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Month: September 2022

Market Update Monday 26th September 2022

Rising rates and the Russia Ukraine conflict continue to take their toll on markets

Bond and equity markets both sold off this week as a number of global central banks raised rates in their continued efforts to combat inflation, with the US Federal Reserve raising rates by 0.75% for the third time in a row, taking the upper bound to 3.25%. The negative sentiment was compounded by Russian President, Vladmir Putin, escalating the Ukrainian war by seeking to annex invaded areas of Ukraine by holding referendums. This was backed up with plans to compulsory draft 300,000 Russian reserve soldiers and make further veiled threats of the use of tactical nuclear weapons.

As of 12pm on Friday, London time, US equities had fallen 3.0% over the week, with the market having given up 85% of its rally over the summer, taking the market to within just over two percent of its low for the year, down 21.2% year to date. Although sterling-based investors have been cushioned from this fall by a magnitude of 18% as sterling has weakened against the dollar. US technology stocks fell by 3.3% over the week, taking their loss to 29% year to date, just above their low point in June. European markets fell by 4.4%, rocked by an increasingly hawkish European Central Bank, and the escalation in the Ukraine war by Russia. UK equities dropped 3.4% as the Bank of England raised rates by 0.5% to 2.25%, whilst announcing that the UK was probably in a recession. Japanese stocks were a comparative bright spot, falling 1.2% as the Bank of Japan maintained its dovish stance, keeping rates on hold at -0.1%, whilst continuing to target a zero percent yield for ten-year Japanese government bonds. Australian stocks fell 2.4%, whilst the emerging markets lost 2.3%.

Government bonds continue to weaken in the face of rising rates

US government bonds sold off, with the 10-year Treasury now yielding 3.76%, a level not seen since 2010. However, it was UK government bonds that took the limelight this week for all the wrong reasons. The combination of a comparatively small rate hike by the Bank of England, and a string of tax cuts announced by the new chancellor of the exchequer, Kwasi Kwarteng, raised concerns about rising UK government borrowing in a rate rising environment. 10-year gilt yields, which move inversely to price, jumped by 0.66% over the week, taking the yield to 3.8%, whilst two-year gilt yields are now trading at 3.96%. German government bond yields rose by 0.28%, taking the yield on 10-year bunds to 2.04%. The Swiss National Bank raised rates by 0.75%, thereby taking interest rates to 0.5% and ending negative interest rates for the first time since 2015. The Bank of Japan now remains the only global central bank still pursuing negative interest rates.

Sterling falls to a 37-year low versus the US dollar

The dollar maintained its upward path, with the dollar index (the dollar versus a basked of internationally traded currencies) rising by 2.3%. Whilst Sterling fell to a thirty-seven year low versus the dollar, trading at just under $1.11, it also fell versus the Euro, trading at €1.13. The Euro also weakened versus the dollar, falling beneath parity to trade at $0.98. However, despite the Bank of Japan being the only major central bank not to be following a tightening path, the Yen strengthened this week, as the Japanese central bank intervened in currency markets to prop up their currency.

Commodities continue to fall on recession concerns

Gold sold off over the week, falling 1.8% to $1,654 an ounce following the latest US interest rate rise. Industrial commodities also sold off as recessionary fears grew in the face of rising rates. Copper fell 1.7%, currently trading at $7,739 a tonne, whilst crude oil sold off, with Brent crude falling by 4.1%, now priced at $87.6 a barrel. European natural gas also fell a further 4.8%, now trading at €178 megawatt hour, although that remains an increase of 172% since the start of the year, and over an eightfold increase since the start of 2020.

Issues under discussion

Trying to put the inflationary genie back into the bottle

To date, 2022 has been one of the worst years on record for fixed income as central banks have played catch up as they try to put the inflationary genie back into the bottle. Many would argue that they were caught napping in the second half of 2021, as loose monetary and fiscal policy from the covid pandemic led to unprecedented levels of demand, colliding with supply chains suffering from the aftereffects of the pandemic. Although there may be some truth in this, they could not have known that Russia was about to invade Ukraine, and the impact this was to have on energy prices.

