I have indicated to many clients this year that I expected little or no growth. Most recently, the markets have declined, and sharply so this morning due to the ongoing concerns with the debt crisis in Europe.
Italy is now stealing the headlines with previous countries including Greece, Ireland, Portugal and Spain having made names for themselves.
But what does it all mean? Essentially Europe, the European Union and the Euro has a big problem. Historically, governments of many western nations were seen as low risk to lenders when those governments sought to borrow money. If you or I went to get a loan or mortgage from a lender, the lender should look at the income we have coming in and what expenditure we have going out. If the income exceeds the outgoings then normally the lender will lend as long as it is shown affordable.
The policy with lending to governments is similar, but many lenders saw the likelihood of a government not paying off its debt as very slim. Historically with Western Governments this was generally the case.
Following the banking induced recession many banks were left with more debts to be repaid than they had in assets. On top of this many Companies and Individuals defaulted on those debts leaving the banks with significant losses. With this followed falling Company profits, increased unemployment and less tax revenues as a result, to feed the Government so it can then pay its debts. So now Governments are feeling the pinch and accordingly many “experts” fear that the unthinkable could possibly happen.
My view is Spain will survive over time, Portugal & Greece are already bust – the Eurozone is just trying to put their collapse far enough in the future that it can then cope with their demise. But first it needs to sure up its balance sheet, hence the repeated revised agreements with these very weak nations. Ireland will be propped up by the UK as this is where our banks will be hit hardest if Ireland fails, so the UK government wont allow this to happen. The UK government is probably best placed of all the nations to cope with the crisis, in my view, with Germany close behind.
What is clear is that the Eurozone cann0t cope if Italy or a similar sized nation collapses – then would be the death toll of the Euro!
In addition to the euro crisis, economic growth all around the world seems to be slowing. Even China and India have had recent corrections, although these nations still offer the best future growth long term for me.
So what do we do? grab the money and run? My view is no… ride the storm have a portfolio review and ensure your assets are diversified. What we have witnessed in recent years is clear. A relatively balanced portfolio with exposure to cash, property, equity and bonds have faired well over the last 5 years offering returns ranging from 5% to 8% per annum. Remember you can still control the degree of risk in such a portfolio with varying degrees of exposure to higher risk assets to suit your individual needs.
The risk areas in particular are ISA portfolios where often funds held are purely equity funds. Pension funds are also a key area. We are fininding less and less final salary pensions now, with the modern scheme being money purchase. This means the money is invested in funds and whatever the value grows to by the time you retire, is what you have to play with.
The problem here is that many schemes & employers offer a range of funds, some good / some bad and nearly all offer no advice on how you should invest to minimise risk. Often the fund information is just a fact sheet showing past performance and tells you nothing about whats going on behind the scenes in the fund. Behind the scenes information is what we as advisers look at when deciding whether a fund is any use or not. A pretty graph showing good performance over a “carefully” selected time period is frankly meaningless.
Moffatt Financial Planning now offers a pension review service for clients with pensions funds that aren’t being regularly looked after and reviewed. The service is paid for via a monthly standing order with the cost variable depending on the size of the assets. Compared to alternative advisers, however, the cost is typically more than 50% cheaper and well worth considering.
The pension review service is in addition to the existing portfolio review service our clients receive. Your bank adviser wont want to speak to you unless you investing new money. They take 7% or 8% of your money when you first invest and then do nothing to look after your assets thereafter. We typically charge 1% to 3% for the initial work with an annual fee of 0.5% thereafter. This annual fee is typically catered for within the annual charges of the fund so you are normally no worse off. Moral of the story is pay less than half and get more!
Give us a call now, to ensure your assets are appropriately invested.
