Tag

Financial Planning

Jul 31
0

The Big Five

By | Investments, News & Views | No Comments

Investors love good stories and in recent years, many of these stories have centered around innovations that have fundamentally changed the way we live our lives.  Some examples might include the release of the original Apple iPhone in 2007, the delivery of Tesla’s first electric cars in 2012 and the launch of Amazon Prime’s same-day delivery service in 2015.

No doubt, many of you will have had conversations with friends and family around the successes, failures, and prospects of some of the world’s largest companies and the goods and services they offer.  In this article, we take a deeper look at the ‘Big Five’ tech companies – Amazon, Apple, Alphabet (Google), Facebook and Microsoft – through the lens of the long-term investor.

The ‘Big Five’, images from Unsplash [1]

In what has been a turbulent year thus far, some larger firms have come through the first, and hopefully last, wave of the ongoing pandemic relatively unscathed.  Those investors putting their nest eggs entirely in any combination of the ‘Big Five’ would appear to have done astonishingly well relative to something sensible like the MSCI All-Country World Index, which constitutes 3,000 of the world’s largest companies.  At time of writing, Amazon’s share price has faired best, increasing 75% since the beginning of the year.

These types of firms tend to struggle to stay out of the headlines for one reason or another.  Perhaps as a result, many of the investment funds found in ‘top buy’ lists have overweight positions in one or more of these companies.  Many of today’s most popular funds are making big bets on one or more of these companies, anticipating that the past will repeat itself moving forwards.

Sticking to the long-term view

The challenge for these managers, and others making similarly large bets, is that these are portfolios that will be needed to meet the needs of individuals over lifelong investment horizons, which for the vast majority of people means decades, not years. With the benefit of hindsight, managers who have placed their faith in these companies have stellar track records since Facebook’s listing on the market in 2012.

However, an interesting exercise would be to investigate the outcomes of these companies over a longer period of time, for example 30-years seems more prudent. This is somewhat difficult given that 30-years ago, 3 of these companies did not exist, Mark Zuckerberg of Facebook was 6-years old, Apple came in at 96th on Fortune’s 500 list of America’s largest companies and Microsoft had just launched Microsoft Office.

A partial solution to this problem is to perform the exercise from the perspective of an investor in 1996, which is the start of Financial Times’ public market capitalisation record.

The ‘Class of 96 Big Five’ consisted of General Electric, Royal Dutch Shell, Coca-Cola, Nippon Telegraph and Telephone and Exxon Mobil.  A hypothetical investor with their assets invested in either Coca-Cola or Exxon would have just about beaten the market over this period, those in Royal Dutch Shell, Nippon Telegraph and Telephone and General Electric were not so lucky.

This exercise is illustrative only, however a closer look is enough to see that almost no investor would want to stomach the roller coaster ride they would have been on in any one of these single-company portfolios.

Summary

The beauty of the globally diversified, systematic approach adopted by Wells Gibson, is that judgemental calls such as these are left to the aggregate view of all investors in the marketplace.

No firm is immune to the risks and rewards of capitalism; be it competition from Costco or Walmart taking some of Amazon’s market share, publishing laws causing Facebook to apply heavy restrictions on its users or some breakthrough smartphone entering the marketplace that is years ahead of Apple – remember Nokia?

Rather than supposing that companies who have done well recently will continue to do well, systematic investors can rest easy knowing that they will participate in the upside of the next ‘Big Five’, the ‘Big Five’ after that and each subsequent ‘Big Five’.

Those who can block out the noise of good stories and jumping on bandwagons are usually rewarded over time.

“But the problem that people don’t understand is that active managers, almost by definition, have to be poorly diversified. Otherwise, they’re not really active. They have to make bets. What that means is there’s a huge dispersion of outcomes that are totally consistent with just chance. There’s no skill involved in it. It’s just good luck or bad luck.”

Eugene Fama – Nobel laureate

[1] Unsplash Images by Matteo Miliddi, Christian Wiediger, zhang kaiyv, Rajeshwar Bachu, Kon Karampelas and Franck V.
Jul 24
0

Feeling Positive About Money Despite the Pandemic

By | News & Views | No Comments

Are you feeling positive about the state of your finances right now? Especially amidst the pandemic?

One trend emerging from the Covid-19 pandemic and the associated lockdown was a typical cut in spending.

According to new research, nearly half of us are staying positive about our money matters after lowering our spending levels.

But, as the shops reopen for business, the fashion sector could suffer as more than two-thirds of shoppers say they will consciously spend less on clothing.

Cashback website, Top Cashback, spoke to people about their money sentiments.

When they asked the question before the lockdown, they found that 80% of us felt optimistic.

Turning to today, the same question prompted only 60% of people to claim they are feeling optimistic when it comes to their finances.

12% said they are feeling pessimistic.

Of those who are feeling optimistic about their financial future, nearly half said they were spending less money during the lockdown.

Half of the respondents said their financial circumstances look different following the pandemic, although not necessarily worse.

Some people are spending more money since the onset of the lockdown, with 20% experiencing higher food bills, or splashing out more cash on home improvements.

Thinking about steps we could have taken to be better financially prepared before the Covid-19 pandemic hit, nearly a fifth said they would have saved more money each month.

However, 455 said there was nothing more they could have done to better prepare their finances.

Adam Bullock, UK Director of TopCashback.co.uk, said:

“It’s encouraging to see a percentage of people feeling optimistic about their finances, despite the current climate. However, it’s also important to remember that we, as an entire population, may be feeling the effects of the pandemic for years to come.

“Whilst every financial situation is particular to the individual, as a money-saving platform, we would always encourage people to save money where and when they can. Now is a great time to be analysing your finances so that when normal returns (if ever that happens) you will hopefully be feeling some of the benefits of learned behaviours.”

At times like this, it is possible to be prepared – this can be achieved by having a wealth plan. 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.

Jul 10
0

Your 2020 Summer Budget Summary

By | News & Views | No Comments

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.

Jul 03
0

Making Sense of Your Pensions and Investments

By | Investments, News & Views | No Comments

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.

Jun 26
0

Commercial Property in a Post-Covid World

By | Investments, News & Views | No Comments

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.