Some Thoughts

What follows are a few thoughts on how taxation policy might need to change in order to meet the extraordinary public spending commitments caused by the Coronavirus pandemic.

But first, I thought I would include a table showing the average duration of Bull and Bear markets and their respective "heights" and "depths". The table shows the highs and lows of UK Bull and Bear markets from the 1920s to the present day and as such, it includes every stock market crash in the last 100 years and there have been lots.

Bull and Bear Markets.

Source: Money Observer May 2020/Timelineapp Tech

• Average Bull duration 7 years

• Average Bull "height" 507.1%

• Average Bear duration: 1 year and 8 months

• Average Bear "depth" -36.5%

That’s not a typo – the average Bull market height over the past 100 years has been 507.1%!!! This is why long-term investors shouldn’t worry too much about Bear markets, painful though they seem when you are in the middle of one, where the average depth is only -36.5%.

Taxation Policy

Source: Daily Telegraph

"The Telegraph can reveal that a Treasury document drawn up for Rishi Sunak, the Chancellor, sets out a proposed "policy package" of tax increases and spending reductions which may have to be announced within weeks in order to "enhance credibility and boost investor confidence" in the British economy."

Income Tax

Some Options?

"All bets are off with things like manifesto pledges and triple locks. The world has changed to such a degree" (Mike Hodges Saffrey Champness)

• According to HMRC a single percentage point rise in the basic rate of income tax from 20%-21% would raise £4.7bn in 2020-21.

• Increasing the higher rate of tax from 40%-41% would raise circa £1bn of tax reflecting the smaller number of taxpayers in this band of earnings.

• Increasing the additional rate of tax from 45%-46% would raise £105m

Possibility that the Chancellor could scale increases in tax rates, for example

• 1%:BRT

• 3% HRT

• 5% ART

Other Possibilities

• Reduce or remove the personal allowance

• Drop the level at which the personal allowance starts to be restricted to <£100,000

National Insurance Contributions (NICs)

NICs are complex and the government may take this opportunity to introduce some radical reform to "simplify" and also raise additional tax revenue.

Some options?

• Remove the Upper Earnings Limit

• Introduction of a flat rate

• Harmonise the lower earnings limit with the personal allowance which will help lower earners but as above remove the upper earnings limit

• Introduce National Insurance Contributions (NICs) for people who are working and over the state pension age.

• Increase NICs for self-employed clients and a quid pro quo for the Self-Employed Income Support scheme

• Self-Employed clients earning over £9,501 pay NICs at 9%. Employed individuals pay NICs at 12%

Inheritance Tax

Some Options?

• Remove the flat rate of IHT of 40% and align the tax rate(s) to rates of income tax

• Introduce a wholesale reform (See OTS report from July 2019) and introduce a form of Capital Transfer Tax which taxes assets whenever they are transferred (lifetime or on death).

• Reform Business Relief and Agricultural Property Relief

• Reform gifting (consider introducing a lifetime limit)

• Remove the Main Residence Nil Rate Band

• Retain the Nil Rate Band at current levels

• Reform exemptions such as the "Normal expenditure out of Income"

• Take another look at trust taxation

Also worth noting : HMRC’s suspension of its Inheritance Tax investigations during the coronavirus crisis gives taxpayers a unique opportunity to get their affairs in order, says Pinsent Masons, the multinational law firm. (Source: https://ifamagazine.com/article/hmrc-pause-on-inheritance-tax-investigations-gives-taxpayers-opportunity-to-get-affairs-in-order-says-lawyers/)

According to Pinsent Masons, HMRC launched 5,347 IHT investigations last year*, generating £259m in extra tax. 27,283 IHT investigations have been launched in the last five years, with a total yield of £1.3bn.

Pinsent Masons warns the suspension of tax investigations is only temporary and HMRC is likely to be more aggressive once its compliance work resumes. HMRC will be looking for ways to increase its compliance revenues to cover rising coronavirus-driven public spending.

The law firm adds that HMRC dramatically increased the number of tax investigations it opened in the aftermath of the 2008 financial crisis as it tried to close the gap in the public finances.

Capital Gains Tax

• Remove or cap CGT relief on a client's "Principal Private Residence"….Cost to the exchequer £26.7bn ( according to the NAO)

• Increase rates of taxation ( currently 10%/20% and for property 28%)

• Align CGT rates of tax to Income Tax rates

• Clear disparity between tax rates on "wealth" and tax rates on "income"

• Freeze or reduce the Annual Exemption of £12,300 for individuals/£6,150 for trustees

Introduction of a Wealth Tax?

