Author: richard

With no clear indication of who the winner will be ahead of the 5th November, the convincing nature of Trump’s win came as more of a surprise than the victory itself.

Markets may have been pricing in a Trump win for some time, as he was polling well ahead of Biden earlier in the year. However, there has been considerable market volatility over recent months so it is best to avoid too many hard conclusions.

Equities, bond yields and the dollar were all considered future winners as taxes were expected to be cut under Trump.  Harris was being seen as bringing clearer trade policy and international relations but, despite her promise to cut taxes for lower earners, she never shook her association with higher taxes and was perceived as less favourable to business.

It was Harris and the Democrats’ failure to convince the US electorate that the economy was the success it has recently become that ultimately brought their downfall. The economy, and more specifically higher living costs, were the number one concern for Republican voters. Whatever the economic growth figures show now, inflation meant that the benefits had not been felt in voters pockets by 5th November. The latest national statistics did not reflect lived experience for too many people.

The US economy certainly has been roaring back. Third quarter GDP growth came in at a healthy 2.8% quarter-on-quarter annualised, confirming that the US is outpacing other developed economies by some way. It is performing well ahead of the UK and Europe. Third quarter earnings season began with strong results from the banking sector. Results were mixed for technology companies, particularly those reliant on semiconductor demand, which caused some volatility. There is a continuing belief that whilst the big tech stocks may not be delivering at the pace set in recent times, there is plenty room for other sectors and stocks to grow, and recession will be avoided.

Trump can now ride this wave of economic growth. Where he may come unstuck is a trade war with China, in particular, as high tariffs could push prices up further. He will hope that these can be offset by lower taxes, and increased domestic production. This will also be a concern outside the US. Markets in the UK and Europe, closely tied to the U.S. and Chinese economies, may react negatively if a trade war seems likely. There is a global ripple effect from US-China tensions.

The Fed cut interest rates as expected by another 0.25% on 7th November and this was widely expected regardless of the outcome of the election. They remain more concerned about the job market than inflation. However, they will keep a close eye on whether tariffs bring in more inflation.

Trump is famously unpredictable, another concern typically for markets, but this is not his first stint as President. Markets were cautious when he won in 2016, fearing the worst, but gradually grew in confidence and the markets rose. This time around they seem to be more positive immediately, and markets have already seen an uptick. He may be unpredictable, but they may feel they have seen this movie before.

Business friendly tax cuts may help finance and tech stock earnings. Defence stocks got a boost in his last term with increase military spending and energy stocks will be hoping for a reduction in regulatory restrictions. Each sector will be watching for threats and opportunities.

As we have said many times before markets are not political, they just prefer certainty, so now that the election is out of the way they should settle down.

**Past performance is not a reliable indicator of future performance.

Sources

https://edition.cnn.com/business/live-news/fed-meeting-november-11-07-24/index.html

https://am.jpmorgan.com/gb/en/asset-management/adv/insights/market-insights/market-updates/monthly-market-review/

The information contained within this article was correct as of 1^st December 2024.

Investing in property as a retirement strategy has become popular, particularly after the post-financial crisis housing boom, driven by low interest rates and government incentives. Many who ventured into buy-to-let investments instead of traditional pensions benefited from a period of cheap mortgages and rocketing house prices. However, the outlook for buy-to-let may not be as promising, and those considering this path should reassess their options carefully.

The UK’s chronic housing shortage supports continued house price growth due to high demand and limited supply. However, the significant rise in interest rates over the past two and a half years has made property purchases far more expensive, reducing rental income and profitability for buy-to-let investors. This higher cost of borrowing poses a substantial challenge to those relying on property for retirement income.

Moreover, recent tax changes have further eroded the attractiveness of buy-to-let investments. An additional 3% stamp duty surcharge now applies to second property purchases, and the tax treatment of rental income has become less favorable. Previously, higher and additional rate taxpayers could offset mortgage payments against their tax bills, saving 40% or 45% in taxes. Now, this relief is capped at just 20%, significantly reducing the financial benefits of buy-to-let investments.

