Month: October 2023

Economies around the world continue to struggle with high inflation and weakening demand affecting GDP. Read on to discover some of the factors that may have affected your investment portfolio in September 2023. 

When reviewing short-term market movements, remember to focus on your long-term investment goals.

UK

Official data shows the UK economy contracted by 0.5% in July. The Office for National Statistics (ONS) attributed the poor performance to strike action and poor weather. 

However, there was some good GDP data. The ONS said the UK economy reached pre-pandemic levels earlier than thought in the final quarter of 2021. The revision is good news as economists previously believed the UK was lagging behind other countries. 

Inflation is falling but remains above the Bank of England’s (BoE) 2% target. In the 12 months to August 2023, it was 6.7%.

Despite high inflation, the BoE’s Monetary Policy Committee voted to hold its base interest rate of 5.25%. The Bank’s governor, Andrew Bailey, said he believes inflation will fall “quite markedly” by the end of the year. However, he added, it would be premature to cut interest rates now. 

Quarterly data from the central bank shows the public is dissatisfied with the strategy for controlling inflation. Public satisfaction was at its lowest since records began in 1999. 

While interest rates didn’t rise in September, households are struggling.

The Resolution Foundation warned average working household incomes are on course to be 4% lower in 2024/25 in real terms when compared to 2019/20 thanks to high interest rates, steep tax rises, and a stagnant economy. 

The number of mortgages in arrears also demonstrates the pressure some families are facing. According to the BoE, the number of mortgages in arrears hit the highest level in almost seven years. 

Businesses are feeling the strain from rising interest rates too. Think tank Cebr predicts that 7,000 businesses will fail every quarter in 2024.

Statistics from the Insolvency Service indicate some businesses are already struggling to balance costs.

Company insolvencies jumped by almost a fifth in England and Wales in August when compared to a year earlier. However, it’s important to note that insolvencies were at a historic low during the pandemic as businesses benefited from government support. 

Despite some negative statistics, the FTSE 100 recorded its best day of 2023 so far – the index gained 1.95% on 14 September. 

Europe

GDP data for the eurozone was revised downwards. Statistics show GDP expanded by only 0.3% in the second quarter of 2023, which has led to concerns that the bloc could fall into a recession in the second half of the year. 

Inflation in the eurozone fell to 5.2% in the 12 months to August. However, there’s a big difference between economies across the bloc. Hungary had the highest rate of inflation at 14.2%, while Spain and Belgium saw prices increase by 2.4% when compared to a year earlier. 

In response, the European Central Bank raised its three key interest rates by 25 basis points. 

Purchasing Managers’ Index (PMI) data indicated that business output is still contracting as new orders fell and firms were forced to pay more for raw materials and other costs. Germany and Austria were among the worst-performing nations in the eurozone. 

As the largest economy in the eurozone, Germany is often used as a barometer for the economic area.

Unfortunately, signs suggest Germany’s economy could be faltering. The European Commission said it expects the country’s GDP to fall by 0.4% this year as energy price shocks due to the war in Ukraine hit the country hard.

Sentix’s index for the eurozone also suggests Germany’s performance is leading to pessimism among investors. 

While many countries are struggling to manage soaring inflation, Turkey’s is among the highest. In the 12 months to September 2023, inflation was 61.5% and its base interest rate was 25% in September.

US

Inflation in the US is lower than in some other developed economies. However, at 3.7% in the 12 months to August 2023, the figure is higher than it was a month earlier. 

Similar to countries in Europe, PMI data suggests business productivity flatlined in September. S&P Global said the service sector lost momentum in August, while manufacturers reported a drop in sales. 

Towards the end of the month, there was a risk that the US government could partially shut down. A group of Republican members of the House of Representatives refused to compromise with their own party’s leadership. 

Credit rating agency Moody’s warned a shutdown could threaten the US’s triple-A rating and cause market volatility. 

It would follow Fitch downgrading the US government’s credit rating in August due to a “deterioration of standards”. 

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.

Embracing lessons from so-called “blue zones” could boost your health and longevity, according to an expert. Read on to find out more about these areas and how you could make changes to your life. 

In 2004, two professors identified Sardinia’s Nuoro Province in Italy as having a high concentration of male centenarians. They referred to the area as a “blue zone”.

Dan Buettner, a longevity expert, has built on their work. He has identified a further four healthy living hotspots:

• Ikaria, an island in Greece
• Okinawa, an island in Japan
• Loma Linda, a small city in California, USA
• The Nicoya peninsula in Costa Rica.

