The Times They Are a-Changin' | Financial Advice Cardiff

The Times They Are a-Changin’

19 Mar 2018 | Articles |

It is 10 years since the so-called financial crash.

After a very turbulent and depressing period that followed this, the markets have by and large not only behaved themselves but seen a steady upward climb across most asset types.

Typically investors use shares, property and fixed interest areas, such as government bonds, to generate their returns. In many cases these three asset types will make up 90% plus of a portfolio.

All have enjoyed good times for roughly the past seven years.

However, there is some sense today that there may be some change afoot and the economic and market climate may be showing some signs of a different scenario ahead of us.

As usual we are predicting nothing, but we are suggesting that it may well be a good time for investors to re-evaluate their positions and to start thinking about some different scenarios – the ‘what if?’ exercise as you may well like to think of it!

Certain ‘little’ indicators are beginning to flash.

For example, central London property prices, if not exactly in a freefall, are on a steady downward move. Property across the UK is slow to sell, Buy-To-Let mortgage approvals are at record low levels.

Central bank base rates worldwide are inching upwards, affecting general market rates.

The recent economic news is also somewhat mixed, a general applause seemed to occur yesterday when the Chancellor upgraded UK economic growth from 1.4% to 1.5%, a level which in past times would have been seen as sluggish.

Share markets have started to experience levels of volatility not seen in the past seven years. This hints at greater risk beginning to show up within the markets and could easily be a warning sign of more difficult times ahead for share prices.

It does appear that we could be at the beginning of a time of change.

These things are rarely apparent as they happen, normally it is only with the benefit of hindsight that the change becomes known.

At Penguin, we are constantly framing our advice and service assuming things may be quite different in the future than we have been used to in the past. We do this in a series of practical ways.

One is that we have constructed our investment process around the Advanced Investment Strategy (AIS) which is built upon a methodology of consistent reviews and reflections of the ‘asset allocation’ held within different risk graded portfolios.

The mix of assets is consistently being refreshed to make the most of changing values and to keep the portfolios aligned with the evolving position. This may sound like a basic principle and something all firms will be doing, but few firms, in our experience, have such a hands on approach to regularly reviewing and rebalancing (as it is known), we do so at least quarterly.

Too many firms simply let things roll and this might work (or they may get away with this) when things are running smoothly, but at times of difficulty this tends to get exposed.

A second example is around our use of cash flow financial modelling.

This is where we use software to view an individual’s or couples finances and run them through future scenarios to see what happens if things change. This is the ultimate ‘what if?’ approach, by looking at a whole host of different outcomes, by making different assumptions about future events, returns and outcomes, we can start to stress-test the financial position.

This could evidence, for example, that if things continue as they are today all will be fine, but if certain aspects change, things won’t be fine. In that case, we can adapt the structure of a portfolio accordingly or make other alterations to a client’s financial planning to protect against the undesired scenario.

We are always conducting regular reviews of one sort or another and seeking ways to help plan and protect against the unexpected. The old adage is always one to bear in mind “expect the unexpected” when it comes to these matters.

We do believe that the times may be a-changin’ (thanks to Bob Dylan for this heading) but even if we are wrong, the value of organising your financial plan to cater for change will not be diminished.

This is the essence of what we do: help our clients with covering all the bases, as far as it is ever possible to do so. Arguably, this is the most important tenet of our work.

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