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

The global economy continues to have a gloomy outlook. In October, the World Trade Organisation slashed its global forecast to the lowest in a decade. The organisation now predicts growth of 1.2% this year, compared to the 2.6% estimate it gave in April this year. As is still a common theme, the reduced expectations were linked to Brexit uncertainty and ongoing trade wars.

The new Managing Director of the International Monetary Fund Kristalina Georgieva also used her inaugural speech to warn the global economy is now in a synchronised slowdown urging politicians to act. It points to continued volatility for investors.

UK

Unsurprisingly, in the UK, Brexit continues to be the key topic on everyone’s lips.

For a short time, it looked as though the UK would be leaving the EU on the 31^st October deadline. Prime Minister Boris Johnson managed to get his deal through the first stage this month, beating predecessor Theresa May, but that’s as far as it got. We’re now set to have a general election on 12^th December, indicating the Brexit uncertainty is far from over.

Nissan has also waded into the Brexit debate. The Japanese car maker has said it would review its decision to build the Qashqai sport utility vehicle in Sunderland if the UK were to leave the EU.

The UK narrowly avoided recession. Whilst the economy shrunk by 0.1% in August, it’s still up 0.3% over three months. The figures have gone a little way to easing fears that a recession is on the horizon. Overall, statistics paint a gloomy picture:

• Markit data suggests factories are cutting jobs at their fastest pace for six years
• The construction industry is now shrinking at a faster pace, the PMI fell from 45 in August to 43.3 in September, figures below 50 indicate contraction. Jobs in construction also fell at their fastest pace since December 2010
• Retailers in the UK suffered their worst September in at least 24 years, according to the British Retail Consortium. This is coupled with data from Barclaycard finding retail spending on credit cards was also subdued
• Worryingly, the UK’s dominant service sector is now declining along with manufacturing and construction
• The housing market has stalled, with prices falling 0.2% nationally in September, according to figures from Nationwide. London leads the fall with a 1.7% decrease
• One bright spot in the figures was TV and film, which helped boost GDP thanks to several box office productions

Moving on to some company news, an inquiry was launched into the collapse of Thomas Cook. Executives were questioned by MPs about remuneration policy and accounting practices, among other areas, after the travel firm collapsed at the height of the holiday season this summer, leaving thousands stranded.

Another much-loved British brand is facing challenges too. John Lewis Partnership is looking for discounts from landlords amid struggles that meant it made a loss in the first half of the year for the first time. A major shake-up is underway at the company though; one in three senior management HQ jobs will be cut as it merges running John Lewis and Waitrose.

Europe

Europe continues to be affected by both Brexit and the US-China trade war; the manufacturing PMI fell from 47 in August to 45.7 in September, the lowest reading since October 2012.

Germany, often seen as the stalwart of Europe, has also seen a flurry of negative news. Growth forecasts have been slashed to 0.5% for this year and 1.1% in 2020. This compares to previous estimates of 0.8% and 1.8% respectively. Factory orders slumped by 6.7% year-on-year in August and exports fell 3.9%.

Tellingly, a Sentix survey revealed that Eurozone investor morale has hit a six and a half year low. With difficult conditions continuing, it’s a sentiment that may not pick up for some time.

New US tariffs on some EU products also came into effect on the 18^th October. The tariffs of 25% affect a wide range of products from across the continent, including French Wine, Italian Parmesan, Spanish olives and Scottish whisky.

US

Statistics in the US also point towards a slowdown.

Factory output fell at its fastest rate in a decade, falling to 47.8. The news affected stocks on both sides of the Atlantic with prices falling in response.

President Donald Trump celebrated unemployment figures as they fell to 3.5%, the lowest since December 1969. However, this statistic shows just one side of the job market; wage growth fell below expectation indicating that the unemployment figures may be unsustainable.

The Federal Reserve also cut interest rates to the 1.5%-1.75% range as business investment and exports continue to be weak. Despite Trump urging action for months, he still blasted the move, stating the Fed had been too slow to act.

Now on to an area that’s having global consequences; the trade war between the US and China.