While blue zones are associated with longevity, a lower rate of chronic health, and higher rates of wellbeing, Buettner says it’s not just about living a longer life but being able to enjoy it too.  

The five locations dubbed blue zones are diverse and spread across the globe. Yet, they share some similarities that have been explored in the documentary Live to 100: Secrets of the Blue Zones. 

Here are four lessons you could take from blue zones and make part of your life. 

Lesson 1: Change how you think about healthy eating 

When you think about improving your diet, you might focus on restricting calories or cutting out certain foods. Yet, a more holistic approach to healthy eating could lead to longer-lasting results.

According to Buettner, the average person makes around 220 food decisions every single day. However, only around 10% of them are conscious. 

As a result, he argues that trying to govern the 22 conscious decisions isn’t that effective. Instead, setting up your kitchen so the far more unconscious decisions are slightly healthier is better.

The research indicates that plant-based food options with plenty of spices and herbs and smaller portions of meat or fish could lead to longer lives. 

Lesson 2: Maintain healthy relationships with family and friends

Busy modern lives mean that relationships can suffer. You might not spend as much time with family or friends as you’d like to. 

Buettner believes relationships play a vital role in longevity and health. He says they could provide a strong sense of purpose that leads to people living for longer. In fact, in the blue zones, familial ties are often important.

Making relationships a priority and dedicating time to them could boost your wellbeing. It may seem simple but placing spending time with the people that are important to you in your diary, the same way you would with work or appointments, can help you maintain bonds.

It’s not just the relationships with immediate family and friends that are useful. Playing a role in your community can further enhance your health by providing new connections and a sense of place. 

Lesson 3: Define your purpose 

In Okinawa, Japan, residents are three times more likely to reach their 100th birthday than other regions, and their sense of purpose could play a role. 

During Live to 100, Buettner introduces centenarians who are still enjoying and living a full life. The research indicates that having something that drives you and helps you get up in the morning can be beneficial to your wellbeing. Locals from Okinawa call this purpose “ikigai”.

So, defining what you’re passionate about, whether that’s travelling, art, or supporting your family, could help you feel more fulfilled. It’s a step that could improve your mental health and even your overall wellbeing. 

Lesson 4: Make light exercise part of your daily routine 

Everyone knows that exercise is part of maintaining your health. Yet, the blue zones suggest you don’t need to regularly hit the gym or train for a marathon. In fact, you could do away with exercise classes and strict plans altogether if you don’t enjoy them.

Making light exercise part of your routine could be just as useful if remaining healthy in your later years is your goal. You might ditch the car to walk to the local shops or get outdoors to garden. Regular low-intensity exercise can help keep you active and mobile. 

Buettner refers to this approach as “moving naturally”, where you live in an environment that encourages you to move without thinking about it.

High inflation over the last year has collectively cost savers billions of pounds in real terms, according to an Independent report. Have you considered the effect the rising cost of living could have on your wealth?

While inflation may not reduce how much you have in your savings account, in real terms, the value may fall. 

As the cost of goods and services rises, what you could purchase with your savings falls. Usually, this happens at a gradual pace. However, as inflation has been higher than the Bank of England’s (BoE) 2% target for two years, the effect has been more noticeable. 

If the interest rate your savings earn doesn’t keep pace with inflation, the value of your money decreases.

Inflation could reduce the value of your savings in real terms, but cash may still be useful

The BoE calculations suggest £10,000 in 2021 would have to have grown to £11,774 in August 2023 just to have the same spending power. So, your savings would need to have earned £1,774 in interest during that time.

Even though interest rates have started to rise as the BoE has increased its base rate to tackle high inflation, it’s unlikely your savings have grown at the same pace. 

The analysis published in the Independent suggests up to £113 billion has been wiped off the value of savings in the last year in real terms. 

While the value of your money may fall in real terms in a savings or current account, there are still times when they might be the right option for you, including these three:

• Handling your day-to-day finances: If you’re using money held in your account to pay for utility bills or other regular expenses, inflation will have little effect. 
• Saving for short-term goals: Investing could make sense when you’re saving for a long-term goal. However, if you’ll be saving over a shorter period, volatility might mean investing isn’t the right option. So, when you’re saving for a holiday next year or home improvements for example, a cash account could be right for you. 
• Creating an emergency fund: While you may not want to access your emergency fund now, you want to be able to easily make a withdrawal if the unexpected happens. As a result, a cash savings account could make sense. 

