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 November and could continue to do so over the coming months.
The hot topics that have affected the markets in 2019, Brexit, the US-China trade war and concerns of economic slumps, look set to continue as we head into 2020. In fact, the OECD has stated that the global outlook is unstable. The world’s economy is expected to grow by 2.9% this year and next, the lowest rate since the financial crisis a decade ago.
With the General Election approaching in December and the outcome of Brexit still uncertain, there continue to be headwinds in the UK. However, the country narrowly avoided recession with growth of 0.3% in the last quarter. But the uncertainty around the UK’s relationship with the EU continues to affect growth.
Several data releases have also indicated that the economy is still struggling:
- Whilst the manufacturing decline has slowed, the sector is still declining. The PMI registered 49.6 in October, compared to 48.3 in September. It’s the highest reading since April but any figure below 50 indicates the sector is shrinking
- The service sector PMI has improved, now registering 50, indicating that it’s stagnated amid uncertainty but has performed better than expected
- Car sales fell 6.7%, suggesting that consumers are nervous about making major purchases
- The job market is under strain, with the biggest fall in vacancies since 2009. Whilst employment figures show a modest change, from 76.1% to 76% in the last quarter, it represents 58,000 fewer people in work
- UK public borrowing has reached a five-year high in October. The figure surged to £11.2 billion, compared to £8.9 billion in October 2018
Taking a closer look at certain sectors and companies there has been both gloom and bright spots for investors.
If you’re invested in gambling firms, you likely saw a slide in the value of shares in November. The movement came as MPs demanded a crackdown in a report from the all-party parliamentary group. Among the recommendations, the report made were to end betting on credit cards and a £2 stake limit on online slot machines.
Some communication firms’ shares were also affected by the general election. After Labour announced plans to deliver free broadband, it’s not surprising providers saw a slump. The election pledge has drawn criticism from the industry with the CBI stating it ‘is not the way’ to improve the level of service delivered.
Woes on the high street have continued, with Mothercare entering administration. After the business concluded that it could not bring stores back to ‘sustained profitability’ thousands of retail jobs were put at risk.
There has been good news though. First, after six months of uncertainty after the firm fell into liquidation in May, British Steel is set to be taken over by China’s Jingye Group. The group has plans to invest £1.2 billion in British Steel over the next decade. It’s a move that could protect thousands of jobs.
Investors in Nottingham-based Games Workshop are likely to be pleased with the firm’s success. Shares hit a record high as profits continue to rise, they’re expected to be a third higher than just a year ago.
There are growing concerns that Germany is now in a recession, with the country often being seen as a stalwart of the region this raises worries for the rest of Europe. Germany’s manufacturing sector saw orders fall for the 13th consecutive month, with the PMI down to 42.1.
The International Monetary Fund has issued fresh warnings that Europe’s economy has weakened this year, linked to a slowdown in factory output and weaker trade.
The European Central Bank has also stated the risk of global financial instability has increased. It blamed this on ‘shadow banks’, such as investors, insurance companies and pensions funds, lending more to businesses in place of traditional lenders.
Throughout November, there was increased optimism that a partial trade deal would be reached with China, as tensions continue to impact both countries and the rest of the global economy. Yet, despite stocks rising on the suggestion a deal was close, nothing has been announced.
However, US growth has been revised upwards. GDP grew at an annualised rate of 2.1% between July and September. It was increased from 1.9% that was estimated a month ago, delivering a boost to share prices.
Ongoing protests in Hong Kong continued to make the news as they entered their sixth month. A landslide victory for pro-democracy campaigners in November’s election indicates the tensions aren’t going to disappear any time soon. But there was some positive investment news coming out of Hong Kong this month. E-commerce site Alibaba raised £8.8 billion of shares through a secondary listing of share offers after it previously floated in New York back in 2010. It was among the city’s biggest offerings of the last ten years.
Trade tensions with the US have continued to cause problems for China. But the PMI showed a surprise rise with factory activity ramping up to the fastest pace in more than two years.
With a slowing economy and trade tensions affecting Japan, a new stimulus programme is set to launch. It’s hoped that investment plans will boost the economy. Further details have yet to be announced but it’s an area to keep an eye on.
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.
