Wealth Management Update – November 2016

Is Marmite-gate set to continue?

You are probably aware of the war that has been raging between Tesco and Unilever that resulted in well-known brands such as Marmite and PG Tips being removed from Tesco’s online shopping service. Now that is really hitting us where it hurts … Marmite and a cuppa!

It began when Unilever attempted to raise their prices by 10% overnight because of what they called “higher costs of imported commodities”. Basically, now that Brexit is on the horizon, it costs more to bring everything into the country and Unilever wanted to pass on their resulting losses to their customers. This action saw a near coup by supermarkets, with other well-known shops threatening to boycott Unilever’s products.

Whilst this particular situation was resolved quickly, it may be just a taste of what is to come. Sterling is unlikely to recover from its current low value and so things will continue to be more expensive. Let’s be honest, establishments such as Tesco will not take that hit without passing on some of it to their customers. This means that next time you pop out for Jammy Dodgers or a tub of ice cream you may find they cost more, or you may just not see them at all.

Is inflation a ticking time bomb?

The last time sterling dropped to the level it is now we were in the midst of a financial crisis back in 2007–2008. Luckily, we are not in such dire straits again just yet, but is this a sign that inflation is about to sky rocket?

Like Marmite-gate, we are prepared for the things we buy to rise in price, but this may not be a gradual process. The process has been likened to a bomb, in that prices will explode almost instantly next year when the effect of the impending Brexit finally starts to bite. This price hike will mostly be due to the increased cost of importing and also to the drop in the value of sterling, which is unlikely to recover.

It is thought that those on low incomes will be hit the hardest, with the cap on benefits restricting spending and squeezing the budgets of those living on the bread line. But it is thought that it will have such a widespread effect that those on comfortable budgets will also be affected.

It may happen that the economy is subject to high inflation and at the same time will also be in recession … not an ideal situation to say the least. High inflation could lead to high interest rates as the Bank of England uses interest rates to attempt to regulate inflation. So, if you want to be extra cautious, it may be time to look again at that tracker mortgage or variable rate loan and fix them at a low point before these effects start to take hold.

It will certainly be a rocky road ahead, but surely one that we can overcome.

The future is only as far away as tomorrow

The future doesn’t seem to be on the mind of the younger generation – or “millennials” as they now insist on calling themselves. “Millennials” are people under the age of 35, and it seems that they are much more interested in getting out in the world and enjoying themselves than they are in squirrelling away some of their hard-earned money for the future.

It is definitely more difficult to focus on retirement at 65 or 70 when you are 35 than when you are 55, as it just seems so far away … but it’s not. And it’s not only their retirement that this generation needs to be thinking about – what about getting on the property ladder, having children or even travelling the world? All of these things require savings, assuming you don’t have an unlimited credit card.

So next time you try, and fail, to have that chat with your kids about saving for the future and how they should think about putting some money away, maybe instead give them our details and tell them that we could help. Or, if you really want to give them a push, give us their details and we will contact them for you.

If you really don’t think that will help, you could always give them a helping hand and start saving for them. If you have an existing portfolio that is managed through us, we can set up a designated account for your children at no extra charge and you can put as much or as little as you wish aside for their future, on their behalf. Or buy them a copy of ‘The Wealth Secret’ where we talk about the lost art of saving: https://www.amazon.co.uk/Wealth-Secret-Create-Protect-Penguin/dp/1519757794/ref=sr_1_1?ie=UTF8&qid=1478534389&sr=8-1&keywords=the+wealth+secret+penguin+wealth

Mergers

The government plans to merge two financial bodies in an attempt to provide a more accessible financial guidance service. The two services they plan to combine are The Pensions Advisory Service (TPAS) and the Money Advice Service (MAS) and they predict this will happen as of April 2018. The two services are currently free for consumers.

MAS has faced scrutiny for what the industry considers to be unacceptable spending on senior personnel and marketing. The proposed merger will reportedly eradicate much of that biased spending, and while it is not yet clear to whom the new body will report, it is said that it will be much more closely managed and examined going forward.

The intentions of providing a more accessible advice service for those who cannot afford to pay for it are good. Hopefully it will prevent consumers from missing out on valuable benefits or making the wrong decisions that mean they are worse off. But we will have to wait and see how the government handle the logistics of this when the time comes.

Marriage Allowance

You may remember that a Marriage Allowance was introduced in 2015 which means that one half of a married couple can transfer part of their tax-free allowance to the other, providing one partner is earning £11,000 or less, and the other is paying only Basic Rate Tax.

If this sounds like your situation, then by applying for the Marriage Allowance via HMRC’s website you could save £220 this year. However, you can also claim for last year, meaning a total maximum rebate of £432 in this year. It may not be much, but it’s better that the money is in your bank than in theirs, and the extra may be of use through the coming festive season.

Less than a quarter of people who are eligible have actually applied for this allowance, even though it takes only five minutes. If you are interested, the application can be accessed via this link: https://www.gov.uk/marriage-allowance/how-it-works

Book of the month

This month’s book is The End of Average: How to Succeed in a World that Values Sameness by Todd Rose. In this easy-to-read and interesting book, Todd explains how the concept of average generates problems. For example, he explains about the US fighter planes that were designed for the “average size pilot” which resulted in multiple crashes just because no pilot is average! An obvious point but one to consider when you are flying at 200 feet at 400 mph. The End of Average draws on the very latest findings in the fields of psychology and sociology to show how, when we focus on individual findings rather than group averages, we are empowered to rethink the world and our place in it.

If you want to question your existing prejudices then this is the book for you – but probably best left unread if you like to keep thinking what you are thinking.