Black Friday

Markets have been treading cautiously over the past couple of weeks. Yesterday’s news concerning the new South African variant has really tested investors nerves this morning with markets moving markedly lower today. At the open the UK market (FTSE 100) was down almost -3.5% before recovering slightly. Having been closed for Thanksgiving, US markets are also due to open lower this afternoon, although it looks like European markets have borne the brunt of the volatility.

New South African Variant

At this point, the concern isn’t whether the strain is more potent or deadly, rather the high number of mutations in its spike protein. Those spikes play a significant role in how the virus is transmitted and are also the main feature targeted by vaccines when combating infections. The UK government has already banned flights into the UK from 6 countries in Southern Africa. Whilst we have come to expect such news and the subsequent knock-on effects, investment markets are by no way immune to short term volatility with any bad news tending to snowball.

Oil prices

By way of an example, oil prices fell by more than 5% this morning. With fears of restricted travel and slowing economic growth, the immediate assumption is there will be weaker demand for oil. To compound this, the sell off for oil hasn’t come at the best of times. The US has just announced its plans to release millions of barrels of oil from strategic reserves in coordination with other large consuming nations as part of the plan to cool oil prices. The Economic Commission Board expects a surplus of 3.7 million barrels per day by February next year. So, with supply expected to dramatically increase, and fears of demand potentially weakening, news of a new COVID strain has had a larger impact than it ordinarily would on the oil price.

To put today’s price movements into context, the chart above shows the oil price recovery over the past 12 months. Relatively speaking, the selloff is very minor when considering where the oil price was at back in January. However, a falling oil price tends to serve as a drag on equity markets, hence the term ‘snowball’ referenced earlier. Therefore, the oil price reaction has compounded the wider equity market retreat.

Should we be worried?

In recent weeks, markets have been grappling with various potential headwinds including a new wave of infections in Europe, inflationary pressures and supply chain issues to name a few. Despite this, they have still been pushing record levels. This latest bit of news serves as an excuse for investors to take some risk off the table and indeed, take a bit of the froth out of the market. Therefore, short-term setbacks are still to be expected moving forward as investors continue to weigh up the global recovery prospects with short term noise and disruption.

Bowmore Bulletin: Your latest update from the Bowmore team

Bride and groom walk in garden setting with guests throwing confetti

Every month, we share some highlights of what’s been happening in and around the Bowmore Group. This month, we celebrate being named as the top fastest growing manager in 2021 along with various appearances in the press, new team member Manit Prasad and a wedding.

Bowmore Asset Management have been ranked as the top fastest growing manager in 2021

Bowmore Asset Management has been ranked as the fastest growing discretionary investment manager in the UK over the past five years. This has been assessed as a % of assets under management.

The recognition comes from PAM (Private Asset Managers) in their annual directory.

Acknowledged as the “Bible” of the industry, the PAM Directory results from exhaustive research and rigorous analysis of data. Each year, PAM provides a comprehensive overview of the industry, as well as a vast pool of quantitative data.

This directory is an essential tool for anyone who has dealings with the private asset management sector, including prospective clients, professional advisers, corporate advisory firms, industry analysts, IT companies, legal advisers, trust and corporate service providers and, of course, industry participants themselves.

Jonathan Webster-Smith, Chief Investment Officer of Bowmore Asset Management: “The exceptional growth within our Asset Management business is testament to the success of our investment proposition and the team delivering it. We have delivered on what we said we would do, and this has given our clients huge comfort and reassurance in such a difficult and worrying period. Our focus remains on looking after our clients’ needs and delivering returns that enable them to meet their long-term ambitions and goals.”

“To be the fastest-growing discretionary fund manager in the UK over the past five years is a fantastic achievement and demonstrates the success that we have worked so hard to achieve,” says Bowmore CEO, Mark Incledon. “It would not have been possible without the support of our loyal clients or indeed the fantastic and ever-growing team.”

Adding, “As a business, our ambitions are greater than ever. However, we are devoted to staying true to the core values we founded the business on, and client service is right at the heart of this.”

Press coverage

You may have spotted Bowmore in the press over recent weeks and months. If not, here’s a brief rundown of the coverage we’ve received in the last few weeks.

This is Money

UK stocks listed on the FTSE 100 have risen by at least 1,000% in the past decade. In all, more than 40 UK-listed companies have seen significant rises in their share price. While 14 are listed on the FTSE 100, the remaining 27 are listed on the AIM.

Businesses include equipment rental company Ashtead, Games Workshop, JD Sports and Ocado.

The research we carried out was picked up by This is Money, along with a handful of other publications.

This is Money journalist, Camilla Canocchi wrote: “Charles Incledon, Client Director at Bowmore Asset Management, said: ‘Investors looking for significant growth don’t need to pin all their hopes on companies listed at the smaller and arguable more speculative end of the market.’”

“He added: ’Investors can achieve exponential growth from steady, high-quality companies. They should look for firms that have high returns on capital and are able to scale and compound those returns over time.’”

Visit This is Money to read the full story.

Citywire

Our chief investment officer, Jonathan Webster-Smith, featured in Citywire’s Halloween market special.

In his Halloween warning, Jonathan said: “I believe investors should be concerned about the implication of rising interest rates on fixed income and how this will impact portfolios, in particular lower-risk portfolios, where fees and portfolio returns need to be carefully considered.”

Visit Citywire to read the full story.

Meet our new team members

Manit Prasad – Business Development Director

This autumn, Manit Prasad joined Bowmore Asset Management (BAM) as our business development director. Find out more about his role and life outside work in his Q&A…

Congratulations on your new role at Bowmore. Can you start by telling us a little about your background? What were you doing before joining Bowmore Asset Management?

