The Importance of Financial Planning

Urgent Notification for Business Owners

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The Finance Bill 2024 was published yesterday & it contained provision which materially impacts your retirement funding from 01/01/2025.

Since Finance Act 2023, business owners were provided the opportunity to make significant contributions to their Personal Retirement Savings Accounts (PRSA) which for many, afforded them the opportunity to back fund for contributions which perhaps couldn’t be made in the early years of setting up the business.

PRACTICALLY, that meant that business owners with significant funds in the bank, and with one eye on retirement, could make significant contributions to fund their PRSA’s and if they were Company Directors, would receive Corporation Tax relief.

YESTERDAY, Minister Chambers published the Finance Bill 2024, which disappointingly, contained a provision to limit the employer contribution amount to 100% of total emoluments, which is usually defined as salary. This is a huge departure from the previous flexibility of being able to fund up to the Standard Fund Threshold of €2M.

WHAT HAS CHANGED is that contributions to a PRSA greater than their total remuneration will now NOT receive the Tax relief previously afforded and will be treated as a Benefit in Kind as it was prior to the original amendment in Finance Act 2023. In essence, this is a huge step back for the backbone of this economy; the Irish SME’s, family business owners & Company Directors.

ACTION is now required by business owners to swiftly re-assess their current retirement funding strategy and to re-align if necessary, with the current impending change in the legislation BEFORE 31/12/2024.

If you would like to discuss this further, please contact me on 085 866 9813 or michael@lifetimefinancial.ie  

The Importance of Financial Planning

The Power of Partnering with a Certified Financial Planner

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The Power of Partnering with a Certified Financial Planner

Financial planning is at the cornerstone of personal empowerment, and for women, it holds particular significance. In a world where gender disparities persist in various areas of life, from earnings to career progression, financial planning is a crucial tool for women to navigate these challenges and secure their future independence.

At Lifetime Financial Planning, we strongly advocate for long term planning for the future, today to provide a sense of financial wellness regarding your future financial self. For women, financial wellness has a particular importance considering that on average, women live longer than men (84.4 years for females vs 80.8 years for males in Ireland in 2020: CSO Measuring Ireland’s Progress 2021) and as a result will require more financial resources if they wish to maintain a comfortable quality of life as they age.
Recent findings from the FPSB Value of Financial Planning Research 2023, undertaken for FPSB Ireland and conducted amongst 1,000+ consumers* in Ireland shed light on the significant impact of financial planning on the financial well-being and confidence of women in Ireland. Here are the key takeaways from the survey:
*52% of respondents were female and of these, 240 are advised and the balance, 296, unadvised.

Women who have sought financial planning advice have elevated levels of financial confidence.

The survey reveals a promising level of financial confidence among advised females, with 92 out of 240 expressing belief in having enough funds for retirement. A substantial majority of 196 out of 240 respondents consider themselves knowledgeable about finance, indicating a solid foundation for making informed financial decisions. Impressively, 199 out of 240 advised females successfully adhere to their financial strategies, highlighting disciplined financial management practices.
The more intimately you know your finances the better; this is particularly important where you share finances with someone. It is important that you can be financially independent just in case something goes wrong – such as divorce, or untimely death, etc.

Women who have a written financial plan are more likely to feel confident about achieving their life goals.

The survey identifies various triggers prompting females to seek financial advice, including specific financial goals and objectives, recommendations from trusted sources such as family, friends, or colleagues, referrals from professional advisers, health-related concerns, and windfalls like inheritances. Before doing anything about your finances, it’s important to set yourself financial goals for the future. The goals should be specific and realistic.
Women often have unique financial challenges, such as longer life expectancy and career interruptions due to caregiving responsibilities. It’s essential to address these factors in long-term financial planning. Understanding your current financial situation, including income and expenditure, assets and liabilities, risk attitude, tolerance, can help women build a solid financial foundation for the future.
Once you have set your objectives and goals, and understand your current financial position, make sure you create a plan of action. Those with a written, comprehensive plan are more likely to feel strongly confident about achieving their life goals. Financial planning is a dynamic ongoing process that requires continuous monitoring. The actions recommended and the goals should be reviewed regularly to take account of a change in income, asset values or family circumstances.

Women who work with a professional financial planner express considerable or complete trust in them.

Building a strong support network is crucial for women’s financial success. Financial planning professionals provide connections with other professionals, such as accountants, solicitors and mentors, to provide holistic guidance. Collaborating with trusted advisers, in particular a CERTIFIED FINANCIAL PLANNER™ professional, who will hold you accountable for your plan and help you make necessary adjustments when, or if, it goes off track will ensure that women receive comprehensive support tailored to their unique needs and goals.
A significant majority of advised females, with 197 out of 240 respondents, express considerable or complete trust in their financial planners. This trust reflects the strong relationships built on transparency, expertise, and personalised guidance, highlighting the importance of trust in the client-adviser relationship.

