Investment market update: January 2020

Welcome to our latest update on the investment market. We take a quick look at some of the key factors that influenced the stock market in January and could continue to do so over the coming months.

It’s the start of a new year, but when it comes to the markets, many of the persistent challenges we saw in 2019 are continuing to have an impact.

Globally, there continue to be concerns about weak growth. The United Nations has warned that the global economy is weak, stating tensions between the US and China dragged on economic growth last year, whilst the International Monetary Fund has also cut growth forecasts due to ‘increased ocial unrest’.

The latest PwC CEO survey also highlighted a gloomy outlook. It suggests business leaders are more anxious about the global economy and their own prospects.

The outbreak of the Coronavirus is also having an impact globally. Originating in China, the virus spread to several countries in January, creating economic uncertainty and worries for investors. Unfortunately, it doesn’t show signs of going away in February.

UK

The top news in the UK in January 2020 was that the UK will be leaving the EU and is now in the transition period. Whilst Brexit has been declared ‘done’ there are still a lot of uncertainties and complexities that need to be ironed out before the end of the year that could have a significant impact on businesses.

A glance at the headline figures for the UK doesn’t paint an overall positive picture. GDP shrank by 0.3% in November, leaving the three months up to it with growth of just 0.1% in total. It’s the weakest performance we’ve seen since 2012. Both the manufacturing and construction PMI shows the sectors contracted too:

  • The manufacturing PMI was higher than estimated but still registered a contraction with 47.5, it’s the second weakest level in over seven years
  • The construction sector saw output fall for the eighth consecutive month with a PMI of 44.4

There were suggestions that the Bank of England would cut interest rates again in a bid to boost the economy. Whilst the Monetary Policy Committee opted to maintain the current base rate of 0.75% in January, it doesn’t mean that a cut isn’t on the horizon. At Mark Carney’s final press conference as head of the Bank of England, growth forecasts were cut, with Brexit blamed.

Retail figures published in January didn’t add a positive spin on the economy either. Despite the festive period, UK retail sales slumped in December and were down 1% in the last quarter. With many retailers relying on the quarter to put them in the black, it’s not surprising some have issued profit warnings, including Joules and Superdry.

In other company news, regional airline Flybe was forced to start crisis talks with the government. More than 2,000 jobs were on the line and thousands of flights. Whilst a deal has been reached, the firm is far from safe in the future.

Europe

The negative outlook continues in Europe too. Eurozone growth slows to just 0.1%, could a recession be on the horizon?

Germany is often seen as the stalwart of the Eurozone, but German industry remains stuck in a recession, according to industry body BDI. The organisation expects Germany to grow by just 0.5% this year, signalling that the slowdown is expected to continue in the coming months.

US

Across the Atlantic, things are looking a little more positive. In fact, US manufacturing bucked the trend and posted a PMI of 52.4, signalling growth.

Whilst trade tensions with China continue to have an impact and tariffs remain, talks are now progressing. Phase one of the trade deal is now complete and has been hailed as a ‘momentous deal’ as China agrees to buy $200 billion worth of more goods from the US. Phase two of the trade talks are now underway.

There’s good news coming from well-known US companies too, particularly in the technology sector:

  • Apple hit a record high after iPhone demands surpassed sales records with stocks leaping by as much as 2.8% towards the end of January
  • Alphabet, the firm that owns Google hit the milestone $1 trillion valuation
  • Tesla shares also surged thanks to a fourth-quarter report showing expectations were beat
Asia

China posted growth of just 6.1% in 2019, a near 30-year low. The slump has been linked to the country’s ongoing trade war and could suggest the country’s economy is slowing down after years of rapid growth. However, there are plans to prevent growth from slowing further in 2020 that could help. China’s central bank, the PBOC, plans to cut banks’ reserve ratio requirement and free up around 890 billion yuan of new funds for loans. The market responded to the news with strong trading.

But one issue in China is the Coronavirus. As the origin of the virus, China has so far been hit the worst and there are growing concerns that it poses a threat to Chinese economic growth.

