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Covid19

Your 2020 Summer Budget Summary

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The Chancellor’s Summer Statement was presented to the House of Commons today, revealing a package of measures designed to support the economy as the country exits lockdown.

Among the measures announced by Sunak was a £30 billion VAT cut for the hospitality sector, zero stamp duty for property purchases up to £500,000, and a £1,000 bonus for employers bringing staff out of furlough.

In his statement to MPs, Sunak warned that “hardship lies ahead”, while also promising that nobody will be left “without hope” as the economy recovers from Covid-19.

Here are the 7 key things you need to know from Rishi’s Summer Statement:

Photo of woman in cafe, by Micheile Henderson on Unsplash

Hospitality VAT cut

Value Added Tax (VAT) on food, accommodation and attractions will be cut from 20% to 5% from next Wednesday.

The VAT cut will last for six months, at a total cost to the Treasury of an estimated £30 billion.

Covered by the VAT cut are food and non-alcoholic drinks in restaurants, pubs and cafes.  Hot takeaway food will also see its rate of VAT cut from 20% to 5% from 13th July through until 12th January 2021.

Accommodation in hotels and B&Bs and admission to theme parks and cinemas will also qualify for the lower rate of VAT until the New Year.

Welcoming the VAT cut was Jeremy Coker, Association of Taxation Technicians (ATT) President.

Stamp duty cut

Residential property buyers will pay no stamp duty in England and Northern Ireland, with the stamp duty threshold rising from £125,000 to £500,000 from today until 31st March 2021.

As a result of the threshold increase, almost nine in ten property transactions are expected to be free of stamp duty, costing the Treasury an estimated £3.8 billion.

Photo of housing by Ivy Barn on Unsplash

Job retention bonus

Employers will bring staff off furlough and then keep them employed will receive a one-off bonus of £1,000 per staff member.  To qualify for the bonus payment, employees will need to remain employed until at least the end of January 2021.

All employees in the UK who have been on furlough under the terms of the Coronavirus Jobs Retention Scheme will qualify for the new job retention bonus, as long as they earn more than £520 a month.

The job retention bonus will cost the Treasury an estimated £9.4 billion, assuming all furloughed employees keep their jobs until the end of January.

Photo of cafe interior, by Photo by Kris Atomic on Unsplash

Eat out to help out

A new scheme designed to encourage people to eat out in restaurants, cafes and pubs goes live in August.

For meals out in qualifying experiences on Mondays, Tuesdays and Wednesdays in August, diners can claim a 50% discount, up to a maximum of £10 per head.

The discount can only be applied to food and non-alcoholic drinks at participating venues.  To qualify for the scheme, restaurant owners will need to register and then claim the value of awarded discounts via an online form.

Kickstart scheme

Younger workers will benefit from a £2 billion fund, covering the cost of work placements for six months.

16 to 24-year-olds who are in receipt of Universal Credit can take part in the kickstart scheme, with the grant covering the cost of the national minimum wage for 25 hours a week, as well as national insurance and pension contributions.

For trainees aged 16-24 in England, the Chancellor promised a £1,000 grant per trainee, with the aim of tripling trainee numbers.

And for apprentices, employers in England can claim a £2,000 grant for each apprentice under 25 hired, for six months starting on the 1st of August.

Chancellor Sunak also promised to double the number of work coaches at Jobcentre Plus across the country, providing extra support to young jobseekers.

Green homes grant

A new green homes grant will give households access to a grant of up to £5,000 to make properties in England more energy efficient.

The grant scheme will match homeowner or landlord spending on energy efficiency improvements, at a rate of £2 for £1 for most homes.

For low-income households, a green home grant of up to £10,000 per household will be fully funded by the government.

Two bicycles near a house, photo by Chris Ross Harris on Unsplash

Big capital projects

In an effort to support economic growth, the Chancellor pledged £1 billion in grants for public sector bodies to spend on energy efficiency improvements.

There was also a £50 million payment towards a social decarbonisation fund, which is designed to improve the energy efficiency of socially rented housing.

At the end of June, the Prime Minister announced a £5.6 billion package of infrastructure investment. The Chancellor provided further details on how this money will be spent on hospitals, schools, transport and housing.

Wells Gibson

With all of these changes occurring in England, and some applying to Scotland, only time will tell if the Scottish Government has similar plans to Rishi Sunak.

At times like this, it is important to plan your financial future to accommodate for many potential scenarios, especially if you’re a business owners or practice owner professional.

