Purpose in life gives you a sense of direction and provides meaning. Having a purpose can improve your wellbeing throughout life, and it’s no different when you’re in retirement. Understanding what your purpose is can make the next chapter of your life more fulfilling.

One of the key elements of financial planning is marrying together your financial means with your goals.

Why is purpose so important at retirement? For many of us, our working life plays a central role in our purpose. The sense of pride you get when working or as you climb the career ladder can mean work becomes a way that we define ourselves. When we meet someone new, one of the first questions we usually ask is; what do you do?

We don’t mean how do you fill your free time with hobbies but how you make a living. As a result, our purpose in life and careers are often entwined for decades. When you retire, you can feel like you’ve lost your sense of purpose whilst you establish new goals and aspirations.

Once you reach retirement, you’ll probably have far more free time on your hands than you’ve ever had before. That means you need to ask yourself; what makes me happy?

Defining your purpose

When we think about retirement, it’s often what we’ll be getting away from that we focus on. Maybe you’re looking forward to avoiding rush hour traffic or tight deadlines. But by focussing on what you’re retiring to, you can start to think about your purpose.

There’s no one-size-fits-all purpose once you give up work. With more free time, you can start to focus on those areas that may have been put on the back burner because your career took up precious time. For some it could include:

• Spending time on your passion projects
• Devoting more time to family and friends
• Getting more involved in social activities and clubs
• Visiting new destinations
• Improving skills or learning something new
• Donating time or skills to charity
• Starting a business

For many people, their purpose in retirement is likely to be a combination of several different priorities. Clearly outlining what’s important to you in retirement can help you create plans and objectives, providing a sense of direction.

When imaging your ideal retirement, it’s easy to focus on the big things. Perhaps a once in a lifetime trip springs to mind. But the day-to-day is just as important; how will you fill your mornings, afternoons and evenings? The plans to spend weekends exploring the local area with grandchildren, afternoons honing your skills on the piano or evenings at a class with friends can help give you a sense of purpose.

Retirement is an opportunity to review what you want and your goals for the next stage of your life. After decades working to save for retirement, it’s well-deserved.

Funding your purpose

Whilst your purpose and goals should be at the centre of your retirement plans, money will clearly play a role.

As a result, it’s important to assess your purpose with your pension and other provisions in mind. Having confidence in your finances means you’re free to focus on what’s driving you and gives your life meaning. Putting together a financial plan might seem like a dull task but it’s one that can make your retirement years more enjoyable and relaxing.

After meeting with us, many people find they’re in a better financial position than they thought. It’s a step that gives them the confidence to pursue dreams without having to worry about whether they’ll run out of money in 20 years’ time. For those that find there’s a gap in their finances, there are often solutions or compromises that can be made to ensure they still have a meaningful and financially secure retirement.

Please call us to discuss your purpose for retirement and how your finances can help you achieve it.

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 regulation which are subject to change in the future.

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 December and could continue to do so over the coming months.

Once again, geopolitical tensions and sluggish economic growth continued to impact investment markets as we headed towards the festive period. But there have been some optimistic signs that there will be opportunities for growth and optimism in 2020.

UK

The big news in the UK in December was, of course, the General Election. On the 12^th December, Britain headed to the polls with the Conservatives securing a landslide majority. The party won 80 seats and celebrated their largest majority since 1987. With a majority now in place, Brexit continues to be one of the key topics for debate. Boris Johnson continues to ‘get Brexit done’.

But a snapshot of the economy suggests businesses are still struggling:

• Economy figures for October were released in December showed zero growth after contracting in August and September. It marks the worst three months in more than a decade
• The IHS Markit manufacturing Purchasing Managers’ Index (PMI) sank to 48.9 in November. A figure below 50 indicates a decline in the factory sector and it’s the seventh consecutive month of contraction, marking the longest run since 2009
• The PMI for the service sector also showed a contraction, this has been limited to Brits being more cautious with their spending. It fell to 49.3, above the initial estimate but still a decline
• Business investment also suggested that confidence is low. It was flat in the third quarter and up just 0.5% on an annual basis, according to the Office of National Statistics
• Despite November traditionally being a bright spot for retailers, that wasn’t the case in November 2019. With Christmas shoppers leaving gift buying until the last minute, retail sales hit a 19-month low

One piece of news that would have caught the attention of investors, was one of the UK’s biggest property funds banned withdrawals. The £2.5 billion M&G Property Portfolio owns shopping centres across the country. The fund blamed Brexit and the retail downturn for its problems. Nearly £1 billion has been withdrawn from the fund in the last year and it’s been unable to sell commercial property fast enough, leading to the ban.

