General Data Protection Regulation (GDPR)

As I am sure you have heard, Data Protection laws are changing on 25 May 2018.  The EU’s General Data Protection Regulation (GDPR) is being introduced to unify all EU member states' approach to data regulation, ensuring all data protection laws are applied identically in every country within the EU. It will protect EU citizens from organisations using their data irresponsibly and puts them in charge of what, where and how their data is shared. 

Despite ‘Brexit’ all UK companies must comply with GDPR, as we remain in the EU at the time the new rules come into force.

Clearwater Wealth Management never share your data with third parties, without your express permission to do so, but we want to take this opportunity to provide you with a chance to review your communication preferences with us.

I am sending you this email because you are on our distribution list for my regular ‘Round Robin’ communications.  If you find these helpful, and would like to continue receiving them after 25 May 2018, please indicate this using the options below.  Clicking on the appropriate link below will generate a pre-populated email for you to send back to us.

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If you do not reply we will assume you would like to opt out and will ensure we update our records.

You can, of course, change your decision at any time in the future by emailing us or giving us a call.  You will also notice the introduction of an ‘unsubscribe’ option on my Round Robin emails from now on so please feel free to make use of this.

As always, if you have any concerns about your own financial arrangements and whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Some words of wisdom for the nervous investor!

I am a great fan of a man called Nick Murray, a Financial Adviser in the US, and what follows are a few of his beliefs around investing. I subscribe to these views 100%!

I thought you might find these pearls of wisdom reassuring while markets seem to be going through a turbulent period.   

I believe that the great long-term risk of stocks is not owning them

On July 8, 1932, the intra-day low of the Dow Jones Industrial Average was 40. On October 14, 1996, the Dow closed over 6000. The intervening period was the worst in human history: Depression, WWII, Cold War etc. However anecdotally, I infer from these data three things. The right time to buy stocks is now (as long as you have the money); the right time to sell them is never (unless you need the money); the great risk is not owning them. Incidentally the Dow Jones, even after recent setbacks, sits at around 25,000.

I believe that everything you need to know about the movement of stock prices can be summed up in eight words: the downs are temporary; the ups are permanent.

I never mistake fluctuation for loss. Share prices go down all the time – 25% or so on an average of every five years (albeit not lately) – but since they never stay down, it turns out not to matter. Markets fluctuate but do not create losses. Only people can create permanent loss by mistaking a temporary decline for a permanent decline, and panicking out. No panic, no sell. No sell, no lose. The enemy of investment success is not ignorance, it’s fear. So, it’s my faith, not my knowledge that saves the investor’s financial life.

I process the experience which most people describe as a ‘Bear Market’ in two different words; BIG SALE!

Since all declines are temporary, I regard all major generalised equity price declines as an opportunity to stock up on some more truly safe investments before the sale ends.

I don’t believe in individual stocks, I believe in managed portfolios of stocks

I can break a pencil; I cannot break 50 pencils tied together. That’s diversification. Thus, one stock can go to zero but stocks as an asset class can’t go to zero.

I believe that dollar-cost averaging (making regular investments over a long-period of time) will make the dumbest person in the world wealthy. Hey, look at me; it already has! 

The more ‘knowledge’ you have the more you try to outsmart the market, and the worse you do. The more you see the market as long-term inevitable/short-term unknowable, the more you’re inclined to just dollar-cost average and the better you do. Dollar-cost averaging rewards ignorance with wealth.

I love volatility

Volatility can’t hurt me because I am immune to panic. And, it can help me in a couple of ways. First, in an efficient market, higher volatility means (and is the price of) higher returns. Second, higher volatility when I’m dollar-cost averaging means even higher returns. Higher returns are good. Trust me on this.

I’m not afraid of being in the next 25% downtick. I’m afraid of missing the next 100% uptick!

And I’ve noticed that I have no ability whatever to time the markets. Still, I have found a way to machine the risk of missing the next 100% uptick down to zero. It’s called staying fully invested all the bloody time. Works for me.