If you would like to speak with a wealth planner, you can contact us via email, scheduling your Exploration Call or by our online contact form on our website.

We provide lifetime wealth planning tailored to you and your personal situation and circumstance and would love to hear from you.

Making Sense of Your Pensions and Investments

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Are you investing sensibly?

What constitutes sensible investing is different for everyone and depends substantially on your current financial situation, present circumstances, future goals and risk tolerance.   Having said that, there are universally applicable points to bear in mind.

The majority of people keep their savings in the same, low-interest rate bank account for years on end without looking for better returns elsewhere.  There’s a good reason for this – traditional savings accounts offer safety and security because they are very low risk.  Unfortunately, they also offer very low chances of earning any money.  In fact, the majority of savings accounts perform well below inflation, so in the long-term it’s likely your money will actually be worth less a decade after investment than it was when initially banked.

When considering where to invest your money, think about your goals and your needs.  Are you saving for something long-term – for example your pension – or something more short-term, such as a deposit for your child’s first home?  The length of time you’re willing to invest your money will affect how much risk is appropriate.  Short-term goals are often best kept low risk, i.e. held in traditional savings accounts.  Long-term goals on the other hand can tolerate higher risk levels, because most losses will be recouped over time and will generally be offset by gains.

However, many people are deterred from exploring alternative investment options because they fear they will lose their hard-earned money.  It’s a very real concern, as poor investment decisions can be very expensive.  There is a solution though.  To mitigate risk, it’s important to split your savings across different investment platforms.  Why?  Because different investment options have correspondingly different risk levels.  For example, investing in emerging markets is riskier than investing in UK and American markets, and investing in smaller or start-up companies is riskier than investing in more established, bigger firms.  The most sensible way to invest is to diversify your portfolio – by spreading your money across equities, commodities, bonds and other asset classes, you minimise risk and increase your chances of maintaining and building wealth in the long term.

Although the amount of risk you are willing to take is a matter of personal preference, a wealth planner such as Wells Gibson can help you understand all of the available options, so that your resulting portfolio reflects and aligns with your financial attitude.  Sometimes the potential returns on high risk products can be alluring, but unless you fully understand the dangers involved and are investing an amount you can afford to lose, then they are best avoided.   In particular, these kinds of investments shouldn’t be made without professional advice.  

Whilst diversifying your investments is the most sensible approach to long-term savings, it’s imperative that you don’t just place your money in these different pots then simply hope for the best.  Whilst the majority of investments manage themselves, it’s important to regularly reassess their risk levels – at least annually – and re-allocate your funds accordingly.   However, a watched pot doesn’t boil.  Checking your investments too frequently can lead to knee-jerk reactions – moving your money every time prices rise or fall in an unexpected way.   Remember that markets are always fluctuating, and the majority of long-term investments will cope with these fluctuations.

Even with this knowledge, it can be difficult to decide where to invest or what financial products to invest in.  Working with a wealth planner such as Wells Gibson can give you the confidence and reassurance you need to take the plunge.

Do you need help investing? You can contact us via email at integrity@wellsgibson.uk or by our online contact form on our website, which can be found here. If you would prefer to have a talk in person over video call, you can do so by scheduling an Exploration Call with us here.

Commercial Property in a Post-Covid World

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What are the prospects for commercial property in the future?

This is one of the most commonly asked questions by many, as a result of our current affairs.

Our New ‘Normal’

We have all by now – in our new normal world – gotten used to meeting our dearest friends, family, confidants and work colleagues via Zoom or Skype. Whether it be working from home, group meetups with friends, family catchups or shopping online.

High streets and shopping malls were struggling even before the events of 2020; with Debenhams and several middle-market food chains struggling. This has led some investors to beg the question – what does the future hold for commercial property?

Will everyone work from home? Will companies reduce their office space needs, providing workers with a hot desk each morning, if they are in? Will retail companies go into administration to put pressure on landlords to reduce rents? Will more people shop online?

The answer to all of the questions above, is probably ‘yes’.

Edinburgh
Photo of buildings in Edinburgh

What does this mean for Commercial Property?

Does that mean that we should all abandon a well-diversified, liquid exposure to global commercial property accessed via real estate investment trusts (REITS), which are listed property companies, focused almost exclusively on generating rental income? We think not.

First, let us look at the flipside of the changes that are occurring.  To be sure, some sectors may struggle.  But for every Debenhams, there will be a company moving into, or even starting up, online, which will require logistics centres and warehousing.

