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Something very unusual has happened lately in the fact that what would normally consider to be “safer haven” investments have seen lots of negative fluctuations in value.  So, what has been happening?

Following Truss/Kwarteng “mini-budget” and the generally high inflation rates appearing across the world there was a large sell off in (traditionally less volatile assets) like corporate borrowings, UK Gilts (UK Government borrowing) and other fixed interest securities.  Under any “normal” circumstances, these assets provide stability to your portfolio however given the sentiment turned negative this led to a major sell-off and in turn reduced the value of existing debt.

Major pension funds (especially those providing final salary benefits) are required to maintain high levels of these “safer” investments to guarantee their members benefits so this was manifested in news coverage with horror stories of pensions funds possibly going bust.  Pension schemes are always covered by either the FSCS or the PPF and therefore members needn’t worry too much but it is something all investors and pension scheme holders need to be aware of.

We have already seen some improvement to their valuations, given the recent “slightly more aggressive” budget announced by Mr Hunt but it will probably take some time to fully recover.

See our guide to “attitude to risk” here:  https://financialfortress.co.uk/guide-to-your-attitude-to-risk/

Watch our video on “attitude to risk” here:  https://financialfortress.co.uk/the-financial-fortress-guide-to-attitude-to-risk/

You may have seen the rise in interest rates recently where they have gone up from all time record lows of just 0.25% to the current 2.25%.  Financial analysts are now pencilling further rate rises and it is largely expected they could reach dizzying heights like 6 or even 7% in the not-too distant future. 

Now if you were a borrower in the 1970’s and 80’s you will have seen interest rates well into double figures, however todays’ mortgage market is very different with mortgage affordability generally being tighter.

If you are on a tracker mortgage or coming to the end of your fixed rate, it is vital you contact a mortgage broker early as we can secure a deal at todays rates up to 6 months in advance!  In other words, no matter if and when interest rates rise, you will still get the agreed rate, which will almost certainly be lower than if you leave it!

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)!

Market reaction

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.

Our thoughts

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!

This really makes us angry, you save your whole life and some low life scum-bag convinces you to give your money away.  Sounds like fantasy but the FCA estimates up to 40% of pension transfers are linked to either fraud or un-regulated and unsuitable solutions!  We have at least 4 clients who have been ripped off in the past!!

Here’s some simple ways to help spot a scam:

• With the clampdown on marketing and cold-calling, chances are anyone phoning you that you are not expecting is a shark – put the phone down! This goes for unsolicited texts also!
• Where they explain you can take money out before the age of 55.
• Offering exotic investments including overseas property, hotels or golf courses
• Where they use words like “liberation”, “loophole”, “overseas”, “ethical”, “new industry” or “loan”.
• Where paperwork is couriered to you and time pressure is applied.

If in doubt – DO NOT DO IT!  Seek a 2nd opinion and contact your local independent financial advisers immediately to get quality advice from experts you can trust!

Mr & Mrs Jones came to Malcolm recently as they were on their mortgage lenders standard interest rate having not reviewed it for some time. After Malcolm’s hard work he obtained an offer which was accepted just 60 seconds after the application was submitted!  Malcolm reduced their interest rate from 5.38% to 3.54%. Keeping their monthly repayment the same means the mortgage will be paid off within 14 years rather than the original 19 and saving them up to £37,800 – WOW!.

Mr & Mrs Jones goal is to retire at 60, their old mortgage was due to expire at 63 but they will now be mortgage free by the time they are 58 ensuring their goal of early retirement is now realistic. 

Just another day in the office for Financial Fortress! Call for your free mortgage review today.

Wow, now there is the million-dollar question!  As you may know, markets generally are battling with a number of pressures and have reacted in the main by recent falls – the American S&P 500 is over 20% short of its January peak for example.  Whilst this is extremely worrying to our clients, there will always be good and bad reasons to consider when thinking about investing.

Is now a good time?

1. The effects of covid seem now to be in the rear-view mirror, a successful vaccine rollout should allow a return to consumer confidence and spending.
2. Industries that were hardest hit by Covid restrictions have largely reopened and are getting back to normal.  Think hospitality and travel for example.
3. Some sectors have huge growth potential and investment – for example defence, basic materials, technology and healthcare.  Demographics show demand will continue to grow.
4. Despite recent increases, UK interest rates are still historically very low and coupled with the typical household now having savings this could encourage people to spend or invest.

Is now a bad time?

1. The Ukraine crisis could have far reaching effects and we have no idea when this could be over.  This is also causing volatility to global energy markets.
2. Some countries are still fearful of Covid making a resurgence and are reacting with lock-downs that then can have negative effects on supply chains generally.
3. Rising inflation will cause worry and will affect peoples’ spending power generally.
4. Central banks are starting to unwind pandemic support measures and try to get back to a “long-term normality”.

Basically, all this feeds into companies profits and reduces the amount that can be paid back to shareholders.  If a companies profitability is likely to decrease, its share price will suffer and vice-versa.  With any crash it is not always obvious what the exact cause was until many years later but any responsible expert will always advocate TIME IN the markets, rather than TIMING the markets!

Get in touch with your local experts to discuss your own situation or with any worries you may have.