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Saving & Investments

5 Healthy Financial Habits you shouldn’t Ignore

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How to get your finances in order to make more of your money.

Do you feel like your financial life has been turned upside down during the coronavirus (COVID”19) pandemic? Or, has the start of the new year focused you on getting your finances in order to make more of your money? Whatever the answer is, it’s important to adopt healthy financial habits.

But just as bad habits can get you into financial trouble, good habits can help keep you out of it – and help you spend wisely, save well and, most importantly, reach your biggest financial goals faster. To help kick-start this process, we’ve put together five habits for you to consider.

1. Pay yourself first

Before you pay any bills, develop a habit of paying yourself first. That means saving and investing a portion of your earnings before you do anything else with your money. In the book The Richest
Man in Babylon, written by George S. Clason, the parables are told by a fictional Babylonian character called Arkad, a poor scribe who became the richest man in Babylon. How did he achieve this? By following the first law of wealth: ‘Save at least 10% of everything you earn first and do not confuse your necessary expenses with your desires.’

It’s great to start somewhere – saving something is better than nothing. The important thing is that you’re building a new habit around making some of your hard-earned money work for you, as opposed to someone else. After you’ve paid yourself, the rest of your earnings can then be used to pay bills and purchase the things you need.

2. Spending less than you earn

The problem is that if you routinely spend more than you earn, you could be building up more and more debt. In many cases, that may mean turning to a credit card and not paying of the balance each month, leaving you with potentially exorbitant fees and interest rates that can take years to pay of. When considering spending on something you want – always ask yourself if you genuinely need it.

3. Emotions should not affect your financial decisions

For many people, money habits are tied to emotions and how we feel. It’s easy to fall into the trap of spending money when we’re disappointed, or angry, or even happy. While emotions are important, they aren’t helpful when it comes to making financial decisions. Develop a habit of taking your time and making levelheaded, rational decisions about money rather than allowing spending, saving and investing habits to be dictated by the way you’re feeling at a moment in time.

4. Control your debt

Debt is not necessarily always a negative; in some cases debt can be a positive stepping stone to help get you closer to a more prosperous future. For example, although a mortgage is a form of debt, purchasing a home could be a necessity for you. Similarly, borrowing money to enhance your education could allow you to get a better paid job. You might even be borrowing money to set up a business.

On the other hand, using credit cards, for example, to cover extra spending is generally considered a bad use of debt, as the repayment terms and interest payments can often be onerous as well as expensive if it’s not paid back on time. It’s generally considered good practice to avoid carrying a credit card balance over from one month to the next, as over the longer term this can often become very expensive, very quickly.

5. Speak to your professional Financial Adviser

When it comes to managing your money, planning to build wealth, securing your future, and, above all else, drawing up an effective plan for fulfilling your objectives, talk to us. We will provide a wealth of knowledge, qualifications and experience that is difficult or impossible to achieve yourself.

Perhaps the main benefit, more so than any other, is the chance for relaxation. You can properly relax, safe in the knowledge that we are taking care of a wide range of challenges and questions that you would otherwise have to deal with. And if you do have any questions or concerns, you know you can easily contact us to get answers in a timely manner.

How to build new habits into your daily life

  • Know your why – what’s your reason for making the changes?
  • Set realistic, measurable goals that are achievable
  • Break up bigger goals into smaller actions
  • Don’t make too many changes at once
  • Use rewards as a motivator (within reason) to treat yourself once you meet your goals

Soon enough, these good habits will become hard to break.

Need help developing better financial habits in 2021?
Making the right decisions now can bring peace of mind by offering a clearer future for you and your family. Together, we’ll create a wealth plan that goes beyond simply finances, taking care of what really matters in every aspect of your life. To discuss your situation, we’re here to listen.

The value of your investments (and any income from them) can go down as well as up, and you may not get back the full amount you invested.

Life Goals

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Are you building the future you want?

Creating a financial roadmap for the future you want involves a close analysis of your personal finances and an assessment of other building blocks.

Lifestyle matters look at how to balance work and leisure, how to make smart choices for the future and many other items regarding how to help you enjoy the journey.

‘How do you ensure the plans you make are going to get you to where you want to be financially?’ ‘How can you achieve the life you want?’ Your financial roadmap should provide you with clarity
about your future. It should detail every aspect of your vision – your hopes, fears and goals. It should also describe exactly how your future will look and help you to know exactly where you are headed and when you are likely to arrive.

Life can change – the birth of a child, the death of a loved one, the loss of a job, a major purchase – which will readjust your financial roadmap. At these major life events, it’s important to chart a
new course to ensure you meet your financial, lifestyle and retirement goals.

Take some time and ask yourself these questions:

  • Can I sleep comfortably knowing I’ll have enough money for my future?
  • Do I have the security of knowing where I’m heading financially?
  • Am I going to be able to maintain my current lifestyle once I stop working?
  • Do I feel empowered financially to live the life I want today and tomorrow?
  • Have I made sufficient financial plans to live the life I want?
  • Do I have a complete understanding of my financial position?
  • What is ‘my number’ to make my current and future lifestyle secure?

Making wise financial decisions

Part of this process is to understand ‘your number’ – in other words, the amount of money you’ll ultimately need to ensure complete peace of mind in knowing your future lifestyle is secure and making sure you don’t run out of money before you run out of life. The process starts by identifying your goals for the future and following up by setting a timeline for achieving them.

If you do not know where you are going, how will you know when you get there? This is very true about financial goals. You need to set financial goals to help you make wise financial decisions, and also as a reward for your efforts. Goals should be clear, concise, detailed and written down. Unwritten goals are just wishes.