So, it’s important to set out what you want to use your money for. It can help you select an appropriate place for your wealth that aligns with your goals. 

Inflation is starting to fall, which could ease the burden for some savers. However, the value of the money held in a savings account could still fall in real terms. Meanwhile, investing might provide a way to grow your wealth. 

Investment returns may outstrip inflation 

It’s impossible to guarantee investment returns. Yet, investing does present an opportunity to potentially grow your wealth in real terms. 

Historically, markets have delivered returns over long time frames. If you’re saving for a goal that’s more than five years away, from buying a property to retiring, investing might be an option you want to consider. 

Market volatility is a normal part of investing. The value of your investments will rise and fall at different points. So, it’s often not appropriate if you’re investing with a short-term time frame, as a dip in the market could mean you lose money.

If you want to invest, considering risk is important.

All investments carry some risk. However, investment risk varies significantly and you can choose options that are appropriate for you.

There are many factors you may want to weigh up when deciding how much investment risk to take, including the reason you’re investing and the other assets you hold. We can help you create a risk profile and an investment portfolio that reflects your wider financial plan. 

Get in touch to talk about how to make the most of your money

Getting the most out of your money is about understanding your goals and how to use your assets to reach them. If you’d like to talk about your tailored financial plan, including whether investing is right for you, please contact us. 

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.

A will provides a way to state who you’d like to receive your assets when you pass away. While you don’t need to work with a solicitor when writing a will, doing so could help you avoid mistakes. 

Will Aid is taking place in November and may be the perfect time to write your will while supporting good causes. 

Every year, participating solicitors volunteer to waive their usual fee for writing a basic will. Instead, they invite clients to make a voluntary donation to Will Aid. The donations support a variety of charities, including Age UK, the British Red Cross, and Save the Children.

Choosing to work with a solicitor when you’re writing your will could help you avoid mistakes that may mean your estate isn’t distributed how you want or could lead to probate taking longer. 

Here are five mistakes that affect some wills. 

1. Your wishes aren’t clear enough

Using ambiguous language in a will can make distributing your estate much more difficult. Vague or contradictory wishes may lead to confusion about your intentions. In some cases, it may mean your wishes aren’t carried out.

You should ensure your will clearly specifies the assets you’re referring to and sets out your wishes in a way that’s easy to understand.

You may also want to consider what would happen if an asset changes. For example, if you intended to leave a property to one beneficiary but have since sold it, should they receive the cash equivalent?

As a will may cover a lot of assets and beneficiaries, it can be difficult to write a will that’s precise if you’re not a professional, especially if your wishes are complex. 

2. You don’t consider all your assets

Estates can be complex and it’s easy to overlook some of your assets. Many people will include their main assets, like property or a savings account, but other items may go unnoticed when writing your will. Perhaps you have some Premium Bonds or artwork you’ve forgotten about.

Carrying out a financial review before you write your will may help you better understand the assets that make up your estate.

Financial planning could also forecast how the value of assets may change during your lifetime, which might affect how you want to distribute assets to loved ones. 

3. You don’t account for beneficiaries passing away 

One of the challenges of writing a will is that you need to consider what may happen in the future. If a beneficiary passes away before your estate is settled, who would you want to inherit your assets?

Usually, if a beneficiary passes away, the assets they were due to inherit will be kept within your estate and distributed to surviving beneficiaries, which may not align with your wishes. 

4. You don’t appoint an executor

An executor is the person who will deal with the administration of your estate when you pass away. Their duties will include carrying out your wishes in accordance with your will.

It’s an important role, but some people overlook naming an executor. Your will would still be valid in this case, but someone will need to apply to become the administrator or a court may ask someone to take on the role. It could delay the probate process.

You can choose someone you know personally to be the executor. It’s often a good idea to speak to the person first to ensure they’re happy to take on the responsibility and understand what’s involved. You may also choose a professional executor, such as your solicitor. 

5. Your will isn’t signed or witnessed correctly

A common error when writing a will without support is that it isn’t signed or witnessed correctly. It may mean your will is invalid and, rather than being distributed according to your wishes, intestacy rules would apply. 

Your two witnesses must be over the age of 18 and shouldn’t be family members. They and their spouse also shouldn’t benefit from your will in any way. You must sign your will in the presence of your witnesses, who should also sign it, as well as write their full names, addresses, and occupations. Finally, you should date your will. 

