Whilst all levels of risk have seen drops, you can see even the 100/100 risk profile has fallen significantly less than the market.

Some Scary Advice, Just in Case....

Given there are a lot of people worried about their health, it is worth thinking about the actions that you should take right NOW, to get your financial house in order, just in case you were taken ill:

1. Ensure you have both types of Lasting Power of Attorney in place. Make sure that they are both certified and registered, and that you have discussed your wishes in detail with your attorneys in the event of your incapacity.
2. Ensure that your home insurance is in joint names if two people live in the house.
3. Give a record of all your passwords to a trusted member of the family under code, with another member of the family holding the access code.
4. Give a spare set of keys for your car, house and, if you have one, your safe to someone you trust.
5. Ensure that your LPAs include an investment clause.
6. Make a list of all your important contacts and give it to someone in the family.
7. Write a letter to your children and grandchildren telling them about the three most important events of your life and the lessons they taught you. Give it to a trusted friend to pass to the family if you become incapacitated.

The virus has changed everyone’s lives to a degree, some more than others. It’s important to look through the present to the future, and remember – this, too, will pass.

New CGT Rules for Property Investors

For those with additional properties as part of their investment portfolio, the changes that are due to come into effect from the new tax year will affect the time allowed to pay your Capital Gains Tax bill, the amount of tax relief you can claim if you previously lived in the property and how letting relief will work.

Tighter payment deadline

Because Capital Gains Tax on property is currently paid through your self-assessment tax return, it normally doesn’t need to be paid until the following tax year – so CGT incurred on a property sale in the 2018/2019 tax year doesn’t need to be paid until 31 January 2020.

However, the new rules that come into effect from April 2020 state that all CGT needs to be paid within 30 days of completion of the sale. Failure to do so will incur penalties.

PRR changes

Private Residence Relief (PRR) means homeowners selling their primary residence don’t have to pay CGT on profits. At present, if you own more than one home you are exempt from paying tax on the final 18 months that you owned the additional property, regardless of whether or not it was rented out. From April 2020, this period is expected to be reduced to nine months. So, if you have not lived in a property that was once your main residence for more than nine months, you will probably need to pay some CGT on profits you make when you sell it.

Letting relief changes

For those who qualify for PRR, it might also be possible to claim letting relief. This relief can reduce the Capital Gains Tax owed on a property by up to £40,000 of tax-free gains (£80,000 for a couple).

Letting relief can currently be claimed if you used to live in the property you are selling and have also let out part or all of it for residential accommodation. You can claim the lowest of the following: the amount equal to the PRR you will receive; £40,000; or the chargeable gain you make from the period the property was let.

When the new rules come into force from April 2020, you will only be able to claim this relief if you live in the property when it is sold, i.e. if you share occupancy with your tenant.

Under current rules – and with no expectation of this changing – there are certain costs that can be deducted from CGT. These include:

• Stamp duty paid on purchase of property
• Estate agent fees
• Solicitor fees
• Improvement costs (such as extensions)
• Qualifying buying and selling costs (such as surveyor fees)

All of these changes again make owning buy to let properties even less tax efficient; in fact probably the least tax efficient investment of them all. There is such a strong tax headwind you need you make significantly more from the property than you do other investments, just to pocket the same.

EPA vs LPA

A Lasting Power of Attorney (LPA) is currently one of the most important documents you could ever create as it is the only way to ensure your health and assets can be managed how you would want them to be, should you lose capacity during your lifetime.  LPAs have only been in existence since 1^st October 2007 when they replaced the previous version, Enduring Powers of Attorney (EPA).

So, what happens if you have an EPA? If your EPA was signed and witnessed before October 2007 it will still be valid and can still be used. It may, however, be in your best interests to replace it with an LPA. When deciding if this could benefit you, there are several differences between EPAs and LPAs that you should consider.

Firstly, an EPA only covers your property and financial affairs, whereas two separate LPAs can be created – one for your property and finances, and another for your health and welfare. This makes them more flexible in how they can be used and more comprehensive in the areas they cover.

When your EPA was created, you could choose to have either one attorney who would make all decisions or multiple attorneys who would all have to act together. The problems that this created were rectified by LPAs. An LPA allows you to have replacement attorneys whereas under an EPA, if your attorney became unable to act on your behalf, the EPA would be voided. An LPA also now allows the flexibility to choose to have decisions made jointly and severally, for example in the circumstance that not all your attorneys can be present in a particular situation.

