Coronavirus and the markets

Coronavirus and the markets

In recent weeks, the coronavirus has never been far from the headlines. At the start of March, there were more than 87,000 confirmed cases of Covid-19 with almost 3,000 deaths. While the vast majority of the cases and fatalities have been in mainland China, the virus has now spread to more than 60 countries.

One of the most immediate consequences of the coronavirus outbreak has been the impact on global stock markets.

Last week saw a fall of 11% in the value of shares in London, and a fall of 8% in New York. Other markets around the world have also seen sharp falls. While you may be concerned about the short-term volatility of the markets, it’s important to remain calm and focused on your goals.

Why are the markets reacting in this way?
  • The closure of Chinese factories has led to concerns about production in the rest of the world. Apple has already warned over the impact of shutdowns in China, while carmaker Jaguar Land Rover has been flying parts out of the country in suitcases. Shortages of components will almost certainly have a knock-on impact in the West.
  • A reduction in travel. A travel ban means Chinese tourists are staying at home, while many major carriers have warned of a severe reduction in demand. EasyJet and the owner of British Airways have announced emergency measures, including cancelling flights, changing the size of planes used on routes and freezing pay.
  • A reduction in global demand. Dozens of companies, from mining firm Rio Tinto to software giant Microsoft have reported that they will not hit sales targets in 2020.
Lessons from previous epidemics

Earlier this year, Charles Schwab research looked at the impact of previous epidemics on world markets.

Considering outbreaks including SARS, H1N1 Swine Flu and Ebola, the conclusion was simple:

“The global economy and markets have been relatively immune to the effects of past viral epidemics — even when the global economy was especially vulnerable to a shock. A short-term dip in stocks tended to be followed by the continuation of the upward trend… investors may have little need to take action if their portfolios are diversified and aligned with their long-term plan.”

Keep calm and carry on

Whenever you invest in equities, short-term volatility is something that you have to expect. Everything from inflation figures to Donald Trump’s social media updates can affect what happens to markets, and so on any given day or week, there is a chance that prices will fluctuate in the short term.

However, over time, stock markets tend to provide growth. The chart below shows the value of the FTSE100 over the last five years. You’ll see that the closing level at the end of February is still significantly higher than the value of the index just four years ago.

Source: London Stock Exchange

It is always worth remembering that saving is a long-term objective.

As Mark Fawcett, the Chief Investment Officer of auto-enrolment pension provider Nest says: “Pension saving is a long game – people can be saving for up to 40 or even 50 years, so it’s important to keep looking at the bigger picture, rather than short-term events.

“Younger savers should comfortably ride out short-term fluctuations and at Nest we take steps to protect members’ pots as they get closer to retirement and are more likely to need their money sooner.”

  • Your goals are likely to be the same as they were a week or a month ago. Our investment strategies are designed with the long term in mind, and this naturally considers periods of both positive and negative returns.
  • You have a diversified portfolio. The fall in the value of the FTSE 100 is not the same as the fall in the value of your portfolio. Our clients have diverse portfolios that include exposure to other asset classes, for precisely this type of situation.
  • Now is the worst time to panic. While our emotions might take over at this time, reacting to a fall in the markets can be a disaster. You potentially turn a paper loss into a real loss, and a range of studies have found that this is one of the main reasons why investors lose money.

Short-term stock market volatility is normal. While it may feel difficult now – we certainly feel this too – it is part of a long-term investing strategy.

The final word goes to Charles Schwab who, earlier this year, undertook research into previous disease pandemics and their impact on the global economy. Their conclusion was:

“The global economy and markets have been relatively immune to the effects of past viral epidemics – even when the global economy was especially vulnerable to a shock. A short-term dip in stocks tended to be followed by the continuation of the upward trend.”

If you have any queries about the impact of Covid-19 on investments and pensions, please get in touch.

5 ways to improve your work/life balance

Juggling the demands of a busy career with the need to relax and spend time with loved ones can be difficult.

The 24/7 availability of the internet might have given you the flexibility to work on the train or receive instant responses from colleagues across the globe, but it can also bring with it a creeping temptation to check your work emails at home, or to Skype the office from your luxury holiday villa.