Engagement with CFP® Professional.

A notable portion of advised females, 104 out of 240 respondents, demonstrate an awareness of the internationally recognised CERTIFIED FINANCIAL PLANNER designation. Welcome news is that 73 out of 240 advised females are fortunate to receive guidance from a CFP® professional, highlighting the value placed on expertise and accreditation in financial planning.

The survey findings highlight key benefits in working with a professional financial planner, including simplifying and explaining financial matters, boosting financial decision-making confidence, saving time and effort in financial decision-making, improving financial well-being and peace of mind, and establishing and achieving financial goals.
Beyond mere budgeting, financial planning encompasses a strategic approach to managing resources, investing wisely, and building long-term financial stability. The survey findings reaffirm the invaluable role of financial planning in empowering female consumers to achieve their financial goals, enhance their financial confidence, and secure their financial futures. Recognising the unique socioeconomic landscape women often face, proactive financial planning not only fosters individual prosperity but also serves as a catalyst for broader economic empowerment and gender equality.

The Importance of Financial Planning

Monthly Investment Note: February 2024

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A Frothy Cappucino…

 

frothy-cappucino

As we close the door on February, things are certainly feeling a little frothy in a number of markets just now.  US equity markets continue to drive higher, led by the phenomenal returns from the technology sector in the all-encompassing Artificial Intelligence space, the US 500 has hit multiple new highs in February and there seems like no end is in sight……watch out for phrases such as it’s different today!!.

With our feet firmly on the ground though, we see many valuation models continue to notch up and most are well above historical norms (>1 SD). With the latest earnings season now behind us, the star performers (you know the ones) with the exception of TSLA, continued to post huge profits, none more so than Nvidia which added a further $277 Bn (yes, you heard right, that’s two hundred & seventy seven with nine zero’s behind it) to its market capitalisation on the back of the statement that it expects revenue streams to continue to grow. Seriously, in February 2020 the shareprice for Nvidia was a respectable $67.94 per share, while today it is trading at $797.82 per share, that’s a compounded annual growth of ca. 85% per year over the last four years. …nose bleed alert!!

In contrast, participants on the fixed income side are indeed having a rougher time of it. Treasury yields swung from 4% in December, to 3.94% in January to a whopping 4.26% today driven by the disconnect between the markets and the message from the FED. J Powell stated explicitly that the FED would be data driven and the markets simply ignored his message, and proceeded to price in a seven point rate cut in 2024. This has now been re-calibrated at break-neck speed, to three rate cuts in 2024. In previous notes, I mentioned to expect rates to commence being reduced in the second half of 2024 and indeed, this now appears more plausible.

As ever, the best advice for long term investors, is just to hold on for the ride. Despite nosebleed valuations, missing out on rallies like we’ve seen in the last 6 weeks is the opportunity cost that can destroy long term returns remembering that the greatest returns throughout the year occur over a handful of days only and are best availed of when investors stay in the market. Trying to time a dip or a peak is a gamble & inevitably leads to missing out on the best days for returns. Statistically, this behaviour has significant negative impacts on portfolios.

On the macroeconomics side of the equation, we see that EU annual inflation[1] dropped slightly from 2.9% to 2.8% in February which was mirrored in Ireland with a decrease from 3.2% to 2.7%. Underneath this drop, we see that In Ireland, the biggest contributors to the rates included price increases for food, utilities, recreation and hotels. Italy showed the lowest inflation at 0.9% while Estonia the highest at 5.0% for the same period.

Some of the headline data which we track is shown in the table below.

EU Inflation US Inflation ECB Rate Fed Rate Brent Crude US 10 Year Equities YTD Equities fPE
2.8% 3.1% 4.5% 5.5% $81.41 4.26% 7.5% 17.83

Reinforcing the message last month; the current US & ECB  interest rate policies continue to have the desired effect on the rate of inflation.  With the 2% sweet spot in sight, it is now time to start thinking about reducing those higher rates to avoid either economy tipping into full recession. The balance faced by the Central bankers here is too much rate reduction, too quickly, and they will be cognisant of the eighties when just such a move tipped the US into prolonged recession. The challenge then is to achieve that “soft” landing where inflation peels back to 2% without the economy tipping into recession…..a bit like steering an oil tanker into a parking spot at your local supermarket.

