Managing wealth effectively is critical to achieving long-term financial success in today's fast-paced financial world. Whether aiming to grow your assets, secure your retirement, or leave a financial legacy, understanding the value of wealth management can set you on the right path. But what exactly is wealth management, and why is it so important?

This article will explain the basics of wealth management, what wealth managers do, and how their expertise can significantly impact your financial future.

Wealth Management Explained 

Wealth management is a comprehensive service that goes beyond traditional financial planning. It encompasses tax planning, estate planning, and more. Wealth management focuses on preserving and growing your wealth over time, helping you achieve financial security and meet your life goals. It's particularly relevant for high-net-worth individuals or families requiring a tailored, strategic financial approach.

What Does a Wealth Manager Do?

A wealth manager plays a crucial role in developing and executing a personalised financial strategy. They assess your financial situation, understand your objectives, and offer advice on investments, savings, taxes, and estate planning. Wealth managers also coordinate with other professionals, like tax advisors and solicitors, to ensure all aspects of your financial life are optimally managed. Their goal is to help you grow your assets while protecting your wealth for the future.

Understanding the Importance of Wealth Management

The importance of wealth management cannot be overstated. It provides the expertise needed to navigate the complexities of managing significant assets. Without professional guidance, individuals may miss key growth opportunities, fail to minimise tax liabilities or be unprepared for market risks. Wealth managers offer tailored strategies that help clients preserve their wealth and take advantage of market opportunities, ensuring that financial goals are met with minimal stress and maximum efficiency.

Financial Goals for Long-Term Success

Setting clear financial goals is a cornerstone of successful wealth management. Wealth managers use the SMART (Specific, Measurable, Achievable, Relevant, Time-bound) framework to help clients establish realistic objectives that align with their personal and financial aspirations. Ifamax Wealth Management employs this approach to guide clients in planning for long-term success. Whether saving for retirement, purchasing a second home, or preparing for future generations, your wealth manager will create a tailored strategy that reflects your unique goals and timeline.

Maximising Savings and Investment Opportunities

Regular savings and intelligent investment strategies are the building blocks of wealth creation. Wealth managers bring the expertise to identify and implement the most effective saving and investment options based on your financial objectives. Whether spotting high-growth opportunities or recommending tax-efficient savings vehicles, their experience allows them to help you capitalise on the best opportunities. This professional insight makes wealth management essential for optimising your financial strategy.

Risk Management with Wealth Management

Risk is inevitable in any financial plan, but wealth managers are skilled at identifying and mitigating various risks, including market, inflation, and longevity. They develop comprehensive plans that balance these risks through assets, emergency funds, insurance, and tax-efficient strategies. By addressing potential risks upfront, wealth managers help protect your wealth over the long term and ensure your financial plan remains resilient.

Emotional Benefits of Hiring a Wealth Manager

Beyond the financial benefits, wealth management offers significant emotional peace of mind. Managing an extensive portfolio or preparing for important life events can be stressful, but wealth managers remove much of the burden by handling the complexities for you. Knowing that your financial future is in expert hands allows you to focus on enjoying life, confident that your wealth is managed effectively and strategically.

Trust Ifamax with Your Financial Future

Is wealth management right for you? At Ifamax Wealth Management, we’re committed to helping you secure a prosperous future. Our wealth management specialists are available for a free, no-obligation consultation to discuss your financial needs. Let us guide you in achieving financial peace of mind—contact us today to get started.

By its very nature, the investing industry is full of differing views on how one ought to invest their hard-earned cash. One of the more polarising debates is whether an investment in gold makes good sense. The debate tends to flare up each time gold experiences a rapid growth in value, such as in the last couple of years.

The pros

Gold has long been prized for its lustre and durability in jewellery, but its uses extend beyond this. As an excellent conductor, highly malleable, stable at high temperatures, and resistant to rust, gold is invaluable in industries like electronics, medicine, and aerospace. Its enduring demand contributes to its value and appeal to investors, as gold has retained purchasing power across centuries. For instance, in gold terms, the pay of a Roman centurion 2,000 years ago is comparable to that of a modern U.S. army captain[1].

Other positives are that gold offers uncorrelated returns to traditional assets such as bonds and equities, providing potential diversification benefits. Many see gold as an ‘Armageddon hedge’, expecting strong returns when faith in the financial system is shaken. Unlike many investment opportunities, gold is a relatively simple concept – being a lump of metal with a market value – and is easily accessed via physical purchase or low-cost open-end funds.

The cons

Gold prices are a function of supply and demand. Investors in gold speculate that others will desire it even more avidly in the future. Unlike traditional asset classes, gold produces no income stream [2], it does not pay dividends and usually costs owners to store and insure it. Many assume its long term expected return to sit somewhere near cash.

The chart below shows the increase in value of 1 ounce of gold from 1926 to August 2024, rising from around $20 to just over $2,500. Investing the same $20 in global equities during this period would have delivered a substantially superior outcome, nearly 50 times the cumulative gain.

Data source: Gold.org. Inflation: US CPI. Albion World Stock Market Index. https://smartersuccess.net/indices

Investors seeking an Armageddon hedge face a dilemma: while many opt for gold-backed funds or ETFs due to the challenges of storing physical gold, relying on the financial system to hedge against its collapse seems contradictory. Owning physical gold has its own issues due to its bulk and other risks such as theft. 

Though gold is often promoted as an inflation hedge, the evidence is weak. While it has maintained value over millennia, its performance over more relevant timeframes is less impressive—gold has yet to recover its February 1980 inflation-adjusted high in USD terms and saw an 83% drop in value over the following two decades[3].

The portfolio

Assessing whether gold belongs in your investment portfolio is the job of our investment committee. Each asset class must fill a specific role in your portfolio and is weighed up against the alternatives. In the case of gold, whilst it has some favourable characteristics, superior options exist. 

As Warren Buffet succinctly puts it:

"If you own one ounce of gold for eternity, you still only own one ounce at its end"

Warren Buffet (2012)

[1] Erb, Claude B. and Harvey, Campbell R., The Golden Dilemma (May 4, 2013). Available at SSRN: http://ssrn.com/abstract=2078535 or http://dx.doi.org/10.2139/ssrn.2078535

[2] Whilst gold itself does not produce an income stream, financial institutions may try and claw back some of the storage costs through gold lending revenues.

[3] Data source: Gold.org. Inflation: US CPI.

Risk warnings
This article is distributed for educational purposes only 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. Reference to specific products is made only to help make educational points and does not constitute any form or recommendation or advice. 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.

Choosing the appropriate financial help can be crucial to managing your finances effectively. In the UK, financial advice professionals have three main titles: financial advisers, financial planners, and wealth managers. While the terms may sound similar, some distinctions exist, particularly between financial planners and wealth managers.

Financial planner vs wealth manager?

Financial planners and wealth managers often perform overlapping roles, but wealth managers typically offer a more holistic approach. Wealth management involves more complex planning, especially regarding taxation, estate planning, and investment strategies. Wealth managers usually work with clients with more substantial assets and diverse financial needs, such as business owners, barristers, or individuals in high-net-worth occupations.

How Much Money Do I Need to Work With a Wealth Manager?

According to the Financial Times in August 2023, the typical range for individuals seeking wealth management services is between £250,000 and £5 million in investable assets.

Beyond this range, private banks often take over. This threshold seems consistent over time and across regions, with similar figures noted in studies, though some data, like CEG’s chart from 2005, are based on the US market.

Signs You May Need a Wealth Manager 

The profile of a typical wealth management client includes successful individuals such as business owners, barristers, professionals in the entertainment industry, and partners in firms. 

