Why you need to manage your emotions and your money together

a jigsaw puzzle of the outline of a human head

Often, it can feel like your rationality and your emotions conflict with one another, especially when you’re making decisions. And, while we’d all like to think that logic will win, your feelings can unfortunately and frustratingly get the better of your thoughts.

Ordinarily, this can be of fairly low importance. You make so many choices in a day that, if you end up making one that isn’t quite right, it probably won’t matter in the grand scheme of things.

But, when it comes to your money, these choices can have wider consequences. A mistake with your finances could be debilitating to your entire financial situation, affecting your ability to afford your lifestyle, and potentially even having an impact on the future.

That’s why it’s important to keep an eye on your emotions when managing your money so that your finances are secure even if you feel like you’re struggling to keep them together.

Here’s why it’s so difficult to manage your emotions and your money, as well as what to do about it.

Financial rationality is a myth

A reassuring point to know if you’ve ever struggled with money and emotions is that financial rationality is essentially a myth. No matter how logical people think they are, heuristics and biases will typically get the better of everyone.

In a study by researchers at Harvard Business School, they presented a choice to a range of retail and professional investors: if a company you hold a stake in is acquired by another firm, what do you do with the stocks you’ve suddenly inherited without intending to?

Logically, according to the researchers, you should sell; after all, you never intended to buy these shares and you don’t know what their value is, so the right choice would be to sell until you have more information.

But of course, that’s not what the research found. Instead, 80% of individual investors chose the default, passive action of holding on, despite this perhaps not being the best option.

Interestingly, some professional investors also chose this approach, too – 30% of what the study calls “institutional” investors chose the same default, passive action.

In the view of the researchers, this shows that when it comes to money, people are “inertial” rather than “logical”; they’ll make the choice that requires no action, even if the evidence is to the contrary.

In essence, what this means is that while you shouldn’t, you inevitably almost always will take the path of least resistance – and so will everybody else.

Missing out on your money

On an everyday basis, the impact of these inertial decisions can start to stack up. You can get stuck in the same patterns because it’s easier to do so than make decisions.

This can see you miss out on opportunities, particularly in investing, simply because it required you to change your habits.

It’s equally straightforward to miss out on opportunities because of the fear of loss, too. This is because of a remarkable phenomenon known as “loss aversion”.

First identified by economists Daniel Kahneman and Amos Tversky in a paper entitled Journal of Risk and Uncertainty, loss aversion is a fear of loss based on past experiences.

According to Kahneman and Tversky, the pain of loss is twice as strong as the pleasure of a gain. As a result, people tend to make decisions that avoid losing over the possibility of a win.

Together, the fear of loss and the inertial approach to money can mean you end up missing out on the opportunity to make the most of your money.

For example, it could stop you from making investments, choosing to save instead as it’s the familiar territory with a lower chance of losing money.

Risk can mean reward with money – but it doesn’t always

Of course, if it’s possible to be illogical by being passive, it naturally follows that it’s possible to be illogical when making decisions, too.

Overconfidence in certain investments can lead you to hold on to them for too long, putting your money at risk even if there are clear indicators that you should choose a different path.

Similarly, you may also become a victim of the “endowment effect”, an extension of the inertial approach. The endowment effect sees you put more emphasis on your prior convictions, rather than new information.

As a result, even when the evidence for a decision is in front of you, your previous experience overrides this and informs your choices.

Overconfidence like this can be just as damaging to your money, driving you to make decisions that put your money at risk, even though it isn’t the logical choice.

Taking on extra risk can be lucrative. But become swept up in the inertia of your prejudices and it can quickly become a problem.

A financial planner can help you manage your psychology

Often, the best thing you can do to help you manage your money without the influence of your emotions is to find support from a professional, such as a financial planner.

A financial planner can provide personalised advice on your money, helping you to see which of your choices are logical and where you’re being overpowered by your feelings.

They can also act as a sounding board for your ideas and decisions, giving you access to two brains rather than one.

