Over the last few months, you can’t have missed the tough economic headlines. You’ve also likely seen the impact of the global economy on your own finances.

Whether it’s the rise in the energy price cap and the rate of National Insurance contributions (NICs), the increasing cost of goods and services, or the impact of stock market volatility on your pensions or investments, it’s been a tricky 2022 so far.

It’s natural to feel nervous or worried when national or global events have a direct influence on your wealth.

2022 has seen a conflation of events, from global supply chain issues to the Russian invasion of Ukraine. Throw in inflation hitting a 40-year high, rising interest rates, and the continuing effect of both Brexit and Covid, and it’s easy to see why things might have been a little uncertain.

Read on to find out more about how markets have fared so far in 2022, and three practical things to remember during difficult periods.

Markets have endured a volatile start to 2022

With the exception of the UK FTSE All-Share index, global stock markets have mostly seen a downturn at the start of 2022.

The table below shows the performance of a range of regional indices between January and the end of April 2022.

Source: JP Morgan. Figures from FTSE, MSCI, Refinitiv Datastream, Standard & Poor’s, TOPIX, J.P. Morgan Asset Management. All indices are total return in local currency, except for MSCI Asia ex-Japan and MSCI EM, which are in US dollars. Past performance is not a reliable indicator of current and future results. Data as of 30 April 2022.

April was particularly brutal in US markets. CNBC report that the Nasdaq fell about 13.3% in April, its worst monthly performance since October 2008 during the global financial crisis.

The S&P 500 lost 8.8%, its worst month since March 2020 at the onset of the Covid pandemic, while the Dow Jones fell by 4.9%.

Of course, different regions have reacted differently to the current issues.

This is one reason it’s important to hold a diversified portfolio, as falls in one region can be offset by rises elsewhere. While US markets may have fallen, the FTSE 100 is broadly at the same level it started 2022, helping to balance the performance of your portfolio.

If you’re concerned, here are three things to always remember during uncertain times. We hope they may help you to manage any anxiety you have about your finances.

1. Cash is not always king

In times of volatility, it can be tempting to exit the stock market altogether and move your money into cash savings. Keeping your money in the bank or building society might reassure you that it won’t “lose” value.

However, there are two important points to bear in mind.

Firstly, if you sell your investments during a downturn, you are effectively turning a paper loss into an actual loss.

Here’s the performance of the FTSE 100 from the start of January to 23 May 2022.

Source: London Stock Exchange

If you’d decided to sell and exit the market at the start of March, you’d have missed out on the subsequent growth in April and May.

Secondly, while you may not “lose” money by keeping your wealth in cash savings, you are almost certainly eroding its value in real terms.

The latest Office for National Statistics (ONS) data shows UK inflation reached 9% in April. Compare this to the highest interest rate you can receive on easy-access cash savings in May 2022 which, according to analysts Moneyfacts, is just 1.25%.

• If you save £100,000 at 1.25% you’ll earn £1,250 interest, so your cash in a year will be worth £101,250.
• If inflation remains at 9%, £100,000 worth of goods and services now will cost £109,000 in 12 months’ time.
• In real terms, keeping your wealth in cash has hugely eroded its buying power.

While it’s important to keep some money in cash – we can work with you to establish exactly how much – keeping too much in cash can slow your progress towards your long-term goals.

2. If your goals haven’t changed, neither should your plan

The key to successful financial planning is about establishing your goals and devising a plan that can help you to reach them. These might include protecting your loved ones, retiring early, or helping your children through education or onto the property ladder.

When we devise a plan, we factor in all sorts of unknown variables. These will include periods of investment uncertainty, inflation and, of course, changes to your own circumstances.

Remember: your plan already assumes that there will be tricky periods in the markets!

If your long-term goals haven’t changed since the start of the year, it’s unlikely that your plan will need to change either.

Your goals might be 10, 20 or even 30 years in the future, so the performance of the stock market in May 2022 is, in the overall scheme of things, not going to make an enormous difference to you meeting your goals.

Instead, have faith in the process, and in the plan. In the long term – and that’s what you’re likely to be investing for – markets tend to offer positive returns.

As Paul Samuelson said: “Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.”

3. Investing after a downturn could provide rewards

Warren Buffett, often seen as one of the world’s leading investment gurus, has a useful quote for periods of economic uncertainty: “Be fearful when others are greedy, and greedy when others are fearful.”

What he means is that investing in a falling market can offer benefits when markets recover which, history tells us, they almost always do.