Some Options?

• A one-off payment or an ongoing levy on wealth

• According to the Future Economies Research Centre in Manchester a 2% one-off levy on ousehold net wealth calculated to be at circa £15tn would generate the £300bn needed to cover the cost of the Covid-19 crisis

• Levy would be on property values (net of mortgages), financial assets, businesses, savings and possibly pension assets

• May mean the introduction of temporary capital controls to stop individuals moving wealth overseas?

• May not be called a "wealth tax" but positioned as an NHS surcharge which would apply to all Income Tax and Capital Gains Tax (say at a rate of 1%-1.5%). Possibly also NICs. Maybe tapered so that clients with higher incomes/wealth pay a higher percentage?

• Perhaps this approach is an easier "sell" politically?

The above is largely speculation of course but it is an inescapable fact that the cost of this crisis will need to be met from somewhere and we are all likely to feel some pain, in one way or another.

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

Stay safe everyone and have an enjoyable week.

With best regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Getting things in their proper perspective

Getting things in their proper perspective
The following is a superb article by Sarah Knapton of the Daily Telegraph. It provides an excellent analysis of the REAL risks posed by coronavirus, when compared with the risks we routinely face in everyday life. It provides some welcome perspective and cuts through the seemingly impenetrable doom and gloom. If part of the media's role is to provide balance (and to build morale during a crisis), maybe they should be following this example. It's a long read but well worth it!

Analysis: How the danger of coronavirus compares with the risks of everyday life

How much of a threat is low level of Covid-19 in community compared to danger of accidents, bad health or crime?

By Sarah Knapton, Science Editor Daily Telegraph

The Government has been urged to step back from its plan to reopen schools in June, with education unions claiming it poses too much of a risk to society. But just how risky is a low level of coronavirus in the community compared with the risks’ individuals take every day through activities such as driving, drinking or crossing a busy road? After all, the 25,000 serious injuries caused by road traffic accidents in Britain each year could be prevented by banning cars, but we do not take that step because people need to get around. Likewise, we could prevent the 17,000 flu deaths each year by observing social distancing and keeping a lockdown in place to prevent community transmission.

Speaking at the science and technology select committee on Wednesday, Osama Rahman, the chief scientific adviser at the Department for Education, said people had to accept that some risks were inevitable.

"There is always a risk of transmission," he told MPs. "Can we get the risk of transmission to zero? No. And what can you put in place that will help reduce risks as much as possible? "There will always be some risk. There is a risk going to school anyway – it's not a risk-free environment, so to what extent is that risk acceptable?"

So how does coronavirus compare to the dangers posed by everyday living? We look at the figures:

Age

Age is one of the biggest risk factors for general health and wellbeing, with the chance of dying rising substantially as people grow older.

Although there is an early spike in the deaths of babies due to congenital birth defects and problems in delivery, the chance of dying as a child is eye-squintingly small, with those aged nine and 10 the least likely of any age group to die.

As Cambridge University risk expert Sir David John Spiegelhalter put it in a recent blog: "Nobody in the history of humanity has been as safe as a contemporary primary school child."

Youngsters also seem largely immune to coronavirus, with most cases involving people over 60 or with underlying health conditions.

In April, Imperial College modelled the death rates for the virus, factoring in for the first time less serious cases which will never trouble the health service. While the overall death rate of those in hospital is hovering at around 1.3 per cent, or about one in 77, it falls dramatically to 0.66 per cent, or one in 152, when mild and asymptomatic cases are included.

The same lowering of risk holds true for all age ranges, and means that the chance of dying for children contracting coronavirus is miniscule, approximately 0.0069 per cent for 10 to 29 year olds – one in 14,492.

For the under-10s, there is even less risk – around 0.0016 per cent, or one in 62,500. Those in their 20s have a one in 1,666 chance of death, while for 30-somethings it is one in 1,190. For people in their 40s it is approximately one in 625, in their 50s one in 169 and in their 60s nearly one in 50. Over-70s have a roughly one in 23 risk of death.

The risk of dying from anything follows the same linear pattern as coronavirus as people age, with a slight rise in the late teens and early 20s largely caused by the follies of youth. But apart from that blip, the average risk of death doubles roughly every eight years.

Each age group has a different chance of dying each year, and Prof Spiegelhalter has calculated that coronavirus squeezes, on average, a year's worth of risk for someone who is hospitalised. So, for an 80-year-old Briton, the chance of death from anything annually is around 11 per cent, and coronavirus adds 9.3 per cent to that for hospitalised patients.