By outsourcing to another person, you can remove your prejudices and biases, improving your chances of making choices that are logical, rather than emotional.

Work with us

If you’d like help managing your emotions and finances, no matter your personal preferences for risk or your relationship with money, then 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

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

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.

Is investing in China a good idea?

Beijing, China Central Business District cityscape

China offers investors diversification from Europe and North America.

China’s economic size and relative sophistication are appealing, with a huge middle class and development in science and technology offering attractive opportunities for growth. Yet Chinese politics may put you off investing in the region.

Read on to find out why investing in China should be considered as part of any well-diversified investment portfolio.

Navigating tricky politics

While there are clear advantages to investing in a market as large and diverse as China, there are concerns about the Chinese Communist Party (CCP).

Earlier this year, the CCP made some serious regulatory changes to crack down on large Chinese technology companies. This included restrictions on how data is collected, stored and used. It also banned online gamers under the age of 18 from playing on weekdays.

Additionally, further action was taken to restrict the activities of private Chinese education companies operating for a profit.

While these policy changes may seem draconian to those of us living in the western world, these regulation policies are in fact designed to foster a sustainable and healthy environment for technology and internet industries in China.

The hope is that this will help to increase their global competitiveness. Ultimately, the Chinese government wants to show that their regulatory framework ensures they are fully compliant, which should cause increased inflows of investment.

Supporting this theory, the president of the Chinese web giant Tencent, Martin Lau, reacted positively to the news, saying, “the regulation has been quite loose in the past and new regulations are necessary to help identify and rectify industry misbehaviours. New regulations will emphasise compliance [and] social responsibility, as well as fair and proper behaviour.”

Even so, these moves spooked the market and prompted questions around China’s attitude towards their capital markets and foreign investment.

Regulatory changes shake China’s stock markets, but sharp rebounds often follow

Although these new regulations could slow down the growth of some Chinese companies, there are signs of strong resilience.

Given that the long-term aim for the regulatory changes is to create a more level playing field for Chinese businesses, the long game should help attract significantly more foreign investment.

It’s not the first time target regulatory changes have shaken China’s stock market, and it’s unlikely to be the last, but, on the upside, these are often followed by sharp rebounds.

Investors who can stomach the risk of heightened volatility tend to be rewarded with strong returns. In fact, the MSCI China index has returned 12.3% over 20 years compared to 9.3% for the S&P 500.

China’s bear market is linked to near-term policy uncertainty

Understanding that the bear market in China is linked to near-term policy uncertainty, rather than wider economic problems that could linger, should give investors some comfort.

Since you should invest with a long-term view, while regulations might cause blips in share prices, in the longer term they should aid greater levels of foreign investment in Chinese companies. This should help your investment in the country to grow.

While attempting to time any market is a tough challenge, China can be even more difficult to predict.

In the short to medium term, regulatory rollout could continue. Property prices could also fall, damaging consumer confidence. In addition, the potential for Covid concerns could destabilise the situation, with the US-China relationship possibly affecting the short-term outlook for growth.

News stories, such as the Evergrande crisis, that grab the world’s headlines add to the potential for volatility.

Why China should be considered as part of a diversified investment portfolio

Despite the potentially troubling property sector, there are still plenty of reasons why China is a good home for your investments. Here are three of them.

  1. Entrepreneurship drives growth

China’s economy is driven almost entirely by privately-owned businesses. This high level of entrepreneurship is helping to drive growth beyond the areas being targeted for reform.

According to research carried out by McKinsey, almost 87% of employment is in private companies. These firms are also responsible for 88% of China’s total exports.

  1. China’s unique characteristics reduce the threat of a crisis

Because the Chinese government controls both sides of the banking system, the threat of an economic crisis is reduced.

State-owned enterprises are the largest borrowers. The region’s reliance on internal funding makes it more resilient and the vast domestic capital available means it is not especially vulnerable to any sudden withdrawal of capital from foreign investors.

