All time highs!

With the S&P500, Nikkei 225 and a majority of the other developed world stock markets hitting or near to all time highs it is essential to consider what is going to happen over the coming 6-12 months following on from these new milestones. Are we likely to see some drop off or can there continue to be ongoing market positivity as interest rates start to come down by the end of the year?

When the stock market hits an all-time high, it can lead to various reactions and outcomes, depending on several factors:

  1. Consolidation or Correction: After reaching an all-time high, the market may consolidate its gains by trading sideways for a period or experience a correction where prices decrease. This correction could be minor or significant, depending on various factors such as economic data, earnings reports, geopolitical events, or changes in monetary policy.
  2. Profit-taking: Investors may decide to take profits off the table after a market reaches an all-time high. This selling pressure can lead to a short-term pullback in prices as investors lock in their gains.
  3. Increased Confidence: All-time highs can boost investor confidence in the strength of the market and the economy. This confidence can lead to increased investment activity as investors seek to capitalize on the upward momentum.
  4. Media Attention: Market all-time highs often attract media attention, which can further fuel investor sentiment. Positive media coverage may attract more investors to the market, contributing to further price increases.
  5. Caution and Volatility: Some investors may become cautious after a market reaches an all-time high, fearing a potential market downturn. This caution can lead to increased volatility as market participants assess the sustainability of the upward trend.
  6. Sector Rotation: After an all-time high, investors may engage in sector rotation, reallocating their investments from sectors that have performed well to those that have underperformed. This rotation can impact the performance of different sectors within the market.
  7. Central Bank Response: Central banks may respond to market all-time highs by adjusting monetary policy. For example, if central banks perceive the market’s high valuations as a risk to financial stability, they may consider tightening monetary policy to prevent overheating.

Overall, while reaching an all-time high can be a positive milestone for the market, it’s essential to recognize that market dynamics are complex, and various factors can influence market behavior in the aftermath of such milestones. Investors should maintain a diversified portfolio and stay informed about economic and market developments to navigate the post-all-time high environment effectively.

Whilst not trying to sound too much like a broken record, diversification is essential. It is clear that certain sectors of the market have done extremely well in the last 12 months, tech stocks mainly and especially NVIDIA. But it is more important than ever to ensure your portfolio is weighted in a variety of different and differing sectors to ensure should one area start to stumble other areas can help pick up the slack.

Financial Planning

Planning for an early retirement 

Living life to the fullest and accomplishing long-held dreams

Early retirement typically signifies reaching financial autonomy before the statutory pension age, usually in the mid-60s. In the United Kingdom, retirees can begin drawing their State Pension at age 66. However, this retirement benchmark is set to increase to age 67 by 6 April 2028.

Financial Planning

What Will Your Legacy Look Like?

Effective Inheritance Tax planning is a careful balancing act

Once a concern only for the very affluent, Inheritance Tax (IHT) is now an issue for many ordinary families, who may find themselves handing over an unprecedented portion of their estates to the taxman. This shift results from years of house price growth, inflation and stagnant tax thresholds. The Office for Budget Responsibility anticipates that IHT will bring in £7.2 billion in the fiscal year 2023/24[1].

The Magnificent Seven

Many apologies for those of you looking for a film review on a classic Western film, I only post those on a Sunday afternoon. This post on the “The Magnificent Seven” refers to a concept in finance where seven mega-cap stocks, including Apple, Amazon, Microsoft, Facebook, Alphabet (Google), NVIDIA and Tesla, have had a significant impact on the performance of the S&P 500 index. These companies, with their dominant positions in various sectors such as technology, consumer services, and electric vehicles, have driven a substantial portion of the index’s gains in recent years.

Here is a graph showing the Magnificent 7’s out sized performance relative to the rest of the S&P 500 in 2023 if you invested $1 in January 2023 –

Their influence on the S&P 500 can be seen in several ways:

  1. Market Capitalization: The combined market capitalization of these seven companies comprises a substantial portion of the total market capitalization of the S&P 500 index. As their stock prices rise, they have a disproportionate impact on the index’s performance.
  2. Index Performance: The performance of these companies often dictates the overall direction of the S&P 500. Strong earnings reports or innovative product launches from these companies can lead to significant gains in the index, while setbacks or negative news can trigger downturns.
  3. Investor Sentiment: Investor sentiment towards these seven companies often spills over into broader market sentiment. Positive news or performance from these companies can boost investor confidence, leading to increased buying activity across the market.
  4. Tech Dominance: As technology becomes increasingly integral to various aspects of modern life, the dominance of tech giants like Apple, Amazon, Microsoft, Facebook, Google, Netflix, and Tesla reinforces their influence on the broader market. Changes in consumer behavior, technological advancements, and regulatory developments affecting these companies can ripple through the entire market.
  5. Sectoral Weighting: Due to their substantial market capitalization, these companies have a significant weighting in sectors such as technology and consumer discretionary within the S&P 500. Consequently, fluctuations in their stock prices can impact the performance of these sectors and, by extension, the overall index.

Overall, the Magnificent Seven’s influence on the S&P 500 underscores the increasing concentration of market gains in a handful of large-cap stocks. While this concentration can amplify gains during bull markets, it also raises concerns about market volatility and systemic risks associated with the dependence on a select few companies. Investors and analysts closely monitor the performance of these companies as indicators of broader market trends and sentiment.

Overall it is clear that  the primary stock market index in the US is quite heavily reliant on a relative handful of mega cap stocks that have been responsible for a huge amount of the returns over the last few years.