How to make smart choices for the future

In order to achieve all your goals, you will need a plan. Starting from assets you already have available, you will need to determine how much more you need to accumulate and when you will need it. Don’t neglect to consider that the price of your goal items might actually increase as well.

We’re ready to listen

We’re here to make this process as simple as possible for you so that you can have peace of mind knowing that everything is taken care of. When it comes to planning for your future and that of your family you’ll want to be sure that you have everything covered – and that’s where we can help. To discuss your future plans, please speak to us.

Festive Financial Gifts

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Deciding on the right investments for the children in your life

As the festive season approaches, have you thought about gifting your children or grandchildren something different this Christmas? Giving them a good start in life by making investments into their future can make all the difference in today’s more complex world.

Many parents and grandparents want to help younger members of the family financially – whether to help fund an education, a wedding or a deposit for a first home. Christmas is a time for giving so what better gift to make to your children or grandchildren than a gift that has the potential to grow into a really useful sum of money.

There are a number of different ways to get started with  investing for children that could also help you benefit from tax incentives to reduce the amount of tax paid, both now and in the future. Don’t forget that tax rules can change over time so it is important to obtain professional financial advice before making financial decisions.

Ownership of the investments

Investing some money – either as a one-off lump sum or on a regular basis – is an ideal way to give a child a head start in life. There are a number of options available when it comes to ownership of investments for a child. Children receive many of the same tax-efficient allowances as adults, so it’s a good idea to consider specialist child savings accounts.

Some people prefer to keep investments for children in their name; that way, if a future need arises in which you require access to the funds, it is still available to you as it has not yet been transferred to the child.

If you retain personal ownership of the investment, it will be your tax rates that apply as opposed to the child’s. If the investment remains in your estate upon death, more taxes could be payable, so be aware of this.

Bare Trusts

You can hold investments for your child in a bare trust or designated account. Bare trusts allow you to hold an investment on behalf of a child until they are aged 18 years (in England and Wales) or 16 (in Scotland), when they’ll gain full access to the assets.

Bare trusts are popular with grandparents who would like to invest for their grandchild, because the investments and/or cash are taxed on the child who is the beneficiary. This is only the case if you are not the parent of the child. If you are and if it produces more than £100 of income it will be treated as yours for tax purposes.

Grandparents can contribute as much as they like as there is no limit to how much can be invested each year into this type of account. This can be a beneficial way of reducing a potential Inheritance Tax bill if a grandparent would like to make gifts to a child.

Discretionary Trusts

A discretionary trust can be a flexible way of providing for several children, grandchildren or other family members. For example, you might set up a trust to help pay for the education of your grandchildren. The trust deed could give the trustees discretion to decide what payments to make, depending on which children go to university, what financial resources their families have and so on.

A discretionary trust can have a number of potential beneficiaries. The trustees can decide how the income of the investment is distributed. This type of trust is useful to give gifts to several people, such as grandchildren. However, it’s worth keeping in mind that the tax rules can become complex when using a discretionary trust and the investment and distribution decisions are taken by the trustees (of which you can be one).

Junior ISAs

If you want to ensure the money you give to your children remains tax-efficient, a Junior Individual Savings Account (JISA) is available for children born after 2 January 2011 or before 1 September 2002 who do not already hold a Child Trust Fund.

The proceeds are free from income tax and capital gains tax and are not subject to the parental tax rules. They have an annual savings
limit of £9,000 for the current tax year which runs from 6 April to 5 April the following year.

A child can have both a Junior Stocks & Shares ISA and a Junior Cash ISA. From the age of 16, children can have control over how their JISA is managed, but cannot withdraw from it until the age of 18.

Child Junior SIPPs

It is never too early to start saving for retirement – even during childhood. While it may seem a little early to be thinking about retirement as the parent of a child, it’s worthwhile. The sooner someone starts saving, the more they will gain from the effects of compounding. There are significant benefits to setting up a pension for a child. For every £80 you put in, the Government will top it up with another £20, which is effectively free money.

A Junior Self-Invested Personal Pension Plan (SIPP) is a personal pension for a child and works just like an adult one. Parents and grandparents can save up to £2,880 into a SIPP for a child each year. What’s great about this gift is that the Government will top it up with 20% tax relief. So you can receive up to £720 extra, boosting the value of your present to £3,600. This can help a child to build a substantial pension pot if payments are made every year.

But while starting a pension for your child or grandchildren will benefit them in the long run, you need to consider that they won’t be able to access their money until they are much older.

Planning to give the children in your life a financial gift this Christmas?

A gift of money to your children or grandchildren at Christmas can be a wise choice, especially if you take a long-term approach. Many families want to give their children or grandchildren a head start for their future finances. When it comes to investing for children, tax can make a big difference to returns over the longer term. We can help you decide on the right investments for the children in your life. Please contact us to discuss the options available.

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.

Investing with a Conscience

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Placing money in companies that bring positive change. Issues such as climate change and sustainability have become increasingly hot topics globally and often the subject of conversation. As a result, Environmental, Social and Governance-linked (ESG) investment strategies continue to dominate financial headlines.

These strategies, which include impact investing, are not new, but momentum is growing as shareholders demand greater action and consumers hold businesses to a higher standard. Increasingly, a significant number of UK investors expect their investments to align with their personal beliefs and continue to express interest in sustainable investing.

Potentially higher returns

Findings from new research identified that UK millennials are less likely to compromise their personal beliefs in order to benefit from potentially higher returns compared to their global counterparts[1]. ESG is a set of standards seeking to reduce negligent corporate behaviour that may lead to environmental degradation, armament sales, human rights violations, racial or sexual discrimination, harmful substances production, worker exploitation and corruption, though this list is by no means exhaustive and remains disputed.

