Month: April 2017

Elections and Referendums

Just when you think you’ve seen enough of elections and referendums, they’re starting to appear like busses.

Rollercoaster Elections Referendums

Here we all go again!

It seems like only yesterday that David Cameron and Ed Miliband were battling for the keys of Number 10. Then, just as we all got our breath back, we had the EU Referendum.

Hot on Brexit’s heals, we then witnessed President Trump’s march toward The White House. Right now the EU is in the midst of it’s own electoral battles and Turkey is undergoing historic changes that may well bring about fundamental alterations to it’s constitution.

So with all that literally days behind us, Teresa May has now announced a snap General Election for June 8th.

So, what does it all mean for our investments?

Not so steady as we go.

We all know that the markets love stability and that we haven’t had very much of that recently, but things were starting to settling down. Granted there is the sabre rattling regarding Brexit and the UK’s future economic relationship with Europe – but there always has been.

It can’t be good for business though. As we all know that political uncertainty leads to a volatile market. However, we need to remember that political uncertainly doesn’t last, but the markets do!

It’s fair to say that changes in the status quo often disrupt the domestic and international markets, especially if the changes are unexpected or seem to signify a departure from the established order of things. Couple that with the fact that many observers are pointing out that the political and economic landscape of Europe hasn’t changed so much since the end of the Second World War. What is happening in the UK, Europe and America is huge and no one knows exactly where it will all settle. But settle it will. And when it does the markets will adjust themselves, dust themselves down and go about their usual business.

The markets love time more than politics.

Analysts tell us to take great comfort by looking back at long-term market performance. For when we examine how the markets behave historically, the further back we go the more we see steady growth.

In saying that, it doesn’t mean that growth was more assured or stronger years ago. What it means is that if we look at the markets over years rather than months, then the robust nature of investment growth becomes apparent.

It’s by looking back in time that we can clearly see that investments generally return the best options in order to grow a lump sum of cash. This knowledge should arm us with the confidence to look to retaining our market positions in times of uncertainty.

We may not all share the same politics, but we’re all in the same boat.

We are all facing uncertainty. We are all second-guessing the results of the General Election. What that will mean to Brexit? How will the victors navigate the UK on it’s maiden voyage as an Economic power in its own right?

But take comfort in the fact that the markets are used to uncertainty and they can cope with it way better than us mere humans. Just think of the markets as a reflection of life and society. They have their ups and downs and often face periods of calm certainty as well as violent change.

Our approach is evidence-based, long-term buy and hold, concentrating on getting the right mixture of risk and return for our clients. Essentially this is a ‘steady as she goes’ approach which avoids market timing or stock selection as far as possible since these have not been shown to add value. This has generally served them well over time. Unless people’s goals have changed, we do not advocate any changes in the levels of risk taken. We have already made changes to our portfolios to remove the bias to UK equities and these are being rolled out through our regular client review process. So we are not complacent but we do base our approach on our understanding of the long term behaviour of the markets.

Lifetime ISA (LISA)

LISA Lifetime ISA

There’s been a great deal of talk recently about the launch on April 6th this year of the Lifetime ISA (LISA). So, I thought it would be very worth while to provide you with a quick overview of what exactly a LISA is, how they best work and who they work best for.

With property prices increasing and the accompanying problems of getting that all important deposit together for your first home, LISAs are designed to be a vehicle to help overcome this challenge.

Specifically aimed at investors between the ages of 18 and 40, who are saving towards the purchase of their first home. The idea being that savers can put in up to £4,000 a year and receive a bonus of up to £1,000 per year from the Government. So, if you have your LISA between the ages of 18 and 50 that could be as large as £32,000 in bonus payments (based on current bonus payments). Although Mr Osborne stated that the annual bonus would continue to be paid to LISA holders until they reach their 50th birthday, former pensions minister Steve Webb added that the 25% rate could turn out to be a “Teaser LISA” rate that may fall back in the future.

There are also some stipulations that will accompany your LISA. The funds must be used to purchase your first home (wroth up to £450,000). If you don’t use your LISA for the purchase of your
first home, then the funds will be locked away until you are 60 years old.

Just like a standard ISA, you have the choice of holding your investment in cash, or invest it in funds and individual stocks where any growth in your assets will be tax-free. You can use your LISA for the purchase of your first house, or access the funds at 60. However, if you take out any cash before then there is a rather large 5% penalty to pay, as well as losing your government bonus, along with any investment gains you’re made on that bonus!

There has been a great deal of debate as to whether the LISA would make a viable pension vehicle for workers in their 20’s and 30’s, but the fact that a LISA does not attract employer contributions may outweigh its attractive 25% annual bonus.

I suspect the real dilemma, for investors saving for a home, is the choice between the LISA and the Help-to-Buy Isa. Although the latter Help-to-Buy Isa will close to new savers in November 2019 and will only be open to new contributions until 2029. But if you are one of those investors whose timings place you in a position of choice, then there are some important points you should be aware of.

Firstly, the amount you are allowed to invest annually differs. Both products offer a 25% government bonus for those buying a home, but the allowable investment needs considering. A LISA allows you to invest £4,000 annually and will attract a £1,000 top up. A Help-to-Buy Isa allows you to invest £2,400 annually and attracts a bonus of £600. Plus, when you first open a Help-to-Buy Isa, if you can deposit a lump sum of £1,000 that will generate a bonus of £250 (meaning the bonus in the first year could be £850). So, a Help-to-Buy has a bonus cap of £3,000 whereas a LISA pays a bonus of £1,000 every year, so could climb to £32,000.

There are some differences in the value of the property you can buy too. Help-to-Buy allows you to purchase a property up to £250,000 outside London and £450,000 within London. The LISA puts a straight cap of £450,000 wherever you decide to buy in the UK.

So as with all financial products, careful choices have to be made. As the LISA may be ideal for some of us, but that largely depends upon the life stage we are at and what we are planning for in the future.