Efficient Wealth Update December 2018
The markets continue to be volatile, partly as a result of good data coming out of the US, partly as a result of bad data (yes, I know that sounds crazy) and partly as a result of currencies movements and concern around Brexit. Generally speaking, the markets have been heavily influenced by the four P’s:
Politics: Brexit continued to dominate the news in the UK whilst overseas the outcome of the US mid-terms was more or less as expected in that the Democrats picked up the House of Representatives and Republicans increased their majority in the Senate. A divided House means a lower likelihood of further fiscal expansion and thus likely slowing US growth in 2019.
Protectionism: The US administration’s more hostile approach to world trade weighed on sentiment for much of November. A somewhat tepid cease-fire at the meeting of President Trump of the US and President Xi of China at the G20 supported a (temporary) uptick in global equities at the end of the month.
Policy: More dovish notes from the US Federal Reserve (Fed) fuelled a fall in US rate expectations and caused a temporary uptick in equities.
Petroleum: Oil prices reversed course after climbing for much of the year and fell heavily over the course of November as US production continued to balloon, Saudi Arabia maintained high volume, various countries secured exemptions from purchasing Iranian supplies and demand expectations softened over concerns over global growth.
If you are a client of ours, you are in a properly diversified portfolio, that whilst it will fall at times, over the long term is likely to continue to rise. Afterall, that is what it has always done! As a client of ours, we’ll soon be sending you a new video we’ve done on this, so watch out for that.
In the meantime, it is worth emphasising the ‘secret to long term gains’; which is ‘withstanding short term falls.’ Markets move up and down, but as the world develops more and more products and solutions, it gets better and better and therefore, markets continue to rise.
There will always be crashes, and this could be the start of one, or the end of a more minor dip, but the most important thing is to stick with the plan!
Beware – Scammers are Improving!
We have recently heard about a very high-quality scam that is circulating, where fraudsters, impersonating JP Morgan, are introducing themselves as JP Morgan Chase & Co. The literature sent to individuals asks for investment into a Fixed Term Bond in return for guaranteed income per year of 6–10%!
We have seen the literature and the payment agreement and can safely say that it is a very accomplished scam and one that will likely deceive many people into parting with thousands of pounds of their hard-earned savings. JP Morgan have been contacted by another firm to ours and they have confirmed that they are aware of this particular scam, but that it is not linked to them in any way.
Please remain vigilant and remember that if something seems too good to be true then it probably is! A guaranteed annual return of 6–10% in the current economic climate is crossing into the realms of the ridiculous.
If you see anything suspicious, please share it with us so we can communicate it more widely to try to prevent innocent people falling foul of these dreadful scams.
Probate Fees Are Landing
You may remember reports in early 2017 about a substantial rise in probate fees. This caused an uproar that saw the government backtrack on their decision until after the general election. Well, guess what … those reports are back!
We knew that an increase in probate fees would raise its ugly head again sometime, but with everything else going on at the moment (Brexit to name just one and the worldwide economy another), we thought the government might give us a break for a while – but apparently not.
All we know at present is that this is being revisited. Details are being held until a final decision has been reached, with plans for full implementation early next year. What we do know is that fees would never be more than 0.5% of the estate value. However, even at 0.5%, fees on a £250,000 estate would be £1,250, which is nearly six times more than the current level of £215 for estates over £5,000.
With receipts from Inheritance Tax reaching an all-time high in 2017/2018, the government’s justification for raising probate fees so sharply must be questioned, especially when a large estate does not always mean more work!
There is no way to avoid paying these fees. However, there are things that can be done to reduce your estate for Inheritance Tax purposes and therefore reduce the size of the estate for the calculation of probate fees. Strategies that involve the implementation of Trust arrangements and gifting from the estate would all be things to consider.
As most of you know, as you have Trust arrangements in place with us already, we are specialists in estate planning. It also helps that we are infuriated with the government’s ability to extract money from individuals’ estates after death, the majority of whom have paid high levels of tax during their lifetime.
We will likely have more to say on this as the details become clear, but if you are concerned by this then please get in touch so we can advise you accordingly.
Don’t Panic … Your Trusts Still Work!
We spotted an article in one of the mainstream newspapers earlier in November to suggest that Trusts could be stripped of their tax advantages and will not be able to be used in the way intended.
We wanted to let you know that this was a report of a consultation, and NOT a report that anything has actually changed. These types of consultations happen all the time, Trusts being only one point of focus in this announcement, and we are not concerned about the discussion points at this time.
The history of Trusts dates back centuries and the government are not planning on doing away with the concept entirely, which is good news as Trusts clearly have their place in modern society.
We will keep you updated on developments in this particular review as we know about them, but for the moment it is business as usual.
Cohabitation Myth Busted
When you, your children, other family members or friends take that step to move in together, rarely does anybody think about what might happen if the relationship should fail.
When a relationship fails it can be very stressful, especially as it is likely that you are financially and emotionally connected to one another through property or other assets. But as things don’t always end as amicably as we imagine they will, there are some important things to think about and be prepared for.
The myth of the ‘common law’ relationship is just that … a myth. Cohabitees have no rights over property if they don’t own any part of it, regardless of how long they have been together – whether 6 months or 50 years, the rules are the same. They would have more grounds to claim if they contributed to the upkeep or improvement of the property, e.g. paying towards the mortgage, deposit or towards refurbishment; however, a claim will not definitely be upheld, it would need to be argued and proved, likely at a high cost through the court system if necessary.