Sticking with inflation, Europe should be content, and the US irked by the slow pace of its reduction. I would suggest that Europe is experiencing the greater rate reduction as several economies are close to or in technical recession, despite the bloc having registered a 0.1% increase in Q4 2023.  Germany, the EU’s largest economy saw its GDP shrink by 0.3% in the final quarter of 2023 which for the industrial powerhouse of Europe is somewhat worrying.

Like European Central Bank rates, US rates have remained unchanged, and I would suggest this will be the case for a few months more yet. Core inflation is stubborn to get down and a cool hand by Central bankers is required to steer the trading blocs gently towards that all important soft landing where inflation reaches its target of 2% while high employment remains.

So, while great for investment portfolio’s yearly performance, the market froth is a sign of pent-up energy amongst investors to continue to re-allocate their capital, something which must be viewed with a note of caution. So, with the transformative change in the risk-free rate now firmly planted at stage two, we continue to see Short dated bonds paying a higher yield than the average dividend yields for stocks, (4.67% versus 1.5% in the US and 2.06% globally) and that being the case, any future yield drops in bonds, should produce a capital return for short dated bond portfolios.  These two features highlight the comeback of the 60/40 portfolio where now both equities & bonds will deliver reasonable returns for the foreseeable future.

Turning to oil now, we see the price jump from $78 to $81 per barrel bringing us back to the average price per barrel of €82 through 2023. The global threats including the war in Ukraine, Israel’s invasion into the Gaza strip, trouble in the Red sea shipping lanes and all that that brings, still remain. We continue to see US and UK navy tactical bombardments of Houthi rebel positions to protect those valuable shipping lanes, but we move into the warmer season in the northern hemisphere, consumption should be lower and it might give time to resolve issues in that region of the world.

Setting macroeconomics aside, what does all this mean for investors?

Well, year to date, we see a rally in global markets which have delivered about 7.5% increases but with valuations of fPE ratios notching up to 17.83. The biggest contributor is the top ten companies contributing to the US500 with 9% driven in no small part by the technology sector, followed closely by the Japanese rally of 8.7% (I’ll get to this in a moment) and then Euro equities 4.1%. However frothy I deem the US markets, the fear gauge as measured by the volatility index continues to bound around the 13 to 15 range; well below the standard of 20 points which is attributed to volatile markets (last seen in October 2023).

Returning to the Japanese equities story, for the past two years they have been trading at well below (>1-2 SD) their long term average and have now broken free in 2024 delivering a whopping 8.7%  year to date. So, what’s driving this?…well since 2020, both the Euro and Dollar both strengthened against the Japanese Yen, by 36% in Euro terms and 28% in US Dollar terms. Weaker Yen means cheaper exports and that, coupled with significant corporate board room changes at Japan’s biggest companies has led to a resurgence in interest in Japanese companies which are already amongst the best in the world.

In addition, Japan is now making moves to slowly increase its interest rate (Currently -0.1%) to combat rising inflation. That being the case, the Yen will strengthen, so those who bought Japanese assets for relatively cheap Yen, will now also benefit if indeed interest rates do in fact increase. Hence the flood of global capital eastwards.  Don’t forget that Japan is the thirds largest economy in the world, something to be admired of the Samuri warriors…

Looking forward, we are seeing forward price / earnings ratios (one of our measures of value) for global equities continue to increase from long term averages with global equities now trading at 17.83 times (increased from January), European equities at 13 times, with Japanese equities trading at 14.92 (increased from 13.8 in January) and US equities now trading at 20.4 times their forecast earnings.

The long-term forecast for growth in global stocks has reduced slightly to 10.3% with another slight reduction in the average yield of 2.06% from 2.1% in January. This reduces the equity risk premium which is the Forecast growth – the risk-free rate, to ca. 5.7%. However, conditions continue to still drive fund flows into the money markets which are currently yielding ca. 3.98% and remain a valuable component of many portfolios.

As always, we take the long view on Investments and are happy with globally diversified portfolios. In today’s (relatively) normal interest rate environment, we see slightly less fair value across global equities with (fPE’s at 17.8) in comparison with early 2023, where valuations averaged 16.6 times earnings. While the markets have roared so far this year, I would suggest again that as the Central bank’s Monetary policies unfold throughout the course of the year, we can expect to see increased volatility in those capital markets. During these times, it is important to remind ourselves of our investment objective which as always, guides our asset allocation.

For regular long term investors, our view is to continue to buy into the market and for lump sum investors, while the conservative portion of portfolios can be bought quickly, a multi-stage approach to the purchase of the equities portion, might be a prudent option.

Our view, on global bonds has also remained as per last month. With, the US 2 year treasury now yielding 4.67%, which is attractive when compared to the average dividend yield of 2.06% for risk assets and slightly more attractive than some money market funds which are paying the 3.98% yield but with the advantage of higher liquidity. Therefore, with bond yields at current levels, and interest rates probably plateaued but set to change, this asset class continues to look a more attractive investment, than in recent years.

