Russia Ukraine Market Commentary

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Lane Financial Management Ltd Market Commentary

At times like these, after a market shock and subsequent sell-off, it is wholly understandable that investors feel on edge and start looking for the exit. However, experience tells us, and past evidence confirms it, that even the worst selloffs are usually followed by sustained periods of recovery. Across almost all-time spans, returns have recovered significantly over the following one, three, five or ten years after, meaning investors who managed to resist the urge to sell have (in most instances) seen their investments recover their losses and go on to perform very well. This demonstrates that after previous selloffs, investors with a longer time horizon are best placed to hold their ground and remain invested.

Tensions between Russia and the Ukraine had been building for several weeks and many countries imposed sanctions on Russia in a bid to dissuade it from invading. However, these proved futile as Russian president Vladimir Putin announced a “special military operation” against Ukraine. Since then, fighting on the ground has escalated while economic sanctions imposed on Russia by other countries have ramped up. There has also been an attempt by the US, Britain, the EU, and Canada to block Russia’s access to the Swift international banking payment system.

As investment professionals, it’s our responsibility to assess the potential impact on financial markets and the global economy. While we monitor the developments, the only thing that can be said with certainty is that no one knows what Putin will do, or the effect it will or won’t have on the market. In global market terms, we know from history that while geopolitical crises such as this one can roil markets, they usually don’t have longer-term consequences for investors. However, we do not underestimate the risks presented by Russia’s role as a global energy provider. Russia is the source of 10% of the world’s energy, and nearly 50% of the energy consumed in Europe, therefore the risks extend far beyond the borders of Russia and Ukraine, including higher energy prices and increased financial market volatility. Indeed, it’s fair to say that investment markets have already priced in significant levels of risk and consequence due to this factor.

As a result, funds solely invested in Russia, or those with large allocations, crashed to the bottom of February’s performance table. It was not just Russian funds that took a hit in February. All major European sectors were down at the end of the month due to their physical proximity to the crisis, with the IA European Smaller Companies sector making the second largest losses among Investment Association (IA) sectors, down 5.8%.

Oil and energy prices are inherently linked to Russia as it is one of the biggest suppliers globally. Even before political tensions began, the price of these assets had already been pushed up by inflation, although the Ukrainian crisis has overtaken this as the number one investor concern. As a result of increasing commodity prices and inflation spiking as a result will of course impact the base line cost of production and consequently profit lines of companies. This will have a negative impact upon all asset classes in the short term.

In times like these, we encourage investors to block out short term market noise and to focus their attention on the medium to long-term.

Economic and Market Outlook Summary For 2022

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The Global Economy in 2022

The outlook for 2021 focused on the impact of Covid-19 health outcomes on economic and financial conditions. Our view was that economic growth would prove unusually strong, with the prospect of an “inflation scare” as growth picked up. As we come to the end of 2021, parts of the economy and markets are out of balance. Labour demand exceeds supply, financial conditions are exceptionally strong even when compared to improved fundamentals and policy accommodation remains extraordinary.

Although health outcomes will remain important in 2022, the outlook for macroeconomic policy will be more crucial as support and stimulus packages enacted to combat the pandemic-driven downturn are gradually removed into 2022. The removal of policy support poses a new challenge for policymakers and a new risk to financial markets.

The global economic recovery is likely to continue in 2022, although we expect the low-hanging fruit of rebounding activity to give way to slower growth, whether supply-chain challenges ease or not. In both the United States and the euro area, we expect growth to normalise lower to 4%. In the UK, we expect growth of about 5.5% and in China we expect growth to fall to about 5% given the real estate slowdown.

More importantly, labour markets will continue to tighten in 2022 given robust labour demand, even as growth decelerates. We anticipate several major economies, led by the US, will quickly approach full employment even with a modest pick-up in labour force participation. Wage growth should remain robust and wage inflation is likely to become more influential than headline inflation for the direction of interest rates in 2022.

Global Inflation

Inflation has continued to trend higher across most economies, driven by a combination of higher demand as pandemic restrictions were lifted and lower supply from global labour and input shortages. Although a return to 1970s-style inflation is not on the cards, we anticipate that supply/demand frictions will persist well into 2022 and keep inflation elevated across developed and emerging markets. That said, it is highly likely that inflation rates at the end of 2022 will be lower than at the beginning of the year given the unusual run-up in certain goods prices.

Although inflation should cool in 2022, its composition should be stickier. More persistent wage-based inflation should remain elevated, given our employment outlook, and will be the critical determinant in central banks’ adjustment of policy.