I’m originally from Australia and, like many of my countryfolk, moved to the UK looking for an opportunity to gain valuable work experience, life experience and travel through Europe.

15 years later, I’m still here and consider London my home, although I do question my decision once the clocks turn back for daylight savings. Before joining Bowmore, I was working in similar roles across a few household names, such as Aviva Investors and 7IM.

What is your role with Bowmore and what are you responsible for?

I’ve joined Bowmore Asset Management as a business development director. My focus is on engaging with financial advisers to form lasting relationships and, ultimately, increase flows into our range of managed portfolios. I’ll spend most of my time in London and the south-east.

What excites you most about working with Bowmore? 

I’m excited to be at BAM because I see incredible opportunities for growth and the right people in place from the top-down.

We’ve got a fantastic investment team, a track record that any of our peers would be proud to have and a management team that cares. Bowmore Wealth Group has a rich history and I appreciate the opportunity to be part of it.

What do you do in your spare time?

I’ve got a young family (my son is five and my daughter is two) and I spend what spare time I have with them, and my other half of course! However, working in financial services I still somehow find myself routinely surprised by how many people play golf, while quickly realising (again) how poor my golf form is. If I were to be gifted any time back, I’d like to try and improve my swing.

Rising stars

Stephanie White gained the Investment Advice Diploma (IAD)

Stephanie is working towards becoming a fully qualified investment manager.

With the Investment Advice Diploma under her belt, Steph can now join the Chartered Institute for Securities & Investment (CISI). As a member of the Institute, she is recognised as a professional in a world of increasing competition.

 

 

Weddings

Tom Henshaw, our newest financial adviser, recently married his childhood sweetheart. Here he is to share the story.

Who have you married and when/how did you meet?

I met Lauren at school in our hometown of Ludlow. We’ve actually been together since we were 13, so it’s a bit of a miracle we have stayed together this long!

How involved were you in the wedding planning? What was your primary responsibility?

As little as I could get away with! Lauren and our families were the main organisers. They did a wonderful job, although I tried to do my bit. The main things I got involved with were food and drink. My favourite part of the process was definitely the wedding cake tasting!

Where did you get married? Was it a very formal affair or relaxed and quirky?

We got married at a place called Walcot Hall in Shropshire near where we grew up. It’s a lovely mix of a grand old ballroom with lots of really unusual features. They also have loads of glamping accommodation, so most of our guests used and enjoyed those, so that was a lot of fun.

We held the ceremony outside in the gardens, which was perfect as we both love the outdoors. The registrar was wonderful and made us feel relaxed.

How was the wedding? Was it everything you had hoped and planned for?

Absolutely wonderful. It was everything we wanted and more. The wedding was delayed by 13 months because of Covid, so it was a long time coming, but that made it even more special. It was so lovely to see all our friends and family in one place after so long.

We stayed dry and there wasn’t a thing we would have changed.

The most memorable moment of the day?

There were so many moments and, as everyone told me, the day really did fly by. Most memorable though, would have to be turning and seeing Lauren walking down the aisle towards me. Both for the relief that she turned up and seeing how beautiful she looked.

A close second would be tripping over a plant and falling down a few steps in front of all our guests!

What song did you have for your first dance?

Better Together by Jack Johnson, rather soppy, but it’s a song we’ve both loved since our school days.

Where did you spend your honeymoon? 

We planned to go to South Africa – a safari for Lauren and great white shark diving for me. Unfortunately, we have had to postpone. We ended up heading to the Lake District, which was wonderful and just lovely to get away together for a short while.

Doing good

Jill Ellicott – Giving Blood

Jill has a rare blood type and regularly donates her blood. We caught up with Jill to find out more.

When did you start giving blood?

I started in 2018 and have gone three times over the last 18 months – clocking up my credits!

Because you’ve given blood so often, does the phone call always come out of the blue or do you expect it ahead of time?

You can give blood every four months, so they try to book my next appointment shortly after my last one. Only 8% of the population has my blood type and there’s a 13% demand for it in hospitals as a universal donor, so they’re usually quite keen to get me back in!

What would you say to someone who was thinking about giving blood?

It doesn’t take very long, it’s a small scratch and usually takes about 30 minutes. All Covid precautions are taken, and you get something sweet and a drink after your donation to make sure you’re okay afterwards.

What’s the best thing about giving blood?

It’s nice receiving the texts afterwards when they tell you which hospital your donation has gone to, so you know it’s been used to help someone in need.

 

 

Should you give your children their inheritance early? The sums say yes

Senior mother smiling and drinking coffee with her adult daughter

There’s a lot to think about when planning how to pass your wealth to future generations. You may be wondering who’d be best to receive your most prized possessions, or how to split your assets fairly between grandchildren.

But what you may not have thought about is giving out some of your wealth before you pass away.

Experts believe that gifting to your children and grandchildren while you’re alive could benefit you and your family both financially and emotionally. But why is this the case, and what are some of the risks involved? Read on to find out more.

“Giving while living” can help to save money

Traditionally, the concept of leaving an inheritance is to give a gift to your loved ones after you die. However, nothing is stopping you from transferring your wealth before you pass on yourself.

“Giving while living” or “giving with a warm hand” does exactly that and doing so could save your family thousands of pounds.

If you were to leave behind your entire estate upon death, then your beneficiaries may be subject to Inheritance Tax (IHT), commonly known as Britain’s most hated tax, which stands at 40%.

