Like you, we are adapting to the ‘Stay at home’ guidance given by our Prime Minister, Boris Johnson, and are adapting to the confinement and challenges this brings with having to work from home whilst doing our very best to maintain business as usual. We would like to reassure you that all our advisers are contactable through e-mail and on their mobiles in order to support you with any questions you may have.
In our efforts to maintain business as usual, our advisers will be carrying out annual reviews that are due this time of year, either over the phone or via conference call, and we would encourage anyone due their review to take them up on this offer in order to ensure your financial planning needs continue to be met.
Questions we have been asked
In addition to questions being asked about the investment markets, we have been having many conversations about wider personal finance issues. The following are just a few areas which you may find to be of interest.
Moving House - If you have exchanged contracts and the property you are moving to is “vacant” you can continue with your move but you may have logistical difficulties with regards to home removals. A statement from the British Association of Removers advises their members to cancel or postpone any move that has not yet started so this needs to be considered where parties have exchanged contracts but have not booked their removals and also needs to be considered by those who have already booked removals if they are not already underway. If your solicitor has not already been in touch then we suggest contacting them straight away.
Private School Fees - For clients paying school fees it looks very possible that pupils will not be returning to school before end of the summer term. This begs the question will parents have to pay school fees for the Summer term which are normally due at the end of April? A recent quote in the FT stated that "parents are paying for a service and might be able to argue that the school is not providing that service. Even if the school provides online teaching, this is not the whole service, so parents might be entitled to a discount". This is likely to be dealt with on a school by school basis therefore you should hunt down the contract/agreement signed when the child(ren) entered the school and find out what provisions are in place. Some of the larger independents maybe in a better position to offer some form of discount or help with fees.
Private Nurseries - Clients will typically receive monthly bills for private nurseries. The April bills are therefore imminent. Again the picture seems to be varied. Some nurseries are charging full fees. Others are offering a discount.
University Costs - Students will receive their loans for living costs for the Summer term as scheduled. Tuition fees will be paid directly regardless of how any teaching will be provided. Unite, the UK's largest student accommodation provider said it would allow students to exit their tenancies early and they will have not to pay rent if they inform Unite that they have left or will leave by 5pm on April 10th. However, private landlords may expect rent to be continued to be paid and so if you are acting as a guarantor you may therefore need to continue to pay.
Rail Season Tickets - Train companies are saying that annual season tickets will be refunded pro-rata but to get any money back commuters need to have at least 12 weeks remaining on the ticket. This is because they effectively get 12 weeks free travel on a season ticket. For clients using London Transport, TFL have confirmed someone needs at least 6 weeks on an annual season ticket and three days on a seven day ticket (you can apply for a refund via the TFL website).
Investment markets
The movements in equity markets over the first 3 months of the year have been extreme and this is in part due to high valuations that the UK and global markets have reached over the last 10 years. However, despite the negative news that we have all been digesting daily there is more to any well-built, diversified portfolio than just equities/shares.
The graph above shows the performance of the UK equity market (the red MSCI UK line) since the turn of the year against three other components of a portfolio that are all held in varying degrees across our client’s portfolios. Whilst the UK markets are down 26.88% over the period (01/01/2020 – 01/04/2020), property investments have hardly moved whereas gilt investments have risen in value. Cash returns continue to remain static, helped by the Bank of England reducing interest rates to an all time low.
It is exactly for times like these that you need the defensive, capital preservation elements of a portfolio. Looking back across the last 5 years, the graph that follows shows the benefit of having a spread of assets as can be seen with the blue “balanced” portfolio line (represented by the average return from the Mixed Investment 40-85% shares sector) being almost 15% up on the red UK equity market line.
Just as with the market worries about China in the summer of 2015, a balanced portfolio does a better job of protecting against the downturn when compared to the UK equity market.
What next?
We finished our last note with a reminder to look to the future and remember your long term aims at times like these. The following is a quote from Brooks Macdonald one of the many investment firms we work with:
“It looks likely that the lockdown in some of Europe’s worst affected countries will last until the middle of May which suggests a timescale of the end of May for some restrictions being lifted in the UK. We are likely to enter a(n information) Dark Age shortly where we have little incoming information as companies defer issuing earnings and dire economic data is looked through given how poor expectations are. Markets are therefore more likely to be exposed to comments such as those from Donald Trump.
Should we see European nations continue to move towards removal of the lockdown, markets can start to extrapolate an end to restrictions more globally which is a key question for (corporate) earnings. If we do see further fiscal support from the US and Japan we expect markets to become more patient and volatility to continue to fall.”
In a nutshell, once the markets can project ahead to the end of the current global crisis then they will become more patient and daily swings we are currently seeing will start to lessen.
Should you have any questions on your portfolio or overall financial plan please contact us at any time and by whichever method suits you best.
We hope that you and your family stay safe and well throughout this.