US rates have moved up swiftly since, with the 10-year yield on US Treasuries now in positive territory having adjusted for future expectations of inflation. Whilst the risk is that central banks increase rates higher than what the market is currently pricing in, the opportunity is that economies start to slow as the higher costs of servicing debt has the desired effect. The cost of a new mortgage has now doubled in the US, this is increasingly likely to be a headwind for the housing market, a key harbinger for the US economy. Therefore, the yield on offer in fixed income markets looks increasingly compelling, both in government bonds, and within areas of the corporate credit market where investors are being sufficiently compensated for the likelihood of rising defaults.

Busting the myths about pensions

Reinvent your future to work for you

If you are approaching retirement age, it’s important to know your pension is going to finance your future plans and provide the lifestyle you want once you stop working. Pension legislation is extremely complex and it’s not realistic to expect everyone to understand it completely. But, since we all hope to retire one day, it is important to get to grips with some of the basics.

Many of us have made pension provision, but some of us don’t know very much about the details. To help you get a handle on some of the myths around pensions, we’ve got answers to some of the things you may have been wondering about. It’s particularly helpful to become aware of the things you may have thought were facts that are actually myths. Here are some examples.

Myth: The government pays your pension

Fact: The government pays most UK adults over the pension age a State Pension, which is currently:

Retired post-April 2016 – max (full rate) State Pension of £179.60 a week • Retired pre-April 2016 – max (full rate) basic State Pension of £137.60 a week (a top-up is available for some, called the Additional State Pension) Not everyone is eligible for the full amount, which requires you to have at least 35 qualifying years on your National Insurance record. If you have less than ten qualifying years on your record, you’ll receive nothing. Even if you receive the full amount, you’ll usually need to supplement it with your own pension savings.

Myth: Your employer pays your pension

Fact: Most people are automatically enrolled into a workplace pension. Your employer is usually required to pay a minimum of 3% of your salary into it and you must also pay a minimum of 5% of your salary.

If you keep your contributions at the minimum level, it might be difficult to save enough for retirement. As life expectancies grow longer, your retirement can be almost as long as your working life. It’s therefore important to put aside a portion of your earnings to create a pension pot that will enable you to receive the income and live the lifestyle you want during retirement.

Myth: You can’t save more than your lifetime allowance

Fact: There is a lifetime allowance on the benefits you can access from your pension, which is currently £1,073,100 (tax year 2021/22). That doesn’t mean that you can’t withdraw any more after that, but it does mean that you’ll pay a tax charge of up to 55%. However, there are ways of withdrawing the money with a tax charge of 25%.

Myth: Your pension provider’s default fund is suitable for everyone

Fact: Most pension default funds will start out with a high-risk strategy and steadily move your capital into lower risk investments, such as bonds and cash, as you get closer to retirement. This is to reduce volatility in the value of your investments so that you can have a higher degree of confidence in how much you’ll eventually end up with.

If you don’t plan to purchase an annuity, you don’t necessarily need to reduce volatility before retirement. You may be leaving some of your money invested for several more decades, in which case a higher risk strategy may be more appropriate.

Myth: Annuities are outdated

Fact: There was a time when almost everyone bought an annuity when they retired, and that time has passed because there are now alternative ways to access your pension savings.

But annuities still have a useful role for generating a retirement income and can be an appropriate product for some people. Unlike other pension withdrawal methods, such as drawdown, an annuity offers a fixed income for life, so there’s no risk of your money running out. fiat’s a crucial benefit for many pensioners.

Myth: You can’t pass on a pension

Fact: If you’ve used your pension savings to purchase an annuity, the income from this will usually cease when you die. But if you have pension savings that you haven’t used to buy an annuity (for example, if you’ve been taking an income through drawdown), what’s left can be passed on to a loved one.

If you die before the age of 75 there will usually be no tax to pay by the beneficiary. Otherwise, they will need to pay Income Tax according to their tax band.