It should come as no surprise that housing continues to be one of the key political topics. The ‘housing crisis’ and challenges younger generations face getting on the property ladder are common in the news. But with the Labour party pledging rent controls, some landlords may be wondering what they mean and how it could affect them.
This isn’t the first time that rent controls have been proposed, and they are already used in some countries. In fact, the UK had rent controls in place in the past. So, why are rent controls being proposed now?
Alongside rising property prices, rents have increased too. In London, the average monthly rent for a private property increased by 35% between 2011 and 2018. At a time when wages growth has been stagnant, it means renters are spending more of their income on rent. It’s an issue that’s particularly affecting younger generations. These circumstances have led to some calling for controls to be put in place.
Rent controls in the UK
Whilst landlords today may be unfamiliar with rent controls, they were a part of the rental sector during much of the 20th century.
First introduced in 1915, rents were capped at August 1914 levels. They were relaxed before the outbreak of World War Two but reintroduced in 1939. The regulation wasn’t abolished until 1989. Whilst we haven’t had rent controls in the UK for 40 years, other countries have implemented measures since in a bid to ensure housing remains affordable.
There are many different ways rent controls can be introduced, among them:
1. Freezing rents
Placing a temporary freeze on rents would aim to bring down costs for renters gradually over time relative to income. As housing costs have far outstripped salary growth since the financial crisis, it’s argued this measure would help make rent more affordable.
2. Cap on rental prices
There have been examples of governments imposing caps on the amount that can be charged for rental properties. This would aim to create a market where rental costs are broadly similar for comparable properties. Typically, there has been some leeway in this approach, such as being able to charge up to 20% of the price assigned to certain areas.
3. Limited rent increases
Limiting when rent can be increased and by how much is another option. An example of this would include rental prices increasing in line with inflation only. It could mean that, in some cases, it’s more desirable to have short-term tenants over those that stay for a longer period of time.
Rent controls are already used around the world, including in New York City, Paris and Berlin. They all aim to make renting more affordable but haven’t always been successful. For example, research from Stamford University suggests rent controls led to some landlords converting their properties into expensive apartments to get around restrictions. As a result, renters may have had less choice and still spent a significant portion of their income on rent.
The impact on landlords
The impact of rent controls would vary greatly depending on your plan and the way they were implemented. Whilst rent controls in the UK aren’t to be implemented as the housing crisis continues to be debated, it’s likely a topic that will be mentioned in the future. So, how could it impact you?
- Reduced rental yields: In some cases, rent controls could reduce existing rental yield. This will clearly affect the profitability of a rental portfolio but, if your margins are low, it may mean that property is no longer a viable option. If this is the case, you should look at other solutions for assessing how to maintain and grow your wealth.
- Limits on growth: Some types of rent control will leave your current yields intact but limit growth potential. They could, for instance, place a freeze on rental increases or limit these to match inflation. It could have a large impact further down the line. Remember, mortgage interest rates are low now but could increase later. Would renting a property still match your financial plans if your outgoings increased whilst rents were frozen?
- Lower property value: If selling the property is part of your future plans, how would rent controls affect the sale price? You may find the value of the property is lower or that the pool of potential buyers is smaller as a result.
The regulations around renting property change and it’s important to keep up with how these could affect you. Like other areas of your financial plan, regular reviews are essential and can help you get the most out of property assets.
Running a business comes with plenty of stress. In the early stages, you’re often doing the job of numerous people, some of which you may be learning on the job. Even in the later stages, managing a team and looking at opportunities can be challenging. So, how can you reduce stress?
It is not surprising that business owners feel stressed. In fact, a survey found that 83% of small business owners have experienced stress within the last six months. One in ten goes as far to stay that running a business has had a negative impact on their mental health. It also found the top ten reasons for stress among small business owners were:
- Managing staff (42%)
- Admin (35%)
- Feeling responsible for the success of the company (31%)
- Keeping up with compliance (26%)
- Paying for overheads and expenses (24%)
- Imposter syndrome (20%)
- Filing taxes (19%)
- Time pressures (17%)
- Multitasking (14%)
Could mindfulness help?
As a business owner, it’s normal to constantly be thinking about what you need to do. But it’s important to be able to let go and create a work-life balance that’s right for you. One trend that younger entrepreneurs are embracing is mindfulness.
