Where are we now?

I feel the above sketch by Carl Richards explains what we do for clients and what they can do for themselves at the beginning of our relationship so that we can work out where they are today.

When it comes to money, what we don’t know can hurt us. I’ve seen this truth play out time and again when people tell me that they want to take their finances seriously by investing and making plans for the future.

“Excellent,” I’ll say. “So, what can you tell me about your current finances?” Occasionally I have a client who is fully aware of what they have, but the most common response is a blank stare.

I’m not surprised.  Sometimes we just don’t want to know.  As soon as we start listing our current assets and liabilities, we come face to face with both our good and bad financial decisions.

Maybe we’ve done a great job of saving money every month, but we’ve also had a credit card balance for over a year. We need to know both the good and the bad. Otherwise, we can’t plan for the future. Getting a handle on our current reality starts with something simple: a personal balance sheet.

To start, grab a piece of blank paper. Draw a line down the middle. Write “Assets” on the left, “Liabilities” on the right. Then, make a list.

Assets are anything we own. Liabilities are any debts we owe. On the asset side, list things like savings accounts, ISA’s, Pensions and the value of a home. On the liabilities side, list things like credit card debt, a mortgage balance, and any other loans. For this process to work, we need exact numbers, especially for our liabilities. Be prepared to call credit card companies and banks if needed to get this information. Again, not knowing these numbers can hurt us.

Of course, the personal balance sheet may also reveal we’re better off than we think. That’s a good thing. We may have saved more and have less debt that we assumed. Once we have all the numbers, add them up. Then, subtract all the liabilities from the assets. This number equals our net worth and our current reality. This process seems simple enough.

The next step is however a little more complex. It needs discussion and some analysis. The “how do you get there?”; that all important middle step is where the advisor with a wealth of experience can help. However, if we keep avoiding or skipping this first step, we’ll have a difficult time figuring out where we want to go, let alone how to get there!

So if you’d like help understanding where you are now, or working out how you get to where you want to be, please do contact us.

 

Financial freedom- Creating and maintaining the right investment strategy

Our life is an endless series of daily choices, and how we manage those choices determines the outcome of our life. We all want financial freedom, but how will we achieve it? Financial goal-setting is the key to building wealth.

There are always going to be bumps in the road on every journey, which is why it’s essential to be flexible enough to adjust your plans when the unexpected happens. Your wealth creation objectives need to be able to adapt to whatever’s going on in your life. Nothing should stand between you and your long-term goals.

Creating and maintaining the right investment strategy plays a vital role in helping to secure your financial future. Whether you are looking to invest for income, growth or both, we can provide you with professional expert advice to help you achieve your financial goals. So what do you need to consider?

Set a goal and start early

Short term, ultra-specific goals are generally very easy to achieve as they don’t really involve any planning, but longer-term goals on the other hand require you to actually plan out how you are going to achieve the goal. Remember that wealth creation is about creating a lifestyle of your choosing, and the earlier you start to invest, the sooner you can enjoy the benefits of compound growth working for you to build value and make your money work harder for you.

By taking the time to step into your future, you can look back and visualise what needs to happen today for you to enjoy the lifestyle you want tomorrow. Ask yourself these three questions to help you visualise your future needs: what do I have? What do I want? When do I want it?

Develop an investment habit

If you think that investing a few hundred pounds every month will offer little in return, you should change your mindset. To start your investment strategy, you should adopt a stable and organised investment routine that will help you achieve your goals. Compound growth is the central pillar of investing. It is why investing works so well over the long term.

The more you invest and the earlier you start will mean your investments have that much more time and potential to grow. By investing early and staying invested, you’ll also be able to take advantage of compound earnings. Making money on your money is the concept behind compounding. Compounding is when the money you earn from your investments is reinvested for the opportunity to earn even more. However, you need to keep in mind that while compounding can make an impact over many years, there may be periods where your money won’t grow.