IHT is charged on any of your estate over the value of £325,000; this is known as the “nil-rate band”. If you leave your home to a direct descendent, a child or grandchild, then you can benefit from the “residence nil-rate band”. This brings the point at which IHT is charged to £500,000 in the 2021/22 tax year.

Giving while living can help to mitigate the tax charge. Rather than passing money on death, the “seven-year rule” lets you gift however much you like provided you survive for seven years after making the gift. The earlier you start to pass on wealth, the more likely you are to survive for seven years, and the less IHT your family are likely to pay.

Note that if you pass away less than seven years after giving a gift, and the value of your estate is over the nil-rate band, your beneficiaries may receive a tax bill. The amount of tax payable depends on how long you live after making the gift.

Your loved ones could save thousands depending on the circumstances

As well as reducing a potential IHT bill, gifting while living could also help your family save thousands of pounds at crucial life moments.

For example, according to a study reported by inews, an early inheritance gift of £40,000 from 75-year-old grandparents to their 25-year-old grandchild could save the grandchild more than £75,000 in rent alone.

The study is based on national averages, assuming that the grandchild is renting a two-bed property at £700 a month, and that they are on track to be a first-time buyer at the age of 34.

This could help your grandchild get onto the property ladder roughly nine years earlier than average and help them to secure a better mortgage rate thanks to a larger deposit.

You can watch your gifts be put to good use

Situations like this aren’t necessarily the only reasons to give while you’re alive.

Firstly, you get to experience the benefits of your gift first-hand and see the impact your gifts have on your loved ones.

Whether using the money to move home, develop their existing property, or achieve other goals, your family will be able to show you the material results of your generosity.

Another key reason is that, with life expectancies increasing, your children may be approaching retirement age themselves by the time you pass away. If you wait until your death to gift them their inheritance, they may not have as much need for it.

As such, passing on your wealth when you are still alive helps you to gift money when it is truly needed. Perhaps your grandchild needs help making ends meet while studying at university, or your child is looking to renovate their kitchen or add an extension to their home?

Any gifts you make must be managed carefully to avoid financial trouble

As mentioned, gifts made up to seven years before you pass may be subject to IHT, so it’s usually best to start gifting as early as you can.

In addition to the “seven-year rule”, there is an annual IHT exemption for gifting of up to £3,000. This means that you can gift up to £3,000 each year without it counting toward your estate, so it will be exempt from IHT charges. Smaller gifts of up to £250 can be given as often as you like.

When gifting, you always need to ensure that you don’t leave yourself in a difficult financial position. Many parents are so keen to help their children out that they don’t consider the implications of making a gift, and whether they can truly afford it.

Indeed, research done by Just Group found that 70% of parents ignore any future care costs when gifting lump sums to their children. If you don’t factor in these costs, you could be left seriously short of funds later in life should you require full-time care or move into a care home.

A financial planner can help you remain confident in your decisions

If you’re unsure whether you can afford the gifts you wish to give, or whether early gifting is a feasible option at all, talk things through with a financial planner. We can help ensure that you and your family benefit as much as possible from your wealth.

We can help analyse your personal circumstances and organise a sensible, measured discussion of what you can do with your available resources. To find out more about how a financial planner could help you, email enquiries@bowmorefp.com or call us on 01275 462 469.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

Bowmore Financial Planning Ltd is not regulated to provide tax advice

The Financial Conduct Authority does not regulate estate planning, tax planning or will writing.

The power of compounding and how it helps grow your wealth

Coins arranged in piles like a graph

Compounding is one of the most important tools in successful long-term investing. Even Einstein stated its importance, calling compound interest “the eighth wonder of the world”.

Compound interest is simply interest on interest, but its impact, as Jill Ellicott has said, can be “mind-blowing” and every financial expert would agree.

Read on to understand how compounding works, what makes it vital to wealth creation, and why it’s important to ensure you stay on the right side of it if you want to grow your wealth.

A simple example of a £1,000 investment paying 5% annual interest

If you invest £1,000 in an investment paying %, after one year you will have £1,050.

After two years, you would get 5% of £1,050, which is £52.50, giving you £1,102.50 invested.

After three years, you would get 5% of £1,102.50, so £55.13, giving you a total of £1,157.63 and so on…

The longer you stay invested, the larger returns you will enjoy as the returns compound over time. The above calculations don’t take any investment fees into account.

Time is key – the longer you stay invested, the better

As you can see from above, time is key to making the most of compounding. Investing early means you have the longest possible time for compounding to work its magic and grow your wealth.

This is why many financial planners advise parents and grandparents to invest for children early in their life. If you are saving for your children or grandchildren, investing the money wisely can help grow the money far better than you might expect if you leave cash in a bank or building society account.

For example, if you invest £10,000 in the stock market over two decades, and your investments earn an average of 5% a year after charges, after 20 years your investment would be worth £26,532. More than £16,000 of this would be compounded investment returns.

Invested for 30 years, the total of your investment would mushroom to £43,219 and over 40 years that original £10,000 investment would grow to £70,399, assuming the same return of 5% a year after charges.

How compounding works

*Assumes 5% annual return after charges

Left to work for long enough, compound interest can generate impressive returns. The longer you remain invested, the more interest you will generate.

Remember, these are hypothetical examples. The stock market goes down as well as up, and you could get back less than you invested. However, history shows that over periods of 10 or more years, the stock market tends to recover and perform more strongly than cash.

How to benefit from compounding

Another brilliant thing about compounding is that you don’t need to do much to benefit once you invest your money.

