Monthly Archives: October 2016

Global Emerging Markets

Posted on October 31, 2016 by - Uncategorized

Sector shows an increase over the year to date
After a rocky few years, the Global Emerging Markets sector has picked up in 2016, with the sector showing an increase of 31% over the year to date at the end of August. (more…)

Investment matters

Posted on October 31, 2016 by - Uncategorized

Creating the life you want
Anything is possible when you manage your money the right way. Whatever your goals in life are, careful planning and successful investing of your wealth can help you get there. Investments can offer both risk and return, and, generally, the bigger the risk, the greater the potential return. It’s down to each investor to be comfortable with the perfect balance for them, and this will vary depending on how much you have to invest, what stage of life you’ve reached and what you’re trying to achieve.

Often, people find life too busy to invest properly. Some see it as complicated, time-consuming and, let’s face it, a bit boring. Many of us already hold cash savings. Keeping cash in a bank or building society can be a good idea: it’s secure and, even if the bank goes bust, you’re unlikely to lose your money because of protection in place for UK savers.

However, at the moment inflation is high and interest rates are at record lows, so the value of cash savings is actually falling as each year goes by – meaning that your money cannot buy you as much this year as it could last year.

That’s why you may want to consider other ways to make your money grow, especially if you don’t need immediate access to it. Investing in funds might offer a good way to grow your money over the long term, though there are some risks you should be aware of.
How much risk do you want to take?

Investing means taking calculated risks – you could get back less money than you invested. So it’s important to understand how much risk you want to take. Typically, the younger you are, the more risk you might want to take, simply because you have longer to recover from any periods when your investments may have fallen in value. A retiree relying on pension income might be less willing to take risk.

What kind of questions should I consider?
What are my financial objectives, and by when?
Will I also need an income to supplement my pension?
Do I need to save for my children’s or grandchildren’s future – education, university or first property?
Do I want to buy a yacht in 15 years?
What sort of investment returns am I looking for?
Is it more important to take an income from my money or grow it?
How long do I want to invest for?
When will I need my money back?
Do I want to invest a lump sum or drip feed money into funds over a longer period, say on a monthly basis?

This is by no means a definitive list of questions, but they give you an idea of the type of questions you should consider, and they will also help you to determine the right level of risk and make it easier to choose suitable investments.

How long should you invest for?
You should see any investment in funds as being for the medium to longer term – five years or more. That’s because the longer you invest, the less vulnerable you are to short-term dips in the performance of your investment.

What funds should you choose?
The appropriate funds you choose might aim to pay you a regular income or grow your money. Some do both.

Growth: this means the fund aims to increase the value of your original investment by selecting assets that the fund manager believes will increase in value. It might take more risk and aim to grow quickly, or take a more cautious approach for steady growth. The latter approach might involve, say, investing in the stocks of large, well-established companies.

Income: instead of only selecting assets that the manager thinks will increase in value, income funds aim to make regular payments to their investors by selecting assets that pay out cash. This can then be used immediately to supplement pension earnings, for example. Some funds allow you to reinvest any income you receive. This means that as each year goes by, you could benefit from investment rewards on the original amount – because assets selected for income payments may still grow in value – and also on the reinvested amount. This can have a dramatic effect on your investment value over time.
Why should you invest in funds?

Expertise: you don’t need to have particular knowledge or investment skill, as someone else takes care of your investment for you. This also saves you time.

Managing risk: some funds spread your investment across a wide range of different assets, regions and sectors. This helps to reduce the risk of financial loss if any single area performs poorly. There are all kinds of individual risks that a fund manager seeks to guard against, such as foreign currency movements, the impact of political instability or individual companies going bust.

Low cost: pooling your money with other people’s means you get a more varied portfolio of investments than most people could afford alone. This is because the cost of buying and selling the different assets in a varied portfolio could be prohibitive if you tried to do it on your own.
Flexible: most funds allow you to invest a lump sum or smaller, regular amounts.

What are the asset classes you can choose?
An asset class is simply a category of investment.

Cash: relatively secure and pays regular interest. It’s a low-risk asset but offers low potential returns, and the total amount may be falling in real terms all the time as living costs rise.

Bonds: basically an IOU where the investor loans money to a company or government in return for an agreed rate of interest over an agreed period of time. At the end, the investors get their original sum back. This is considered a lower risk investment than equities, though higher risk than cash.

Equities: shares in a company, meaning that you own part of the company. Tends to be a higher risk and higher return asset than either cash or bonds.

There are many other asset classes available, including property, commodities and specialist investments (such as hedge funds). However, these can be complex and are therefore thought to be less suitable for inexperienced investors.

