Investment market update: October 2020

Investment market update: October 2020

In October, there were signs of economic recovery from the impact of Covid-19. However, during the month, many countries have reimposed restrictions and, in some cases, full lockdown, to stem the spread of the virus. As a result, it’s expected that volatility and uncertainty will continue into the winter.

The International Monetary Fund’s (IMF) Managing Director Kristalina Georgieva warned that the Covid-19 crisis is far from over despite the world economy looking better. The IMF also added that it’s too early for governments around the world to end support schemes.

UK

The latest economic growth figures for August show the economy is slowing, despite the Eat Out to Help Out scheme designed to boost spending. The economy grew by 2.1% but failed to meet expectations.

On Halloween, Prime Minister Boris Johnson announced the country would be entering lockdown for four weeks. It’s a move that is set to have a severe impact on the economy and businesses. The UK borrowed £36.1 billion in September 2020, a record and far more than economists were expecting. With a new lockdown to support, this figure is likely to climb even further.

One of the areas of concern is the unemployment rate. The jobless rate hit 4.5% in the three months to August, a three-year high. There are warnings this will increase much further too. The Centre for Economics and Business Research (CEBR) warns that at least 1.25 million people are at risk of losing their job before Christmas. This would take the number of unemployed to almost three million and the rate to 8% for the first time in a decade.

The findings over the last few months point to a tough winter with economic uncertainty at the centre.

The entertainment industry has been particularly affected by the lockdown restrictions. One of the big names to speak out this month was Cineworld, which has closed all UK venues. The firm said it can’t stay open without major new films as studios push back release dates. The company’s shares halved in value following the announcement. Odeon followed this by saying it also planned to close a quarter of its cinemas.

According to a CBI report, UK retail sales fell sharply, as did orders placed on suppliers, as restrictions increased.

Some firms have benefitted from the social distancing restrictions though. Asos has seen its profits quadruple by adding three million customers as demand for online shopping soared. However, the firm has remained cautious, citing Brexit as a risk area.

Following falling high street footfall and spending, online shopping is providing opportunities for retailers. One business keen to take advantage of this is John Lewis, which has committed £1 billion to an online push.

While Covid-19 continues to dominate headlines, the UK’s economy will also be affected by Brexit. When Boris Johnson signalled a no-deal Brexit could be on the horizon, the pound fell as a result. However, both the UK and the EU have since said that a deal is still possible. The outcome of the negotiations remains to be seen as the deadline draws nearer.

Europe

The Eurozone posted record growth of 12.7% between July and September but the figure is marred by further statistics that suggest hardship ahead.

After factory figures suggested the eurozone was recovering, the pace is now slowing. In August, production across the area increased by 0.7%. However, this still leaves production 7.2% lower than a year ago, highlighting the impact Covid-19 has had on economies.

The private sector is also shrinking again. In October, a PMI of 49.4 was recorded, where a reading below 50 signals contraction. Germany was described as the only bright spot.

This is linked to rising unemployment. The economic area saw unemployment rise for the fifth month in a row in August to 8.1%. The has disproportionately affected some countries, with Spain recording an unemployment level of 16%.

The European Central Bank (ECB) left its policy unchanged in October but has hinted it will act if needed. The next ECB meeting will take place in December.

While challenging, the current climate has presented an opportunity for investors too. The European Union launched the first of its new coronavirus related bonds, which will fund Europe’s recovery efforts. There’s been high interest from investors, with reports that the bonds are 14-times oversubscribed.

US

At the beginning of the month, President Donald Trump tested positive for Covid-19, impacting markets around the world. However, as he went on to make a full recovery, they did stabilise.

One of the headline figures from the US is its GDP as the country returned to growth. In the third quarter, the US posted an annualised rate of 33.1%, the strongest quarterly growth on record. The figure indicates the economy is taking steps towards recovery, but other statistics show this may not be the full picture.

The US trade deficit, for example, reached a 14-year high. The gap between imports and exports rose by $67.1 billion, a jump of almost 6%.

Of course, the key thing that will affect markets and the US economy in the coming months is the upcoming election. As Trump has said there will be no stimulus package until after the election is concluded, so many businesses could be left struggling.

Remember, while your investment portfolio may experience volatility, it is important to focus on the long term. Carefully think about your wider financial plan before you make changes to your investment strategy. If you’d like to discuss what recent changes mean for your investments, please get in touch.

Keep an eye on our blog to discover the latest markets and financial news.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Half of workers planning a career change in the coming months due to Covid-19

Half of workers planning a career change in the coming months due to Covid-19

Covid-19 has prompted many discussions about working environments and the future of employment, such as working from home, from a business perspective. But for millions of workers, the pandemic has led them to think carefully about their employment and the changes they’re able to make.