More sustainability conscious

This study of more than 23,000 people who invest from 32 locations globally revealed that in the UK, only 20% of millennials, who are often perceived to be more sustainability conscious, would compromise their personal beliefs if the returns were high enough. Globally however, 25% would be willing to be flexible with their values. According to the UK results of the Global Investor Study, some 50% of Britons aged 71+, 23% of baby-boomers and 22% of those classed as Generation X would trade their personal beliefs for higher returns.

Excluding ‘sin-stocks’

In the UK almost a third (24%) of those who class themselves as having ‘expert/advanced’ investment knowledge are substantially more likely to trade their personal beliefs for better investment returns compared with 18% of ‘beginner/rudimentary’ investors. A total of 78% of Britons said they would not invest against their personal beliefs, and for those who would, the average return on their investment would need to be 21% to adequately offset any guilt. Socially Responsible Investment (SRI) generally focuses on excluding ‘sin-stocks’ from the investment pool based on negative screening guidelines.

Entering the mainstream

In the last two years, sustainable investing in the UK has increased, with 48% of people now frequently investing in sustainable investment funds compared with 34% in 2018, sending a positive market signal that sustainable investing is entering the mainstream. Overall, 40% of UK investors stated that investing sustainably was likely to lead to higher returns. Some 51% said they were attracted to investing sustainably due to its wider environmental impact. Globally, expert or advanced investors are the most likely to think sustainable investments have the most potential to offer higher returns (44%) and the least likely to think investing this way will ultimately disappoint (9%).

Top three ‘behaviours’

Opinion was split among investors globally in terms of how asset managers should address challenges that arise from the fossil fuel industry. Just over a third (36%) said managers should withdraw investment from companies in these industries to limit their ability to grow. However, over a quarter (27%) said managers should remain invested to drive change. Furthermore, investors said that the top three ‘behaviours’ companies should be most focused on were their social responsibility, attention to environmental issues and the treatment of their staff.

Is your future in sustainable investing?

What used to be viewed once as a niche investment philosophy is now firmly planted in the mainstream, with investors aligning their personal values around sustainability and social progressiveness. If you’d like to explore an ESG investing journey with us, please speak to us for further information.

Source data:
[1] In April 2020, the Schroders Global Investor Study 2020 commissioned an independent online survey of over 23,000 people (aged 18-37) who invest from 32 locations around the globe. This spanned countries across Europe, Asia, the Americas and more. This research defines people as those who will be investing at least €10,000 (or the equivalent) in the next 12 months and who have made changes to their investments within the last ten years.
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.

Market Commentary – July 2020

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Navigating Change (Again)

“She stood in the storm, and when the wind did not blow her way, she adjusted her sails.” – Elizabeth Edwards

2020 has been interesting. To the end of June, year to date our Growth, SRI (Socially Responsible Investment) and Passive portfolios are effectively flat and ahead of benchmarks (and significantly also over 1 / 3 / 5 year timescales) although the journey has clearly been anything but steady. The Income portfolios have been more adversely affected as companies have reduced / cancelled dividends, while withdrawing forward guidance on earnings and income forecasts – effectively leaving a void where previously there was generally boring certainty and stability. Interest rates are verging on negative, oil futures in the US briefly went negative, the Federal Reserve is buying junk bonds, and in the UK, the government is offering £10 discounts on your meals out (Mon-Wed throughout August at all participating restaurants). I do not recall any of this being covered in my Economics A-Level back in the early 1990s. Some updated textbooks (digital of course) and theories will be needed for the current crop of home-schooled students.

Change is always fascinating and that is exactly what we have got. What the digital age ensures is that change is at a much-accelerated pace, and adoption of new technologies is often far quicker than anticipated, while necessity is still the mother of invention. This is demonstrated in the data from the Office of National Statistics (below) showing the sharp rise in “Non-Store retailing” (i.e. online) as the Covid-19 economic shutdown forced shoppers to opt for delivered goods and abandon reliance on traditional physical stores.

Figure 1: A sharp uplift to already increasing sales for non-store retailing during the coronovirus pandemic, while non-food stores and fuel show growth in May 2020 from the lowest levels on record in April

This change in purchasing behaviour is likely to be a continuing trend although the non-food and fuel sales will probably rise to a more normalised level while still falling ever further behind online activity. The adoption of all things digital and the move to a cashless society is likely to accelerate further which will present clear challenges and opportunities depending on the relevant business sector. This helps explain the drastic variation of fortunes in the outlook and share prices of various businesses over recent months, with exuberance and despair seemingly the two overriding moods of the markets.

The punishment for being in unfavoured sectors of the market has been brutal, and the UK stock indices have suffered more than most. In our own portfolios the bottom performing fund this year has been a UK focused income fund concentrating on smaller companies, while the top a global technology holding – with a 70% disparity of returns between the two over the first 6 months of 2020.  The economic data, as expected, has been appalling with the UK registering its biggest ever monthly drop in GDP in April (-20.4%) and the rise in unemployment levels globally seem set to escalate. The unprecedented steps taken by the Chancellor in the UK to support jobs highlights the concerns the government has about the inevitable impending increase in unemployment, particularly when the furlough support ceases and if further lockdown periods are deemed necessary.

However, there is some optimism that the recession may have already hit its worst, and while the return to previous levels of economic activity and employment may take considerable time, signs are that we are on an upward trajectory. Of the largest 12 global economies, 6 now have readings in excess of 50 on the Manufacturing Purchasing Managers Index – readings over 50 signal expansion. This supports some views that this will be a savage, but brief recession and while economic activity may recover quickly, the labour market globally may be more severely affected.