In terms of lending, the government holds significant stakes in the large banks and would find it relatively easy to recapitalise them in the event of a crisis.

  1. China is the second-largest economy in the world

Although China is the second-largest economy in the world, it has a small equity market and represents only 5.4% of the global equity market.

To put this in perspective, the largest economy in the world – the USA – has a 57% share of the global equity market.

Whatever you may think about the authoritarian Chinese government, the gap between Chinese and US firms is rapidly closing. Chinese companies on the Fortune 500 generated $8.3 trillion in revenue in the past year, compared to $9.8 trillion for US firms.

Additionally, according to McKinsey, China’s middle-class population is estimated to reach 550 million by 2022, more than one and a half times the entire US population.

McKinsey also found that $1 of every $3 of global investment made by companies over the past decade has been in China.

To overtake America, the Chinese government knows that they must increase investment into their stock markets. This means that although the regulation changes imposed may seem harmful to the economy, take a long-term view and their moves may not seem as crazy as you first thought.

Get in touch

If you are interested in learning more about investment opportunities in China and how you can profit from expert insight and long-term growth, get in touch.

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.

5 reasons to make regular investing your top new year resolution for 2022

Couple at home working on laptop computer

Instead of saving up a chunk of money to invest once you’ve reached a certain amount, regular investing allows you to invest a set amount into the markets each month.

Saving little and often is a habit that will make a big difference to your overall levels of wealth over the longer term.

One of the biggest advantages of regular investing is that you put your money to work straight away, rather than waiting for one point in the year where you make a lump sum investment. Over the last five years, there have only been three calendar quarters where markets have finished in negative territory (finished the quarter lower than where they started).

In other words, 85% of the time markets have been rising, so by sitting on cash you are losing out on potential capital growth.

Regular investing can also be an ideal way for parents or grandparents to save money for children. By investing regularly while children are growing up, it’s possible to accrue a healthy lump sum. This can then be used to cover university fees, a deposit for their first property or an adventure, such as world travel or starting their own business.

Here are five more reasons regular investing can be a sensible option if you want to grow your wealth.

1. Builds discipline

Investing regularly helps you build good habits and keeps you committed to a long-term investment strategy. Ultimately, if you commit to regular saving, it doesn’t take long before you start to build up a sizeable pot.

With investments, typically, the longer you leave your money invested, the greater the potential rewards. Over time, your regular investment should build up, no matter how little you might save each month.

A good approach is to invest a fixed portion of your income each month. This way, as your income fluctuates over your working life, you can adjust the amount you’re saving in line with the amount of money you are making to build up a future nest egg.

2. Benefit from compound growth

Compound growth is the most powerful and underrated benefit of long-term investment.

Compound growth has its largest impact during the latter stages of your investment journey. For example, 10% growth on £1,000 is only £100, but 10% growth on £1 million is £100,000. So starting early and setting good habits is vitally important if you want to reap the full rewards of compound growth.

Even if the amount of money you’re investing each month may seem small, every little counts and will ultimately make a big difference later down the line.

Einstein is reported to have said compounding was the eighth wonder of the world, yet few people understand how powerful it is. This is still true to this day.

To illustrate the power of compounding, if you invested £500 a month from your 16th birthday to your 21st in a fund that delivered 5% a year, and made no other contributions for the rest of your life, by your 60th birthday you’d have almost £300,000 (The Calculator Site).

3. Bounce back faster after market dips

If markets fall, investing at regular intervals means your money will buy more stocks or shares when their prices are low. Likewise, you’ll buy fewer stocks or shares if you invest when markets are high. This means that the percentage decline in the value of your investment is also lower when markets fall. This is commonly referred to as pound cost averaging as it helps to eliminate the impact of volatile markets as over term you end up buying the average market price.

However, if you’d invested sizeable sums irregularly, and the market declined, you might have placed all of your money into markets at a high price. This, in turn, would mean you’d see a significantly larger decline in value.

