This month’s featured article…Investing in uncertain times
It is fair to say that the last couple of years up to today can be described as ‘Uncertain Times’. We have seen a global pandemic, experienced and still experiencing leaving the European Union, navigating our way through a cost-of-living crisis where interest rates are now at their highest for over a decade, and we are living through an ongoing war between the Ukraine and Russia.
All of the above have resulted in a turbulent time where strikes over pay and conditions have brought entire sectors to a standstill and investor confidence has been reduced.
Whilst the above can be considered to be very uncertain, we must remain grounded in the absolute fact that in the investment arena there is always some uncertainty. Investments can always go up and down, regardless of how well the overall economic situation is.
So yes it is common sense to feel some reluctance and apprehension when investing for the future, given the myriad issues facing the world currently, but it should not prevent you from considering investing in a diversified portfolio to help reduce risk and optimise returns. Mixing up the assets you invest in such as equities , bonds and property can still provide a higher returns than simple cash deposits over the long term.
So what are the different classes of investment and why should you consider them in these uncertain times?
With interest rates at their highest level for some years, returns on cash deposits such as Cash ISAs, National Savings, Fixed Rate Deposit Bonds and even Easy Access Accounts are the best they have been for years, with rates of around 4% typically available in the market.
Cash deposits provide you with short term security and are a great place to hold monies that you know you are going to need in case of emergency or indeed for specific purposes in the short term such as a house deposit.
However, in the long run, cash deposits virtually always fail to keep pace with inflation. Even now, this is the case, with inflation hovering around 10% but cash returns less than half of that. So, for that reason, we would not usually suggest holding large amounts of cash deposits for investors who need to earn a real rate of return above inflation to meet their goals.
Equities have historically provided higher real (post inflation) returns than other asset classes over the long term, but they come with greater short term risks due to the volatility of the stock market.
When you invest in equities, you are effectively buying into the future of publically listed Companies. That is to say, you expect that over time, they will earn more profit, pay more dividends and therefore see growth in the value of your shares.
During uncertain times, investing in equities requires patience and control over our natural human emotions such as anxiety, fear and uncertainty. These emotions can often cause us to panic, sell shares at a loss or indeed seek out other forms of investment that simply carry different risks.
It is important (in our opinion) and based on academic research for most investors to invest across a diverse range of sectors, markets and geographies, because trying to predict the next “hot” share, sector or country is almost impossible as by definition it requires 100% foresight (which none of us have!!).
Bonds, on the other hand, are often considered safer investments as they offer fixed income streams and are usually less volatile than stocks.
During uncertain times, investors have historically tended to shift their focus towards bonds, which can provide a reliable source of income and have at times added an element of capital stability to portfolios. That said, in recent times, bonds have not provided much by way of capital protection in a rising interest rate/inflationary environment.
When you invest in bonds, you are lending your money by way of an IOU typically to either a Government or a Company in exchange for a fixed rate of return and a promise to pay back the capital in a number of years’ time.
As with shares for the average investor, identifying individual bonds to buy can be tricky and frought with risk, so we tend to prefer buying a diversified portfolio of bonds through mutual funds.
In the UK, we often (wrongly!) consider property investment to be a safe haven and the buy to let market has seen rapid growth over the last 15 years or so.
Property is often seen as “safer” than equities purely because it is tangible and we understand it. It provide us with peace of mind when we look at it and we very rarely value a property (in our own minds) at less than it has cost us to buy it. Rarely would we even consider selling it if it worth less than what it has been previously.
In reality, property prices do go down, rents sometimes don’t get paid, the current individual tax system is quite punitive for landlords, the asset is not fully liquid and the cost of investment, maintenance and disposal is relatively high compared to other investments. So, it is not without risk.
When taking into account things like stamp duty, legal fees, mortgage interest, mortgage fees, letting agents, handymen, income tax (corporation tax in company structures) , potential capital gains tax and future energy performance compliance requirements, then we really need to look carefully at whether an individual buy to let proposal “stands up” in investment terms.
That said, it may well do, but it requires careful analysis, research and some professional advice first!
*Please note: The Financial Conduct Authority does not regulate Buy-to-Let mortgages. Your home may be repossessed if you do not keep up repayments on your mortgage.
Alternatives such as private equity, currency speculation, precious metals and hedge funds can also be considered as part of a diversified portfolio. These investments claim to have low correlations with traditional assets such as stocks and bonds, and can provide a hedge against market volatility. However, they often come with higher risks and higher fees and may not be suitable for all investors.