Read our blog for more investment updates.

If you have any concerns about your investment portfolio in light of recent events, please get in touch.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Insurance: Why are we more likely to protect pets and possessions than ourselves?

Did you know that people are twice as likely to insure a pet than they are to take out protection for themselves? It’s a decision that could leave some people financially vulnerable.

According to a study, over a third of UK employees said they have, or would take out, pet insurance. It’s a step that can reduce the chance of unexpected pet bills by paying regular premiums instead. Yet just 17% would take steps to protect themselves through purchasing Income Protection.

It’s a similar picture with other types of insurance. You probably took out contents insurance without a second thought, it’s something that can offer you peace of mind. Yet, did you also consider purchasing critical illness cover or life insurance? Whilst personal protection is often an afterthought or promoted by an event, they can improve your financial security and confidence in the future.

Our apathy for insurance policies that focus on ourselves is often down to us thinking ‘it will never happen to me’. But the truth is that over your lifetime, an accident or illness is likely to have an impact. Take the three illnesses that all critical illness policies must cover:

  • Cancer: Every two minutes someone in the UK is diagnosed with cancer and it’s estimated that 50% of people will be diagnosed with cancer during their lifetime.
  • Heart attack: Heart and circulatory diseases cause more than a quarter of all deaths in the UK and there is a hospital admission due to a heart attack every five minutes in the UK.
  • Stroke: Strokes are the fourth single leading cause of death in the UK and someone experiences a stroke every five minutes.

Despite the startling figures, more than eight in ten (81%) of UK homeowners don’t have any form of income protection in place.

How does financial protection work?

Under certain conditions, a financial protection product will either pay out a lump sum or start making ongoing payments. If you’re unable to work for an extended period of time, it can help plug the gap between your income and outgoings.

How and when a policy will pay out will depend on the type you opt for and the terms. Broadly speaking, there are three main types of financial protection policy:

1. Income protection: This type of policy will pay out when you’re unable to work due to an accident or illness following a deferred period. It will pay out a portion of your usual salary, say 70%, on a regular basis until the policy term finished, you return to work or retire. The ongoing payments can help you keep up with financial commitments even if your usual wage isn’t coming in.

2. Critical illness: Thousands of people are diagnosed with a critical illness every year. It’s a diagnosis that can take some time to get your head around and it may change your plans significantly. Critical illness cover will pay out a lump sum on the diagnosis of certain illnesses noted in the policy. It can help give you some time to come to terms with the diagnosis if you’re unable to work or make adaptations.

3. Life insurance: A life insurance policy can give you peace of mind that, should something happen to you, your loved ones will be financially secure. It pays out a lump sum on your death. Dying isn’t something anyone wants to think about, but taking out the right policy for your circumstances could help your family pay off the mortgage or maintain school fees during a time when they are grieving.

All financial protection policies will require you to make premium payments. How much these are will depend on the provider, you and your lifestyle. You should shop around before purchasing a product and be sure to check what it will cover before taking it out.

How does financial protection fit into your financial plan?

Protection products shouldn’t be looked at in isolation, but rather an important part of the bigger picture.

When you’re creating a financial plan, one of the things you should be doing is asking ‘what if?’ No one wants to think about what will happen if they become too ill to work or are involved in an accident that takes months to recover from. However, it’s a step that can help you understand how resilient your finances are.

Financial protection should fit into your plan alongside an emergency fund and the benefits your employer may offer. These can offer you a safety net when it’s needed most, keeping you on track to secure your goals.

As you ask what would happen if I were unable to work for six months, you may find a gap in your finances. Even a relatively small break in earning an income could set your goals back more than expected. Choosing the appropriate protection product for you can help fill those gaps and provide a sense of security.

To discuss your financial protection needs, please contact us.

Your guide to superfoods: What are they, and which ones will you be eating in 2020?