4. Pick up potential bargains

When stock market prices start to fall, many people panic and tend to avoid investing at that point in time. Investors who get spooked by market changes may pull their money out of the market or refuse to enter the market until things settle down.

However, because fear drives prices artificially low, this is often the best time to buy into the market. At times like these, adding to your investment means that you may enjoy larger returns when the markets rally.

Many people find it difficult to remove emotion from investing and so struggle to benefit from market downturns.

For example, if you go shopping in the January sales and find a jumper that you really like for a 50% discount, you’d think that’s a great deal. However, if someone offers to buy into a company after it had fallen by 50%, your first reaction is likely to question why it has fallen and should I be avoiding investment.

Most of the time, a company does not become a bad company overnight, but wider market news may have caused the stock price to move considerably lower. Like the jumper, the company is now at a discount.

Regular saving removes the emotion from investing.

The table below shows how a regular £1,000 investment every month during 2018 compared with a £12,000 lump sum invested at the beginning of the year. In both cases, dividends are reinvested and don’t take fees into account.

Source: Bloomberg

5. Avoid temptation to “time” the market

Some people will agonise over when they should invest their money in the stock market, hoping to find the ideal time to buy. This approach is incredibly difficult and, as we all know, there’s rarely such a thing as “perfect”. Even the most seasoned of investors would be queuing up for a crystal ball if there was one.

With this in mind, professional investors and money managers with large sums to invest will drip feed their funds into the market over time (usually over the course of a few months, depending on the circumstances). As the strategy of seasoned professionals, it’s a great approach for novice investors.

Instead of trying to buy and sell at the right time, regular investing means you remain fully invested. As an illustration of how beneficial this can be, the chart below shows the impact of missing the best days in the market:

A £100,000 investment in developed markets equities from January 2005 to January 2020

 

Source: Bloomberg, MSCI Daily Total Return Gross World Index

Missing the top 20 days over 15 years reduced the end investment value by more than £250,000, from £443,014 to £188,941.

Get in touch

Regular investing is a powerful discipline that you can use to build your wealth. The sooner you start, the better. Invest this way and, with time on your side, you’ll be well-positioned to ride out any short-term volatility and you can avoid the problems of attempting to time the market.

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

 

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

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.

5 effective ways to secure your finances in retirement

older woman looking at laptop and paperwork

You may have become accustomed to a fair amount of financial security in your working life, particularly if you’ve developed a robust savings habit.

But, when it comes to retirement, your financial situation can change drastically. You may suddenly find yourself trying to live your desired lifestyle at a time when your income has fallen.

That’s why it’s important to financially secure yourself in retirement, too. That way, you can focus on the things you want to do without having to worry about money.

Here are just five ways you could further secure your finances in your retirement.

1. Check your savings plan

Firstly, it’s often sensible to check that your current level of savings is suitable for your needs.

Make sure that you have enough saved away both in the short- and medium-term, so that there’s always money in the bank to live on.

As part of this, you should also consider expanding your emergency fund. When you’re working, holding around three months’ expenses in an easy-access savings account is often sufficient in case of unexpected events.

But, in retirement, your income typically falls while your outgoings may not. As a result, you should consider keeping one to three years’ worth of expenses in your emergency fund, so that you have money saved away in case you ever need it.

2. Clear your debts

When you’re retired, debt can be even more corrosive to your finances. This is because, typically, your income will drop in retirement. That means even small debts such as credit card bills can eat up a significant chunk of your available income.

Try to clear your debts as quickly as possible. That way, you can prevent interest from racking up and costing you more at a time when it may be more difficult to afford it.

One part of this that you may not have considered is your mortgage. When you took out a loan to buy a home, you may not have been thinking about the age you would be when it was finally paid off.

Yet, according to industry body UK Finance, this is a common trend. In fact, more than 50% of new mortgage lending in 2021 was to homeowners where the terms ended after the main borrower’s 65th birthday.