However, wealth isn't limited to those who have built their fortunes through income or business. Inherited wealth is becoming increasingly significant, leading to more individuals with complex financial needs as they come into money from family members.

While the primary source of wealth can vary, one consistent trend is that real wealth often accumulates with age. Those over 55 typically have more substantial assets, partly because of life stages, accumulated investments, and inheritance.

What are the Advantages of Using a Wealth Manager? 

The advantages of a wealth manager include:

1. Holistic Approach: Wealth managers offer comprehensive financial planning that covers a wide range of services, including investment management, tax planning, and estate planning.

2. Expertise in Complex Needs: They specialise in dealing with more complicated financial situations, particularly for clients with substantial assets, business interests, or intricate taxation matters.

3. Tailored Advice: Wealth managers provide personalised strategies for high-net-worth individuals and specific client profiles, such as business owners and barristers.

4. Long-Term Planning: They focus on long-term financial health, helping clients navigate various life stages and ensuring continuity through different generations.

5. Navigating Inherited Wealth: Wealth managers assist individuals who inherit wealth, offering guidance on effectively managing and growing these assets.

Wealth Management is a Changing Industry

The wealth management industry is facing a shift. Wealth is becoming more concentrated among the older generation, and advisers are also ageing. This creates a unique challenge for younger clients seeking long-term financial relationships. Finding a firm with a multi-generational team could be a strategic consideration for those looking for a financial partner to see them through different life stages.

Is Wealth Management For You?

Wealth Management offers a comprehensive approach to financial planning, addressing more complicated financial needs like taxation and estate planning. Generally, this service is most suitable for those with investable assets exceeding £250,000 and who fit specific profiles, including business owners, barristers, and high-net-worth occupations. However, with an increase in inherited wealth, a new generation is also seeking the expertise of wealth managers to navigate their financial futures. Ifamax are wealth managers in Bristol, if you would like to find out more about or services, please contact us. 

Wealth management is often perceived as a service reserved for the rich and famous. However, with the rapid rise in house prices and the increasing complexity of financial planning, more people need a wealth manager.

Typically, those with £350,000 or more in assets (excluding their primary residence and other property) could benefit from a wealth manager. This includes individuals in the UK's top 8th, 9th, and 10th wealth deciles

What is Wealth Management? 

Wealth management is a comprehensive service encompassing several key components designed to help individuals and families manage, grow, and protect their wealth. These components include:

Investment Management: This involves creating and managing a portfolio of investments tailored to the client’s goals, risk tolerance, and time horizon.

• Financial Planning: Setting financial goals and developing strategies to achieve them.

• Tax Planning: Minimising taxes on personal income, investments, and estates to maximise wealth preservation.

• Estate Planning: Ensuring the transfer of wealth in a manner that is fair, efficient, and under the client's wishes, often focusing on minimising tax liabilities.

• Risk Management: Implementing strategies to mitigate financial risks through insurance and diversification.

• Retirement Planning: Planning to ensure a sustainable income during retirement.

• Philanthropy: Aligning charitable giving and philanthropy with the client’s values and financial goals.

While inheriting wealth is one scenario that might lead someone to seek out wealth management services, several other types of individuals could benefit from such expertise.

Who Needs a Wealth Manager?

Business Owners & Entrepreneurs 

Business owners and entrepreneurs often face unique financial challenges, such as managing business finances, planning succession, and optimising tax strategies.

These individuals must balance their personal and business finances while planning for long-term growth and retirement. Wealth managers work closely with other professionals, such as solicitors and accountants, to help business owners navigate these complexities and secure their financial future.

Successful Professionals 

High-earning professionals, including doctors, lawyers, barristers, and executives, typically have significant incomes but limited time to manage their finances effectively. A wealth manager can assist these professionals with investment strategies, tax planning, retirement planning, and protecting their wealth through comprehensive estate planning. By delegating these tasks to a wealth manager, successful professionals can focus on their careers while ensuring their financial affairs are in order.

High-Net-Worth Individuals (HNWIs)

Individuals with substantial assets require sophisticated investment strategies, estate planning, and tax optimisation. Wealth managers provide personalised financial services that help HNWIs grow, preserve, and efficiently transfer their wealth. This includes managing complex investment portfolios, planning for future generations, and ensuring that tax strategies are in place to protect their wealth from unnecessary erosion.

Older Individuals (Accelerating Wealth Transfer) 

As the older generation, particularly the postwar generation, begins transferring wealth, there is a growing need for expert advice on handling these assets. Wealth managers assist with estate planning, tax strategies, and the transition of wealth to heirs, ensuring that the transfer is efficient and aligns with the client's goals.

Wealth is often concentrated in real estate, and the sale of homes can release significant funds. Wealth managers guide heirs on reinvesting these funds in alignment with their overall financial goals, whether in financial assets, additional real estate, or other investment opportunities.

Lottery Winners 

Suddenly, acquiring a large sum of money, as is the case with lottery winners, can be overwhelming. Without proper management, newfound wealth can quickly dissipate. A wealth manager can help lottery winners create a plan to preserve their wealth, invest wisely, and make informed decisions about spending, philanthropy, and tax liabilities. This guidance ensures that the windfall leads to long-term financial security rather than short-lived prosperity.

How Can Ifamax Help With Wealth Management? 

Since 2004, Ifamax Wealth Management has been helping clients navigate the complexities of managing their wealth. We offer a comprehensive wealth management service to help individuals and families manage, grow, and protect their wealth. Today, we manage assets for more than 300 families, guiding them through every stage, from wealth accumulation to distribution.

Our primary aim is to protect wealth, whether for a secure retirement or to ensure it can be passed on to future generations. Whether you are a business owner, a barrister, a lottery winner, or an individual looking to manage wealth transfer, we tailor our services to meet your unique needs.

Our services include investment management, financial planning, tax planning, estate planning, risk management, retirement planning, and philanthropy.

 A unique aspect of our service is our free second opinion consultation. We offer to review your current financial plan and provide a no-cost consultation to help you identify areas for improvement. If you would like to arrange a consultation today, please get in touch with us.

Retirement planning extends beyond managing assets. It involves establishing long-term relationships with financial advisers who can guide clients through the complexities of retirement.

However, the industry faces significant challenges, including recruiting young talent and increasing legislative burdens. This has led to concerns about the sustainability of financial advisers themselves. 

The State of Financial Advisers in the UK

According to Statista, there are approximately 5,000 financial adviser businesses in the UK, employing around 30,000 advisers. A survey by Investec Wealth and Investment revealed that 20% of those using advisers are very concerned about the retirement of their adviser. This concern stems from a combination of factors, including:

Aging Workforce: There is a noticeable decline in younger advisers and a rise in those over 60, highlighting a potential future shortage of advisers.

Recruitment Challenges

The industry needs help attracting young people, making ensuring a steady influx of new talent difficult. This article from Money Marketing provides insight. It's not a glitzy profession, and there is no set pathway. Good firms nurture young people through the different stages of a career in financial planning, but it is often who you know that leads to these opportunities. 

Legislative Burdens

Increasing regulatory requirements add to financial advisers' pressures, making the profession less appealing to newcomers.

These issues are compounded by the trend of consolidators—firms that buy other financial planning practices—tempting experienced advisers away from independent practices. According to a report by NextWealth, there were 133 publicly disclosed acquisitions in 2023. Once a firm is sold, it is unlikely that the client will enjoy the same relationship they had before.