It’s impossible to guess when the bottom of the market is, even for experienced fund managers.

However, had you decided to take a contrarian view and invested after the significant downturn in the markets when the first lockdowns were mandated in March 2020, you’d have seen positive growth on your investments since that time.

Sometimes, looking at a period of uncertainty as a potential opportunity can change your mindset. Of course, you must remember that past performance is not a reliable indicator of future performance and that the value of your investment can go down as well as up and you may not get back the full amount you invested.

We’re here to help

Benjamin Graham once said: “The investor’s chief problem – even his worst enemy – is likely to be himself.”

When times are uncertain it’s easy to act on emotion. Your behavioural biases kick in, and you might make knee-jerk decisions that can impact your long-term goals.

That’s why we are here. We can chat through the current situation with you, review your plans and your goals, and give you the reassurance that you’re on course. And, if you’re not on track, we can take steps to ensure your goals remain attainable.

If you would like to chat to us about the current uncertainty, or you’d like to review your financial plan, please get in touch.

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 the 12 months to April 2022, the rate of inflation was 9%.

In simple terms, inflation means the cost of goods rise. The higher the rate of inflation, the quicker prices are rising. It can affect your day-to-day budget and your long-term wealth.

“Inflation is taxation without legislation.” – Milton Friedman, American economist, statistician, and recipient of the 1976 Nobel Prize in Economic Sciences

More than a fifth of people say the rising cost of living is the biggest threat to their personal finances in 2022. So, this guide can help you understand why inflation is an important consideration when making plans and what steps you can take to reduce the effect. It covers:

• How the rate of inflation is calculated
• Why the rate of inflation is higher than normal now
• Whether the value of your assets has kept pace with inflation
• Why inflation can mean your savings fall in value in real terms
• How inflation can affect your spending power in retirement
• And more…

Download “Your guide to inflation and how it can affect your wealth” to find out more about inflation and what it could mean for you.

If you have any questions about how inflation could affect your financial plan, please contact us.

The conflict in Ukraine is continuing to affect markets and economies around the world.

According to a report from the Kiel Institute of the World Economy, the war led to global trade falling 2.8% between February and March.

The effect has led to the International Monetary Fund (IMF) downgrading its global growth forecast too. In 2022, the global economy is now expected to grow by 3.6%, compared to an earlier prediction of 4.4%.

Inflation is a challenge that many countries are facing as the cost of living rises. The Bank for International Settlements (BIS) has warned that the world may be on the cusp of a new inflationary era. Agustín Carstens, manager of the BIS, added that without a sharp rise in interest rates, there was a risk that prices could rise uncontrollably.

UK

In the 12 months to March, UK inflation hit 7% – the highest rate since 1992.

As the increase to the energy price cap came in on April 1, inflation could be pushed even higher in the coming months. It’s set to place pressure on both consumers and businesses.

Data from the Office for National Statistics (ONS) found that regular real pay, which excludes bonuses, increased by 4% in the 12 months to March. However, once you factor in the rate of inflation, in real terms this means a reduction as the spending power of peoples’ income falls.

An ONS survey found that rising energy and commodity prices are the two main concerns for UK-based businesses. To alleviate some of the pressure, businesses are expected to increase prices further. A British Chambers of Commerce (BCC) survey found that 62% of firms expect prices to rise in the next three months, the highest percentage recorded since the survey began in 1989.

Ongoing price rises are likely to affect consumer sentiment.

Car sales suggest that some consumers are already changing their spending habits. According to the Society of Motor Manufacturers and Traders (SMMT), car sales in March were the weakest they’ve been in 24 years. Sales fell by 14.3% year-on-year despite sales being subdued in 2021 because of the pandemic.

Amid the cost of living crisis, Deutsche Bank warned that there is a risk of the UK entering a recession. The bank said there are signs that the economy is slowing as it faces inflation pressure, global uncertainty, and supply chain challenges due to the effects of the pandemic.

Europe

Unsurprisingly, the eurozone is also experiencing significant rates of inflation.

According to Eurostat, the rate of inflation in March was 7.5% – the highest figure recorded since the single currency was created in 1999. The figure is much higher than the 6.6% expected by economists, with rapidly rising energy prices playing a key role in the high inflation rate.

In a bid to tackle soaring energy prices and guarantee the security of energy suppliers, German regulators have taken temporary control of Gazprom Germania. This effectively nationalises the unit in the short term.