Market Update Monday 19th September 2022

Global equity markets end down for the fourth week in five

A sharp pullback on Tuesday sent the major U.S. stock indices to their steepest weekly declines since June. The market fell for the fourth time in five weeks, with the NASDAQ and S&P 500 dropping 5.5% and 4.7%, respectively. Communication services and information technology shares were hit hardest as Alphabet and Meta Platforms hit new 52-week lows.

Core inflation not done yet

The main event of the week was Tuesday’s consumer price index report, which came in above expectations and softened investors hopes that the economy had moved beyond peak inflation. Headline prices rose 8.3% for the 12 months ended in August versus consensus expectations for an increase of around 8.1%. Of greater concern was that core inflation jumped to 6.3%, its highest level since March and above expectations for a rise of 6.1%. A 0.7% housing cost increase in August was partly to blame, but rising food and medical care prices also contributed heavily. Core producer prices, reported Wednesday, offered a somewhat more hopeful story, continuing a year-on-year decline that began in April, falling to 7.3% in August from 7.6% in July.

The week brought mixed messages on wage inflation, which has been a primary concern of policymakers. Weekly jobless claims, reported Thursday, showed a continuation of labour market strength, falling to 213,000, their lowest level since early summer. Media reports suggested a slightly different picture, highlighting that Goldman Sachs will soon cut jobs, joining a list of large companies, including Ford Motor and Microsoft, planning layoffs.

Recession fears hit the British pound

Shares in Europe pulled back amid signs of a deepening economic slowdown, with the European STOXX Europe 600 Index ended 2.89% lower. Japan’s stock markets fell over the week, with the Nikkei 225 Index dropping 2.29% and in China stock markets fell as currency weakness and downbeat property data overshadowed surprisingly strong factory output and retail sales indicators, the Shanghai Composite Index down 4.2%.

The British pound depreciated against the U.S. dollar, sinking to levels last hit in 1985. Fears of a looming recession contributed to this downward pressure, as did concerns that the Bank of England’s rate policy will continue at a slower pace than that of the US equivalent. Inflation in the UK came in at 9.9% in August. This reading marked a decline from the 10.1% registered in July. Falling fuel prices drove this slowdown. However, core inflation, which excludes food and energy costs, quickened to 6.3% from 6.2%.. The FTSE 100 finished the week -1.56%, aided somewhat by the benefit its many exporting constituents get from a weaker home currency.
The yield of the 10-year U.S. Treasury bond climbed for the seventh week in a row, reaching around 3.45% on Friday. The yield is up from 3.32% at the end of the previous week and from 2.64% at the end of July. The yield curve remained inverted, as the 2-year Treasury yield rose to about 3.87% on Friday—its highest level since 2007. British 10-year government bond yields also increased, to their highest levels in more than a decade, closing at 3.14%.

All eyes on rate announcements

Ahead of next week rate announcements from the US Federal Reserve and Bank of England, investors will be looking for any sign as to where to next for Central Banks. With a 75 basis point hike by the US Federal Reserve very much priced in to current market prices, any indication of a continued aggressive approach into the year-end could unsettle markets further. On the flipside of this, any signs of a slowdown or pause in the current pace of rate hikes, may be met with a sigh of relief and air of calm by markets.

Reboot, Rewire Or Retire?

More people are planning to stagger work or work flexibly

Giving up the 9-to-5 doesn’t necessarily mean stopping work. But retirement planning has taken on an entirely new dimension as a result of the COVID-19 pandemic outbreak with many big questions being asked. When you picture yourself in your golden years, are you sitting on a beach, hitting the golf course or still working behind a desk? For many people of retirement age, continuing to work is an option they are considering.

Increasingly, people are planning to stagger work or work flexibly. This can really appeal to some individuals who have caring responsibilities or health issues, or who are thinking about retiring in the next few years.

Sudden transition from working five days a week

Several decades ago, working and retirement were binary terms, with little overlap. People were either working (and under the age of 65) or had hit the age of 65 and were retired. That’s no longer true, however, as staggered retirement is becoming more popular and more common.

Few people benefit from the sudden transition from working five days a week to not working at all. Retirement can often be an unsettling period and it’s not surprising given that the most common path into retirement is to go ‘cold turkey’ and simply stop working.