According to a survey by Aviva, 53% of UK workers plan to make changes to their careers in the next 12 months as a direct impact of the Covid-19 pandemic. Given the changes that some workers have had to incorporate into their day-to-day role and the economic uncertainty, it’s not surprising that workers are weighing up their options.

Research highlights the different ways workers are seeking to change their current employment status. If you’ve been feeling like you’re stuck in a rut, need more of a challenge or need to strike a better work-life balance, reassessing your current situation could help you feel more fulfilled.

Searching for work from home options

For many office roles, the shift to working from home has been one of the biggest trends encouraged through lockdown. With many workers finding they’re saving money by not commuting and having more time, it’s not surprising that this is the most popular option.

In fact, 10% (3.4 million) of people plan to actively search for a role that will allow them to work from home permanently. The desire to work from home was particularly strong in London. While many businesses did manage the move to home working successfully, and some have announced it will stay in place once the pandemic passes, it remains to be seen whether there will be sufficient remote working opportunities to meet demand.

Retraining and learning new skills

With economic uncertainty and unemployment expected to rise, workers are also looking at ways to develop their skills.

Some 9% said they plan to retrain or learn new skills, with a further 8% aiming to gain more academic qualifications over the coming year. Some 7% hoping to follow a completely different career path supports this too. It’s a step that could help you reach goals, increase earning potential and feel more satisfied at work. This is something the government has been backing. It announced an expansion of post-18 education and training in a bid to increase productivity, including flexible loans to pay for courses.

Moving retirement plans forward

For some, a change to their working life means giving it up completely. 1.4 million (4%) people intend to speed up retirement plans and stop working in the next year. There’s a range of reasons why Covid-19 may lead to an employee retiring earlier than expected, from job insecurity to lockdown measures meaning they’ve reassessed priorities.

If this is something you’re considering, it’s important you understand your long-term financial position and how you’ll create an income throughout retirement. Please get in touch with us to arrange a meeting to go through your retirement plan.

Finding a role that makes a difference

Interestingly, 6% of people are focusing on finding a new role because they want to help others or work in a sector that makes a difference to those in need. Perhaps inspired by the actions of NHS staff, charities or people simply lending a helping hand, Covid-19 has spurred some on to look for more meaning in the workplace. Knowing the tasks you do have a positive impact can make your role far more fulfilling.

Setting up a business

While lockdown restrictions on workplaces have meant some employees have had more freedom, others may worry about their current job security. Both are reasons why 6% of workers are now thinking about setting up their own business or working for themselves.

Taking control of your own working life can be liberating, but it comes with challenges too, including managing your finances and long-term security. If you’re ready to take the plunge but need some reassurances about how your finances will hold up, we’re here to offer guidance.

Understanding the financial impact of career decisions

Any career change will come with a financial impact. Perhaps learning new skills will mean your income temporarily falls or moving retirement plans forward means you’ll be accessing your pension sooner than expected. And, if you hope to launch a business, you may need to get to grips with tax and other financial aspects of running a company for the first time.

Financial planning can help you understand the impact a career change will have on your financial situation, allowing you to move plans forward with confidence.

6 reasons to use a mortgage broker

6 reasons to use a mortgage broker

When you’re moving home, it comes with a lot of expenses and you may be looking for ways to reduce costs. However, paying a mortgage broker to work on your behalf can add value and mean you save money over the term of your mortgage.

The mortgage market can seem complex at any time, but given the current situation, a mortgage broker is more important than ever. Following Covid-19 restrictions, UK mortgage applications reached a 12-year high and house prices are rising, according to Halifax.

A ban on sales at the height of the pandemic means demand has grown and economic uncertainty is a concern. Lenders have responded by taking some products, particularly low deposit mortgages, temporarily off the market. While interest rates are still low compared to long-term averages, they have increased in recent months. As a result, it’s more important than ever to approach the right lender for you.

Here are six ways a mortgage adviser can add value.

1. They can offer advice from the start

While many people approach a mortgage broker when they’re ready to apply for a mortgage, they can offer their expertise before this point.

You may have questions about affordability and the maximum amount a lender is likely to offer, allowing you to search the property market and make an offer with confidence. They can also advise on which lender to approach for a mortgage in principle and help you in this process.

Engaging the services of a mortgage broker early on in the process can mean you don’t waste time looking at properties that aren’t right for your circumstances.

2. They will help you search the market for lenders

There are hundreds of lenders offering mortgage products. Deciding which one to apply for a mortgage with is important.

Each lender has its own criteria, and you should ensure you match this before applying. Failing to match the criteria could mean the lender rejects your application. This will leave a mark on your credit report and can make it more difficult to secure a mortgage with another lender.

With so many lenders to review, it can be time-consuming and challenging to know where to start. As someone who works in the industry, a mortgage broker will know which lenders are most likely to approve your application. This can be especially useful if you don’t match the criteria of high street lenders, for instance, if you’re self-employed with a fluctuating income.