Beyond these financial considerations, property ownership comes with various costs that can erode returns. Legal fees, survey costs, stamp duty, ongoing maintenance, repairs, letting fees, landlord insurance, and periods without tenants all diminish rental income. These expenses, combined with mortgage interest, can make buy-to-let less lucrative than anticipated. You should also be prepared for hassle. Being a landlord is not easy or popular. You can pay an agent to take care of some of the day-to-day problems but you will still be left with key decisions to make, and agency fees eat away more of your return.

Pensions offer several advantages that property investments lack. Employers are required by law to contribute to employee pensions, often matching employee contributions, effectively doubling the investment. Tax relief on pension contributions further enhances their appeal, with basic, higher, and additional rate taxpayers enjoying significant cost savings. Pension investments grow free from income and capital gains taxes, and 25% of the pension can be withdrawn tax-free at retirement.

Pensions also provide greater flexibility in generating retirement income. Unlike property, which cannot be partially liquidated, pension investments can ‘drawn down’ incrementally to meet income needs. While property can play a role in retirement planning, pensions and ISAs usually offer steady returns, lower costs, and fewer risks, making them a preferable choice for most individuals. If considering buy-to-let, it’s crucial to thoroughly understand all associated risks, costs, and taxes before proceeding.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The value of your investments can go down as well as up, so you could get back less than you invested.

The Financial Conduct Authority does not regulate some buy to lets.The information contained within this article was correct as of 1^st December 2024.

Pensioners will be handed an extra 4.1% per annum via the state pension in April 2025, thanks to the ‘triple lock’.

The triple lock is a government policy which means that the state pension increases every April in line with whichever is the highest of:

• CPI (Consumer Prices Index) in September the year before;
• the average increase in total wages across the UK for May to June of the previous year; or
• 2.5%

The earnings figure has just been revised upwards following some new employment data released in October which means the final number has moved from 4% to 4.1%. This is the highest of the three figures and will be used for the state pension from April 2025 assuming nothing else changes. The cost of the extra 0.1% is estimated at £100m.

The triple lock was introduced in 2010 by the coalition government and Rachel Reeves promised to keep it as part of Labour’s manifesto. It was suspended once in 22/23 for exceptional circumstances when  inflation figures were warped by Covid and furlough influenced earnings figures, so the government temporarily removed the earnings measure from the equation to help with Treasury finances. The triple lock went back the following year to deliver a 10.1% state pension increase.

It has attracted criticism due to the cost to the tax payer, and because other benefits do not enjoy similar ‘highest of’ protections. Universal Credit, Housing Benefit, Maternity Allowance and Statutory Sick Pay, for example, are usually tied to September’s CPI figure alone so an increase of just 1.7% is likely for those benefits.

Assuming it is ratified the state pension will change from:

• £221.20 a week to £230.30 a week for the full, new flat-rate state pension, external (for those who reached state pension age after April 2016)
• £169.50 a week to £176.45 a week for the full, old basic state pension, external (for those who reached state pension age before April 2016)

Sources:

https://www.bbc.co.uk/news/business-53082530

https://www.morningstar.co.uk/uk/news/AN_1728987850427977900/uk-government-faces-extra-gbp100-million-bill-for-state-pension-rise.aspx

https://www.moneysavingexpert.com/news/2024/10/state-pension-benefits-rise-2025/

The information contained within this article was correct as of 1^st December 2024.

Both Olaf Scholtz, German Chancellor, and Ursula von der Leyen, European Commission president, have issued warnings to EU businesses about the need to ‘derisk’ from their investment in China. They, amongst others, cite the growing geopolitical risks in the Taiwan Strait as a major future problem which could leave German companies with deep ties to China stranded, and Germany cut off from access to the raw materials their manufacturing industry needs.

German business, led by its car manufacturers, seemingly have done the opposite.

German direct investments in China stood at €7.3b for the first half of 2024, compared with €6.5bn for the whole of 2023. It continues to accelerate with €2.48bn in the first three months of 2024, rising to €4.8bn in the second quarter.

It’s comfortably the largest market for new car sales in the world. Data from Statistica shows China China registered 25.6m new cars in 2023. Well ahead of the US with 15.5m, the EU with 12.9m and India with 4.1m.

Based on the sheer size of the market China is an impossible market for any global car manufacturer to resist. Most will openly admit that unless they are in China, they are out of the global business. Moving away from it is not an option they will consider, as China will most likely shape the future of both car consumption and production for many years to come.