Europe

There has been some good news and figures coming out of Europe in December.

First, German export increased unexpectedly in October, with demand coming from beyond Europe. After several months of recession risk, the 1.2% increase in exports will be welcomed. In line with this, German business confidence increased too, suggesting the overall outlook is improving in Europe’s biggest economy. The Ifo institute showed managers has a brighter outlook for the next six months after rising for the second consecutive month in December.

Despite Germany acting as a stalwart for the EU, there are still concerns. At her first meeting as President of the European Central Bank, Christine Lagarde stated that global uncertainties were weighing on the eurozone, impacting both manufacturing and investment growth.

US

One of the key features impacting the US is the ongoing trade war with China. But for investors affected, there could be an end in sight. Whilst early in the month Trump suggested a trade deal could wait until after the November 2020 election, progress appears to have been made. After more than two and a half years, a deal has been reached and markets lifted as a result.

Under the US-China trade deal, China has agreed to significantly increase its purchase of US agriculture, manufactured and energy products by some $200 billion over the next two years. In return, the US has dropped plans to introduce further tariffs on Chinese imports and has lowered ones already in place.

That’s not the end of trade news in the US though, Donald Trump has hit Brazil and Argentina with tariffs. The president has reinstated tariffs on steel and aluminium from the nations.

Focusing on the US economy, the downturn in manufacturing continues. New orders slumped, leading to the fourth straight month of contraction in November.

Asia

China’s preliminary trade deal with the US has been welcomed. But Beijing also announced it is lowering tariffs on more than 850 important products, making it cheaper for Chinese firms to buy products from abroad. Starting from January 1^st 2020, the move aims to lower trade barriers to support the Chinese economy after growth has slowed to a 20 year low. Items on the list range from frozen pork to high-tech components.

Following six months of social unrest and protest, it’s not surprising that Hong Kong’s economy is set to contract in the final quarter of 2019. The pro-democracy protest has had an impact on the economy, including discouraging tourists from visiting.

Middle East

Saudi Arabia’s state-owned oil monopoly floated on the markets in December too. It’s the biggest IPO (initial public offering) in history, raising $25.6 billion through selling 1.5% of the company. Shares surged 10% when they began trading. Despite the debut breaking records, it didn’t reach the $2 trillion valuation sought. Saudi Arabia has stated the IPO funds will be used to support the economy.

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.

If you’re trying to get over the winter blues, planning your next holiday can be the perfect way to escape. Whether you’re looking for relaxation or adventure, there’s plenty to choose from. This year’s list of top ten counties to visit from Lonely Planet could be just the inspiration you need.

So, without further ado, here are the top destinations for 2020.

1. Bhutan

Until recently, Bhutan was rarely visited or talked about among tourists. But that’s slowly changing. Even now, the Himalayan country carefully restricts the number of tourists. It results in an exceptional experience for those that make the journey. You can expect to walk mountain trails, visit monasteries and take in the culture without the crowds you’d expect in other destinations. With strict rules around preserving nature and the way of life, the beauty of Bhutan is set to remain. It’s a unique destination that really does give you an opportunity to escape.

2. England

You don’t even have to set foot on a plane to see amazing sights. Taking spot two this year is England. It’s easy to overlook what our own country offers tourists but from stunning landscapes to historical buildings, England’s got a lot to offer and a staycation could be perfect for 2020. One of the key reasons England makes it on to Lonely Planet’s list is the coastline. The England Coast Path continues to open this year, which will create the longest continuous trail of its kind in the world at 3,000 miles. Why not make plans to explore part of it in 2020?

3. North Macedonia

The tiny nation of North Macedonia in the Balkans is ideal if you’re looking for natural beauty. The stunning Lake Ohrid and the historic town on its shores has already made a stamp on the map for tourists. But there’s plenty more if you stray off the usual track. The national parks offering quiet walking trails and beautiful views. The country has a rich and fascinating Greek, Roman and Ottoman heritage to explore if you’re a keen history and culture buff too.

4. Aruba

Keen to head to an island paradise this year? Aruba might be just what you’re looking for. Located in the southern Caribbean Sea, it has, as you’d expect, pristine beaches and palm trees. For relaxation, it’s perfect. For when you’re ready to get off the sun lounger, there are plenty of activities to try, such as diving and snorkelling, whilst the towns can provide a festival atmosphere to enjoy day or night, particularly in the unique city of San Nicolas, which is just a short trip away from the compact capital of Oranjestad.