Striking a healthy balance between work and downtime is crucial to your physical and mental wellbeing, and can also improve your efficiency and productivity at work.

Here are five ways to improve your work/life balance.

1. Be realistic

You might be searching for a perfect balance. You might even have an idea of what that looks like. But is it realistic?

Modern life can be complicated. You’ll likely have multiple parties vying for your attention at any one time and splitting your time equally between each might not be possible – or even desirable.

A promotion at work, or a period of business expansion, might mean you’re busier for a few months. Equally, the demands of a busy home life or a change in personal circumstances could impact on your ability to work.

Think of work/life balance not as a daily fifty-fifty split but as something to achieve over a week or a month, or even a year.

Seen in the context of a longer period you might see patterns – areas when you can claw back some personal time or give more to work.

2. Switch off and unplug

What you can do daily is give yourself a distinct cut-off between home and work.

However busy you are: regardless of what time you leave the office, once you get home, it’s important to switch off, physically and emotionally.

Research commissioned by Mind has found that work is ‘the most stressful factor in people’s lives with one in three people (34%) saying their work-life was either very or quite stressful, more so than debt or financial problems (30%) or health (17%).’

If you’re tempted to check your work emails at home, don’t. Switch off the Wi-Fi if you have to. Your evenings should be for winding down – whether that’s spending time with family and friends, enjoying a hobby, or simply relaxing.

Read a book. Research conducted in 2009 found that just 30 minutes of reading is as effective as yoga for reducing stress. If you don’t like reading, try yoga!

The important thing is to find something that you enjoy, that relaxes you, and that has nothing to do with work.

You’ll feel the benefits on the next day’s commute.

3. Take a break

Taking regular breaks during the working day is important. Even one half-hour lunch break, away from the office and preferably in the fresh air, will recharge your brain.

A recent report in the Harvard Business Review urges employers to build regular breaks into the working day as our brain can only focus ‘for around 90 to 120 minutes before it needs to rest.’

Lack of rest can lead to stress and burnout, a problem that ‘costs the U.S. more than $300 billion a year in absenteeism, turnover, diminished productivity, and medical, legal, and insurance costs,’ the report concludes.

Time out means that you can return to work invigorated – and maybe with a fresh perspective.

The light exercise of a lunchtime walk, or the calming effect of a three-minute meditation, might seem like a small step, but build them into your daily routine and they will become a habit.

Longer-term, be sure to take a holiday.

UK law entitles those working a five-day week to 28 days holiday a year and yet, according to recent research from HR Management firm BrightHR, 77% of UK workers still have unused holiday leave. In addition, 59% of employees say they have no option to carry over their leave until next year, and so not using annual leave often means people lose it.

It doesn’t matter whether you stay at home on the sofa or head for that luxury holiday villa, as long as you leave your work laptop behind.

Whether a day off or a two-week break, forget work while you’re away and allow yourself the much-needed opportunity to recharge.

4. Busyness doesn’t equal success

A successful career can seem all-consuming. Finding the time to unwind is crucial for your health and wellbeing but it can also benefit the business as a whole.

Businesses that promote a healthy work/life balance may find they have less stressed, and more focused, staff. That can lead to some, or all, of the following benefits:

  • Better staff retention
  • Increased productivity
  • Increased morale
  • Higher employee engagement
  • More profits

Take control of your work/life balance and do your best to ensure your company understands the benefits too.

A 2017 University of Bristol study found that happy workers were up to 10% more productive, so staff with a good work/life balance might just be better staff.

5. Prioritise your health

It should go without saying but your physical and mental health should be your main priority.

Recognise the signs of physical, and mental fatigue, and take proactive steps to redress the balance. Daily exercise or meditation can help. Factor exercise into your daily routine and – where possible – don’t allow overrunning meetings or busy work periods to upset your schedule.

Also know that you can call in sick if you need to. You might have meetings or deadlines approaching but a day off work now may speed up your recovery and prevent a period of longer sickness in the future.

You will be a better employee if you’re physically and mentally healthy and part of that comes from understanding the benefits of a good work/life balance.

Get the balance right and you might begin to enjoy work more, whilst having increased time at home with your friends and family, doing the things you enjoy.

5 mindfulness apps to guide you through the day

In the everyday fight to juggle work and home life, it’s easy to neglect your mental and physical wellbeing.