It is also important that your attorney(s) register an EPA as soon as you, the donor, lose mental capacity. With an LPA, however, you can decide if you want it to be registered immediately or later when capacity is shown to be lost.

An LPA also puts extra safeguards in place to protect your interests and requires a certificate provider to confirm that you, as the donor, aren’t being pressured to implement the LPA or to make certain decisions.

If you would like to know more about how an LPA could benefit you, please contact us so we can discuss your circumstances.

How to Make the Most of Working From Home

In these turbulent times it is important to take care of our mental health. Staying productive and keeping to a routine can really help with this. If, however, you have recently found yourself in the position of having to work from home, it can be hard to keep yourself motivated day after day. The same can also be said when people enter retirement, going from a full-on work schedule to a more relaxed daily schedule.

To get the most from your time working at home, an important starting point is to treat your day as a ‘normal’ working day – make yourself get washed and dressed! Not only will you feel more refreshed for getting out of your pyjamas, but it will also help your brain accept that the working day has begun. Starting by making a to-do list can also help to focus your day.

Try and stick to your established routine – it helps to keep to your original working hours. This will also help to establish boundaries as you don’t want to find yourself checking your emails at all hours of the day and night. If it is possible to make a separate space from which to work where you won’t be disturbed, this will also help. When your working day ends, pack all your things away to allow yourself some separation.

As long as you aren’t self-isolating, it can help to get outside at least once a day. This could be during your lunch break to help refocus you for the afternoon or outside your working hours. Not only will this provide you with some fresh air (and maybe even some sun) but it will also help you exercise, which is so important for your mental health.

If you can, during your day try to spend 30 minutes actually talking to someone. This could be over the phone or by a video call. Not only are these methods of communication more stimulating but they can also help to increase productivity.

Finally, take regular breaks. It is important to keep moving and to have time away from looking at screens.

As we all adapt to a different working life (or, actually, a different life in general) in the interim, make sure you keep in touch with others, reach out and ask for help – or, if you are able to, offer it. Be kind, be responsible and most importantly, keep calm and carry on!

FCA Warning on Coronavirus Scams

The Financial Conduct Authority has warned of "sophisticated and opportunistic" scammers looking to capitalise on the confusion surrounding the coronavirus outbreak.

In an article published on their website on 27^th March, the FCA have identified a number of tactics being used by scammers in this current climate of uncertainty to target people who are more vulnerable or susceptible to being scammed.

The watchdog have urged consumers to be on high-alert for clone firms, those not authorised by the regulator, and scammers claiming to be from claims management companies.

You can read the full article on the FCA website here.

Charlie’s Mini Blog

Perhaps unsurprisingly, over the course of the last couple of weeks I have consumed more than ever. No, not wine, pizza or TV box sets, but content. I have finished 8 books, watched a number of documentaries that I’ve been meaning to tackle and dialled into more webinars than ever before, all whilst spending more time with my family and my business than usual.

These times are sent to challenge us, but it is how we respond to them that define who we become. We can sit back and let life happen to us, or we can grab it by the scruff of the neck and take from it what we expect. During this time isolation, we have a great opportunity to actually reconnect to the most important things in our lives. We can speak and see (by video call) the people we have been meaning to catch up with but never had time. We can spend time with the people closest to us. We can learn something new, and we can improve our health and fitness habits. All whilst sticking closely to the government guidance to stay away from other people to protect the NHS and to save lives.

If you emerge from this lockdown having not improved your life somehow and perhaps even the lives of others too, you will have missed a great opportunity. Take it as an opportunity to grow and to contribute, after all, they are 2 of our human needs that ultimately lead to our happiness.

The oil price fall was a serious shock to the market, as is evident by its dramatic spill-over into equity and bond markets. It is, of course, also linked to the ongoing effects of the coronavirus, both in the sense that COVID-19 caused the initial oil price weakness that flared into Saudi Arabia/Russia disagreement but also in the sense that falls have been magnified by general coronavirus uncertainty in markets.
The oil market has bounced back a bit, from a low of under $32 per barrel to almost $37, but clearly the energy industry is under pressure, as are most cyclical sectors exposed to global growth that is likely to be challenged this year.