5. eSwatini

Formally known as Swaziland, eSwatini is packed with culture and adventure. However, one of the biggest draws to visiting this country in 2020 is the impressive wildlife. Visit one of the wildlife reserves and you have a chance to encounter all the big five – elephants, rhinoceros, leopards, buffaloes and lions. If a safari is on your bucket list, eSwatini is an excellent place to plan a holiday. For those looking for an adrenaline rush, there’s plenty on offer, such as rafting and ziplining, whilst the lively local culture will completely immerse you during your stay here.

6. Costa Rica

Another top destination for wildlife is Costa Rica. For a small country, Costa Rica has incredible diversity that can be explored across its rainforest waterways and palm-lined beaches. If you’re looking for a laid-back trip, the beaches, spas and towns are ideal. If you’re hoping to get active, the lively town of San Jose can provide a great base, plus you can walk up volcanoes and take part in adrenaline-filled activities too. Whatever your holiday style, be sure to plan some time exploring this slice of tropical paradise.

7. The Netherlands

Not too far from home, the Netherlands is a great destination if you’re looking for a short break but there’s enough to do across the country if you’re hoping to get away for longer. Amsterdam, of course, has long been a vibrant city on the list of many travel lovers. Mixing the traditional and the new, the Netherlands is an excellent destination to explore, especially by bike. Boasting more than 35,000 km of cycling paths, you can get out of the city and find lesser-known attractions without having to worry about public transport or hiring a car too.

8. Liberia

Situated in West Africa, Liberia is still a little-known tourist destination but there are two big reasons to visit here. First, there are beaches that are perfect for relaxing and surfing. Then there are the lush, dense forests that are home to an abundance of wildlife. The Sapo National Park is known as one of the best in South Africa and is home to chimpanzees, forest elephants and the famous pygmy hippos. If you’re a fan of shopping, the bustling markets are the place to head for souvenirs to take home with you.

9. Morocco

Morocco is known as the gateway to Africa and it’s steeped in history to explore. It’s an excellent choice if you’re a fan of delving into a new culture and the history of a destination. Ancient Medinas, think historic city centres, are places where you can spend hours exploring, sampling the food and sipping coffee in a street café as you watch the world go by. Marrakesh, which is Africa’s first Capital of Culture in 2020, is a vibrant place to consider but so too are other cities, including Fez, Tetouan and Essaouira.

10. Uruguay

Finally, we head to South America with Uruguay. Located between Brazil and Argentina, it’s the continents smallest country. You can choose between cosmopolitan areas with plenty of attractions for tourists, picturesque coasts and vibrant areas to party in the evenings. But don’t forget to take a step off the beaten track to go wildlife watching and view the natural beauty of Uruguay too.

Are you planning to give children and grandchildren a helping hand to get on the property ladder this year? If so, you’re not alone. As younger generations are struggling to purchase their first home, thousands of parents and grandparents are putting their hand into their pocket. But what does it mean for your long-term financial security?

Research from Legal and General suggests that family members offered gifts and loans to the tune of £6.3 billion in 2019. This generosity was estimated to support property purchases totalling £70 billion. Compared to last year, the total amount lent has increased by 10% despite the number of transactions falling.

Whilst gifting or lending loved ones the money to act as a deposit on their first home can be rewarding in itself, you do need to look at the long-term picture. The sums being handed over can be significant. In fact, the average amount passed down now stands at £24,100. In order to do so:

• 15% of over-55s have accepted a lower standard of living after helping family buy a home
• 21% dipped into ISA savings, 7% used their pension drawdown and 6% used income delivered from Annuities
• 16% unlocked housing wealth through a lifetime mortgage to provide financial support

In many cases, these steps won’t present an issue. But, worryingly, over a quarter (26%) of Bank of Mum and Dad lenders are not confident they now have enough money to last throughout retirement. 10% also said they no longer feel financially secure.

So, how can you financially help your family and still be confident in your own future?

Using cashflow modelling to understand the impact of a financial gift

Let’s say you’d like to give £20,000 to a grandchild to help them purchase their first home. It’s a sum you might have stashed away in a savings account or investment portfolio. It’s not something you need to use now to maintain your lifestyle.

But will giving that money away now mean you struggle financially in ten or 20 years’ time? Could it mean that the care you’d prefer if it were required is out of reach?

It’s not unusual to worry about the long-term impact of a lump-sum gift. Yet, it can be difficult to understand what that impact may be. This is where financial planning and using cashflow modelling as a tool can give you peace of mind. Cashflow modelling is a visual way to show how your wealth may change over time, demonstrating the consequences of different decisions. You can see how withdrawing a lump sum now could affect your income and assets over the short, medium and long term.

Often clients find they’re in a position to help their loved ones with a financial gift, and the financial planning process means they can do so with confidence in their future as well as their families.