Importance of Adviser Sustainability

The sustainability of a financial adviser is crucial for clients, particularly those planning for retirement. A sustainable adviser ensures continuity and stability in financial planning, which is essential for long-term retirement strategies. The relationship built over many years between a client and their adviser can significantly impact the effectiveness of retirement planning.

Financial planning is fundamentally about trust, built up over many years. Someone new will take over if a financial planner sells their business and retires. Some of these businesses are sold to large consolidators, and the relationship changes from personal to corporate. A whole new process of trust has to start at a time when people just want to relax and enjoy life. 

This is essentially reflected in the Investec research. Good firms look to see how they can pass the business on to their employees to ensure continuity and sustainability. 

Ifamax's Commitment to Sustainable Financial Advising

Ifamax Wealth Management, established in 2004 by Max Tennant, is an independent financial planning firm committed to advisor sustainability.

Unlike many firms facing the challenges of an ageing workforce, Ifamax prides itself on having a team of advisers below the age of 40. This team includes Ashton Chritchlow, Jamie Jacobs, Gethin Richards, and Kattrina Strothmann, providing reassurance that clients will have continuous and sustainable financial guidance throughout their retirement years. 

Our senior advisers, Max and Richard, continue to look after legacy clients and also take a strategic role in the business alongside the younger team. Ifamax has a robust succession plan in place and our team under 40 have the capacity and experience to continue to take on new clients, whatever your financial needs may be.

Conclusion

Retirement planning is about securing a sustainable income and ensuring clients have a sustainable adviser. The current landscape of the financial advisory industry in the UK presents challenges, particularly with an ageing workforce and difficulties in attracting young talent. 

However, firms like Ifamax demonstrate that it is possible to prioritise sustainability and independence, ensuring clients have reliable and consistent financial advice as they navigate their retirement years.

For those considering their retirement plans, choosing a financial adviser who understands their economic needs and assures long-term support and continuity is essential. If you would like to speak with one of our team regarding retirement planning or wealth management, please contact us at 0117 33 22 626 to speak with one of our specialists.

The government's decision to abolish the Lifetime Allowance (LTA) on April 6th, 2024, is a significant change for pension savers. Here at Ifamax Wealth Management, we want to help you understand what this means for your retirement planning.

What was the Lifetime Allowance?

Previously, the LTA capped the amount you could accumulate in your pension pots before facing tax charges on withdrawals. If your pension exceeded the limit (set at £1,073,100 in 2023/24), any amount above suffered a penalty charge when withdrawn.

The LTA is Gone, But Allowances Remain

While the LTA is scrapped, it's replaced with three new allowances:

• Lump Sum Allowance (LSA): You can take 25% of your pension as a tax-free lump sum (Pension Commencement Lump Sum) upon reaching 55 (rising to 57 from 2028). This allowance is capped at £268,275 per person, across all your pension pots.

• Lump Sum and Death Benefit Allowance (LSDBA): This combined allowance totals £1,073,100 and covers both tax-free lump sums taken while alive and those paid out on death (if before age 75). Any death benefits exceeding this limit are taxed at the beneficiary's marginal income tax rate.

• Overseas Transfer Allowance (OTA): Set at £1,073,100, this allowance applies to transfers made to qualifying overseas pension schemes (QROPS).

Lifetime Allowance Protection

Some individuals may have "lifetime allowance protection," safeguarding their pension savings from past LTA reductions. This could mean a higher LSA or LSDBA if you had a significant pension pot at certain dates, and registered for protection with HMRC.

Increased Contribution Limits

Alongside the LTA abolition, the government raised the annual tax-free pension allowance to £60,000 or 100% of your salary (whichever is lower). The money purchase annual allowance (MPAA) for those already retired also increased to £10,000. These changes aim to encourage continued pension contributions.

Looking Ahead

With a UK general election now decided, there is always the chance our new government might reintroduce the LTA. Therefore, it might be wise to review your pension and pension planning sooner rather than later.

Speak to a Financial Advisor

The changes can seem complex. Ifamax Wealth Management is here to help. Our team of financial advisors can provide personalised guidance on navigating these changes and maximising your retirement savings. If you require wealth management services in Bristol, please contact our team of financial advisors.

Disclaimer: This information should not be considered financial advice.

In 2023, Bank of America analyst Michael Harnett began using the phrase “Magnificent 7” to describe the biggest seven stocks in the US (Apple, Microsoft, Alphabet, Amazon, NVIDIA, Tesla and Meta Platforms).

The returns in 2023 and 2024 were:

Source: CNN and Y Charts

FoMO

Fear of missing out (FoMO) is a unique term introduced in 2004 to describe behaviour observed on social networking sites. The first observation is the perception of missing out, followed by a compulsive behaviour to respond.

This applies as much to investing as to all aspects of our lives. However, FoMO can be a “dangerous” approach to investing:

Tulipmania—1630s: There is some debate about the truth around this. However, according to research by UCLA economics professor Earl A Thompson, the tulip bulb price soared twentyfold between November 1636 and February 1637 before plunging 99% by May 1637.

The Dot-com Bubble – 1990s: The NASDAQ Composite Index, home to most of the technology/dot-com stocks, rose from 750 at the start of 1990 to a peak of over 5,000 by October 2000. By October 2002, it had plunged 78%.

There are many other examples, and every bubble is different. Still, they carry the same behaviours: a desire to ignore cautionary signs, even to the end when the bubble bursts, and the damage this inevitability causes.

The Magnificent Seven

The table below shows the movement of the top ten developed global companies from 1980 to 2020:

To demonstrate how this has changed in 2024, and considering all global companies (including emerging economies):

Source: The Motley Fool (June 2024).

Even in the space of four years, the make-up has changed.

Risks of Chasing the Magnificent Seven

Nothing lasts forever; investing in the Magnificent Seven today doesn’t guarantee future returns.

There are also additional risks:

1. Overconcentration: One of the most significant risks is overconcentration on one sector and the economy. When these companies do well, as we can see, they do very well, but the converse does happen. Therefore, having a more diversified exposure will reduce that risk.

2. AI: There are parallels to the Dot-Com Bubble. If the reality of AI doesn’t meet the hype and regulation slows growth, then the momentum behind many of these stocks will fade.

The main message is that although the stories of outsized returns can lull us, the danger is to assume we can predict the future. History and evidence show that the top companies rarely stay at the top forever. Additionally, thinking we know the future and can predict the path of factors outside our control is a brave approach for any investor.

To conclude, it may be worth reflecting on the exposure within the Ifamax portfolios. We do have some exposure, but this does not dominate the holdings. This ensures that the portfolios benefit from some of the performance but are protected should this reverse.

General disclaimer: The data has been sourced from external sources. Although we have looked to ensure this is as accurate as possible, we are not responsible. The blog is written personally and reflects the author's view; it does not necessarily reflect the opinions of Ifamax Wealth Management. Individuals wishing to buy any product or service because of this blog must seek advice or conduct their research before making any decision. The author will not be liable for decisions made because of this blog (particularly where no advice has been sought). Investors should note that past performance does not guide future performance, and investments can fall and rise.

Globally, the most significant upcoming election is in the US, but of course, the UK election is also expected towards the end of this year.

There are similarities to US and UK politics in that it is generally a race between two parties, as the charts below show:

There appears to be greater party loyalty in the US despite how voters may feel about the leader. In all elections, the person who wins is often decided by a minority of people, the swing voters. Between 1952 and 1980, this was 12% of the electorate, and now it is thought to be around 3%.

In the UK, “swing voters” tend to revolve around age groups, and therefore, where US elections tend to be very tight, UK elections can see large majorities. Thatcher (1983 – 144 majority), Blair (1997 – 178 majority) and Johnson (2019 – 81 majority).