More flexible retirement and working part-time

Research has highlighted the fact that fewer people are deciding against completely stopping working and are opting for a staggered and more flexible retirement and working part-time. Nearly one in three (32%) pensioners in their 60s and 16% of over-70s have left their pensions untouched.

And of those who haven’t accessed their pension pot, nearly half (48%) of those in their 60s, and 24% of over-70s, say it is because they are still working. With people living longer, and the added prospect of health care costs in later life, retirees increasingly understand the benefits of having a larger pension pot in later life.

Pensions are required to last as long as possible

Of those who haven’t accessed their pension pot, half (51%) say it is because they are still working while more than a quarter (25%) of people in their 60s say it is because they want their pensions to last as long as possible.

Of course, retirees who haven’t accessed their pension pot must have alternative sources of income. When asked about their income, nearly half said they take an income from cash savings (47%), others rely on their spouse or partner’s income (35%) or the State Pension (22%), while 12% rely on income from property investments.

Offering people different financial and health benefits

This trend for staggered retirements offers many financial and health benefits. It is often taken for granted but continued good health is one of the best financial assets people can have. The benefits of working – such as remaining physically active and continued social interaction – can make a big difference to people’s mental wellbeing and overall health in retirement. People are increasingly making alternative choices about retirement to ensure that they do not run out of money, but it’s also really important to make pension savings work past retirement age so as not to miss out on the ability to generate growth above inflation for when there is the requirement to start drawing a pension.

1.Research from LV survey of more than 1,000 adults aged over 50 with defined contributions

Market Update Monday 12th September 2022

Markets mustered a gain

Markets mustered a gain last week, snapping a three-week losing streak, as the focus remains on Fed rate hikes, inflation, and their implications for the economy ahead. Some moderating inflation fears may have also been at work, and a midweek decline in oil prices which briefly hit their lowest level since Russia’s invasion of Ukraine causing energy shares to underperform within the S&P 500 Index, although the sector still recorded a gain.

Markets snap three week losing streak

US markets posted a gain of 3.6% as investors sort a temporary bottom to the recent market declines. Shares in Europe rose after some countries announced plans to deal with the energy crisis and boost their economies. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.06% higher. Major indexes also posted gains with the UK’s FTSE 100 Index increasing 0.96%. Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 2.04%. China’s stock markets also rose as tame inflation data and expectations of further policy support prompted buying, with the Shanghai Composite Index advancing 2.4% for the week.
The British pound depreciated further against the U.S. dollar before retracing to roughly USD 1.16, a level near the low hit in 1985. This weakness appeared to stem, in part, from uncertainty about the economic agenda of new UK Prime Minister Liz Truss. The euro rose above parity with the U.S. dollar after the ECB hiked its key rates by a record amount.

ECB raises rates to highest level since 2011

The ECB increased its key interest rates by a record 0.75 percentage point in a bid to curb inflation. The deposit rate now stands at 0.75%, the highest levels since 2011. The ECB explained in its official statement the major step frontloads the transition from accommodative policy rates to levels suited to achieve a return to the ECB’s 2% inflation target. Even so, the central bank indicated that more rate increases are likely.

UK Government intervene in Energy Crisis

New UK Prime Minister, Liz Truss, announced that the government would intervene to help reduce soaring energy costs for British households and businesses. The Financial Times reported that internal government estimates showed the size of the package could be around GBP 150 billion—bigger than bailouts during the COVID-19 crisis and would be funded by government borrowing. In Germany, Chancellor Olaf Scholz said the government will spend EUR 65 billion to shield households and businesses, raising the monies from a tax on electricity companies and a planned corporate tax.

The yield on the benchmark 10-year U.S. Treasury note jumped to its highest level since mid-June at the start of the trading week on Tuesday, attributed to anticipation of a large European Central Bank interest rate increase on Thursday and ended the week at 3.31%.

After another period of market volatility, we know the equity market lows in June priced in a mild recession and pessimism around the economic and earnings outlook. Whilst there may be further weakness in the global economy from here, that doesn’t necessarily mean markets are destined to take another leg lower. However, for markets to stage a durable recovery we need to see consistently declining inflation, resilience in economic growth and corporate earnings, alongside the valuation re-pricing we have seen so far this year.