I believe that prior to retirement, people should own as close to 100% equities as they can emotionally stand. Then, after retirement, I believe they should own as close to 100% equities as they can emotionally stand.

If it follows that stocks will always rise (eventually), then the above has to be true. Whether your emotions can stand it is perhaps a different matter. Many would happily sacrifice some of those higher returns for a good night’s sleep.

If you have any concerns about market gyrations over the coming weeks and months, just come back to this and every time you get an attack of the jitters (we all do, even me); keep rereading it

As always, if you have any concerns about your own financial arrangements and whether you are truly making the most of your money, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

It’s that time of the year again!

As we approach the end of the 2017/18 tax-year, thoughts inevitably turn to end of year tax planning and any unused allowances (ISA, Pensions etc.) that may be available.

The ISA allowance for 2017/18 is £20,000 and if you have not made a subscription (or perhaps you have only made a part subscription), there is still time to use this allowance, if you have the funds available.

Since 6th April 2016, in addition to the subscription, it has been possible to top-up ISAs by any amounts withdrawn during the tax-year, including any charges deducted. This means that even if you have not made a subscription this year but have ISAs from previous years, your personal ISA Allowance may be more than £20,000 because of charges deducted during the year. If you made a subscription at the beginning of the tax-year, you may still have a residual allowance left because of these deductions which can be utilised by 5th April 2018.

If you have a Standard Life Wrap Account, the scope for top-up (in addition to any unused subscription) does not apply, unless you take physical withdrawals from your ISA. This is because Standard Life deduct ISA charges from the cash held in your Portfolio and not from the ISA itself.

If you have a Transact Wrap Account and you would like to know your personal ISA allowance for the remainder of the 2017/18 tax year, you can access this information on the Transact website. From your home page, select reports and from the drop-down menu, select ISA Subscriptions.

If you would like to use the balance of your allowance before 5th April, please ensure you advise us of your intentions before the end of March; we will be very pleased to assist. If your ISA is with Transact, please give us as much notice as possible, as a form may be required, if you have not made a subscription since Tax year 2016/17.

Just for information, the ISA Allowance for 2018/19 will remain £20,000 each, so £40,000 per couple.      

If you have any concerns or questions about the above or indeed any other finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Staying the Course!

With markets once again fluctuating wildly, I thought another reminder of the wisdom of not responding to short-term headlines and market gyrations might be useful.

Investors tend to see short-term volatility as the enemy and this can tempt many people to try and move money out of the market and “sit on the sidelines” until things “calm down.” Although this approach may appear to solve one problem, it creates several others:

1. When do you get back in? You must make two correct decisions back-to-back; when to get out and when to get back in.
2. By going to the sidelines you may be missing a potential rebound. This is not historically unprecedented; see chart below.
3. By going to the sidelines you could be not only missing a potential rebound, but all the potential growth on that money going forward.

I believe the wiser course of action is to review your investment objectives and decide if any action is indeed necessary. This placates the natural desire to “do something”, but helps keep emotions in check. Short-term needs should nearly always be met from cash and longer-term needs can be planned for in advance; funds can be withdrawn when conditions are more favourable.

The following charts show the Intra-Year Declines (the furthest the market dropped during each discrete year) vs Calendar Year Returns (the return an investor would have received by staying invested for the whole of that year), for the FTSE 100 Index and the S&P 500 Index since 1984.

The charts clearly show that, in most cases, investors who did not react to short-term volatility were rewarded for their patience and courage. 

As always, if you have any concerns about your own investments, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Good News, Bad News!!!

The Dow Jones Index (the mostly often quoted US share index, even though it only represents 30 companies) suffered its sharpest points fall in history yesterday and this rout was immediately replicated in Asian markets overnight and in Europe this morning. The FTSE 100 opened down 3.5% but has since recovered some ground, it’s down 1.87% as I type.

