The Importance of Financial Planning

Monthly Investment Note: May 2023

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While global GDP and inflation pressures continue to persist in the financial system, European & US economies are reporting lower inflation in the first quarter of 2023. However, in these economies inflation is still viewed as being stubborn and requiring a considered interest rate increase which is juxtaposed with balancing the cost of credit considerations. The key for Central banks is to find the optimal terminal interest rate; just high enough to continue reducing inflation but not to stifle growth too much and push their economies into recession.
 

At the end of March, US annual inflation was measured at 5% and European inflation at 6.9% (Ireland is estimated to be 7.7%) while UK inflation was estimated to be 8.9% and these headline figures continue to drive interest rate policies from Central Banks, currently. Notably also are the oil prices (as measured by Brent Crude) which have dropped by ca. 7.4% since early January and are currently trading at below $80 pb (ca. $79.60) at time of writing.
 

With the FED interest rate, adjusted in May to 5.25%, EU rates increased to 3.25% and UK rates at 4.25%, bond yields have also risen and have as a result, reduced valuations over the course of the interest rate hikes. While it was thought that the FED might start to ease the rate of interest rate increases early this year, it is now increasingly likely that further rate hikes or longer timeframes at current rates may yet be required. Therefore, it is likely that interest rates may indeed peak over the next 6 months and we continue to move cautiously on long term bond purchases until there is sight of the terminal interest rate, expected later in the year.
 

Global equities have continued their rally with the index of global stocks up 5.97% since the beginning of the year. While US equities have risen 5.35%, Japanese equities risen 3.02%, it is the European equities that continue to outperform with a rise of 11.4% this year so far; (all Euro hedged). This strong performance is driven (in large part) by the good value on offer with a plethora of companies showing strong balance sheets & free cashflows and trading at good value (12.7 x fPE) in other words good quality companies trading at good value and suitable for this economic cycle.  This is in contrast to US equities which are trading at ca. x 18.6 fPE.
 

We continue to favour taking positions in Globally diverse equity funds which are trading at good to fair value and are cautious on new positions in long / medium term bonds for the foreseeable future. These bond calls will be portfolio dependent. Conservatively, therefore, as per our previous notes, we still look to total return funds as potential alternative investments to bond funds.
 
As an aside, the link below (Courtesy of Visual Capitalist) shows an animation of the various business sectors contributing to the growth in the S&P500 in the first quarter 2023. Note the contributions from the mega cap companies which provided the greatest returns….Enjoy!
 
Click Here to See the Sectors Contributing to Growth in the S&P500 in Q1 2023
 

All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Monthly Investment Note: March 2023

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Global GDP and inflation pressures continue to persist in the financial system with the European & US
economies reporting higher than expected inflation and lower GDP for the final quarter of 2022. US inflation was measured at 6.3% and European inflation at 10% (Ireland is estimated to be 8%) in Feb, while the UK inflation was estimated to be 10.1% and these headline figures are driving interest rate policy currently.
 

It was thought that the FED might start to ease the rate of interest rate increases early this year but it is now increasingly likely this may be postponed until later in the year or until they have sight of the core inflation rate (4.7%) falling.
 

With the FED interest rate at 4.75%, EU rates at 3% and UK rates at 4%, bond yields have risen in line and have resulting in valuation reductions in the last 14 months. It is expected that interest rates will continue to rise over the next 6 months and therefore we have decided to halt long term bond purchased until there is sight of the terminal interest rate, expected later in the year.
 

Global equities have enjoyed a start of the year rally with the index of global stocks up 4.3% (in Euro term) since the beginning of the year. While US equities have risen 3.1%, Japanese equities risen 2.4%, it is the European equities who are the start performers following a rise of 7.9% this year so far. (all Euro hedged). This strong performance is driven (in large part) by the good value on offer with a plethora of companies showing strong balance sheets & free cashflows and trading at good value (12.5 x fPE) in other words good quality companies suitable for this economic cycle.  This is in contrast to US equities which are trading at ca. x 18.4 fPE.
 