In our digital age, there is increasing demand for secure and up-to-date data centres. For example, improved and more numerous healthcare facilities.  You can see from the chart below [Figure 1] that the global commercial property REITs, real estate investment trusts, cover many things.

Figure 1: Commercial property REITs represent a basket of multiple property types

Source: FTSE EPRA Nareit Developed Index Factsheet www.research.ftserussell.com

As we can see above, commercial property REITs cover a range of property types. These property types can include industrial and office spaces, holding and development, specialty, residential, retail, hotels and lodging facilities. All of which, will still be required in our post-Covid future.

In a globally diversified REIT index fund, there are over 350 individual REITs (listed property companies) each of which is comparable to a property fund in its own right.  It is estimated that such a fund contains around 90,000 properties [2] spread across property types, global markets, and strategies – this is hugely diversified.

Second, let us spend a moment thinking about markets.

Photo of shop in Edinburgh

Concerns About Markets Over Time

These worries about the retail sector, for example, have been around for some time and you will not be the only person thinking about these issues.  In fact, thousands – or even millions – of people will already have done so and acted on their view of the future of property, by buying and selling these REITs in the market.

The aggregate view will be reflected in today’s REIT prices: all the doom, gloom and uncertainty is priced into the process of REITs already; all the likelihood that the way we work changes is priced in already; and all the good news about data centres and warehousing is priced in already.

Future Prospects of Commercial Property

So, the future prospects for commercial property will depend on what happens relative to this expectation.  It may be better or worse, depending on information we do not yet know.  The release of that information is random.  What we do now is that commercial property will continue to be needed and that companies will have to pay rent.  We would not abandon owning a diversified equity portfolio because some sectors are struggling (airlines and energy) or concentrate our portfolio in sectors that are booming (technology).  It is already in the price.  Companies and sectors wax and wane.

Third, let us think about why we hold it in portfolios in the first place.  Property tends to have a different return experience to equities (even though property companies are listed on stock markets).  At specific times, and across time, this can provide diversification to a portfolio.  In addition, over time property has provided protection from inflation; after all, a property is a property and many rental agreements are linked to some measure of inflation.  With the rapid increase in the money supply, on account of all the government support packages around the world, higher inflation – not something most feel the need to worry about currently – is one future scenario.  Cover the bases – but all things in moderation – is a sensible approach.  A small allocation to global commercial property still makes sense for long-term investors, as part of their diversified growth assets.

What this means for Wells Gibson

At Wells Gibson, we build a deeply diversified portfolio for our clients and we let capital markets do the heavy return lifting. We look beyond the headlines of daily market news and commentary and maintain a long-term perspective. Holding securities across many market segments can help manage overall risk, the above being no different.

We create an investment plan to fit your needs and risk tolerance, diversify globally and stay disciplined through the inevitable market dips, turns, twists and swings.

As always, if you have any questions related to the above, suggestions for future topics to cover or anything else, please do not hesitate to get in touch with us. You can do this via our online contact form, email or our various social channels.

References

[1] Figure 1 Source: FTSE EPRA Nareit Developed Index Factsheet www.research.ftserussell.com

[2] Source: Prologis is the largest REIT at 5% of the index and owns ~4,500 properties.  Scaling this up implies around 90,000 properties across the index, as a rough proxy.

https://www.ftserussell.com/

https://www.albionstrategic.com/

All photos are from Unsplash.

Header photo by Étienne Beauregard-Riverin.

Modern Apartment Building by Grant Lemons

Edinburgh photos by RΛN SHOT FIRST and Madeleine Kohler.

Disclaimer and Risk Warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed.

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Mitigating an Unknown Investment Future

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One of the hardest concepts to grasp in investing is that a ‘good’ company is not always a better investment opportunity than a ‘bad’ company.

If we believe that markets work pretty well, considering few investment professionals beat the market over time, and markets incorporate all public information into prices pretty quickly and efficiently, all of the ‘good’ and ‘bad’ news should already be reflected in these prices.

A ‘good’ company will have to do better than the aggregate expectation set by the market for its share price to rise and vice versa.  If a ‘bad’ company is in fact a less healthy company, it may have a higher expected long-term return, as risk and return are related.

It is perhaps evident that if the market incorporates the aggregate forward-looking views of all investors, it becomes very difficult to choose which companies, sectors, and geographic markets are likely to do best, going forward.