For those aged 10 to 19 the risk is far lower, accounting for just five months of annual risk, yet for those 60 to 69 it is two-and-a-half years of extra risk. If we include those who never needed hospital, the risk falls even further. So, while the annual risk of death for a 10 to 19-year-old is just 0.02 per cent, the risk of death from coronavirus is 0.0069 per cent – the equivalent of four months of annual risk.

Accidents

While there is a general risk from ageing, the public faces a host of other risks in daily life. The avoidable mortality rate in Britain, which includes accidents, unintentional injuries and some preventable diseases, is currently 228 people per 100,000, or 0.2 per cent. But the risk from coronavirus for the general population does not rise above that until people hit their 50s – so for anyone under that age the disease is less risky than the general underlying chance of death from preventable causes.

For road accidents, the fatality rate by population hovers around 2.8 deaths per 100,000 people. The Government is encouraging more people to cycle, but cyclists are 15 times more likely to be killed on Britain's roads than car drivers. Department for Transport figures show that, for every billion miles cycled, there are 1,139 serious injuries and 29 deaths. That compares with just 27 serious injuries and two deaths per billion miles for car drivers.

Walking is also encouraged under the new Government plans, yet pedestrians are at even greater risk than cyclists or drivers, with 34 killed each year for every billion miles walked and 461 seriously injured. However, with fewer cars on the roads the rate of cycling and pedestrian deaths is likely to drop.

Motorcycle riders are at the greatest risk, with 126 deaths and 2,038 serious injuries per billion miles travelled.

Some 147 people are killed at work each year, while 581,000 people suffer an injury.

Professor Alan Penn, the chief scientific adviser at the Ministry of Housing, Communities and Local Government, said risks would inevitably go up once lockdown was released. "There is a hierarchy of risks, and we decide which measures can be taken and give advice about how they need to consider the risk," he told MPs. "The risks will increase. One reason we are able to do opening up is because the total numbers infected are dropping, so the risk from that perspective is reducing."

Crime

The chance of becoming a victim of crime in a single year is now 15 per cent, but that changes dramatically depending on age. While around one in five of those aged 16 to 24 can expect to experience a crime annually, that drops to just one in 20 for the over-75s. The type of crime also varies. The chance of being robbed is around 0.3 per cent in 100, while 0.9 per cent of people are a victim of violence without injury, 0.5 per cent a victim of assault with minor injury, and 0.4 per cent a victim of wounding.

Likewise, the average adult in England and Wales has a one in 100,000 chance of being murdered in a given year, while domestic abuse among the wider population is around 7.9 per cent of women and 4.2 per cent of men.

Over the last decade, the annual chance of being murdered in a terrorist attack on British soil was about one in 11.4 million per year.

Health

Around 600,000 people die in Britain every year, with the frail and elderly most at risk, just as they are from coronavirus. The most recent data from the Office for National Statistics (ONS) reveals that more than one in eight people will die of dementia and Alzhiemer's disease, which is now the leading cause of death.

In Britain each year, 280 people in 100,000 die of cancer, and there are an estimated 40,000 deaths per year linked to outdoor air pollution, with dirty air linked to lung cancer, stroke, heart disease, Alzheimer's and fatal asthma.

The risk from depression is also high, particularly for young people. The leading cause of death for 20 to 34-year-olds in the UK is suicide and injury or poisoning of undetermined intent for all years observed, accounting for 27.1 per cent of male deaths and 16.7 per cent of female deaths for this age group.

Bad habits

As well as health, accidents and age risks which cannot be avoided, many people raise their risk of ill health and early death through bad lifestyle habits.

As many as one-third of heavy smokers aged 35 will die before the age of 85 from diseases caused by their smoking. For a 55-year-old smoker, the chance of developing lung cancer in the next decade is 34 in 1,000, compared to just one in 1,000 for a non-smoker.

Likewise, consuming one to two drinks four or more times per week – an amount deemed healthy by current guidelines – increases the risk of premature death by 20 percent compared with drinking three times a week or fewer.

The male drug poisoning rate has significantly increased from 89.6 per million males in 2017 to 105.4 per million in 2018. Two-thirds, or 2,917, of drug-related deaths were related to drug misuse, accounting for 50.9 deaths per million people in 2018.

How much risk is too much?

The Government assessment of risk is based on the reproduction, or 'R' number, which calculates how many other people will be infected by one person with coronavirus. The rate is currently below one, which is why some lockdown measures have been lifted, but the Government will reimpose measures if it rises again.

