Keep Calm and Carry On
Not much has changed for many of us as we enter into the New Year. The themes consuming the headlines are the same, and until the vote in parliament decides the Brexit fate – we carry on!
Now is a good time to worry about what you can control, rather than the unknowns and hopefully we will emerge all the better for it! Whether it be Dry January or Couch to 5k, we wish you all good health and happiness in 2019.
Market UpdateBy Nick Chan, Investment Analyst
Review of 2018
Stock markets started 2018 full of optimism, boosted by tax cuts in the US which caused a surge in corporate earnings. All this was brought to a halt by the end of 2018 and stock markets around the globe fell sharply as trade tensions increased between the US and China. Emerging market equities were particularly affected by this and also faced rising borrowing costs as a result of higher US interest rates and a stronger US Dollar. Europe also struggled, getting initially hit with increased tariffs from the US and ongoing uncertainty over Brexit negotiations.
What next for 2019?
Predicting stock market returns over the short term is a futile task. Over the last 90 years, on any single day, US stock markets have ended the day up 54% of the time. Odds of making money over this short time frame are only slightly better than the odds of landing a head when flipping a coin. Investing over a longer time horizon tilts the odds in the favour of an investor. Investing for 1 year has produced a positive result 74% of the time, increasing to a positive result 86% of the time when investors held for 5 years and historically, investors have never lost money in US stock markets if they had a 20 year time horizon. Whilst there is no guarantee that history will repeat itself, the data shows that the longer your time horizon, the higher your probability is of seeing a gain in the stock market.
As investors, if our time horizons are long enough, then the short term volatility and negative headlines we are currently experiencing are largely irrelevant.
Along with a long term approach, we take an active approach to investing. This involves picking fund managers who do not simply invest passively into all the companies, good and bad, but picking fund managers who invest into businesses they believe are higher quality and who are able to produce consistent returns in all market conditions. An example of this is the Fundsmith Equity fund which we hold in our growth portfolios. It currently invests internationally into 28 companies. The average year these companies were founded is 1912. With an average over 100 years of experience, these companies have managed to navigate far worse issues than those we currently face and are best placed to continue to grow over the long term.
At Raymond James, Hitchin, we continue to be vigilant of the risks in the market but continue to be fully invested with a long term and active approach.
Keeping it in the family – Inheritance Tax (IHT) PlanningBy Faye Silver, Wealth Manager
As we get older our thoughts turn to what will happen to our wealth when we die. For many of our clients this is an important factor of their planning.
Many feel that paying 40% tax charge on an estate that they have worked so hard to build as deeply unfair.
In 2017/18 IHT receipts totalled £5.2bn, more than double the amount paid in 2009/10 when it netted £2.3bn. This is mainly due to rising house prices and a consequence of family’s failure to plan.
Fortunately, there are lots of exemptions that can help reduce the tax paid, but as it is very complex and the rules subject to change, many fail to take full advantage.
47% of UK adults have never discussed passing on their legacy, it is a subject that many find uncomfortable to discuss and delaying it can mean lost opportunities.
If you are thinking ahead and want to start planning, here are our top tips to help you get started.
Step 1. Make a Will
Before you make any start on estate planning it is essential that you have an up-to-date will.
Step 2. Lifetime gifts
You don’t have to wait until death to pass on wealth to loved ones. Details on what you can give can be found online through www.gov.uk. Special consideration will need to be given to larger gifts that may be subject to the 7 year rule.
Step 3. Make use of pensions
Pensions are one of the most tax-efficient ways to pass on your wealth. If you die before the age of 75 this can be paid as a lump sum or through drawdown with no tax to pay. Post age 75, it is paid at the beneficiaries’ marginal rate.
Step 4. Take control with trusts
Trusts can help reduce an IHT bill and give you control on how your assets are used by future generations.
Step 5. Talk about it – the sooner the better
Talk to your family, friends and wealth manager about your intentions and wishes. Many people find the idea of discussing inheritance uncomfortable and delaying it until the last minute can mean lost opportunities.
You can find further hints and tips on our website or we would be happy to discuss at your next meeting.
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