While the eurozone is struggling with inflation, there is some good news. Thanks to a rebounding service sector, growth is picking up from a 17-month low, according to data from an S&P global flash survey. However, the survey also found that confidence among businesses remains subdued.

Following its invasion of Ukraine, economic forecasts and data suggest Russia is facing serious challenges.

The S&P Global Russia Composite PMI Output Index suggests the country’s private sector is contracting at the fastest rate since early in the pandemic. Many businesses have withdrawn or suspended their operations within the country in light of the invasion.

The UK government estimates that Russia is heading for its deepest recession since the collapse of the Soviet Union. The forecast suggests the Russian economy will shrink between 8.5% and 15% this year.

US

In the US, inflation reached another 40-year high in March at 8.5%.

However, there was good news for the job market. Despite fewer new jobs than expected, data from the Bureau of Labor Statistics show that unemployment fell again to 3.6%. The figure is the lowest recorded since the economy began recovering from the pandemic and indicates that businesses are still confident about the future.

Tesla CEO Elon Musk made headlines around the world this month when it was revealed he’d built up a 9.5% stake in US social media company Twitter. The platform’s shares soared as Musk made his intention to takeover clear. On 26 April, Twitter agreed to sell itself to Musk for $44 billion (£35 billion).

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.

This summer the Queen will celebrate an incredible 70 years on the throne. Since her reign began in 1952, the world has changed a lot – who in the 1950s would’ve thought it’d be normal to carry a computer in your pocket that lets you make calls, access the internet, and a whole lot more?

During that time, money has changed enormously too, from how it looks right through to how we use it. Here are some of the ways money has changed during the Queen’s reign.

The changing portraits of the Queen

The Queen’s portrait has been a common feature on money for almost 70 years and there have been several changes over the decades.

It wasn’t until 1960 that the Queen’s portrait appeared on a note. The image of the young queen was used on £1 notes, and then a 10 shilling note in 1961. The portrait was criticised for being severe and having an unrealistic likeness.

An updated portrait used for £5 notes in 1963 received a more favourable response.

The current image on notes and coins has been used since 1990 and shows the Queen aged 64.

Adding the likeness of the monarch isn’t just for tradition. The Bank of England (BoE) explains that using a familiar image is a useful anti-counterfeiting feature. People can detect changes in pictures of faces, especially well-known ones, much more easily than in other types of patterns.

Modern polymer notes also use the Queen’s portrait on a small, see-through window with “£5 Bank of England” printed twice around the edge as a security feature.

Images: portraits of the queen used in 1960, 1963, and 1990.

Decimalisation day: Adopting a base-10 currency in 1971

Perhaps the biggest change to money in the last 70 years occurred on 15 February 1971, dubbed “decimalisation day”.

For centuries Britain had used a coinage system of pounds, shillings and pence – 12 pennies made a shilling, and 20 shillings made a pound.

After more than 50 years of dealing with a currency based on units of 10, it can be hard to appreciate the mental arithmetic older generations were adept at doing every time they made a purchase.

The debate of changing to a simpler currency had been going on since 1847.

An MP at the time, Sir John Bowring said: “Every man who looks at his 10 fingers, saw an argument for its use, and evidence of its practicability.”

A year later, the nation’s first decimal coin appeared – the florin, which was one-tenth of a pound. But that’s as far as decimalisation went until more than a century later.

While decimalisation day on 15 February 1971 was a milestone and represented a huge change, the transition was a little more gradual than the name suggests.

5p and 10p coins had entered circulation in 1968 and had the same value as shillings and florins. The last pre-decimal coin, the florin, wasn’t pulled from circulation until 1993. To help customers, some shops also ran dual prices for a while.

Even with a transition, it was vital that everyone knew about the change and how the new coins would work. So, the government commissioned performer Max Bygraves to record a song for the occasion.

The lyrics included: “They have made it easy for every citizen, cos all we have to do is count from 1 to 10.” And if you want a trip down memory lane, you can listen to the decimalisation song online.

The rise of cashless payments

In recent years, the shift towards not using money at all has accelerated, particularly during the last two years due to the pandemic.

Barclays issued the UK’s first credit card in 1966, with debit cards following in 1987. These first cards required a signature and used a magnetic strip that could be swiped.

This trend evolved over the decades, with chip and PIN introduced in 2003 and contactless payments in 2007.

With customers now able to make contactless payments up to £100, a life without physical money is already a reality for many people in the UK.