Our cautious view on lower volatility portfolios continues to be implemented through the use of money market funds, currently yielding ca. 3.98% and a small allocation to hedge fund positions to exploit market inefficiencies; all in all, providing some degree of protection in the current volatile climate.

My favoured image this month comes from Vanguard,  courtesy of  Standard Life & depicts the progress in market returns despite the global trauma experienced…Enjoy!

 

time-in-the-markets

[1] Measured by the Harmonised index of Consumer Prices,

 

Sources: Central Banks: Federal Reserve, ECB, CBOI, Sharepad®. Euro Inflation is measured by the Harmonised Indices of Consumer Prices (HICP).  Periodic Market updates & reading materials  from Vanguard, Bloomberg, Ruffer, Davy Select & others depending on subject matter. All views and details contained 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: January 2024

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A new year, a new perspective…

Happy New Year from Lifetime Financial PlanningWe start the new year with gusto, but with a stark reality check, casting our sights on World affairs and outlining the global risks clearly evident. The war in the Ukraine trundles into its third year and with no sign of closure, remains a threat to the status quo of the European Union and indeed the NATO alliance. Any escalation could have dire consequences on the human and macroeconomic side. The attack on Israeli citizens by Hamas and the subsequent invasion by Israel of the Gaza strip razing it to the ground, has the potential to severely escalate conflict in the wider Middle East. The long admired decade of growth of the Chinese economy has halted and the current macroeconomic & property market correction in the World’s second biggest economy is currently disrupting global trade as Chinese citizens adapt to their new macroeconomic climate. Speaking of climate, the ever increasing threat of climate change culminating in 2023 being the hottest year on record globally, will continue to drive changes in food production, energy consumption and population movement and finally, we have the imminent US election with the very real possibility of Trump being the next US president with all “that” entails….. let’s see how it all plays out throughout the course of the year. Some of the headline data which we track is shown in the table below.

EU Inflation

 US Inflation ECB Rate Fed Rate Brent Crude US 10 Year Equities YTD Equities fPE
2.9% 3.4% 4.5% 5.5% $78.56 4.14% 1.7%

17.31

Looking back in December, we see that EU annual inflation ticked up slightly from 2.4% to 2.9% in December which was mirrored in Ireland with an increase from 2.5% to 3.2%. Underneath, we see that although energy prices did by in large decrease. The big increases were observed in the food & beverage(5.6%), recreation / culture (10.3%) as well as restaurants & hotels (6.6%) sectors. Once again Belgium showed the lowest inflation at 0.5% while Slovakia the highest at 6.6% for the same period. In Ireland, this jump was higher than the European average from 2.5% to 3.2%; the biggest contributors being the higher rates of price increases for food, transport, recreation and hotels.

It’s fair to say that while the current interest rate policy is having an impact on inflation, it’s is also very fair to say that we are not done yet as evidenced by the slight uptick during the festive holidays. Core inflation is notoriously difficult and stubborn to get back under control & Christine Lagarde’s team is cognisant that any changes in the reduction of the interest rate from 4.5% at this stage may only serve to rekindle the inflationary ambers forcing us all to re-tighten the preverbal belts once again for another 18 months. More time is needed…they don’t want history repeating.

Across the pond in the US, we also saw inflation increase, though at a lower rate from 3.1% in November to 3.4% in December. Although not ideal, it should be encouraging to the Federal Reserve interest rate policy makers that their policy of 5.5% interest rates is actually working (bumps along the road aside). US inflation in December 2022 was 6.5% and so with almost a 50% reduction in 12 months, it’s fair to say that the slow grind to bring inflation under control and closer to the 2% target, will become exponentially more difficult and sensitive to the afore mentioned global threats, most notably in energy commodities.

Like European Central Bank rates, US rates have remained unchanged, however, I would suggest the markets did misinterpret (or ignored) FED president Jerome Powells comments at the very end of last year and in anticipation of rates falling, led to a rally in US equities (S&P 500) which allowed them to finish the year with a return of at 21.3% in Euro terms. Even more amazing was the performance of the tech heavy NASDAQ which finished up 56.2% in USD terms.

While great for investment portfolio’s yearly performance, it is a sign of pent-up energy within the market to re-allocate investment capital, something which must be viewed with a note of caution. In January, when the realisation occurred in the market that actually the battle for control of inflation was not yet over, interest rates were unlikely to be reduced as early as anticipated, we see a bond sell off.