In fact, doing nothing is the best decision you can make. Simply leave your money invested and let the magic happen.

If you have diversified your investments enough and your portfolio is aligned with your financial goals, you can sit back and let time do its work.

One of the best ways to benefit from compounding is to invest monthly. Making regular investments, even small amounts, can be a great way to help teach children or teenagers about the benefits of saving and investing money.

It’s important to stay on the right side of compounding

If you’re on the wrong side of the compound game, it can damage your wealth.

Credit card interest is a prime example of this. If you have an outstanding balance on your credit card and have to pay 20% interest on the balance each year, this 20% interest compounds against you and erodes your wealth.

In year one of having an outstanding balance, you pay 20% interest on the balance. In year two, you’ll owe interest on the interest you let accumulate in year one and so on until you repay the debt.

Left unchecked, it’s easy to end up in a vicious cycle of paying interest on interest with ever-increasing debt.

With any debt, you should always aim to repay it as quickly and cheaply as possible, but this is especially true when it comes to credit card debt.

If you had a debt of £3,000 on your credit card (and made no further payments using the card), it would take you 27 years to pay off the debt if you relied solely on the minimum repayment. This would include an interest cost of almost £4,000.

The table below shows how this breaks down in reality, based on £3,000 debt at .9%, with minimum payments of 1% of the balance plus interest.

Every pound you have to spend repaying debt is a pound that’s no longer invested to work for you. Of course, avoiding expensive interest on credit cards will also leave far more money in your pocket in the long term.

If you have money to invest and delay investing it for even a few years, it could have a dramatic effect on the amount you accrue. The earlier you start, and the more you can save, the better.

Get in touch

To begin building your wealth and benefiting from the miracle of compounding, get in touch and talk to one of our expert financial planners. Email enquiries@bowmorefp.com or call us on 01275 462 469.

The value of your investment 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.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA.

How much do high earners need to be saving?

close up of a pound coin on a five-pound note

Knowing how much you should be saving can be like asking “how long is a piece of string?”

Realistically, there are so many variables that can determine how much you should be putting into your savings each month.

You might think that high earners would be better at saving their money; after all, having more disposable income after bills should leave behind more for storing in savings.

However, research from investment platform Hargreaves Lansdown paints a very different picture.

According to their figures, almost one in four people earning more than £100,000 a year are concerned that they wouldn’t have enough to support themselves in an emergency.

These statistics become increasingly worrying for even higher earners, with 12% of households bringing in £150,000 or more stating that they wouldn’t be able to survive on their savings for a single month.

Seemingly, rather than achieving greater financial security, having more money means many people spend their disposable cash on luxury goods and services, rather than saving it.

As an IT professional, you’re likely already or well on your way towards being a high earner; according to the Office for National Statistics (ONS), the average salary for IT project and programme managers is upwards of £50,000.

As a result, you may need to reconsider your savings goals. Here are a few things to consider with your savings, as well as a couple of ideas on how to improve.

Supporting yourself now and in the future

The point of having savings is to ensure that you have money safely stored somewhere to support you and your family if you ever need it. That’s why your priority should be to have enough to cover your expenses in case of an emergency.

A good target for how much you should put aside for emergencies is six months’ worth of expenses. This amount ensures that you’re able to afford your lifestyle if your income drops for any reason.

Your expenses may be simple, consisting of food shopping, mortgage payments, and bills for yourself. Or perhaps they’re larger, including school or tuition fees for your children and maybe repayments towards an expensive car.

Regardless of how much your personal monthly expenditures are, knowing that you have enough to cover your expenses for at least six months is a good starting point.

Improving your saving habits

If you’re concerned that your savings aren’t quite sufficient for your needs, you might be reassured to find out how easy it can be to improve.

Here are just three ways you could consider increasing your savings:

1. Create a budget

Creating a budget can be hugely transformative to your finances, giving you a comprehensive picture of all your incomings and outgoings.

Crucially, having a visual way to see your money means you may notice areas where you can cut back your spending.

For example, you may have subscriptions and memberships that you don’t need or even use regularly. You could consider cancelling these and then putting this money straight into your savings each month, instead.

2. Prioritise saving over spending

It may seem obvious to say that you can simply prioritise saving to improve, but you can make a big difference to your savings by paying into them first.

Rather than saving whatever is left at the end of each month, pay yourself first. When you receive your income, include your savings goals as a necessity and put money into your account first before you start spending on luxuries and things you want. That way, you can be more confident that what you have left is truly disposable.

Much like with your budget, putting your savings first can help you to find expenses that you don’t really need to spend on at all.

3. The “50/30/20” rule

The “50/30/20” rule is a classic financial planning tool you can use to reach your savings targets. It involves splitting your income by percentage so that:

  • 50% goes towards household bills and compulsory expenditures
  • 30% goes on other things you want to spend your money on
  • 20% goes into your savings and towards paying down debt.

Using the 50/30/20 rule is particularly useful as it prevents your available cash from filling the space, meaning you save a healthy amount each month no matter how much you’re earning.

Work with us

If you’d like help working out how much you need to be saving to live the kind of life you want, you should consider working with a professional financial planner.

At Bowmore Financial Planning, we can provide comprehensive, personalised financial advice that’s suited to you, your goals, and your personal circumstances, no matter what they may be.

Email enquiries@bowmorefp.com or call 01275 462 469 to find out how we could help you.

Please note

This article is for information only. Please do not act based on anything you might read in this article.

What is Lifetime Allowance protection, and can it work for you?

man reading documents and using laptop looking thoughtful

As a high earner, one of the biggest threats to your retirement savings is exceeding the pension Lifetime Allowance (LTA).

