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 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

A Brief Look at 2021

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THE REAR VIEW MIRROR

As we step into 2022, and look back at 2021, Global equities provided stellar returns finishing the year up ca. 32%. For the stock pickers, in particular within the technology sector, returns which one might expect to see annually, seemed to deliver almost monthly for a while, before, inevitably, the reality of forecasted interest rate adjustments and company overvaluations started to creep towards the end of the year.

Meme stocks, (don’t worry it’s a new term to me too!) driven in large part by retail (so called “Hood” investors) helped drive the whipsaw of volatility with some delivering eye watering temporary returns for companies with very little balance sheet substance and scything those short sellers in hedge funds who had acted rationally.

 

markets-1969-1921

 OUTPERFORMERS & LAGGARDS

Geographically, the US was the best performing region and within business sectors, we saw some rotation as the Growth companies gave some ground to Value companies through the redistribution of capital within the markets. Across sectors, Energy (+53%), Technology (+40%), real estate (+39%) and Financials (+38%) all outperformed the markets with the laggards being the income producers such as consumer staples, telecoms and utilities, much in line with what might be expected given the emergence from a COVID restricted world.

THE RETURN OF INFLATION

Rising inflation started to take hold in 2021 with the CPI finishing the year at 5.5%. In the US, inflation hit 7% and beyond depending on states, and with the Federal Reserve finally signalling to the markets their intention to raise interest rates in 2022, we saw the start of an increase in market volatility which continues today.

Rising inflation also increased bond yields, thus reducing prices, the effect of which was seen greatest in long dated sovereign bonds.

The final big headline was the price inflation in commodities (with the exception of Gold which was flat) as the economic rebound saw sharp price increases across Oil (+55%), Gas (+53%), Aluminium (+37%) Copper (+27%), Steel (+49%) and …….Coffee (+76%)

DOWNSIDE RISKS IN 2022

So, with COVID and its variants still ever present, supply chains still not repaired, a high inflationary environment, imminent rising interest rates, war mongering in Eastern Europe, China tightening regulation, the US / Sino tensions rising and billionaires flying to space, it’s fair to say that we can expect some significant volatility across all markets in 2022.

We can’t control nor predict the markets. We do know from experience, that during times of great uncertainty, the worlds innovators, will step back, re-evaluate & adapt to the new macroeconomic reality in their continued pursuit of greater earnings growth and we, as owners of these companies benefit from these adjustments 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

Michael Wall PhD 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

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

Does the Market Decline Worry You?

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Howard Marks, Chairman of the US based Oaktree Capital was recently asked a question by a Bloomberg reporter – ‘does the market’s decline worry you?’ – he answered the question by writing the following in a memo to clients which we believe is a far more useful answer than the current sensational media headlines.

Does the market’s decline worry you? “The answer lies in another question: What does the market know?” Is the market smart, meaning you should take your lead from it? Or is it dumb, meaning you should ignore it? Especially during downdrafts, many investors impute intelligence to the market and look to it to tell them what’s going on and what to do about it. This is one of the biggest mistakes you can make. As Ben Graham pointed out (many years ago), the day-to-day market isn’t a fundamental analyst; it’s a barometer of investor sentiment. You just can’t take it too seriously. Market participants have limited insight into what’s really happening in terms of fundamentals, and any intelligence that could be behind their buys and sells is obscured by their emotional swings. It would be wrong to interpret the recent worldwide drop as meaning the market ‘knows’ tough times lie ahead.”

The Importance of Financial Planning

Tax Saving Tips for Managing Your Stocks and Shares

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Many people now own shares in publicly listed companies such as Glanbia, Ryanair, Kerry, Vodafone etc, but some are unaware that a little care and attention in managing your stocks and shares can save you a considerable amount of money in tax.

Tax

Shares sold at a profit or Gain incur a Capital Gains Tax liability. The current rate is 33% of the Gain.

The Gain is the difference between the sale price and the original cost price of the shares. So it is important to have a record of the original cost of the shares. This is known as the Base Cost.

Tax saving – Previous Losses

Previous losses on assets such as Property, Bank shares, (Anglo), etc are available for set-off against future gains. So any Gains will be tax-free until the previous losses are completely used up.

Tax saving – Annual Tax Exemption

Individuals can make a Gain of €1,270 free of Capital Gains Tax in each tax year. By holding the shares in joint names, spouses can generate Gains of €2,540 tax free each year.

It is important to utilise the annual €2,540 Exemption from Capital Gains Tax. This is done by “bed and breakfasting” the shares.

Bed & Breakfasting

“Bed & breakfasting” means selling a sufficient number of shares each year to generate a Gain of €2,540 (€1,270 for an individual), and buying them back again after a minimum of 30 days. The effect is to increase the Base Cost of the shares, and thereby lessen the Capital Gains Tax liability.

There is a risk that during the 30 days, the shares might jump in price. Of course if you sell, and buy back at a higher price, you lose some of the benefit of “bed & breakfasting”.

Dividends and Scrip Dividends

Dividends are a significant element of value in ownership of shares. By ensuring that you own the shares at the “ex-dividend date” you maintain your entitlement to the dividend.

Some companies offer the option of “Scrip Dividends”. This means the company issues new shares instead of paying cash dividends. There is no tax advantage for the owner, and scrip share certificates are liable to be lost. Replacing a lost certificate is expensive, and may cost more than the shares themselves are worth, making it uneconomic to replace a certificate for a small number of shares.

Our Recommendation

The paperwork generated by even a small amount of shares held in paper certificates can be daunting and confusing. We recommend holding shares in a Stockbroker account.

This ensures that

  • no loss of share certificates occurs,
  • accurate records of Base Cost are maintained,
  • Bed & Breakfasting is made easy,
  • Scrip Dividends happen automatically,
  • no more lodging (or losing) small dividend cheques,
  • paperwork is minimised,
  • a statement is issued every year setting out the Capital Gains Tax and Dividend Withholding Tax calculations for your Accountant/Tax Advisor.

To discuss this further, give Aidan a call at 087 2621006.

Aidan Wall Financial Services Ltd Trading as Lifetime Financial Planning is regulated by the Central Bank of Ireland.  Investments can fall as well as rise. Past performance is not a reliable guide to future performance.