Regular reviews of your will may be just as important as writing one

Once you’ve written your will, don’t simply put it to one side and forget about it.

During your life, your wishes and circumstances may change, which might mean you need to update your will. Whether you want to make provisions for a new grandchild, or the value of your assets has increased, regular reviews may help ensure your will continues to reflect your wishes. 

It’s often a good idea to review your will after major life events or every five years.

If you need to make changes, there are two options:

1. A codicil is added to your existing will. It must be signed and witnessed. While there are no limits to how many codicils you can add or what they can cover, significant changes or several small alterations can make your will complicated. Codicils may mean your will is more likely to contain contradictions, so they are often best used for straightforward changes.
2. If a codicil isn’t appropriate, you can write a new will. This is usually a good option if you would like to make major changes. Your new will should state it revokes all previous wills and codicils, which should be destroyed. 

You can add a codicil or write a new will without professional support, but, again, a solicitor could help you avoid mistakes. 

An estate plan could help you distribute your assets effectively 

Writing your will is an essential step to take to ensure your assets are distributed how you wish. Before you put a will in place, understanding your assets and how their value could change over time may help you set out wishes that reflect your goals.

In addition, estate planning might highlight if you want to consider things like Inheritance Tax, how to pass on your pension, or gifting during your lifetime. 

Please contact us to talk about your estate plan and how you may want to pass on assets through your will. 

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

The Financial Conduct Authority does not regulate estate planning, tax planning, or legal services.

People often think of their financial plan as a way to grow their wealth and provide financial security. You might consider areas like your pension or financial protection to be core parts of your financial plan. Yet, while they’re important, your happiness is essential too. 

Financial planning is about helping you reach your financial goals, but it goes further than that.

It’s about making your money work in a way that aligns with your lifestyle aspirations and understanding how it could improve your wellbeing. 

After all, you might want the money in your pension to grow, but your money will often be linked to other aspirations you may have. For example, you might want investments to perform well so you can travel more in retirement, or to allow you to retire early so you can spend more time with grandchildren while they’re young. 

As a result, recognising what makes you happy now or could improve your life in the future should be at the centre of your financial plan.

Here are three steps you can take to make your happiness the focus of your financial plan.

1. Set out what makes you happy

Think about your day-to-day life. What gives you purpose and makes you happy? Setting out what is important to you can help you make conscious money decisions that reflect your wellbeing.

Without a clear focus, it can be easy to make decisions that aren’t necessarily right for you. For example, you might spend money on impulsive purchases that give you a brief serotonin boost, but you then have to compromise on something that would bring you longer-lasting happiness. 

It’s also worth thinking about the one-off experiences you’ve had that brought you joy. Which memories do you look back on fondly with a smile? You might want to make other similar experiences part of your long-term plan. 

2. Create clear objectives

Often, your happiness goals will be linked to finances in some way. So, setting out financial objectives with your wellbeing at the centre is useful.

These could be both short- and long-term objectives. Perhaps you have a hobby that brightens up your day, so you want to make the associated costs part of your regular budget. Or maybe you’re really looking forward to the freedom that retirement will bring, so you have a pension goal you want to achieve that would allow you to give up work sooner. 

Consider what money or assets you’d need to make your life happier. You can then turn your attention to how to reach these objectives with your circumstances in mind. 

3. Form a financial plan around your objectives

With your objectives set out, you can start to think about how to achieve them through your financial plan.

For example, if you want to retire early so you can indulge your passions, what is a tax-efficient way of saving the money you need? Or what steps can you take to create long-term financial security once you give up work?

By starting with what makes you happy you can make conscious financial decisions that support your wellbeing now and over the long term. 

A financial planner can help identify how to use your money to reach the goals you’ve set out. Having a plan that’s tailored to you may also improve how confident you feel about your finances, so you may focus on enjoying other parts of your life.

Contact us to create a financial plan that focuses on your happiness 

As a financial planner, we may help you get more out of your money with your lifestyle goals in mind. We’ll work with you to not only understand how you could grow your wealth, if that’s your goal and appropriate for you, but also understand how to use your assets to enhance your life.

Please contact us to arrange a meeting to discuss your life goals and how we could offer support in creating a financial plan for you. 