Think about the lifestyle you want

Financial security in retirement can never be taken for granted

Life changes when you retire – and so does how you spend your money. Whatever your plans, it’s important to keep on top of things and think about the lifestyle you want. It’s also worth noting the average life expectancy at age 65 years is 18.6 years for men and 21.0 years for women.

So, it’s vital if you are planning to retire soon that you make sure you have enough money to last throughout your retirement. Whether you’re aiming to retire early or have worked way longer than you imagined, retirement should be what you want it to be.

Exciting chapter in your life

This is a new and exciting chapter in your life. And for a lot of us, retirement will be the first time that we can do what we want, when we want. With no job to tie us down, retirement is meant to be a relaxing time. However, your newfound freedom and leisure time could quickly become stress-inducing if you spend too much time fretting about your finances.

When planning for retirement, the most important question for many is, ‘How much money will I need to save to ensure I retire successfully?’ To answer this question you need to know how you want to spend your time in order to know how much retirement will cost you.

Type of lifestyle you want to enjoy

The amount of money you’ll need to enjoy a comfortable retirement is subjective and very much related to the type of lifestyle you want to enjoy during your retirement, the age at which you want to retire and whether you’ll receive the full State Pension amount. An active retirement involving a lot of travel and hobbies will cost more than a quiet retirement spent largely at home. You also have to think about any big-ticket purchases or other plans you’ll need to make.

Estimated retirement expenses

Make a list of all your estimated retirement expenses and then try to approximate how much each will cost you. Remember, some of your expenses may decrease between now and retirement while others could increase. Your housing costs may go down if you pay off your mortgage, but your travel costs could go up if you take a lot of trips and holidays. So you can use your current spending as a baseline, but you’ll have to adjust each figure up or down accordingly.

5 key considerations

Everybody’s circumstances are different, but the key considerations for most people when they think about retiring will come down to factors such as:

  1. How much money do I think I will need in retirement? [ahr_space value=”20″]
  2. Am I planning to phase my retirement by working part-time? [ahr_space value=”20″]
  3. Do I have any debt to pay off? [ahr_space value=”20″]
  4. What is the outlook for my health and potential life expectancy? [ahr_space value=”20″]
  5. How much money have I saved in pensions and other investments?

Annual figure for inflation

Knowing how much you need to cover your retirement isn’t always the easiest number to calculate, but you can adjust your strategy depending on the size of your pot. Once you know approximately how much you’ll spend annually in retirement, you can estimate the total cost of your retirement by multiplying this figure by the number of years you expect your retirement to last, and adding an annual figure for inflation.

Unexpected expenses come up

At the point you’re in retirement, it’s important to keep to the budget you laid out as best as you can. If you have unexpected expenses come up, try to trim back some of your other expenditures to make up for them so you don’t run short. In recent years, the government has made great strides in getting people to save for retirement. With retirement often lasting two decades or more, it is vital to be prepared and build up a retirement income that provides the standard of living you require in the long term.

Market Update Monday 5th September 2022

Global equity markets end down for the third week in a row  

Global equity markets ended last week down for the third week in a row. In particular, markets were hit by news late on Friday that Russia’s Gazprom would be keeping the Russia-to-Europe Nord Stream 1 gas pipeline closed with no timeline for reopening. This followed a more constructive US August jobs report earlier on Friday prior to Gazprom’s announcement.

Fed Committed to raising rates until the job done

On Friday, Jerome Powell told investors at Jackson Hole that the Fed is committed to raising rates and fighting inflation until it “gets the job done.” This past week, financial markets took that message seriously. We saw equity markets fall and bond yields rise somewhat, even after a resilient jobs report on Friday. Friday’s August jobs report from the Department of Labour showed that the economy added 315,000 jobs last month, a number seen as solid though down from a revised 526,000 in July. The unemployment rate rose to 3.7% from 3.5% in July as the labour force participation rate increased. Nonetheless, markets are still forecasting a 75 basis-point (0.75%) rate hike at the September Fed meeting and a terminal fed funds rate of close to 4.0%, with expectations of Fed rate cuts removed from mid-2023 forecasts.

