January 2017 Wealth Management Update
2016 – What a year! What does it mean for your investments?
Well, we can’t say that last year was uneventful! It certainly kept us on our toes!
There have been numerous events worldwide over the past year that have affected the markets, but the two that stand out are the EU referendum and the US presidential election. The results of both were equally shocking – not just the results themselves but also the lack of large-scale immediate effects. Both events left us feeling that a new apocalyptic world had dawned and yet little seemed to have changed, either in the world or more specifically in the markets. Yes, ripples were felt and there were rumblings underground, but nothing like the extreme falls and losses that we were dreading.
So how did the events of 2016 affect us? Sterling has certainly felt the effects and is currently down more than 15% against the dollar. This is bad news for consumer products and we can expect to see sharp price increases over the coming years. It also means that interest rates will fall, so your money in the bank will be worth even less (if that is possible!).
The stock markets have been more volatile, as was to be expected. However, the British economy has continued to grow and this has bolstered performance and lessened the effect of some of the more harsh blows. The fall in sterling also means that share companies are benefiting from the currency exchange, boosting their profits and share prices, counteracting any negative market movements – particularly for those based mostly in mining and oil production. In fact, on the last day of trading these companies reached a record high, so let’s hope this growth continues into the new year.
2017 is sure to be just as interesting as 2016, as we begin negotiations to leave the EU. But amongst the uncertainly there will always be scope for market growth, which we intend to take full advantage of.
USA cracks down – Banks got punished
Well it’s been nearly 10 years since the financial crisis of 2007/2008 resulted in the collapse of the global financial system. And it’s only now that some of the companies involved in selling the products that caused such widespread chaos are being held accountable.
Germany’s Deutsche Bank has agreed to pay $7.2 billion dollars to the US Department of Justice, relating to an investigation into mortgage-backed securities within deals made during 2005–2007. Several banks including Deutsche Bank were, and continue to be, scrutinised for providing mortgages to those who could never afford them, repackaging the loans as ‘safe’ investments and selling their risk on to others.
The original fine due to be imposed on Deutsche Bank was in the region of $14 billion, so you could say that they got off lightly, having to pay just $7.2 billion. And, considering that they only have to pay $3.1 billion of that in actual cash, the other portion being made up in ‘consumer relief’ over a number of years, we think they were very lucky indeed. Deutsche Bank are said to be relieved at the outcome, acknowledging that it could have been worse. Perhaps the lenient sentence should have been tougher, to hit the bank much harder and encourage more of a sense of remorse than we are seeing? But they are banks at the end of the day; our expectations may be a little high!
Deutsche Bank is not alone – far from it! Credit Suisse has agreed to pay $5.28 billion in a separate, but not dissimilar, dispute with the US authorities; of this amount only $2.5 billion will be payable in cash. The USA now has Barclays in its sights for alleged mortgage securities fraud and will be bringing a lawsuit against the bank shortly, also in relation to the financial crisis of 2007/2008.
There are still more! Citigroup had their $12 billion fine reduced to $7 billion. Back in 2013 JP Morgan Chase was fined $13 billion, and the Bank of America paid $16.7 billion in the same year. Goldman Sachs also agreed a settlement of $5.1 billion in January 2016. I am sure more settlements were made in the past and there are no doubt others to be made in the future. Whilst we hope that this action will go a long way to preventing such a crisis reoccurring in the future, we would rather not bet much on it and we would suggest you don’t either!
Tougher fines for tax evaders … and their advisers
Speaking of cracking down, the UK seems to have followed suit and has announced tougher fines as part of a crackdown on tax evasion. The move was actually announced back in 2015, but it is now in force as of 1 January 2017.
Fines have been increased to 100% of the tax evasion amount or £3,000, whichever is higher. If you were going to try to evade tax, you would think it would be for a much higher sum than £3000! In addition to the fines, the perpetrators will be publicly named and shamed – something the press ensures happens in many instances anyway.
This new tough regime is aimed at tackling evasion and aggressive avoidance, something that we completely agree is wrong in all cases. If the move does reduce the amount of unpaid tax it will obviously have a positive effect on the economy and will make for a much fairer tax environment for those that pay up and on time.
There have been many plans to crack down on such activity in the past, most of which seemed half-hearted and a little lacklustre. The term ‘evade’ obviously means that those doing the evading will not leave a trail of breadcrumbs for the authorities to easily find their candy house full of bank notes. But we have seen in previous reports, documentaries and announcements that too many people are being caught red-handed but the prosecution and follow-through has just not been there.
Good luck to those in charge of this new venture, it will certainly be interesting to see if it has a noticeable effect. We will most certainly be watching.
Tax returns – deadline approaching
It’s that time again, so don’t forget the deadline for both Self-Assessment Tax Returns and Trust Tax Returns for the 2015/2016 tax year is 31st January 2017.
If you hold investments with you can access the reports required for your Self-Assessment Tax Returns online. If you have difficulty accessing them, please contact the office and one of the team will be able to help you. We also provide help on completing your Tax Returns; if you contact the office we can provide you with details.
Please be aware that the deadline for paper returns has passed and so outstanding Tax Returns will need to be completed online using the relevant software.
House price growth set to slow down
House prices continued to grow steadily throughout 2016 despite the market volatility, averaging 4.5% nationally over the last 12 months.
However, this period of steady increase is set to slow, according to the Nationwide Building Society, who expect the average growth in 2017 to be at a more modest level of 2%. It is reported that these reductions in growth are already evident across London and, for the first time since 2008, average house price increase in London was lower than the UK average at 3.7%.