According to the latest figures from UK Finance, more than a quarter of all payments in the UK are made using contactless methods. In contrast, cash is falling out of favour. In 2010, it accounted for 56% of all payments, although by 2020 that had reduced to 17%.

While cash is likely to play an important role for years to come, its use is becoming rarer.

Average annual inflation of 5.1% has affected how far your money will go

It’s not just the appearance of money and how we pay for goods that have changed – the value of the money in your pocket has too.

Over the last 70 years, the rate of inflation has differed. Inflation is currently higher than it has been in recent years, reaching 9% in April.  And older generations will well remember inflation entering double digits in the 1970s. 

Inflation means the cost of goods and services rises. Day-to-day, you may not notice how much costs are rising, while over 70 years it’s clear the effect inflation has.

Annually, between 1952 and 2021, inflation has averaged 5.1%. The BoE’s inflation calculator finds that if you had £1,000 when Queen Elizabeth II began her reign, you’d need more than £30,000 now to have the same spending power.

Money has changed hugely over the last 70 years, but what remains important is setting out your goals and getting the most out of your assets. If you’d like to talk about your financial plan, 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.

Over the last few months, you’ve probably heard a lot about inflation and the effect it can have on your cost of living. While you may be familiar with the headline figures, how is it calculated?

The key figure that you normally see is the Consumer Price Index (CPI).

IIn the 12 months to April 2022, according to the Office for National Statistics (ONS) data, the CPI rose to 9%. This is the highest rate of inflation for 40 years and was driven by rising fuel and energy costs, which has been linked to the war in Ukraine.

The Bank of England (BoE) has a target of keeping inflation around 2%. However, the BoE expects inflation to rise to around 8% and then fall back over the next two to three years. It noted that even though the rate of inflation is expected to slow down, the prices of some things may stay at a high level when compared to the past.

To control inflation, the BoE can increase interest rates. It’s a step the Bank has already taken three times this year and could take again in the future.

The ONS uses around 700 items to calculate the rate of inflation

Measuring how prices are rising is a huge task, and it’s impossible to keep an accurate record of prices for every good or service that’s available in the UK.

So, ONS creates a virtual “shopping basket” of around 700 items.

The items that are included in the basket are chosen to represent an average person’s spending. It includes a huge range of goods and services, such as grocery shopping, clothing, meals out, furniture, recreational activities, and transport.

The organisation then looks at around 180,000 prices for these items to understand the average cost.

Rather than measuring prices, the CPI measures price changes. So, the ONS can produce a monthly inflation figure by comparing how prices have changed over 12 months.

While CPI provides an overview of how inflation is rising, the measure does have some limitations.

For a start, it only measures what’s in the basket. As a result, inflation calculations are based on only a sample of what’s available. This can create some blind spots and it may not accurately reflect your spending.

It’s also worth noting that the CPI doesn’t include housing costs, such as rent or mortgage repayments, despite them being a significant outgoing for most families. There is a separate measure of inflation – CPIH – that includes these costs.

What’s in the CPI basket? Suits are out but hand sanitiser is in

The ONS updates the items that are in the shopping basket regularly to reflect changing consumer habits.

This year, men’s suits were removed to reflect the growing trend of working from home and casual clothing. As more people have chosen a vegan diet or reduced the amount of meat they eat, meat-free sausages were added to the basket.

In 2021, hand sanitiser was added to the basket, as sales soared during the pandemic, and so were hybrid and electric cars following the announcement that sales of new diesel and petrol cars would be banned after 2030.

The changes can help ensure that the inflation rates reflect consumer spending as much as possible.

It also offers an interesting insight into how spending habits have changed.

The ONS has been using a basket of goods to calculate inflation since 1946 when the nation was still suffering from the after-effects of the second world war.

In the 1940s, condensed milk was a staple as it helped rations to go further and lasted longer than fresh milk. It remained in the basket until 1987.

Post-war fashion also influenced what was included in the very first shopping basket, with corsets and men’s three-piece suits featuring. Now, thanks to the growing trend for athleisure, you’ll find exercise leggings instead.

Technology entering homes is also demonstrated by how the shopping basket has changed. The washing machine entered the shopping basket in 1956 and the refrigerator in 1962.

Home entertainment shows how quickly technology has progressed. In 1987, video rental was included in the inflation measure as families around the UK went to Blockbuster to rent a video for an evening in. As DVD prices became as affordable as renting and streaming services took off, video rentals were removed.

How will the rate of inflation affect you?