America sneezes and the rest of the world does indeed catch a cold.

It is important to put these recent falls (markets have been trading down for a week or so now) into proper perspective. The falls actually follow some very good years for investors. In 2017 the Dow was up 25%, helped by a resurgent economy and strong corporate profits and European markets have also seen solid growth without a great deal of volatility; so maybe some form of correction is overdue.

What is interesting is the cause or rather the trigger for this correction. The global sell-off began last week after a particularly solid US jobs report (good news, right?) fuelled expectations that inflation will rise, leading the Federal Reserve to raise interest rates faster than expected. This makes corporate borrowing more expensive, which is of course, not good for companies (oh, so it’s bad news!).

The following is taken from the BBC website:

‘Jane Sydenham, investment director at the stockbrokers Rathbones, told the BBC the falls did not appear to herald a serious change of sentiment: "It is always a bit too early to tell, but I think these recent market falls are in the nature of a correction.

"What we have to remember is stock markets have had a very smooth ride upwards and we've not had a fall of more than 3% for 15 months. There's been a real lack of volatility, which is very unusual."

She added that bear markets tend to happen ahead of a recession and at the moment growth forecasts were being upgraded.

Re-evaluation

Erin Gibbs, portfolio manager for S&P Global Market Intelligence, said: "This isn't a collapse of the economy.

"This is concern that the economy is actually doing much better than expected and so we need to re-evaluate."

One country whose immediate economic outlook remains stagnant is Japan. The authorities there said there was little chance of interest rates being increased.

The Bank of Japan's governor, Haruhiko Kuroda, ruled out the possibility of raising interest rates in the near future. He said it was "inappropriate" to do so with inflation still about half its 2% target.

But markets in Asia typically follow the lead from the US.’

That last point is very interesting; there is no prospect of Japan increasing interest rates as is feared in the US and yet Asian stock markets still tumble. Sometimes markets appear to need an excuse just to reassess valuations.

These falls might present an excellent buying opportunity for long-term investors but there could be some more downside before sentiment improves.

If you have any concerns about your own investments, please do not hesitate to call me.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Festive Greetings!!!

Adam, Denise and I would like to take this opportunity to thank you for your continued support and of course to wish you and your family a very Merry Christmas and a Happy New Year!

As with a number of previous years, in lieu of sending individual Christmas cards, we have once again decided to make a donation to a worthy cause, in fact on this occasion, two worthy causes!

Sadly, over the course of the last few days I have attended the funerals of two of my lovely, long-standing clients. Their families have asked for donations to charities in their memory; the charities in question are Rennie Grove Hospice Care and The Camphill Village Trust.

Rennie Grove Hospice Care is a charity providing care and support for adults and children diagnosed with cancer and other life-limiting illness and their families. Every year through their 24/7 Hospice at Home service, their Family Support services and the range of Day Services at Grove House they give thousands of patients the choice to stay at home, surrounded by their families and friends.

The Camphill Village Trust helps to offer a supportive home and fulfilling life to over 350 vulnerable adults in nine communities. Whether they are able to live in a household with others, or more independently, they are encouraged to accept and appreciate each other for who they are and are encouraged to always give of their best.

I hope you will approve of my decision to support these very worthwhile charities.

I do hope 2018 brings you all you would wish for.

With very best Christmas wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

How rich are you?

Some of the following has been taken from an article by Simon Lambert in This is Money magazine on 12th Jan 2017, although I have edited it quite considerably.

How rich are you? The highly subjective answer to this question will be influenced by your attitude to wealth, income vs spending habits, and where in the country you live. 

For the purposes of this exercise we are ignoring income in the definition of how rich one might be and are concentrating solely on the value of one’s assets.

To find out where one features on the wealth scale, we need to refer to a set of figures produced by the Office for National Statistics (ONS), although these are only produced infrequently. 