The question is, from a stock market perspective, does it matter who wins an election?

US Data

Two separate pieces of data indicate that annual US growth is better under a Democratic President.

The Economic Policy Institute (EPI) is a respected non-profit, non-partisan think tank. Due to its work, which is aimed at low—and middle-income families, some view it as more left-leaning.

The second piece of research is from the Joint Economic Committee, which is responsible for reporting the current economic condition of the United States and for making suggestions for improvement to the economy. This also indicates that growth is stronger under a Democratic President:

According to CNN data, the US stock market has performed better under the Democrats since 1945.

However, there isn't much difference if you consider data over a more extended period. Deutsche Bank provided this chart.

The key takeaway is that the data seems to suggest that the Democratic Party are better for the economy and markets. However, as we can see in the chart above, the actual returns have been broadly similar in recent years.

UK Data

Similar research is complicated to ascertain in the UK. However, this data from the Office for National Statistics from 1955 (Q1) to 2019 (Q2) shows annualised Gross Domestic Product (GDP).  The theory is that the higher the rate, the more the economy will grow. This slightly favours a Conservative Government.

The chart below is more relevant as it shows stock market returns.

However, this is hard to Judge as Labour from 1997 saw five financial shocks (Asian Financial Crisis, Russian Financial Crisis, Dot-com bubble bursts, September 11, and Global Financial Crisis) compared to the Conservatives from 2010 (Brexit referendum, Covid Pandemic, and Inflation).

To conclude

We cannot predict the outcome of the elections or what any new Government may or may not do. Evidence indicates that whichever party comes to power in the US and the UK makes little difference to long term stock market performance.

Stock markets and currency markets can be volatile before and after an election, but over the long term, they will adapt to the regime in power and the state of the economy. Events outside the government's control are often more likely to impact markets.

There are perhaps three things to consider irrespective of the elections:

1. Equity valuations globally (excluding the US) remain at or below their long-term averages, meaning there are long-term opportunities for returns within diversified portfolios.

2. The Inheritance Tax Band was set at £325,000 in 2009/10; this hasn’t changed at a time when house prices and other assets have.

3. Allowances for capital gains and dividends have come down, meaning more investors are paying taxes.

In conclusion, we will not position (or reposition) our investment strategy based on any upcoming elections. We maintain our long-term strategies and adapt to any new legislation and tax allowances.

General disclaimer: The data has been sourced from external sources. Although we have looked to ensure this is as accurate as possible, we are not responsible. The blog is written personally and reflects the author's view; it does not necessarily reflect the opinions of Ifamax Wealth Management. Individuals wishing to buy any product or service because of this blog must seek advice or conduct their research before making any decision. The author will not be liable for decisions made because of this blog (particularly where no advice has been sought). Investors should note that past performance does not guide future performance, and investments can fall and rise.

As our world becomes more interconnected, financial fraud has become a means of exploiting our vulnerabilities. The statistics paint a stark picture: in 2022, £1.2 billion was stolen, with a further £1.2 billion stopped by the banks (source: UK Finance).

However, these figures only scratch the surface of the threat faced by millions. An article from the National Trading Standards indicated that some form of financial fraud had targeted 40 million people in the UK in 2022.

The impact of financial fraud can be devasting, but the chart below from gov.uk shows that 36% of fraud incidents lead to no monetary loss.

The most significant number of losses come from the higher values. The challenge in getting back money is whether the individual has authorised the payment. As the table below shows, there is a switch towards authorised payments, which makes it hard to get any money back.

Using people, we know can create confusion:

The image below from NatWest shows how Scammers use Celebrities to encourage people to part with their money.

But it is not just celebrities. Our own Jamie has become the “face” of a WhatsApp contact for a company called gainvalley.com, which is a trading platform. Of course, he has no connection with the firm, and there is very little that he can do to stop this.

We have heard numerous stories of other adviser firms being contacted by “the client” using the client's “email”, requesting a significant sum of money. The scammers had cloned their email, and fortunately, a red flag was that the client said they had changed their bank account.

What to do

The scammers are becoming more sophisticated. Below are some helpful tips from the FCA website as to what might be a scam

The FCA has a fantastic website called Scam Smart, which offers handy insights: https://www.fca.org.uk/scamsmart.

If you are unsure of something you have received, please do contact us, and we will look at it.

Reaching retirement is a significant milestone, but navigating the world of pensions and taxes can be tricky. Fortunately, there are strategies that can help you keep more of your hard-earned money for what matters most; enjoying your retirement. Here are some of the key considerations:

Understanding your allowances:

• Personal allowance: This is the amount you can earn each year before paying income tax. In the 2023/24 tax year, it's £12,570. By keeping your income below this threshold, you'll pay no income tax on your pension income.

• Savings allowance: Earn up to £1,000 in interest from savings accounts without paying tax. This includes interest from ISAs, so consider maximising ISA contributions.

Maintaining tax-efficient savings:

• ISAs (Individual Savings Accounts): These offer tax-free growth and income, making them ideal for retirement savings. Contribute the maximum amount you can afford each year to benefit from this tax advantage.

• General Investment Accounts (GIAs): While not completely tax-free, capital gains on investments held in GIAs are typically exempt from tax if generated within the current annual allowance of £6,000.

Withdrawing from your pension tactically:

• Tax-free lump sum: You can usually take up to 25% of your pension as a tax-free lump sum. However, taking too large an income from the taxable part of your pension could push you into a higher tax bracket, so plan strategically.

• Phased withdrawals: Consider taking smaller pension withdrawals instead of a large lump sum to stay within your personal allowance and minimise your tax bill.

Deferring your state pension:

• Delaying your state pension can lead to a higher income in later years. This option might be suitable if you have other sources of income or want to bridge the gap to a higher state pension age.

Distributing of assets:

• If you're married or in a civil partnership, transferring some of your assets to your partner could help them benefit from their own personal allowance, potentially reducing your overall tax burden.

Disclaimer:

This blog post is for general information purposes only and does not constitute financial advice. It's crucial to seek professional financial advice tailored to your specific circumstances before making any decisions regarding your retirement income and tax planning.

Remember, tax rules and allowances can change, so staying up-to-date with the latest information is essential. By understanding these strategies and seeking professional guidance, you can approach your retirement with confidence, knowing you're maximising your income and minimising your tax burden.

Take Control of Your Financial Future. Get in touch for your free initial consultation today.

After a year of financial volatility in 2023 - What can we expect from investing in 2024?

In 2023 UK investors navigated the choppy waters of market volatility fueled by geopolitical tensions, soaring inflation, and tightening monetary policy, and with this comes the inevitable question: what can we expect from investing in 2024? 

While it's always impossible to say for sure what the future holds, there are a few trends that we think are worth considering. Despite the financial fluctuations, investing still remains one of the best ways to make your money work for you, potentially creating future financial freedom and outpacing the eroding effects of inflation.

1. Continued market volatility

The past few years have been marked by significant market volatility, and it's likely that this trend will continue in 2024. This is due to a number of factors, including the ongoing financial effects of the COVID-19 pandemic, the wars in Ukraine and Gaza, and rising interest rates. As a result, investors should be prepared for a bumpy ride and should avoid making any rash decisions without the guidance of a wealth management expert.

There are grim predictions such as slow growth and the risk of recession to contend with, but as always where there is a problem, there is also opportunity. 