It’s a practice that aims to help you live in the moment, rather than worrying about past mistakes or what’s coming in the future. If you find yourself often rehashing the past, it can be useful. It’s an exercise that can help you feel more in tune with thoughts, feelings and your environment.
When they were asked if they practice mindfulness, 87% of Generation Z business owners do. In contrast, just 6% of those aged between 55 and 64 do so. When you’re feeling pressure, mindfulness could help and doesn’t have to take long. To start with, simply setting aside 10 minutes a day can be enough.
Find a comfortable, quiet place to sit down and let your mind wander, paying attention to the present moment. Try not to let your thoughts wander back to mistakes you’ve made or the list of tasks on your desk. The goal is to focus your mind and body on what’s happening now. It sounds simple but it can take some time to get used to, you’ll often find your mind wanders to something else and you have to pull it back to the present.
It might sound a bit like meditation if you’re new to mindfulness but there is one key difference. With mediation, the goal is to empty your mind and think of nothing. Mindfulness instead is about focussing on what’s happening now.
Incorporating mindfulness can help improve your mental health and refocus your mind for the tasks ahead.
Planning to give you confidence
Sometimes when we feel stressed it’s because we don’t feel in control. Whilst mindfulness can be an effective tool for releasing tension and improving focus, planning is still important.
Creating an effective business and financial plan can reduce the stress you feel and give you confidence as you look to the future. Knowing, for instance, that you have other sources of income to rely on can give you the push needed to take the business risk that could help your business grow.
Financial planning can help ease the stress you feel around personal and business finances. From building up a Self-invested Personal Pension to protect your retirement to provide advice when the time comes for selling your business, financial planning can give you the confidence needed. Without having to worry about these areas, you can focus on those tasks that will help you realise business ambitions.
If you’re a business owner and would like to talk to us about your long-term plans, please get in touch.
When we think about the value of financial advice, it can be hard to quantify it. After all, you often cannot be sure how your fortunes would have fared, or if your circumstances would be different if you had not worked with a financial adviser. However, research has shown that it does have real, tangible benefits for clients, as well as being valuable in other areas too.
Despite evidence demonstrating that financial advice can be valuable, nearly half (48%) of adults in the UK have never taken advice. Whilst the cost of advice may be a factor for some, this is not always the key factor. A third believe that they can manage their finances perfectly well themselves, with this rising to 57% of over-65s.
The financial benefits of advice
Research completed by the International Longevity Centre highlights how financial advice can help your wealth grow:
- Those that received professional financial advice between 2001 and 2006, on average, saw their pensions and financial assets grow by £47,706 in 2014/16
- Pension savers classed as ‘just getting by’ saw a 24% boost to their pension fund, compared to 11% of those considered affluent
- Focussing on financial assets, the benefit of financial advice was £16,715 in 2014/16 compared to £13,888 in 2012/14, with a greater impact for ‘affluent’ groups
Whilst the cost of financial advice may be a prohibiting factor for some, the results show that the benefits can outweigh the initial and ongoing costs.
Whether you choose to receive ongoing advice, with regular reviews, or advice at key moments in your life, both can be useful. For example, you may choose to review your finances with a professional when you start a family or as you approach retirement. However, the research found that individuals who saw a financial adviser several times throughout the research period had nearly 50% more pension wealth on average than those that seek advice only once.
Financial advice can help you make the most of your wealth and put you on the right path for achieving aspirations.
The non-financial benefits of advice
The research clearly highlights why financial advice can be useful in terms of growing your assets and pensions but it is far harder to measure the non-financial benefits. Often, these are intangible, yet they can be just as important as the increased value of assets.
Among these benefits are:
- Time-saving: Ensuring you are getting the most out of your money can be time-consuming. You may not have the time or inclination to keep track of your investment performance, forecast your pension income or find the best place to put cash savings. Working with a financial planner can take these responsibilities out of your hands. Your time is valuable and by handing over some of the financial decisions and research to an adviser, you are able to focus on what is most important to you, whether that is your career, family or something else.
- Confidence: Financial decisions can have long-term impacts. As a result, it is not surprising that some people can feel apprehensive about their decisions or worry that they have made the wrong choice. Having someone to talk through your decisions and the different options can provide peace of mind. Knowing that a professional has looked at the pros and cons can give you confidence, knowing you have picked a path that is right for you and your goals.