Even basketball became implicated in the issue after General Manager of the Houston Rockets expressed support for Hong Kong. China’s state broadcaster, CCTV, then halted plans to air the league’s pre-season games.

Whilst tensions have been rocky between the two countries this month, there could be a deal just around the corner. The US blacklisted 28 Chinese firms, citing human rights violations. The Beijing Foreign Ministry accused Washington of ‘smearing China’ over the crackdown. However, by the end of the month, Trump indicated that he could sign a preliminary trade deal very soon. Meetings will continue into November.

Asia

Of course, the trade war with the US continues to have an effect on China. The country missed its economic growth forecast. GDP grew 6% between July and September. Whilst this is still within its target range, it may be a reminder that the fast-paced growth of China can’t last forever.

Another key issue in Asia is the ongoing protests in Hong Kong. The special administrative region of China has now faced months of protests with tensions continuing to escalate. As a result, it’s not surprising that the country has now fallen into a recession.

Keep an eye on our blog for more investment updates.

If you have any concerns about your investment portfolio in light of recent events, please get in touch.

Research has highlighted how being cautious with pension investment can be as damaging as taking too much risk. In some cases, a cautious approach is appropriate. But, in others, it’ll be the result of subconscious financial bias affecting the decisions we make.

Research from Cass Business School found women are more risk-averse than men. It’s a trend that could be affecting how much women have in their pensions and other investments. The research also found that young people and those that are single are more likely to be risk-averse too.

Professor David Black, co-author of the paper and Director of the Pensions Institute at Cass, said: “Women, because they are more risk-averse than men, would be more comfortable with lower-risk investments. Over a long investment horizon, such as that involved in building up a pension pot, this behaviour has been described as ‘reckless conservatism’ – women with the same salary history as men would, on average, have lower pensions as a result.

“On the other hand, men’s investment overconfidence can lead to ‘reckless adventurism’. This is not necessarily desirable at older ages close to retirement, since there is less time to recover from a severe fall in stock markets.”

What is financial bias?

Financial bias is simply a human tendency that affects our behaviour and perspective. These may be based on beliefs and experiences. In financial terms, bias may affect your ability to make decisions objectively. For instance, you may make a choice based on emotional bias rather than evidence.

Taking the above example; why are women more likely to take less risk with investments? It’s likely that bias is having an impact. Whilst the research didn’t show their personal circumstances, pre-conceived ideas will be affecting some women when they decide how much risk to take.

There are many forms of financial bias that may affect your decisions, including these three:

1. Loss aversion

This is the financial bias that the above research looked at. It’s an emotional tendency to prefer avoiding losses over making gains. Past research has indicated that the pain of losses is greater. As a result, investors may choose lower-risk options than appropriate to avoid this.

Another example of loss aversion is selling stocks to prevent further losses before you planned. Whilst doing so may protect you from further falls, it can be damaging. Selling stocks and shares effectively lock in your losses. Remember, over the long term, investments typically deliver returns. 

2. Confirmation bias

Let’s say you’re looking at pension opportunities and decide one option is too high risk. But you decide to do some research anyway. Confirmation bias leads you to seek out information that supports your view. So, you’d discard the figures that suggest it could actually suit you. As a result, research simply backs up what you already believe.

Confirmation bias can lead to a one-sided financial view. It can make it difficult to objectively balance the pros and cons. Being aware of this can go some way to improving your research process, as can working with a financial planner.

3. Herd behaviour

If you’ve ever found your action mimicking those of a larger group, herd behaviour could be to blame. In some instances, it’s right to follow what others are doing. But it should align with your own reasoning, plans and wider goals. With so much noise in investment markets, it can be difficult to focus on what’s right for you.

For example, if markets start to decline, you may pull out investments if others are doing so. This is because you believe that the majority must be right. Yet, their circumstances and aspirations may be very different from yours. It’s important to build a financial plan you have the confidence to stick to.

How can financial planning help?

Working with a financial planner can help you remove some of the bias from decisions. It allows you to view your options through another’s eyes. You may have a clear idea about the best way to invest for retirement, for example. But after talking with a financial planner, you discover that taking more or less risk is appropriate.