2. The importance of ESG investing

Environmental, social, and governance (ESG) investing is becoming increasingly popular. ESG investors consider the environmental, social, and governance impact of a company before investing in it. ESG investing can be a good way to align your investments with your values and can also lead to better long-term returns. ESG is not a trend that is likely to dissipate any time soon; it's a fundamental shift in how we view the role of businesses in society, driven by powerful forces like the growing importance of sustainability, evolving investor demands, and stricter regulations.

With regulatory pushes to standardise reporting it will make it easier for investors to evaluate and assess businesses for potential investment

3. The need for professional advice

Investing can be complex. Because of the wealth of unqualified resources and information available, it's always a good idea to seek professional advice from a qualified financial advisor. A financial or wealth management advisor can help you create an investment plan that meets your individual needs and goals.

It's important to remember that there is no crystal ball, and no one can predict the future with certainty. However, by being aware of the trends that are shaping the market, we can help you make informed investment decisions and increase your chances of success.

Over the longer term, investors expect a positive, after inflation return from investing in company shares and lending money to governments and companies by owning bonds. Unfortunately – and inescapably – in the shorter-term market returns are anything but predictable. They contain a lot of noise, as the market absorbs new information into prices. High inflation in 2022 led to a rapid rise in interest rates around the world, contributing, in part, to the fall in global bond and equity prices.

It was a painful backward step and a reminder that the road to long-term returns can be bumpy and painful at times. With these now higher yields, some investors may have been tempted to hold more cash but roll forward a year and that would have been a poor decision in the short term. It is nearly always a bad decision in the long term for those with long investment horizons. Fortunately, 2023 has delivered a much more positive story.

Looking backwards

Last year all core assets delivered positive returns. The US market – and in particular the ‘Magnificent Seven’ as the press have dubbed the big tech firms – regained the losses they suffered in 2022. In fact, they contributed around three quarters of the return of the US market over the year. As a consequence, global developed market returns were very strong, given that the US weight in global markets is around 63%.

Value companies underperformed in the US (largely because of the overwhelming impact of the ‘Magnificent Seven’) but made a strong contribution outside the US. Both value and smaller companies outperformed strongly in emerging markets. Global commercial property (REITs) also managed a positive return.

On the defensive side of portfolios, high quality, short-dated bonds have recouped over half of the falls suffered in 2022 - largely on account of the higher bond yields, which caused the pain in 2022 - delivering returns similar to cash.

Figure 1: Global investment returns – 2022 and 2023 compared

Data: Funds used to represent asset classes, in GBP. Details available on request.

Sensible, systematic portfolios comprising a diversified ‘growth’ basket of equities – with tilts to value and smaller companies - paired with ‘defensive’ short dated high-quality bonds will have delivered robust returns in 2023, somewhere in the region of 9% for a 60/40 split respectively in GBP terms. 

Investors with portfolios denominated in GBP suffered a small currency drag over the year as Sterling appreciated against the US Dollar by around 4%, as well as most other major currencies.  Year-on-year inflation in the UK fell to 3.9% in November, down from 10.5% at the start of the year. 

Looking at three-year cumulative returns helps to illustrate the benefit of remaining invested through tough years such as 2022. Bond returns have been poor due to starting yields around 0% at the start of the period followed by subsequent yield rises (and thus bond price falls), but these were more than compensated for by strong growth asset returns.

Figure 2: Cumulative global investment returns – three years to the end of 2023

Data: Funds used to represent asset classes, in GBP. Details available on request.

Looking forwards

The outlook for the global economy looks a little bleak as major economies teeter on the brink of recession, including the UK. China has deep and wide economic problems that are restraining its growth prospects. Inflation has come down in the EU (2.4%), US (3.1%) and UK (3.9%) from recent double digit highs.

Risks remain – including conflict in the Middle East impacting energy and supply chains –and the final yards to reach central bank target levels of inflation (2% in the UK) will be harder to achieve and vulnerable to geopolitical risks. Interest rates may well remain elevated relative to the low rates that investors experienced up until early 2022, which is good for bond holders.

It is useful to remember that forward-looking views are already reflected in today’s prices. What comes next, no-one truly knows. The key is to remain highly diversified, resolute in the face of any market set-backs and focused on long-term goals.

And finally…

More broadly, Putin continues to wage his illegal and brutal war in Ukraine and the terrible humanitarian tragedy unfolding in Gaza seems to have no resolution in sight. Our thoughts are with all the innocent people caught up in these conflicts.

This year we face the prospect of elections in democracies such as the UK, US, Taiwan, India, Pakistan, Indonesia, and within the European Union. US politics is as deeply partisan as it has ever been, raising the level of uncertainty about the future. The democratic process is always combative, often messy and sometimes ugly.

On a brighter note, it is worth remembering that despite the conflicts in the world, seeming discourse in democratic nations and the rise of autocratic and despotic leaders, the world we live in is better in many respects than ever before. While 659 million of the world's population live in poverty, this is down from 1.9 billion in 1990 and 902 million in 2012 (1).

Global under-5 mortality has dropped by 60%, 2.1 billion people have gained access to safe drinking water since 2000 and today 40% of board seats in FTSE 350 companies are held by women (10 years ago 150 or so of these companies had no women on their boards) (2). These lesser known facts are a strongly positive counterbalance to the immediate troubles that the world faces.

From an investing perspective, we remain hopeful for the best in 2024 but remain prepared for the worst, as is always prudent.

Happy New Year!

(1)https://borgenproject.org/victories-fighting-poverty/ 
(2) Sunday Times magazine, December 31, 2023. ‘Really, actually, properly excellent things that happened in 2023’

ESG is a bit of a buzzword in the business and financial services world at the moment, having gained traction since becoming a mandatory requirement for over 1,300 of the UK largest organisations in April 2023. 

Environmental, social, and governance (ESG) investing is a rapidly growing trend in the wealth management industry. ESG investors consider non-financial factors alongside the more  traditional ones when making important  investment decisions. These factors can include a company's environmental impact, its social responsibility practices, and its corporate governance structure. 

Lets break down what we mean by each of these:

E = Environmental impact in ESG refers to the impact that a company's operations have on the natural world. This includes issues such as greenhouse gas emissions, water pollution, air pollution, waste management, and resource consumption.

S = Social impact in ESG refers to the impact that a company has on people and society. It’s less well known than environmental considerations, and can include employees, customers, suppliers, and the communities in which a company operates. Social impact factors that are considered in ESG investing are often:

• Human rights: Respect for human rights, including labor rights, gender equality, and diversity and inclusion.

• Employee relations: Fair and equitable treatment of employees, including wages and benefits, workplace safety, and training and development opportunities.

• Product safety: Commitment to producing safe and high-quality products and services.

• Community impact: Positive impact on local communities, such as through philanthropy, job creation, and environmental protection.

• Supply chain transparency and sustainability: Commitment to ethical and sustainable sourcing practices.

G = Governance in ESG refers to the way a company is managed and controlled. It includes factors such as the board of directors, executive compensation, risk management, and transparency to stakeholders.

Good governance is important for ESG because it helps to ensure that a company is well-managed and that its interests are aligned with the interests of all its stakeholders. This includes shareholders, employees, customers, suppliers, and the community.

So why should I consider ESG investments for my financial portfolio?

There are a number of reasons why ESG is so important for wealth management, including:

• ESG investing can help our clients to align their investments with their values. Many investors want to put money into companies that are making a positive impact on the world. The belief is that ESG investing allows investors to do this without sacrificing financial returns. It's in line with our ethos as wealth managers, and something we are deeply committed to. 

