now, than ever

Stagnating pay, Gig economy and zero-hour contracts
Rising housing costs
Unfunded Government pensions
Low or near zero interest rates
More reliance on property ownership to fund retirement

 

The Savings Gap

Looking as far ahead as retirement, Economists tend to base a comfortable retirement on the ability to achieve 70% of preretirement income
The International Longevity Centre (ILC), estimates that in the UK, workers average a 4% shortfall
Doesn’t initially sound much, but that is after the expectation that people are saving a minimum of 10% to 20% of their income
If you are thinking, how am I going to save that amount!, there’s this –
You would need to save 15% to 25% to match the retirement incomes of previous generations
I realise that many cannot afford to save much, but time and getting started early, helps with that burden.  There is no easy answer, but there are options;

Save more today by increasing pension fund contributions

Work for longer and delay retiring until later

Spend less in retirement and adjust to a tighter regime

 

Education, Education, Education

Before we blame the lack of savings on younger generations spending too much on shoes and video games, let’s look at the research
If we adjust for inflation and exclude housing costs, those aged 25 to 34 in the UK spend less relative to 55 to 64-year olds than at any time since the 1960s
The reality is that millennials face additional financial pressures from high property prices and pay packets that have only just risen in line with inflation and less secure jobs

 

My house is my pension

If I had a pound for every time I have been told this!

So, how does your house become your pension?
  • Sell up and buy a cheaper property
  • Invest the profit from downsizing to provide an income
  • Borrow money using Equity Release (Lifetime Mortgage)
This will only help those that own a property, but home ownership rates are falling

 

Younger generations are finding it more difficult to buy property following the rapid rise in prices between 1996 and 2006
Almost 60% of baby boomers owned their own homes by the time they were 30, whereas just 30% of Millennials meet that statistic
The transfer of wealth through inheritance is unlikely to help
On average, millennials will have to wait until they’re 61 to inherit the family silver
A consequence of high property prices is that millennials are spending more of their incomes on accommodation than previous generations. By the age of 30, almost a quarter of their after-tax income pays the rent or mortgage, compared with 15% for baby boomers
This trend puts additional pressures on their ability to put away money for later life
Although home ownership rates have plummeted for younger generations, expectations haven’t caught up with this reality. According to the Pensions & Lifetime Savings Association, one third of 35 to 44-year-olds feel they will have no choice but to use their property to finance retirement

Yet almost a quarter of them don’t yet own a property

 

We need to tackle the lack of basic financial knowledge at a time when the government is asking people to take more control of their financial futures

In one survey, fewer than one in three demonstrated an understanding of compound interest, the impact of inflation and why it’s important to spread risk
During 2015, market research firm Ipsos Mori asked people in the UK to estimate how much they would need to accumulate in a private pension fund to generate an annual income of around £25,000 after they retire
The average view was £124,000, with some going as low as £90,000

That is an expectation that £90,000 will provide £25,000 every year for approximately 25-years!

 

 

 

Keep it in the family

Across the UK, every five-year cohort since those born in the mid-1950s has accumulated less wealth than the preceding group had done at the same age
Student debts put additional financial pressures on the ability to save for retirement
Since the government removed the cap in 2010, most English universities now charge annual tuition fees of more than £9,000. Add in maintenance loans and interest payments, and a student who started a three-year course in 2017 is likely to graduate with £51,700 debt.
Meanwhile, we’re all living longer, which means our pension pots will need to support everyday spending for many years, together with care costs in later life for ourselves and our families.
You would think that based on the above, we would share family resources and parents & grandparents would set up savings plans, to teach children the value of savings
I still see many families paying large sums of Inheritance Tax, rather than making lifetime gifts or using equity in their homes to spread wealth more evenly
Unfortunately, something as simple as a Will or Trust can help reduce the 40% Inheritance Tax charge, but 80% of the UK don’t use them.
Often children only find out what savings their parents had when they calculate how much inheritance tax is due on it

Relying on the Government

As income from taxation falls, the costs associated with paying pensions are rising as are the costs for providing health care and social care
The World Economic Forum has said that governments of the world’s largest economies are sitting on $53 trillion of unfunded pension commitments

So, economies have three difficult choices

borrow more money
reduce welfare spending
increase taxes
Increasing the state pension age is another option but it’s unlikely to solve the economic challenges associated with ageing

 

Some Great Reward

Younger generations around the world are already accepting that they will probably retire later in life than their parents
In the most recent British Social Attitudes Survey, which has been carried out annually since 1983, more than one in three people aged 18 to 24 and one in five aged 25 to 34 expect to retire in their 70s. Yet just 10% of people in the UK aged between 70 and 74 work today
As we emerge into a world dominated more with automation and flexible working, Employers can help people work into later life by introducing less rigid working practices
Studies suggest that increasing the participation rates of older workers expands the economy. According to the National Institute for Economic and Social Research, extending everyone’s working life by one year could increase the UK’s GDP by 1% a year, which is equivalent to £18 billion in 2015 when the study was carried out

Do you expect your children to work until they are 70?