The LTA is the maximum amount you can save into your pension pots in your lifetime without incurring a tax charge. As of the 2021/22 tax year, the LTA sits at £1,073,100.

If you exceed the LTA through your own pension contributions, employer contributions, tax relief, and investment returns, then any value over this threshold will be subject to tax when you come to draw it in retirement.

The tax charge you’ll face then depends on how you draw your pension. If you take a lump sum from your pension, any amount over the LTA will be subject to a 55% tax charge.

Meanwhile, drawing income that exceeds the LTA will be subject to a 25% tax charge on top of your marginal rate of Income Tax.

Fortunately, since 2006, pension savers have had the option to apply for LTA protection, helping to reduce the chance of incurring this bill.

However, according to research from consultancy firm LCP published in FTAdviser, the number of people making use of LTA protection has declined since its inception, falling to just 4,000 people in the most recent year.

This could be because savers aren’t aware of the benefits of LTA protection or are even unaware that it exists at all.

So, here’s everything you need to know about LTA protection to help you decide whether it might be the right option for you.

What is LTA protection?

LTA protection allows you to fix your pension allowance at a slightly higher threshold than the current level of £1,073,100, depending on the value of your pension savings at certain times.

The reason LTA protection exists is because of how the government has changed the LTA threshold over the past few years.

In the 2010/11 tax year, the LTA reached an all-time high of £1.8 million. However, it then steadily reduced over the following years, falling to just £1 million by 2016/17. It subsequently rose to its current level of £1,073,100 in April 2020, where it will now be fixed until April 2026.

This meant that many savers would have seen their pot suddenly exceed the threshold when it was reduced in 2016, despite not having deliberately crossed it.

As a result, the government introduced LTA protection to ensure savers who had already crossed the threshold were not unfairly penalised.

Two types of protection

There are two different types of LTA protection, allowing you to protect your savings from the reduction to £1 million in April 2016:

Individual protection 2016

Individual protection allows you to fix your LTA to either the value of your pension savings as of 5 April 2016 or a fixed level of £1.25 million, whichever is lower.

If you use individual protection, you can continue to build up your pension savings pot. However, it’s crucial to note that any savings over your new limit will be subject to the 25% or 55% tax charge, depending on how you draw them.

Fixed protection 2016

Fixed protection allows you to fix your LTA at the 2016 level of £1.25 million.

The key difference to individual protection is that you cannot continue to build up your pension pots, except in limited circumstances.

If you do contribute more to your pot after taking fixed protection, you’ll lose your increased LTA entirely. This means you’ll revert to whatever the current LTA is in that tax year.

You’ll then be subject to the 25% or 55% tax charges when you come to draw any value over the threshold from your pension.

Is LTA protection worth it for you?

Provided that you’re eligible for LTA protection, it could make sense for you to protect your pot. This is especially true if you’re right on the cusp of retirement, potentially saving you from a tax bill right before you draw your savings.

Of course, as you can imagine, LTA protection may not solve all your issues as there are a couple of downsides.

If you’re still working and saving into your pension, you may still find yourself exceeding the LTA, even with the higher protected amount.

Most significantly, if you use fixed protection, you won’t be able to make any more contributions to your pension. If you decide to do this, this could mean you end up missing out on employer contributions and potential investment returns.

Alternatives to LTA protection

Of course, depending on your retirement plans, you could also consider saving for retirement across a range of different products alongside your pension.

For example, you may want to consider maximising your ISA subscriptions each tax year, giving you a way to save that’s entirely free from Income Tax and Capital Gains Tax (CGT).

This could allow you to keep building savings dedicated for retirement without having to worry about the LTA tax charges.

Taking LTA protection may still be a worthwhile exercise even if you decide to explore your other options. It may allow you to make even greater use of your pension savings, even if you stop contributing to your pot.

Working with a financial planner

If you’d like help working out whether LTA protection is the right choice for you, please get in touch with us at Bowmore Financial Planning.

Email enquiries@bowmorefp.com or call 01275 462 469 to speak to one of our experienced advisers.

Please note

The value of your investment 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. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.

Workplace pensions are regulated by The Pension Regulator.

Why sustainable investing is so important today and tomorrow

young father holding his daughter's hand and looking over a field of wind turbines at sunset

Sustainable investing lets you invest your money with an ethical bias. This ensures that your savings and investments not only help you achieve your financial objectives and goals but also come with the added benefit of your money being invested for the greater good.

Environmental, Social and Governance (ESG) investments strike such a balance. They provide a strategy you can use to put your money to work with companies that strive to make the world a better place.

How fund managers evaluate companies for ESG investing

The criteria used to evaluate companies for ESG investing are considered in the following ways.

Environmental

Environmental elements focus on the impact a company has on the environment. This might include a company’s carbon footprint, any toxic chemicals involved in its manufacturing processes, and sustainability efforts that make up its supply chain.

Social

Social aspects consider how a company improves its social impact, both within the business itself and in the broader community. Social factors cover everything from LGBTQ+ equality, racial diversity at an executive level and staffing overall, inclusion programs and hiring practices. It also considers the ways a company advocates for social good in the wider world, beyond its scope of business.

Governance

Governance is all about how the company’s board and management drive positive change. This can include issues surrounding executive pay to diversity in leadership. It may also consider how well a company’s leadership responds to and interacts with shareholders.

Positive changes in these areas will help address the world’s sustainability and social challenges. You can start to make a difference with your investment choices.