Market falls, and the falls in portfolio values they cause, are always unpleasant to experience. Diversification can help mitigate the magnitude of these falls (and is doing so currently) but clearly cannot eliminate the falls completely. After all, volatility is the ‘cost’ of achieving above inflation returns over the longer-term. Composure is definitely tested in extreme markets. Some clients deal with challenges to composure by not focusing closely on the day-to-day fluctuations of their portfolio, but for those that do get stressed by daily/weekly/monthly falls, it can be helpful to take a step backwards to look at the bigger picture, and specifically the performance of equities over multi-year time-horizons more in-line with the typical horizon of a client’s financial plan.

As an example of this, the below looks at the price returns of the S&P 500 over a 120-year period using a log-scale. Over this longer time period, even the falls that occur during a recession (the grey bars), however horrific they feel at the time, don’t look as serious.

_{Source: J.P. Morgan Asset Management}

And please keep in mind that the index above doesn’t include the dividends paid out by the S&P 500 over time. If you did that, the long-term returns would look even better, more than compensation enough for sticking with your investments during difficult times. We are not yet in a recession. Sliding into one isn’t what we expect, but even if we do the PortfolioMetrix portfolios are very well diversified and made up of what we think of as very high-quality funds with solid underlying investments. We believe in them for the long-term.

In fact, rather than seeing times like this as scary, instead consider them a chance to buy into a market at a much lower cost; i.e. getting more value for your money, with more scope for future growth. Thankfully as a result of the work we do educating clients about risk, we have overwhelmingly had more calls from clients wanting to invest more than we have had with worry at their heart.

The secret to getting long term growth is withstanding short term falls!

The Budget 2020
Chancellor Rishi Sunak has delivered his first Budget in the House of Commons, announcing the government's tax and spending plans for the year ahead. There wasn’t a huge amount that relates to personal finance, but here are the key bullet points that are worth being aware of:

The big ones;

• Pensions tax breaks for higher earners are to be made more generous from next month. The income threshold at which tax relief on pension contributions starts to shrink will rise from £110,000 to £200,000. However, at the same time, the minimum floor which the annual allowance could apply to for higher earners will fall from £10,000 to £4,000.
• Entrepreneurs' Relief will be retained, but lifetime allowance will be reduced from £10m to £1m
• The amount families can save into a Junior Isa or child trust fund will more than double in 2020-21, from £4,368 to £9,000 in April.

The rest;

• National Insurance Contributions tax threshold to rise from £8,632 to £9,500 - saving employees just over £100 a year
• 5% VAT on women's sanitary products, known as the tampon tax, to be scrapped
• Business rates in England will be abolished for firms in the retail, leisure and hospitality sectors with a rateable value below £51,000
• Business rate discounts for pubs to rise from £1,000 to £5,000 this year
• VAT on digital publications, including newspapers, books and academic journals to be scrapped from December
• Stamp duty surcharge for foreign buyers of UK properties to be levied at 2% from April 2021
• Statutory sick pay will be made available from the first day of self-isolation, even if no symptoms are present.

Use it or lose it ...
With the end of the tax year a mere month away here is a reminder of the allowances you should not miss out on.

• Personal Allowance - if you aren't earning enough to fulfil your Personal Allowance (currently £12,500) then you could release some money from your investments to use up this allowance and potentially not pay tax on that money.
• CGT Allowance - an opportunity to take investment profits of up to £12,000 (2019/2020) "tax-free" each year - worth £2,400 a year for a higher rate taxpayer.
• ISA Allowance - if you don't use it, you lose it. A total of £20,000 across all of your ISA accounts that could be earning money in a tax-efficient environment.
• Pension Annual Allowance - whilst this can be carried forward for a number of years, you must have the relevant earnings for the contribution in the tax year in which you contribute, so if you have the allowance and the earnings this year it might be best to use it up.
• Gifting - there are a number of gifting allowances that may be beneficial for Inheritance Tax purposes. Have a look on the HMRC website for more info: https://www.gov.uk/inheritance-tax/gifts
• You should seek advice to see if using any of these allowances is suitable in your situation so, if in doubt, get in touch.

Chancellor resigns weeks before budget
We touched briefly on the Budget last month in regard to the tax break for high earners in the NHS. However, what the Budget will look like has been thrown into question following the resignation of Sajid Javid just a few weeks ago.

Javid resigned because of a conflict over a request for him to fire his existing team of advisers in order to remain in his role. Unable to accept these conditions, he was replaced by Rishi Sunak who only seven months ago held the role of Junior Housing Minister.