Yen hits lowest level against the dollar since 1998

US equities were down 3.3% over the week, whilst US technology stocks fell 4.2%.  European markets dropped 3.06% and UK stocks were down 2.85%. Japan’s stock markets fell over the week, with the Nikkei 225 Index down 3.46% while the broader TOPIX Index declined 2.50%. Alongside this, the Japanese currency breached the JPY 140 level against the U.S. dollar for the first time since 1998. China’s stock markets fell as coronavirus outbreaks in major cities triggered renewed lockdowns and dampened the economic outlook. The Shanghai Composite Index retreated 1.54% and the blue-chip CSI 300 Index, slipped 2.01%.

The evidence of continued tightness in the labour market helped push U.S. Treasury yields higher, with the two-year Treasury yield reaching levels not seen since late 2007, closing the week at 3.40% whilst the US 10 year reached 3.2%.

US mid-terms could offer hope for investors

Whilst markets may have trouble “fighting the Fed” in the near term, we could see calmer waters in the months ahead. There are two key drivers of a potential U-shaped recovery in markets as we head towards year-end. With the US mid-term elections taking place on November 8th, the period after mid-term elections tends to be positive for markets, regardless of which party wins. Alongside this, should inflation continue to moderate the Fed may pause on rate hikes after its December meeting, which would be a welcome sign of easing financial conditions for investors.

Early Retirement

A year lost for saving and a year added for spending

An increasing number of people have been forced into early retirement due to the economic impact of the coronavirus (COVID-19), with many worried about how they’ll make ends meet in the future. Because of the pandemic, we are currently in a challenging economic period. The global economy has taken over ten years to recover from the shock of the last financial crisis.

In a survey, the findings showed that 3% of people in the 55-64 age group have taken early retirement due to the coronavirus pandemic. And 4% of people in this age group have had to access some of their pension savings to cover living costs because their income has dropped due to redundancy or reduced pay. These percentages may seem small, but they represent hundreds of thousands of people.

Risks of early retirement

While early retirement may sound like a dream come true, for those without insufficient pension savings it can be a ticking time bomb. Every year of early retirement will have an impact on your pension, in that it represents both a year lost for saving and a year added for spending. Simply put, you’ll need to make less money last longer.

Unless you’ve budgeted carefully and are sure you have enough savings, you could run the risk of your pension running out in your later years. This is an expensive time for many people, due to the cost of financing care, and that can result in unexpected hardship.

Planning for early retirement

If you’re planning early retirement, you should consider the following steps:

  • Calculate all your savings in different pension pots to find out what your total is.
  • Track down any lost pensions from previous employers and add these to your total.
  • Check how much of the State Pension you can expect to receive, and from what age.
  • Create a budget for your retirement spending, making sure to include any additional future costs you’re aware of and a little extra for future costs you’re unaware of. Be honest about how much you’ll need.
  • Make sure that the total you have in pension savings, when combined with the State Pension you’ll receive, is sufficient to cover all your future costs.

Alternatives to early retirement

If your financial situation is forcing you to withdraw from your pension but you’re not ready yet to stop saving, there are ways to access your pension that do not affect your annual allowance and therefore allow you to continue contributing at the same rate in the future.

These include:

  • Taking up to 25% of your savings as a tax-free lump sum (from a defined contribution pension)
  • Accessing a defined benefit pension (if you have one)
  • Withdrawing a pension pot worth under £10,000 in its entirety under ‘small pots’ rules Buying certain types of annuity

Can you afford to retire early?

We know that you work hard for your money, so you should be able to enjoy it as much as possible. When planning for retirement, there are now more choices available than ever before. By understanding precisely what you’ll need to get to where you want to be, you can ensure you’re prepared for the future.

So when working out if you can afford to retire early, your starting point should be to think about whether your savings and investments will be enough to cover all your outgoings, as well as all your essential living costs and any regular debt repayments you may have to make.


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