It can be difficult not to let your emotions influence the decisions you make. When investing, emotional decision-making could be harming your portfolio’s performance and your ability to reach your goals. 

While you try to make investment decisions based on logic and facts, it can be easy for emotions, from fear to excitement, to play a role at times. And a survey of financial advisers reveals it could be costing you more than you think. 

According to a report in FTAdviser, financial advisers believe emotional decision-making costs investors at least 2% each year in foregone returns. They believe two of the biggest mistakes investors make are:

• Being too influenced by the news (47%)
• Taking too little risk (44%).

If you’ve been guilty of these mistakes in the past, you’re certainly not alone. The good news is that there are things you can do to reduce the effect emotions have on your investments. Read on to find out how you could tackle these two mistakes. 

1. Tuning out the news to focus on your long-term plan

Market volatility is part of investing. Unfortunately, sensational headlines about markets “soaring” or “plunging” sell. However, they often don’t show the bigger picture – that even after volatility, markets have, historically, smoothed out over the long term and delivered returns.

On top of providing a snapshot, rather than an in-depth look at markets, remember that the news isn’t tailored to you. An investment opportunity that is perfect for one person, may not be right for another. 

If you read about markets falling sharply or the latest “must invest” tip in the newspaper, it’s natural to think about what it means for your investment portfolio. Perhaps you’re scared that volatility could mean the value of your assets will fall and you won’t be able to retire when you intend? Or maybe you feel a thrill at the thought of investing in the next big technology firm? 

Tuning out the noise can be difficult, but it may reduce the chance of emotions affecting your decisions.

Working with a financial planner may help you reduce the effect the news has on your mindset. It means you have someone to turn to if you have concerns or would like to pursue an opportunity. Speaking to a professional about your options could prevent knee-jerk decisions you might regret later. 

Creating an investment strategy that’s tailored to your goals and circumstances with a financial planner may also give you the confidence to dismiss the news.

At times, your portfolio may dip but understanding why investments have been selected and how it fits into your overall plan could put your mind at ease.

2. Balancing how much investment risk you should take

It’s common to hear that investors are worried about taking too much risk. After all, too much risk could mean you’re more likely to lose your money, and it could affect your progress towards your life goals. Yet, nervous investors can take too little risk.

While you may feel comfortable taking less risk as your money is “safer”, you could miss out on potential growth. Taking too little risk for your circumstances may mean falling short of your goals, even though you had an opportunity to achieve them. 

Setting out a risk profile is an essential part of understanding which investments are right for you. 

It can be difficult to understand how much risk is appropriate. A financial planner could help you here. By considering a range of areas, from what assets you hold to your investment goals, we can create a risk profile that suits you.

By understanding risk and what’s appropriate for your circumstances, you could reduce the effect emotions like fear have on your decisions. You may feel confident enough to take greater investment risk if it’s right for you and find yourself in a better position to reach your goals. 

Want to review your investments? Contact us

Tailored investment advice may help you reduce the effect emotions have on your decisions so you can focus on what’s right for your circumstances.

Whether you want to start investing or would like a portfolio review, please contact us. We can work with you to create an investment strategy that you have confidence in and provide ongoing support so you have someone to turn to if you have any questions or concerns. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Visiting the supermarket to pick up a few items or do your weekly shopping is so common it can be difficult to imagine life without this convenience. Yet, it wasn’t too long ago that the first supermarket was opening its doors in the UK. And looking back offers an interesting insight into how money and shopping habits have changed.

The London Co-operative Society opened its doors for the first time in 1948.

It offered a very different service to other shops of the time. Shoppers were used to chatting with the shopkeeper while an assistant picked the items for them. In fact, shoppers wouldn’t have handled the goods at all until they paid.

So, walking into a “self-service” supermarket – where customers picked up their items themselves and took them to a till – was a very different experience. On top of that, there were all kinds of goods under one roof and competitive prices. It’s easy to see why supermarkets became popular. 

Today, there are thousands of supermarkets across the UK, from the “big six” to independent stores. And “self-service” has gone one step further with many shops installing checkouts customers can use themselves.

In the 75 years since the first supermarket opened, how we use money, the value of it, and shopping habits have changed enormously. Looking at inflation and how it’s calculated offers a glimpse into this transition.  

£1,000 in 1946 has the same value as almost £34,500 today 

The UK first started tracking retail prices a year after the first supermarket opened. It shows how prices have changed over seven decades. 

Data from the Office for National Statistics (ONS) demonstrates how inflation influenced prices between 1947 and 2023. While there have been times retail prices have dipped, overall, it’s been an upwards trend. 

Source: Office for National Statistics 

In fact, according to the Bank of England’s inflation calculator, £1,000 in 1946 would be equivalent to almost £34,500 today.

The ONS measures inflation by tracking a “basket of goods”. This basket is filled with common goods and services to understand how the cost of frequent purchases changes. Currently, there are around 700 representative consumer goods and services in the basket. As well as groceries from the supermarket, it also includes items like clothing and electronics. 

The items are regularly reviewed. So, not only does it track prices, but trends and spending habits. 