It is also a market which has become tougher for non-Chinese manufacturers who have worked on a joint venture basis and enjoyed healthy profits for decades. In mid-2023 Chinese-owned and Chinese-led car makers took the majority market share over foreign brands. In 2024 research from Dunne Insights shows they have sizeable 62% market share.

This rapid swing is thought to be the result of a combination of patriotic sentiment and technological change. Sentiment against US car brands, for example, is likely to strengthen with constant news of US sanctions and trade friction. US car brand sales have declined faster than German sales possibly as a result. What has accelerated the change is the rapid move to Electric Vehicles which surged in 2021, and now outsells combustion engine car sales. EVs in China tend to be Chinese branded, whilst non-Chinese manufacture remains predominantly focused on combustion engine cars. They are being left behind.

If this wasn’t enough, the Chinese government has provided subsidies to some of China’s EV key supply chain players, with battery manufacturer CATL at the top of the list.

America’s General Motors sold 4.1m units in China in 2017 and 1.8m in 2024. It announced it is pulling away from China this month. We can read that very simply as a defeat to domestic competition, not as a strategic de-risking of the business due to Taiwan concerns.

Fears of a Chinese EV invasion may be overblown. However, the geopolitical risks highlighted by Olaf Scholz and Ursula von der Leyen are unlikely to play a major part in decision making process for global car manufacturers for some time. They have more existential threats to address.

What is GDP and How is it Calculated?

Gross Domestic Product (GDP) is a key economic indicator that measures the total monetary value of all goods and services produced within a country’s borders over a specific period, typically a quarter or a year. Every government in every country wants to drive growth in GDP, as it generates greater revenue for public spending without having to increase taxes. Without growth their options are to cut or freeze spending on public services, increase taxes or increase debt.

There are three primary approaches to calculating GDP:

1. Production (or Output) Approach
This method calculates GDP by adding up the value of all goods and services produced in the economy, subtracting the cost of inputs used in production. It focuses on the value added at each stage of production.

2. Expenditure Approach
This is the most common method, which calculates GDP by adding up total spending on all final goods and services produced within a country. It is calculated using the below:
• C: Consumption by households
• I: Investment by businesses
• G: Government spending
• X: Exports of goods and services
• M: Imports of goods and services

3. Income Approach
This approach calculates GDP by summing all incomes earned by individuals and businesses in the economy, including wages, profits, rents, and taxes, minus subsidies.
Each of these methods should, in theory, produce the same GDP figure, as they are just different ways of measuring the same economic activity. What’s important is that the number goes up.
If GDP falls for two successive quarters – or three month periods – that is defined as a recession.

Speaking in the Downing Street ‘rose garden’, made famous during the pandemic for lockdown parties and ‘that’ Dominic Cummings interview, Keir Starmer delivered a sobering speech on 27th August that sets the tone for the budget at the end of October.

It’s “going to be painful” he said, asking the country to “accept short-term pain for long-term good”.

The £22bn ‘black hole’ in public finances was repeated. He admitted removing winter fuel allowance was a difficult choice but said there will be more “difficult decisions” to come and that “broadest shoulders should bear the heavier burden”.

Speculation about tax rises are inevitable when using language like that, with Rishi Sunak the first to point to it as the inevitable outcome of a Labour government.

There was no detail on what the budget would contain but the PM did re-iterate his his pledge, made during the election campaign, that the government would not raise National Insurance, income tax or VAT. Chancellor Rachel Reeves has taken a similar line.

Attention will inevitably fall on inheritance tax, capital gains tax, and tax relief on pensions as the alternative sources of increased tax revenues, and ones which theoretically target those with more wealth or higher earnings.

Changes to pensions relief, such as the introduction of a flat rate of relief, are rumoured annually ahead of almost every budget, and rarely turn into reality. Then again, so does an Oasis reunion…

Whatever happens our objective is to utilise the tax allowances which are available to you to the maximum, and that remains core to our ongoing service to you.

Rachel Reeves has announced that she will delivered her first budget as Chancellor on Wednesday 30th October.