ESG is a useful way to measure the strength and sustainability of a business

For many people, ESG investing is far more than a three-letter acronym to address how a company serves all its stakeholders, including workers, communities, customers, shareholders and the environment.

In fact, some argue that assessing a company for ESG compatibility can also be a useful way to measure the strength and sustainability of a business.

The thinking is that if a company has put in the work to balance and improve the impact they are having on the world, they become well-run companies, which then makes them more attractive to investors.

Do ESG-focused companies perform better than the others?

Sustainable funds are increasing in popularity. According to research, ESG funds accounted for 90% of equity fund inflows in July.

While ESG investing can undoubtedly have a positive impact on the world, some investors worry that focusing on an ESG portfolio may not deliver the same level of returns they might get from less ethically focused investments.

Such concerns may be unfounded. Research published in the Financial Times revealed that, over the past decade, “close to 6 out of 10 sustainable funds delivered higher returns than equivalent conventional funds”.

Because ESG investing is still relatively new, until recently, there has been limited data on the long-term performance of ESG funds. One early survey was carried out by Morningstar in summer 2020.

Morningstar looked at 745 Europe-based sustainable funds, and most strategies have done better than non-ESG funds over one, three, five and 10 years.

The study also found that sustainable funds outpaced traditional funds during the market sell-off sparked by coronavirus in March 2020, with average excess returns of up to 1.83%.

As mentioned above, companies that score high on ESG also tend to be well-run businesses. Because they treat their stakeholders well, address their environmental challenges, enjoy more conservative balance sheets, and have lower levels of controversies, these high-scoring ESG firms are often more resilient during market downturns.

Considering ESG factors is no guarantee of investment performance. As with any stock market investment, you will still experience short-term volatility and there is always some risk involved.

ESG investing is still relatively new and comes with some challenges

Investing can be challenging, and ESG adds another layer of complexity.

ESG considerations will vary according to investment style, sector and industry of a business, market trends and, of course, your objectives as an investor.

While the specific factors assessed vary, ESG rating firms commonly review things like annual reports, corporate sustainability measures, resource/employee/financial management, board structure and compensation, and even controversial weapons screenings.

Integrating ESG investments into your portfolio requires insight, research, and data to ensure investment decisions are judged correctly.

For fund managers creating and managing ESG portfolios, it is key for them to understand all the above and more.

We offer a full range of risk-graded ESG portfolios. Bowmore ESG portfolios strike a balance that provides a rigorous ESG screening process without compromising investment performance.

Get in touch

To find out more about ESG investing and how you can profit while protecting the planet, email enquiries@bowmoream.com or call us on 0203 617 9206.

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

Past performance is not a guide to future performance.

Bowmore Asset Management Ltd is authorised and regulated by the FCA.

Riding high: Should you invest when stock market prices are high?

The landmark Charging Bull in Lower Manhattan

Markets fell sharply in March 2020, at the start of the pandemic, but like as with most severe market sell-offs, a relatively quick stock market recovery ensued.

Even though a number of stock markets (including the US stock market) are hovering around all-time highs, it doesn’t mean you should put off investing.

If you timed things well and invested when the market was low, you may be hesitant to invest now, with market prices so much higher. While it’s true that one well-known investment rule is to buy low and sell high, it’s not always the best idea to avoid buying into the market.

Read on to see what to do if you have cash to invest when the market is strong.

Play the long game

Time in the market rather than timing the market is the key message. Investing in stocks and shares with a short-term time horizon is risky business. However, investing with a long-term view based on your objectives and risk tolerance rather than short-term market moves is a far more sensible approach.

If you’re sitting on cash you want to invest, watching a stock market rise as you wait to make your move can be uncomfortable. This hesitancy to act is completely understandable but your behaviour could lead you to become a speculator.

What you really want to be is a committed investor. This approach will mean you are less affected by market conditions because you make decisions with a long-term view.

In today’s environment, markets will always be volatile over the short term as investor sentiment is driven by the here and now. Trying to time this is almost impossible, even for the most seasoned professionals and therefore there is always a significant degree of speculation involved. Meanwhile, investing for the long term requires a well thought out strategy, skill and a degree of patience. Quality investments are driven not by speculation but by key investment fundamentals.

Make your money work

If you fail to put your money into the market, you will inevitably miss out on market returns. By holding back until the market has reached a level where you feel comfortable to act, you could come to regret not putting your money to work sooner. To offer a good example, over the past 5 years markets have been very volatile and there has always been speculation about how overpriced markets might be. During the 5 years, there have only been 3 calendar quarters where markets have actually fallen (finished the quarter lower than where they started). i.e. 85% of the time, markets have been rising.

Holding your money in cash might seem like a safe option, especially if you’re waiting for the right time to invest, but we would argue, holding cash is more of a risk, especially in today’s environment.

With inflation on the rise, your purchasing power is significantly reduced. This problem only gets worse if you hold on to cash over the long term.

The Bank of England (BoE) is expecting inflation to be sustained at 5% over the next 12 months. I.e. £100 today might only be worth £95 in 12 months’ time if the BoE prediction is correct.

Therefore, by putting off investing today, you are almost guaranteed to lose money as the value of your cash erodes. To compound the issue, you could be missing out on solid market returns.

It’s all about time in the market

Instead of trying to time the market, think about giving yourself the most time invested in the market.

Some of the worst days in the market are often followed by the best shortly after.

At times, it can be a rocky ride but that’s why the long-term view always wins out – unfortunately, you can’t enjoy the highs without experiencing a few uncomfortable lows.