While the US 2 year treasury has hovered at the 4.3% level, in January, the 5, 10 and 20 years treasury yields have increased to 4.04%, 4.14% and 4.48% respectively. This represents a sell-off in the treasury market which is likely to be an interpretation that markets are now re-assessing their original thesis of six rate reductions in 2024.

As I mentioned in the December note, both the ECB and Fed expressed their desire to hold interest rates higher for longer, as inflation approaches the 2% mark. While it is entirely plausible that we could indeed see rate cuts in 2024, it is not guaranteed, and a fair assessment would be not to expect those cuts to be implemented until later in the year when there is robust inflationary data signalling the desired trend is being achieved.

So, with the transformative change in the risk-free rate having now moved to stage two, we continue to see Short dated bonds paying a higher yield than the average dividend yields for stocks, (4.34% versus 1.5% in the US and 2.1% globally) and that being the case, any future yield drops in bonds, should produce a capital return for short dated bond portfolios.

Looking at oil prices now, we are hovering around $78 per barrel mark compared to an average price per barrel of €82 through 2023. Oil is a globally traded commodity and the afore mentioned global threats here include the war in Ukraine but also the Israel’s invasion into the Gaza strip and all that that brings. I mentioned last month that Iranian backed Somali Houthi Pirates now threaten the Red Sea causing the major shipping companies to halt transportation or re-route around the horn of Africa causing delays to already tight delivery timelines. Hence, the heavy US presence and making that presence felt. Not having access to the Suez Canal is a major headache for global shipment providers as costs will increase. While the oil price has not moved that much since the invasion, the lack of significant movement is likely attributed to the current inventories and the re-negotiation of alliances on the supply side.

Setting macroeconomics aside, what does all this mean for investors?
Well, 2023 delivered positive returns across most markets and all those we track and consolidated into global equities which returned 19.5% in Euro terms. We saw some outperformance in US equities which delivered 21.3% and significant outperformance in the technology sector which delivered a staggering 59.4% in USD. European and Japanese equities delivered positive but more modest returns of ca. 16% in Euro terms, not bad though considering the European power house (Germany) is on track to hit a possible two year recession.

Looking forward, we are seeing forward price / earnings ratios (one of our measures of value) continuing to move away from long term averages with global equities trading at 17.3 times (increased from December), European equities at 12.6 times, with Japanese equities bucking the trend trading at 13.8 (reduced from 14.4 in November) and US equities now trading at 19.4 times their forecast earnings. While US equities valuations fell from the first half highs of 2023, they are starting to rise again and a correction on the US market wouldn’t be surprising given the current macroeconomic data and interest rate policy stance.

The long-term forecast for growth in global stocks has stabilised at to 10.5% with a slight reduction in the average yield of 2.1% from 2.2% in December. This puts the equity risk premium which is the Forecast growth – the risk-free rate, at ca. 6.2%. However, current conditions still continue to also drive fund flows into the money markets which are currently yielding ca. 3.9% and which are now a component of many portfolio’s.

As always, we take the long view on Investments and are happy with globally diversified portfolios. In today’s (relatively) high or normal interest rate environment, we see slightly less fair value across global equities with (fPE’s at 17.3) in comparison with early 2023, where valuations averaged 16.6 times across the year. While the markets have started on a positive note so far this year, I would suggest that as the Central bank’s Monetary policies unfold throughout the course of the year, we can expect to see volatility in those capital markets and it is imperative in these times, that the investment objective guides the asset allocation.

Our view, on global bonds has also remained as per last month. As mentioned, the US 2 year treasury is yielding 4.34%, which is attractive when compared to the average dividend yield of 2.1% for risk assets and slightly more attractive than some money market funds which are also paying the 3.9% yield but with the advantage of higher liquidity. Therefore, with bond yields at current levels, and interest rates probably plateaued but set to change, this asset class continues to look a more attractive investment, than in recent years.

Our cautious view on lower volatility portfolios continues to be implemented through the use of money market funds, currently yielding ca. 3.9% and hedge fund positions to exploit market inefficiencies; all in all, providing some degree of protection in the current volatile climate.

 

Sources: Central Banks: Federal Reserve, ECB, CBOI, Sharepad®. Euro Inflation is measured by the Harmonised Indices of Consumer Prices (HICP). Periodic Market updates & reading materials from Vanguard, Bloomberg, Ruffer, Davy Select & others depending on subject matter. All views and details contained 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: November 2023

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The House View Summary:

With our Celtic Samhain festival over for the year, the real horrors of the world are laid bare, flashing on our screens as we enter November. Coming towards the year end, we have one eye on the investment journey of the past 10 months and one eye on where we may end up at the end of the year.