Be consistent

Many people stop their investment planning particularly during market downturns, as we’ve seen in recent weeks. By doing this, they often miss out on opportunities to invest at lower prices. If you keep to your investment strategy and keep moving ahead consistently, this helps spread risk and enables you to grow your wealth for the long term through pound-cost averaging and careful asset allocation.

It’s important to remember that investing is an ongoing process, not a one-time activity. The right way to begin your investment strategy is by establishing goals that need to be achieved over the short, medium and long term. Secondly, it is necessary to assess your current position in the financial lifecycle. Thirdly, you must ascertain your risk profile, as that decides how much risk you should take while investing. This is particularly important as different financial objectives require different investments approaches.

Maintain a well-diversified portfolio with regular reviews

Regular reviews of your portfolio enable you to adjust your portfolio to meet your changing needs and risk appetite at different stages of your life and in different market conditions. This helps you keep up your investing momentum towards achieving your long-term financial goals. It’s also important not to put all your investment eggs into one basket.

Investing randomly into different asset classes without ascertaining their asset allocation, not following a disciplined approach to investing, exiting abruptly from an asset class and investing without a clear time horizon are some of the most apparent inconsistencies in any investment process.

Create the right investment strategy

We recognise that choosing how to invest your money can seem daunting. When it comes to planning for your future and that of your family, you’ll want to be sure that you have everything covered. We help our clients set goals and then create the right investment strategy to achieve them, whether it’s growing family wealth or leaving a legacy. We know everyone is unique and has different priorities. To discuss your future dreams, please contact us.

 

 

The above information is provided for information only. It does not constitute investment advice, recommendation or an offer of any services and is not intended to provide a sufficient basis on which to make an investment decision.

Pensioners embracing the benefits of retirement and new-found time

As with any new life stage, planning often helps a smooth transition from the old to the new.  Preparing properly for anything new requires planning and commitment. Spending time on planning now will ensure you enjoy the retirement you’ve worked hard to achieve.

According to new research[1], retirement has meant a new lease of life for millions of people who have given up work in the last ten years, with more than one in four (26%) saying they are fitter and healthier since they stopped working. Far from winding down, nearly half of those who have retired since the height of the financial crisis (48%) say they are busier and more active than they anticipated.

Experience of retirement

Through embracing the benefits of retirement and making the most of the new-found time, more than one in three (35%) say they have more time to make their life more adventurous than they could have hoped while they were still at work.

When asked how else their experience of retirement was exceeding their expectations, many of those who have become pensioners in the last ten years pointed to improvements in their relationships. More than a quarter (26%) believe they now get on better with their partner, while 25% think that their relationship with their family is happier since stopping work. Meanwhile, just under one in four (23%) say their social life has improved more than they expected.

Professional financial advice

As people who plan to finish work in the next ten years begin to look forward to their retirement, there’s plenty they can still do to make sure they are as comfortable as the people who have become pensioners over the last decade. Most importantly, in the face of changing pension rules, many people will benefit from obtaining professional financial advice in the run-up to retirement.

Retirement will continue to change over the coming years, but for many people the desire to make the most of their new-found free time will remain. Reflecting on their retirement in general, the vast majority who gave up work in the last ten years (86%) said that it had met their expectations or they were happy with how it had panned out so far, while only one in eight (13%) said that it has been a disappointment.

Thoughts, feelings, emotions

Nearly two in five (37%) thought they would have missed work more than they have since retiring, and in fact one in four (26%) wish they had retired earlier. Meanwhile, on reflection, more than one in ten (11%) wish they had been more active or found a job in the early years of their retirement.

It’s important to prepare your thoughts, feelings and emotions for the next phase in your life: a time to look forward to and welcome as a chance to do the things you have been dreaming about, as well as a rest after a long career. There is likely to be a mixture of feelings and thoughts as you start on this new venture into uncharted territory.

Any concerns about your retirement?