• ESG investing can help clients to manage risk. ESG factors can be a useful indicator of a company's long-term performance. Companies with good ESG practices are more likely to be well-managed and resilient to future shocks.

• Longevity. ESG investing could help clients to generate superior returns. A growing body of research suggests that ESG investing can lead to superior risk-adjusted returns over the long term.

How do non-ESG compliant companies present more risk to investors?

Here are some specific examples of how ESG factors can impact investment performance:

• Environmental factors: Companies with high levels of greenhouse gas emissions or pollution may face increased regulatory costs or reputational damage in the future.

• Social factors: Companies with poor employee relations or a history of safety violations may experience higher turnover rates and lower productivity.

• Governance factors: Companies with weak corporate governance structures may be more likely to engage in fraud or other unethical behavior.

How do I integrate ESG into my wealth management Strategy?

Investors can integrate ESG factors into their wealth management strategies in a number of ways. One option is to invest in ESG-focused funds. These funds invest in companies that meet certain ESG criteria. Another option is to work with a wealth manager who can help to incorporate ESG factors into a customized investment portfolio.

ESG investing is becoming increasingly important for wealth managers. In a 2022 survey by PwC, 90% of wealth managers said that ESG is a top priority for their business. And 85% of investors said that they are interested in ESG investing.

If you are considering ESG as part of your wealth management strategy, it is important to do your research and talk to a qualified financial advisor, such as Ifamax. ESG investing is a complex topic, and there is no one-size-fits-all approach. Get in contact with us to book an initial consultation or take a look into our ESG policies.

Inflation can have both positive and negative effects on investments in the UK, it all depends on whether the trend is high inflation or low inflation. We have recently witnessed in real-time the dramatic impact and chaos that can result from the effects of significantly high inflation; such as decreasing purchase power, the cost of living crisis and a lack of mortgage availability. We have detailed some of the key impacts that inflation may have on your investments, and when you may want to think of contacting your financial advisor:

1. Purchasing Power Erosion: Inflation erodes the purchasing power of money over time. If the rate of inflation is higher than the return on an investment, the real value of the investment may decrease. For example, if you have an investment with a 3% return, and inflation is at 4%, the purchasing power of the investment effectively decreases by 1% in real terms.

2. Interest Rates: The Bank of England often responds to inflation by adjusting interest rates. When inflation is high, the Bank of England may raise interest rates to curb spending and stabilise prices. Great for savers, not so great for borrowers. We have seen the increases in the BoE rates recently causing chaos for many homeowners whose mortgages are not fixed, or for those trying to buy a new home. Higher interest rates can impact our investments in similar ways. Fixed-income investments like bonds may, for example, experience lower demand. When existing bond prices then fall, it can lead to potential capital losses for investors.

3. Equities and Real Assets: While inflation can erode the value of money, it can also positively impact certain investments. Equities and real assets like real estate and commodities tend to perform well in times of moderate inflation. Companies increase prices for their goods and services, leading to potential revenue growth, which may translate into higher stock prices for investors.

4. Uncertainty: High or unpredictable inflation can create economic uncertainty. Investors may become cautious and reluctant to make long-term investment decisions, which can lead to volatility in financial markets. This is especially true of investment from overseas, as exchange rates are weakened by high inflation.

5. Effects on Different Asset Classes: Different asset classes react differently to inflation. For instance, inflation can be detrimental to cash and cash-equivalent holdings because their value may decline in real terms. On the other hand, assets like commodities, inflation-indexed bonds, and certain equities might offer some level of protection against inflation.

6. Government Policy and Monetary Response: Government policies and the response of the central bank to inflation can influence investment decisions. For example, the Bank of England has implemented measures to try to control inflation. This affects different sectors and industries in different ways. We have certainly seen the effect of the increase in interest rates on the buy-to-let market, as risk averse lenders such as Natwest have tightened their lending criteria making it much harder for investors to borrow, and decreasing the number of lenders available to the market. 

When should you consult your independent financial advisor?

Overall, the effect of inflation on investments in the UK is complex and multifaceted. As investors we should consider inflation rates, investment objectives, and the specific characteristics of our investment portfolio to make informed decisions that can potentially mitigate the impact of inflation. 

Consulting with your financial advisor will be beneficial for tailored advice based on your individual circumstances, such as potential diversification of your investment portfolio to manage risks caused by the current high inflation we are experiencing.

Ifamax are an independent, Bristol based financial advisers managing over £250 million of assets. We specialise in helping business owners, self-employed or successfully employed individuals to plan and prepare for their retirement. We have the expertise to manage your pension, arrange your income tax and capital gains tax requirements, and co-ordinate your inheritance planning.Get in contact with us for your free, no obligation initial wealth management consultation.

After ten years at One Redcliff Street, we have recently moved to our new office. The end of our lease created an opportunity to look for new office space and we are delighted with the new space that we have found.

Our new office is bigger, has a better layout and is a short walk from our old office. The move is an important one to give us room to grow over the next ten years while continuing to provide our existing clients with the same high level of service. The increased office space allows us to create more meeting space for clients and a nice open space for our staff to work.

We are now located at Ground Floor, 1 Temple Back, BS1 6FL.

Above: New office looking towards Temple Meads, standing on St Philips Bridge.

We wanted to stay in the centre as it provides easy access for staff and clients. We are also surrounded by like minded companies which should make it a great place to be located for the coming years.

Parking & Access

Unfortunately, we no longer have a designated car parking space, we tried very hard to find an office in BS1 with a parking space, but we could not find one. There are many on-road and off-road parking spaces located within a few minutes’ walk of the office. We are also surrounded by a multitude of public transport options. One of the team members would be delighted to discuss this further with you if you are unsure.

A bit of history

Temple Church, completed in 1460 on the site of an older round church constructed by the Knights Templar, stands (what is left of it) in Temple Park, a two minute walk from the office. The footprint of the original church, constructed in the 12th Century, is still visible. The church was mostly destroyed in the Bristol Blitz of 1940, along with the majority of Medieval Bristol. The bells from Temple Church, the earliest dating from 1657, thankfully survived the bombing, and are now housed in the North-West tower of Bristol Cathedral. They can still be heard today.

Above: Temple Church, dating back to the 12th Century, from which the area takes its name.

Dear Investors,

This edition delves into the crowding-out effect within stock indexes and highlights the significance of adopting a value-based investment approach.

The crowding-out effect is when certain stocks dominate an index, potentially reducing diversification and investment opportunities. Simply put, you have little room for growth once you dominate your market. This point seems obvious when you think about it. Amazon, Google, and Apple, to name three. This effect can have several implications for investors:

• Concentration Risk: When a few stocks within an index experience substantial price increases or attract a large portion of investor capital, they can dominate the index's market capitalization. This concentration can lead to concentration risk, making the performance of the entire index heavily dependent on these few stocks. As a result, the benefits of diversification may diminish.

• Limited Investment Opportunities: The crowding-out effect can cause investors to flock to popular stocks, neglecting or overlooking other stocks within the index. This scenario limits investment opportunities as capital flows towards popular choices. Consequently, the overall breadth and depth of the index suffer, potentially impacting returns.

• Market Distortions: When investors excessively concentrate on specific stocks, their prices inflate beyond their fundamental value. This overvaluation can create market distortions, as prices no longer accurately reflect underlying fundamentals. Consequently, when sentiment towards these crowded stocks changes, a correction or market downturn may occur, affecting the entire index.

Investors often turn to a value-based investment approach to navigate the potential downsides of the crowding-out effect. Here's where the value-based approach comes into play:

• Emphasis on Intrinsic Value: Value-based investing identifies undervalued stocks relative to their intrinsic value. By analyzing a company's fundamentals and assessing its true worth, investors can uncover opportunities the market may have overlooked due to the crowding-out effect.