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 investments (and any income from them) 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. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Figures suggest more families are gifting to avoid Inheritance Tax (IHT). While passing on assets to loved ones may seem like a clear solution, it isn’t always so simple. 

More estates are becoming liable for IHT as thresholds for paying the tax are frozen. The Office for Budget Responsibility predicts HMRC will collect £8.4 billion from IHT receipts in 2027/28, compared to £7 billion in 2022/23.

The portion of your estate that exceeds IHT thresholds could be taxed at a standard rate of 40%. So, it’s not surprising that families are looking for ways to mitigate a potential bill. 

According to a Telegraph report, the number of people who have gifted assets that would become exempt from IHT if they survived a further seven years increased by 48% between 2009/10 and 2019/20.

If the value of your estate exceeds the nil-rate band, which is £325,000 in 2023/24, your estate may be liable for IHT. You might also be able to use the residence nil-rate band, which is £175,000 in 2023/24, if you leave your main home to direct descendants.

You can pass on unused allowances to your spouse or civil partner.

Both the nil-rate band and residence nil-rate band are frozen until April 2028. So, if the value of your estate is nearing the threshold, you may find your estate could become liable for IHT as the value of your assets could rise.  

Gifting assets to your beneficiaries now can be advantageous. It may allow you to help loved ones reach life milestones.

However, if you’re gifting for IHT purposes, there are some things you may want to keep in mind. 

1. Gifting may affect your financial security later in life

Before you hand over a gift, assessing the effect it could have on your later life may provide peace of mind. Could gifting leave you financially vulnerable in your later years? Could it affect your ability to overcome a financial shock?

Making gifts part of your wider financial plan means you can understand how your decision may affect your wealth over the short and long term. 

Understanding the potential implications before you make a gift might help you to feel more confident about your finances. 

2. Not all gifts are considered immediately outside of your estate for Inheritance Tax purposes

When you’re gifting to minimise an IHT bill, considering longevity may be important. 

Gifts might be considered “potentially exempt transfers” (PETs) and included as part of your estate when calculating IHT for up to seven years after they were given.

As a result, if the entire value of your estate exceeds IHT thresholds, your estate could be liable for IHT on assets you’ve already passed on.

Once seven years have passed, gifts will not be included when calculating IHT liability. 

3. There are gifting allowances you may want to make use of

If you want to gift assets to reduce an IHT bill, there are some allowances you could make use of. 

These gifts would be considered immediately outside of your estate for IHT purposes:

• The annual exemption, which is £3,000 in 2023/24
• £1,000 to someone getting married, rising to £5,000 for your children and £2,500 for grandchildren
• Unlimited gifts of up to £250 to any individual who has not received a gift using another allowance.

Regular gifts that are made from your income may also be exempt from IHT. These gifts must be made regularly. For instance, you may pay the rent on your child’s home or your grandchild’s school fees. 

Making use of these allowances and exemptions could provide a tax-efficient way to pass on wealth during your lifetime. 

There are others steps you could take to reduce a potential Inheritance Tax bill 

Gifting isn’t the only option if you want to reduce a potential IHT bill. Other solutions might include:

• Leaving 10% or more of your estate to charity, which would reduce the IHT rate from 40% to 36%
• Passing on wealth through your pension, which is usually considered outside of your estate
• Using a trust to pass on assets tax-efficiently. 

It’s important to weigh up the pros and cons of these options. It may also be useful to take both financial and legal advice in some cases, as estate planning can be complex. 

You might also want to consider taking out a whole of life insurance policy. This wouldn’t reduce the amount of IHT your estate is liable for, but loved ones could use the money it pays out to settle the bill.

It’s essential that life insurance is written in trust. Otherwise, the payout could be considered part of your estate and result in a higher IHT bill.   

An estate plan can help you set your affairs in order and minimise Inheritance Tax

An estate plan can help you set out what you’d like to happen in your later years and how you’d like to pass on assets when you die. Setting your affairs in order can be emotional, but it’s an important task.  

We can help you create an estate plan that reflects your wishes and considers concerns you may have, such as whether IHT will affect the assets you leave behind. Please contact us to arrange a meeting. 

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

The Financial Conduct Authority does not regulate estate or tax planning. 

Remember that taper relief only applies to gifts in excess of the nil-rate band. It follows that, if no tax is payable on the transfer because it does not exceed the nil-rate band (after cumulation), there can be no relief.

Taper relief does not reduce the value transferred; it reduces the tax payable as a consequence of that transfer.