She pulled no punches in the Commons debate when she accused her predecessor of covering up a £22bn overspend in the government finances. To plug the gap, she told the Commons, money needed to be found elsewhere. That would include cancellation of some rail and road projects, including the tunnel under Stonehenge, and restricting winter fuel payments to those on pension credits or other means-tested benefits

Former Chancellor Jeremy Hunt stated this was simply an attempt to pave the way for further rate increases.

A power of attorney (POA) allows you to appoint someone you trust to make decisions on your behalf if you become unable to do so. It is a really important piece of financial planning, as it should provide continuity in the event that you are unable to make important decisions.

We’ve summarized below the key reasons for creating a POA and the main types available.

Reasons to Create a Power of Attorney

Financial Management:Ensures that your financial affairs are managed according to your wishes if you are incapacitated. This includes paying bills, managing investments, and handling property transactions.

Healthcare Decisions:Allows someone to make healthcare and personal welfare decisions for you if you are unable to do so due to illness or incapacity. This can include decisions about medical treatment, care arrangements, and end-of-life care.

Business Continuity:For business owners, a POA ensures that your business operations can continue smoothly if you are unable to oversee them. Your appointed attorney can make critical business decisions in your absence.

Legal Affairs:An attorney can handle legal matters, ensuring that your legal interests are protected even if you are not in a position to manage them yourself.

Peace of Mind:Knowing that a trusted person will make decisions on your behalf can provide significant peace of mind, both for you and your family.

Types of Power of Attorney in the UK

Lasting Power of Attorney (LPA):This is the most common form of POA in the UK, and it comes in two types:
Property and Financial Affairs LPA: Allows the attorney to manage your financial matters, such as paying bills, managing bank accounts, and buying or selling property.
Health and Welfare LPA: Allows the attorney to make decisions about your personal health and welfare, including medical treatment and living arrangements. This type only comes into effect if you lose the capacity to make these decisions yourself.
Ordinary Power of Attorney (OPA):Also known as a general power of attorney, this type is only valid while you have mental capacity. It is typically used for a specific period or purpose, such as if you are abroad for an extended period and need someone to manage your financial affairs in your absence.

Enduring Power of Attorney (EPA):EPAs were replaced by LPAs in 2007, but if an EPA was made before that date, it can still be used. EPAs cover property and financial affairs and can continue to be used if you lose mental capacity, provided they are registered with the Office of the Public Guardian.

We typically recommend applying for a Lasting Power of Attorney for both property and financial affairs, and health and welfare. The paperwork is easier and cheaper to complete than in previous years, but we would recommend taking some professional advice along the way.

We would be more than happy to discuss this with you.

When investors try to make a quick return by predicting the top or bottom of a financial market, to invest at the optimal moment, it’s often referred to as ‘timing the market’.

It sounds like a great idea, but timing the market is notoriously difficult for several reasons, even for professional fund managers. Here are the primary challenges:

1. Market Efficiency
Efficient Market Hypothesis: According to this theory all known information is already reflected in share prices. This means that predicting market movements based on public information is extremely challenging because prices adjust rapidly to new data. Take the US election, for example. US stock markets had anticipated and priced in a November Trump victory some weeks ago, based on Biden’s poor polling results. That may now be changing, but by the time November comes the amount of market reaction will probably be limited, regardless of who wins, as all outcomes will have been factored in way in advance.
High Competition: The market is filled with sophisticated investors, fund managers and institutions who analyze and act on information quickly, making it hard for any single investor to consistently outperform the market. Technology and the rapid exchange of publicly available data means nobody has any significant information advantage.
2. Unpredictability of External Factors
Economic Indicators: Variables such as GDP growth, employment rates, and inflation can impact market conditions, but their effects are often unpredictable.
Global Events: Geopolitical events, natural disasters, and pandemics can cause sudden market shifts that are difficult to foresee and time correctly.
3. Behavioral Biases
Emotional Decision-Making: Fear and greed can drive investors to make impulsive decisions, leading to buying at market peaks and selling at lows.
Overconfidence: Many investors believe they can outsmart the market, leading to frequent trading and increased transaction costs without guaranteed returns.
4. Technical Limitations
Data Overload: With vast amounts of financial data available, distinguishing meaningful signals from noise is challenging.
Latency Issues: Even minor delays in obtaining and acting on information can result in missed opportunities or unfavorable trades.
5. Transaction Costs and Taxes
High Frequency Trading Costs: Frequent trading incurs transaction fees, which can erode profits.
Tax Implications: Short-term capital gains are taxed at higher rates than long-term gains, reducing the net returns from frequent market timing.
6. Historical Evidence
Study Results: Numerous studies have shown that most investors, including professionals, fail to consistently time the market successfully.
Average Returns: The average investor tends to underperform the market due to failed attempts at timing, missing out on the best performing days which significantly contribute to long-term gains.
7. Opportunity Cost
Time in the Market: The concept that “time in the market beats timing the market” emphasizes the importance of staying invested. Long-term investment strategies have historically outperformed attempts at market timing.
A Better Strategy
Given these challenges, our own investment strategies for clients focus on long-term wealth preservation and growth. These include:

