In recent times, financial markets have been dealing with ongoing issues related to rising prices. The inflation numbers, which measure how prices increase over time, in the US have been higher than expected. This suggests that inflation might stick around for a while. At a recent meeting, the Federal Reserve, which oversees the US economy, decided to keep interest rates the same for now. But the Chair of the Federal Reserve, Jerome Powell, hinted that they might lower rates three times this year. He said that the risks of reaching their goals for inflation are getting better. 

Meanwhile, the Bank of Japan made a big change in its policies by increasing interest rates for the first time in 17 years. This shows that they’re noticing that prices are going up, especially wages, and they want to keep inflation around 2%.

In Europe, inflation is still higher than economists had hoped. The European Central Bank decided to keep interest rates steady. However, in the UK, inflation wasn’t as bad as expected, which is good news. The Bank of England decided to keep interest rates at 5.25%. 

The Governor of the Bank of England, Andrew Bailey, said that although inflation seems to be getting better, it’s still too early to lower interest rates. He thinks things are heading in the right direction, though. 

Stocks

Stock prices in the US are at their highest levels ever. While big companies have been doing well, smaller ones are also starting to see gains. In Europe, most stock prices are also high. Even though UK markets haven’t been popular lately, there are signs that people are becoming more interested, especially in financial companies. Japan’s stock market hit new record highs, and emerging markets, like China, are doing well too. 

Bonds

Because inflation is sticking around longer than expected, bonds, which are like loans to governments or companies, have seen a slight decrease in value. Right now, if you invest in US bonds for 10 years, you’ll get about 4.25% back. UK bonds would give you around 4%, and German bonds about 2.42%. For a long time, bond returns were very low, but now they’re getting better. 

People are starting to rethink how they invest their money, with a popular strategy being to have a mix of stocks and bonds in their portfolios. 

What does this mean for you?

With central banks around the world starting to cut interest rates and saying they’ll continue to support the economy, we think that both stocks and bonds will continue to do well. Our guidance remains the same: it’s better to invest for the long term than to try to guess the perfect moment to invest. 

Please speak to one of our qualified advisers today if you want to discuss this further.

As we approach the end of another financial year, it’s an opportune time to review your financial objectives for tax year-end on the 5th of April.

Here are some ways to make your money work harder for you and your loved ones:

• Make Pension Contributions: Making contributions to your pension is not just a smart financial move but also comes with significant tax advantages. You can contribute up to 100% of your earnings, capped at £60,000 annually, and enjoy income tax relief at your marginal rate. If earnings allow it, you may also carry forward your pension allowance from the previous three tax years.

• Use Your ISA Allowance: Leveraging the tax-free structure of your individual Savings Account (ISA) allowance can shield your income, growth, and dividends from HMRC. Maximise your potential by utilising the current tax year’s allowance of £20,000 or consider a Lifetime ISA for additional benefit toward your first home or retirement. Please note there are restrictions for lifetime ISAs.

• Save for Your Children’s (or grandchildren’s!) Future: Secure your descendant’s financial future by investing in Junior ISAs (‘JISAs’) and pensions on their behalf. Starting early offers the advantage of decades of investment growth, and you can contribute up to £9,000 in a JISA or £3,600 (gross) into a pension on an annual basis.

• Match Capital Gains and Losses: Your capital gains tax allowance has gone from £12,300 in 2022/23, down to £6,000 this tax year, and to only £3,000 in the 2024/25 tax year. If you have a General Investment Account or investments outside of a tax-efficient environment we suggest discussing this with your adviser to ensure you mitigate paying excessive tax.

• Utilise Your Annual Inheritance Tax Allowances: Mitigate Inheritance Tax by taking advantage of the annual gift allowance of £3,000 per tax year. With carryback, couples can potentially gift up to £12,000 before the 6th of April. You can also give £250 to as many individuals as you wish, provided they are not also receiving the annual gift allowance.