Financial bias can also mean making snap decisions. For instance, when the value of stocks begins to fall you may consider selling. Having a long-term financial plan in place can give you the confidence to hold steady. This, in turn, can help keep you on track for your goals.

If you’d like to discuss your financial future, please get in touch. Our goal is to create a financial plan that reflects you and that you have confidence in.

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.

In recent years, we’ve heard a lot about the gender pay gap, from salary to pension savings. But HMRC data reveals that the pension gap starts at a much younger age. Boys are more likely to have had a pension opened in their name before they turn 16 compared to girls. Thanks to the benefits of compound interest and tax relief, this could mean a significant pensions gap before children even apply for their first job.

There are restrictions on how much you can pay into children’s pensions. But even small contributions can make a big difference. As the contributions are typically invested, gaps can widen.

Figures obtained by Hargreaves Lansdown found 20,000 boys under 16 had money paid into a pension on their behalf in 2016/17. This compares to 13,000 girls. Whilst both figures are relatively low, it does highlight the gap.

Nathan Long, Senior Analyst at Hargreaves Lansdown, said: “Parent and grandparents are far more likely to save for boys than girls, so the gender pension gap can start from birth. While women’s paltry pension savings are rightly blamed on the gender pay gap and their greater role in looking after the family, there is another villain in the piece.

“It’s counter-intuitive that there are more pensions for boys as women earn less, take more career breaks, and yet have longer retirements, so need more in their pensions. It’s unclear why this discrepancy exists, although it could be because gifting has come in part from a generation of baby boomers where men are typically more likely to have the lion’s share of pension in retirement.”

So, should you consider paying into a pension for your child or grandchild?

How do children’s pensions work?

People that do not have any earnings can pay up to £2,880 per year into a pension, including children. Contributions will receive a 20% tax relief, boosting the pension further.

The restriction may seem like the savings will add up to little when you consider how much is needed for retirement. But, look at it over the long term, and the impact can be significant. Past research has indicated contributing the maximum annual amount each year could result in a £1 million pension.

According to AJ Bell, depositing the maximum £2,880 for the first 18 years of a child’s life would result in a £105,197 pot. This assumes a 20% tax relief is applied and a growth rate of 5% after fees. That’s a nice sum to hand over to your child. However, as it won’t be accessible, it has decades to grow. Leave it for another 46 years, until the child is 64, without making further contributions and it could have reached £1 million.

It’s a step that can help secure the financial future of your child and ease concerns.

There are three key reasons to consider paying into a child’s pension over alternatives:

• Tax relief: Pension contributions will receive tax relief at 20% if the person is receiving no other income, as is likely the case for children. It gives your contributions an instant boost.
• Compound growth: Pensions are a long-term investment product and, as a result, benefit from compound growth. This can help your contributions to grow significantly.
• Restrict access: Some alternative products will allow your children to take control at 16. However, with a pension you know they won’t be able to access it until retirement age.

Children’s pensions: The pitfalls

Whilst paying into a child’s pension can be an efficient way to save for the long term, it often isn’t the right solution. Pensions aren’t readily accessible and may mean they’re not suitable. Other products, for example, can help children or grandchildren through university or stepping onto the property ladder.

It’s important to fully explore the alternatives before choosing to pay into a pension. Other options may be better for your goals, including:

• Easy access savings account
• Cash Junior ISA
• Stocks and Shares Junior ISA

If you’re saving for a child’s future and want guidance, please get in touch. We’ll help you understand the different options and where contributions can be best used to secure their future.

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.

Are you planning on taking a career break?

There are many reasons why you might decide to take a career break and it’s often an emotional decision. However, finances are likely to be a key part of whether it’s possible and the impact on your future. Uncertainty around the circumstances of some career breaks can make it incredibly difficult and stressful to manage finances.

Even if you don’t plan to take a career break soon, it could be on the horizon.

According to research from Aviva:

• 19% of employees aged 45 and over in the UK expect to leave work in order to care for adult family members
• 10% of mid-life employees expect they will have to leave work to care for children or grandchildren

Whilst career breaks for care reasons are common, many employers fail to consider the issue. It can mean there’s a significant disconnect and that working isn’t possible, even if a career break isn’t your preferred option. Just 6% of employers view caring pressures as a significant issue faced by their employees.