We continue to favour taking positions in Globally diverse equity funds which are trading at good to fair value and avoiding the purchase of long / medium term bonds as we expect to see further interest rate rises in 2023. Conservatively, therefore, we are looking at total return funds as alternative investments to bond funds.
 

All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Monthly Investment Note: February 2023

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On the back of a dismal 2022, global markets have somewhat rallied during January 2023 on the back of a tapering of inflation expectations and sight of what the market perceives to be a landing area for the terminal interest rates.
 

US Stocks posted gains after the announcement of an above expectations, Gross Domestic Product (GDP) figure for Q4 of 2022. Showing that GDP in the US rose by 2.9% in the last quarter of 2022. Consensus among economists had been for a 2.6% increase. The higher-than-expected result was viewed by many as an indication of a more positive economic climate than had previously been forecast.
 

The gains seen in European stocks of late have resulted in positive sentiment from investors in the Eurozone, however the European Central Bank (ECB) has remained hawkish in its stance towards tackling inflation. ECB President Christine Lagarde has consistently left little room for doubt about the central bank’s commitment to raising rates and with the ECB set to announce an interest rate decision in the coming week, many investors are poised for a 0.5% rate increase.
 

Last week also saw the release of the Eurozone Purchasing Managers Index (PMI) for manufacturing and services activity. The figure came in at 50.2 in January, up from 49.3 in December and ahead of expectations of 49.8. This result represents moderate growth while the flash composite PMI for the UK dropped to 47.8 from 49.0 in December adding to investors doubts about recession risk. UK equities finished the week down -0.2% in euro terms. Indeed, coupled with the latest report from the IMF suggesting that the UK will be the only developed economy to enter recession in 2023,
 

Finally, equities in Japan had a stellar week returning 2.8% in euro terms. Much of the performance is seen as a result of the Japanese central bank’s commitment to maintain ultra-low rates. With inflation showing signs of tapering and economic indicators stronger than previously anticipated, there is a cautiously positive sentiment for equities markets currently and we continue to recommend a globally diversified portfolio of equities as part of any regular investment strategy.
 

Additionally, with rising interest rates driving the correction in bond prices and yields, in 2022, bonds now offer an attractive portfolio addition for investors for the foreseeable future.
 

All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

The CSO Household Finance & Consumption Survey 2020

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The CSO Household Finance & Consumption Survey 2020 has been published.

This publication by the Central Statistics Office presents the results of the 2020 Household Finance and Consumption Survey (HFCS), which was carried out between July 2020 and January 2021. Detailed information on household assets and liabilities is collected by the HFCS, as well as data on gross income and credit constraints & the full survey report is available via the link https://www.cso.ie/en/releasesandpublications/ep/p-hfcs/householdfinanceandconsumptionsurvey2020/introduction/

The survey provides an insight into the nations wealth and the data was collected from private households on the basis of self-assessment.  A summary of the results is presented below:

 

household-finance-consumption-survey-2020

  • The median net wealth value of Irish households is €193,100. The median net wealth value, (defined as gross wealth less debt), is obtained by arranging all households in ascending order from the smallest to the largest value and then selecting the middle value. Therefore, half of all households have a net wealth value less than €193,100.
  • More than two-thirds (69.6%) of all households own their main residence, either with or without a mortgage. The median value of the household main residence (HMR), for those households that own their HMR, is €260,000.
  • In 2020, 4.1% of all HMRs owned with a mortgage are in negative equity.
  • More than two-thirds (68.1%) of all households have some form of debt. Overall, the median value of debt for households with any form of debt is €25,000.
  • The proportion of credit constrained households is 6.4%. A credit-constrained household is one that applied for credit and was turned down or received less credit than the amount applied for. It may also be one that considered applying for credit but did not do so due to the perception that the application would be turned down.
  • The median debt to asset ratio, the ratio of total liabilities to total gross assets for households with debts, is 23.3%.
  • The debt to income ratio, the ratio of total liabilities to total annual gross household income, is 40.8%.
  • For households that have a mortgage on their HMR, the median loan to value ratio, the ratio of the outstanding amount of the HMR mortgage to the current value of the HMR, is 45.2%.
  • More than nine out of every ten households (97.1%) own some form of financial asset (e.g. savings, shares, voluntary pensions.) For households that own financial assets the median value is €13,300. See PxStat table HFC2008.
  • The Gini coefficient for net wealth, (a statistical measure of inequality), is 65.4 in 2020.  See Figure 8.1.