However, some experts believe that Britain could still function with an 'R' rate of above one. Professor Jonathan Ball, of the University of Nottingham, said: "If the effective 'R' is above one, then that means numbers will increase – therefore you can get away with that until your capacity to deal with hospital ICU admissions is swamped."

Mark Woolhouse, a member of the Government's Scientific Advisory Group for Emergencies (Sage) and professor of infectious disease epidemiology at the University of Edinburgh, believes it should be scrapped altogether. "Insisting on 'R' below one is painting yourself into a corner – it restricts your options very substantially," he said. "We have a situation where it’s almost certainly below one in the community but above one in care homes, and that's the wrong way round. “We would rather it was less than one in care homes and maybe above one in the general population as a price worth paying."

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

Stay safe everyone and have a lovely weekend.

With best regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Economists

I was reading David Smith’s piece in the Business Section of The Sunday Times yesterday, in which he speculates on how the economy might evolve as a result of the pandemic, it is a little long to reproduce here but I thought you might like the rather droll Economist ‘jokes’ with which he finished it.

“This had better be my last week for economist jokes, not because the well is running dry, far from it, but because other people, notably accountants, management consultants and actuaries, are feeling left out. I am prepared, however, to continue the series for them, if readers can provide enough material.

To get you in the mood, one that provides a neat handover: “What’s the definition of an economist? Someone who found accountancy too exciting.”

Anyway, back to my final flurry. Professor Iain Begg and others offered this. Three people are in a hot air balloon and get lost on a foggy day. They shout to a passer-by on the ground: “Where are we?” The passer-by shouts back: “In a balloon.” “Ah,” say the balloon travellers, “you must be an economist, because what you said was precisely correct but totally unhelpful.”

Giles Johnson of CIL offered Walter Heller’s observation that an economist is someone who observes something working in practice and wonders whether it will work in theory, and also a variation of the desert island joke. Two economists are stranded on a desert island and make millions over the next few years selling their hats to each other.

Max Good provided the most suggestions, such as Paul Samuelson (or was it Thomas Carlyle?) claimed to have trained a parrot to answer every question in economics by squawking just three words — demand and supply. Also, the Japanese car firm Nissan used to be known as Datsun. When a mishap befell a cargo plane bringing parts to Britain, it was said to be raining Datsun cogs. He also recounts the possibly apocryphal story of a lunch between Donald Stokes, chairman of British Leyland, and Tony Benn, industry secretary in the 1970s, that sealed the car giant’s nationalisation. At the end, Benn says: “Thank you for your company.”

That’s it, apart from Peter Spencer’s reminder of the economic statistician who is broken down by age and sex. I’ll be here all month.”

david.smith@sunday-times.co.uk

If you would like to read the whole thing here is the link  https://www.thetimes.co.uk/article/the-economy-will-be-different-but-will-it-be-better-88930llff).

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

With best regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Clearwater Portfolios Update

In amongst all of the doom and gloom surrounding coronavirus, there is perhaps a little bit of light shining in the tunnel, we don’t know yet whether it’s just somebody with a torch in the middle and it’s still really dark in there or whether it genuinely is daylight at the end. However, as talk turns to curves flattening and lockdown restrictions easing, markets have begun to recover, albeit in fits and starts.

Why is there even talk of easing lockdown restrictions at the moment, when the death toll is still so high? Well let’s take a look at this first chart which is something I have been sharing on my personal Facebook page, it shows the daily number of deaths from COVID-19 in the UK since 10th March and it also highlights the Rolling 7 Day Average. The numbers are still high (and by the way, this chart includes deaths from all settings, not just hospitals) but there is a very clear ‘flattening of the curve’. The government advisers think this shows that the impositions of the lockdown and the enforced social distancing measures have worked, which by extension means we have some control over this virus and its spread.

This is of course, a cold analysis of statistics and we must not forget that each one of these deaths represents a tragedy for a family somewhere in the country.   

This flattening of the curve is good news and points to a possible relaxation of restrictions in the not too distant future. Markets like good news and the next chart shows the performance of a range of the Clearwater Portfolios since March 23rd which was the lowest point for markets (so far).

That’s quite some growth in just a 5 week or so period BUT we need to keep this mini recovery in context and the chart below shows the full 3 months from 29th January, which includes the period shown above.  