3. A broker can save you money in the long run

Securing a lower interest rate can save you a huge amount of money over the full term of your mortgage. But, again, with so many different lenders, it can be difficult to find the lowest interest rate while ensuring you meet the lender’s criteria. A mortgage broker will do all this work for you.

Even a small difference in interest rate can add up over the years. If you take out a £200,000 mortgage over 25 years at an interest rate of 2.5%, you’d pay £897 per month. Over the 25 years, you’d pay £69,204 in interest. If the interest rate were to increase by just 1% to 3.5%, monthly payments would increase to £1,002 and you’d pay £100,477 in interest.

Working with a mortgage broker can reduce regular outgoings and save you huge sums when you add this up.

4. They can offer advice on other features of a mortgage too

While interest rates are important, they’re not the only important feature to consider when taking out a mortgage.

If you hope to overpay, or would like the option to port a mortgage to another property, for example, a broker will be able to offer advice and consider these when selecting products for you. By considering these factors, you may save money by avoiding fees in the future, as well as having a mortgage product that gives you the flexibility you want.

5. A broker can save you time

A mortgage application can take weeks. If there are mistakes on the application or the lender needs to request further documentation it can really slow down the process. A mortgage broker will understand what’s needed and will be able to review your application before it’s submitted, reducing the likelihood of the lender requesting additional information. This is a step that can speed up the whole mortgage and homebuying process.

6. They can reassure you throughout the process

Even if you aren’t buying your first home, the process of purchasing a property or taking out a mortgage can be complex. A mortgage broker will understand the process and be able to offer reassurance throughout. You may have questions about timeframes, what you can do to make the process smooth, or concerns you want to discuss with them. Having someone on your side can make applying for a mortgage easier.

Please contact us if you’d ready to take out a mortgage, whether you’re moving home or not. We’re here to offer advice right from the beginning of the process.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Are we moving towards a cashless society?

Are we moving towards a cashless society?

We’ve been debating a cashless society and the challenges for years in the UK. But as card payments overtake notes and coins, could it be something that becomes a reality in our lifetime?

For many of us, not having access to cash seems alien, even if we rarely handle money. While there aren’t any societies that are truly cashless yet, some are moving towards it at a faster pace. In Sweden, for example, only around 2% of transactions consist of cash. Many shops and restaurants in Sweden will only accept card or mobile payments and, in some places, banks have stopped handling cash too.

It can be difficult to imagine never having notes in your wallet or a pocketful of change, yet it could be closer than you think.

Cash payments have declined 59% in a decade

It wasn’t too long ago that cash was king in the UK, with plastic reserved for larger purchases.

Today though, you’re far more likely to use your card or mobile to make a payment than you are to use money. Many trends have influenced this shift, including online shopping and contactless payment options.

According to a report from the National Audit Office, there has been a 59% decline in the volume of cash payments between 2008 and 2019. Between 2018 and 2028, it’s expected that there will be a further 65% reduction in the use of cash. By the end of the decade, using cash for payment could be rare.

The fact that The Royal Mint is set to go a decade without making any 2p or £2 coins due to demand slumping highlights this.

In recent months, the Covid-19 pandemic has had an impact too, with many shops, restaurants and bars protecting staff by only taking card payments. Statistics show there was a 71% decline in the market demand for notes and coins between early March and mid-April 2020. This coincided with the limit for contactless card payments rising from £30 to £45 in April.

Figures from UK Finance show card payments are overtaking cash. Some 51% of the £40 billion payments made in 2019 were made via credit, debit or charge card. The use of cash fell 15% and made up less than a quarter of all payments.

So, while a cashless society may seem like it’s some way off, it is something we could be moving towards.

Cashless society could leave vulnerable and rural communities behind

The Access to Cash Review warned at the beginning of the year that the cash system is reaching a ‘tipping point.’ It added that moving towards a digital future could leave millions of people behind, with the elderly and those in rural communities particularly affected.

In 2018, Access to Cash published its final report and the review assessed the recent steps and where gaps remain. The review noted some initiatives have started but questions whether they have gone far enough, stating that the situation for consumers is deteriorating. One example used is that 25% of ATMs now charge customers to withdraw their money, up from just 7% a year earlier. Collectively, this cost consumers £29 million.

Natalie Ceeney, Independent Chair of the Access to Cash Review, said: “The UK is fast becoming a cashless society – without knowing what this really means for consumers or the UK economy. Many people may want a completely digital future, but we need to make sure that this shift doesn’t leave millions behind or put the economy at risk.”

It won’t just affect those highlighted in the report either. Using cash for transactions if often recommended as a way to help those struggling to get a grip on their finance. Physically handing money over can make sticking to budgets easier. Even if budgeting isn’t a challenge for you, you may prefer using notes and coins to keep better track of where your money is going.