If you have any concerns about your retirement provision or would like to assess your personal circumstances to see what type of retirement income your current planning will give you once you’ve retired, please contact us. If your goals are out of reach, or you’re taking undue levels of risk, we’ll let you know.

 

Source Data:

[1] Consumer Intelligence conducted an independent online survey for Prudential between 26 May and 5 June 2017 among 751 adults in the UK who had retired within the last ten years.

 

Avoiding hidden dangers in retirement

Make sure you don’t run out of money or face a reduced standard of living

Increasingly, more and more pensioners are keeping the bulk of their pension fund invested after they retire. This means they’re faced with two very different risks when deciding what to do with their savings in retirement in a world of ‘pension freedoms’. Since April 2015, people who reach retirement have had much greater flexibility over how they use their funds to pay for their later years.

A recent report [1] identified that many savers in retirement are either taking ‘too little’ risk (the ‘risk averse’ retiree) or taking ‘the wrong sort’ of risk (the ‘reckless’ retiree). Each of these approaches increases the danger of a saver either running out of money during their retirement or having to face a reduced standard of living.

The risk-averse retiree – how can you take too little risk?

An example of taking ‘too little’ risk is the saver who takes their tax-free cash at retirement and invests the rest in an ultra-low-risk investment such as a Cash ISA, believing this to be the safe approach. The report points out that ‘investing in retirement is still long-term investing’ and shows that decades of low-return saving can seriously damage the living standards of retirees.

It highlights the case of someone who retired ten years ago with an illustrative pension pot of £100,000 which they invested in cash. Assuming they withdrew money at £7,500 per year (in line with annuity rates at the time), they would now be down to £27,000 and likely to run out in around four years’ time, less than fifteen years into retirement. By contrast, if the same money had been invested in just UK shares, there would still be around £48,000 left in the pot, despite the 2008 stock market, and market volatility.

The reckless retiree – what is ‘the wrong sort’ of risk?

In an era of low interest rates, some retired people may be tempted to seek out more unusual forms of investment with apparently high rates of return but accompanied by much greater risk to their capital. Examples could include peer-to-peer lending, investment in aircraft leasing or even crypto currencies such as bitcoin.

Concentrated exposure to a single, potentially volatile investment can produce very poor outcomes, particularly if bad returns come early in retirement.

The rational retiree – what is the best way to handle risk in retirement?

Rather than invest in an ultra-low-risk way or chase individual high-risk investments, the report identifies a ‘third way’ of spreading risk across a range of assets, including company shares, bonds and property, both at home and abroad. This multi-asset approach can be expected to provide better returns over retirement than cautious investing in cash but also helps to smooth the ups and downs of individual investments.

The pension freedoms introduced in 2015 opened new possibilities for people in retirement, but they created new dangers as well. There is the danger of being too cautious and not making your money work hard enough – investing in retirement is still long-term investing. There is also the danger of taking the wrong sort of risk, seeking high returns but putting your capital at risk. Spreading money across a range of asset classes and in different markets at home and abroad is likely to deliver better returns in retirement – and a more sustainable income – than remaining in cash, without exposing you to the capital risks that can come from chasing after more exotic or risky types of investment.

Help to ensure your expectations are fulfilled

By understanding your retirement plans, we can help ensure your expectations are fulfilled by establishing tailored plans to preserve your capital, produce income and pass on wealth securely and efficiently. If you would like to review your current planning provision, please contact us – we look forward to hearing from you.

 

Source data

[1] Research report published 13 January 2018 by mutual insurer Royal London

Warnings

  •  The article above is provided for information only. It does not constitute advice, a personal recommendation or an offer of any services and is not intended to provide a sufficient basis on which to make a decision.
  • These investments do not include the same security of capital which is afforded with a deposit account.  You may get back less than the amount invested.
  • The value of investments and income from them may go down.   You may not get back the original amount you invested
  • Assessing pension benefits early may impact on levels of retirement income and is not suitable for everyone.  You should seek advice to understand your options at retirement

 

SSAS – How to Transfer Wealth Tax Efficiently in a Family Business

As you may be aware, at Carpenter Rees we have many years’ experience in setting up and administering Small Self-Administered Pension Schemes (SSAS) for our own clients. Whilst we are financial planners first and foremost, SSAS do form an important part of many of our client’s financial plans. Set out below is a typical case study demonstrating how the use of SSAS can assist our clients in their financial plan.

