If like me you’re fed up with TV coverage of the election and a hung parliament, then there is some good news. Stock Markets did not fall off a cliff edge and although the UK is experiencing some political turmoil, the rest of the world seems to be getting on with business as usual.
The current challenges facing the UK cannot be underestimated, but consider some of the issues we’ve faced over the last forty or fifty years. If you’re investing for the long term, markets tend to be efficient and take into account all the information available. Long term investors are rewarded for the additional risk they are taking by investing into Stocks and Bonds.
However, there are some things investors can do to help ensure if there is a fall in Stock Markets. They can help limit the downside impact of temporary falls in the value of their investments.
If you are investing for the long term then at some point you should expect stock markets to drop. Fund managers see this as an opportunity to purchase stocks at a lower than normal price, hoping to make additional profit when normality returns.
How many times have you read the financial press, giving investing tips on the next big investment success? As markets are efficient, if it’s in the paper, then you’ve probably missed the boat. Investors that buy on these recommendations, whether it’s stock or investment funds should be aware of herd investing.
The simple illustration below shows how this works and the long-term effect of doing this.
Financial Planners often ask their clients to complete a risk questionnaire. The reason for this is to ensure that the client is not taking too much or too little risk. If you haven’t reviewed your portfolio or your financial plan in some time then it might be worth asking your adviser to re-assess the risk you are taking with your investments.
One of the key investment principles to controlling risk is to ensure your investment portfolio is re-balanced on a regular basis. This might be carried out annually, half-yearly or quarterly. Our recent article called the importance of rebalancing your Investments describes why this is an important task. Rebalancing controls the split between your Stocks and Shares, Fixed Interest, Gilts, Property and Cash. The aim is to ensure your portfolio does not become riskier over the long term.Your financial Planner should have built into their Investment Policy Statement, the re-balancing process and how they put this into practice.
The UK Government want to encourage people to save for the future such as retirement. Each tax year investors will have certain allowances they can use i.e. tax breaks. Examples of the allowances are:
Investors should always make use of their allowances first if they are considering adding to or starting new investments or pensions.
For the current tax year 2017/18 the ISA allowance has increased to £20,000 per person. The maximum annual allowance for pension contributions is £40,000, however this might be reduced if you have taken benefits from any pensions previously or if you are a high earner.
Apart from ISAS and pensions, Investors should also make use of their annual capital gains tax allowance if they have profits on investments that are subject to CGT. The current allowance is £11,300 for the 2017/18 tax year.
There is also a £5000 annual allowance in relation to dividends.
Many savers use a combination of saving each month and or investing a lump sum into pensions or ISAS’s. By investing each month, you could possibly benefit from pound cost averaging, whereby if the price of the investment falls then you are buying in at a lower price, hoping to benefit from price increases in the future.
If you have any questions about this or any other article we have written, please feel free to contact us. You can use either the contact form or alternatively call us on 01454 321511.
Over the month weeks and months, we are looking to improve the personal finance portal (PFP) for our clients. The first stage is to introduce a live chat, audio and video service whilst clients are logged into PFP. This is the first level of improvements we will be making over the coming months. The live chat service is safe and secure.
Quite often friends and clients ask me about the best pension plans and I can understand. Pensions are complicated, even more so since Pensions Freedoms came into play.Successive Governments have tinkered with the pension rules and regulations time and time again. I started in the Financial Services Industry in 1984 and I can say each year the government has made some sort of change. Sometimes for the better or worse, but usually it adds another layer of complication. Terms such as Lifetime allowance, Fixed Protection, Capped and Flexi Access Drawdown are technical terms that generally confuse the public.In its simplest form a pension is a savings contract with tax breaks written under pension rules.