Brexit negotiations continue, Geopolitical tensions around the world continue. Donald Trump continues! But what does this mean for your pensions and investments? Oliver McDonald from IEP Financial explains
Not surprisingly, knowledge around pensions is on the rise, due to Workplace pensions being introduced over the past few years, and the Pensions Freedom legislation in 2015 which arguably brought the biggest change to the pensions industry. Therefore, I felt a few words on what we can expect would help…
A well invested pension or investment will be diversified across a range of assets including stocks and shares, property, bonds, commodities, alternative investments, and cash. These asset classes will also be spread across various different sectors and regions around the world.
The global economy has enjoyed a fairly benign period where we have seen markets and investments rise in value. They are however, always susceptible to sentiment and the fear of the future as we have just seen with the global sell-off where economic indicators pointed to higher inflation and the likelihood of interest rates rising more quickly.
What can we expect for the rest of 2018?
Well, for the UK, many economists are predicting ‘much of the same’. Much of the same uncertainty around Brexit negotiations and continued growth in the UK economy, albeit slow growth with the property sector remaining under pressure and inflation continues to hit 3% pa. The good news is there is upward pressure on wages now, so households may see wages increase. But don’t get too excited, The Bank of England may react to too much growth by making another interest rate hike later in 2018.
In terms of the global economy, the UK forecasts look disappointing with global growth increasing during 2017, and 2018 set to be much of the same continued good growth. Financial companies are expected to continue some growth in 2018 and as expected, tech companies are an exciting area.
Ones to watch are Emerging Markets and the US Equity market, which has been inspired by the tax cuts announced by President Trump last December. As a guide, the US S&P 500 romped to a gain of 7.4% in the first 18 sessions of the year, which was the best opening to any year in history for that index.
Japan is currently enjoying a moment in the sun, with the Japanese stock market rising strongly on the back of a stable political situation, economic growth and continued support from the Bank of Japan.
Despite a generally positive outlook, risks still exist. A return of inflation, interest rate rises and a slowdown in China are some possible risks of 2018.
Electric cars, Hyperloop, Artificial Intelligence, Blockchain. All very exciting, but all very new (and slightly scary if you ask me!)
Many economists are expecting continued growth in technology companies around the world. After all, it is the future. However, the growth is not expected to be as high as in 2017. Blockchain technology that underpins Cryptocurrencies is certainly an industry disruptor and the concept has a host of other uses so certainly a sector to keep an eye on, but I would suggest from afar.
“Ollie, I was thinking of cashing in my life savings and investing in Bitcoin, what’s your thoughts?”
Yes, that’s a real enquiry I received in 2017. Being an unregulated product, and extremely volatile, I couldn’t possibly advise on Cryptocurrencies.
But… As the rollercoaster ride of Bitcoin and other cryptocurrencies continues, many recreational investors have jumped on the bandwagon. Those jumping on towards the massive growth at the end of 2017, will have seen some 70% wiped off their investment. There is uncertainty with the cryptocurrency market with further regulatory pressures being introduced. However, it’s an industry that everyone is talking about with plenty of excitement around further developments. It is highly speculative, and for the majority of investors not appropriate.
Final Salary Pensions
Those lucky enough to hold one have historically been advised to retain these so called gold-plated pensions. However, with the new flexibility rules on pensions being introduced in 2015, we have seen an increase in clients opting to transfer out of these ‘gold-plated’ pensions. Due to the way these values are calculated we have also seen many clients offered very attractive transfer values.
Although there is expected to be further interest rate hikes (and therefore Gilt Yield increases), and therefore reducing transfer values, we believe transferring out of Defined-Benefit pensions will remain a hot topic and the correct route for some clients.
We’re currently over 9 years into one of the longest bull runs in history, causing investment returns to be above average in the past few years. Analysts believe the Bull has further to run, but inevitably, there will always be headwinds, and without crystal balls and hindsight, there will always be surprises along the investment journey. The current market correction being one of these.
Although the outlook remains generally positive, with most equity indexes at or around all-time highs there will be those that feel this is the right time in the cycle to slightly de-risk their investment portfolio. For others, with long term investment horizons, staying fully invested will be more attractive.
Often a popular view, which I would agree with is ‘‘time IN the market, not market timing’ is what matters. Although there is plenty of opportunity, there are some risks approaching and returns are unlikely to be as high as previously seen. Maybe it’s time to proceed with caution?
As always, with financial planning, investments should be tailored to your personal circumstances and receiving advice is key. Not having all your eggs in one basket and never being complacent remain crucial.
For an initial financial planning consultation with Oliver, please call the IEP Financial office on 01273 208813 or email