The ONS’s Wealth and Assets survey breaks down what the country owns by percentiles, to give households' net wealth. It includes in there:

• Net Property Wealth – any property owned minus the mortgage 
• Net Financial Wealth – everything you have in the bank, savings and investments, minus any debts 
• Pension Wealth – the value of a defined contribution pension pot or the future value of a defined benefit income 

Pension wealth is not to be underestimated, particularly where defined benefit/final salary pensions are concerned. As an example, an expected final salary pension of say £35,000 per annum could reasonably be capitalised to a value well in excess of £1 million. i.e. this is what it would cost to buy an index linked pension with spouse’s benefits of £35,000 on the open market. The rule of thumb I use, is to multiply the anticipated income by 30; recent examples have shown this to be conservative.

The most recent figures that run to 2014 show that the bottom half of UK households have just 9 per cent of the wealth, whereas the top 10 per cent own 45 per cent of it. 

The median (the middle point of the total distribution) household wealth was £225,100, while the bottom 10 per cent of households had total wealth of £12,600 or less and the top 10 per cent had £1,048,500 or more.  

To make it into the 1 per cent, you need £2,872,600 of household wealth – but remember, this comprises everything, including pension wealth.

The bottom 1 per cent has negative wealth - at minus £4,434 (although to me this percentage in negative wealth seems low and I would expect debts to push more people into that category).

Surprisingly, the ONS figures show that overall it is actually pension wealth that accounts for the largest chunk of the overall figure, at 40 per cent, followed by property wealth, at 35 per cent. 

However, while their median pension wealth value of £749,000 contributed 43 per cent of total wealth to the top decile of households, where 98 per cent had some, it contributed just 29 per cent to the total of the least wealthy half of households. 

Property wealth was more important for this lower half, where it contributed 34 per cent of the total, even though just four in ten owned homes. Property with a median value of £420,000 contributed 31 per cent to the total wealth of the top 10 per cent.

Whilst Simon’s figures are interesting, there are of course other, much more important measurements of one’s wealth! I am, of course, referring to the non-tangibles that enrich our lives, our families, our friends, our shared experiences and our memories; it’s impossible to put a value on these and yet I hope we would all agree, they transcend physical wealth every time!

I hope you find the above interesting but, as always, if you have any concerns or questions about any finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Black Monday 1987 – 30th Anniversary

Today marks the 30th anniversary of the stock market crash that became known as Black Monday. The FTSE 100 fell 10.84% on October 19th and then fell a further 12.22% the following day. That event marked the beginning of a global stock market decline, making Black Monday one of the most notorious days in financial history. By the end of the month, most major global stock exchanges had dropped more than 20%.

The cause of the massive drop cannot be attributed to any single news event because no major news event was released on the weekend preceding the crash. While there are many theories that attempt to explain why the crash happened, including massively increased automated trading following ‘Big Bang’ the year before, most agree that mass panic caused the crash to escalate.

The following chart shows how the FTSE 100 Index performed from mid-July 1987 to the end of that year.

An investor with £100,000 invested in the FTSE in July would have seen their funds drop to £72,120 over that period, most of the fall occurring in the first few days after October 19th. If we look at the whole of 1987 however, the picture is not quite as bleak.

The main problem, as I recall, was that this was the time of a number of privatisations and many novice investors had been taking their very first, government assisted, foray into equity investing. As usual, long-term investors who were already in the market at the beginning of 1987 did not really suffer at all but those who piled in during the summer of that year took the full force of the crash; most sold in blind panic. Many never recovered from this shock and refused to go near shares again, a decision which, over the ensuing decades, will have cost them dear.

Now let’s look at how long an investor would have needed to wait to recover their money if they had invested at the peak of the market in mid-July 1987.

Not quite 2 years! Again, as usual, long-term investors were rewarded for their patience and those who managed to find some cash down the back of the sofa and had the courage to invest in November/December of 1987, did even better.