• Diversification and Risk Management: A value-based approach promotes diversification across stocks considered undervalued. By spreading investments across various sectors and companies, investors can reduce concentration risk and limit potential negative impacts caused by the crowding-out effect.

• Long-Term Focus: Value-based investing typically takes a long-term perspective, looking for opportunities that may provide sustainable returns over time. By focusing on the underlying value of a company and its growth potential, investors can withstand short-term market fluctuations caused by the crowding-out effect.

The fund that we use for investing in Global Developed Markets is the GSI Sustainable value fund. As an example of their strategy with two stocks in the S&P500, which one may consider are stocks that are crowding out the others:

Another interesting point is that, given time, approximately 1 in 35 listed companies will end up crowding out the other stocks at some point in future. How do we know which ones they will be? We don't, so allocating a little extra across all the cheap ones is best. Cheap. That can be measured—future dominance we cannot.

In conclusion, the crowding-out effect within stock indexes can pose challenges for investors, including concentration risk, limited investment opportunities, and market distortions. However, by adopting a value-based investment approach that emphasizes intrinsic value, diversification, and long-term focus, investors can mitigate these challenges and identify opportunities that may have been overlooked.

Ifamax Wealth Management Bristol are independent financial advisers managing over £250 million of assets. We specialise in helping business owners, self-employed or successfully employed individuals to plan and prepare for their retirement. We have the expertise to manage your pension, arrange your income tax and capital gains tax requirements, and co-ordinate your inheritance planning.

When it comes to managing your finances, having a trusted advisor by your side can make all the difference. While there are many options available, working with a wealth manager who is Bristol based can offer unique benefits and advantages. A local wealth manager understands the nuances of the local market and can provide personalised advice tailored to your specific financial goals and needs. They also offer a level of accessibility and responsiveness that can be hard to find with larger wealth management businesses. Here are some of the main benefits of having a Bristol based wealth management team:

• Personalised attention: Perhaps the most important of all, a  local wealth manager can provide more personalised attention to their clients than a distant or online service. They can take the time to understand their client's unique financial situation, goals, and preferences. Financial planning can be complex, and we aim to work directly with you to achieve the best results. Our small but perfectly formed team of Bristol based Financial Advisors are ideally placed to understand your unique goals and challenges. 

• Access to local networks: A wealth management advisor based in Bristol will have an extensive local network, including other financial professionals, business leaders, and community organisations. We certainly do! We help connect our clients to valuable resources, including investment opportunities, legal advice, and networking opportunities. Find out more about our wealth management team.

• Face-to-face meetings: Meeting with a local wealth manager in person can help establish trust and build a stronger long term relationship. This allows for a more thorough discussion of financial plans and strategies, without the pressure of technologies whose performance is not always consistent!. We are happy to see you at our office based in Central Bristol, or we are happy to set up a remote consultation when it suits you. Many clients prefer a mixture of both based on their needs and convenience. You can book an initial consultation with us here.

• Accountability: A local wealth manager can be held more accountable for their advice and performance, as they are more accessible and visible to their clients. We take a fully transparent and honest approach, and have done since our beginning in 2003. The volatility of untested investment opportunities is at the heart of why our founder decided he needed to put his skills to use in helping people avoid the crushing financial losses that can affect people’s retirement opportunities. Read more about Max Tennant and how Ifamax was founded.

• Peace of mind: Working with a Bristol based wealth management advisor can provide our clients with peace of mind, knowing that their financial affairs are in good hands. They can rely on their advisor to provide guidance and support, even during challenging market conditions or life changes. Our Bristol based team is on hand to support you at each milestone in your journey.

Using a Bristol-based wealth management advisor can offer a range of benefits, from local knowledge and access to networks, to face-to-face meetings and a convenient location. We aim to enable our valued clients to manage their finances more effectively and achieve their financial goals, safe in the knowledge that they are in the hands of experts.

What do our clients say?

We have a number of testimonials from our happy clients in Bristol and the South West. You can read our testimonials here, or book an initial wealth management consultation.

You may have noticed the term ‘Stealth Tax’ getting more of an airing across the press recently, especially so since Jeremy Hunt’s Autumn Statement back in November 2022. Keep an eye out again for more, over the next week, when we have the next Budget announcement (15th March 2023).

The Cambridge Dictionary explains ‘Stealth Tax’ as “a new tax that is collected in a way that is not very obvious, so people may not realise that they are paying it”. Often it is seen as a way for governments to increase tax revenues without needing to bring in new, or even increase existing, tax rates.

An example of some of these from just that recent statement include:

Income Tax

The majority of people can earn the first £12,570 of their annual income free of income tax, the next £37,700 at 20% tax and anything over £50,270 pa at 40%. These levels have now been frozen at these rates until 2028.

Whilst on the face of it this may seem like business as usual, it actually means a lot more people may now have to start to pay, or pay more, tax on their income.

Even assuming that the recent ~ 10% inflation rates won’t stay around forever, it is expected that over time that the cost of living will continue to increase. If we expect our income levels to increase in line with this, which you would hope would be the case over the next five-year period, then you are left in a situation where many may move from 0% to 20% or from the 20% to 40% tax bands.

In this situation, the government increases its tax take and you could potentially be left in a worse position in real terms, as your newly taxed income does not even cover the increase in the new cost of living.

Higher earners should also be wary of the rather large cut in the additional rate tax band. Currently, those earning over £150,000 pa pay income tax at a rate of 45%. However from the 6th April 2023 the 45% tax charge will start to come in for those earning over £125,140 pa. Thus bringing more people into additional rate tax and increasing tax take from those higher earners.

Dividend Income

Based on current rules, individuals can receive up to £2,000 in dividend income free of tax. However, this is being reduced to £1,000 from the 2023/24 tax year and halved again to £500 in 2024/25.

Again, another example of no new taxes or increase in tax rates, but how a simple tweak to allowances can bring a lot more shareholders into taxable income and increase tax receipts for the government.

Capital Gains Tax

The current tax-free allowance for capital gains is £12,300 – this is the amount of gain you can generate in a tax year when selling investments (or a rental property!) before paying any tax. This is also being reduced soon; down to £6,000 from the 2023/24 tax year and halved to £3,000 in the 2024/25 tax year. With similar consequences as the dividend changes above.

Things to be aware of?

• Ensure you are sensible with the use of your respective allowances each tax year and where possible make the most of them; this could include utilising your ISA and CGT allowances and ensuring your assets are held as tax efficiently as possible.

• You may now fall into the requirements for tax returns! As more of us hold potentially taxable assets it could lead to you having to now declare and pay tax on these.

• Now could be the time to sort out and tidy up those rogue share holdings; especially so if you hold them as physical paper copies. Keeping an eye on the dividends could be more important if it now means you are at risk of exceeding your dividend allowance.

• And finally – just to be aware that we can help you on all of the above!