 

 

My journey to date

Since she was 9, I set my daughter up with a pre-pay debit card, attached to an App so that I can oversee functions available to her.

She learned important lessons;

When you spend it, it has gone
When you save, it grows
How much do you really want that new thing?
When we were in a shop, she paid for her items.  That way she learned the simple and effective lesson, that each transaction reduces what you had before

 

I have also invested a regular amount into a Junior ISA.
As she got older, I showed her the statements, up and down.  We also discussed the companies we had invested in and why

Lessons learned;

Saving takes commitment and is a structured part of your outgoings
There is a short-term risk, which can be managed and needs to be reviewed
There are rewards over the longer-term
Inflation affects everything
Consistency and time are vital to building for the future

Saving is a gentle way of discussing the future, tackling expectations for the realities of life and creates a sense of openness when discussing money
We discuss finances as a family issue and strategy, which brings continual challenges that can be dealt with.  My goal is to get to a point where the fear and stress of finances are removed and to give her the tools to understand the risks, costs and benefits of any financial decision she needs to make
We all have a choice with the lessons we pass on

I am working to end generation rent, generation debt and generation financially insecure

The Big Warm Up – Helping the Homeless

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During September 2019 we teamed up with Epsom & Ewell Families to support homeless charity The Big Warm Up
The charity help the homeless of Surrey and London living on the streets to stay warm
You can find them on Facebook

Coronavirus & My Investments

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Bank of England Governor,  Andrew Bailey speaking after taking over Monday

1 week after a cut in interest rates and eased capital requirements on Banks as part of a co-ordinated stimulus with Rishi Sunak’s Budget
Disruption to the economy had clearly taken place over the last week, and the aim of the Bank and the Treasury was to prevent it becoming destructive”
“We want to minimise the economic disruption and don’t want a persistent effect that destroys the supply capacity of the economy

 

Assessing the global impact of Covid-19

Investors are increasingly worried by the spread and the impact of the virus, which has resulted in large falls in markets
Predicting the final outcome is impossible this early on, so governments and investment companies are tracking infection rates globally, trying to create a framework to analyse economic activity.
This early into the Pandemic, data is changing daily and the frequency of alteration is fierce
hence, economic stimulus packages are now coming thick and fast, with differences across the global economies, but all aiming to limit problems and maintain financial strength

 

 

Information Overload

Now that we are working from home or self-isolating, the raft of “information” uploaded or shared across social media platforms is mind blowing
We need to remember that once we share something, we take responsibility for actions of our friends that read it.  before sharing, check the source, check again, fact check once more

 

 

 

 

Taking stock (pun intended)

I have outlined scenarios below that have been summarised from data feeds we recieve daily from investment managers, economists and market strategists.
These are in evolution, due to the many unknowns and ongoing research, but we need to start somewhere and encompass what is driving the day to day swings across asset markets
Scenario 1 (probability 40%)
  • Larger hit in China’s GDP for at least 2 qtrs, but minimal impact on rest of the world
  • Strong bounce back from China as inventories are rebuilt & services /production/consumption resumes
  • Growth picks up gradually, inflation subdued, interest rates low, risk assets progress
  • Monetary & fiscal policy unchanged outside Asia
Scenario 2 (probability 25%)
  • Containment in China doesn’t work & the spread continues
  • Quarantine extended for months
  • Demand & supply chains are affected, which will add pressure on firms to diversify supply chains and start the acceleration of de-globalisation
  • A break in the global supply chain will increase costs on goods and this effects global output and demand
Central Banks will also look at ways to keep inflation low, as this can be a shock to the economy and we have got used to a low interest rate / low inflation economy

 

What about my ISA’s and Pension

 

 

 

 