If this describes you, that means you may be having to use your pension or other retirement savings to make your mortgage payments if you’ve retired before the end of the term.

Bear in mind that you may have to pay early repayment charges (ERCs) depending on your terms. Check with your lender whether these will affect you.

3. Review your pension and investment strategy

You may have read our previous blog about managing your pension and your investment portfolio as you get closer to retirement. In it, we outlined the importance of including these elements in your wider financial plan, as well as reconsidering your approach to risk.

This is equally important when you’re retired. In general, the key thing to remember is that your pension and investments need to fit with your needs, wants, and desires.

This helps you to see where these pots are helping you achieve your goals and where they could be refined to further help you reach your targets.

Making pension and investment decisions can be complicated and worrying, particularly as they can be so consequential in retirement. If you have any doubts about your situation, please speak to us.

4. Draw income tax-efficiently

How you take your income in retirement can make a big difference to your entire financial situation, as it can involve making the most of your money while paying less tax.

For example, depending on what you want to achieve in retirement, you may be able to draw your income so that you only pay basic-rate Income Tax, rather than paying the higher- or additional-rate.

You can do this even if you were a higher- or additional-rate taxpayer during your working life.

Similarly, if your total pension pot exceeds the Lifetime Allowance, you’ll be subject to a tax charge depending on how you draw money that’s over this threshold.

This can be the difference between a 25% tax charge and a 55% tax charge, a large disparity that could make a significant difference to your retirement lifestyle.

Working out the best ways for you to take your income tax-efficiently is a key step in securing your finances, as it will mean you’re able to make the most of the money you saved.

Finding the strategies for you can be complex so, if you’d like any help, please do contact us.

5. Work with a financial planner

If you’re still concerned about your financial security in retirement, working with a financial planner could help you.

At Bowmore Financial Planning, we can take into account all these considerations and more when designing a financial plan for you.

Having a plan like this can be crucial in helping you to make your goals a tangible reality, while also giving you the peace of mind that you have enough to live on in your later years.

Work with us

If you’d like help securing your finances in your retirement, please get in touch with us at Bowmore Financial Planning.

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

Please note

Bowmore Financial Planning Ltd is authorised and regulated by the FCA

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.

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

5 positive financial steps you should take 5 years before retirement

Senior couple meeting financial adviser for retirement advice at home

You may have recently read about the emotional preparation you should think about ahead of retirement. Now you’re ready to take the next step and understand the important measures you should take to ensure your finances are organised before you retire.

When you are no longer working, the way you spend your days will be very different. Retirement will almost certainly affect the income you have, and your spending habits will change accordingly.

By sorting out your finances before you retire, you’ll be ready to begin your next chapter without the worry of how you’ll fund your new lifestyle.

So, here are five steps you should take in the five years leading up to your retirement.

1. Know what money you have and where it is

Figure out how much income you might expect to have when you stop working. Your income will likely come from multiple sources, so spend time working out what you have and where.

Consider and include:

What you expect from the State Pension

You can get your State Pension forecast from the government website. This will tell you how much you should get when you can get it and whether it’s possible to increase it.

Check your National Insurance record at the same time. If you have any gaps, it’s possible to pay voluntary contributions, which could boost the amount of State Pension you receive.

Get up-to-date statements on other pensions

Your pension provider(s) should send an annual statement detailing your retirement savings. Your latest statement will show an estimate of the retirement income the pension might generate.

Track down any pension statements you haven’t received

If you’ve moved jobs throughout your career, you may have lost track of all the pension plans you have contributed to. If this is the case, contact the pension provider and ask for an up-to-date statement.

If it was a work pension and you don’t remember who the provider was, contact your former employer for the details.

For any pensions you know you once had but have lost track of, the Pension Tracing Service is a useful way to find them.

Include everything

Retirement income needn’t just come from a pension. You may have other savings and investments you intend to use. If this is the case for you, be sure to include everything you have and expect to draw on.