Lindsey Rix, Managing Director at Aviva, said: “The practical, financial and emotional costs of caring for relatives both young and old are forcing many people in mid-life to make increasingly difficult decisions about balancing commitments. Mid-life is the fastest-growing age demographic in the UK workforce, so we can expect these pressures to grow.”

Whatever your reason for taking a career break, it’s important to consider the financial implications.

The impact on your immediate income

The first thing to do is to make sure your plans are affordable in the short term. How would a loss of income affect your lifestyle?

Take a look at your outgoings and how these might change. You may find that your overall expenditure decreases. For example, travel costs may fall if you’re no longer commuting. There may also be areas where you’re happy to cut back in order to take a career break. Understanding your regular outgoings is the foundation for creating a financially secure career break.

Then, you need to look at your income sources. How will you meet financial commitments and live the life you want? You may have a partner who will be bringing in an income, for example. Alternatively, savings or an investment portfolio may provide you with the capital needed. You should also look at whether you’d be eligible for means-tested support.

Understanding the impact on your day-to-day life means you can make an informed decision about whether a career break is right for you and whether it’s financially possible.

Looking further ahead

When planning a career break, it’s often the short term that’s focussed on. However, it’s just as important that the medium and long term are considered too.

In the medium term, it’s likely that your savings will be affected. This may be due to using savings to supplement an income or because you’re putting less away. How will the impact on savings affect medium and long-term goals you may have? Will you need to adjust your plans to reflect the impact of a career break?

Another area to pay attention to is your pension. You may decide to take a break from paying into a pension, freeing up more income for now. However, even a short break can have a significant effect on the amount you retire with. Even if you decide to continue paying into a pension, you’ll lose the benefit of employer contributions. Again, this can have a big effect over the long term.

Planning ahead can be a daunting prospect but it’s a step that can help secure your financial future.

Modelling the impact of a career break

Calculating the financial impact can be difficult. After all, you may not have a concrete plan for when you’ll go back to work. Even if you do, you may have a lot of ‘what if’ questions. This is where financial planning can help.

We’ll help you understand how taking a period out of work will affect your finances in the short, medium or long term. With this information, you’re able to put precautions in places where necessary and proceed with confidence. Our goal is to give you the financial peace of mind needed to take a career break when necessary.

Whether you’ll be providing care or simply want a break, taking control of your financial future is crucial. Contact us to discuss how your plans could have an impact.

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.

Millions of people in the UK are now self-employed. Whether you work for yourself or are part of an industry where contracting is commonplace, it can place pressure on your finances. You need to manage your financial situation and potentially plan for periods where you’re not earning an income. Working with a financial planner can give you confidence in your career and future security.

There’s been rapid growth in self-employment in the UK in recent years. According to official statistics:

• 3.3 million people (12% of the labour force) were self-employed in 2001
• By 2017, this had increased to 4.8 million people (15.1% of the workforce)

There are many benefits to being self-employed, but it often means you need to take greater control of finances in order to ensure you meet goals. So, how can a financial planner help you?

1. Paying into and managing a pension

The majority of UK employers will now benefit from a Workplace Pension. However, if you’re self-employed, you’ll need to set up and manage your own pension. Whilst you won’t benefit from employer contributions, you’re still entitled to tax relief. For many self-employed individuals, a pension will be the most efficient way to save for retirement.

There are a variety of ways of setting up your own pension and you may have many questions.

• Should you invest through a fund or select your own investments?
• How much should you aim to put away each month?
• What kind of income will your contributions afford you?

A financial planner can help create a long-term financial plan that considers your lifestyle now and the one you want to achieve in retirement.

2. Creating a financial safety net

When you’re self-employed, there is a chance that your income will stop or reduce. As a result, it’s important to create a financial safety net that you can fall back on should something happen. This could be a period of illness, meaning your income stops in the short term or a contract coming to an end.