Despite this turmoil, the Budget is still set to go ahead on 11th March and is expected to bring much reform. The large Conservative majority means that the Chancellor has practically free rein to bring about whatever change he sees fit.

Changes to tax, pensions, housing and social care are all likely to feature, as well as increased spending in the north of England as the Conservatives tip their hats to the voters who helped the party come to power. We will need to wait to see exactly what changes will be implemented and whether the recent Chancellor-swapping has any effect.

Trust registration service delays
You may have heard that HMRC plans to implement the amended trust registration service this year. The effect of this will be that almost all express trusts will have to be registered, rather than only those that have tax liabilities. This is a large administration task and the registration process involves collecting and providing details of the people affected by all trusts, e.g. settlors, trustees and beneficiaries, as well as the trust assets.

The initial consultations indicated that this change would come into place at the start of 2020. Over 200 responses were received to the consultation and these responses need to be properly considered. Therefore, the proposed deadline of March 2020 for implementing the changes to trust registration has been put on hold.

The technical consultation on this matter closed on 21st February 2020 and we are currently waiting for the outcome to be announced. This will hopefully provide more clarity on when the trust administration service changes will come into force and we will be in touch to let you know how this might affect you.

Premium Bonds on balance
NS&I Premium Bonds are the UK's biggest and most popular savings product, with around 22 million people saving more than £85 billion. In a nutshell, Premium Bonds are a savings account where a monthly prize draw determines any interest (prizes!) that is paid. The prizes, which range from £25 to £1 million, are paid tax free and you can access your money whenever you want to.

However, since the launch of the Personal Savings Allowance (PSA) in 2016 this tax-free incentive for savings is no longer seen as such a bonus. However, for those who would pay tax, Premium Bonds still have something to offer as prizes do not count towards the PSA. With Premium Bonds there is also no risk to capital as NS&I is backed by the Treasury and this safety net is often seen as a real advantage.

Some not-so-good news for Premium Bond holders is that from May 2020 the annual prize rate is dropping to 1.3% (from 1.4%), meaning the chance of a £1 bond winning any prize will be lowered to 1 in 26,000, from 1 in 24,500. This is only an 'average' benchmark of the potential returns however, as there is obviously no guarantee you will win anything at all - and of course it's still the case that the more bonds you have the more likely you are to win.

Overall, Premium Bonds can still have a place for "on deposit" savings if they complement your other savings and investments. They are likely to be most advantageous if you are particularly lucky, or if you are a higher or additional rate taxpayer who has used up their Personal Savings Allowance, your ISA allocation and your Capital Gains Tax allowance. They are a good home, for example for relatively short-term savings, like money you’ve put aside for a future tax bill. Of course, you may have better than average luck, but don't bank too hard on winning the jackpot ...

New £20 for 2020!
Following the success of the new polymer £5 and £10 notes, the Bank of England fittingly launched the new £20 note on 20th February. Equipped with new security considerations, the plastic cash is harder to replicate, making it difficult to counterfeit. A hologram image with the words "Twenty" and "Pounds" along with see-through windows with metallic pictures in blue and gold foil make forging more difficult for fraudsters. There is currently no set date for the withdrawal of the old paper £20 notes so you can continue to spend your paper notes as usual and six months' notice will be given once the final withdrawal date is agreed. For collectors out there, keep an eye out for any low or sequential serial numbers such as 123456 or 333333 on the new notes.

Charlie’s Mini Blog
Last week I was at the Science of Retirement conference in London. What is amazing is that whilst much of our industry is stuck in a very product focused approach, selling often what is best for them rather than the client, there is a core of financial planners that are trying to do things better.

Whilst not all of the speakers were for the faint hearted, due to the technicality of their approach, what is amazing is the work that is being done into the science of retirement. Essentially, make sure that people don’t have too much life at the end of their money, and run out when they are no longer able to return to work.

The research that is being done and the technology that is being developed in this area is fantastic. Running models to assess the probability of every client in retirement’s success, and using that to make adjustments to their withdrawal rate to ensure they don’t, is incredibly powerful planning.

The cornerstone of this type of planning is of course Lifetime Cashflow Forecasting. In retirement, it is vital you have the foresight to ensure that whilst you don’t run out, you also do live out your very own dream retirement. The balance of the 2 is most definitely a science, and without careful planning, you risk failing. Ultimately, if you don’t know where you are going, any road will lead you there!