Mindfulness covers a variety of ways we can learn to look after ourselves better, and whether you’re a mindfulness novice or a meditation expert, there are countless apps out there to help.

Here’s your guide to the best ones you can use to guide you through the day.

1. Waking up (Alarmy)

Often billed as the ‘most annoying’ alarm app on the market, Alarmy might not be an obvious app for our mindfulness list. Relaxing it isn’t, but it will get you out of bed and mentally active, ready to face the day.

Amongst the alarm features offered is its photo mode. Take a photograph of an item in your room or an area of your house and the app will set it as your registered image. The next morning, the only way to stop the alarm is to recreate that registered photo. Pick a far-flung corner of the house and be sure to get up and about early.

Other modes include puzzle-solving and maths questions. These brain-training modes will get your mind working, helping you start the day on the best footing, without having to wander sleepily around the house.

2. Morning routines (Habitica)

Organising your day can help you keep on top of your work/life balance and reduce stress. If you’re looking to form routines and build good habits, you might consider the Habitica app.

This free app, available on IOS and Android, looks to ‘gamify’ your habit building.

You name the positive habits you’d like to form, then set your own goals and tick them off when you achieve them. Daily tasks completed increase your score and can see you ‘level-up,’ earning in-game rewards. Alternatively, set your own ‘real-world’ rewards for meeting specified targets.

You can also earn points for avoiding bad habits.

With a Dungeons and Dragons-style aesthetic, this free app is a great way to incentivise your habit building, allowing you to have fun whilst ticking off daily goals.

The emphasis is on you to pick the habits you want to form or break, and the daily tasks you want to accomplish. Pick wisely and you may find it leads to a better work/life balance, less stress, and greater productivity.

3. On-the-go meditation (Headspace)

Headspace has been around since 2010 and is still a regular on charts naming the best mindfulness apps.

Available for IOS and Android, it is initially free to download but you may find yourself signing up for the subscription service. It’s currently £9.99 per month or £49.99 for the year.

Headspace offers quick and straightforward introductions to meditation.

Designed to be used for as little as ten minutes a day, you can use the app before starting your commute or on a lunch break, taking time out to relax with ‘on-the-go’ and ‘mini-meltdown’ sessions designed to help relieve the stresses of daily modern life.

It’s straightforward to use and a great – possibly even habit-forming – introduction to the concepts of mindfulness.

4. Relaxing after work (Calm)

If you’re looking to wind down after a stressful day at work, Calm may just be the app for you.

The app has multiple modes to increase happiness, reduce stress and build self-esteem. It was Apple’s ‘App of the Year’ in 2017, and more recently, the mindfulness app Best Buy in The Independent.

Calm offers a variety of techniques for encouraging relaxation, from music and meditation to masterclasses and exercises designed to help you achieve restful sleep. On loading up the app, you’re greeted with the soothing sound of the outdoors and other sounds are available – including crackling fires and rolling waves.

As well as ‘Daily Calm’ sessions that you can use throughout the day, the evening and bedtime features of Calm are where the app comes into its own.

Bedtime stories designed to ease you to sleep are read by celebrity contributors like Matthew McConaughey, Stephen Fry, and Lucy Liu. There are also evening and bedtime meditation sessions designed to help you drift off.

You can download the app for a free one-week trial. A yearly subscription is £28.99.

5. Better sleep (Sleep Cycle)

Both Calm and Headspace offer meditations and relaxation tips to help you drift off to sleep, but for an app that helps you understand how you sleep, try Sleep Cycle.

Set a morning alarm and this app will track and analyse your sleep, using the data it collects to wake you up slowly during the optimum time in your sleep cycle.

It also has Apple Health integration and heart rate tracking if you’re using it on an iPhone.

The sleep graphs produced by the app can help to identify factors influencing the quality of your sleep. In turn, understanding how you sleep could lead to more – and better – sleep, integral for your mental and physical wellbeing.

5 things you should know about the new £20 note

Last month saw the launch of the latest new polymer banknote in the UK. The new £20 note was released in late February and becomes the third new banknote to enter circulation in the last four years.

Considering that the £20 note is the most common note in this country, the introduction of a new banknote is a big deal. So, here are five important facts you should know about the new £20 in your pocket.