Global Policy

The global policy response to Covid-19 was impressive and effective. Moving into 2022, how will policymakers navigate an exit from exceptionally accommodative policy? The bounds of appropriate policy expanded during the pandemic, but it’s possible that not all these policies will be unwound as conditions normalise. On the fiscal side, government officials may need to trade off between higher spending—due to pandemic-driven policies—and more balanced budgets to ensure debt sustainability.

Central bankers will have to strike a delicate balance between keeping a lid on inflation expectations, given negative supply-side shocks, and supporting a return to pre-Covid employment levels. In the United States, that balance should involve the Federal Reserve (Fed) raising interest rates in 2022 to ensure that elevated wage inflation does not translate into more permanent core inflation. At present, we see the negative risks of too-easy policy accommodation outweighing the risks of raising short-term rates. Given conditions in the labour and financial markets, some are likely underestimating how high the Fed may ultimately need to raise rates this cycle.




Questions For The Long-Term Investor

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Whether you’ve been investing for decades or are just getting started, at some point on your investment journey you’ll likely ask yourself some of the questions below. Trying to answer these questions may be intimidating, but know that you’re not alone. Lane Financial Management Ltd are here to help. While this is not intended to be an exhaustive list, it will hopefully shed light on a few key principles, using data and reasoning, that may help improve investors’ odds of investment success in the long run.

The following article should not be deemed advice, but should rather be used as a basis for a more meaningful discussion with your adviser. Past performance is no guarantee of future results.

1. What Competition Do I Face as an Investor?

The market is an effective information-processing machine. Millions of market participants buy and sell securities every day, and the real-time information they bring helps set prices.

This means competition is stiff, and trying to outguess market prices is difficult for anyone, even professional money managers (see question 2 for more on this). This is good news for investors though. Rather than basing an investment strategy on trying to find securities that are priced “incorrectly,” investors can instead rely on the information in market prices to help build their portfolios (see question 5 for more on this).

2. What Are my Chances of Picking an Investment Fund That Survives and Outperforms?

Flip a coin and your odds of getting heads or tails are 50/50. Historically, the odds of selecting an investment fund that was still around 20 years later are about the same. Regarding outperformance, the odds are worse. The market’s pricing power works against mutual fund managers who try to outperform through stock picking or market timing. As evidence, only 19% of US equity mutual funds and 11% of US fixed income mutual funds have survived and outperformed their benchmarks over the past 20 years.

3. If I Choose a Fund Because of Strong Past Performance, Does That Mean it Will do Well in The Future?

Some investors select mutual funds based on past returns. However, research shows that most US mutual funds in the top quartile of previous five-year returns did not maintain a top-quartile ranking in the following five years. In other words, past performance offers little insight into a fund’s future returns.

4. Do I Have to Outsmart The Market to be a Successful Investor?

Financial markets have rewarded long-term investors. People expect a positive return on the capital they invest, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation. Instead of fighting markets, let them work for you.

5. Is There a Better Way to Build a Portfolio?

Academic research has identified these equity and fixed income dimensions, which point to differences in expected returns among securities. Instead of attempting to outguess market prices, investors can instead pursue higher expected returns by structuring their portfolio around these dimensions.

6. Is International Investing For Me?

Diversification helps reduce risks that have no expected return, but diversifying only within your home market may not be enough. Instead, global diversification can broaden your investment opportunity set. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.

7. Will Making Frequent Changes to My Portfolio Help me Achieve Investment Success?

It’s tough, if not impossible, to know which market segments will outperform from period to period.

Accordingly, it’s better to avoid market timing calls and other unnecessary changes that can be costly. Allowing emotions or opinions about short-term market conditions to impact long-term investment decisions can lead to disappointing results.

8. Can my Emotions Affect my Investment Decisions?

Many people struggle to separate their emotions from investing. Markets go up and down. Reacting to current market conditions may lead to making  poor investment decisions.

9. Should I Make Changes to My Portfolio Based on What I am Hearing in The News?

Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future, while others tempt you to chase the latest investment fad. If headlines are unsettling, consider the source and try to maintain a long-term perspective.

10. So What Should I be Doing?

Work closely with a financial adviser who can offer expertise and guidance to help you focus on actions that add value. Focusing on what you can control can lead to a better investment experience.

  • Create an investment plan to fit your needs and risk tolerance.
  • Structure a portfolio along the dimensions of expected returns.
  • Diversify globally.
  • Manage expenses, turnover and taxes.
  • Stay disciplined through market dips and swings.