Get Contributing
Instead of focusing on your own worries, focus on how you can help the people around you. Whether in your business or in your personal life, providing value to others will not only help you identify ways that you can get through these times in better shape, but they will help you feel better about it too. A good example of this is restaurants and café’s offering to deliver food to people’s homes and home support services helping the elderly with their shopping.

Get Active
Exercise creates endorphins that result in you feeling significantly happier. Whether you go for a walk, run or ride, or you do some yoga or a workout at home, getting active for at least 30 minutes each day will lift your spirits and keep you in good health. There are loads of free classes online that you can follow too, so maybe now’s the chance to try something new? Nelson Mandela credited exercise as the key factor that helped him to remain positive throughout his 27 years of incarceration. Even if you are house bound, you have infinitely more space and resource than he had in his tiny cell in Robben Island.

Get Healthy
The healthier you are, the better you feel and the more resistant you are to illness, so you need to stack the odds in your favour. Eat plenty fruits and vegetables, the more colours the better. Consider taking some vitamin supplements, Vitamin B complex, Omega 3 and maybe wheatgrass, which is believed to boost your immune system. The healthier you are, the more positive and the more protected you will be!

Get Focused
With anything like COVID-19, it is easy to get depressed by the cancellation of things you have been looking forward to: trips you have been planning and people you were going to see; not to mention the plans you had for your business. Spend at least 10 minutes each day doing something to improve your wellbeing. Whether that be meditating using the Headspace App, writing a list of things you are grateful for, or discussing the best things that have happened in the last day/week/year. Creating positive a mindset can have a powerful impact on the rest of your health.

Get Defensive
Bad news is bad news! In times of crisis, it is easy to keep referring back to the news for the next wave of misery. This will continue to bring you down time and again. As a result, be a better gatekeeper to your mind, and pick your bad news strategy. Maybe commit to only look at the news once or twice a day, and at a set time each day. Not first thing when you wake up, and certainly no where near the time you want to go to sleep. That way you can keep more positivity in your mind whilst still getting the news you need to survive.

Get Learning
If we are not growing, we are dying, so we need to always keep learning. In times of crisis, this is even more important. Get a good book that will help you grow as a person and read/listen to it every day. Instead of diving into meaningless rubbish on TV, take the time to consume stuff that will actually benefit you, and the people around you. You’ll feel a whole lot better for it.

Get Connected
Even under lockdown, stay in communication with the people you care most about. One of the biggest regrets of people on their deathbed is that they didn’t keep in touch enough with the people they cared most about. Don’t make the same mistake. In this day and age, that can be via video conferencing with someone on the other side of the world (or street) or in person; stay in touch and connect with the special people in your life. In a world of social media, video calls and advanced telecommunications, now’s the time to embrace technology and stay in touch.

Get Grateful
In addition to writing down each day what you are grateful for, another way to feel grateful is to watch educational documentaries and films. Recently I have watched ‘1917’ and ‘Unbroken’, both incredible war stories. It puts a lot of our problems into perspective. There is so much great content on iPlayer, Amazon & Netflix, we don’t need to waste our time-consuming lots of stuff that creates no value in our lives. A little of course is fine; sometimes it is good to switch off. But the more we can find our minds with the right stuff, the better shape we are in to deal with the world around us.

At Efficient Portfolio, we want to help our clients in everyway we can. If you need our help, even it is far beyond the realms of financial planning, please just ask. We’ll do our very best to help. Stay happy, healthy and safe.

Efficient Working
At Efficient Portfolio we have taken the decision to minimise the risk of COVID-19 affecting the service we provide to our clients by working from home. Whilst some external meetings will still happen in the office, and for the time being reception will remain manned, the rest of the team are already working remotely. We are in the fortunate position that we are a very technology focused business, and that means working from outside of the office is perfectly feasible.

As such, we don’t expect our service levels to be affected. We already use video conferencing for meetings, so this will be extended to more client meetings going forward. If you need any advice as to how you could do this better in your business, please don’t hesitate to ask.

The Markets
Market-wise, we’re living in truly unusual times. It may not be fair to call them unprecedented - markets have experienced and recovered from plenty of previous extreme sell-offs - but each sell-off is distinctive in its own way and this one is unique in its sheer speed.

_{Source: John Authers, Bloomberg Points of Return 17 March 2020}

The above chart doesn’t cover off the falls in the S&P 500 yesterday which were extreme, with the S&P 500 down another 12% (its biggest one day fall since 1987).