In October, EU Inflation as measured by the Harmonised Indices of Consumer Prices (HICP) continued its downward trajectory from an average of 4.3% to 2.9% with a range of -1.7% in Belgium to 7.8% in Slovakia. Ireland followed suit with lower inflation (5.0% to 3.6%) in the same period. All this points to ECB interest rate policy, with interest rates unchanged at 4.5%, being effective in impeding inflationary growth and indeed, successfully rolling inflation back towards the desired 2% rate which is the goal of the ECB monetary policy.

This is a far cry from the start of year when we experienced an inflation rate of 9.2% in the EU and 8.2% in Ireland.  Noting, of course, that like coastal erosion, inflation erodes “permanently” the value of money over time; our €100 today will no longer buy us the same basket of goods as this time last year.

Jumping across the pond to the US, we note a smaller reduction in the rate of inflation from 3.7% to 3.2% and like Europe, the Fed funds rate remained unchanged at 5.5% for the November meeting, a portent  that perhaps, progress was slowly being made towards the 2% acceptable rate. However, some commentary emerged from a few Federal State Central Bankers, around a further increase in the FED rate by another 25 bps, something which will be addressed as the data emerges. Raising the FED rate further will depend on how core inflation will behave to the sustained higher interest rate environment. This is anything but trivial and given the US is at near “full” employment, will be more difficult to gauge in the coming months.

Looking forward to next year, both the ECB and Fed have expressed a desire to hold interest rates higher for longer, something which will no doubt hamper earnings growth on the equities side. I came across a very interesting chart recently which was published by Research Affiliates, regarding US interest rates. The chart shows the Federal Govt interest payments (in blue) versus the National Defence, Consumption & Investment are now almost aligned, in other words, the US government is now paying interest at the same level as is allocated to the huge defence budget, (ca. €1Tn per year).

fed-interest-payment Turning to US Treasury yields, we are now starting to see changes in the yield curve dynamics. The 2 year and 20 year bonds are now yielding 4.83% and 4.82% respectively and the 5 year and 10 year bonds are yielding 4.43% and 4.45% respectively. These yields are all down since September indicating that the bond sell-off in US debt is probably close to being over.

Finally, we are seeing that Oil prices, having hit the lofty early $90’s per barrel earlier in the year have for now returned back to $81 per barrel (at time of writing) a swing in correction of ca. 11%. No doubt, Middle East dynamics, OPEC plus and the war in Ukraine, could still threaten supply, but supply chains to the developed economies for both crude Oil and natural gas have been re-engineered over the past 12 months and stocks have been replenished ready for the coming winter months.

So, economics aside, what does all this mean for investors? Year to date, returns from global equities markets are ca. 13.7% which is down by ca. 9% from the July high of 15.1%. European Equities have recovered their recent shock in September to deliver ca. 9.4% since January, while US equities have delivered ca. 16.3% and Japanese equities have delivered 11.2%, all in Euro terms. These are increases from the September numbers and show a return of confidence in risk assets.

Looking forward, we are seeing forward price / earnings ratios continuing their reversion to long term averages with global equities trading at 15.4 times, European equities at 11.3, Japanese equities trading at 14.1 and US equities trading at 17.3 times their earnings. These are all lower than their seven month averages indicating that (apart from the magnificent seven) equities globally, are trading at good to fair value in the current interest rate environment.

The long-term forecast for growth in global stocks has remained largely unchanged at 10.4% with an average yield of 2.3%. This puts the equity risk premium at ca. 5.6%, nonetheless, current conditions still continue to drive fund flows to the money markets which are currently yielding ca. 3.8% and which are a component of many portfolio’s.

As always, we take the long view on Investments and are happy with globally diversified portfolios. In today’s (relatively) high or normal interest rate environment, we continue to see fair value in across global equities (fPE’s falling to 15.4). We have seen a small resurgence in equities driven by the perceived ECB and US monetary halt in future interest rate rises, which may (or may not) come to fruition and the acceptance that rates will likely not fall to any great extent until late in 2024 at the earliest.

Our view, on global bonds has also remained as per last month. As mentioned, the US 10 year treasury is now yielding 4.45%, which is attractive when compared to the average dividend yield of 2.3% for risk assets. Therefore, with bond yields at current levels, and interest rates almost at their forecast apex, this asset class continues to look more attractive, than in recent years. Our cautious view on lower volatility portfolios continues to be implemented through the use of money market funds, currently yielding ca. 3.8% and hedge fund positions to exploit market inefficiencies; all in all, providing some degree of protection in the current volatile climate.

