For all the resilience the UK economy has shown, there is no doubt that this year's ISA season is set against a backdrop of uncertainty. Whatever the pros and cons, Brexit, and a lack of clarity on what our future economic relationship with the EU will look like, has left us at a crossroads.
The stock market and your pension
One of the advantages of pensions is that they can, by design, be very simple from a management point of view. Providers typically have default settings for your portfolio, occupying various real estate along the risk spectrum, and with an automatic gravitation towards a risk-averse slant as you get closer to retirement.
It means that those with little appetite for following markets on a day-to-day basis can build up their pensions with a hands-off approach. However, for those who follow events in the world of finance a bit more closely, there is scope to take control, and to try pre-empt developments within the various markets.
The ups and downs
One of the remarkable features of the past 12 months has been the performance of global markets, and particularly stock market indices. The FTSE All World index broke new ground last month, while the S&P 500 continues to trade in and around record highs. The FTSE 100 has defied the uncertainty of the Brexit vote, and has regularly broken the ceiling of all-time highs in the past year. Even in Europe, the German DAX hit a record high in May.
Such dizzy heights have left many experts convinced that a correction is on its way. The direction of travel cannot always be up, and bear markets come with the territory. Given that many pensions will have some kind of exposure to the performance of these major indices, it may thus be tempting to shuffle the pack, and head for the exit while you’re on a high. These are ultimately subjective decisions, and are best taken after discussions with a financial adviser.
Even still, it should be remembered that trying to speculate on the peaks and troughs of market cycles, and events in the wider economy, is a near-impossible undertaking – even for experts. For example, there was chatter among economists as far back as 2010 that the Bank of England would look to increase base rates. Four years later speculation turned to conviction, as action from Threadneedle Street felt imminent. Yet here we sit in 2017, with only a subsequent cut to new record lows last August to show for it, and no realistic prospect of a sufficient number of hawks on the Monetary Policy Committee ruling the roost anytime soon.
Diversification and peer-to-peer lending
One thing we are major advocates of is investment portfolio diversification, which is the best protection of all when it comes to dealing with market volatility. In the context of equities, this means spreading your investment across a variety of stocks and shares – both in the UK and globally. However, it is also crucial to diversify across various asset classes too, such as property, gilts, bonds and more.
Market volatilities, coupled with shockingly-low rates of savings, have brought into sharp focus the benefits of peer-to-peer lending as a middle ground in terms of risk and return - particularly with the launch of the new ISA. One of the biggest virtues of all is the predictability and stability of returns delivered by prime platforms. While the value of investments such as stocks and shares can go up or down – sometimes dramatically so – those who lend through P2P platforms can expect fixed returns.
Of course, the one similarity with stocks and shares is that capital is at risk, and not covered by the Financial Services Compensation Scheme. However, even in its relatively fledgling 12-year existence, the sector has fast developed a reputation for mitigating these risks. At Lending Works, for example, no lender has ever lost a penny, and all returns due have been delivered to lenders in full, and on time.
Managing your pension
Interestingly, in a recent quote in This is Money, Tom McPhail of Hargreaves Lansdown claimed their institution has found that individuals who take control of their pension pots tend to do better than those who select default funds. The 2015 pension freedoms and the auto-enrolment scheme for workplace pensions will also likely fuel engagement and interest at consumer level, and possibly lead to a more widespread hands-on approach to pension management.
Active involvement in retirement saving should certainly be viewed as a positive development, provided that any portfolio tinkering is done with the combination of an open mind, and substantial research and understanding of what’s involved. For what it’s worth, from our side, we have three simple pieces of advice to offer: diversify, diversify, diversify!
The 2019 ISA season is now in full swing, and it's as good a time as any to focus on financial planning - and, within that, looking ahead to your retirement years to ensure financial security.
The Lifetime ISA (LISA), announced in 2016, would prove to be one of George Osborne’s last flagship gestures to UK savers and investors as Chancellor, eventually launching against a backdrop of anti-climax a year later in April 2017.
As the tax year end approaches, the financial services industry readies itself for a flurry of activity. That's in large part because, with just a couple of months to go, the so-called 'ISA season' is upon us.
Over the last decade, there can be little dispute that the reputation of mainstream banks – and particularly the so-called ‘Big Four’ (HSBC, Barclays, Lloyds and RBS) – is at its lowest ebb.
The peer-to-peer (P2P) lending industry is now regulated by the Financial Conduct Authority (FCA). The regulatory framework has been designed to protect customers and promote effective competition.
Loan underwriting is the process that we undertake to analyse all of the information provided by each loan applicant and their credit file to assess whether or not that applicant meets our minimum loan criteria. As part of that process all data is verified, analysed and summarised to paint a picture of each applicant.
When you earn interest from a regular bank savings account, for example, the bank automatically deducts basic rate tax (currently 20%) before paying your interest. With interest earned from peer-to-peer lending, tax is not deducted automatically so lenders will need to declare their income to HMRC.
As 2018 draws to a close, with our bellies full of Christmas turkey, it's only natural to look back on the past 12 months and reflect. No doubt, it's been a turbulent one economically and politically, and not everyone has had it all their own way.