What lessons can we learn from Black Monday and other market crashes?

Unless it is absolutely the end of the world, a market crash of any duration is temporary. Many of the steepest market rallies have occurred immediately following a sudden crash. The steep market declines in August 2015 and January 2016 were both 10% drops, but the market fully recovered and rallied to new or near new highs in the months following.

This is the bit where I sound like a stuck record.

Stick with your strategy: A well-conceived, long-term investment strategy based on personal investment objectives should provide the confidence needed to stay cool while everyone else is panicking. Investors who lack a strategy tend to let their emotions guide their decision-making. Investors who have stayed invested in the Standard & Poor’s 500 Index since 1987 have earned an annualized return of 10.13%.

Buy on Fear: Knowing that market crashes are only temporary, it should be viewed as a moment of opportunity to buy stocks or funds. Market crashes are inevitable; buy while others are selling.

Turn Off the Noise: Over the long term, market crashes such as Black Monday show up as a small blip in the performance of a well-structured portfolio. Short-term market events are impossible to predict, and they are soon forgotten. Long-term investors are better off turning off the noise of the media and the herd, and focusing on their long-term objectives. We are here to help with this!

This next chart of the FTSE 100, starts in mid-July 1987 and finishes at close of play yesterday. This makes the point from the paragraph above, Black Monday 1987 is barely visible, when viewed from where we are now.

I hope you find this brief analysis interesting, possibly even reassuring but, as always, if you have any concerns or questions about any finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Brief Market Update

I have just received a 24-page document from AVIVA which sets out their House View on a number of issues, including thoughts on risk, investment themes, global macro outlook and asset allocation. Clearly, there is far too much information to include in one of my ‘round robin’ e-mails but I thought you might find a couple of the major highlights interesting.

I have summarised a few of the key points below:

• Above trend global growth expected to continue.
• Recent moderation in inflation expected to be temporary.
• Risk of increased volatility as central banks reduce liquidity.
• We favour equities over bonds, but are conscious of stretched valuations in some markets.
• We are cautious on corporate credit, where spreads are tight.
• Global environment expected to support positive carry currency strategies
• Unwinding a decade of extraordinary monetary policy continues.
• Fundamentals to matter more going forward.
• Eurozone equities, emerging markets and local currency debt among preferred assets.
• Strong underweight on developed market fixed income, overweight US Treasuries to balance portfolio risk.
• Global markets at a crossroads as market structures inherited from the ‘QE decade begin to normalise.

Please remember these are AVIVA’s views, not mine and they do not constitute advice in any way.

If you would like a copy of the full report, please let me know; I should warn you, it is not exactly bedtime reading!

If you have any concerns or questions about any finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Performance Update

As we are approaching the 10-year anniversary of the onset of the Financial Crisis in October 2007, I thought you might like to see how a sample of the Model Portfolios recommended by Clearwater have performed over that 10-year period.

The following Chart shows very clearly how the higher-risk portfolios fell much more sharply during the ‘Credit Crunch’ and how they have now recovered – it took a long time though!  

The most popular portfolio is EBIP – Portfolio 60 and I don’t think it’s difficult to see why that might be. EBIP 60 provided some valuable protection on the downside when markets fell but was sufficiently exposed to high-risk assets to benefit from the recovery when it came. Although EBIP 100 now sits at the top of the table, for much of the ten-year time period illustrated, more balanced (in terms of risk) investors were doing rather better. Risk and return are clearly related but that does not necessarily mean taking ever more risk leads to correspondingly higher returns.  

If you would like more detailed information on our Investment Philosophy and the Model Portfolios, please let me know as I have just updated our Model Portfolios Presentation, with data from 1956 to 2017, and I will be happy to e-mail you a PDF.

If you have any concerns or questions about any finance related matter, please do not hesitate to call me at any time.

With best wishes,

Yours sincerely

Graham Ponting CFP Chartered MCSI
Managing Partner