Each year, investors face a barrage of commentary and speculation from the financial press about which stock, sector or country is set to do well in the coming months. The quotes below are taken from articles published by well-known media outlets and demonstrate that 2023 is no different:

‘2023 could be a very good year for renewables.’ – Forbes advisor (1)

‘U.S. stocks have long dominated investor allocations, but it may be time to consider selectively owning emerging markets (EM) stocks’ – Morgan Stanley (2)

‘We see energy sector earnings easing from historically elevated levels yet holding up amid tight energy supply. Higher interest rates bode well for bank profitability. We like healthcare given appealing valuations and likely cashflow resilience during downturns’
- Blackrock (3)

‘Materials—especially metals—look even better than energy at the start of 2023, based on supportive valuations and this industry group's past performance in periods of weaker manufacturing data.’ - Fidelity (4)

Predictions and forecasts are all well and good, but investors would be wise to tread carefully before positioning their portfolio to benefit from narratives like the above. Many convince themselves that they have spotted a pattern in past returns, or that somehow the past can be used to navigate an uncertain future. They are likely mistaken. As Warren Buffet eloquently puts it:

‘Forecasts usually tell us more about the forecaster than of the future.’

The chart below is sometimes known in the investment world as the ‘patchwork quilt’. This example focuses on sector performance in the last decade and each sector of the global developed equity market is represented by a different colour. The randomness of markets is well demonstrated. In 2014 and 2015, healthcare came out on top whilst energy stocks were rock bottom, however, in 2016 the roles reversed with energy delivering an ≈40% premium over and above healthcare stocks.

Another topical example is that of technology. For the first 9-years of the decade, the tech sector beat the overall developed market every single year and came in the top three 2/3rds of the time. Last year, the streak came to an abrupt halt as technology fared relatively poorly. The energy sector, on the other hand, reaped the benefits of the surging post-pandemic demand for oil and gas, exacerbated by supply shocks caused by Russia’s invasion of Ukraine.

Figure 1: Developed market sector returns (2013-2022)

Data: Morningstar Direct © All rights reserved. Indices: MSCI World (parent) and sector specific series. Returns in GBP.

The temptation to chop and change is strong. Over the last 4-years, a portfolio invested in a technology index fund at the start of 2019 and switched to an energy one in 2021 would have enjoyed outstanding average returns of around 46% per year (5). Whilst this would have been superb, it represents a classic case of investing using the rearview mirror. Hindsight is bliss.

The challenge that all investors face is that forecasting investment returns based on the information we have today is a highly challenging game to win consistently over the long term. If markets work, then prices effectively reflect an equilibrium position between the views of buyers and sellers and their expectations for the future. Unexpected shocks, such as pandemics, wars, financial crises, and political turbulence are quickly factored into expectations, and prices adjust accordingly. Very few individuals possess the skill (or fortune) to anticipate such events and reposition their portfolio appropriately.

Evidence from Morningstar’s database of global developed equities managers backs this up, indicating that of the 5,269 active funds available at the start of 2013, 3,242 (62%) failed to survive the period, 1,841 (35%) survived the period but were beaten by the broad developed market, and a mere 186 (4%) survived the period and outperformed . Take it from the late, great John Bogle:

‘We deceive ourselves when we believe that past stock market return patterns provide the bounds by which we can predict the future.’

(1) Forbes advisor (2023) Top 9 Investing Trends For 2023. https://www.forbes.com/advisor/investing/top-investing-trends-2023/

(2) Morgan Stanley (2023) Investing in 2023: A Year to Be Patient and Selective. https://www.morganstanley.com/ideas/investment-outlook-2023-year-patient-selective

(3) Blackrock (2023) Global Outlook. https://www.blackrock.com/corporate/literature/whitepaper/bii-global-outlook-2023.pdf

(4) Fidelity (2023) 5 surprising investing ideas for 2023. https://www.fidelity.com/learning-center/trading-investing/five-ideas-for-newyear

(5) Annualised returns in GBP terms.

At the start of 2022 investors needed reminding that investing is not an easy game, despite having enjoyed around a decade of relatively strong – and fairly consistent - market returns, even in light of a global pandemic, recession, and political polarisation. 2022 has laid bare the fact that investing can very much be a game of ‘three steps forward, one step back’. If there was no risk of market downside, it would be unreasonable to expect any return at all above cash. This short note provides a brief look at the past 12 months, and highlights some of the lessons we can learn as investors.

Looking backwards

For many investors 2022 was a relatively tough year, with returns ranging from benign to poor across most major asset classes - global developed value companies being an exception. Rising prices make returns significantly worse on an after-inflation basis, with year-on-year inflation in the UK having reached levels not seen for decades. The year was particularly challenging for investors in bonds, as yields have risen (and thus prices have fallen) across much of the world. Bondholders with longer and lower quality debt suffered greater capital falls – shorter dated, high-quality bonds continue to be preferred.

Figure 1: Global investment returns – sensible assets 2022 returns

Data: Funds used to represent asset classes, in GBP.

With few places to hide most investors will have finished the year in negative territory, which is to be expected from time to time. The magnitude of the losses, however, should lie well within the tolerances of their financial plan. Investors with a reasonable amount of equity exposure should be able to withstand more material falls than those experienced in 2022 (global equities fell by over 40% during the Credit Crisis, for example). That said, those overweighting value companies and focusing on shorter-dated bonds will find themselves in better space than most, though this is little consolation when returns are still negative in an absolute sense. Investing is never a straight-line journey.

Sensible, systematic portfolios comprising a diversified basket of equities – with tilts to value and smaller companies - paired with short dated high-quality bonds - from low risk to high risk – will have provided better results than most other solutions in 2022. Such solutions outperformed over 70% (1) of professionally managed multi-asset funds over the 12 months due to these portfolio decisions.

The asset class that – uncharacteristically - stole the headlines (for all the wrong reasons) was fixed income. Many bond indices experienced their worst calendar year on record. This was chiefly due to a swift increase in the compensation bondholders demand for lending their capital, on the back of – more persistent than foreseen – high inflation and corresponding rising policy rates from central banks. Rising borrowing costs, and little yield buffer to begin with, have meant absolute falls for fixed income investors, something that few investors will have seen, in a year when equities fell too. The last time was 1994.

The reality is, however, that higher yields are a good thing for investors with time horizons longer than the maturity of their bonds. Over time, the new bonds being invested in have been at a higher yield, providing a larger yield cushion going forward and reducing the chance of absolute falls on an interim basis. Bondholders start 2023 in far better shape – from an expected return perspective - than 12 months prior. Today, 5-year gilt yields stand at 3.5%, as opposed to -0.1% at the start of 2022.

Looking forwards

Uncertainty abounds - it always does. Basing investment decisions on forecasts or judgments is generally best avoided. Forming market outlooks can be used to create accountability, or perhaps at best just for a bit of fun. After stating his column’s 2023 predictions Robert Armstrong, of the Financial Times, questions: ‘Do I have high confidence in any of this? Heck no.’. There is no shortage of seemingly sensible predictions on market performance and global developments (2), nor any effective method to separate those that will be more or less accurate.

Investors should therefore look to the future with the anticipation that new information will come to light, and markets will react quickly to take it into account. Without the ability to profit directly from superior information one, therefore, should construct a diversified portfolio built to weather all storms, guided by an ever-growing body of academic literature. If, for example, inflation or growth come in higher or lower than expected, some parts of the portfolio will – by design - be helping, and others detracting from, performance. That is what diversification is!

With the reasonable belief that risk and reward go hand in hand, each day it should be expected that incremental risk taking in a portfolio will be rewarded, such as owning equities or bonds over cash. However, on a daily (or even multi-year) basis – which in the context of a true investment time horizon is miniscule – the expected daily reward is dominated by unexpected noise, which can be positive or negative.

From an investing perspective, we are hopeful for the best in 2023 and beyond but remain prepared for the worst.

(1) Albion Strategic Consulting.

(2) Armstrong provides a list of outlooks from several significant market participants: https://www.ft.com/content/7803704f-8161-4af8-b9b5-1a7ccd5c2cba.