Superfoods are big business. With trendy new foodstuffs declared ‘super’ each year, often with highly attractive health claims and celebrity endorsements attached, they can appear too good to pass up.

But what are superfoods? Do they even exist? And which ones are we all going to be eating in 2020?

What are superfoods?

A superfood is any food rich in nutrients, considered especially good for our health and well-being. Everything from onions and broccoli, to oily fish and the bright green ‘super algae’ chlorella, have been labelled a superfood.

They often come with impressive health claims – from weight loss and anti-ageing, to shinier hair and cancer prevention. But should we believe these claims?

Do superfoods really exist?

Despite the continuing trend for superfood cookbooks and celebrity testimonials, the term is widely unrecognised by experts, dietitians and nutrition scientists.

The EU banned the use of the term on food packaging in 2007, unless backed up by a specific authorised health claim. The NHS is equally clear, recommending a balanced diet containing foods from all four main food groups, whilst dismissing the concept of ‘miracle foods’.

But some foods are better for us than others.

So, what superfood trends look set to entice us this year? What are their purported health benefits? And which ones can we most easily incorporate into a balanced diet?

Keep reading for answers to these questions and more as we highlight five superfoods likely to be on your shopping list in 2020.

Top 5 superfoods you’ll be eating this year
1. Goji berries

A perennial favourite on superfood lists, goji berries are high in antioxidants, minerals, and vitamins A and C. Amongst the health benefit claims made on their behalf are cancer prevention (antioxidants are believed to slow tumour growth), improved blood sugar control and weight loss.

Incorporated into a balanced diet, and as part of your five-a-day, goji berries could make a novel but expensive change.

If you need a recipe idea, try the goji berry and pistachio granola bars available here.

2. Bone broth

Bone broth is produced by boiling the bones, meat and connective tissue of grass-fed cattle to produce a stock. Stocks have long been a part of many cultures’ traditional cuisine (not to mention a staple of our Palaeolithic ancestors).

Skip to the middle of the 2010s and the soup-like stock, now renamed ‘bone broth’, became a surprise hit, with specialist broth bars opening in New York and London.

It’s high in protein, as well as the vitamins and minerals essential for bone health. It also contains collagen and keratin, both of which are good for the skin and hair – strengthening roots, removing greys and allegedly adding shine.

Advocates are quick to point out the difference between a stock and a bone broth, so if you’re keen to discover the difference, try the Hemsley and Hemsley recipe available here.

3. Kefir

Kefir (or kephir), is a fermented milk drink like a thin yoghurt, made from kefir grains.

Originally from the Northern Caucasus, kefir grains are grain-like colonies of yeast and lactic acid bacteria that are added to milk to make yoghurt.

Kefir is a probiotic – full of the ‘good’ bacteria that aid digestion. It’s also packed with nutrients and said to have antibacterial properties.

Lactic acid bacteria in the grains break down lactic acid, which can make it suitable for those with lactose intolerance. Although usually made from cow or goat’s milk, it can also be made from non-dairy milk.

Add blueberries or blackberries to a kefir breakfast smoothie and you’ll get a superfood-filled breakfast to set you up for the day. Read the recipe here.

4. Rocket

Greens are an important part of any balanced and healthy diet. Along with broccoli and kale, rocket has been added to the superfoods list.

High in vitamins C and K, rocket can promote a healthy heart, bones and skin. It also – along with other cruciferous vegetables – contains glucosinolates, which may help to protect against cancer.

In terms of cost, availability and simplicity, rocket is an easy superfood to add to your diet. Make it one of your five a day or combine a rocket salad with our final superfood choice, to get a superfood boost. Try Jamie Oliver’s ‘Scrummy warm rocket salad’ recipe here.

5. Sardines

The NHS recommends one meal of oily fish a week, so why not make it sardines?

Sardines are a good source of lean protein, as well as being rich in omega-3 fats. According to the British Heart Foundation, both white and oily fish – when eaten as part of a Mediterranean-style diet – can reduce the risk of developing type 2 diabetes, high blood pressure and raised cholesterol. A diet of bread, fruit and vegetables, fish and unsaturated fat spreads, can lower the risk of heart disease, cancer, and arthritis.