Impact of missing the best 10 days in the UK stock market

The chart below illustrates the effect on investments that missed the best 10 days in the UK stock market between 2000 and 2020, with dividends reinvested.

Remember, past performance isn’t a guide to future returns.

Source: Lipper IM, from 03/01/2000 to 31/12/2020. Figures based on starting investment of £10,000.

This chart is a clear indicator of how much growth you can miss out on if you’re not in the market on the best days.

An investor who stayed the course ended up with £23,171.83 at the end of the 20-year period. This is £11,668.88 more than the poor investor who missed out on the best 10 days in the market.

You never know which way the market will move from one day to the next but invest for the long term and short-term fluctuations matter less.

Take things in your stride

Rather than reacting to the market and treating record highs with excitement or alarm, you should take things in your stride.

When Dimensional explored the topic of investors’ reactions to record highs, they looked at the S&P 500 Index over a 94-year period ending in 2020. The Index produced record highs in more than 30% of the months they observed.

They also revealed that purchasing shares at all-time highs has, on average, generated similar returns over subsequent one-, three-, and five-year periods to those of a strategy that purchases stocks following a sharp decline.

The table below shows the average annualised returns for S&P 500 Index after market highs and declines.

When it may be best not to invest

Warren Buffett famously said that investors should “Be fearful when others are greedy and greedy when others are fearful”.

The dot-com bubble is a classic example of this.

During the dot-com bubble, stock markets rose rapidly for years, but many investors put in their money at all-time highs and painfully lost out when the bubble burst. The burst happened when company valuations got silly and became detached from reality.

Understanding what areas of the market are overheated is important since understanding what represents good value in an investment is vital. This requires fundamental analysis beyond what most people would have time or capacity to be able to evaluate alone.

Therefore, we would encourage you to invest in an established fund managed by professionals who practice due care, skill and diligence when managing money and whose interests are aligned with yours.

To find out more about how we can help you invest your money wisely, so you profit from expert insight and long-term growth, email enquiries@bowmoream.com or call us on 0203 617 9206.

Please note

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

Past performance is not a guide to future performance.

Bowmore Asset Management Ltd is authorised and regulated by the FCA.

 

Are you emotionally ready for retirement? 5 tips to help ease your way into retirement

Mature woman sitting at cafe drinking a cup of coffee and talking with her husband

Many people are financially prepared for the life change that comes with retiring, but the huge emotional change is often ignored.

Preparing for the change of pace ahead of time and knowing what you want from the next phase of life can help you prepare for a happy and fulfilling retirement. Read on for five ways you can smooth your way into your retirement years.

1. Know how you want to spend your time

Being employed takes up a lot of time, far more than anything else most of us do in life. When you retire, you’ll find yourself with a huge amount of free time. This can be exciting but also daunting.

Before you finish work, have a plan for how you will fill all the hours that used to be taken up with work. You don’t have to fill every hour of the day. Even a rough idea of the kind of thing you might do with yourself is a good start.

If you don’t already have a clear idea in mind, ask yourself these simple but important questions:

  • What do I enjoy doing that I’d love to spend more time doing?
  • What dreams did I used to have?

Take some time to consider these questions and write down anything that comes to mind. Take your notes and create a bucket list of all the things you want to do, places you’d like to go, and projects you’d like to achieve.

If you have a partner, work on this together. Doing your separate thing is fine, but avoid going too far in developing different ideas for how you want to spend your future, as this could cause problems.

2. Take your time and make retiring a process

In the last 10 years, retirement has changed and so have your options. You no longer have to set a retirement date and stop work entirely.

There are more flexible ways for how you can use your pensions, and employers’ attitudes have also evolved.

Some employers offer a transitionary period, sometimes over several years. This may allow you to work part-time and get used to having more time before you stop working completely.

If you’re a business owner, making your retirement a gradual process can help increase the value of your business, as it has time to adjust and operate without depending on having you at the helm. Alternatively, you can use the time to ensure the succession process goes smoothly.

3. Get clear on your purpose in life

Our identities are often tied to our job or profession. If this is the case for you, when you’re no longer working, you may feel you’ve lost a part of yourself.

To avoid this becoming a tricky adjustment, create a new purpose for this next stage of life.

Consider what you are passionate about. What lights your fire and excites you? What motivates you to get out of bed each day?

Having a true understanding of what energises you can help you identify a clear sense of purpose and allow you to plan your days around your dreams and the activities you enjoy.

4. Create a routine to give structure to your days

It’s likely that your work has provided you with a steady routine and a formal structure to your days and weeks.

Losing this structure can be challenging, so be ready to replace it with a new routine that suits you.

If you don’t know where to start, consider creating a routine that supports your physical and emotional wellbeing. Perhaps begin each day with a brisk walk, join a gym, or go for an early morning swim to invigorate mind and spirit for the day ahead.

Don’t get stuck in front of daytime TV just because you can’t think of anything else to do. Create a schedule and form a routine that gets you out of bed and out of the house.

5. Build social interactions into your everyday activities

Losing regular social contact is one aspect that you may miss most when you retire. To avoid feeling lonely, be sure to build regular social interactions into your days.

Many of us experience loneliness in our lives. For most of us, the feeling of loneliness passes but, for some, it can linger and harm our wellbeing and quality of life.

Loneliness among older people is a growing problem. If society fails to tackle loneliness, Age UK predict that by 2026 there will be 2 million people over 50 in England who will often feel lonely.

You could join a club, take up a new hobby or meet up with a local friend for a regular walk, lunch, or a coffee.

If you’re looking for inspiration, u3a run group activities across the UK for retired people. From running to painting, foreign languages to quizzes and podcasts, there’s bound to be something to inspire your next chapter.