Husband and wife team, Roy and Janet have a business which makes and sells garden furniture.  The business has been doing so well in recent years that their sons Alan and John have joined the business.

Roy and Janet have indicated that they intend to hand the business over to their sons in stages, as they would gradually like to take more time out of the business to enjoy travelling together and would like to replace some of their earned income with pension income.

The business operates from a rented warehouse and the landlord has recently offered

Spring Statement 2018

Chancellor of the Exchequer, Philip Hammond, delivered his first Spring Statement to Parliament on 13 March 2018. In a break with recent tradition, the chancellor did not use the financial statement midway between Budgets to present a ‘mini-Budget’ or pre-Budget report.

The chancellor’s Spring Statement 2018 is a response to the Office for Budget Responsibilities’ (OBR’s) latest economic and fiscal forecasts and provides an opportunity to set out government priorities and consultations ahead of the Autumn Budget later this year.

Projections for growth

Mr Hammond upgraded projections for growth and predicted falling inflation, debt and borrowing in his 26-minute statement. He claimed the UK economy had reached a turning point and there was ‘light at the end of the tunnel’.

The UK economy will grow faster this year than previously forecast and the deficit will be some £5 billion lower, with the overall economic and fiscal picture ‘broadly the same’ according to the OBR.

Future spending rises

He ruled out an immediate end to austerity but hinted at possible spending rises in the future, announcing to the House of Commons that growth was forecast to be 1.4% this year, 0.1% higher than forecast by the OBR in November, with the forecast for 2019 and 2020 unchanged at 1.3%.

Mr Hammond said debt would fall as a share of Gross Domestic Product (GDP) – the main measure of UK economic growth based on the value of goods and services produced during a given period – from 2018/19, which would be the start of ‘the first sustained fall in debt for 17 years, a turning point in the nation’s recovery from the financial crisis of a decade ago’.

Public sector borrowing

Mr Hammond revealed that public sector net borrowing in 2017/18 would be £45.2 billion, down from the £49.9 billion forecast in November and as a share of GDP that would be 2.2%, lower than the 2.4% previously expected.

He also hinted at possible spending increases to come in his Autumn Budget when he will ‘set an overall path for public spending for 2020 and beyond’ with a detailed spending review in 2019.

Click here to read our guide to the Spring Statement 2018.

What does the Spring Statement mean for you, your family and your business?

If you would like to review your personal or business plans to ensure they still remain on track, or if you have any further questions, please contact us.

Green and Pleasant Investing

There is a growing interest among clients in the concept of green and socially responsible investment. This has led to an increase in money managed under responsible investment strategies of 25% between 2014-16 according to the 2016 Global Sustainable Investment Review.

As individuals we can all express our views around sustainability via the ballot box; as investors we can express our preferences through participation in the global capital markets.

The main issue is how this can be done without compromising the desired investment outcomes. How can portfolios reduce their investments carbon footprint, ensure investments are not being made into companies associated with undesirable issues like arms tobacco child labour etc and still have a diversified portfolio proving the desired long-term returns?

There is a challenge in achieving the dual goal of sustainability and social consideration are met while building investment solutions aimed at growing wealth for the future.

For clients who request this type of investment, Carpenter Rees often incorporate a sustainable fund from Dimensional Fund Advisers into their portfolio’s.  The Dimensional solution to sustainable investment is to first focus on concentrating on the sources that generate high returns for clients while minimising costs. This is a philosophy that sits across all our model portfolios.