households-with-assets-debts

 

If you would like talk to us about your personal finances, contact michael@lifetimefinancial.ie or aidan@lifetimefinancial.ie

Michael Wall Ph.D CFP® is a Director at Lifetime Financial Planning. Lifetime Financial Planning Ltd Trading as Lifetime Financial Planning is regulated by the Central Bank of Ireland. All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Investment Snippets #6

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#STICKTOTHEPLAN: How to deal with Market Volatility

Volatile Markets rattle the nerves of investors, but we should remind ourselves why, as investors, we invest.

Consider that when we purchase shares in a company, we are buying ownership of that company, so we become a shareholder and that entitles us to a share in the profits. The profits may be distributed in the form of a dividend or invested back into the company. The upshot is when a company is profitable; it usually increases its net asset value.

However, the profitability of a company is not always reflected in the share price and visa-versa, Price doesn’t always reflect profitability. This is highlighted in the chart which shows Unilever PLC’s share price and the company’s profitability which we measure using Earnings per Share. Here, we see even with consistent increasing earnings there is significant “volatility” in the share price.

 

Unilver

 

The share price is what most people are familiar with and it can be difficult to tease out the cause of its volatility. Genuine reduction in profits due to  changeable local economic factors, interest rate policy, bond yields and inflation, employment, political interference, and world trade agreements all influence investors emotions to varying degrees and therefore their appetite for investment which is reflected in the share price. A hard look at the facts is always warranted when we see volatility to understand that the investment case remains sound.

If you are a lump sum investor, then downward volatility has to be ridden out. Strong emotions will tempt you to SELL holdings and preserve the CASH. This is a mistake as it will likely crystallize a permanent loss, which if repeated frequently, is the quickest way to destruction of your wealth. Consider also, that you will likely be selling a good value asset at low price which is a bargain for a buyer on the other side.

On the other hand, we view Share price volatility as an opportunity to pick up quality assets at good value. If you are a regular investor, a monthly contribution invested will allow you to take advantage of a lower price paid for your holdings which can help to enhance long term capital appreciation.

And so back to Unilever, which if you had acquired in 31/10/2013 at a price of £25.01 per share, then today, 5 years later, that share is trading at £40.85, which represents a gain of £15.84 (63% or a compound growth rate of 10.31% pa).

How do we deal with market volatility?…….we ALWAYS look at a 5 year investment term.

If you have any queries, reservations, concerns or just want to talk it out, do give us a ring on 085 866 9813

The Importance of Financial Planning

Stand Back from the Scrum Snips #5

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Its happening again, Stock markets are at all-time highs and confidence is flying high. But at Lifetime Financial Planning we use our tried and tested Value Based Investment Strategy to identify good value for our Clients. And from the 600 largest companies in the US and UK, only 12 meet our value criteria currently, which means 98% are not good value. However, the good news is we are likely to see a lot of Volatility in 2017, and volatility always means good value buying opportunities for our Clients.

Talk to us if you would like your Pensions and Investments to be managed in a strategy with a long (20 year) successful track record, and with a focus on value for money assets.

As always, bear in mind that Investments fall as well as rise, and past performance is not a good guide to future performance.

The Importance of Financial Planning

Moved to Ireland from the UK? – Transfer Your UK Pension

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If you worked in the UK and have moved to Ireland, you may have left one or more UK Pensions behind. We strongly recommend that these assets be transferred back to Ireland, you thereby gain control of your asset.