Combine a warm rocket salad with sardines, or check out the BBC Good Food list available here, for not one, but 22 sardine recipes.

A quick guide to retirement interest-only mortgages

If you’re approaching retirement and still have some time left on your mortgage, it can be a concern and take up a significant portion of your income.

Traditionally, retirees would strive to reach the milestone debt-free. However, there are many potential factors that may mean this isn’t possible. Rising property prices and the average homeowners getting on to the property later in life are common reasons why those approaching retirement are still paying off a mortgage. In addition, there are a whole host of other reasons that may be out of your control that could have had an impact too.

If you find yourself in this situation, you’re not alone and there are ways to improve your financial security in retirement.

One in three people set to retire in 2020 will do so with some form of debt. Some 14% will retire whilst still having a mortgage to pay. For many families, a mortgage is the largest monthly expense they have and to be taking this into retirement with you, when your income will likely decrease, can be a worry.

One option you may want to consider is a retirement interest-only (RIO) mortgage.

What is a RIO?

RIO mortgages are aimed at people aged 60 or over that have remaining mortgage debt.

Reducing the amount of debt owed and paying interest may not be achievable or desirable in a pension income. As a result, a RIO mortgage offers you a way to pay just the interest on the loan. As interest rates are low at the moment, this can significantly reduce outgoings. Unlike a traditional mortgage, a RIO doesn’t have a fixed end date to repay the balance. This can provide you with peace of mind.

When applying for a RIO mortgage, you’ll still need to prove you can keep up with repayments in the long term with your retirement income.

Among the benefits of a RIO mortgage are:

  • Your outgoings in retirement will be lower compared to a traditional mortgage
  • You can stay in your own home
  • There are RIO mortgage products that provide you with flexibility, such as the ability to reduce the debt.

Of course, there are drawbacks to using a RIO mortgage too, including:

  • The amount you owe is not reduced unless you make additional payments
  • As you’re no longer working, it can be more difficult to secure a large amount to borrow
  • The loan is secured against your home, as a result, the property can be repossessed if you don’t keep up with repayments.

A RIO mortgage isn’t suitable for everyone approaching retirement with debt so it’s important to weigh up your options before proceeding.

5 alternatives to an interest-only mortgage

1. Continue with your current arrangement: You don’t have to change your current mortgage just because you’re retiring. If you choose, you can stick with it. However, you need to consider whether mortgage repayments will be affordable once you retire and how it’ll affect your lifestyle.

2. Make overpayments now: If retirement is still some way off, this option can have a big impact. Making overpayments can reduce the amount you owe rapidly, as it’s taken off the debt rather than the interest. Be sure to check your mortgage terms, some will charge you for overpaying above a certain point.

3. Use your pension: For many people, pensions become accessible from the age of 55. You can usually access a 25% lump sum tax-free and begin receiving regular payments at this point if you choose. The lump-sum could help clear your remaining mortgage debt. However, taking money out of your pension could affect your long-term income, so this needs to be weighed up.

4. Use assets to pay off debt: You may have other assets you can use to clear your mortgage, such as savings or investments. Again, you’ll need to understand whether using these to enter retirement without a mortgage will affect your plans over the short, medium and long term.

5. Downsize: Depending on the value of your home, circumstances and how much remains on your mortgage, downsizing could help you enter retirement without a mortgage. Using the sale of your house to purchase a cheaper new home could free up your finances in retirement and you may even be left with extra to spend on your lifestyle.

Please contact us if you’re worried about your financial security as you approach retirement. There are often steps you can take to secure your future and provide peace of mind.  

Pocket money: Passing on financial skills to children and grandchildren

Knowing how much pocket money to give children or grandchildren can be difficult. Yet, for many, it’s an important part of growing up and their first taste of handling money.