All Time High Anxiety

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Record High Stock Prices

Investors are often conflicted about record-high stock prices. They are pleased to see their existing equity holdings gain in value but apprehensive that higher prices somehow foreshadow a dramatic downturn in the future. And they may be reluctant to make new purchases since the traditional “buy low, sell high” mantra suggests committing funds to stocks at an all-time high is a surefire recipe for disappointment.

Financial journalists periodically stoke investors’ record-high anxiety by suggesting the laws of physics apply to financial markets—that what goes up must come down. “Stocks Head Back to Earth,” read a headline in the Wall Street Journal in 2012. “Weird Science: Wall Street Repeals Law of Gravity,” Barron’s put it in 2017. And a Los Angeles Times reporter had a similar take last year, noting that low interest rates have “helped stock and bond markets defy gravity.”

Those who find such observations alarming will likely shy away from purchasing stocks at record highs.  But shares are not heavy objects kept aloft through strenuous effort. They are perpetual claim tickets on companies’ earnings and dividends. Thousands of business managers go to work every day seeking projects that appear to offer profitable returns on capital while providing goods and services people desire. Although some new ideas and the firms behind them end in failure, history offers abundant evidence that investors around the world can be rewarded for the capital they provide.

Whether at a new high or a new low, today’s share price reflects investors’ collective judgment of what tomorrow’s earnings and dividends are likely to be—and those of all the tomorrows to come. And every day, stocks must be priced to deliver a positive expected return for the buyer. Otherwise, no trade would take place. It’s difficult to imagine a scenario where investors freely invest in stocks with the expectation of losing money.

Humans are conditioned to think that after the rise must come the fall, tempting us to fiddle with our portfolios. But the data suggest such signals only exist in our imagination and that our efforts to improve results will just as likely penalize them.

Investors should take comfort knowing that share prices are not fighting the forces of gravity when they move higher and have confidence that record highs only tell us the system is working just as we would expect—nothing more.

Equilibrium Markets in the Time of COVID

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When it All Began

The pandemic snuck up on investors. On December 31, 2019, the government in Wuhan, China, confirmed that dozens of people were being treated for a new virus. China reported its first death from the virus on January 11, 2020, the World Health Organization declared a global emergency on January 30, and the first death outside China occurred in the Philippines on February 1. Financial markets took this news in stride. The UK’s FTSE 100 fell 1%, for example, from December 31, 2019, to February 20, 2020, and the S&P 500 rose 5% over the same interval. Things changed quickly, however, after that. Over the next month, stock indices around the world plunged, with both the S&P 500 and the FTSE 100 dropping by a third.

The behaviour of the Cboe Volatility Index (VIX)—the index that measures the expected volatility of the S&P 500 index over the next 30 days—is particularly interesting. The index started 2020 at about 14, below its long run average of roughly 18.5, and it was still close to 14 on February 20. Then it exploded. The expected volatility of the S&P 500 rose by a factor of six in less than a month, to a high of over 85 on March 18.

COVID Volatility

Why did volatility go up so much? The short answer is, because there was so much to learn. This was a new virus that caused a new and potentially fatal disease. In early March, we did not know how contagious or lethal it was, who was most vulnerable, what one should do to avoid it, whether masks were an effective deterrent, or whether it would go away in the summer. Every day brought new information—some accurate, some not so accurate—that investors tried to interpret and project into the future. When the news was better than expected, prices would shoot up. And when it was worse than expected, prices would plummet.

With all this uncertainty, why didn’t everyone sell? Because no one can sell if no one is willing to buy. Market prices are constantly adjusting to keep the number of shares people want to sell in line with the number people want to buy. After bad news about future cash flows, many investors would have been happy to sell at the old prices, but few investors wanted to buy there. Prices had to drop to attract buyers. And after good news, prices had to rise to attract sellers. Prices fell by one-third from February 20 to March 23 because, overall, the news was bad.

The high volatility in February and March 2020 almost certainly pushed prices down as well. The evidence is not conclusive about the effect of such great uncertainty, because this high level of volatility is rare and because it obscures signals about expected returns, but both logic and experience suggest that expected returns go up when risk rises. Since the expected return is also the discount rate, a higher expected return lowers the present value of the future expected cash flows, which drives prices down further. In fact, the S&P index hit its low for 2020 only five days after the VIX hit its high.