Sharp falls are tough to experience, especially as you effectively watch your money get lower.  In the early days of a panic such as Coronavirus, it can seem like it won’t stop falling
The last time I experienced this in my career was the 2000 dot com crash, which was created by one sector and fed through to the whole market.  At that time, the resulting recession lasted around 2 to 3 years
However, Government Bonds, Corporate Bond and Commercial Property funds provided double-digit returns, while equities struggled.  Having a diverse portfolio is important, but in the early stages of any crises, all assets fall initially
The falls (especially the sharp ones), tend to be driven by fear of the unknown, an expectation of high levels short-notice withdrawals and investment companies trying to maintain a cash base from which to manage their own cash flow needs.  This was played out Tuesday, as Bond markets struggled, with a sell down of cash-backed assets
Looking over the longer-term , sharp falls have always played out in the dark days, as markets seek to find a value that suits the daily knowns and more importantly, unknowns

During the falls (marked in red) – 2000 dot com crash – 2008 financial crisis, being the most recent and memorable, it is important to consider the timescale of your needs
If you invested for the long-term, which is the main aim of invested money, surrendering is the point at which the falls become an actual loss
Take advice, consider any other options that may be available.  Governments are currently working on and announcing financial packages to help individuals, companies, the economy and thereby, the financial system
I understand that watching the value of Pensions & ISA’s fall is worrying, especially as the news all around is also troubling.  Each recession or stock market crash I have experienced started this way, the decisions I am helping clients make are not devoid of emotion, and the outcome of every decision is arrived at in making the best it can be after taking account of personal needs, timescale and financial pressures affecting them

 

 

 

Covid-19 and Me

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Well, that escalated quickly!

There we were, December 31st looking ahead to 2020, summer sporting events, concerts, Summer and so on
And here we are now…
There’s a lot to think about, even worry about…..toilet roll for example
Most of us rely on some form of invested money for our pensions, ISA savings etc, and in the eye of the current storm, it can seem like a whole world of worry.  In the short-term and immediately, there is a lot of headlines and Tweets to mull over
So, I thought it might be useful to ask investment insiders for their thoughts and consideration, which will be fluid as the effects of the Covid-19 outbreak continues
A plunge in oil prices, Covid-19 and travel bans have sent markets reeling
The start to 2020 has been a tough one for the global economy, having met with a variety of fund managers, stock brokers, economists and commentators in recent weeks, I thought I would set out what is driving our advice for investment strategy in the very short-term

Main considerations

• Saudi Arabia fired the first shots in a price war, sending oil prices down by more than a quarter. Given the rising tensions between Saudi Arabia and Russian ally Iran, there is also the possibility that a real war could ensue. Financial markets would then demand even more return for the risks
• The steep drop in oil prices makes it more likely that some oil producers will default on their debts. This is concerning because US oil producers have accounted for an outsized share of new credit extended over the last decade
• Given roughly 13% of the US high yield bond index is made up of oil producers, there is also the risk that bond fund managers may need to “fire-sell” good assets if investors start to redeem funds.
Some commentators fear another financial crisis. Financial crises are different to normal recessions: they tend to be deeper and with less of a V-shaped recovery. Fund managers I have spoken with do not think that a financial crisis is likely.
There is a deep literature on financial crises, and they almost invariably have common markers. They tend to be preceded by an extraordinarily rapid increase in leverage (of a speed that we have not seen over the last 10 years), often as a result of financial de-regulation (quite the opposite to today) and an overextension of credit to un-creditworthy borrowers as a result of imprudent lending standards, especially by weak banks with inadequate capital (again no systemic evidence of that today).
Main concerns are about the ability of some companies to finance themselves should profits plunge for more than a couple of quarters, but as it stands interest coverage ratios (the ratio of annual profits to annual interest expense) are reasonable
• Lower oil prices could provide a modest boost to consumers and firms via lower energy bills. But if they are unable to spend the effective increase in disposable incomes due to travel restrictions or supply-chain disruption, it may not provide much of a lift
• The direct loss of employment from any disruption to the oil industry wouldn’t be significant. Just 0.2% of US employment is in oil & gas extraction or pipeline construction.

Covid-19

It’s impossible for anyone to predict the virus’s course – there is an absence of conviction among medical experts, let alone investment professionals.
• Financial commentators tend to view the financial implications in terms of three broad scenarios: (i) Covid-19 and the associated disruption could be on the cusp of dissipating rapidly; (ii) it could continue to worsen into the second quarter, greatly disrupting profits before the world gets back to normal in the second half of the year; (iii) it may escalate further, with lasting economic effects into 2021.
These scenarios give us a best case, a worst case and something in the middle, so we can model the effects on equity prices, weight them by probability and add them together
Assigning an equal possibility to all three suggests that equity markets, as of the end of last week, were trading where they should – somewhere in the middle of the two extremes
By assigning an equal weight to all three of these scenarios is the mathematical expression of “we don’t know”. The median outcome suggests that staying invested with a preference for more defensive factors within equity allocations makes sense.