Sources: Central Banks: Federal Reserve, ECB, CBOI, Sharepad®. Euro Inflation is measured by the Harmonised Indices of Consumer Prices (HICP).  Periodic Market updates & reading materials  from Vanguard, Bloomberg, Ruffer, Davy Select & others depending on subject matter. All views and details contained 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: 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

The Wood from the Trees

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With the plethora of media attention across multiple platforms, it can be difficult to stick to your long-term investment plan, due to postponed investment decision making. This can adversely affect long term planning, so, when I’m reminded of all the worry, I often refer to the below chart to provide some perspective.

 

The chart shows that during times of great uncertainty, our worlds innovators, step back re-evaluate & adapt to the new reality in their continued pursuit of greater earnings growth; in other words, they adapt. As owners of these innovative businesses, we share in and benefit from these rewards in the long-term.

 

If you are interested in starting your conversation about how investments fit into your Lifetime Financial Plan, please message me direct or contact us through www.lifetimefinancial.ie

 

Earnings Growth

 

Michael Wall PhD CFP® is a Director of 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

New Pension Legislation Relevant to Small Self-Administered Schemes

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The Minister for Social Protection, Heather Humphreys announced in a press release issued on Tuesday the 27th of April that she has signed the European Union (Occupational Pension Schemes) Regulations 2021. (IORP stands for Institutions for Occupational Retirement Provision). This means that the EU IORP II directive will be transposed into Irish law through the amendment of the Pensions Act 1990.

How will this impact your Executive Pension Plans?

The legislation specifically targets the Administration and Investment Rules for Small Self- Administered Schemes including Executive Pension Plans. While one-member schemes, such as EPPs, have been granted a transitional period of 5 years to adopt the legislated changes, the increased governance and trustee responsibilities required by the rules are designed to bring immediate benefits to consumers.

What are the Administration Rule changes?

The New Regulations

• Cover trustee qualifications where trustees must pass a “fit and proper” test, risk management, auditing and reporting, cross-border activities, solvency and supervision.
• Provide better protection through enhanced governance and risk management.
• Provide clear, relevant and more consistent communication about pension schemes.
• Remove barriers to cross-border schemes.
• Ensure that trustees have the necessary powers and credentials to supervise schemes.
• Small schemes (schemes with less than 100 members) and trust RACs are no longer exempted from the IORP investment rules.

What are the Investment Rule changes?

The change in investment rules are effective immediately. They apply some restrictions to EPP investments as follows:
• Scheme assets must be predominantly invested in regulated markets. This means that direct property investments and unregulated investments will be restricted to no more than 50% of the aggregate portfolio. We await guidance on what this might look like in practice.
• Scheme assets must be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings and accumulation of risk in the portfolio as a whole and
• Environmental, Social and Governance (ESG) issues must be considered when making investments.
These conditions apply only to new investments or borrowings entered into by EPPs and are not retrospective.

What is next?

The Pensions Authority will provide further information and guidance over the coming weeks and months, to ensure the new obligations are fully understood. We are working through the changes as quickly as we can with our providers and will update all our clients where appropriate.

If you have any queries regarding how this new legislation may affect your scheme, please contact our office on 046 92 40961.

The Importance of Financial Planning

How Can a Company Pension Benefit Me?

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Tax Relief on Contributions
Employer contributions – Corporation Tax Relief
Employee Contributions – income tax relief & not treated as a BIK

Investment Options
Access to thousands of Global Equities, Funds, Bonds, and Property, on regulated markets and managed though a single portfolio

Tax Free Investment Growth
Capital Growth & Income received from Investments made within Retirement Funds are tax free

Retirement Benefits
Tax Free Lump Sum up to €200,000 is available, (can be 1.5x salary or 25% of fund) the next €300,000 is taxed at standard rates

Income Drawdown Options
Flexible Income drawdown using an ARF allows tax management with other retirement income
Guaranteed income from an Annuity

Estate Planning
Protect the Family Balance Sheet
Lump Sums & pension options for your dependants in service & in retirement. ARF asset passes to your estate

 

How can a company pension benefit me?

 

The Importance of Financial Planning

Lifetime Financial Planning Remains Open During Lockdown

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We at Lifetime Financial Planning wish to reassure our Clients that we are included in the Government’s list of Essential Services. So we are continuing to work as normal through the lockdown. We have however switched to conducting many Client meetings online, and our Clients are finding this very convenient and safe also in these Covid times.

So stay safe everyone and we will all get through this.