So, how much should you hand over?

Whilst it’ll be a decision that depends on your financial situation and attitude to pocket money, understanding the average can be useful. According to Charter Savings Bank, the average amount of pocket money children in the UK receive is £13. As a result, the average child receives over £50 each month. In total, parents and grandparents are handing over £11.1 billion every year.

The research found that the amount of pocket money given varied between regions, with children in London likely to receive more than £25 a week, and the age of the child.

Over the years, the average amount of pocket money has gradually increased. It’s partly driven by inflation, but the things children want to purchase with their money has often increased in price too. Whilst you may have spent your own pocket money on sweets or even a toy, today, gadgets and computer games are likely to be high on the list.

Whilst setting the right level of pocket money for you is a personal decision, there are plenty of benefits to receiving it.

1. Getting used to handling money

Simply handling money can help children get used to spending and planning their finances. To begin with, the physical coins or notes can be easier to deal with, as they can see when their funds are dwindling.

As children get older, giving pocket money on a card can also be useful. After all, millions of payments are cashless and we’re moving towards a society where cash is used less. It can be difficult to understand and budget when money isn’t physical, starting as a child can help.

2. Building a sense of responsibility

For many children, being trusted with some money can boost their sense of responsibility and pride. Receiving pocket money is a milestone that many will enjoy. If they’re often asking for toys and sweet treats, they may think twice when it’s the money in their pocket that will be spent.

3. Learning the value of saving

34% of parents and grandparents said they wanted to encourage kids to save. Whether they’re putting money to one side for a gadget they’ve had an eye on or simply for a rainy day, it’s a habit that can last a lifetime. Pocket money can be a valuable way to help children learn the value of saving to reach their goals.

4. Understanding a budget

Some children will receive their pocket money and it’ll instantly be burning a hole in their pocket. If this sounds like your child, it’s a great time to teach them how and why we should budget. Making their weekly allowance stretch for a full seven days can be a challenge but it’s a step that could help them manage their income and outgoings in the years to come.

5. Improving maths skills

Finally, pocket money can provide some practical experience of the skills they’ve been learning in the classroom. Working out what they’ve got to spend and how much they’ll be left with after a purchase can help to improve their maths skills and make is second nature.

Building a nest egg for children and grandchildren

The research highlighted that parents want children to save for the long term too. In fact, almost one in five (19%) insist on keeping some pocket money out of reach from their children. If you agree with this, it may be time to look at ways you can start building a nest egg.

A standard savings account is an excellent option for savings that you may want to dip into in the short term. However, if you hope to save for future goals, perhaps a first car, a deposit for a home or university costs, an account that locks money away may be more suitable.

There are savings accounts that offer higher interest rates in return for locking money away for a defined period of time, say two years. Alternatively, a Junior Individual Savings Account (JISA) can provide an excellent solution. You and loved ones can add up to £4,388 each tax year to a JISA, which is tax efficient.

The child can take control of the account when they’re 16 but won’t be able to make any withdrawals until their 18th birthday. At this point, they’re free to access it as they wish. If they leave the money in the JISA, it’ll automatically convert to an adult ISA.

If you choose a JISA, you essentially have two options:

  • Cash JISA: This is a cash account so the money deposited is protected under the Financial Services Compensation Scheme. The deposits will receive interest, which is typically higher than adult ISA accounts, which isn’t subject to tax. However, interest rates are likely to be lower than inflation, meaning money loses value in real terms over an extended period.
  • Stocks and Share JISA: If you’re saving for long-term plans, investing may be an option that’s appropriate for you. It’s a step that can help your contributions grow at a faster pace. However, all investments come with some level of risk and you need to keep this in mind when selecting this option or picking investments. Over a long time-frame, investments can help your savings keep pace with inflation. As the money is in a JISA, returns won’t be taxed.

If you’d like to discuss saving for a child or grandchild, please get in touch. We’ll help you understand how your gifts can be used to give them a helping hand as they reach adulthood.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.