On completion, you should have a thorough and detailed list of all your pensions, savings and investments.

If it all feels too much, we can help

If you’re overwhelmed by the idea of pulling everything together, don’t put it off for another day. Without starting here, you won’t be able to get a realistic idea of what your retirement income might be.

We can help gather the information and do most of the legwork for you.

Get in touch and we’ll arrange a time to meet so we can start the process of gathering the information to help you get a clear picture of everything you have and the income you can expect to receive when you retire.

2. Make sure your pension savings are invested in the best place

With everything organised and understood, you may find that you have multiple pensions held with different providers. If so, it might be worth thinking about whether you should consolidate them.

Consolidating your pensions has three main benefits:

  1. There will be less information to keep track of
  2. Holding one pension arrangement may reduce the charges you’re paying
  3. Modern pension arrangements may offer a greater investment choice.

While this all sounds great, be careful not to rush in and make a rash decision. As with so many things in life, there are some drawbacks to consolidating your pension savings.

For example, some pension schemes come with benefits that you may lose if you move the money elsewhere. Moving your pensions may also cost you more in transfer fees than you would gain in reduced annual fees or improved growth potential.

If you have multiple pensions with different providers and want to know if consolidating them is a good idea for you, get in touch and speak to one of our financial planners.

3. Draw up a plan and understand how your dream retirement looks

Do you have a clear idea of how you expect to spend your days when you stop working? These ideas and plans will dictate the amount of money you will need to enjoy the life you expect to lead.

If you don’t have any firm ideas of how you want to spend your retirement, make a bucket list. Already got a bucket list tucked away in the back of a drawer? Dig it out, dust it off and imagine your new life.

Don’t be afraid to dream big. Try everything on for size and imagine all the possibilities of how you really want to spend your time once you retire.

4. Work out what income you need and where to draw it from

With a clear understanding of where your money is and how much income you’ll need to fund your retirement, you’ll be ready to consider where to draw your income from.

Don’t automatically assume that your retirement income must come from your pension savings. If you have wealth in ISA investments, you may find it preferable to draw your income from here and leave your pension invested.

This has tax benefits and may also help you pass more wealth to your beneficiaries without incurring Inheritance Tax.

Thinking about how to draw a tax-efficient income in retirement is complex and can have far-reaching implications. We can help you plan your retirement income strategy to ensure it remains as tax-efficient as possible.

Additionally, we’ll ensure that your strategy is sustainable over the long term by using cashflow planning to show you how your financial picture changes over time. Hopefully, this will also help reassure you that you can afford to sustain your lifestyle.

5. Top up your retirement savings while you still can

If you’re concerned that your retirement income is going to fall short of what you need, there’s still time to boost your savings and increase the income you’ll have to live on.

For example, you could:

  • Increase the amount you’re contributing to your pension
  • Continue to work and allow your money more time to grow
  • Pay a lump sum into your pension.

While you can pay money into your pension whenever you like, the sooner you do so, the longer your money will have to grow. Your contributions will also continue to benefit from tax relief.

The Annual Allowance lets you contribute 100% of your earnings into a pension, up to a maximum of £40,000 a year. It may be possible to pay in more than this by using carry-forward. This allows you to make use of any unused Annual Allowance from the previous three tax years.

There are also other allowances you can take advantage of, including your annual ISA allowance. If you have a spouse, you can effectively double your available allowances.

If you’re still nervous about your ability to afford the retirement you hope for, consider part-time work. Phased retirement can be a good way to ease into retired life, allowing you a taste of retirement without having to take the final leap.

If you don’t feel financially prepared, it may be helpful to reframe your thinking. Instead of thinking about your retirement as a cliff-edge, approach it as a transition. With retirement still a little way into the future, there is time to take positive steps to ensure you have a comfortable retirement.

Get in touch

If you’re approaching your retirement and would like help to organise your finances and understand what income you can expect when you retire, please get in touch.