So, in conclusion (I know one shouldn’t start a sentence with a conjunction but I am being colloquial), we have still got a long way to go and whichever way one looks at it, this recovery is fragile and any bad news (worse than expected economic data, failed vaccine trails etc.), could see us test new lows in this bear market.

Here’s hoping for some good news soon.

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

With best regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Past significant virus outbreaks

As most of you know, we outsource responsibility for constructing the Clearwater Investment Portfolios to a company called Evidence Based Investments (EBI). EBI provide us with a wealth of resources to help us articulate our investment proposition and they are also able to analyse for us how various market events compare with those that have gone before.  

On this occasion, they have produced a brief presentation looking at how a range of the EBI Portfolios have reacted to previous virus outbreaks in recent times, namely:

• SARS: January 2003 - March 2003

• Avian Influenza: January 2004 - August 2004

• MERS: September 2012 - November 2012

• Ebola: December 2013 - February 2014

• Zika: November 2015 - February 2016

• Coronavirus: January 2020 - Present

I have reproduced the summary chart below but if you would like a copy of the full report (it’s mostly nice graphs and not too heavy), please let me know and I will e-mail it over to you.

The chart below will be easier to read if you select ‘web layout’ under the ‘View’ options in Word. I will be able to e-mail the fiull report as a PDF.

I don’t think it will come as a surprise that the coronavirus pandemic has caused the most extreme reaction, as none of the previous outbreaks led to an effective shutting down of the global economy.

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

With best regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

The Wisdom of Crowds

I do hope that you had an enjoyable Easter Weekend, at least the weather was nice, providing an opportunity to get lots of those gardening jobs done. My girls and I spent the weekend painting fences, garage doors and gates and unaccustomed as I am to painting, I did get a warm feeling of satisfaction when looking at my handiwork and how much better everything looked, maybe there is something in this DIY malarkey after all.

As for the Raclette, the less said about that the better; with everything prepared, the moment we switched it on it blew a fuse and that was that. We ended up standing around the cooker frying everything up, surprisingly it was still good fun though!

I wanted to share with you the following, which a good friend of mine in Scotland sent me over the weekend, it’s a piece he put together to explain the workings of the stock market. I think it provides a very clear illustration of why it’s pretty much impossible to beat the markets, even though one might be able to come up with a rational argument for taking action of one sort another in an attempt to do so.

“Many of those reading this short note will have, at some time, travelled down to Devon for a lovely summer break amongst the rolling fields, moors and beautiful beaches of this somewhat remote county. Only a few will have ventured into Plymouth, the famous naval seaport and home to Sir Francis Drake (that famous Elizabethan pirate who so vexed our Spanish friends by stealing their gold) and the site of the departure of the Mayflower with the pilgrims on board heading to America 400 years ago this year. Even fewer will know that it was the place of an amazing insight into the powerful nature of crowds, which provides us with a wonderful word picture of how stock markets operate.

In 1906 a Victorian gentleman named Sir Francis Galton attended a livestock fair aptly named The West of England Fat Stock and Poultry Exhibition in Plymouth. One of the many attractions at the fair was a guess the weight of the ‘dressed’ ox on display (similar to the game of guessing how many cookies are in the glass jar). The competition attracted 800 people all paying 6d (half a shilling) to write down their guess, name and address on the back of the ticket. The nearest guess to the actual weight would win a prize. The fair, as you can imagine, attracted many sorts, from the general public (old and young) to farmers and butchers. Being a statistician, amongst many other things, Galton bought the used tickets off the stall holder. Of the 800, 787 were usable. Back home he analysed the guesses and published his finding in Nature, March 7, 1917 in an article titled ‘Vox Populi’ . His remarkable finding is illustrated below.

Figure 1: Guessing the weight of the ox – the ‘crowd’ got it more-or-less spot on.

The range of guesses was wide (-133 lbs. below the average to +86 lbs. above it), the participants were varied, and the numbers involved were quite large. The ‘crowd’ in aggregate showed ‘wisdom’ compared to its individual participants.

This story provides a great insight into how modern financial markets work. The markets are made up of many players, from individual DIY investors, day traders, stockbrokers, hedge funds, fund managers, sovereign wealth funds, endowments and other institutional investors. Each investor holds their own view on the future prospects for a specific security, such as the price of BP or Apple shares. Some will like a stock and others not. They cannot both be right. The market – given all the information available to it – settles on an equilibrium price for every stock. This price will move, sometimes dramatically, as we have seen recently as the ‘market’ reaches a new equilibrium price, given the new information that it has collectively processed.