The continued role of central bankers and their “blank cheque” mentality is providing much needed liquidity in the markets and, potentially, supporting sentiment as the fastest correction in the S&P 500 in history was followed by its biggest ever 50 day rally. Jerome Powell, Chair of the US Federal Reserve, gave this unequivocal statement at his Congressional Testimony in June:

“The Federal Reserve is strongly committed to using our tools to do whatever we can for as long as it takes to provide some relief and stability to ensure that the recovery will be as strong as possible and to limit lasting damage to the economy. The Fed will continue to use these powers forcefully, proactively, and aggressively until we’re confident that the nation is solidly on the road to recovery.”

The mantra of “don’t fight the Fed” may be in play for now, but relying entirely on emergency measures from central banks and governments would be careless when perennial issues such as Brexit, the China vs US trade dispute and the small matter of a US election in November will add further uncertainty to the current situation. There is also the question of who is going to foot the bill for furlough benefits, SDLT holidays, and the endless monetary expansion that will create unprecedented levels of debt? Longer term there are implications, with the most material impact likely to revolve around whether prolonged low growth and deflation or inflation will be more prevalent. There are legitimate arguments for either outcome, but clearly the ramifications will be significant.

We are in a period of substantial change, and the mistake is to think that change is not normal – a simple glance through history shows it is ever present. While on an individual basis we grow accustomed to our own ways and preferences, humanity invariably collectively advances through forces of supply, demand and genetic desires that are impossible to rationalise into a simple formula. The combination of data-driven statistical theory aligned with the gloriously idiosyncratic behaviour of individuals is what makes the investment markets so fascinating and unpredictable.

One of the joys of investing is that occasionally when the wind blows a different way you can adjust your position if needed. The next 12 months will be intriguing as we adapt to different economic realities – but we will adapt and much of the change is merely accelerating the trends that were already in place. Given the increased uncertainties and extremes in valuations of various assets we believe adopting a well-diversified approach and incorporating the skills of some excellent fund managers will continue to protect and enhance our client’s financial wellbeing.

This is something we have done since we were established in 1980, and it is reasonable to assume our 40th year has given us, and our clients, a new challenge or two. We have addressed these in the same manner as all the others in the previous four decades by acting in the best interests of our clients, thinking of the long term, and dealing with reality. We are in a privileged position to have been trusted with safeguarding the futures of our clients and multiple generations of their families for 40 years – we look forward to many more in an ever-evolving world.

Please note any past performance mentioned is not a guide to future performance and may not be repeated. Any sectors, securities, regions and countries shown are for illustrative purposes only and are not to be considered advice, nor a recommendation to buy or sell.

Alan Cram – Investment Director
Ellis Bates Financial Advisers

The Ugly Truth About Investment Loyalty | Independent Financial Adviser

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By Grant Ellis, Director Ellis Bates Group

I’ve been a Manchester City fan since 1970.  I chose to support them as all my friends were either Leeds United or Manchester United fans, and Manchester City were an attractive footballing alternative who were having a bit of success at the time, winning the league and the FA Cup in consecutive years.  However, just as I formed my allegiance to them their success dried up and apart from a couple of cup runs they remained relatively unsuccessful until 2011.  You know what it’s like though – once you’ve made your choice of team it’s incumbent upon you to stick with them through thick and thin.  After all that’s what supporting a football team is all about; you make your choice, and for better or worse you remain loyal to them whatever happens.

Just imagine though if I’d been prepared to switch my support between different teams over the years based on their performance, rather than simply sticking with Manchester City?  Had I for example, switched to a blend of Liverpool and Leeds Utd in the 70’s, Liverpool and Everton or Arsenal in the 80’s and Manchester Utd and Arsenal in the 90’s and noughties before reverting to Manchester City, I would have enjoyed way more success as a result.  Between them they were either first or second in the league every year throughout that period, winning numerous cups long the way too.

And it would have been quite possible to chose those clubs based on their results, coupled with a bit of football nouse.  Indeed, the pundits have only failed to predict all the top teams in a couple of the last 40 plus years, most recently when Leicester surprised everyone by winning the league in 2016.  In virtually all other seasons the top three or four teams have been easily identifiable by those with the experience and expertise to pick them out.

Now, being a football supporter is an entirely emotive decision, which is why we tend to stay loyal to one particular club.  So why do many of us behave like football fans when it comes to choosing Fund Managers to look after our investments?  That shouldn’t be an emotive decision at all, yet far too often we hold off moving our money when results are not going the way they should and there are better alternatives available.

Now, I do understand that everyone can go through a bit of a lean period, and sometimes it is better to give your incumbent the benefit of the doubt for a time.  Clearly that is not always the case, as the recent fall from grace of the one time darling of the investment world, Neil Woodford, is a timely reminder.

So when it comes to your money surely the key is to make evidence backed, emotion free informed decisions about switching, and on a regular basis?  Of course, not all of us have the time or the expertise to do this which is why many of us chose an Adviser to do it for us.

Choosing an Adviser wisely is clearly important, as they will of course charge for this service, but it is not all about the cost; it’s about value for money.  Look for an Adviser with a dedicated investment department, with full time, daily focus on the investment performance of their panel funds.  Get them to give you testimonials from satisfied customers along with the number and scoring of verified reviews they’ve had from clients, and ask them about their recent investment performance. They should also be prepared to back up their claims about investment success with hard facts which clearly demonstrate they are indeed followers of the latest winners and not blindly loyal, or just plain lazy.