When the first supermarket opened, rationing was still in place. In the post-war era, the ONS included items like condensed milk, which was often used to make rations stretch further. Condensed milk remained in the basket until 1987 when fresh, pasteurised milk became more widely available. 

Fast forward to 2023, and new additions to the basket include frozen berries and free-from products. 

3 interesting comparisons that show the power of inflation

1. The average salary was 126 shillings, 9 pence 

Before the government introduced decimalisation in 1971, there were 20 shillings to a pound and 12 pence to a shilling. According to the House of Commons library, the average worker earned 126 shillings, 9 pence a week in November 1946. 

Inflation means the average earnings in April 2023 are significantly more. Data from ONS shows the average weekly salary is £603, excluding bonuses. 

2. A weekly grocery shop was just 45p 

According to the Northumberland Gazette, the average person needed just 45p to pick up a week’s worth of groceries in the 1940s. In today’s money that would be less than £20. 

However, food inflation and changing habits mean the average adult spends around £44 a week on food in 2023. 

3. A property “boom” led to prices quadrupling in some areas

Soaring property prices are often discussed in newspapers today, and it’s not a new phenomenon. 

A 1947 article in the Guardian states there was a “boom in house property prices”. In 1939, houses went for around £500. Just eight years later, aspiring homeowners could expect to pay up to £1,500, or even up to £4,000 in select residential districts. 

Over the next seven decades, house prices outstripped inflation. The Halifax House Price Index suggests the price of an average house in June 2023 was more than £285,000. 

Have you considered how inflation could affect your finances? 

Since the first supermarket opened its doors, inflation has affected the value of money. This is something you may need to consider when managing your finances.

For example, if you’re planning for retirement in 20 years, how will the income you need to maintain your lifestyle change? How can you grow your assets to keep up with the pace of inflation?

A financial plan that incorporates inflation could help you understand how it may affect your wealth and the steps you might take to protect it. Please contact us to arrange a meeting to discuss your financial plan. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

Since the government introduced pension auto-enrolment in 2012, millions more workers have started saving for their retirement. Now, the government has confirmed plans to extend auto-enrolment to encourage a savings boost. The changes could have implications for both employees and business owners.

In a publication, the government has revealed key announcements following a review of auto-enrolment that started in 2017. The reforms are forecast to increase pension contributions by £2 billion a year.

3 key auto-enrolment changes to be aware of 

1. The minimum age of auto-enrolment will fall from 22 to 18

Young workers could start saving into a pension much sooner. The government intends to lower the minimum auto-enrolment age from 22 to 18.

For employees, this could be a positive step. Saving for retirement from the outset of their careers could help establish positive money habits among workers. In addition, compound growth means early contributions have the potential to grow significantly. 

For business owners, it could mean their outgoings will increase as they’ll also need to make pension contributions on behalf of eligible workers. 

2. The lower earnings limit will be removed

At the moment, workers must earn at least £6,240 to be eligible for auto-enrolment. The government plans to remove this lower earnings limit, so workers will receive contributions from the first pound they earn.   

This will boost pension contributions among those that are already paying into a pension. It will also mean low-income workers that haven’t previously benefited from a pension, such as those who work part-time while caring for children or older relatives, will automatically start paying into a pension and receive employer contributions too.

While more people saving for retirement is a positive step, there are concerns it could lead to an increase in the number of employees opting out.

Speaking to FTAdviser, Tom Selby, head of retirement policy at AJ Bell, said: “Ratcheting up contributions during a cost of living crisis could be the straw that breaks the camel’s back for some savers, who might decide they simply cannot afford to put money to one side for retirement.”

From an employer’s perspective, this change could, again, increase the amount they are contributing to employees’ pensions. 

3. There could be a maximum limit on pension pots

As most employees are entitled to a pension through their employer, frequent job hopping could lead to individuals holding numerous small pensions. This may make it difficult to manage pensions effectively and understand if you’re on track to reach your retirement goals. 

In its report, the government sets out initial plans to help savers manage multiple pots. Among the proposals is a maximum limit on the number of pensions a person can have. The report also suggests a central clearing house to make it simpler to consolidate pensions. 

3 omissions from the auto-enrolment expansion

1. There is no timescale for the proposed changes

While reports suggest the government plans to implement the changes by the mid-2020s, the official document doesn’t set out a timescale. So, while young and low-income workers are set to benefit from auto-enrolment, it could be several years before they start contributing to pensions. 

2. The minimum pension contribution will not be increased 

Research suggests that minimum contribution levels are not enough to afford a comfortable lifestyle in retirement. A recent Scottish Widows report indicates a third of Brits could struggle in retirement because they’re not putting enough away during their working life.

Under the current rules, the minimum contribution is 8% of qualifying earnings, made up of 5% from employees and 3% from employers. 

There have been calls for the government to increase the minimum pension contribution level to help close the gap.

3. Auto-enrolment won’t be extended to cover self-employed workers 

Some organisations have called on the government to extend auto-enrolment to encourage self-employed workers to save for their retirement. However, support for the self-employed has been overlooked in the latest report. 

Research from the Institute for Fiscal Studies suggests the number of self-employed workers paying into a pension has fallen over the last decade.

