Firstly, we would like to start this month’s newsletter by paying tribute to Queen Elizabeth II whom sadly passed away this month. Regardless of any political view, Her Majesty was a bastion of stability and “Team UK’s” number 1 fan. The dedication and service shown to everything and everyone in Her kingdom will be sadly missed, a true inspiration to all.
Since Queen Elizabeth’s sad passing, it would appear that her death ushered in a period of yet more uncertainty, especially when it comes to markets and investments. Just when we thought we had seen it all including Brexit, a global pandemic, a land war in Europe and rampant inflation the new government delivered its “mini-budget” with some of the largest tax cuts seen since the 1970’s. No matter where you sit in the economy the changes announced will certainly affect you in 1 way or the other. Here is a brief summary:
- The planned rise in corporation tax (from April 2023) has been scrapped. It was due to rise from 19% to 25%.
- Basic rate income tax has been cut from 20% to 19% and the 45% top rate has been abolished.
- The national insurance rise (1.25% for both employers and employees since April 2022) has been reversed. What would have been called the “Health and social care levy”.
- Stamp duty removed for properties less than £250,000 and £425,000 if a first-time buyer.
The simple idea behind these tax cuts is for companies and people to keep more of their own money which should then translate into economic investment and relieving some of the pain associated with high inflation and the energy crisis, the markets however don’t seem to approve (at least in the short term anyway)!
As we currently write this, sterling (how the worlds traders view our currency) has decreased in value which then increases the cost of everything we buy from other countries. This will then usually lead to future inflation as consumers have to pay more for the same goods.
Share based investments continue their volatile short-term reactions, what is particularly unusual however is the pressure that what are normally seen as “safer havens” have seen, with government borrowing and corporate lending rates coming under significant pressure.
As we continue to advise, we and the investment managers we work with are investors and NOT day-traders. We invest for the long term and whilst it is uncomfortable when markets react in the way they are it is vital we don’t over-react. All our investments are structurally diversified, meaning no client will be too exposed to any specific risk. We will never advocate having large amounts of eggs in any 1 basket! Here are how some risks are reduced in portfolio’s:
- Asset class. Broadly investing across many asset classes including shares, gilts, bonds and property for example.
- Geography. Investing across different regions including UK, USA, Europe and Japan for example.
- Currency. By investing in other currencies this will mitigate for example the pressure on sterling that has been recently seen.
- Sectors. Investing across an economy, for example owning supermarkets, car manufacturers, banks and oil companies.
Remember, things will always change and whilst uncomfortable in such circumstances, it is vital to retain perspective and all investments are for the long-term and investment decisions are made to deliver our clients long-term outcomes. All assets also provide a source of income (think dividends for shares, rent for property and interest payments for bonds), it is the reinvestment of this income that is also a major part of long-term growth.
Our philosophy has ALWAYS been shown to be correct over the long term, however, as always if you ever wish to discuss your personal situation don’t hesitate to get in touch at any time!