And choosing winners works whether you’re a fan of active or passive funds, so this sort of support can work whatever your investment philosophy.  Check out the following link for more information https://www.ellisbates.com/individuals/investments/

Of course, being a Manchester City fan is now much more enjoyable than it was 30 years ago, but one thing I have learnt in the past 50 years is that I can’t and won’t take their recent success for granted and I know it won’t last for ever.  I am enjoying it whilst it does though!

Ellis Bates Financial Advisers are Independent Financial Advisers with offices across the United Kingdom.  They specialise in active investment management of over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist.  https://www.ellisbates.com/about/reviews/

For more information please visit their website www.ellisbates.com

Boost Your COVID-19 Retirement Planning with these Tips | Independent Financial Adviser

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By Grant Ellis, Director Ellis Bates Group

Bear in mind that retirement savings are for the long run. The Coronavirus (COVID-19) is having a widespread impact across all elements of financial life, including retirement plans. The current global stock exchange turbulence, as a result of COVID-19, will undoubtedly be concerning for people whose retirement savings are spent partly or entirely during these volatile marketplace conditions. However, making decisions based on what is happening in the short term may be a risky thing to do. It may be tempting, for instance, to consider transferring all your investments into cash or other lower-risk investments – but in doing so, you not only lock in the loss as a result of recent falls, but you may also miss out as the value goes back up, so you’d lose out in the long term also.

Here are our tips on how to navigate these difficult times.

Allow time for markets to recover

It is really important to remember that retirement savings are for the long term. If you are young and paying towards a workplace pension, then there’s time for your pension pot to achieve growth over the long run and regain the losses caused by the volatility now being experienced in the stock markets. You shouldn’t be overly concerned, as you have many working years to come, and this will provide time for markets to recover before you’re ready to take your retirement income.

If you are older and closer to retirement, you may have seen your funds ‘lifestyled’. This means that your pension will have been transferred into generally less risky funds and invested in ‘safer’ areas like cash, gilts or bonds, which are lower risk and in the main provide a fixed rate of return. The older you get, the more pension schemes tend to invest in these assets to limit investment risk. But, not all pension schemes provide automatic lifestyling.

The reality of purchasing an annuity now

An annuity is a retirement income product that you purchase with some or all your pension pot. It pays a regular retirement income for life or for a set interval.  If you are intending to retire soon, and were preparing to buy an annuity, in March, the Bank of England cut the base rate twice in just over a week as a further emergency response to the Coronavirus pandemic, reducing it from 0.25% to 0.1%. This has meant annuity rates have also fallen.

If you’re still thinking of securing an income by buying an annuity, the current volatility indicates the importance of gradually reducing the risk in your portfolio as you approach your anticipated annuity purchase date. Doing so provides greater certainty over the lump sum you will have available to buy your annuity, which in turn will give you clarity over exactly how much secured income you can expect to make from the fund.

Drawdown

Drawdown is a way of taking money from your pension to live on during retirement. You need to be aged 55 or over and have a defined contribution pension to get your money this way. You keep your retirement savings invested when you retire and take money from (or ‘drawdown’) out of your pension pot. If the last few months have taught us anything, it is the stock markets can be quite volatile, so because your money remains invested — and it is usually in the stock market – should you select drawdown you will need to be comfortable that the markets and the value of your pension could fall as well as rise. The upside is that investment growth can provide higher returns and see your pension pot continue to increase in value even though you are taking an income from it.

If we continue to see a protracted period of negative investment returns, and you are already using drawdown or intend to move into drawdown shortly, you may also wish to avoid taking out more than you will need to while stock market values remain depressed. The more you are able to leave in, the more you’ll profit over time once there’s a recovery.

Keep making contributions

If you’re still in the process of saving for your retirement now might be a great time to think about increasing your pension contributions. Despite the fact that there is short term volatility in markets, increases in contributions over the long term can make a major difference to your eventual retirement fund’s value, especially if it coincides with a recovery in the market.

Stagger your retirement

A new study [1] has shown how many pensioners are choosing to stagger their retirement, moving part-time prior to giving up work entirely to make sure their pensions will last for as long as possible after they fully retire. With people living longer, and with the extra prospect of long term care costs in later life, retirees increasingly know the advantages of having a bigger pension pot.

Of those who have not touched their pension pot, half (51 percent ) say it’s because they’re still in work, while over a quarter (25 percent ) of those in their 60s say it’s because they need their pensions to hold out as long as possible.

Naturally, retirees who have not yet touched their pension pot must have alternative sources of revenue. When asked about their income, almost half (47 percent) said they take an income from savings, others rely on their partner or spouse’s income (35 percent) or the State Pension (22 percent), while 12% rely on income from property.

Professional financial advice counts

If you are about to retire, the amount of exposure you have will reflect both your attitude to investment risk and the time you have until retirement. Most of all, before making any significant decisions concerning your pension, take professional financial advice.

And there’s no need to fear – at this stage, we don’t know what the long-term consequences of Coronavirus will be. An adviser can help you focus on what’s important, weigh all your options, and take a balanced assessment of your risks.

Ellis Bates Financial Advisers are independent financial advisers with offices across the United Kingdom.  They manage over £1 billion of assets on behalf of clients, who have given them a 4.9/5.00 score with Trustist.  https://www.ellisbates.com/about/reviews/

For more information please visit their website www.ellisbates.com

 

Source information: [1] LV= poll of over 1,000 adults aged over 50 with defined contributions — 25 February 2020

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the amount of pensions benefits available. Pensions aren’t normally available until age 55. Your retirement income could also be affected by interest rates at the time you take your gains. The tax consequences of pension withdrawals will be dependent on your personal circumstances, tax legislation and regulations, which are subject to change. The value of Investments and income from them can go down. You might not get back the amount invested. Past performance is not a reliable indicator of future performance. Taking withdrawals may erode the capital value of the fund, especially if investment returns are poor and a high level of income is being taken. This could result in a lower income if and when an annuity is purchased.