If you’d like to have a chat to find out more about how we can work with you to help you prepare for retirement, please email us at enquiries@bowmorefp.com or call us on 01275 462 469.

Bowmore Financial Planning Ltd and Bowmore Asset Management Ltd are authorised and regulated by the FCA.

How to manage your investment portfolio when you’re close to retirement

older couple walking in the countryside

As you’ve invested throughout your working life, you’ll have likely designed and refined your investment strategy so that it has achieved the right level of returns with the appropriate amount of risk for you.

Even so, one point that many investors often forget is that their investment strategy, both their wider portfolio or within a pension, should adapt and change as they reach different life stages.

The way you invest should reflect where you are in your life. That’s why you should always review your investments before any big life changes.

This is particularly true when you’re close to finally finishing work. For most people, the major motivation behind investing is to create a pot that will support them in retirement.

Crucially, you need to do this in line with your wider financial plan, ensuring that your investments are pulling towards your goals.

So, with that in mind, here are some points you might want to consider to help you manage your investment portfolio as you approach retirement.

A pot for life

The main reason that you may need to reconsider your investments as you approach retirement is because you’re finally arriving at the stage when you’ll need to rely on these pots to support you for the rest of your life.

As a result, you may want to consider reducing your risk profile in your investment portfolio or perhaps even finding ways to achieve full income security for some or all of your retirement needs.

An extra consideration for your pension may be the Lifetime Allowance (LTA), the maximum amount you can hold in your pot without incurring a tax charge when you come to draw it.

The LTA is currently £1,073,100, as of the 2021/22 tax year, and can see your pension savings taxed by as much as 55% if you take money in excess of the threshold as a lump sum in retirement.

Therefore, you may want to consider strategies that can reduce the impact of an LTA charge on your retirement funds. This could include reducing the amount you invest in your pension or even targeting slightly lower growth.

Increasing your risk profile

Of course, on the other hand, there may also be an argument for increasing some of the risk in your portfolio as you get older.

For one thing, investing when your pot is at its largest means you may be able to make the most of greater gains in value brought on by a larger investment.

So, by increasing your pension contributions or your risk level even slightly, you might be able to give your pots one last push before you start drawing from them.

Indeed, for some savers, taking on more risk may be necessary. Targeting greater returns may be a way to ensure that your pot will sustain you for your entire lifetime.

As a result, increasing risk in retirement can be a useful or potentially even vital part of your retirement investing strategy.

If you do intend to try and boost your pots later in your working life, make sure you have sufficient cash savings. This is because of something called “sequence risk”.

Sequence risk refers to the dangers of withdrawing or liquidating investments in retirement when markets are less favourable.

For example, if the market takes a dip during your retirement, your investments would likely fall in value. As a result, you’d have to cash in more of your investments to provide yourself with the same level of income during retirement.

Meanwhile, by having a cash pot to live on instead, you’d be able to leave your investments as they are until the market recovers and the value goes back up, while using your cash savings to sustain your desired lifestyle.

That’s why, when approaching retirement, it can often be sensible to have two to three years’ worth of expenses held in an easy-access savings account just in case you ever need to rely on it.

Remember the importance of diversifying

As with any time in your life, your investment portfolio needs to be as diversified and varied when approaching retirement as it has been throughout your investing journey.

Double-check that you’re holding a variety of asset classes across different sectors, industries and geographical locations. This can help to spread out risk across different types of investments, rather than having it concentrated in one place.

For example, your entire portfolio may be made up exclusively of UK stocks. While there’s nothing wrong with this specifically, it may put you at risk if UK investments as a whole lose value due to wider political or economic circumstances.

Meanwhile, if you held some investments in other countries, they will likely be subject to different pressures. So, even if your UK stocks fall, your other investments may hold or even grow in value.

As a result, diversifying could help to reduce the impact of falls in value of certain types of investments. This could also help to reduce the impact of sequence risk if you needed to cash in some investments during a market downturn.

This could become even more important in retirement as short-term dips in value may have a direct impact on your income and your lifestyle as a result.

Working with a professional investment manager can be transformative here, as they can help you with a bespoke portfolio that has the right balance of diversified assets for you.

Bear in mind that no returns are guaranteed. Diversification can only help to reduce risk, not eliminate it entirely.

Working with a planner

If you’re approaching retirement and are unsure how to manage your investments, you might want to consider working with us at Bowmore Financial Planning.

We can help you by creating a financial plan that targets your needs, wants and desires in retirement.

We’ll then identify what your current investment and pension plans might deliver, including any guaranteed income or inflation-protected products, and work out how far these will go in allowing you to achieve your retirement goals.

By analysing what you’ve got and what isn’t quite fit for purpose at the moment, we can help you make informed decisions and provide alternative solutions so that you can reach your targets.

We’ll then use our mapped strategies and portfolios created by Bowmore Asset Management as appropriate to help you get there, including important considerations such as longevity, inflation, market risk and diversification.

By taking your wider financial health into account and assessing your investment needs around it, we can develop a financial plan that’s suited personally to you.

Need help?

If you’d like help working out how to invest as you get closer to retirement or you have any other financial planning needs, then please get in touch with us at Bowmore Financial Planning.

Email enquiries@bowmorefp.com or call 01275 462 469 to speak to us.

Please note

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. 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.

The tax treatment of certain products depends on the individual circumstances of each client and may be subject to change in future. Bowmore Financial Planning Ltd and Bowmore Asset Management Ltd are authorised and regulated by the FCA.