Strategic Asset Allocation: Diversifying across various asset classes to manage risk and capitalize on different market conditions.
Periodic Rebalancing: Adjusting the portfolio periodically to maintain the desired asset allocation.
Tax-Efficient Investing: Utilizing strategies like tax-loss harvesting and investing in tax-advantaged accounts to minimize tax liabilities.
Ultimately, a disciplined approach, aligned with long-term financial goals and risk tolerance, is often more effective than attempting to time the market. All the evidence points towards this being the most successful method in the long term, even if it sounds a little less exciting than trying to predict the future.

You’ll often hear the twenty four news cycle ask the question “What will the Fed do next” when it tries, often unsuccessfully, to predict what might happen next to global markets.

The Federal Reserve (Fed), as the central bank of the United States, plays a pivotal role in shaping global financial markets, including those in the UK. Although it’s influence can often be more emotional than scientific, driving investor sentiment and gut feel decisions. Its policies and decisions are relevant to UK investment markets for several reasons:

1. Global Financial Influence
The U.S. economy is the largest in the world, and its financial markets are deeply integrated with global markets. As a result, the Fed’s monetary policy decisions—such as changes in interest rates or quantitative easing programs—significantly influence global liquidity and capital flows. This can affect investment sentiment, risk appetite, and capital allocation decisions worldwide, including in the UK.

2. Impact on Exchange Rates
Fed policies directly impact the U.S. dollar, which is the world’s primary reserve currency. When the Fed adjusts interest rates, it influences the dollar’s strength relative to other currencies, including the British pound. A stronger dollar can lead to a weaker pound, affecting the cost of imports and exports between the two countries, and influencing UK businesses that rely on international trade. Moreover, changes in the exchange rate can affect the relative value of returns for UK investors who hold U.S. assets.

3. Interest Rate Parity
The interest rate decisions by the Fed can cause shifts in global interest rate expectations. For UK investors, changes in U.S. rates often lead to anticipatory moves by the Bank of England, either to maintain competitive interest rates or to manage inflation and economic growth. These changes can influence bond yields, mortgage rates, and other interest-sensitive aspects of the UK economy. This has been a key focus of attention in recent years as rising interest rates have been at the forefront of public concern.

4. Investor Sentiment and Market Dynamics
The Fed’s outlook on the U.S. economy, particularly its assessments of employment, inflation, and economic growth, can sway global market sentiment. Positive or negative news from the Fed can trigger risk-on or risk-off movements, impacting UK equities, bonds, and other asset classes. Investors often look to the Fed’s analysis and forward guidance to make preemptive adjustments to their portfolios.

5. Impact on Commodities and Global Trade
The Fed’s monetary policy also affects commodity prices, many of which are dollar-denominated. For the UK, which imports a significant amount of raw materials, changes in these prices can influence inflation and corporate profit margins. Furthermore, since the U.S. is a major trading partner for many countries, any economic measures impacting U.S. trade will also impact global trade networks, including those connected to the UK.

Conclusion
Due to these factors, the Fed’s decisions are closely monitored by UK investors, financial analysts, and policymakers. The interconnectedness of the global economy means that even purely domestic decisions by the Fed can ripple outward, affecting financial conditions and economic prospects in the UK and beyond. It isn’t something we can control or influence however, so however much noise you hear about “What the Fed might do next”, it’s down to you whether you listen