Setting Financial Goals

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How to create financial goals you can actually achieve.

Taking control of our financial life requires planning, and that starts with setting financial goals. Setting short-term, mid-term and long-term financial goals is an important step towards becoming financially secure and independent.

We all have different financial goals and aspirations in life. Yet often, these goals can seem out of reach. In today’s complex financial environment, achieving our financial goals may not be that straightforward. This is where financial planning is essential to help secure your financial future.

A financial plan seeks to identify your financial goals, prioritise them, and then outline the exact steps that you need to take to achieve your goals. Figuring out your objectives and matching them with timelines are the keys to setting financial goals. Your financial goals are specific and unique to a number of factors related to you, like your age, your interests, current financial situation and your aspirations. Based on these, you need to develop your goals and establish a plan to achieve them.

If your New Year’s resolutions include giving your financial plans an overhaul, here are our financial planning tips to help you create a robust financial plan for 2020 and beyond.

Be specific about your objectives

Any goal (let alone financial) without a clear objective is nothing more than a pipe dream, and this couldn’t be more true when setting financial goals.

It is often said that saving and investing is nothing more than deferred consumption. Therefore, you need to be crystal clear about why you are doing what you’re doing. This could be planning for your children’s education, your retirement, that dream holiday, or a property purchase.

Once the objective is clear, it’s important to put a monetary value to that goal and the time frame you want to achieve it by. The important point is to list all of your goal objectives, however small they may be, that you foresee in the future and put a value to them.

Keep them realistic

It’s good to be an optimistic person, but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, being overly unrealistic can definitely impact on your chances of achieving them.

It’s important to keep your goals realistic as it will help you stay the course and keep you motivated throughout your journey until you get to your destination.

Short, medium and long-term

Now you need to plan for where you want to get to, which will likely involve looking at how much you need to save and invest to achieve your goals. The approach towards achieving every financial goal will not be the same, which is why you need to divide your goals into short, medium and long-term time horizons.

As a rule of thumb, any financial goal which is due within a five-year period should be considered short-term. Medium-term goals are typically based on a five-year to ten-year time horizon, and over ten years, these goals are classed as long-term.

This division of goals into short, medium and long-term will help in choosing the right savings and investments approach to help you achieve them, and it will also make them crystal clear. This will involve looking at what large purchases you expect to make such as purchasing property or renovating your home, as well as considering the later stages of your life and when you’ll eventually retire.

Always account for inflation

It’s often said that inflation is taxation without legislation. Therefore, you need to account for inflation whenever you are putting a monetary value to a financial goal that is far away in the future. It’s important to know the inflation rate when you’re thinking about saving and investing, since it will make a big difference to whether or not you make a profit in real terms (after inflation).

In both 2008 and 2011, inflation climbed to over 5% – not good news for savers – so always account for inflation. You could use the ‘Rule of 72’ to determine, at a given inflation rate, how long it will take for your money to buy half of what it can by today. The rule of 72 is a method used in finance to quickly estimate the doubling or halving time through compound interest or inflation respectively. Simply divide 72 by the number of years to get the approximate interest rate you’d need to earn for your money to double during that time.

Risk protection plays a vital role

Its best to discuss your goals with those you’re closest to and make plans together so that you are well aligned. An evaluation of your assets, liabilities, incomings and outgoings will provide you with a starting point. You’ll be able to see clearly how you’re doing and may find areas you can improve on.

Risk protection plays a vital role in any financial plan as it helps protect you and your family from unexpected events. Make sure you have put in place a Will to protect your family, and think about how your family would manage without your income should you fall ill or die prematurely.

Check you’re using all of your tax allowances

With tax rules subject to constant change, it’s essential that you regularly review your own and your family’s tax affairs and plan accordingly. Tax planning affects all facets of your financial affairs. You may be worried about the impact that rises in property values are having on gifts or Inheritance Tax, how best to dispose of shares in a business, or the most efficient way to pass on your estate.

Utilising your tax allowances and reliefs is an effective way of reducing your tax liability and making considerable savings over a lifetime. When it comes to taxes, there’s one certainty – you’ll pay more tax than you need to unless you plan. The UK tax system is complex, and its legislation often changes. So it’s more important than ever to be tax-efficient, particularly if you are in the top tax bracket – making sure you don’t pay any more tax than necessary.

Creating your comprehensive financial plan

Creating and implementing a comprehensive financial plan will help you develop a clear picture of your current financial situation by reviewing your income, assets and liabilities. Other elements to consider will typically include putting in place a Will to protect your family, thinking about how your family will manage without your income should you fall ill or die prematurely, or creating a more efficient tax strategy.

Identifying your retirement freedom options

Retirement is a time that many look forward to, where your hard-earned money should support you as you transition to the next stage of life. The number of options available at retirement has increased with changes to legislation, which has brought about pension freedoms over the years. The decisions you make regarding how you take your benefits may include tax-free cash, buying an annuity, drawing an income from your savings rather than pension fund, or a combination.

Beginning your retirement planning early gives you the best chance of making sure you have adequate funds to support your lifestyle. You may have several pension pots with different employers, as well as your own savings to withdraw from.

Monitoring and reviewing your financial plan

There is little point in setting goals and never returning to them. You should expect to make iterations as life changes. Set a formal yearly review at the very least to check you are on track to meeting your goals.