Providing support if a financial gift isn’t an option

Should you find a financial gift isn’t an option for you, there may still be a way you can offer support. There are other ways in which you can help children or grandchildren make that first step on to the property ladder.

• Provide a loan: Four in ten of those providing financial support to family members, require some form of repayment. If, after assessing your finances, you find you need the money at a later date, a loan can work well. Low-interest rates on mortgages mean family members that have been renting will often find outgoings reduce when they buy their own home, allowing them to pay you back. If this is the route you want to go down, be sure to take legal advice.
• Look into offset mortgages: An offset mortgage is linked to a savings account. When money is placed in the savings account, it can reduce the amount of deposit needed and reduce interest rates. It allows you to provide support whilst still retaining control over your savings. You usually won’t continue to receive interest on your savings, however, will not be paying interest on the equivalent mortgage amount. Your money may also be tied up for a defined period of time. You should research the different options to see how they fit in with your pla,s
• Use a family mortgage: A family mortgage allows children or grandchildren to borrow more or reduce the deposit needed by using your home or savings as security. You’ll usually have to own your home outright, or owe relatively little on a mortgage, for this to be an option. If you use your savings, you will continue to receive interest on them so won’t lose out there. Again, there are some important considerations here. If your child or grandchild defaults on their mortgage, you’ll be responsible too and could lose your own home as a result. Make sure those you’re helping can afford the mortgage and understand the implications it could have on you.
• Reduce inheritance: If you have money earmarked for an inheritance, it may be worth looking at whether it would have a greater impact now or in the future. In some cases, your generosity could lead to loved ones having a financially secure future if it’s given now.

If you’d like to explore your options to help younger family members get on the property ladder, please get in touch. We’ll help you understand how a gift could impact your financial wellbeing, as well as what your other options are.

Thousands of investors have been sucked into putting their money into unsuitable mini-bond products following extensive advertising, particularly on social media. The Financial Conduct Authority (FCA) has now clamped down on the marketing of such products following a scandal. But many are likely to lose their money.

What is a mini-bond?

A mini-bond is effectively an IOU where you lend money directly to businesses, receiving regular interest payments over the term of the bond. However, the money you make back is based entirely on the firms issuing them and not going bust. As a result, they aren’t suitable for most investors. If the business collapses, you’re not guaranteed to receive your money back. Mini-bonds are not normally protected under the Financial Service Compensation Scheme (FSCS) either.

The London Capital & Finance scandal highlighted this.

Around 11,500 bondholders poured £237 million into London Capital & Finance after being promised returns of 6.5% to 8%. The investment opportunity was advertised extensively, including on social media platforms. This meant it reached a wide range of investors, including those it may not be suitable for. The firm collapsed in January 2019 and investors could lose all their money tied up in the mini-bonds. For some investors, it could mean losing their life savings or having to adjust plans significantly.

Coming into force on 1 January 2020 and lasting for 12 months, the FCA has banned mass marketing of speculative mini-bonds to retail customers. Over the course of the year, the regulator will consult on making the ban permanent.

Andrew Bailey, Chief Executive of the FCA, said: “We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risk involved. The risk is heightened by the arrival of the ISA season at the end of the tax year, since it’s quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.”

As a result, speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth.

Learning from the mini-bond scandal

The FCA ban aims to protect investors, but some lessons can be learnt from the mini-bond scandal too.

1. Make sure you understand your investments

Investments can be confusing, but you should ensure you understand where your money is going before parting with your cash. Taking some time to do your research can give you more confidence in your decision and reduce the risk of choosing products that aren’t right for you. If you’d like to discuss an investment opportunity and how it fits into your plans, you can contact us.

2. Ensure investments are authorised and regulated

Investments that are regulated and authorised by the FCA can provide you with protection. The regulation around mini-bonds is much less stringent than for listed bonds. What’s more, a business does not have to be regulated by the FCA to issue mini-bonds. As a result, they aren’t suitable for most retail investors. Even when a business claims to have regulations, it’s worth checking this is true and understanding what protection this offers you, if any.

3. Make sure investments fit your risk profile

Mini-bonds are considered a high-risk investment. That means there’s a greater chance your returns could be less than your initial investment or that you lose all your money. Your risk profile should consider a range of different areas, such as your capacity for loss, investment goals and other assets. In many cases, the risk associated with mini-bonds would be too high for typical investors.

4. Be mindful of scams

Financial scams are rife, and the mini-bond scandal highlighted why it’s important to carry out due diligence. Some mini-bonds falsely claimed to have ISA status, making them more tax efficient. This could mean some investors face unexpected tax charges. However, this claim could also lead investors into making a decision that’s wrong for them. ISAs are commonly used products and considered ‘safe’, in contrast to mini-bonds.