Where are we now?

• China’s oppressive coping strategy really does seem to have beaten the virus. Daily new cases have slowed to a trickle. For the last two weeks, between 88% and 100% of new cases have been in Hubei province, where it all began
• The mortality rate is starting to level off, the severity rate has plunged and the recovery rate has surged to 90% outside of Hubei (it’s 67% across China as a whole)
• The daily change in new cases outside of China is rising exponentially. We focus on this metric because during the 2003 SARS outbreak the peak in new cases coincided with the trough in equities and other risk assets. This also bore out early last month when new Chinese cases peaked and markets thought we weren’t going to see epidemics in other countries.
• South Korea and Italy are of more immediate concern. It’s possible that the daily changes in new cases in Korea has peaked, but it is too early to say for sure, but seems to be following the Chinese roadmap, even without the draconian lockdown, which is good news for now
• In the last few days new cases in France, Spain and Germany have started to rise too. There is a risk that as virulence peaks in one country it springs up in another, preventing a market recovery for some time.

Will we have a recession?

Analysis suggested that 2018 and 2019’s policy easing across the world was not due to lift profits until the second quarter (it lifts equity valuations immediately, but takes a long time to feed through into real economic activity), and in the meantime the economy and financial markets were vulnerable to another setback.
Given the Covid-19 outbreaks, leading economic indicators are likely to lose momentum again and the recent underperformance of more economically sensitive sectors seems likely to continue.
Stock market corrections greater than 15% are very rare outside of recession, so, as ever, it’s the risk of a US and global recession that we need to monitor most closely. Last week’s falls in equity markets invited comparisons to October 2008, but it is important to remember that the US had already been in recession for 10 months back then.
Today, the world is very much not in recession, while the probability of the US falling into recession in the next 12 months was negligible before Covid-19 struck
• Central banks are cutting rates, and not because they mistakenly set them too high to begin with
• The threat to economic growth from Covid-19 or government reactions to it comes via three main channels: (i) tourism, (ii) the supply chain, (iii) sentiment.
• Many Chinese tourists have stopped departing from China. They make up more than 25% of all tourist arrivals in Hong Kong, Japan, South Korea, Vietnam and Thailand, so these countries are particularly vulnerable to this channel
• The supply chain is the bigger threat. That said, the PMI surveys conducted in mid-February – before the outbreak in Italy and Korea but when Chinese factories were still in mothballs – didn’t report all that much of an increase in supplier delivery times
• The US, supplier delivery times were actually improving. Anecdotally, Chinese factories are springing back to life, but some of the daily data disputes this. Coal consumption by the six major Chinese power suppliers is still 35% below where we would expect it to be at this time of year
• Data from the service sector (the largest sector of the Chinese economy at around 45% of gross value added) looks better: property sales in Beijing were down 95% year-on-year in mid-February but in early March they were higher (i.e. missed activity is being recouped).
• Expressway traffic is also back to within a few percent of last year’s norm. That said, there are also anecdotal reports of empty shopping malls: people are returning to work but not, perhaps, to their usual consumption habits.
• South Korean and Italian disruption adds to supply chain pressure. Italy puts huge pressure on the European automotive ecosystem via MTA Advanced Automotive Solutions, which has plants in the quarantined zones. A 10-day shutdown of FCA, Renault, BMW and Peugeot’s plants would shave off 0.6% from eurozone industrial production, according to Oxford Economics.

Sentiment

Declining sentiment not only derails consumption and investment directly, but can tighten financial conditions which could lead to weaker firms going bankrupt, as we discussed at the start of our note.
Central bank action is designed to support sentiment (of course, it can’t do anything to help immediate supply chain dislocation). However, markets have been anticipating rate cuts
The most current outlook from economists is that there isn’t much evidence that a Covid-19-induced recession would trigger a financial crisis. Especially when we consider that monetary policy is currently set so loosely – most recessions, and especially financial crises, are triggered by a monetary policy mistake.
There remains some growing concern about rising unemployment, especially from airline companies, the tourism and leisure industry and, of course, services companies such as HSBC.
US jobless claims increased by 3,000 to 216,000 last week, but this is still below 2019’s average of 216,500. Given the extreme skills shortages registered by many hiring surveys across the world, firms might actually hoard labour as they worry about their ability to re-recruit staff if the Covid-19 disruption proves to be relatively short-lived

What next….