* This post is for informational purposes only and should not be used as a recommendation

Financial Planning

Wealth Accumulation

Valuable insights that can impact an investment strategy

With the ever-evolving landscape of investment, it’s not hard to see why it might appear daunting. The investment world is equivalent to a living, breathing entity constantly evolving and changing. It’s a landscape that never remains static, mirroring the dynamic nature of global economies and financial markets.
Financial Planning

Navigating through divorce

Safeguarding your future financial stability and preserving your wealth

Entering into marriage isn’t done with the expectation of it ending in divorce, yet this distressing and strenuous event can be a reality for some. Managing finances may not be your immediate concern during such an emotional upheaval. However, obtaining professional financial advice can aid in safeguarding your future financial stability and preserving your wealth.

The 8th Wonder of the World

Whilst Einstein was certainly right about a vast number of things, one of the statements he was arguably most right about was that compound interest is the 8th wonder of the world.

Just to build on one of the previous posts regarding pensions for children. See below assuming you put £1,000 into a junior ISA and added £1,000 per year, then grew it at 7% per annum –

  • Initial balance – £1,000.00
  • Additional deposits – £18,000.00 (£1,000 annually)
  • Annual assumed rate of return – 7%
  • Value after 18 years – £40,781.43
  • Interest Earned – £21,781.43
  • Time-weighted return – 251.25%

I do tend to talk a lot about compound interest, primarily because the results speak for themselves. With a relatively small amount of money per year and a not unachievable annual growth rate (the S&P 500 has averaged around 10% per year over 50 years) you have effectively accrued the deposit on a flat by the time your child is 18.

To take this even further, lets say you took that £40,781.43 and placed it into a pension once your child turned 18. If you made no further additions and continued to grow the pot at 7% per annum until your child turned 65 the results are as follows –

  • Initial Balance – £40,781.43
  • Annual assumed rate of return – 7%
  • Value after 47 years – £1,084,276.42
  • Interest Earned – £1,043,494.99
  • Time-weighted return – 2558.75%

The results are quite astounding with a total investment of £19,000 over the first 18 years of their life you could provide them with a pension pot worth £1,084,276.42. Whilst £1m in the future wont be worth £1m in today’s money it certainly does show the power of compound interest.

*Disclaimer* – I have attempted to make the above figures as accurate as possible but with any investment, no rate of return can be guaranteed and any projections are for guidance and illustrative purposes only.

Financial Planning

Protecting yourself from investment scams

If something sounds too good to be true, it probably is

Investment scams are a rising concern, promising potential investors the allure of making a significant amount of money swiftly and effortlessly. These scams often involve minimal to no risk investments in various areas such as financial markets, property, cryptocurrencies, and precious metals and coins.
Financial Planning

Managing Your Finances As A Couple

Discussing finances may feel uncomfortable, but it is crucial to maintain a healthy relationship

Transparency is the foundation of any strong relationship, which holds true regarding financial matters. It is easy to fall into the trap of assuming that you and your partner have similar financial habits and attitudes.

Stay on track and work together

Open conversations about finance can help set expectations, resolve issues, formulate a budgeting plan that suits both partners and construct a robust financial plan. Aim to establish mutual goals. Having individual life objectives is commendable, but it might be easier to stay on track if you feel you’re working together. Setting one or two shared goals provides a tangible target for you as a couple. The significance of setting goals cannot be overstated. It helps determine how much money needs to be saved and where it should be invested. For instance, placing this fund in a low-risk cash savings account would be prudent if the goal is to upgrade to a larger property in three years. This strategy eliminates the risk of the savings plummeting in value right before they are needed. However, if appropriate, consider investing funds in the stock market for long-term goals spanning ten or more years. This approach allows your money to grow over time, helping you achieve your goals faster.

Tax-efficient income and growth

Tax planning might not be the most appealing topic, but it offers several opportunities that could help your money stretch further. For example, Individual Savings Accounts (ISAs) allow each partner to invest up to £20,000 a year (2023/24), offering the advantage of tax-efficient income and growth. If both partners open an ISA, a combined £40,000 is shielded annually from Income and Capital Gains Tax (CGT). If your ISA allowances are exhausted, the CGT exemption permits each partner to realise tax-free investment gains of up to £6,000 in the 2023/24 tax year. Married couples or those in a registered civil partnership can transfer investments between one another tax-free, effectively doubling the CGT exemption to £12,000. Remember that the CGT exemption will be reduced to £3,000 from 6 April 2024. The personal savings allowance provides an amount of interest that can be earned without tax. This is £1,000 for basic rate taxpayers, £500 for higher rate taxpayers and nil for additional rate taxpayers. Married couples or those in a registered civil partnership could consider transferring savings between each other to maximise each partner’s personal savings allowance.

Avoiding substantial financial hardship

Discussing life’s darker aspects, such as death and illness, may not seem ideal for a romantic evening, but it’s crucial to ponder how your finances would fare if the worst were to happen. As partners, your financial lives are likely deeply entwined; a serious illness or demise of one could lead to substantial financial hardship for the other. We’re here to help you navigate these difficult conversations and decisions. We can assist you in selecting the right protection policies and levels of cover tailored to your unique circumstances.

Wealth and assets allocated according to your wishes

This is also an opportune time to consider drafting a Will. Creating a Will ensures that your wealth and assets are allocated according to your wishes. This vital document guarantees that your money and other possessions go to the intended recipients, fulfilling your wishes. Having a Will becomes even more crucial if you’re not married or in a registered civil partnership. Even after living together for years, without a Will you have no legal rights to your partner’s estate if they pass away. THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE. THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED. THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE.
Financial Planning

Age Is Not Just A Number

The impact of an increased lifespan on your retirement finances

Living to the ripe old age of 100 could require an additional £260,000 in pension wealth to ensure a comfortable retirement, compared to someone living until the current average life expectancy, according to the Office for National Statistics (ONS)[1].