5. Don’t rush into making decisions

When you see an ad with an enticing offer, it’s easy to react straight away. However, carefully considered decisions are far more appropriate than impulse ones when it comes to investing. Don’t rush into making investment decisions. Instead, take some time to think about what your options are, and which is most appropriate for you.

6. Be realistic about investment performance

With some money bonds claiming to be low risk whilst offering returns of 8%, it’s easy to see why retail investors were tempted. But investments with higher potential returns will carry higher levels of risk too. When assessing investment opportunities, be realistic. Here, the old saying rings true: if it sounds too good to be true, it probably is.

Please contact us if you have any questions or concerns about your investment portfolio. Our goal is to ensure each of our clients is comfortable with their investments, and wider financial plan, including the level of risk involved.

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

Venture Capital Trusts (VCTs) have been around for 25 years! Over those years, they’ve become an important part of investment portfolios for many people. But are they the right option for you and how could they fit into your wider plans?

Back in November 1994, then Chancellor Kenneth Clarke unveiled VCTs as part of his budget and established them the following year. The reason for doing so was to generate investment opportunities in “dynamic, innovative growing businesses”. They were designed to give individual investors a way to access venture capital investments, expanding options.

Of course, they’re not an appropriate investment choice for every investor. It’s important to understand how VCTs operate, the level of risk presented and whether it suits your overall goals before proceeding.

Getting to grips with VCTs

A VCT is an investment company that’s set up to invest in small UK businesses. These companies are often early-phase that are either unquoted or listed on the AIM, a sub-market of the London Stock Exchange. They need investment in order to develop quickly. They have the potential to deliver high returns but there’s a risk that comes with this.

You’re backing smaller companies that are typically unproven. As a result, there is a risk that the value of investments will go down.

As an incentive to investing through VCTs, the government offers tax relief. When you invest in new VCT shares, you’re entitled to claim tax incentives up to £200,000. These include:

• Up to 30% Income Tax relief on the amount invested
• Tax-free capital gains
• Tax-free dividends

Other benefits to using a VCT is that it can help you diversify your portfolio by accessing different companies to back.

But these incentives and benefits shouldn’t be the only thing you look at when deciding to invest in a VCT. Keep in mind that a VCT is a long-term investment. Values may fall and it’s likely that more volatility will be experienced than if you invested on the London Stock Exchange, for example. Carefully assess your investment risk profile before looking at VCTs.

It’s also important to note that tax treatment will depend on your individual circumstances and VCTs must maintain its qualifying status to deliver investors tax relief.

The success of VCTs

Although not suitable for every investor, VCTs have proven popular and helped some well-known companies find their feet.

According to Money Observer, individual investors have ploughed more than £8.48 billion into VCTs over the last 25 years. In the first tax year after legislation was introduced, 12 VCTs raised £160 million. By 2018/19 this had increased to 34 VCTs that raised £731 million.

Over the years, many businesses have benefited from VCT backing, including Zoopla, Secret Escapes, Five Guys and Everyman Cinemas. Some lucky investors have reaped the rewards of backing these successful companies early on. In 2018/19, VCTs paid out £294 million in tax-free dividends.

Three of those very first VCTS are still operating today. According to Money Observer calculations, if you had made a £10,000 investment at launch, and reinvested all dividends, your total returns would be:

• Northern Venture Trust: £47,837
• Albion VCT: £39,848
• British Smaller Companies VCT: £31,461

Once you factor in tax relief, the returns rise even further. Assuming income tax relief was claimed on the initial investment and subsequent dividend reinvestments the figures would be: 

• Northern Venture Trust: £63,797
• Albion VCT: £52,177
• British Smaller Companies VCT: £42,680

When are VCTs suitable?

A glance at the returns certainly makes VCTs look like an attractive option for investors. But they’re not suitable for the majority of investors.

VCTs tend to be considered for investors that already have large portfolios holding mainstream investments. They can be a way to diversify a portfolio but how the risk of VCTs will adjust the overall portfolio position needs to be considered. If you have a low tolerance for investment risk, a VCT may not be right even if you have a significant amount invested elsewhere.

The tax incentive can also make VCTs valuable for investors that have used their ISA and pension allowance in full. Furthermore, it can be a way to reduce your tax bill for high net worth individuals. If this is your goal, it’s important you look at what other solutions may be open to you too.

Finally, as with all investments, putting money into a VCT should be done so with a long-term horizon. In addition to smoothing out short-term volatility, VCTs must be held for five years to permanently keep the up-front tax relief.

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