The comparison of recent falls with 1987 is apt. Although the falls of 2000/2003 and 2007/2008 were bigger overall, this has been an incredibly rapid fall, unmatched by any in in terms of speed since 1987:

_{Data Source: Financial Express and PortfolioMetrix, as of end of Thursday 12 March 2020}

The current sell-off is, of course, accentuated in the above graph given it comes off a higher base (and the 1987 fall is likewise de-emphasised because it comes off a lower base). In order to see the scale of percentage changes accurately, you need to look at a chart plotted on a log-scale:

_{Data Source: Financial Express and PortfolioMetrix, as of end of Thursday 12 March 2020}

The reason for the sell-off is extreme uncertainty. Markets are frantically trying to price the effects of countries going into lockdown to slow the spread of COVID-19. A good measure of uncertainty is the VIX Index (also known as the ‘Fear Index’) which measures the implied forward 30-day volatility of options on the S&P 500 and which reached its highest ever level at yesterday’s close.

_{Data Source: PortfolioMetrix, as of end of Monday 16 March 2020}

Unfortunately, given the magnitude of the falls in the market, we are in the situation where some clients in riskier portfolios are starting to receive their second 10% drop notification for the year. PortfolioMetrix, Efficient Portfolio and our other DIMs all continue to monitor and manage portfolios carefully. They are not making any knee-jerk changes as portfolios remain fundamentally sound, but they are rebalancing clients back to target risk weights where appropriate i.e. making very modest purchases of quality equity funds at these lower levels.

And although we remain very careful about the short-term, we are not losing focus on the long-term. We do expect markets to recover eventually and we are positioned for this too. Jeremy Grantham, one of the founders of asset manager GMO, put it well in March 2009 when he stated: “the market does not turn when it sees light at the end of the tunnel. It turns when all looks black, but just a subtle shade less black than the day before.”

We would also stress that the FTSE 100 is a pretty flawed index with lots of concentration risk in oil and other commodities as well as banks (amongst other problems) - the PortfolioMetrix portfolios are far better diversified and constructed, and we would expect them to deliver far superior risk-adjusted returns than the FTSE 100 over the long-term.

History can be a useful guide, but it’s also helpful to focus directly on the concerns of today. Clearly, there remains a lot of uncertainty around the spread of coronavirus and how it will affect day-to-day life and the wider economy over the next few months. We do not know the answer in the short-term and markets could fall more from here. But if we cast our minds even one year forward it is difficult to see COVID-19 being a major problem for humankind. Although more serious than flu, it is perfectly possible for human society to function if we got to the stage of having ‘cold, flu and coronavirus season’. It seems scary now, but we will adapt and markets, as they are wont to do, will also recover.

Whilst we appreciate this is a scary time, it is vital that we put our tin hats on and sit it out. The only way you can lose money in a market fall is by selling investments at the low. Either that, or if all of the largest companies in the world have gone bust. Whilst there will inevitably be some business casualties, most of which would have been struggling prior to this crisis, it is unlikely that the governments will let sound companies go to the wall given this is a worldwide issue.

Sit tight, and if you have spare cash, even consider investing more. The best companies in the world just went on sale!

Pound Cost Ravaging
For those of you in retirement or drawing an income from your investments, there is something you can do to minimise the impact the market fall has on you. I appreciate this isn’t possible for everyone, but if you have savings in cash, which most of you will, or the ability to spend less, research shows that the best thing you can do is to pause or reduce the drawings from your investment in periods of market uncertainty. The same research also showed that trying to reduce your investment risk at times like this had little or even negative effects on your long-term wealth.

As you draw an income at the point at where the market falls sharply, you lose a larger percentage of the total portfolio than you previously would have. When the market rises again, because there is less money invested to benefit, your portfolio does not fully recover. This is known as ‘Pound Cost Ravaging’!

As a result, if you want to protect your retirement funds, the best thing you can do is to minimise or stop your investment drawings, thus allowing your portfolio to recover. As we saw in 1987, this could be as quickly as by the end of the year!

What should you do when markets crash?

_{Source: Financial Times, 31 January 2020 (measuring the Europe’s Stoxx 600 index)}

This flight to safety has also been evident in bond markets, which have rallied strongly over January as fears have risen, and yields have fallen. This also briefly led to a US yield curve inversion on Thursday 30 Jan (10-year maturity minus 3 months maturity) - yield curve inversions over an extended period have historically been a reasonable indicator of recession, so they are closely monitored.