BREXIT means this should be done sooner rather than later. The funds can be retained in Sterling if desired.

At Lifetime Financial Planning, we have the technical expertise and experience in transferring UK Pension Funds to Ireland.

If you need help in relation to transferring your UK pension or any other financial matter give us a call at Lifetime Financial Planning.

Tel +353 (0)46 924 0961. Email: michael@lifetimefinancial.ie or aidan@lifetimefinancial.ie

The Importance of Financial Planning

Will you have enough to retire?

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It’s a worry, isn’t it. You don’t want to run out of money after you stop working, or have to live in austerity. You may have a mix of things you are relying on, a business, property, pension fund, cash savings, your home. You may also have debts, loans. So it’s complicated, and the State Pension is good, but not nearly enough, and will it stay the pace ?

Our Recommendation. You need a PLAN. We call it a Lifetime Financial Plan, because it’s a long term plan, taking everything into account. And as your circumstances change, the plan is updated so you are always on track. You can get more info about this on our website www.lifetimefinancial.ie In making the plan, we also make sure you are making the best of any opportunities, such as saving tax. The sense of relief, and peace of mind that having a plan brings, means you can confidently get on with enjoying your life.

To find out more, and take the next step to your Lifetime Financial Plan, give Aidan a call at 087 262 1006 or Mick at 085 866 9813.

The Importance of Financial Planning

Meeting Investment Expectations

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Investors now have a much wider range of investment choice open to them than ever before, ranging from the US stock market to the value of the euro versus the Japanese yen, the price of commodities such as oil, German government bonds and a whole range of other securities. For the non-professional, attempting to devise an appropriate investment strategy with all of these options and choices available can be a daunting task.

It is widely understood that higher investment returns are accompanied by higher risks. While we might dream of making a killing on the stock markets, however, we might not want to risk our hard earned cash on high risk strategies. Fortunately there are now some quite useful and necessary tools available to assess an individual’s risk appetite to ensure they don’t find themselves outside their comfort zone.

There are three key elements that feed in to an investors profile and risk tolerance with regard to the investment strategy required.

  • Attitude to Risk
  • Requirement
  • Capacity

Attitude to Risk

This deals with the individual investors own risk attitude and/or their tolerance of risk.

“How can I emotionally handle moves in the value of my portfolio?”

Are you likely to panic, for example, if there are significant downward movements in values? On the other hand are you a bit of a gambler and feel you can take on lots of risk and volatility in order the achieve high returns? To get the balance right the attitude to risk then need to be co-related to requirement and capacity, bearing in mind that in most cases taking some level of investment risk is key to higher investment return.

Requirement

Here the need is to focus in on what is the objective of any investment. If, for example, the investor has €200,000 and wishes this to grow to €300,000 over 10 years this is probably achievable without too much risk. On the other hand if the need is to do this over 3 years then history shows us what short-term volatility can do to an investment over that period. In addition an individual’s requirement when it comes to investing a capital sum for example could be quite different to the same individual’s requirement for his pension scheme. In the first case the time horizon may be quite short while for the pension you are probably looking at a longer term.

Capacity

This is perhaps the most important consideration of the lot and deals with the individual’s ability to take the financial risk.

“If this investment lost a significant amount of its value would it make a material impact on my financial position?”

Capacity is particularly important for individuals taking on higher levels of risk obviously. Risk tolerance and appetites change over time and can actually change very quickly. It could be a significant inheritance or business success that changes circumstances for the better or when it comes to pension planning it will be necessary to calibrate risk capacity the closer the person gets to retirement. Suffice to say that there are strategies to suit each circumstance and it is vitally important you review risk tolerance regularly.

Aidan Wall has been providing impartial and unbiased investment and pension advice to clients at all stages in the their lives since 1983. If you would like to talk to Aidan about a lump sum investment or pension fund please call 046 924 0961 or email: aidan@lifetimefinancial.ie

At Lifetime Financial Planning we also conduct regular reviews of your investment / pension fund performance, which we believe are the key to ensuring your chosen fund(s) can meet your expectations.