As the rate of inflation rises in the UK, it could affect your budget and long-term financial plans.

Reviewing your plan and making your money go further is crucial for maintaining and growing your wealth during periods of high inflation. If you’d like to talk to us about the effects of inflation on your assets, please give us a call.

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

Do you have a Lasting Power of Attorney (LPA) in place? If you don’t, it could leave you in a vulnerable position if you’re unable to make decisions for yourself, such as after an accident or illness.

Losing the mental capacity or ability to make decisions for yourself is something no one likes to think about. However, by taking steps just in case, you can improve your security and wellbeing.

An LPA gives someone you trust the ability to make decisions on your behalf. These decisions could be related to medical treatment or finance to ensure you continue to meet commitments.

Having an LPA in place can provide you with peace of mind and security if you can’t, or don’t want to, make decisions.

4 in 5 over-55s don’t have a Lasting Power of Attorney

An LPA is an important step at any stage in your life. Accidents can happen, so even among younger generations, it can provide valuable security.

However, an LPA is most likely to be used later in life when some illnesses are more common or recovery times may be longer. So, it’s worrying that 80% of over-55s haven’t named an LPA according to a Lloyds Bank survey.

Almost a third said they hadn’t set up an LPA because they believe it’s only put in place if they become ill. This is incorrect.

You must have the mental capacity to decide to name an LPA. So, it’s a step that must be taken before it’s needed. If it’s something you’ve yet to do, you should think about it now.

Without an LPA, your loved ones would need to apply for a deputyship to act on your behalf. This can be more costly and time-consuming than setting up an LPA. As the process can be lengthy, it could mean no one can make decisions for you for some time while you may be vulnerable.

64% of UK adults don’t understand how a Lasting Power of Attorney works. Here’s what you need to know

Another reason that some people aren’t naming an LPA is that they don’t understand how it works. Almost two-thirds of people surveyed couldn’t explain what an attorney can do. So, here are five things you need to know.

1. An LPA can make decisions when you’re unable or unwilling to do so

An LPA will only make decisions on your behalf if you’re unable to, or you decide you’d prefer not to make them. In some cases, the powers an attorney has can be temporary. For example, if you’re ill and recover.

Your named attorney cannot make decisions for you if you still have mental capacity and want to do so.

2. There are two types of LPA

There are two different types of LPA that grant the attorney the ability to make different decisions. You should have both types in place, and you can choose the same person for both or different people for each.

The first type is a health and welfare LPA. This would provide someone with the ability to make decisions relating to your health and care. This could include decisions about moving into a care home, medical treatment, and life-sustaining treatment.

The second is a property and financial affairs LPA. This would allow someone to manage your financial affairs on your behalf, such as paying bills, collecting your pension, or selling property.

3. An LPA grants someone the power to make decisions during your life

A quarter of people are unaware of the differences between an LPA and a will.

In essence, an LPA gives someone the ability to make decisions on your behalf during your life. They cannot decide how your assets will be distributed when you pass away. This is what a will is used for – it allows you to set out what you want to happen to your assets when you die.

You should have both a will and LPA in place. 

4. You can name more than one LPA

As mentioned above, there are two types of LPA, and you can name different people to fill these roles.

If you want, you can also name multiple LPAs, for instance, your partner and child. You can specify whether they can make decisions independently or must work together.

You should think carefully about who your LPA should be. Speaking to them about whether they’re comfortable with the role and what your wishes would be in various circumstances is important.

5. You should still name an LPA if you’re married

It’s a common misconception that your partner will be able to make decisions for you if you’re married or in a civil partnership. However, this isn’t always the case.

Your partner, for instance, does not have an automatic right to manage your bank account for you, even if it’s a joint account. As a result, naming an LPA, whether this is your partner or someone else, is still an important step.

How to name a Lasting Power of Attorney

You can download the forms to start the process of naming an LPA online or by contacting the Office for the Public Guardian.

You can choose to fill out the forms yourself or use the services of a solicitor. While you will need to pay a fee for a solicitor, they can help prevent issues from arising.

The forms will need to be signed by a certificate provider, who will verify you haven’t been placed under pressure to complete the forms. This can either be someone you know well or a professional like a doctor or solicitor.

Once the forms are complete, you must register the LPA with the Office for Public Guardian, and you may need to pay a fee of £82.

If you have any questions about LPAs or how they can fit into your financial plan, 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 Financial Conduct Authority does not regulate estate planning or will writing.