At times like these, some investors are prone to running ‘what if’ scenarios in their heads such as: ‘if companies are in trouble because their revenues have been cut off, then they will renege on their property lease terms and the landlords will suffer. It seems likely that things will get worse over the coming weeks. If property landlords are in trouble that might lead to problems in the banking sector’. It all sounds plausible. They may then be tempted to sell out of property or banks or even equities altogether. The crucial mistake is that they forget that they are not the only person to have thought this through and these very sentiments and views are already reflected in the current price of listed commercial property companies, bank stocks and the markets in general.

Markets will move again – down or up – based on the release of new information, which in itself is random. Second guessing random events is futile. You may make a guess and be lucky but that is speculating not investing. Accepting the ‘wisdom’ of the market helps us to challenge ourselves as to whether we really have superior insight relative to everyone else. It seems unlikely. As Charles Ellis, the wise sage of investing from the US, states:

‘In investing, activity is almost always in surplus’.

Activity based on guessing – particularly when it relates to shorter-term issues that sit well within your true investment horizon – is best avoided.

Next time you pass Plymouth on the A38, reflect on one of its great historical events, The West of England Fat Stock and Poultry Exhibition of 1906.

Note: if you are interested in this subject and have time to fill in the coming weeks, perhaps take a look at The Wisdom of Crowds by James Surowiecki published by Greener Books.

Duncan R Glassey”

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

With best regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Checklist for a Crisis

I do hope that everyone is managing to stay virus free and that you are not going stir crazy just yet. Things must be getting desperate at our house because we having a raclette tomorrow evening, something I never thought we would do again, after the last time in about 1972!

On a more serious note, the daily numbers of deaths from coronavirus are very disturbing, particularly of course as each death represents a personal tragedy for the families involved. However, the numbers from Italy and Spain are starting to look more encouraging and the longer this improvement continues, the nearer we come to a release from the lockdown. In the hope of saving many more lives, I am sure we can all endure the relatively minor inconvenience (for most) of staying at home for a few more weeks. We will all be able to emerge from our houses and meet up with family and friends soon enough.

The following is something I received yesterday from The Chartered Institute of Securities and Investments (CISI), it is a sort of checklist for people who might be struggling to deal with basic money worries during this crisis. I don’t expect this to be of direct relevance to most my clients but you might know someone who could find it useful, it’s mostly common sense but it can be hard sometimes to see the obvious when one is enveloped in a cloud of uncertainty. Please do feel free to share with anyone you think it might help.   

“Financial Planning is here to help you

By Jacqueline Lockie CFP™ FCSI, Head of financial planning, CISI – 8th April 2020

In the UK the Office of National Statistics (ONS) has released its first weekly ‘rapid’ statistics data during the Coronavirus pandemic.

The initial results from the new Business Impact of Covid-19 Survey show:

• 73% of households in Great Britain, whose household head is an employee, had enough financial assets to cover a 25% fall in household employment income for a period of 3 months

• 54% were able to cover a 75% fall for 3 months

• 76% of self-employed households had enough financial assets to cover a 25% fall in their household employment income, and 61% could cover a 75% fal for 3 months

The ONS found that older households were most likely to be able to have enough savings to cover a fall in their household employment income for this period of time.  After that the picture changes significantly.

This guide aims to help you think about your finances by highlighting the important factors that our community of leading and highly qualified experts from all over the UK - CERTIFIED FINANCIAL PLANNERS and Accredited Financial Planning Firms – think you should look at during this uncertain and challenging time. 

Solve the task at hand now - Cash management for individuals and families

Many people have seen a cut in their income each month.  Some of you may have been made redundant and might now be claiming benefits.  Other families are bracing themselves for more severe reductions in their income in the coming months. Here are our top tips for looking at the cash you immediately have available if you have a sudden loss in income:

1. Prepare a clear budget for food and other essential bills:

Write down everything you buy and review objectively.  Can you cook more and save on more expensive processed meals?  Do a daily food menu and only buy what you need to save wasting food. Write down all your other bills and when they are due.  Cut back now on all non-essentials.  Research online what state assistance or charity help you might be eligible to receive and apply.  Avoid taking on significant loans with high interest rates. Talk to your mortgage lender and bank about what they might be able to do to help you in the short turn.  Check with your local authority if you can spread your council tax over 12 months rather than 10, cancel any travel tickets not now being used and sell unwanted items in your home such as old consoles and mobile phones that might be hidden away in drawers.