• Gifting Surplus Income: Gifting surplus income can be a valuable strategy to reduce your Inheritance Tax (IHT) liability. However, there are specific criteria and considerations to keep in mind to ensure it falls under the “gifts out of surplus income” exemption.

• Boost Your State Pension: Ensure a more comfortable retirement by filling gaps in your National Insurance record. Paying voluntary National Insurance contributions can potentially cover the period from 2006 to 2016 and can be used up until April 2025. The deadline is the 5th of April each year.

• Consider Paying Yourself a Dividend: If you own a company, explore the tax-efficient option of withdrawing profits through dividends rather than salary payments for the year 2023/24 and beyond.

• Explore Alternative Investments: For those wishing to take on higher risk investments, the Seed Enterprise Investment Scheme (SEIS),Enterprise Investment Scheme (EIS), and Venture Capital Trusts (VCTs) offer valuable tax benefits. While they are more suitable for experienced business owners and investors, they do allow for inheritance, income tax, and capital gains tax reliefs. Please note that these are considered high-risk investments, and we urge you to speak with your financial adviser before considering these options.

• Wills & Power of Attorneys: If you do not have an up-to-date Will or Power of Attorneys we recommend you discuss this with a solicitor. We are happy to recommend one, but if you already have an existing relationship, it may be worth contacting them.

Remember, these steps are part of a comprehensive financial strategy that can enhance your financial well-being. This article does not constitute individual advice and we suggest speaking with your financial adviser in the first instance if you want to explore anything further.

Should you have any questions or require further assistance, please do not hesitate to contact us at [email protected] or call 01202 676983.

The value of your investments can go down as well as up.

Don’t invest unless you’re prepared to lose all the money you invest. SEIS/EIS and VCT investments are high-risk investments and you are unlikely to be protected if something goes wrong.

Financial Conduct Authority does not regulate wills, estate and tax planning.

It would be strange not to feel anxiety about the current state of financial markets. News flow has been considerably positive about investment markets, with inflation remaining stubbornly high, albeit lower than the peak of earlier in the year. As a result, Central Banks have kept pushing rates up, heaping more pressure on homeowners with mortgages. Both equity and bond markets have come under pressure with cash probably the only asset showing positive returns.

It is in periods such as these that investors’ nerves become frayed. When markets fall, the instinct is to sell. We would like to draw your attention to an analogy from the renowned investor Warren Buffet “You should be fearful when others are greedy and greedy when others are fearful”. Whilst we are not predicting that markets will recover in the short term, we would like to remind investors of the power of time in the markets and not try to time the market. Research conducted by the one of the leading investment house Schroders produced the following:

“Over 35 years, mistimed decisions on an investment of just £1,000 could have cost you almost £33,000 worth of returns. Our research examined the performance of the UK stock market, the FTSE100, 250 and the FTSE All-Share.

If at the beginning of 1986, you had invested £1000 in the FTSE250 and left the investment alone for the next 35 years, it might have been worth £43,595 by January 2021 (bear in mind, of course, that past performance is no guarantee of future returns).

However, the outcome would have been very different if you had tried to time your entry in and out of the market.

During the same period, if you missed out on the FTSE250 index’s best days the same investment might now be worth £10,627, or £32,968 less, not adjusted for the effect of charges or inflation.”

The investment committee of Baggette & Co Wealth Management monitors the performance of our portfolios, engaging with the investment managers of the underlying funds we hold. We do not pretend to have a crystal ball regarding the future directions of the markets, but in current market conditions, we believe strongly that patience is a virtue.

The value of your investments can go down as well as up, so you could get back less than you invested.

Baggette & Company is today accredited as a Living Wage Employer. Their Living Wage commitment will see everyone working at Baggette & Company receive a minimum hourly wage of £10.90, higher than the government minimum for over 23s, which currently stands at £10.42 per hour. 

Baggette & Company is based in the South West, a region where over a tenth of all jobs (11.1%)  pay less than the real Living Wage – around 258,000 jobs. Despite this, Baggette & Company has committed to pay the real Living Wage and deliver a fair day’s pay for a hard day’s work.

The real Living Wage is the only rate calculated according to the costs of living. It provides a voluntary benchmark for employers who wish to ensure their staff earn a wage they can live on, not just the government minimum. Since it began, the Living Wage movement has delivered a pay rise to over 350,000 people and put over £2 billion extra into the pockets of low-paid workers. 

Jo Hjalmas, Director, Baggette & Company said “We are pleased to have received this accreditation which shows our commitment to paying all of our employees a fair salary. Becoming an accredited Living Wage employer is a decision that we made because we believe that everyone deserves to be paid a fair wage. Paying the Living Wage is a way of showing our employees that we value their work and that we care about their well-being. I encourage other businesses to consider becoming accredited Living Wage employers. It’s the right thing to do for our employees and for our communities.”

Katherine Chapman, Director, Living Wage Foundation said: “We’re delighted that Baggette & Company has joined the movement of over 12,000 responsible employers across the UK who voluntarily commit to go further than the government minimum to make sure all their staff earn enough to live on.”

“They join thousands of small businesses, as well as household names such as Burberry, Barclays, Everton Football Club and many more. These businesses recognise that paying the real Living Wage is the mark of a responsible employer and they, like Baggette & Company, believe that a hard day’s work deserves a fair day’s pay.”

UK Consumer Price Index (“CPI”) numbers were released on Wednesday, showing that UK inflation cooled to a 15-month low. Data released showed CPI fell to 7.9% in June, down from a prior of 8.7% and below the consensus forecasts of 8.2%. Financial markets reacted positively with the FTSE 100 rising 1.8% and 10-year Gilt yields fell to 4.2% having reached a high of 4.65% earlier in the month.

Whilst we do not suggest that the fight against inflation has been won, it does appear the UK is moving in the right direction. Chancellor Jeremy Hunt stated after the figures “Inflation is falling and stands at its lowest level since last March, but we aren’t complacent and know that high prices are still a huge worry for families and businesses. The best and only way we can ease this pressure and get our economy growing again is by sticking to the plan to halve inflation this year.”

Markets are now pricing in that the Bank of England will hike rates by 25 basis points (0.25%) when they meet at the beginning of August with the terminal rate, an indicator of stable interest rates, now expected to reach 5.82% in February 2024 with the possibility of cuts as early as June 2024. This is a dramatic shift from only a few weeks ago when rates were expected to peak above 6% and stay higher for longer.

The global economy is in a state of flux. Inflation is rising, interest rates are increasing, and the stock market is volatile. This can be a time of uncertainty for investors, but it’s also an opportunity to review your financial plan and make sure it’s still on track.

Here are a few tips for updating your financial plan in light of recent news:

• Re-evaluate your risk tolerance. With the economy becoming more uncertain, you may need to adjust your risk tolerance. If you’re feeling more risk-averse, you may want to shift your investments to more conservative assets.
• Review your asset allocation. Your asset allocation is the mix of different asset classes, such as stocks, bonds, and cash, in your portfolio. It’s important to review your asset allocation periodically to make sure it’s still aligned with your risk tolerance and financial goals.
• Consider your cash flow needs. With inflation rising, you may need to increase your cash flow to cover your expenses. This could mean increasing your income or reducing your expenses.
• Update your emergency fund. Your emergency fund should be enough to cover your expenses for at least three to six months. With the economy becoming more uncertain, it’s a good idea to make sure your emergency fund is well-stocked.
• Cash flow modelling. An in-depth look at your investment longevity considering various eventualities could give you peace of mind by showing you how much you could potentially receive after a period.

If you’re not sure how to update your financial plan, you can talk to one of our financial advisers. They can help you assess your current situation and make sure your plan is still on track.

In addition to the tips above, here are a few other things to keep in mind as you update your financial plan:

• The long-term view is still important. Even though the economy is facing some challenges, it’s important to remember that the long-term outlook for the stock market is still positive. So, don’t make any rash decisions that could jeopardize your long-term financial goals.
• Don’t panic. It’s easy to get caught up in the day-to-day news and start to panic about your finances. But it’s important to remember that the economy is cyclical and that there will be ups and downs along the way. So, don’t make any major changes to your financial plan based on short-term news headlines.
• Stay informed. The best way to protect your finances is to stay informed about the latest economic news. This will help you make informed decisions about your investments and your overall financial plan.

I hope these tips help you update your financial plan and stay on track for your financial goals.

Increased interest rates can have a negative impact on the valuation of companies in a number of ways. First, higher interest rates make it more expensive for companies to borrow money, which can lead to lower earnings and profits. Second, higher interest rates can make it more difficult for companies to raise new capital, which can also lead to lower earnings and profits. Third, higher interest rates can lead to a slowdown in economic growth, which can also hurt company earnings. As a result of these factors, increased interest rates can lead to lower stock prices and lower valuations for companies.

Here are some of the specific ways that increased interest rates can impact the valuation of companies:

• Higher discount rates. When interest rates rise, the discount rate used to calculate the present value of future cash flows also rises. This means that the present value of future cash flows is lower, which in turn leads to a lower valuation for the company.

• Higher cost of capital. When interest rates rise, the cost of capital for companies also rises. This is because companies typically finance their operations with a mix of debt and equity, and the cost of debt rises when interest rates rise. A higher cost of capital means that companies have to earn more money in order to generate the same amount of profit, which can lead to lower earnings and a lower valuation.

• Reduced investment. When interest rates rise, companies may be less likely to invest in new projects, as the cost of doing so has increased. This can lead to lower earnings and a lower valuation.

• Reduced economic growth. Higher interest rates can lead to a slowdown in economic growth, as businesses become less likely to invest and consumers become more cautious about spending. This can also lead to lower earnings for companies and a lower valuation.

It is important to note that the impact of increased interest rates on the valuation of companies will vary depending on the specific company and the industry in which it operates. For example, companies that are heavily indebted or that rely heavily on capital spending may be more sensitive to interest rate changes than other companies. Additionally, companies in industries that are cyclical or that are sensitive to economic growth may be more sensitive to interest rate changes than other companies.

Please speak with us today about how this can, in the short to medium term, impact you and your pension savings.

Everybody knows it’s a good idea to hold cash. Cash is there and ready to spend if you need to make a quick purchase or encounter an emergency. However, if you’re planning for the future, it might be an idea to invest some of your money.

For growing your money over the long term – five years or more – investments act differently to cash and equity markets historically adjust to consider variables such as inflation, supply chain issues, and interest rates.

It can be beneficial to remain invested in equity markets for the long term and any growth achieved can be reinvested, meaning your returns could compound over time. While inflation can eat away at cash reserves, investing could help protect against rising prices.

One way to manage the risk involved in investing is to hold a diversified investment portfolio. Diversified portfolios may hold equities in different markets, regions, and industrial sectors. This means they may have limited exposure if one sector performs badly and can also be exposed to sectors that may be experiencing growth.

A diversified portfolio can also hold other assets such as bonds, government, or corporate debt and this is often seen as a way to further extend the diversification within the portfolio.

If you want to know more about investing for the longer term, please contact your Wealth Adviser at Baggette & Co.

We are delighted to announce that we are working alongside local solicitors, Steele Raymond, based in Bournemouth.

Having worked closely with Steele Raymond LLP Solicitors over the years, we are now able to offer all our clients specialist Financial Planning and Wealth Management Advice together with signposting them, where appropriate, to receive first-class Legal Advice.

Steele Raymond is a leading full-service law firm, offering specialist legal advice to businesses and individuals. Their experienced lawyers have developed a leading reputation across Dorset and the South of England and have consistently been awarded the highest rankings in the independent guide to the legal profession: the Legal 500 UK Edition.

Both teams at Baggette & Company Wealth Management Ltd and Steele Raymond remain focused on being the very best at looking after you and your interests. You can count on the skills, dedication, and client focus that is at the heart of both firms and rely upon our experience to get you the advice you need when you need it.