What should you know about asset allocation?
Asset allocation is one of the most important concepts in investing – it’s about judging how much of your investment to place into different asset classes and which investments within each asset class are likely to perform well.

Someone willing to take higher risks for potentially higher returns might want a larger portion of equities; those wanting to reduce risk might focus on cash or bonds instead. It’s about finding the right balance for you, and this will vary depending on where you are in life and how sensitive you are to taking risk.

Why all the fuss about diversification?
Diversification means making sure your investment portfolio is varied, with a good mix of assets, regions, fund managers and sectors. This goes beyond asset allocation, aiming for diversity within each asset class, as well as across your entire portfolio.

How can you minimise risk?
There’s a concept in investing called ‘correlation’. Simply put, it means whether different assets in your portfolio gain or lose value at the same time. Imagine you have a cupboard full of shoes: if they were all wellington boots, you would be well-equipped for wintry conditions, but less happy on the beach in summer. It’s similar with investing, as a poorly diversified portfolio means when one of your assets is doing badly, so is your entire portfolio.

Diversification helps to minimise this danger by reducing correlation between your assets – so if one of your assets has disappointing performance, it’s possible that your other assets could balance this with good performance.

The other benefit of diversification relates to growth. It’s difficult to predict which assets, regions or sectors will perform well, so it’s wise to spread your investments widely so you don’t miss out. It’s also true that some people might not want a diverse portfolio, deciding to concentrate on a narrow area instead. However, this is a higher-risk approach and requires considerable experience and expertise.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Getting ready for life beyond work

Posted on October 31, 2016 by - Uncategorized

Three-year growth in adequate retirement saving steadies
Nobody knows quite what the future holds. Changing life plans and priorities will mean we encounter varying income needs and goals throughout our life, and when saving for retirement certain innate behavioural traits will influence our decision-making. Savings levels in the UK are showing signs of steadying at the same time as the number of people expecting to receive a defined benefit (DB) pension continues to fall[1].

While the proportion of people saving adequately for retirement, buoyed by the introduction of auto-enrolment, had been on an upward trajectory since 2013, in 2016 the number stayed static year-on-year at 56%.

Disengaged from the realities of retirement
Despite the decline of DB schemes underscoring the vital importance of saving for the future, the proportion of people not saving at all remains at one in five; a slight drop to 18% this year from 19% in 2015. In addition, the mean age at which people think they can comfortably afford to begin saving for retirement has risen in the past year, to 29.3 years from 28.9 years – at the same time, the age at which most would like to retire at has fallen to 62.5 years from 62.7 years last year. The average income people believe they will need for a comfortable retirement has also increased to £23,990, up from £23,254 in 2015.

40-somethings save less as 30-somethings catch up
This year’s research revealed a troubling trend among those in the 40–49-year-old age group. Jointly with those aged 30–39, they have the lowest adequate savings levels (53%). This marks the first time that savers in their 30s are preparing for retirement as well as those in their 40s – despite the fact they have an additional decade of earning potential. Furthermore, while the proportion of adequate savers in their 30s has risen from 52% in the past 12 months, among those in their 40s this figure has dropped from 57%. The number of non-savers in their 40s is also up to 19% this year from 16% in 2015, despite the fact that, on average, there are fewer people not saving this year compared to last.

Success of auto-enrolment still evident
In spite of steady savings levels across the board, auto-enrolment is likely to play a positive role in the coming years, with current figures reflecting levels of savings made by many at the very start of their saving journey. When excluding those who have a defined benefit pension (i.e. looking only at those covered by auto-enrolment), the proportion of people saving adequately has actually increased in the past 12 months to 43% from 39%.

The impact of auto-enrolment is also clear when looking at the non-savers: women (24%), the self-employed (24%), and those working for small businesses (25%) are all disproportionately not saving – three groups who are either currently less likely to be eligible for auto-enrolment, or yet to feel the full benefit of the relatively new legislation.

Brexit may cause confidence to dip – but intention to save is positive
When it comes to the impact of the EU Referendum result, 31% of people pre-Brexit said they felt optimistic about their retirement – this fell to just 21% following the vote. This trend was particularly prevalent among young people, with 27% of 18–24-year-olds feeling pessimistic about their retirement pre-Brexit, and 43% of 18–24-year-olds feeling pessimistic post-Brexit.

However, the impact may be limited, with 53% saying Brexit will not affect the amount they will save, and only 11% saying they will be putting away less money as a result. In fact, the uncertainty around the vote may even have spurred people on to engage more with saving, with 26% of young people (18–24-year-olds) suggesting they will now put away more money.