The Importance of Financial Planning

Set Your Financial Goals With a Lifetime Financial Plan

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A recently published survey revealed that a significant amount of our population is suffering from high levels of stress due to concerns about their financial well being.

Pension planning, for example, was a serious source of stress with over 51% of respondents saying they were not saving enough for their retirement. Not knowing how to plan for your financial future can lead to inaction and high levels of stress.

Identify Your Financial Goals

Despite being worried about their financial future the vast majority of people do not have a Lifetime Financial Plan to address this. In order to put together a good plan you need to ask yourself some straight questions…. 

  • When do you want to retire?

  • If I die or suffer serious ill-health how is my family fixed?

  • When do you want your mortgage paid off?

  • Have I made a will?

  • Should I review my savings and investments?

  • Can I save money on the cost of some utilities and services – Energy, Car or Home Insurance, Health Insurance etc.?

Let’s have a brief look at some key areas:

Take Control of your Pension

Starting a Pension Plan or increasing your contributions to an existing one is a very good move to make at the start of 2016.

  • The younger you start your plan the better as your pension pot will then be bigger.

  • If you have a workplace pension scheme you should join it as your employer is likely to be making a contribution for you.

  • Those approaching retirement should make sure they are not taking too much investment risk.

  • Identify your retirement goals and the cost of getting there.

  • Put in place a plan to review your Lifetime Pension Plan at least once a year.

Protect your Family

Death is a taboo subject to most and yet having plans in place to deal with the financial impact of unexpected death is vital for anybody with dependent relatives. Equally you need to consider you and your families circumstances if you suffer a serious illness to the point where it has the effect of eliminating your income. 

  • Do you have Family Protection/Life Insurance cover?

  • If so will it be enough to maintain your family’s standard of living?

  • Should you have Serious Illness or Income Protection cover or both?

Estate Planning

Estate planning is a vital component of any robust financial plan. While, for example, the recent budget increased the tax free threshold for inheritances passing between parent and child to €280,000, with increasing house values etc., it doesn’t take a lot before there are very heavy tax exposures. Only a third of Irish people have made a will which is crazy if you want to dictate and sensibly arrange how your affairs are going to be managed when you die. You certainly don’t want to leave yourself dependent on the laws of intestacy which may not distribute your assets as you would like.

  • Have you made a will?

  • Does it need to be reviewed?

  • Are there any financial or tax planning matters that need consideration?

The Need for Regular Reviews

You should review your financial plan with your Broker on an annual basis. Numerous studies have shown that those who conduct regular reviews having higher savings and pension values than those who do not. 

  • A good plan will help eliminate the stress of not knowing where you are going.

  • Your circumstances do change regularly, for example, additions to the family.

  • Other situations change – tax laws, interest rates, economic climate etc, and your Financial Broker will be able to keep you up-to-date with these changes.

     

 

If you would like to take control of your finances in 2016 and get your Lifetime Financial Plan in place then please contact Aidan Wall, QFA, at 046 924 0961 or email aidan@lifetimefinancial.ie

 

The Importance of Financial Planning

How to Invest a Lump Sum

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HOW TO INVEST A LUMP SUM

As someone who has advised clients on their investment options for over 30 years, people often contact me seeking impartial and unbiased advice on how to invest a lump sum. Whether you have recently received an inheritance, successfully completed the sale of an asset or even won the lottery jackpot the advice I provide is pretty much the same in every case. Here are some simple steps to help demystify the whole process:

 

1: Decide on your investment goals

Some important questions to ask yourself at the early stages of investing include:

  • How long do I want to invest for, is it short or long term?
  • What level of return do I expect to receive?
  • Do I want a guaranteed level of return?
  • Will I need access to my fund if my personal circumstances change?
  • Do I want to receive a regular income from my investment?
  • How much risk should I take?

 

2: Seek Impartial Advice

Often people assume that they save money on fees or commission by arranging their investment directly through a product provider, bank or other financial institution when in fact the opposite is often the case.