Prospects for house prices in 2017 are largely unknown and will depend on what happens across the economy, which is currently full of uncertainty. However, the Bank of England believes that a small increase is more likely than a decline, with the housing shortage supporting house prices across the country. On this occasion we think it’s a case of waiting to see what 2017 will bring and how this will affect property specifically.
Help to Buy Guarantee Scheme comes to an end
Not to be confused with the Help to Buy Equity Loan Scheme, the Guarantee Scheme was introduced as a flagship programme in 2013 to help first-time buyers get onto the property ladder. Under the scheme, buyers were able to purchase their new home with just 5% deposit, as the government made a promise to the lending bank to cover any payments missed by the buyers.
The scheme met with both praise and criticism throughout its time in force but reportedly helped more than 100,000 people buy homes. It was also a relatively inexpensive scheme for the government with, incredibly, only two buyers defaulting on their agreement and costing a total of £17,411 over the three years it has been in place. This near non-existent amount of non-payment is attributed to low interest rates and consequently more affordable mortgage levels; however, as rates begin to rise the default rate is likely to increase too. As the scheme guarantees payments for seven years from the date the mortgage is taken out, the government could be paying banks up until 2023. They have prepared for this and £12 million has been set aside for such events, but here’s hoping they don’t have to use the whole lot!
As banks now offer 95% mortgages even without the government guarantee, the scheme was deemed to have become obsolete. However, the Help to Buy Equity Loan Scheme, in which buyers put down a 5% deposit and the government contributes a further 25%, is still available using the same terms and will be until 2020.
FTSE – too good to be true?
So the FTSE ended the year on a high and some would say, ‘why didn’t we just invest in the FTSE?’ But, as always, what is reported is never the whole truth.
The FTSE ended the year at 7142.83, recovering from its slump to the highs we saw at the end of 2015. But is this good?
Well, considering it was just below the 7000 mark back in the years 1999/2000, then you could say it hasn’t made anything in almost 18 years! Like any other investment, it has its ups and downs, and so you could get lucky and invest at a low point and sell at a high point. But this is a dangerous strategy and highly unlikely to be achievable.
So, if you had invested in the FTSE from 1999 until today, other than the dividends you received (approx. 2%) you would have made next to nothing. And that is why we don’t just invest in the FTSE, because if it was that easy everyone would be doing it.
20th January – Trump Day
Not long now before Trump is inaugurated and actually becomes the President of the United States … literally. We would have never thought we would write that in a sentence!
As you are all no doubt aware, he is a man with a lot to say; if you want to follow his progress then you can follow him on Twitter and see for yourself: @realDonaldTrump.
The lead-up to inauguration day will be closely monitored by the press and there will be an abundance of different opinions and progress reports for you to peruse.
There’s no going back now. Please remember to take the press reports when talking about Investment markets with a pinch of salt!
A negative start to 2017 …
… And we are not talking about investments.
Since the New Year began, there seems to be a multitude of reports about how people are unhappier than ever before. We know that many people will have the ‘New Year blues’ but we don’t see how they can say that people are at their unhappiest.
The fact that the media are using polls to gather their information does not bode well. If we look back over last year at the resounding failure of polls to predict accurately, how can we place our trust in them again? Their failures last year proved their inaccuracy and unreliability, and showed how we may have come to rely on them too much for our information. It doesn’t help that polls are mostly commissioned by companies or institutions pushing their own agenda to get prime position on TV.
Our advice is to ignore what the polls say! 2017 will be as happy as you each individually make it, and we can see it being a great year!
Book of the month
The beginning of a new year seems a sensible time to recommend a personal growth book for the book of the month. But this is a personal growth book unlike any you may have read before. The Inside-Out Revolution by Michael Neill sets out a philosophy that attempts to deal with the rushed and hurried world in which we live.
We don’t necessarily agree with all of his comments and thoughts, but they are worth reading just to see how you think they may be used in your life. The book gives no advice, no instructions and no action plans. What it does do is discuss the concept of doing what’s right, in the right way, by looking inward and letting your unconscious give you direction.
An easy book to read, it is certainly worth your time if you are considering what the new year should bring.
Best Savings Selections
Top Three No Notice Accounts without Bonus
|Name||Contact||£1 Gross %||£500 Gross %||£1k Gross %|
|RCI Bank UK||www.rcibank.co.uk||1.00 (min £100)||1.00||1.00|
|Virgin Money||Via branch||0.95||0.95||0.95|
|ICICI Bank UK||Via branch||1.00||1.00||1.00|
Top Three Monthly Interest Accounts
|Name||Contact||£1k Gross %||£5k Gross %||£25K Gross %|
|Charter Savings Bank||www.chartersavingsbank.co.uk||1.30||1.30||1.30|
|Charter Savings Bank|| www.chartersavingsbank.co.uk
|ICICI Bank UK||Via Branch||1.00||1.00||1.00|
Top Three Cash ISA’s
|Name||Contact||£1 Gross %||£10 Gross %||£100 Gross %|
|Aldermore||0345 604 2678||n/a||n/a||1.20 (min £1,000)|
|National Sav & Inv||www.nsandi.com||1.00||1.00||1.00|
|Family BS||03330 140141||n/a||n/a||1.09 (min £500)|
Please check with the terms and conditions before opening any account. If in doubt consult with your financial adviser directly as the above are for information only.
Source: Moneyfacts Magazine January 2017 Edition