We will help you to monitor your plan, making adjustments as your goals, time frames or circumstances change. Discussing your goals with us will be highly beneficial as we can provide an objective third-party view, as well as the expertise to help advise you with financial planning issues.

Finally, make sure your financial goals are SMART

This is a great way to set a variety of goals. SMART stands for Specific, Measurable, Achievable, Relevant and Time-Related.

Advice every step of the way

Setting financial goals marks the beginning of the financial planning process to help you achieve the objectives at various life stages. Goal-setting gives meaning and direction to the various financial decisions you will take during your lifetime. The start of a new year is the perfect time to review your financial strength, assess your budget and make plans for the future. To arrange a meeting, or for further information, please contact us.

Wealth transfer and the next generation

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How to secure your family’s financial future.

We spend a lifetime generating wealth and assets but not many of us ensure that it will be passed to the next generation – our children, grandchildren, nieces, nephews, and so on. Intergenerational wealth transfer is the passage of wealth from one family generation to the next.

It’s becoming increasingly important for more people to consider succession planning and intergenerational wealth transfer as part of their financial planning strategy. As the baby boomer generation reaches retirement age, we’re on the brink of a vast shift in assets, unlike any that we have seen before.

Wealth transfers

By 2027, it is expected that wealth transfers will nearly double from the current level of £69 billion, to £115 billion[1], coined as ‘the Great Wealth Transfer’ of the 21st century.

Intergenerational wealth transfer can be a huge issue for all family members concerned. If done well and executed properly, it can make a real difference to the financial position of the recipients. If misjudged or poorly handled, it can cause enormous issues, conflicts and resentments that are never forgotten nor forgiven.

Financial implications

One aspect that hasn’t been widely considered is the impact on other family members, and in particular children, as their parents think about selling their business or retiring from their career, perhaps selling their family home, and starting life in retirement.

It is important that children are prepared to deal with this process, not least so they are aware of the financial implications and how they may be affected. For instance, children may be expecting to receive a certain amount of money from their parents – particularly those who are selling a business – and end up disappointed. Conversely, they may not be expecting to receive anything, and are therefore not equipped to deal with a windfall.

Contributory factors

According to the King’s Court Trust, £5.5 trillion will move hands in the United Kingdom between now and 2055, with this move set to peak in 2035[2]. Why? Well, there are a number of contributory factors that account for this. The two main reasons are increased net worth and rising mortality rates.

For those approaching, or in, retirement, it’s important to have frank and open conversations with children about expectations and also whether children have the knowledge and understanding to manage financial matters.

Approaching retirement

This is not an easy exercise, as you may not want to discuss your financial affairs with your children. You may find your children’s eyes are opened when they see what their parents have been able to achieve financially. They may even want to know how they can do that themselves and change their own habits.

Everyone works hard to provide for their family, and perhaps even leave them a legacy. However, parents approaching retirement shouldn’t feel that their family is solely reliant on them, or that they need to be responsible for their children’s financial situation.

Expressing wishes

A good approach is to help your children establish their own strong financial footing and be ready for intergenerational wealth transfer. For instance, introducing them to your professional advisers can provide comfort that there is someone they can go to for advice.

Having open conversations with your children and expressing wishes and goals will also ensure that your family are all on the same page, which can help reduce potential conflict later when managing intergenerational wealth transfer. These are some questions you should answer as part of your intergenerational wealth transfer plans:

  • When did wealth enter my life and how do I think this timing influences my values and family relationships?
  • What impact does affluence have on my life and the lives of my next generation?
  • What was the key to my success in creating wealth and how might telling this story to my future generation be helpful?
  • What is my biggest concern in raising my children or grandchildren with affluence?
  • What conversations (if any) did I have with my own parents about money and wealth growing up?
  • How did my parents prepare me to receive wealth?
  • What lessons did I learn from my parents about money and finance that I would like to pass on to my heirs?
  • What family values would I like to pass down to the next generation and how do I plan on communicating this family legacy?
  • What concerns do I have about my adult children when it comes to inheriting and managing the family wealth?
  • How can I help prepare my beneficiaries to receive wealth and carry on our family legacy?

Between generations

Despite the vast amount of wealth likely to be passed down between generations, those in line for inheritance could end up being over-reliant on their expected windfall. The key will be to ensure younger generations are able to get involved and understand how to handle the wealth they will be inheriting, as well as being able to make good decisions about the wealth that they generate themselves.

You need to consider who will receive what and whether you want to pass your wealth during your lifetime or on death. These decisions then need to be balanced by the tax implications of any proposed planning. This is especially important at what can be a highly stressful time. By making advanced preparations, the burden of filing complicated Inheritance Tax returns can be reduced. It’s worth noting that UK Inheritance Tax receipts exceed £3bn from 17,900 estates[3].

Source data:
[1] Kings Court trust, ‘Passing on the Pounds – The rise of the UK’s inheritance economy’.
[2] Resolution Foundation, Intergenerational Commission. ‘The Million dollar be-question’.
[3] Prudential 2019.

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Estate Protection

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Preserving your wealth and transferring it effectively.

Estate planning is an important part of wealth management, no matter how much wealth you have built up. It’s the process of making a plan for how your assets will be distributed upon your death or incapacitation.

As a nation, we are reluctant to talk about inheritance. Through estate planning, however, you can ensure your assets are given to the people and organisations you care about, and you can also take steps to minimise the impact of taxes and other costs on your estate.

In order to establish the value of your estate, it is first necessary to calculate the total worth of all your assets. No matter how large or how modest, your estate is comprised of everything you own, including your home, cars, other properties, savings and investments, life insurance (if not written in an appropriate trust), furniture, jewellery, works of art, and any other personal possessions.