From this base, Dimensional then evaluate companies on a broad array of sustainability measures (such as carbon emissions, land use, toxic waste and water management). That means looking at companies across the whole portfolio and within individual sectors and ensuring that the worst offenders, based on a low sustainability score, are removed altogether. Those that are left are over weighted or under weighted based on how well their score ranks on a set of key sustainability criteria. This process ensures that diversification can be maintained while encouraging good behaviour.

The outcome from research shows that this enables a dramatic reduction in investment into Companies not addressing carbon emissions whilst maintaining diversification and ensuring the focus remains on the drivers of investment return.

In the socially responsible area of factory farming, cluster munitions, tobacco, and child labour there are clearer factors which excludes them. Companies deriving a significant proportion of their income from these areas or from gambling tobacco, or any of the other non-socially sustainable activities can be excluded altogether.

The two functions of return and sustainability need not be incompatible concepts. There is a systematic process to ensure diversification and targeting the sources of higher expected investment returns to ensure a green and pleasant investment portfolio.

 

Warning: The above information is provided for information only. It does not constitute investment advice, recommendation or an offer of any services and is not intended to provide a sufficient basis on which to make an investment decision.

Landscape – Say Hello to ….

Here at Carpenter Rees, we are very proud of our team and particularly as they all share our passion for providing an excellent service to clients.

To meet growing demands and to ensure that we can continue to deliver the service that we pride ourselves on, we have recently expanded our Technical and Research team (otherwise known as Paraplanners) and would therefore like to introduce you to our two new members, Karl and Joel.

Karl Huggins

Karl is a resident audiophile – so engage him in conversation about vinyl and speaker cables at your peril!  Karl tells us that he loves Paraplanning, which for him is a refreshing change after a lifetime in life offices.  He enjoys meeting clients and knowing his work has a positive impact on their lives. He is currently working towards the CII Diploma in Regulated Financial Planning.

In his spare time, he can be found in the swimming pool, at HOME cinema and post-viewing socials or at a wonderful variety of gigs.  He is also learning (slowly) how to play the guitar.

 

Joel Tipping

The newest member of Carpenter Rees and a recent arrival from Melbourne (Australia), Joel has slotted seamlessly into the Manchester way of life. A staunch City supporter, Northern Quarter aficionado; you’ll often find him down at the Nelson in Didsbury regaling the locals with tales of sun & surf.

Joel has been working in the financial planning industry since 2002 and brings a different outlook to the team at Carpenter Rees.  He holds the Advanced Diploma of Financial Planning (Australia) and is currently working towards the Diploma in Regulated Financial Planning with the Chartered Insurance Institute (CII).

When not at the Nelson, he enjoys cycling, running, spending time with the family, and chasing the illusive flat white.

Karl and Joel both bring valuable skills and knowledge to Carpenter Rees …. So if you’d like to put this to the test, or just want to know more about them, please do get in touch.

What is Normal?

The sketch above from Carl Richards reminds us of the fact that the calm serene rise of markets year on year does not exist.

Carl explains his sketch as follows: –

“Imagine being in a boat in the ocean on a very still day. No wind. No swell. The water is as flat as a mirror. The calm goes on for a just long enough for you start to feel like it’s normal. Then when a small wave comes, it feels huge, and regular waves feel enormous. As scary as it might feel…remember waves are normal. Occasional storms are normal. And the last thing you want to do when you get into one is abandon ship.”

I know I am probably going over similar ground to last weeks blog but it is important to remember Volatility is the price you pay for participation in equity markets and for the potential for higher returns than cash.

As always, we are bound to see the media and industry commentators put forward lots of very plausible reasons for this sudden spike in market volatility.  No doubt many will point to fears of rising interest rates due to Trump’s tax cuts ‘turbo-charging’ the economy…however, we should regard this purely as white noise and ‘sit tight’

Market corrections are a normal part of the market cycle and happen from time to time.  It’s nothing to fear, just a part of how equity markets operate.