Aidan Wall QFA FLIA SIA RPA

The Importance of Financial Planning

The Short and Long Term View

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Over the recent economic cycle, the acceleration in Global equities Returns was driven by three catalysts including (1) growth in corporate Earnings (2) a downward trend in interest rates (with bond yields reaching all time lows and indeed dipping into negative territory) and (3) massive liquidity injected into the financial system by Central Banks. (Notably, this resulted in their balance sheets being expanded from $4 trillion to $22 trillion since before the Great Financial Crash). And “Voila”, we are where we are today with market valuations.
Looking across Global Markets, we see divergence in the returns since 2014 when the US (in blue) is included & excluded (in orange). (EAFE: Europe, Australasia, Far East)

 
WORLD & EAFE Standard returns since 1998
NET RETURNS (Euro priced) FROM DEVELOPED MARKETS WORLD (incl US) AND EUROPE AUSTRALASIA AND FAR EAST WORLD (EAFE) (ex US) (Source: MSCI)

 

Taking a closer look at the US markets, we observe today that the Cyclically Adjusted Price Earnings Ratio CAPE for US Equities (shown below) is about 30.6 times earnings compared to its 20 year average of 25.6 and its all time PE average of 17.1. Similarly, the Buffet Indicator (Market Cap to GDP) currently stands at 176.6%. To put that into context “fair” value falls in the range of 93% to 114%.

Ratio of current US500 levels

RATIO OF CURRENT US500 LEVELS TO 10 YEAR AVERAGE PE RATIO ADJUSTED TO INFLATION (CAPE) (Source: Shiller RS)

 

Though US valuations usually tend to be higher than other global regions, it is reasonable however, to attribute this (over) growth in US market valuations (by in large) to the technology sector. While overheated valuations within sectors are not unusual, it appears that the US growth stocks are particularly affected by over exuberant market participation leading to often eyewatering valuations. Indeed, one could argue that we are in a period of irrational exuberance within this sector when we see stocks like Tesla inc (TSLA) trading at Price/Sales = 13.8x, Price/Book Value = 35.2x, Price/Earnings = 224, and EV/Operating cash = 101.3x.
So, the CAPE, Buffet indicators (& others) suggest that US equities are indeed overvalued implying likely lower returns in the long term.
Casting our “Valuation” eyes around the globe however, we see a different picture. In Europe, Australasia, the Far East and Emerging Markets, valuations (and hence long-term returns) do appear more attractive. As the chart below shows, current Price to Earnings (PE) and Future Price to Earnings ratios (fPE) are lower than those for the US.

 
Current & Forward Price to Earnings Ratio

CURRENT (in blue) AND FORWARD (in orange) PRICE TO EARNINGS RATIOS FOR GLOBAL EQUITIES (Source: MSCI)
As investors really favoured “Growth” over “Value” factors for the past 5 years, we are now seeing attractive entry points across the European, Australasia, Far East and in particular, Emerging Markets. An opportune time then to consider adding a list of some of the worlds great and innovative companies to your portfolios from these regions?
Perhaps, but as always, we need to add further consideration and perspective to the analysis. As we begin a cycle of more challenging corporate outlooks and continued low interest rates, global earnings too, will be challenged and we shouldn’t be surprised if overall future returns are lower than the last decade. Indeed, within sectors, we shouldn’t be surprised where we also see swift reversal of fortunes of stocks which are currently in favour.
So how does all this distill into your long-term Financial Plan? From a practical viewpoint, if your plan contains long-term financial objectives, having a solid core of funds invested in Global Equities in your portfolio provides a decent foundation for long-term returns. Being Globally invested, your investment will already be positioned to take advantage when investor sentiment shifts to more attractive valuations within markets and across regions.

At Lifetime Financial Planning, our core beliefs continue to be…..that portfolio diversification, time in the market, not timing, passive investments and a long-term horizon all lead to decent and consistent capital returns in portfolios. We just have to remain disciplined (some would say boring), accept the short-term volatility and ignore the “noise”.

Michael Wall CFP® PhD is a Director of Lifetime Financial Planning. Aidan Wall Financial Services 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

International Women’s Day Sunday 8th March

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There are plenty of national and international studies showing lower participation rates for women contributing to a pension and for those women who do participate, smaller pension pots.

The reasons and impact of the resulting pensions pay gap for women are manifold. Here are 7 simple step’s which women, and their employers, can take to help narrow the pension pay gap women experience.

  1. Join or set up a pension plan at your earliest opportunity. The funds built up can continue to grow even if you take time out during your career.
  2. Link salary increases to pension contribution increases. This is even more effective if committed to in advance. Simple percentage contribution rates do this automatically.
  3. Maximise contributions by availing of the maximum employer contribution rates and considering making Additional Voluntary Contributions (AVCs) where affordable.
  4. Continue making pension contributions, both employer and employee, while on maternity or other types of leave.
  5. If affordable make pension contributions while on a career break via a personal pension or PRSA. Take advantage of the tax reliefs available.
  6. Maximise contributions when returning to work after maternity leave or a career break.
  7. Take financial and/or investment advice which takes account of your specific circumstances and plans.

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