Commentarys and actions taken by fund managers appears to be some moves away from companies reliant on the social aspect of life for the time being, but they are not running for the cover of hiding money under the mattress
Don’t cash an investment in before you take advice, or at least get opinions from other investors or advisers
During the heady days of the Dot Com stockmarket crash in 2000, I guided clients through a rout that seemed never ending.  Clearly, for some tech companies, it was the end, but other industries grew as did other asset classes
Uncertainty is a short-term challenge, but for many of us, our investments are a long-term play and we need to remember that before making a decision in 2020

Planting the seed

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All great change is preceded by chaos

During the next 12 months, I prepare to help my daughter navigate her final year of full-time school and for the first time in a long-time, I have considered what the world of thinking about a career might look like
Guiding clients through the constant changes facing investment portfolios has been my world for over 25 years now. I have navigated recessions, systemic crashes, rallies, booms, political uncertainty and a constant hum of change throughout my career

The next 25 years or so, will continue to challenge investors and the workforce, as they chase the speed at which technology accelerates and the resulting disruptions compound.
But I guess our ancestors have experienced it all before, Industrial Revolution, World Wars, discovery of oil, mobile phones, global connection to name a very small few.
Globally, the spotlight appears to be shining on climate, which is an area of investment strategy I have focussed on since opening Aspen. Investors historically have been best placed to contribute to new and emerging industries and, in relation to our planet, they can invest in solutions.

Structural change to economics

Successful investors are used to looking ahead, seeking out innovation and investing for the future.
We have become used to a model where products are created, used and then discarded
What we are searching for and what appears to be clear, is that we need to find a more circular approach to life (thanks, Mufasa), where we create, use and re-use

 

Food, Waste and Sustainability

The desire for more sustainable food is growing
Distance between food and fork has become stretched, with supermarkets making summer fruit available all year, flying exotic veg to our plate, which some believe has also created a distance in our relationship with food
Here’s a couple of great ideas I have seen recently
  • 50% of shipping containers transport goods between China and North America are returned empty. That’s around 13 million containers just containing air
    What if they were filled with collapsible Growframes, a hydroponic farming system, essentially creating empty spaces into small mobile farms

  • Coffee grounds, while straws are the enemy, what about the tons of used coffee grounds going into landfill every day?
    How about growing mushrooms from them, or utilising the materials to make cups, shoes and disposable & compostable piggy banks

  • Animal bi-products & waste are prevalent in the waste chain. An inordinate amount of cows blood and manure is disgarded daily, but once again maybe this can be converted into utensils, by combining the charcoal of vegetable waste and Urushi (Japanese lacquer) to act as a glue to hold the product together
It’s not all about sustainability, it’s about how our relationship with the rules of food might need to change (don’t play with your food, use the right knife and fork)
  • Research has shown that people with dementia drink 84% more liquids when served in brightly coloured cups
  • Changing the shapes and design of utensils to help people with cognitive impairments
  • Reconstruct cities to incorporate the green pasture being lost
  • Seedbanks are now an important part of our infrastructure. Mexico has over 60 types of corn. But, industrialisation caused a sharp decline in species and, therefore local employment. Now these are being re-planted long-lost species and creating secondary incomes to farmers

 

The World’s 7th largest economy

Don’t @ me on this, it’s an important perspective, based on the perceived Gross Domestic Product we extract from its resources and their value to various industries
This Blue Economy is a big issue for us all and in the World Ocean Summit and subsequent commissions, there is a great deal of movement and need for investment in solutions to Protect, Impact and create Solutions.
The Blue Economy will require a great deal of expertise and long-term strategy, providing for an incredible growth opportunity for new industry

 

Impact Investing

The way that we viewed ethical investing over the last few years has started to change
Historically, Ethical meant Avoid (weapons, tobacco, alcohol, animal testing, etc)
During 2015, the UN published their Sustainable Development Goals, with a 10-year target date. These SDG’s have become a regular part of investment discussions, with the expectation that Impact Investing will be the next big driver for growth
While this has been prevalent in some market places, the private and retail markets are just starting to take note. Two fund managers have launched Positive Impact funds this month.
One of the key drivers is the inter-generational transfer of wealth, and the younger generations care and want this style of investment in their portfolios

 

 