- Security: Often when we make financial plans ourselves, we forget to look at what will happen if something does not go to plan. Would you still be on track if your income were to stop for six months? Could you still leave an inheritance if care were needed? As part of the financial planning process, we will help you consider what kind of safety net can provide you with security. For some, this may be holding a greater portion of liquid assets, for others, it could include taking out some form of financial protection.
- Keeping up to date with changes: Legislation and regulation are constantly changing. If this is not part of your job, it can feel impossible to keep up with these and know how to incorporate them into your financial plan. Working with a financial planner can take this weight off your shoulders. As part of your annual review, we will explain how change has had an impact on your initial plan. You will also be able to access advice if you have concerns following changes too.
If you would like to review your financial plan or learn more about how advice can benefit you, please get in touch. Our goal is to create bespoke financial solutions that reflect your aspirations.
Please note: The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.
More than half of adults plan on working in retirement in some way. Extending a career or transitioning into retirement is becoming more common but thousands of people intend to work into their eighties for a variety of reasons. Could you continue with your current job in later life?
If you’re planning to work past traditional retirement age, it’s important to consider the financial implications as well as if it is possible.
A survey from Fidelity International found 52% of adults think they’ll carry on working after traditional retirement age. As the State Pension age is expected to reach late 60s, it’s not surprising that 45% think they’ll still be working past the age of 70. However, almost 10% think they’ll still be earning an income into their 80s.
The default retirement age, which enabled employers to force staff to retire at the age of 65, was scrapped in 2011. Companies can now only insist on a cut-off age if they’re able to justify it. For example, if a job has a high level of physical activity that would be difficult as employees age. As a result, individuals now have greater control over when they retire.
The research indicates that it’s not just finances that are driving people to work longer than traditionally expected either. Those with higher incomes (more than £50,000) were more likely to want to continue working.
Maike Currie, Director for Workplace Investing at Fidelity International, said: “Today’s so-called retirees are healthier, living longer and retiring at different ages. So, it is unsurprising that people have no desire to retire and are defying traditional expectations.
“Retirement is no longer the cliff edge it used to be – the important thing, however, is to have a choice. Whether that be to work, to retire completely, or somewhere in between, it’s important for people to hit retirement age free from money worries, and with the ability to continue the lifestyle they have become accustomed to.”
What are your options when working past retirement?
If you’re hoping to work in retirement, it’s important to assess what your career options are.
First, of course, you could stay in your current position. If you’re happy in your role and feel as though you can continue to meet responsibilities, it can be the perfect option. However, you may find that some adaption needs to be made. This may be because of your ability to do the job in the future, for example, if it’s physically demanding, or because you want to adjust your work-life balance.
Adjustments could include flexible working hours, the opportunity to work from home or handing some of your responsibilities over to colleagues. Think about the type of retirement transition you want before approaching your employer. Being able to carry out your role is important, but so is striking the right work-life balance for you. Employers are becoming increasingly flexible and may be more accommodating than you initially think.
But sticking with your current career isn’t the only option. If you still want to earn an income in retirement, there are other options worth exploring, including:
- Try a career switch. From learning new skills to taking a job with fewer demands, there are plenty of reasons why a change might be just what you’re looking for. Switching careers later in life can be daunting but weighing up the pros and cons can help you clarify if it’s the right option for you.
- Go freelance or act as a consultant. It’s never been easier to work as a freelancer or consultant thanks to the internet and technology. The skills and knowledge built up over a lifetime could prove valuable for others willing to pay for your time.
- Starting your own business. Far from wanting to slow down, research suggests that many retirees are keen to test their entrepreneurial skills. According to Aviva research, one in ten people would like to start their own business when retired. Whether it’s turning a hobby into a money-spinner or turning an idea you’ve had for a while into a reality, there are plenty of options.
The financial implications of working in retirement
If you plan to work beyond State Pension age, you should take some time to consider your finances. Whilst earning an income likely means you have more disposable cash, it can cause other consequences too. For example, if you’re accessing your pension, you may find that you’re pushed into a higher income tax bracket due to the additional income. Or future pension contributions may be affected by the Money Purchase Annual Allowance (MPAA), affecting how much you can save tax efficiently.