In short, in the early months of the pandemic, financial markets struggled to understand how COVID-19 would affect the economy, and volatility went through the roof. Prices dropped by about one-third, both because the overall news was bad and, almost certainly, because buyers demanded higher expected returns as compensation for their higher risk.

Stockholders who did not sell in February and March would have been rewarded for their fortitude. Although the market remained turbulent, with the VIX in the upper 20s through June and above 20 for the rest of the year, uncertainty gradually declined and many publicly traded firms prospered.

Presumably driven by higher expected cash flows and lower required returns, the S&P 500 rose 70% from the low on March 23, 2020, to December 31, 2020. Investors who weathered the pandemic’s turbulent impact for all of 2020 would have been rewarded with a cumulative return of 18% on the S&P 500 and 24% on the broad US market.*

The Basics of Investing

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What is an Investment?

To put it simply, investing is the act of buying assets, with the expectation that they’ll increase in value over time. For example, when you buy a portion of a company, you’re buying a ‘share’. Your investment can then go up or down in value depending on the amount of growth that company makes. You could get back less than you invested if that company makes a loss. You can invest in all kinds of things such as property, government bonds and even gold. You can buy shares in the financial markets, a place where people buy and sell investments.

Capital Appreciation and Income

The rise in the share price is the capital return investors get from investing in the shares of a company. Income and dividends are a source of return and are paid by companies to investors.

The FTSE 100 Index® contains the biggest 100 UK companies you can invest in and is known as being home to many big dividend-paying companies.

Understanding Risk

As with many things in life, the less risk you take, the smaller your potential reward. Savings are where most people start; putting any spare cash to one side to build up a short-term safety fund in case of emergency. The rate of interest paid on money held in deposit accounts tends to be relatively low but the amount of cash you have shouldn’t fall in value.

Investments are long term savings, five years or more, where different amounts of risk can be taken. Investing is about putting money away either as a lump sum or regularly, providing the opportunity for your money to grow in value over the long term.

There is a wide choice of investment types each with their own pros and cons. For example, investing in riskier investments, such as the shares of companies in less developed markets because of factors such as political risk, means that there could be more bumps along the way, although there is more potential for higher returns. Charges might also apply to investments. Remember the value of investments can go down as well as up and you may get back less then was invested.

Work with Risk Not Against it

You can manage risk to help your money work harder. For example, put your money into lots of different investments and you’ll ‘spread’ or ‘diversify’ your risk. Just like not putting all your eggs into one basket, you won’t have all your money invested in one company that could suddenly fall in value. You can also invest little and often to help smooth out the zigs and zags of the market.

Another good way to manage your risk is to invest for long-term goals instead of short-term ones. For instance, invest for a goal at least five years from now. That could be anything from a house deposit, university fees for children or simply to grow your own pension pot. If your investment drops in value in the short term, you’ll be less likely to panic sell before it has a chance to go up in value again.

To sum up, risk may sound scary at first. But it’s the reason you could get a higher return on your money to begin with. When you see it that way, risk is a good thing, so long as it’s carefully managed.

Don’t Panic, Remember The Long Term and Seek Help

At times of uncertainty, it’s understandable to have a sense of worry. But when it comes to investing, it’s helpful to not let worry become panic. Investment decisions made under stress are rarely good ones. It’s wise to not let short-term volatility dictate long-term investment decisions.

And finally, it’s often sensible to seek help. Unless you’re an experienced investor, you may choose to leave investment decisions to someone else. Lane Financial Management Ltd can help build a suitable investment strategy that marries with your financial objectives and tolerance for risk.

Global Economic Update

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How is The Global Economy Looking?

Economic Growth

High-frequency indicators in the United States point to strong demand for goods and services so far in the second quarter, in line with our expectations for a quarterly growth rate that could approach double-digits and be the strongest this year. Vaccine distribution remains on a trajectory to cover about 65% of the population by the end of June, allowing for a substantial reopening of the economy more broadly. US real GDP increased at a seasonally adjusted annual rate of 6.4% in the first quarter.


GDP in the euro area declined by 0.6% in the first quarter compared with the preceding quarter, marking an official double-dip recession after a 0.7% contraction in the final three month period of 2020. But more recent data alongside generally stronger sentiment indicates the economy is likely growing again. We expect growth around 4% for all of 2021, as several countries have announced steps for easing Covid-19 restrictions and for GDP to reach its pre-pandemic level in the first half of 2022.