Our clients with money exposed to global equity markets all share many important attributes:

  1. They are long-term investors.  This attribute makes short-term market volatility less important.  Rather than looking at how an equity market performs during the course of an hour, day, week, month or even year, we’re interested in multi-year investment returns.
  2. We ensure that our clients remain suitably diversified.  This means that equities are not the only element within their investment portfolios.    This diversification is important because different investment types tend to behave differently at different times.    Having a well-diversified portfolio softens the blow of any short-term volatility in equity markets, as you are never fully exposed to UK, US or global stock price movements.
  3. We take careful steps to assess attitude towards investment risk, your risk capacity and your need to take investment risk in order to achieve your financial goals…including determining the degree of short-term falls that can be tolerated in pursuit of longer term gains.

This deep understanding of investment risks means that the volatility we are witnessing should be tolerable in terms of your emotional response to the event and your financial ability to withstand falls within your portfolio.

Despite these three very important attributes, it’s only natural that market volatility prompts some nervousness.

If you’re feeling at all unsettled, we want you to call us and chat about it…. that’s what we are here for.

In fact, as we have said on many occasions, our job as Financial Planners is less challenging during periods of rising markets, it is when markets experience falls that we work harder and really earn our fees by promoting investment discipline, explaining what is happening, and demonstrating how this fits into your overall financial planning.

 

The above information is provided for information only. It does not constitute investment advice, recommendation or an offer of any services and is not intended to provide a sufficient basis on which to make an investment decision.

 

Testing Time in the Markets and Testing Market Timing

The falls in Global markets overnight and this morning emphasise the fact that equity markets do have periods of volatility. Positive periods are followed by negative periods, which are then followed by positive periods. Because of this, it is common when markets are falling to ask whether it is possible to time investment decisions to sell at the peaks and buy back at the troughs.

One way to do this might be to analyse forward-looking information such as economic and corporate data and make predictions about the direction of the markets. But it is hard to make predictions, especially about the future.

Another approach might be to look back at data from previous cycles and identify patterns that could be repeated going forward. Researchers at Dimensional Fund Advisors did exactly this, running almost 800 tests on data from 15 world equity markets to identify signals that might point to a change of market cycle and simulating the trading activity that might improve investment returns.

Most of the 800 tests failed and resulted in worse performance than would have been achieved by just going with the flow of the market. But some of the tests worked and produced positive performance results.

You might think this is good news for investors—that they can replicate the trading patterns suggested by the positive tests. Unfortunately, the number of positive results was no greater than one might expect with such a large number of tests.

As the researchers explain, the odds of one-person coin flipping 10 heads in a row are small. But if you asked 100 people to try, you would expect around five of them to be successful. The same proportion of the 800 market tests were positive and the research was unable to determine if any of them were more than just a sequence of lucky coin tosses.

The conclusion of the research is that, on average, investors are better off sticking to their long-term investment goals and riding out short-term market volatility, rather than trying to time their trading to coincide with the peaks and troughs of the market. This is also the approach we advocate at volatile times such as these.

The main defensive assets within our portfolios are short term, high quality bonds, these bonds are less volatile than long term bonds and their prices will be less effected by any rise in interest rates. High quality bonds tend to be where money flows to at times of equity market trauma and this has indeed been reflected today.

It is easy to become concerned about the present and life as an investor will involve many of these days making life less comfortable unless you view them in context so remember:

  • The value of your portfolio simply tells you how much money you would have if you liquidated everything immediately which you do not intend to do. Losses are only made if you sell assets but if you don’t do this they remain in your portfolio to generate future returns.
  • Your portfolio has a well thought out structure and is designed to provide you with the best chance of a long term favourable return.
  • Some assets will be doing well at times and others not so well and nobody can predict which assets will be doing what at any given time.
  • Your adviser cannot control what markets do and neither can fund managers.

In a nutshell, try not to worry about the short-term impact on your portfolio and instead, focus on your longer term financial plan.