2. Stop all unwanted or forgotten direct debits and standing orders from your accounts. 

Review your credit card statements and bank statements to ensure you are not paying out on unnecessary or forgotten regular payments. Please be careful what you are cancelling and make sure you understand the implications – money being spent on insurance as they might be the fall back items you might need longer term.

3. Be aware of scams:

Many people are worried about their futures at the moment.  This anxiety in the global population can be an opportunity for scammers to pounce.  When you are rushing to secure your own financial situation, you might be more susceptible to falling victim of a scam.  Follow simple rules: do not answer texts or calls asking for bank details unless you are expecting the contact.  If in doubt use the number on the back of your cards to contact your provider.  Never give your bank or credit card details over the phone to cold callers no matter who they say they work for. Here is some guidance from the City of London Police on common ways you might fall victim to foul play.

4. Look after your physical and mental health:

Set a daily routine for yourself, talk to loved ones via video links and ensure you get enough sleep. These are all practical things you can do to help yourself stay healthy and keep a sense of perspective when dealing with money.  There are many free apps and other online resources for yoga, meditation, sleep and exercise. Take advantage of them and encourage others to participate with you.  Being tired and worried can lead to poor decision making when dealing with your finances. See the CISI’s mental health portal for advice on how to look after your well-being. LINK

5. Get help early:

Don’t wait until you have no money for essential items - ask for help from your local government, charities or other institutions now and try and plan ahead.  It can take time to find out what sort of help might be available to you and you may need to apply for that help.  If you know that you are going to struggle to pay your mortgage, contact your lender now – most banks are operating a simple form online to apply for this.  Talk to them about mortgage premium holidays and other ways to reduce your mortgage payments.  Make sure you understand the implications of taking a payment holiday – some mortgage terms will mean you still have to pay the interest on those payments, so your monthly payments may go up once you start paying again and it might take you longer to pay off your mortgage. Check to see if you have any insurances that you could make a claim on.

Managing through the cycle

It is important to keep a close eye on your finances whilst we work through this global pandemic.  Ignoring issues will only make matters significantly worse later on.

1. Revisit your budget regularly and identify where you have been struggling.  Tackle those areas with a calm attitude and seek professional help if needed.

2. Be realistic.  Don’t deprive yourself of all your pleasures in life, but don’t go overboard.  If you put yourself on a strict crash diet for your finances, it might work for a few weeks but probably isn’t going to work for many months.  Be sensible.  Cut down on luxuries but don’t cut everything out unless your financial position really necessitates it.

3. Take small actions to improve your financial situation.  Is there any part-time work available?  Are there things you can make from your own home that you can sell online?  Can you do anything to help family, friends and local charities?

4. Try to stay positive  Do not constantly watch or listen to the news, restrict your news updates to once a day.  Plan out what you are going to do each day and you will feel a sense of achievement by doing those tasks.  Stay in touch with others and be honest about how you are feeling but don’t spend the whole conversation talking about the virus.

Try to plan for the future when we get out the other side of this pandemic.  Yes, we are going through very hard times right now, but we will get through this.  We need to stay focused on solutions to our financial issues and not continually focus on the pandemic.  For example, what can you do at home?  What can you plan for when curfews are lifted and we can all go about our daily lives again?  Are there things that you have wanted to do but never had the time to do?”

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

Please do keep safe and of course, Happy Easter!

With warmest regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Touching Base

As we head into the weekend I thought you might appreciate a very brief update on how our investment portfolios have performed over the past 12 months, taking into account the impact (so far) of the coronavirus pandemic.

In the following chart I have shown our lowest risk portfolio (EBIP UK Bond) and then included the 3 most widely used portfolios (EBIP 40, 50 and 60). The purple line is the FTSE 100 which is of course, the index that is quoted on the news every day.  

There is no hiding from the fact that our investments are substantially down over the year but it is reassuring to see that the highly diversified nature of our portfolios has helped shield our clients from the very worst of the falls that we have been hearing about.

On a separate note, the following is a link to an article on Covid-19 which appeared in the Spectator on 27th March. The statistics quoted in the article are already well out of date but it provides an interesting slant on things, nonetheless.

https://www.spectator.co.uk/article/The-evidence-on-Covid-19-is-not-as-clear-as-we-think

As always, please do feel free to call me at any time to discuss anything that might be concerning you.

Stay safe everyone!