Source data:
[1] The 12th Scottish Widows UK Retirement Report monitoring pension savings behaviour annually using the Scottish Widows Pensions Index and the Scottish Widows Average Savings Ratio. The research was carried out online by YouGov across a total of 5,151 nationally representative adults in April 2016. An additional piece of research was carried out by YouGov following the EU Referendum among 1,709 adults. Fieldwork was undertaken from 19–20 July 2016.

A PENSION IS A LONG-TERM INVESTMENT. THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE

Capturing the upside

Posted on October 31, 2016 by - Uncategorized

Forecasting future variations in volatile investment returns
To invest successfully, you have to navigate complex market forces, so it’s important to take a more rounded approach. Investors have much to think about when choosing and understanding investments; in particular, market volatility and the impact it can have on your investment.

Extreme market volatility during the credit crunch demonstrated how markets can swing wildly. Understanding volatility is therefore vital to the overall process of choosing the right investments. Volatility is how sharply and how frequently a fund or share price moves up or down over a certain period of time.

It can be triggered by any number of factors. The UK stock market, for example, can fluctuate because of various factors both home and away: the Eurozone debt crisis, the slowdown in the US and problems as far flung as China can all have a turbulent effect on markets. Periods of losses/downturns can be followed by upswings (also known as ‘rallies’) and vice versa. But this is the very nature of the stock market.

Standard deviation
The most common measure of volatility is standard deviation. This measures how much the value of an investment moves away or deviates from its average value over a set period of time, i.e. how much it rises and falls. The more volatility, the higher the standard deviation.

Forecast volatility attempts to use standard deviation to forecast future variation in returns. The higher a forecast volatility figure, the more an investment could move both up and down over time.

Loss or gain
Generally, investors are happier with lower volatility, even if this means making less money over time. Investors worry most about volatility when markets are falling. When this happens, remember that any loss or gain is only realised when you sell your holdings. Investing for the long term means short-term volatility is not necessarily a reason to panic and make drastic changes.

It can actually work to your advantage if you invest a monthly amount. When prices go up, the value of your investment rises; when they go down, your payment buys more. This is often referred to as ‘pound cost averaging’. However, this cannot be guaranteed.
Smooth out any bumpy rides

Spreading risk through diversification is often said to be the first rule of investment. Diversification across a range of markets and asset classes will enable your savings to go to work in different markets and, crucially, reduce exposure to one individual area, as one asset class may go up while another goes down.

Strategies of long-term investing and regular saving will help smooth out any bumpy rides. Matching your attitude to risk with your investments is crucial to getting the right portfolio for your needs.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

Brexit

Posted on October 31, 2016 by - Uncategorized

Catalyse, or sabotage?
Supporters of the British vote to leave the European Union (EU) have heralded recent economic indicators as vindication that Brexit will act to catalyse, not sabotage, the UK economy. Before June’s referendum, most economists warned that a Brexit vote would damage economic growth – an argument at the heart of the unsuccessful Remain campaign. (more…)

Time to consider your investment options?

Posted on October 31, 2016 by - Uncategorized

Helping you reach your long-term financial goals
In the current economic climate, with interest rates still around record lows, investing in the markets could enable you to achieve an inflation-beating return and help you reach your long-term financial goals. (more…)

Appetite for risk

Posted on October 31, 2016 by - Uncategorized

Striking the right balance is important to avoid losses
While diversification is important, you should keep in mind how much risk you are prepared to accept on your money. If it is important to you to avoid losses, you may want a portfolio that has less in shares and more in cash and fixed interest securities held to maturity, for example. (more…)

Choosing investments

Posted on October 31, 2016 by - Uncategorized

What you need to know to become a more confident investor
Before you choose or make any investment decisions, you need to know that investing involves the possibility of loss. These key considerations help you become more confident about your investment decisions. (more…)

What investment approach is right for you?

Posted on October 31, 2016 by - Uncategorized

Your decision can have a big impact on your returns

Should you invest all of your money in one go or drip feed it into the stock market over time? The answer will ultimately depend on whether you have a lump sum to invest or not, but it can have a big impact on your returns. Your decisions will invariably be based around your circumstances, attitude to risk and where you are investing your money and why. (more…)

Pooled investment schemes

Posted on October 31, 2016 by - Uncategorized

Investing in one or more asset classes
Investing in funds provides a simple and effective method of diversification. Because your money is pooled together with that of other investors, each fund is large enough to diversify across hundreds and even thousands of individual companies and assets. A pooled (or collective) investment is a fund into which many people put their money, which is then invested in one or more asset classes by a fund manager. (more…)