Whilst some may think this is not a nice thing to think about, the reality is that relationships do break down, and it is sensible to educate yourself on your rights and have a practical conversation with your partner before you enter into any cohabitation situation. The website link below is a great tool that may make that tricky conversation a little easier, with handy tips on what to consider and explanations of your options.
Please pass this on to family and friends who may benefit from it.
58% of British Adults Have No Will!
Wills are the cornerstone of any estate planning and are something we suggest everybody has in place, even if they think they don’t need them.
The age group most likely to have no Will is those aged 18–24 years (89%), but 78% of 35–44-year olds and 63% of 45–54 year olds also admit to having no Will. The most common reason given by individuals for not having a Will is that they simply have not yet got around to it.
Many of those with no Wills may not be aware that their spouse will not necessarily be the sole beneficiary of their estate; the beneficiaries of an estate vary depending on the value of the estate being passed. The estate may need to be shared with either children or parents, subject to the family that survives the first death, in most cases a situation that is better avoided as it can cause unnecessary complications to do with assets and property.
We strongly recommend that all British adults put a Will in place – and not just a “do it yourself” one either! Make sure it is done by a well-established professional who will do things right … like us!
Notes on Brexit
After a year and a half of complex and occasionally fraught negotiations, the Brexit deal is finally on the table, and has made it past the EU27 leaders in a brief 90-minute session. However, the British and EU parliaments must both vote to ratify the deal before it can go into force. Given the furore raised by various MPs here at home we still cannot anticipate if the deal will be agreed by parliament and, if it is not, the likelihood of a No-Deal Brexit rises substantially.
Having reviewed the longer summary document which accompanied the full 585 page Withdrawal Agreement, it seems that the negotiating team have no acquaintance with the adage “You can please some of the people all of the time” and, unfortunately, in attempting to please “all of the people, all of the time” have fallen foul of “pleasing none of the people, none of the time”. So, anyone with any particular corner to fight has come away feeling thwarted and, understandably, resentful. Large groups of MPs are lobbying for a renegotiation, but this deal is as much as the EU are prepared give. Their motivation is to maintain the integrity of the block as a whole, which is more important to them than easier trade with a separate UK (yes, even to those German car manufacturers). With Mrs May still saying that a further referendum is off the table, we are relying on a disparate group of conflictingly motivated individuals to reach a mutually acceptable agreement to vote in the best interests of the UK as a whole. Voting is scheduled for 11th December here in the UK and February in the EU, so we are still in a wait-and-see position, I’m afraid.
The average two-year fix barely changed this week (07/12/18), but the direction of travel is still very much down, according to data from Moneyfacts.
At 2.50%, the average rate reads the same as last week’s number, but cuts on products at the higher end of the risk curve (those with a higher loan-to-value) are putting pressure on the average, revealed when expressed by four decimal places, which shows a fall of 0.0033%. Lenders are adjusting risk appetites to improve their ability to attract first time buyers.
This is in contrast to late summer up to November, when the trend was the opposite, as rates continued to tick up as lenders began to pass on the costs of the latest Bank of England base rate rise.
Here at Efficient Portfolio we feel this trend of increasing competition at higher loan-to-values will continue into the New Year, as lenders continue to try and gain new lending opportunities especially with those just getting on the ‘ladder’.
With such competitive deals available, now may be the perfect time to review your current mortgage to ensure you are on the best rate possible. Our mortgage team here at Efficient Portfolio would be more than happy to talk you through your options and ensure that your finances are best placed as we move into 2019.
Charlie’s Mini Blog
At this time of the year, it is fantastic to look back and see what you have achieved over the last 12 months, and to look forward and determining what you want to achieve next year. As you know, I am a big advocate for writing down your goals; you achieve more by doing do, and you are happier with what you achieved by doing so.
At the start of this year, I targeted taking 15 minutes off my time in my second attempt at a half ironman triathlon. I also set goals for our family life, and for Efficient Portfolio and my own business life. Looking back, we have had a great year, achieving most of what we set out to do, so now is the time to commit to and plan how to do even more next year.
Sticking with a running theme, I have signed up to the Brighton Marathon, and also a full Ironman, so effectively 3 marathons in a day! A huge ordeal, but I have a plan.
So, what are you going to achieve next year? Take a look at the successes you’ve had this year, what haven’t managed to tick off yet, and how can you make sure you do in 2019? It has the potential to be an amazing year, so make sure you maximise every opportunity and fill it some exciting challenges, fulfil your ambitions and make sure you enjoy it.
Book of the Month
This month’s book recommendation is ‘Don’t Stop Me Now: 26.2 Tales of a Runner’s Obsession’
by Vassos Alexander, yes, the guy of Chris Evan’s Radio 2 breakfast show. Vasses went from being someone overweight and unfit, to completing numerous marathons and even an Ironman. What I loved about this book was the entertaining way it compelled me to run more.
Vassos, from his time on Five Live, takes snippets from many of the world’s best athletes, including but not exclusively runners, so it is packed full of tips for all levels of runners. His stories are both funny and addictive, and his running with his children inspirational. If you like running, or want to like running, then this is a great book to read whilst tucking into your mince pies, in order to set up for an energetic January!