The Competition Authority recently noted that Life and Pensions companies tend to provide better product design, more flexible terms and more competitive quotes when engaging with an Impartial Financial Broker.

An Impartial Financial Broker is a highly qualified professional who is required by law to work in your best interest, not in the interest of investment companies.

Their impartiality enables them to research the market thoroughly for the most suitable investment opportunity and to provide a range of choices to suit your needs. This is known as “fair analysis” of the market as it gives you a much better picture of the range of investment choices available.

 

3: Ensure your Advisor conducts a “Factfind”

Before imparting any advice on how to invest a lump sum your advisor should conduct a “Factfind”, which is essentially an in-depth analysis of your current financial circumstances and includes your income and expenses, your family situation (number and ages of dependants etc) and your existing assets and liabilities. This helps both advisor and client to build up a picture of where you currently stand financially.

 

4: Ensure a Risk Assessment is carried out

All investment funds are rated from 1 to 7 in terms of the level of risk involved, with low rated funds offering lower returns and less chance of volatility, and higher rated funds offering the potential for greater returns, but also greater volatility.

By conducting a Risk Assessment an advisor can ensure that you fully understand the different levels of volatility risk involved. In recommending a particular investment for you, the advisor will also take into account what they believe to be your threshold for withstanding any potential losses that could occur. This helps you to gauge your own attitude to risk when deciding what type of fund you may want to invest your money in.

At Lifetime Financial Planning, conducting a Factfind and Risk Assessment is an integral part of our advice process.


5: Review your Investment Options

At this point your advisor will research the market thoroughly for a range of options to suit your needs, providing you with a choice of suitable investments based on your requirements, your financial situation and your attitude to risk.

A good impartial advisor will also take a number of other factors into account, such as the financial strength of the product provider, the past performance of similar investments, and the cost of fund management fees.

 

6: Conduct Regular Reviews

When you have made your investment decision we strongly advise conducting regular reviews with your advisor in order to stay up to date on the performance of your chosen fund. Conducting reviews also enables your advisor to stay updated with regard to your personal financial circumstances and recommend any changes needed to ensure you stay on track to meet your goals.

 

About Lifetime Financial Planning

At Lifetime Financial Planning we have been providing impartial investment advice to clients at all stages in their lives since 1983. If you are seeking impartial advice on how to invest a lump sum or you wish to conduct a review of an existing investment then please don’t hesitate to contact us.

We can help you to diversify your investment, devise a phased strategy and/or switch or redirect an existing investment if you so choose.

Call Aidan Wall, Lifetime Financial Planning, at 046 924 0961 or email: aidan@lifetimefinancial.ie

Website: www.lifetimefinancial.ie

Investments can fall as well as rise. Past performance is not a reliable guide to future performance.

Aidan Wall Financial Services Ltd T/A Lifetime Financial Planning is regulated by the Central Bank of Ireland.

The Importance of Financial Planning

Financial Broker Vs Bank Advisor Part 3: Competitive vs Monopolistic

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In Part 1 of this series of articles I explained that an advisor at your bank is often tied to a limited number of financial product providers, greatly restricting the amount of choice it can provide to you the customer. Impartial Financial Brokers are not tied in the same way, and are therefore free to research the market for a more competitive alternative which is often better suited to your specific requirements.

The Competition Authority in Ireland has noted that this ability to act in the best interest of our clients results in Life and Pensions companies providing more competitive quotes, more flexible terms and better product design when engaging with an Impartial Financial Broker.

This leads to the ultimate question, why would you want to pay for what is often an ill-fitting off-the-shelf product from your bank when you can arrange a better suited product that often costs less through your Impartial Financial Broker?

If you have already availed of a free financial planning service or purchased a financial product which you wish to review, I would be happy to do it for you. Call me at 046 924 0961 or email: aidan@lifetimefinancial.ie Website: www.lifetimefinancial.ie

Aidan Wall Financial Services Ltd T/A Lifetime Financial Planning is regulated by the Central Bank of Ireland.