Having an effective estate plan in place will not only help to ensure that those you care about the most will be taken care of when you’re no longer around, but it can also help minimise Inheritance Tax (IHT) liabilities and ensure that assets are transferred in an orderly manner.

Write a Will

The reason to make a Will is to control how your estate is divided – but it isn’t just about money. Your Will is also the document in which you appoint guardians to look after your children or your dependents. Almost half (44%) of over-55s have not made a Will[1], and as such, they will not have any say in what happens to their assets when they die.

Should you die without a valid Will, you will have died intestate. In these cases, your assets are distributed according to the Intestacy Rules in a set order laid down by law. This order may not reflect your wishes.

Even for those who are married or in a registered civil partnership, dying without leaving a Will may mean that your spouse or registered civil partner does not inherit the whole of your estate. Remember: life and circumstances change over time, and your Will should reflect those changes – so keep it updated.

Make a Lasting Power of Attorney

Increasingly, more people in the UK are using legal instruments that ensure their affairs are looked after when they become incapable of looking after their finances or making decisions about their health and welfare.

By arranging a Lasting Power of Attorney, you are officially naming someone to have the power to take care of your property, your financial affairs, and your health and welfare if you suffer an incapacitating illness or injury.

Plan for Inheritance Tax

IHT is calculated based on the value of the property, money and possessions of someone who has died if the total value of their assets exceeds £325,000, or £650,000 if they’re married or widowed. If you plan ahead, it is usually possible to pass on more of your wealth to your chosen beneficiaries and to pay less IHT.

Since April 2017, an additional main residence nil-rate band allowance was phased in. It is currently worth £150,000, but it will rise to £175,000 per person by April this year. However, not everyone will be able to benefit from the new allowance, as you can only use it if you are passing your home to your children, grandchildren or any other lineal descendant. If you don’t have any direct descendants, you won’t qualify for the allowance.

The headline rate of IHT is 40%, though there are various exemptions, allowances and reliefs that mean that the effective rate paid on estates is usually lower. Those leaving some of their estate to registered charities can qualify for a reduced headline rate of 36% on the part of the estate they leave to family and friends.

Gift Assets while you’re Alive

One thing that’s important to remember when developing an estate plan is that the process isn’t just about passing on your assets when you die. It’s also about analysing your finances now and potentially making the most of your assets while you are still alive. By gifting assets to younger generations while you’re still around, you could enjoy seeing the assets put to good use, while simultaneously reducing your IHT bill.

Make use of Gift Allowances

One way to pass on wealth tax-efficiently is to take advantage of gift allowances that are in place. Every person is allowed to make an IHT-free gift of up to £3,000 in any tax year, and this allowance can be carried forward one year if you don’t use up all your allowance.

This means you and your partner could gift your children or grandchildren £6,000 this year (or £12,000 if your previous year’s allowances weren’t used up) and that gift won’t incur IHT. You can continue to make this gift annually.

You are able to make small gifts of up to £250 per year to anyone you like. There is no limit to the number of recipients in one tax year, and these small gifts will also be IHT-free provided you have made no other gifts to that person during the tax year.

A Potentially Exempt Transfer (PET) enables you to make gifts of unlimited value which will become exempt from Inheritance Tax if you survive for a period of seven years.

Gifts that are made out of surplus income can also be free of IHT, as long as detailed records are maintained.

IHT-Exempt Assets

There are a number of specialist asset classes that are exempt to IHT. Several of these exemptions stem from government efforts over the years to protect farms and businesses from large Inheritance Tax bills that could result in assets having to be sold off when they were passed down to the next generation. Business relief (BR) acts to protect business owners from IHT on their business assets. It extends to include the ownership of shares in any unlisted company. It also offers partial relief for those who own majority rights in listed companies, land, buildings or business machinery, or have such assets held in a trust.

Life Insurance within a Trust

A life insurance policy in trust is a legal arrangement that keeps a life insurance pay-out separate from the valuation of your estate after you die. By ring-fencing the proceeds from a life insurance policy by putting it in an appropriate trust, you could protect it from IHT. The proceeds of a trust are typically overseen by a trustee(s) whom you appoint. These proceeds go to the people you’ve chosen, known as your ‘beneficiaries’. It’s the responsibility of the trustee(s) to make sure the money you’ve set aside goes to whom you want it to after you pass away.

Keep Wealth within a Pension

When you die, your pension funds may be inherited by your loved ones. But who inherits, and how much, is governed by complex rules. Money left in your pensions can be passed on to anyone you choose more tax-efficiently than ever, depending on the type of pension you have, by you nominating to whom you would like to leave your pension savings (your Will won’t do this for you) and your age when you die, before or after the age of 75.

Your pension is normally free of IHT, unlike many other investments. It is not part of your taxable estate. Keeping your pension wealth within your pension fund and passing it down to future generations can be very tax-efficient estate planning.

It combines IHT-free investment returns and potentially, for some beneficiaries, tax-free withdrawals. Remember that any money you take out of your pension becomes part of your estate and could be subject to IHT. This includes any of your tax-free cash allowance which you might not have spent. Also, older style pensions may be inside your estate for IHT.

Make Sure Wealth Stays in the Right Hands

Estate planning is a complex area that is subject to regular regulatory change. Whatever you wish for your wealth, we can tailor a plan that reflects your priorities and particular circumstances. To find out more, or if you have any questions relating to estate planning, don’t hesitate to contact us.

Source data: [1] Brewin Dolphin research: Opinium surveyed 5,000 UK adults online between 30 August and 5 September 2018.

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 rules around trusts are complicated, so you should always obtain professional advice. The value of investments and the income they produce can fall as well as rise. You may get back less than you invested.