With warmest regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Lockdown and anxiety

We are just approaching the end of the first week of the ‘lockdown’ in the UK and I am sure I am not the only one who thinks it feels a lot longer. My wife, Vikki, my two daughters, Ellie and Charlie and I are comfortably holed up at home, trying to make the best of things; the girls have a small greenhouse and they have been busy planting vegetables ……… just in case! Vikki is actively involved with supply chain issues with her company and has never been busier and for my part, I am trying to make myself useful around the house (with mixed results), at least my drumming is coming on a treat and I am starting to look a little less like that Duracell monkey! The most important thing however, is that we are keeping our spirits up whilst not forgetting those who are much less fortunate than ourselves.   

Over the weekend I was reflecting on how everyone might be feeling re their investments and on how they might be worrying about how this ongoing situation might impact their future financial plans. I have already sent a number of these ‘Round Robin’ e-mails in which I have reiterated the advice that sitting tight and not panicking is the correct response when markets crash and we are in the midst of so much uncertainty. However, as I have watched the value of my own investments evaporate (albeit temporarily), I am conscious that many of my clients will nonetheless be feeling anxious and that they might welcome a friendly chat and/or some quiet words of reassurance. If this is how you are feeling, please do not be afraid to call me, you are not being silly by being unsettled by these events and neither is that pit of the stomach feeling of anxiety imaginary, I have it too!

I know many of us will be worried about more than our finances at this time, particularly those with elderly relatives who are really struggling with the social isolation of a lockdown or you may be in a high risk group yourself but please do feel free to call or drop me a line telling me how you are feeling, if you think it would help. I can’t promise to offer magical solutions (if only) but I can promise to listen.

Thinking of you all and your families at this very troubling time.

With warmest regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner

Lockdown

I think the announcement from the Prime Minister last evening was widely expected and according to a survey this morning, 94% of those asked felt this was a proportionate response to what we are facing, I agree. The evidence from Italy is that a state of lockdown has reduced the rate of infection and the subsequent deaths. It’s early days to claim a 2 or 3 day reduction points to a clear trend but at least it provides some hope and it does follow on from similar experiences in China and South Korea.

Markets have responded well this morning but it’s doubtful we are out of the woods yet, particularly in the UK. I would expect the rate of infections and deaths to increase over the course of the next 2 weeks, as all those that are likely to present with symptoms over that time period, will already have been infected. Let’s then hope that we will start to see similar results from the social distancing and isolation policies. I have a friend who lives in Spain and she says that after a week of ‘lockdown’, infections and deaths are still rising but they are hoping to follow Italy with some improving numbers soon.

Whilst writing I thought I would take this opportunity to share the following chart with you, which looks at global Bull and Bear markets since 1980. The chart has been produced by the US firm Vanguard.

What this chart shows us is that downturns are a feature of markets: they are not an aberration, they are not out-of-the-ordinary, they happen quite frequently and although it’s always something different that causes them, they are to be expected. Exposure to volatility and frequent falls in value, some of them severe, are the price we pay for the long-term growth of our wealth over and above inflation, and in excess of bank interest.

The chart also shows us is that every time there has been a sharp drop in the price of shares – a bear market – it has been followed by a prolonged period of rising share prices – a bull market – that far outweighs the earlier fall. Longer-term charts going back as far as 1900 show exactly the same thing.

Of course, there is no guarantee that this time will be the same, but think about this: when the worst is over, whether that be three weeks, three months, or three years, people will need to buy food and clothes, and they will want to go on holiday and change their cars. I suspect, as with every upheaval like this, the way we do some things will change – hopefully for the better – but the basic human instinct to improve one’s lot will not disappear.

“The investor who says, this time is different, has uttered among the four most costly words in the annals of investing.” †

And finally, a cartoon from US financial planner and artist Carl Richards, of the Behavior Gap

Your financial plan is a long-term strategy, looking decades into the future, I have no intention of letting that be derailed by what’s happening over the course of a few weeks or months.

But do please do let us know if you have any queries or concerns. That extends to letting us know if you are feeling unwell and don’t have anyone else to talk to. And if you have family or friends that are worried about their finances and don’t know where to turn, please put them in touch – we’ll help if we can, even if it’s just a listening ear.

And above all, stay safe! Your health and wellbeing are more important than anything else we could be talking about.

† John Templeton ¥ There’s plenty more excellent drawings on Carl’s website, if you’re interested.

Please note that past performance is not a guide to the future, the value of an investment and the income from it could go down as well as up. You may not get back what you invest.

As always, if you have any questions concerning this e-mail or any other finance related matter, please do feel to contact me at any time.

With kind regards,

Yours sincerely

Graham Ponting CFP Chartered MCSI

Managing Partner