It also found self-employed workers that pay into a pension rarely change the amount they contribute. The analysis suggested a form of auto-escalation, such as a direct debit that increases in line with inflation, could help self-employed workers save more for their retirement. 

Take control of your pension and retirement 

While the change to auto-enrolment could mean more people are on track for a financially secure retirement, there are still challenges. If you want to reach your retirement goals, engaging with your pension sooner, rather than later, could allow you to identify the steps you need to take.

Please contact us to discuss your retirement aspirations and how we could help you create a tailored financial plan. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results. 

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.  

Advice on auto-enrolment pensions is not regulated by the Financial Conduct Authority.

Investing may provide a useful way to grow your wealth, but getting started can be overwhelming. There are some important decisions to make when investing that could affect the outcomes and the tax you’re liable for, and we’re here to offer support. 

Last month, you read about investment risk and what to consider when creating a risk profile. Now, read on to discover what your options are if you’re ready to start investing.

Shares v funds: What’s the difference? 

Investing is filled with terms that can seem confusing. When you’ve looked at investing, you may have come across options like investing in shares or through a fund.

You may want to consider both options and understanding the differences is important. 

Shares

When you purchase a share, you’re investing in a single company. When you hold a share, you essentially own a very small portion of the business. You can then sell the share at a later date and, hopefully, make a profit. 

The value of shares is affected by demand. A whole range of factors can affect demand, from company performance and long-term plans to global economic conditions. 

If you purchase shares, you’re in control and can decide which companies to invest in and when to sell them. 

It’s normal for the value of shares to fluctuate, even daily. It can be tempting to try and time the market by buying when the price of a share is low and selling when it’s high. However, consistently timing the market is impossible. For most investors, buying shares to hold them for the long term often makes sense. 

Funds

A fund pools together your money with that of other investors. This money is then used to purchase shares in a range of companies.

A fund is managed on behalf of investors. So, you wouldn’t make decisions about which companies to invest in or when to buy or sell shares. 

There are lots of funds to choose from, so you can select an option that suits your risk profile and goals. 

Funds can be a useful way to ensure your investments are diversified. As your money is spread across many companies, it can help create balance. When one company performs poorly, the success of another could balance this out. So, the value of your investment in a fund may be less volatile than individual shares.

However, the value of your investment will still rise and fall, and investing with a long-term plan is often advisable. 

2 tax-efficient ways to invest and reduce your potential tax bill

When you sell certain assets and make a profit, you could be liable for Capital Gains Tax (CGT). This includes investments that aren’t held in a tax-efficient wrapper. 

For the 2023/24 tax year, individuals can make £6,000 of gains before CGT is due – this is known as the “annual exempt amount”. If profits from the sale of all liable assets exceed this threshold, you could face a CGT bill. In 2024/25, the annual exempt amount will fall to £3,000. 

The rate of CGT depends on your other income, but when selling investments, it can be as high as 20%. So, CGT may significantly affect your profits. 

The good news is that there are tax-efficient ways to invest that could reduce your bill, including these two:

1. Invest through a Stocks and Shares ISA

ISAs provide a tax-efficient way to save and invest. For the 2023/24 tax year, you can add up to £20,000 to ISAs. The returns made on investments held in a Stocks and Shares ISA are not liable for CGT.

There are many ISAs to choose from. They can hold shares or you can invest in a fund through one. Usually, you can access your investments that are held in an ISA when you choose.

2. Use your pension to invest for the long term

If you’re investing with your long-term wealth in mind, you may want to consider pensions. Pensions are tax-efficient for two reasons.

• First, you could claim tax relief on the contributions you make. This provides a boost to your contributions, which may grow further too, as tax relief would be invested alongside other deposits. 
• Second, your investment returns are not liable for CGT when held in a pension. Instead, you could pay Income Tax when you start to access your pension once you reach retirement age. 

In 2023/24, you can usually add up to £60,000 (up to 100% of your annual earnings) into a pension while retaining tax relief – this is known as your “Annual Allowance”. 

If you are a high earner or have taken an income from your pension already, your Annual Allowance may be lower. Please contact us if you’re not sure how much you can tax-efficiently save into a pension. 

Before you start investing in a pension, one key thing to consider is when you’ll want to access the money. Usually, you cannot make withdrawals from your pension until you are 55, rising to 57 in 2028. So, your goals and other assets should play a role in deciding if investing more into a pension is right for you. 

Contact us if you have questions about your investment portfolio 

We can work with you to create an investment portfolio that suits your risk profile and goals. We’re also on hand to answer any questions you may have, from deciphering financial jargon to explaining tax-efficient options. Please contact us to arrange a meeting to talk about your investments. 

Once you’ve set up an investment portfolio, how often should you review the performance? Why is ongoing advice useful? Read our blog next month to learn about managing investments on an ongoing basis. 

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

An investment in a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.

The favourable tax treatment of ISAs may be subject to changes in legislation in the future.

A pension is a long-term investment, the value of your investment and the income from it may go down as well as up. Your eventual income may depend upon the size of the fund at retirement, future interest rates and tax legislation.