Wealth Management During Uncertain Times
Wealth management during uncertain times also requires a focus on long-term goals rather than short-term gains. It is important to remember that investing is a marathon, not a sprint. Investors should avoid making knee-jerk reactions to short-term market movements and instead focus on their long-term investment goals.
To achieve long-term investment goals, investors should adopt a disciplined investment approach that includes regular portfolio reviews and rebalancing. Regular portfolio reviews can help investors identify any imbalances in their portfolio and make necessary adjustments.
In conclusion, investing in uncertain times requires a careful analysis and understanding of your goals, an understanding of the risks involved, and a willingness to diversify investments and optimise your investment tax planning . Investors should consider a mix of different asset classes, their risk tolerance and time horizon, and focus on long-term goals rather than short-term gains. A disciplined investment approach that includes regular portfolio reviews and use of effective tax wrappers (such as ISAs and Pensions) can help investors achieve peace of mind and financial security.
Using a regulated Independent Financial Advisor (IFA) can help you manage your investments more effectively and can help in reducing the pressure you may feel in managing your own investments. An IFA can provide a balanced view for you and help you make the key decisions you need to optimise your wealth management.
Feel free to book a call with our own Chartered Financial Planner and IFA, Liam Winstanley here, and see how Danbro Financial Planning can help you and your family.
Please note: Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Can remortgaging pay for your home improvements
Are you considering making home improvements this year? If so then one option to fund your improvements may be to consider re-mortgaging your home to release some of the equity to pay for the renovations. This may not be the best choice for everyone but it is certainly an option to consider as it has a number of benefits including:
Increase the value of your home
One of the fastest growing reasons people consider remortgaging to pay for home improvements is to increase the value of their property. Certain renovations such as adding an extension, updating the kitchen or bathroom, or converting the loft can significantly increase the value of your home.
Different renovations add different values ranging from around 7% return on investment (ROI) for a wet room to 15% ROI for a loft conversion. Adding an extension or updating the kitchen are two of the most popular improvements to make which can add significant value to your home.
Spread the cost over time
Home improvements can be expensive, and not everyone has the funds available to pay for them upfront. By remortgaging, you can spread the cost of the renovations over the term of the mortgage. This means that you'll be paying a bit more each month, but you won't have to come up with a large sum of money all at once.
Customise your home to your needs
Your circumstances may have changed since you bought your house. You may have a growing family and need more space or simply want to update the kitchen to make it more functional or better meet your style and taste. Remortgaging can allow you to access the full funds to change your home in full and not simply patch up bits and pieces here and there.
Improve energy efficiency
With the recent hikes in energy bills, now is a great time to review the energy efficiency of your home and look for ways to improve it, from a new central heating system, installation of a wood burner or simply better insulation. There are a number of ways to improve efficiency and the majority will also add value to your home as well as helping to reduce your energy bills.
To remortgage or not to remortgage
It's important to note that there are some downsides to remortgaging to pay for home improvements. For example, taking out a larger mortgage will result in higher monthly payments, which could be a strain on your budget. Additionally, you'll be paying interest on the new mortgage for a longer period, which could end up costing you more in the long run.
Before deciding whether to remortgage to pay for home improvements, it's important to consider the costs, benefits, and risks involved. You may want to consult with a financial advisor or mortgage broker to help you make an informed decision.
Exciting news: Danbro Financial Planning is Growing
Yes, that’s right, due to our exceptional growth Danbro Financial Planning is adding two new, fulltime advisors to the team to meet the ever growing demand for our range of wealth management and mortgage advice services.
Director of Danbro Financial Planning, Liam Winstanley says of the move to satisfy demand for our services:
“We have been aware for some time that the demand for our financial planning, wealth management and mortgage services will soon outstrip our ability to supply it and so we have been looking for some time for the right people to join our team so that we can continue to provide excellent levels of service and high quality advice . Our two new recruits have an incredible passion for helping people achieve their financial goals along with fabulous experience of doing so previously. I am looking forward to introducing them when they arrive!”
We will welcome our new starters in June/July and they will be ready and on hand to help you maximise your wealth management and investing goals, protect you and your family and advise on your mortgage needs.
Get in touch with us today and see how we can help you and your family now.
Liam Winstanley is a Chartered Financial Planner and Independent Financial Advisor. He has worked in financial services for well over two decades, specialising in wealth management and financial planning including things like pensions, investments, retirement planning, financial protection and estate plans.
Liam is the Director of Danbro Financial Planning and is passionate about delivering the very highest standards in service, ethics and professionalism within the financial sector.
Away from Danbro, Liam is an avid long-distance runner and also turns out for his local cricket side, Brinscall CC. He lives in Lancashire with his wife and son.