Societal changes, in smaller economies form a large part of the SDG’s, which will have the effect of benefitting emerging economies, which those countries desperately need
To put some of the growth in this sector in perspective, the Danish renewable energy firm Orsted, moved from fossil fuels to green energy around 10 years ago.
It now owns most of the wind farms offshore in UK, Germany and Netherlands. Its current Price/Earnings ratio is 24.3 times, meaning for every £1 invested a UK investor would receive £23 income or return
Other styles of Impact Investing will include childcare and dependent care provision packages as part of salaries, so that parents can return to workplace with greater ease
In 2001 you had a 50/50 chance of finding a beach in the UK where the water was fit to swim in. Now 92% of the UK’s beaches are deemed “exceptionally clean”

 

Money where my mouth is

To close my own circle, I have saved regularly into an Investment ISA for my daughter and when she reaches the point of deciding where education or career goes next, we will have a conversation, where she gets to choose between spending or borrowing  for education, or keep going and save for housing (trips to the Maserati showroom are barred)
By saving regularly, I can explain the consistency of application, even though there were times when spending seemed more agreeable than saving
In a bid to make the investment process relevant, I have invested in funds that specifically target Robotics, Smart City infrastructure and Water provision, which I feel will resonate with her own interests and view of the future
Smart city funds seek out new and ecological ways that cities are developing, transportation, waste, energy and social cohesion
Water funds invest in companies enagaged in the processing, delivery and technological and environmental services of water provision

Final thoughts

If only I had a £1 for every sentence that went “wish I’d bought my gran’s house in the 90’s”, “wish I’d bought those Bitcoins earlier”, “should’ve bought those shares when they crashed in 2008” and so on
Reality is this, what stopped you then, will stop you now
William Hill posted a £63.5 million loss due to the caps put on Fixed Odds betting terminals. Our relationship with risk is based too succinctly in the short-term and we need to re-educate ourselves on investing for the longer-term and how the risk/relationship works
Because if I have learnt one thing from the wealthy over the years, it’s that they invest in long-term strategies to maintain a solid foundation for all their generations

The day you plant the seed, is not the day you eat the fruit

The Only Way is Ethics

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The Only Way Is Ethics

Since we opened our doors we have helped clients build investment strategies that align with their risk profile, timescale and values
The way in which people live and engage with political, climate and corporate issues has changed dramatically in recent years
One of the ways clients like to engage is by controlling & considering where they invest their money

Why?

Apart from the main narratives of pollution, waste, tobacco and corporate greed, there is a widening array of reasons to consider incorporating ESG (environmental, social & governance) themes into a portfolio.
A growing consideration among investors is the balance between corporate profit and growth versus societal needs.  Paying a living wage to make a fairer society and creating a more environmentally conscious business plan as examples

Avoid

Avoid techniques use negative screening to help clients create a portfolio focussing companies whose products, services or practices align with their personal values and beliefs, thus avoiding those with a vision or products are at odds with them
Main considerations tend to be Human Rights, Environmental Impact, Animal Welfare, Arms, Fossil Fuels, Alcohol, Tobacco and Gambling

Engage

Engaging is a vastly wider architecture.
By investing the shares of a company, fund managers might have voting rights and can have some influence over the position a company takes
Positive and Sustainable themes can be wide ranging, driven by issues facing the planet;
  • Infrastructure – improving the environmental impact on towns & cities
  • Products & Services – energy efficiency, changing business practices & technologies, managing waste and recycling
  • Renewable & Alternative energies
  • Health & Wellbeing – access to healthcare, mental wellbeing, helping developing countries improve care
  • Social issues – equality, safe & affordable housing, education
  • Food & Farming
  • Transport
  • Finance and Employment

Where do you start?

Discussing your moral beliefs with us is simple, we utilise a Fact Find designed for clients wishing to adopt an Ethical / Sustainable portfolio
We employ screening databases supported by experienced and independent analysts, that has the capability to screen OUT, or indeed, IN, specific issues and criteria
This is then risk matched to your profile and discussed with you in terms of any nuances or considerations you need to make

 

Is the Investment Risk Greater

Generally speaking, the overall portfolio of options available diminishes when you either avoid or specifically target certain industries or ideals

We employ systems that ‘risk-profile’ investment portfolios. Taking into account the asset allocation (cash, equities, commercial property etc), together with financial strength, historic consistency of perfromance and so on, to create a ‘risk score’providing a reference point to make a decision

Cashflow is an important factor in creating financial strength. According to one leading investment platform money held in ethical funds rose from £4.5bn in 2008 to £16.7bn in 2018