Bank of England: Cash is still important

Despite innovations and statistics pointing towards a cashless society in the future, the Bank of England has maintained that cash still plays an important role.

There is over £70 billion worth of notes in circulation. Despite the rise of cards, this is roughly twice as much as there was a decade ago.

Reinforcing the bank’s view that physical money remains important is the recent investment in switching to polymer notes that are more durable than the traditional paper ones. The first plastic £5 entered circulation in 2016, with £10 and £20 plastic notes following in 2017 and 2020 respectively. A polymer £50 will follow.

The Bank of England adds: “While the future demand for cash is uncertain, it is unlikely that cash will die out any time soon.”

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Revealed: the wellbeing and emotional impact of financial advice

Revealed: the wellbeing and emotional impact of financial advice

It should come as no surprise that we believe financial advice adds real value to the lives of our clients. While the financial benefits of advice are often discussed, the value it can add in terms of wellbeing is sometimes overlooked but is just as valuable.

The improvements to wellbeing that financial advice can offer can be difficult to assess. After all, every client will have differing goals, priorities and challenges. New research from Royal London has measured how professional financial advice can support emotional wellbeing.

Financial advice helps people feel in control and confident

The research found that the vast majority of the 17 million people who seek financial advice in the UK benefit from a positive experience. Overall, it helps people to feel confident, in control of their finances and gain peace of mind. Clients rated three key areas that highlight the positive impact of a relationship with a financial adviser:

  • Quality of advice and expertise (82%)
  • Communication style (81%)
  • Trustworthiness (81%)

One of the important ways the report found advice is adding value through understanding financial matters.

When searching for financial products or information, you’re often confronted with jargon and complex terms. Even when you have a good handle on your financial situation this can be daunting, making it difficult to know what’s right for you. Besides, products, legislation and regulation frequently change and keeping up to date can be challenging if it’s not part of your day-to-day role.

Those receiving advice feel up to three times more confident in their understanding of products and their finances than those who haven’t worked with an adviser. Some 23% of non-advised individuals said they would not know where to start when asked about life insurance, compared to just 7% of those taking financial advice.

The financial decisions you make have a long-lasting impact and it’s important to understand products and your options. We’re here to explain to clients how different products work, as well as outlining the pros and cons with their situation in mind. It means clients can have confidence in not only their plans but also their financial knowledge.

The benefits of preparing for the unexpected

When people first approach a financial adviser it’s often to seek advice on something they know is going to happen or would like to happen. For example, planning for retirement or setting up an investment portfolio to create an income.

However, an important part of creating a financial plan is to look beyond this to plan for the long-term, including the unexpected. As a result, financial planning can improve financial resilience and ensure you’re better prepared for an unexpected shock, such as redundancy or illness.

It’s a step that boosts emotional wellbeing. Some 63% of clients said they felt secure and stable, as opposed to 48% who did not receive advice. The report highlighted how it can have an impact on emotions too. Four in ten (41%) of those that do not take financial advice said they feel anxious about their household finances, compared to three in ten (32%) who receive advice.

Protection products in particular improved financial and emotional wellbeing. These insurance products pay out under certain circumstances and should align with your priorities and concerns. For instance, life insurance can provide peace of mind that your family will be financially secure should you pass away, while income protection can provide an income if you’re unable to work due to illness. Clients who received advice on protection said it helped them feel more prepared and less worried about the future.

Unsurprisingly, the Covid-19 pandemic has reinforced how planning for the unexpected can be valuable. With millions of employees seeing their income fall and facing redundancy, 35% said they felt anxious about their financial situation. This has led to 65% saying they’ve come to appreciate the value of being more prepared for life-shocks that may be outside of their control.

On average, financial advice clients are £47,000 better off

While the emotional benefits of advice are important, the financial benefits are too. After all, financial freedom can help you to achieve goals and feel more confident about your future.

The report also covers previous research conducted by the International Longevity Centre UK.  It found that customers who took financial advice were on average £47,000 better off. Those who fostered a long-term relationship with their adviser were up to 50% better off than those who received one-off financial advice.

Tom Dunbar, Intermediary Distributions Director at Royal London, said: “We have long suspected that the benefits of advice go far beyond financial gains alone and our research confirms that individuals who have received advice are more likely to feel confident about the future, and less likely to feel anxious or worried.

“It’s easy to see why clients turned to financial advisers when the pandemic struck. But advice is most powerful – and most rewarding – when it goes beyond a one-off meeting. An ongoing relationship with an adviser amplifies the emotional, as well as the financial, benefits.”

Please contact us if you’d like to arrange a meeting to discuss how financial advice can help you and improve your wellbeing.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.