In an uncertain world, where equity prices could move rapidly, and with magnitude, on the release of new information, which is itself a random process, then it makes good sense to ensure that an investment portfolio remains well diversified across companies, sectors and geographies.

Many charts illustrate how deeply diversified a globally equity portfolio can be however if you do not know which companies are going to perform well, own them all.  However, in the US, the concentration risk of the S&P500, is quite different and is increasingly concentrated in a few names.

Given that all the future promise of a company is already reflected in its share price today, it is quite a risk betting a large part of your assets on just a few names, concentrated, for example, in the technology sector.  The top 8 technology shares in the US now have a larger market capitalisation than every other non-US market except for Japan!

Dominance of companies, sectors and markets ebb and flow over time.  What will be the next Amazon?  What regulatory pressures could these dominant companies face?  Is Donald Trump’s recent rage against Twitter the start?  No-one knows.

By remaining diversified, you will own the next wave of market leaders as they emerge and dilute the impact of ebbing companies.  Whilst it is always tempting to look back with the benefit of hindsight and wish we had owned more (take your pick), US tech shares, other growth shares, gold etc., what matters is what is in front of us, not what is behind us.

The safest port in a sea of uncertainty is diversification

As always please get in contact if you have any questions.

Why Owning a Broadly Diversified Portfolio Makes Perfect Sense

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At times like this when there is great uncertainty, wouldn’t it be great if we had the means to look into the future? Perhaps not some might argue. Unfortunately, we don’t know the future – no one does.

When it comes to investing, it can be tempting to run ‘what if’ scenarios in our heads, such as ‘perhaps I should move into technology and pharmaceutical companies – as surely these will do well’ or to pick out specific companies that appear likely to thrive in the future.

However, two challenges exist.  The first is that you won’t be the first person to have thought this and the combined views are already reflected in market prices. The second is that in making such focused bets you have a high chance of being wrong and missing out on the companies that actually end up driving future returns. Remember, 30 years ago Amazon and Google did not exist.

To get a feel for what these focused risks look like, academics are able to explore a vast amount of equity market data in the US, known as the Centre for Research in Security Prices (CRSP) database.

One such study[1] reveals some surprising and useful findings between 1926 and 2015.  Whilst investment wisdom and empirical evidence support the case that equities, in aggregate, outperform cash over longer periods of time, a closer look at individual equity returns tells a very different story. Here are some of the insights that the paper provides:

The median time that an equity/share is listed on the CRSP database is only seven years, during the period 1926 to 2015. That’s not long.

Just over 40% of all equities/shares have a holding period return that exceeds the return of cash (in this case one-month US Treasury bills) over the period that the equity/share was in the database. More than 50% deliver returns that are negative. The median lifetime return on any single equity/share was -3.7% p.a. That’s not good.

26,000 equities/shares have appeared in the CRSP database since 1926, yet only 36 survived the entire 90-year period. That’s not many.

US $32 trillion of wealth was created between 1926 and 2015, which has been generated entirely by the top 1,000 companies, representing less than 4% of the total number of companies listed over time. The top thirty companies (0.1% of all companies) accounted for around 30% of the total stock market’s wealth creation. That’s pretty concentrated.

This is why, at times like this, and in fact across all time periods, we believe it makes enormous sense to remain highly diversified, so as not to miss out on the next Exxon (the firm that has added most value to the US market ever), Apple or Amazon.

Now, let’s look at how the top ten US firms by revenue changed between 2000 and 2010 and again between, 2010 and 2020.  The results are so revealing.  Just look at the new companies making it into the top 10 in 2010 and then in 2020.  Look at the names which disappeared from the top 10 in 2010 and again in 2020.

Top 10 US companies by revenue over time (2000, 2010, 2020)

Source: Fortune 500

Correctly picking which few companies are going to be driving market returns over the next decade or two will not be easy, or likely. Even if you could, remember the majority of us are investing for more than 20 years.

At Wells Gibson, we believe it makes perfect sense to own the top companies by owning a broadly diversified portfolio which invests in thousands of companies.  Missing out on these companies, perhaps that don’t even yet exist, could make all the difference between a good investment outcome and a very poor one.

Please keep safe and don’t hesitate to get in contact if you have any questions.

[1] Bessembinder, H., (2017) Do Stocks Outperform Treasury Bills? WP Carey School of Business, Arizona State University.
Photo by Colin Horn on Unsplash