 

 

Emerging Issues

Waste & Plastics
The use of plastics and the effect the dumping of waste is having on the planet and seas is acute. Producing around 3.5 million tonnes of solid waste each day, the World is going to need solutions
Smart cities
City living now exceeds rural living, meaning that for the first time in it’s history, the world now has more people moving to cities for economic and social reasons
The challenges going forward will be making them liveable and sustainable. Utilities, transport, housing and connectivityneed to be harnessed to make them fit for purpose.  The challenge will continue, as history dictates that countries seeking to reach middle income status do so by population shifting to city-dwelling

 

My most recent case

Met with a prospective client who leads a Vegan lifestyle. Wanting to save for retirement he wanted to invest in a way that supports his Veganism, as much as possible
We have been able to recommend an investment portfolio that avoids investment in companies that derives business turnover from;
  • Intensive farming
  • Own or operate an Abattoir or poultry slaughterhouse
  • Own or operate a Fish Farm
  • Are producers or retailers of meat, poultry, fish, dairy products and slaughterhouse by-products

 

Saving for your future can also mean saving for everybody else’s

Protecting, Rewarding and Perks

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Rewarding you through fitness

Whether you invest or protect, discounts and incentives are a key part to add value to your policies.

 

Whether you are an investor or seeking to protect yourself or your family against illness, death or to attain the piece of mind of Private Medical Insurance, getting greater value from your plans now has new meaning

 

Understand your health

You will recieve access to Apps that help you monitor your fitness levels, your steps, distance run andso on

You can get access to health checks at regular intervals

My favourite is working out your Fitness Age, which tells you where you are compared to your own age!

To help you maintain fitness levels, many will provide discounted activity trackers, up to and including a new generation iWatch

Fitness Discounts

Reductions in standard fees for:

Virgin Active or Nuffield Health gym memberships

Cycles, running shoes at Sweatshop
Health food discounts from Ocado
David lloyd Clubs
Discounts at Weight Watchers
Garmin, Polar and iWatch discounts

 

 

Lifestyle extras 

Tickets to Vue Cinemas and Cineworld (can also include kids)

Weekly free coffee at Starbucks

Money off one, two and three night Spa stays and Spa Days

Discounts at Mr & Mrs Smith luxury and boutique hotels

 

 

 

Hands up who’s feeling undervalued?

  • When protecting your family it pays to put yourself first
  • Over half the stay at home parents in the UK, do not have life assurance

The impact of the death of a parent or suffering a Severe Illness;

  • Alterations to the home or move to a home with no stairs (for example)
  • Childcare costs required
  • Education costs not being met
  • Lifestyle being denigrated (holidays, technology, housing)

 

The important things often overlooked

  • Why just cover the mortgage – how will you cope with the loss of the income
  • What about recovery – having additional income covered means the pressure to return to work or find a job is taken care of
  • Long-term cover for children’s needs – education costs – college – Uni

Trusts

Many couples no longer marry or enter into Civil partnerships. If you have life assurance, it will pay to your estate, thereby INCREASING your IHT liability

A Trusts will hold monies for your children until they are old enough to recieve it.  If your partner remarries, without a Trust in place, payouts could form part of their assets

What is the right amount?

Well, let’s start with the WRONG amount – Zero!

Someone once said that they had no life insurance, because they wanted their death to be a real tragedy!

  • Make sure your debts are repaid
  • Make sure an amount of income is replaced either medium-term or long-term
  • Provide for your children’s future costs

This is the basics, from there we can help you create a structured protection plan, that is reviewed and revised as and when relevant

 

Business Protection

Owners of small businesses, family businesses and share holders are the worst at protecting themselves and their business

Have you considered the following;

  • How are the business shares valued on the death of a shareholder
  • Do you want to have your business partner’s spouse, children or family as business partners
  • Do you give other shareholders and Directors first option to buy the deceased’s family out
  • How will you replacelost income from a senior Director’s death – will you need to employ a replacement

So many businesses do not have an agreement in place that dictates and is agreed by each shareholder as to how the shares will be valued and distributed

All it often takes is a meeting to discuss, agree and then insure the liability through the company

Anything else I should know?