1. Who is on it

Following in the footsteps of William Shakespeare, Michael Faraday and Edward Elgar, the £20 note featuring economist Adam Smith was the most recent paper note introduced, back in 2007.

Now, the new polymer note will feature the acclaimed English artist JMW Turner, alongside a blue and gold design which depicts the Margate lighthouse and Turner Contemporary gallery, also located in Margate, where the artist grew up.

Mark Carney, governor of the Bank of England, said: “Turner’s contribution to art extends well beyond his favourite stretch of shoreline.

“Turner’s painting was transformative, his influence spanned lifetimes, and his legacy endures today. The new £20 note celebrates Turner, his art and his legacy in all their radiant, colourful, evocative glory.”

2. Bring the note to life with Snapchat

The brand-new polymer £20 notes feature a self-portrait of Turner and one of his most celebrated paintings, The Fighting Temeraire.

However, in a first for a British banknote, these images can also be brought to life using augmented reality.

If you have a new £20 note and the Snapchat app, you can hover the camera in your smartphone over a Snapcode (like a QR code) on the banknote. By using Snapchat’s search function to find the £20 note lens, the paintings on the note will come to life.

The feature works by overlaying interactive images onto the banknote, in a similar way to how facial filters can be placed over a user’s face when using lenses in the Snapchat app.

“The launch of the new £20 will result in Turner’s paintings being amongst the most widely distributed artworks in the UK, maybe even the world,” said Ed Couchman, Snapchat’s UK general manager.

“We want to make sure that Snapchatters are encouraged to take note, look at the cash in their wallet and appreciate these great paintings. Hopefully, this partnership will help introduce a whole new generation to one of Britain’s greatest ever painters.”

3. Security features

As you would expect, the new £20 note has a range of security features which will help you to determine that your note is genuine:

  • The hologram – If you tilt the front of the note, the word on the hologram will change from ‘Twenty’ to ‘Pounds’
  • The window – If you look at the metallic image over the main window, the foil should be blue and gold on the front of the note and silver on the back. There is also a smaller window in the bottom corner of the note
  • The Queen’s portrait – You should see a portrait of the Queen on the window with ‘£20 Bank of England’ printed twice around the edge
  • Silver foil patch – A silver foil patch above the see-through window on the front of the note contains a 3D image of a crown
  • Purple foil patch – On the back of the note, directly behind the raised silver crown on the front of the note, you will find a round, purple foil patch containing the letter ‘T’
  • Raised print – On the front of the note, you can feel raised print on the words ‘Bank of England’ and in the bottom right corner, over the smaller window.
  • Ultraviolet number – Under a good-quality ultraviolet light, the number ’20’ appears in bright red and green on the front of the note, against a duller background.
4. Serial numbers that could make the note worth more than face value

In the past, new £5 and £10 notes have sold for big sums if the serial number is of particular interest.

As the first new £20 notes enter circulation, it can pay to take a close look at the serial number on your note as it could be worth more than its £20 face value.

Every banknote is printed with a unique number. When the new £5 and £10 notes were released, the earliest ones to be printed had serial codes that began with AA01 followed by an eight-digit number, starting at 00000001.

These notes can be worth more than their face value. This may especially be true in this case if the serial codes also contain something of interest to collectors – perhaps JMW Turner’s year of birth (001775) or year of death (001851).

5. What to do with old £20 notes

There is sometimes confusion when a new banknote is introduced, with many believing that the ‘old’ notes are immediately out of date.

However, the Bank of England is at pains to point out that the paper £20 notes remain legal tender.

You will still be able to use the paper £20 note until the Bank withdraws it from circulation. The Bank of England has confirmed that they will give six months’ notice of the withdrawal date of the existing £20 note.

Many banks will accept withdrawn notes as deposits from customers, while the Post Office may also accept withdrawn notes as a deposit into any bank account you can access at the Post Office. You can also exchange withdrawn notes with the Bank of England.

Understanding your Final Salary Pension: What income will it provide?

If you have a Final Salary pension, retirement planning can seem more straightforward. However, there are still important decisions that need to be made and it’s crucial that you understand the income it will provide. Whether retirement is just around the corner or some years away, reviewing your pension arrangements can provide confidence.