To discuss how your decision to work in retirement could affect your finances, please get in touch.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances tax legislation and regulations which are subject to change in the future.
Using a Self-Invested Personal Pension (SIPP) to purchase and hold commercial property can be beneficial. However, it is a solution that can seem complex and it may not be the right option for you. It’s also important to note that a SIPP isn’t suitable for everyone. If you have any questions about SIPPs or saving for you retirement, please contact us.
A SIPP is a type of pension that can give you greater control and flexibility. It allows you to choose from a larger selection of investments, including commercial property. Permitted SIPP commercial property could include business premises, factories, retail properties or offices. SIPPs may be suitable for you if you are comfortable making your own investment decisions or want to consolidate several pensions into a single place.
There are essentially two ways business premises can be held in a SIPP. If you or your business already own a property, you can use the equity release model to effectively exchange the pension fund already accumulated for the property so you or your business receive payment from the SIPP and the SIPP becomes the new owner of the property. Alternatively, the funded purchase model allows a pension to purchase a new property using the pension funds, with the property then being placed directly in the SIPP. In either case, it’s possible for the SIPP to borrow additional funds to help purchase the property if needed (see below).
So, why is it an option that you should consider?
1. Rents received are not liable for Income Tax
The rent paid on the commercial property can really help your pension grow and put you on the right path for the retirement you have been looking forward to. A key benefit is that you will not have to pay Income Tax or Corporation Tax on the rent received. You will need to be mindful of Income Tax when you start making pension withdrawals, but this is often something that is easier to manage. If you are a high earner this benefit can be particularly useful. If your own business occupies the property, the business will also benefit from tax relief on the rent.
2. No Capital Gains Tax will be due on the sale of the property
When selling assets, Capital Gains Tax on the profit you have made may be due. This is often the case when it comes to commercial property. However, profits are free from this tax when business premises are held within your SIPP. This is because any growth in the property’s value belongs to the pension, rather than you or your business. With Capital Gains Tax rates up to 20%, moving commercial property into your SIPP could save you a significant amount and boost your pension savings. If a property you own is bought by the SIPP, there could be capital gains tax due at that point, but not on future growth once held within the SIPP.
3. It could be used to release capital back into the business
There may be times when you need to release capital back into your business to improve cashflow. This is possible if your SIPP purchases your business premises. This can provide you with far more flexibility and a safety net if your business hits roadblocks.
4. You can borrow up to 50% of the SIPP’s value to acquire commercial property
If you have little capital but hope to purchase business premises, pensions can provide an answer. As well as the value of your SIPP fund, you can borrow up to 50% of the total value of your SIPP to complete a purchase. It can be a useful way to acquire the property you need rather than taking out a traditional mortgage on the whole value of the property.
5. It can reduce the amount of Inheritance Tax due
Is your estate likely to owe Inheritance Tax when you pass away? If your assets have a combined value over £325,000, it is worth making an estate plan to ensure as much of your wealth is left to loved ones rather than the taxman. There are many things you can do to reduce the amount of Inheritance Tax your estate is liable for. Although the aim of pensions is to provide retirement funds and an income in retirement, funds placed in pensions re normally outside of your estate which can be an additional advantage of retirement funding. Beneficiaries may have to pay some form of tax when accessing your pension but with careful planning, this can be far below the Inheritance Tax rate.
6. It is not accessible to creditors in the event of personal or business bankruptcy
No one wants to think about becoming bankrupt but unexpected events and circumstances should be planned for. Becoming bankrupt can mean losing all your assets and the financial security you have been saving for in retirement. However, by moving commercial property into a SIPP, it is an asset that is generally safe from creditors. It is a benefit that can provide some security as you grow your business and once you reach retirement.
Whilst these benefits can be useful, it is important to weigh up the cons too. There may be challenges to using this solution, such as implications around the Lifetime Allowance. Adding a commercial property to your SIPP can also change the risk profile of your investments and reduce liquidity. Before proceeding with using a SIPP to hold commercial property, you should look at the decision in the context of your wider financial plans. If you want to explore how a SIPP could align with your aspirations, please get in touch.