 

Here’s the sales bit

Our staff and subsidiaries have a wide-ranging experience in Protecting individuals and business owners

Often we concern ourselves with the cost, but our expertise will help you understand the cost of NOT doing anything

 

Prepare and Prevent don’t Repair and Repent

Managing Investments during turbulent times

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2018 has been a rocky road for investors, with any number of data charts, historic analogies and fables to consider

The economic cycle is a changing dynamic and periods of uncertainty can make even the most resolute saver worry.  In the immediate aftermath of drops in ‘markets’, nervous investors can make the situation even less predictable.
There are many drivers to the current market falls and increasing volatility;

 

 

  • Longer-term planning

    While markets are swinging wildly, short-term performance does not provide the best point of reference.  Make sure your holdings are diversified, so that you have a chance of ironing out the peaks and troughs

    There is no secret to investing, timing the markets is very stressful and difficult, because you cannot tell how investor sentiment will affect the day to day movements

    For those paying regular contributions, these cycles can add value in future, as the low points provide opportunity and lower cost acquisitions.

      • Recovery from 2008 financial crisis has been longest upward trend for some time and an element of ‘how long can it continue’ has unnerved investors
      • Trade wars between the US and China has had a dramatic effect in the last week, with tech companies taking the initial brunt of turbulance
      • Brexit negotiations have become a stumbling block, as investors want to have something tangible to base future decisions upon
      • Dollar strength has had a negative affect on Asian shares, which predominantly rely on Dollar denominated debt
      • Ending of Quantitative Easing (central bank supporting asset prices) – as asset classes transition away from the recent underpin of injected money, the process will be volatile
      • Divergence of economic performance, where the US is dominating and outpacing other countries in terms of growth, household income and business investment.  The Fed is dealing with this growth to stave inflation, but this is putting additional strain on other markets
      • Volatility is to be expected as markets consider the affects of higher base rates and rising inflation.
      • A large part of the daily equity price falls are driven by concenrs of a recession in the US, spreading globally.  Some view that the recent tax incentives will come back to bite in 2020, as the benefits wear off and the cost to the US Treasury are realised
      • Outside of the daily fluctuations, US growth remains strong supported by fiscal policy, inflation is picking up but not unduly, and the Federal Reserve has been clear on the path of future interest rates.  Elsewhere, growth is moderating but still firmly positive in Europe and Japan while Emerging Markets are facing some idiosyncratic challenges but are generally in good shape
      • On a broader basis global economic growth continues to be positive, estimated to be around 3.7% (IMF 24.09.18), although in areas of uncertainty such as the UK it has fallen – natural fears over Brexit have eaten into consumer and corporate confidence

Investment Plan

Having a plan is essential and keeping to it is where success lies.  Hoping for the best, will not work.

Review your ideals, risk assess your strategy, consider your timescales

The economic back drop changes over time and your investment strategy should consider those changes

Timing

Timing the markets is virtually impossible, but Time In the markets can pay off

Paying regularly has good advantages on a long-term investment.  Not only does it instill a sense of discipline to one’s investment habits but also avoids trying to second guess market movements.

Essentially, when investing in an investment fund, your contribution buys units.  When markets rise, you would buy less units, and when they fall, a higher number will be purchased.

As most investment funds fluctuate on a regular basis, your unit purchasing power does the same.  This process is called ‘pound cost averaging’ and it can make for a smoother ride over the longer-term.

Don’t make quick decisions

The temptation to pull your investments is often the first thought.  Cashing in can be expensive, even if it feels like a safer bet.

Many investment funds already hold cash reserves and once out of the market place, there is a cost to starting again later

 

Longer-term planning

  • While markets are swinging wildly, short-term performance does not provide the best point of reference.  Make sure your holdings are diversified, so that you have a chance of ironing out the peaks and troughs
  • There is no secret to investing, timing the markets is very stressful and difficult, because you cannot tell how investor sentiment will affect the day to day movements
  • For those paying regular contributions, these cycles can add value in future, as the low points provide opportunity and lower cost acquisitions.
  • Taking income from your investments?

Taking Income

  • Consider holding higher levels of Cash, so that you take your income from your cash reserves, inside or outside of your investment portfolio
  • Cash reserves do not rise and fall with asset prices, so your income is coming from a secure element
  • Consider the sustainability of your investment fund against your drawings, so that you can see how it could affect the long-term integrity of your income needs

 

Take advice

The amount of commentary and information on the worst days of a market cycle can be over-whelming
An experienced Adviser will have worked their way through similar episodes in the economic cycle and while they are all different, many aspects are the same
During tough market cycles, advice helps you take the emotion out of investing and provides an objective view
As experienced advisers, we will interogate the investment funds you hold, so that you can understand exactly where your money is invested.  We can also look at charges and the options you have so that any decisions you make are relevant to you and your expectations
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