Financial planning should give you confidence that you’re financially secure even if these ‘what if’ scenarios did happen. The right solution will depend on you and your priorities. It may involve building up an emergency fund and taking out an appropriate insurance policy, for example.

3. Building suitable savings and investments

We all know we should be putting some of our income aside. But it can be challenging to know what to do with it. Should you hold in cash or invest? There’s no right or wrong answer to this. It’ll depend on your personal situation and attitude to risk.

With so many different providers and products on the market for both cash savings and investments, it can be just as daunting to decide where to put it. Again, this will depend on you and what you’re saving for. If you’re saving for a goal that’s a year away, you’ll need a very different product if you plan to save for 15 years. Our goal is to help clients pick out the right products for them.

4. Getting to grips with tax liability

As you’ll be responsible for organising your own Income Tax, it’s worth spending some time understanding it. There are often steps you can take to reduce your liability depending on your circumstances. However, there are other areas of tax to be aware of too; could your income from investments be liable for tax, for example?

Knowing your tax responsibilities enables you to avoid potentially hefty penalties and set realistic expectations. Tax regulations can often be complex and difficult to apply to your situation. This is where working with a financial planner comes in useful. We’re here to help you get to grips with tax and make the most out of your money.

5. Understanding your long-term goals

Financial planning isn’t just about looking at figures though. It helps you to see how your money habits can help you achieve short, medium and long-term aspirations. People often know what they want in the short term, but planning further ahead can be difficult.

If you’re self-employed, it’s worth thinking about whether you ever want to return to traditional employment, when you’d like to retire, and what the future holds. Talking with a financial planner about your wider goals can help put in place a plan that sets you on the right path.

If you have any questions about the above issues or any other financial matter, please get in touch. We aim to work with all clients, including those that are self-employed, to have confidence in their future.

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.

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.

The Financial Conduct Authority does not regulate Tax and Estate Planning.

November marks Talk Money week, an initiative that aims to encourage more people to talk about their finances. In the UK, personal finances can be something of a taboo subject. It’s not something we widely discuss. But whether it’s chatting with your partner or your financial planner, there are a lot of reasons why we should all make an effort to talk about money.

1. Look at your finances from another perspective

As the saying goes, two pairs of eyes are better than one. Keeping money worries or concerns to yourself means you only see solutions from your perspective. Sharing, whether with a loved one or professional, can give you a fresh viewpoint. If you’re not sure which way to go or feel as though you’re stuck in a rut, chatting about your options can be just what you need to spark some inspiration.

2. Alleviate stress

Money can be one of the biggest causes of stress. Whether you’re worried about what would happen if your income were to stop, or whether you’ll outlive your pension, it can be a cause for concern. Financial stress can affect other parts of life too, including your overall wellbeing. Sharing worries can feel like a weight has been lifted off your shoulders and may lead to a solution that you hadn’t thought of. However, it’s important to keep in mind that what has worked for one person, won’t necessarily be right for you. Our goal is to provide each client with peace of mind when they think about their finances. 

3. Pass on your knowledge

Over the years, you’ve probably picked up a few tips of your own. Why not share what you’ve learnt with others? It could help them achieve their goals and improve their financial situation. Whether it’s just a gentle reminder to set money aside for a rainy day or insights you’ve picked up when building up your own investment portfolio, it could be useful. It’s also an opportunity to debate different options and maybe pick up something new from others too.

4. Share your experiences with loved ones

The challenges facing younger generations are often featured in the news, including struggles getting on the property ladder, saving for a longer retirement and stagnant wages. Talking about money with children or grandchildren can help you understand the challenges they’re facing and how you may be able to help. Sharing your experiences can offer some insight and encourage them to come to you when they’re in need of advice.

5. Take the opportunity to consider the long term

When you think of money, it’s often short-term factors that we focus on. Perhaps you focus on where your savings are going each paycheque or what you’re putting away for grandchildren. Talking about money is an opportunity to start thinking further ahead; what would you like to achieve in ten or 20 years’ time? It could be becoming mortgage-free as quickly as possible or enjoying the retirement lifestyle you’ve been looking forward to. By setting out aspirations, you’re able to create a plan that enables you to take steps towards them.