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

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

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.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

Levels and bases of, and relief from, taxation are subject to change.

Powell’s Dilemma

On Tuesday, Chairman of the US Federal Reserve (FED), Jay Powell, made his most hawkish comment on monetary policy since the start of the pandemic. During a two-day congressional testimony, he acknowledged the emergence of the new Omicron variant highlighting it as a potential risk to economic recovery. However, this was not his primary concern, rather focusing his attention to dealing with what he described as “persistently higher inflation”.

He signalled his support for reigning in the FED’s bond-buying programme quicker than originally anticipated, suggesting that the stimulus package is likely to be withdrawn entirely a “few months sooner” than planned. This sent a clear message to markets; inflation has become the top priority for the US Central Bank.

Why is this good news?

Despite that fact that 4 million more American’s are out of work now compared to the beginning of the pandemic, and the possible short-term issues posed by the new Omicron variant, policymakers in the US are now confident that the US economy no longer requires to be propped up by government support. In other words, it is ready to stand on its own two feet.

US markets reacted to Powell’s comments by moving lower in anticipation of interest rate hikes sooner rather than later. US Treasury notes (government bonds), the most sensitive to monetary policy adjustments, soared towards 0.62%.

Omicron update

After an eventful start to the week, markets have stabilised as the week has progressed. Once again, highlighting the importance of avoiding knee jerk reactions when dramatic headlines hit the news outlets. Over the past week we have learned that there are early indicators that the new variant is more mild than previous variants and vaccines are likely to provide some immunity. A dramatically different story from this time last week. However, the discovery of the Omicron variant certainly adds a new layer of complexity to Central Banks decision making process.

Central Banks may be inclined to wait until they understand the full impact of the new variant before taking any decisive action. In the UK, an interest rate rise in December was taken as a given before Omicron became an issue. Now many think a further month of putting rate hikes on hold is increasingly likely. Whist the news around Omicron has sparked levels of volatility that most would have hoped were a thing of the past, we do not believe there is any reason to overreact or indeed change our portfolio positioning. We continue to favour regions, sectors and high-quality companies which will continue to perform well in uncertain times.

 

 

 

 

 

 

Source: Refinitiv – Market returns 29/11/2021 – 02/12/2021

Number of floats in London more than trebles this year in another sign that the City and the UK are thriving

Bowmore Asset Management research quoted in This is Money 29th November 2021 

Research shows 113 companies joined the stock market in the year to October – compared with just 36 the year before.

Big-name firms including Darktrace, Deliveroo, Trustpilot and Wise have gone public in the past 12 months.

The market value of the companies listing also more than trebled – coming in at £51billion, up from £16.5billion, according to Bowmore Asset Management.

Read more: https://bit.ly/3E5M5Ab

Covid and Brexit jitters fail to derail UK stock market as listing activity leaps

Charles Incledon, Client Director quoted in The Scotsman 29th November 2021 

“For stock market investors it’s great to see that so many major businesses still see public markets as the best platform to realise their full growth potential. This is great news for private investors, as last year there was increasing speculation that private equity, reserved for institutional investors, was becoming the default for further investment, in turn denying retail investors the opportunities to invest in new growth companies.”

Read more: https://bit.ly/3I2yP1O

IPOs in UK jump 310 per cent in a year with 113 companies listing in London

Charles Incledon, Client Director quoted in City A.M. 29th November 2021 

“The uncertainty caused by the pandemic led to a drought for the IPO market during 2020. However, London’s IPO market has genuinely boomed over the past 12 months,” commented Charles Incledon, Client Director at Bowmore Asset Management.

He told City A.M. this morning: “For stock market investors it’s great to see that so many major businesses still see public markets as the best platform to realise their full growth potential.”

“This is great news for private investors, as last year there was increasing speculation that private equity, reserved for institutional investors, was becoming the default for further investment, in turn denying retail investors the opportunities to invest in new growth companies.”

Read more: https://bit.ly/3cYOEIz

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.