How is this likely to affect markets going forward?
We don’t know for certain. In previous outbreaks (such as SARS), economic damage wasn’t really caused by the primary effect of the disease (people getting sick & dying) but by the secondary effects of the fear of the disease (people hunkering down and not travelling, shopping, interacting with other people, all of which affects company profits and economic growth). Given China is such a strong engine for global growth and the virus is centred there, the secondary effects are particularly worrying. SARS managed to knock 2% off China’s economic growth in Q2 2003 so it’s likely that the virus will have a measurable effect on global growth in 2020, although any dip is likely to be temporary, as long as the disease is contained.

As for markets, in previous outbreaks like SARS, the market sold-off sharply but then bounced back even more strongly once the outbreak started to peter out. Selling out of the market is thus risky as it risks locking in losses but not being present for the rebound.

_{Source: John Authers, Points of Return, Bloomberg}

Every outbreak over the last 100 years has been contained and so has had little effect on the market, so the virus petering out remains the overwhelmingly the most likely prospect here. But it’s impossible to completely rule out the incredibly serious tail risk of a global pandemic. This should definitely concern us, but careful action such as that being taken by the WHO and global governments is the correct response, rather than panic.

_{Source: Charles Schwab}

How is this affecting PortfolioMetrix portfolios?
Coronavirus is a classic ‘black swan’ – an unexpected but high impact event. But the PortfolioMetrix portfolios are diversified precisely because although they don’t know about specific black swans in advance (or when they’ll occur) they have always believed that it’s best to prepare for them in advance by building robust portfolios, rather than trying to react after the fact. Indeed, the rebalance in December, which amongst other objectives aimed to further diversify portfolios by adding in listed infrastructure and trimming emerging markets, has proved helpful month to date. Recently added M&G listed infrastructure was up 4.15% over January.

It is likely, however, that portfolios will be volatile for the next few weeks as we learn more about how serious this strain of coronavirus actually is. They are not planning any knee-jerk reactions (which risk missing out on a rebound) but they are monitoring the situation closely.

Changes at Wealthtime
There are a few changes afoot at Wealthtime, the investment platform company that quite a few of our clients use. Founded in 2006, Wealthtime is going to be acquired by AnaCap Financial Partners, in a move we believe will enhance the experience for both you and us. In fact, one of the first things they’ll be looking at are upgrades to their system to make the processes even easier to use, something we feel should benefit you.

Probably Wealthtime’s only weakness over the years was their size; so being acquired by a well-established European financial services specialist will, I am sure, help them. It's early days for now, and the acquisition is still subject to FCA approval, but we look forward to this continuing to enhance what is already a market leading offering. If you have any questions or would like to know more information, please just ask us.

Is your overdraft about to make you more overdrawn?

Whilst you may try to avoid being overdrawn, it can be comforting to know that you have access to an overdraft should you need it. However, it might be time to rethink your borrowing as the fees connected to overdrafts are changing and could give you an unpleasant surprise if you're not prepared.

The changes arise from the implementation of new rules from the Financial Conduct Authority that allow banks to increase the interest rate on overdrafts to a huge 40%! The new fees are the banks' response to no longer being able to fine you for going over your overdraft limit.

According to money-saving-expert, Martin Lewis, Nationwide has already changed their 50p per day charge to 39.9% interest and, from 14^th March 2020, HSBC, M&S and First Direct will make similar changes.

Therefore, it may save you money to shop around for a bank that still offers a 0% overdraft, or even to consider using some of your savings to pay off or reduce what is currently in your overdraft. Act now and avoid getting caught out.

Inheritance - will your loved ones get what you want them to?
You have probably heard it before and you will no doubt hear it again: it is important to make a Will. Not only does it give you peace of mind but it also keeps things simple for your loved ones while ensuring that your estate is divided amongst the people you want.

As the law currently stands, the estate of anyone who dies without a Will is governed by statutory provisions. Unless you leave a surviving spouse or civil partner, your estate will normally be distributed to one class of beneficiaries, e.g. any surviving children. This includes any illegitimate children known to the administrators of your estate. For your surviving spouse or civil partner to receive anything, they must survive you by 28 days. If they don't, they will be excluded from your estate.

BREAKING NEWS: The amount that is assigned to a surviving spouse when the deceased also leaves behind children has increased from £250,000 to £270,000 as of 6^th February 2020.

A simple way to explain these rules is shown below: