Financial planning update – November 2018

Stock market jitters continue

The stock market jitters that began in October have continued throughout this month.

US markets are now down 8-9% over the last two months, while European markets have lost 6-7% over the same time period and in the UK, the FTSE has dropped by a similar amount.

The biggest casualty so far, has been the US tech sector, where the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) have seen heavy losses.

As always, holding an appropriate asset allocation, that is aligned with your willingness and ability to bear risk during periods of volatility is key.

If you are feeling overly uncomfortable with recent market moves, it is possible that your portfolio is out of sync with your risk profile. Do contact me if this is the case.


Increased pension Lifetime Allowance

In his budget, UK Chancellor Philip Hammond confirmed that, as expected, the Lifetime Allowance (LTA) for pensions will rise in line with inflation  to £1,055,000 from April 2019.

However, HMRC’s take from those exceeding the allowance is still projected to reach almost GBP60 million by 2020.


Financial literacy declines as we get older

According to this report, our financial literacy scores decline by about 2% each year after we reach age 60.

Interestingly, the report also shows that our confidence in our own financial decision making abilities does not decline with age.

This combination leaves people open to financial exploitation in later life.

One solution may be for sons and daughters to be more involved in the financial affairs of their parents as they age.

From experience, I know this is an area fraught with emotion and complexity, however if it stops people falling prey to scams as they age, then it would be worth pursuing.


Byzantine inheritance rules

HMRC collected a record haul from inheritance tax receipts in the past year; GBP5.2billion. Furthermore, this figure is tipped to reach GBP7bilion in the next 5 years.

This increase has exacerbated the impact of a quirk in inheritance tax and probate rules.

Contrary to popular belief, inheritance tax must be paid before a grant of probate can be given and due to probate rules, an inheritance can’t be accessed until probate is granted.

This often leaves families needing to either pay the tax from their own pocket or take out a loan in order to gain access to an inheritance, especially if the estate is made up of illiquid assets such as property.

Loans to pay inheritance are expensive however, with an initial setup fee typically of 1-2% and annual interest ranging anywhere from 4 to 9% depending on circumstances.

One course of action that would preempt this would be for anyone whose estate is likely to be subject to IHT to take out a life insurance policy and put that policy in trust with their executors as trustees.

On death, the proceeds of the policy  would then go straight to the trust, free of IHT and without needing to go through probate. This would then allow the executors to pay the IHT on the estate.


Bitcoin anyone?

12 months ago, everyone was asking me about Bitcoin and the other cryptocurrencies (Ethereum, Ripple etc).

The Bitcoin price peaked on 17th December 2017 at a level that was 1,886 per cent higher than it had been at the start of the year. Since then however, it has lost nearly four fifths of its value.

As you may know, I bang on about diversification all the time, and here I go again.

For anyone who had a flutter on Bitcoin with a small portion of their portfolio, then no real harm has really been done.

On the other hand, for anyone that went big at the height of the mania, and there are those that did, then the crypto collapse will have had a huge negative impact.

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