First, what is a Final Salary pension?

Final Salary pensions, also known as Defined Benefit pensions, are often referred to as ‘gold plated’. This is because your income in retirement is defined, protected and the benefits are typically competitive when compared to the alternative.

With the alternative pension scheme, a Defined Contribution pension, employees and employers make contributions, which benefit from tax relief and is invested. At retirement, pension savers have a lump sum of pension saving that will be dictated by how much they’ve contributed and investment performance. At retirement, they will have to decide how to access the pension and ensure it lasts for the rest of their lives.

In contrast, with a Final Salary pension, the pension scheme takes responsibility for how investments perform, which don’t have an impact on your retirement income. Instead, future pension income is defined from the outset. This is usually linked to how many years you’ve been a member of the scheme and either your final or average salary. At retirement, a Final Salary pension will pay out a regular income for the rest of your life.

Among the benefits of a Final Salary pension are:

  • You don’t take responsibility for investments: You don’t need to decide where to place your pension contributions, this is in the hands of the pension scheme trustees. The performance of investments won’t affect your retirement income.
  • It provides an income for life: Life expectancy can make planning for retirement challenging, as you don’t know how long pension savings need to last for. With a Final Salary pension, your income is guaranteed for life, taking away this element of uncertainty.
  • The income is usually linked to inflation: In addition to a lifelong income, Final Salary pensions are usually linked to inflation. This means your income will rise in line with the cost of living, preserving your spending power in real terms.
  • Many Final Salary pensions come with additional benefits: Your Final Salary pension may offer auxiliary benefits that provide peace of mind, such as a pension for your spouse, civil partner or children if something were to happen to you.

As a result, Final Salary pensions can be incredibly valuable for providing certainty and security in retirement.

Calculating your retirement income

The good news is that understanding the income you can expect to receive when you retire is usually straightforward.

How the income delivered from a Final Salary pension is calculated varies between scheme. But this will already be defined. If you can’t find the paperwork detailing this, contact your pension scheme. There will typically be three factors used to define your Final Salary income:

  • How long you’ve been a member of the scheme
  • Your final salary or a career average
  • The accrual rate, this is the fraction of your salary that’s multiplied by the years you’ve been a member of the scheme.

Let’s say you earned £60,000 at retirement and it was your final salary that was taken into consideration. You worked at the company for 40 years and the accrual rate was 1/60. Your income in retirement would be £40,000 annually using the below formula.

Years as a member (40) x accrual rate (1/60) x salary (£60,000)

You should receive an annual statement from your pension scheme, which will include providing a value of your pension at retirement.

Creating flexibility with a Final Salary pension

A Final Salary pension can provide you with security throughout retirement. Yet, you may still want a flexible income to meet your retirement goals. This may be because you plan to spend more in early retirement or at other points. For example, you may have mortgage debt remaining, plan to travel or want to financially support loved ones.

There are ways that you can achieve the best of both worlds.

Many Final Salary pension schemes will allow you to take a one-off lump sum from your pension to kick-start retirement. This will reduce your income during retirement but does provide the capital for flexibility if needed.

Other options include using a Defined Contribution pension to fund a one-off expense if you have one and using your other assets, such as investments, to create a flexible income. It can be difficult to understand how your different assets fit together to help you reach retirement goals. This is an area we can help you with.

Transferring out of a Final Salary pension

If you have a Final Salary pension, you may be considering transferring out.

At retirement, you do have the option to give up the benefits of a Final Salary pension and receive a lump sum instead, which must be transferred to a Defined Contribution pension. There may be some benefits to doing this, such as providing greater income flexibility, but for most people transferring out isn’t the most appropriate option for them.

Receiving a lump sum can seem attractive. However, what you’re giving up, a guaranteed income for life is often more valuable. It’s important to weigh up your financial security and retirement goals before making a decision. If your Final Salary pension is worth more than £30,000, you must take regulated financial advice first.

Please contact us to discuss your Final Salary pension and what it means for your retirement lifestyle. Usually, there are ways to create a flexible income stream that will suit your goals whilst retaining the security one offers.

Please note: Transferring out of a Defined Benefit pension is not in the interest of the majority of people.