In the United Kingdom, GDP declined by a less than-expected 1.5% in the first quarter of 2021 compared with the previous three-month period, with the monthly estimate for March, at 2.1%, showing the fastest monthly rate of growth since August 2020. The UK economy was hit harder than the euro area earlier in the pandemic but has since realised a more successful vaccine rollout. As a result, we expect its growth trajectory to overtake that of the euro area later this year. Given encouraging developments around virus transmissions, we now see the UK economy growing in a range of 6.5% to 7% for all of 2021 – a stronger pace than our previous forecast of around 6%. We also expect GDP to reach its pre-pandemic level around the turn of the year, a few months before the euro area reaches that milestone.

Monetary Policy

The US Federal Open Market Committee voted on 28 April to leave the target range for its federal funds rate unchanged at 0%–0.25% and its bond-buying programme unchanged. Chairman Jerome Powell emphasised that it remained premature to discuss a tightening in policy and that the Fed would communicate potential changes to its $120 billion-per-month bond-buying programme well in advance of any tapering of purchases. We expect such guidance to ramp up in the second half of the year, but we don’t foresee the Fed raising its interest rate target until the third quarter of 2023.


The European Central Bank (ECB) left its key rates intact at its 22 April policy meeting, holding its main deposit rate unchanged at a negative 0.5%. The ECB reiterated that it would continue asset purchases under its Pandemic Emergency Purchase Programme (PEPP) at least through March 2022 and that purchases for the remainder of the second quarter would “be conducted at a significantly higher pace than during the first months of the year.” ECB President Christine Lagarde said discussion on the phasing out of PEPP purchases was “simply premature”. We nonetheless expect the ECB to gradually slow its bond purchases starting in the third quarter of 2021 as economic activity picks up.


The ECB’s caution is in marked contrast with the Bank of England’s acknowledgment that it would slow the pace of its asset purchases for the rest of the year. At its 6 May Monetary Policy Committee meeting, the Bank of England maintained its bank rate at 0.1% and left its target for government bond purchases unchanged at £875 billion but signalled that it would slow the pace of its purchases from £4.4 billion a week to £3.4 billion a week. The bank also increased its forecast for 2021 UK GDP to 7.25%.


The Consumer Price Index (CPI) in the United States rose by a greater-than-expected 0.8% in April on a seasonally adjusted basis compared with March. Sharply higher prices for airline tickets and used cars reflected both a recovery driven rebound in activity and the near-term challenge of supply not keeping up with emerging demand. Headline inflation was up 4.2% compared with a year earlier, also greater than expected. Core CPI, which excludes volatile food and energy prices, rose by 3.0% compared with April 2020. We expect headline CPI to hover around 3% for the rest of 2021 before dropping back toward 2% for most of 2022, with core CPI falling back below 2% in the second half of 2021 before rising marginally above 2% toward the second half of 2022 and into 2023.


Headline inflation rose to 1.6% in the euro area in April on an annual basis, up from 1.3% in March. Energy prices, up 10.4% compared with April 2020, accounted for the bulk of the gain. Core inflation, which excludes volatile food and energy prices, was estimated to have risen by 0.7% compared with a year earlier. We expect higher relative energy prices to push headline inflation above 2% in the second half of the year and core inflation to gradually rise to a range of 1% to 1.5% as the pace of economic recovery quickens. Underlying price pressures, though, remain subdued amid weak labour bargaining power and low inflation expectations.


Headline inflation rose by 1.5% in April in the United Kingdom compared with a year earlier, following a 0.7% rise in March. Utility, clothing, and motor fuel prices made the greatest contribution to the gains. We expect headline inflation to rise above the Bank of England’s 2% target in the second half of the year on higher relative energy prices amid a strengthening economy. We expect core inflation, which excludes volatile food and energy prices, to approach the BOE’s target.


The unemployment rate in the United States rose to 6.1% in April as only 266,000 non-farm jobs were created, far below expectations for more than a million. We expect a high degree of variability in jobs numbers in the coming months as a labour market that turned off all at once wrestles with how to turn itself back on. We do expect factors keeping some workers side-lined to dissipate over the next several months.


Unemployment in the euro area fell to 8.1% in March from a revised 8.2% in February on a seasonally adjusted basis, with furlough schemes continuing to support employment. The unemployment rate was 7.1% in March 2020, near where it was at the start of the Covid-19 pandemic.


The unemployment rate in the United Kingdom fell to 4.8% in the three months to March and, down slightly from 4.9% in the quarter ended in February and the third straight three month period with a decline. We expects employment to be supported by the extension of the Coronavirus Job Retention Scheme through September as part of the UK’s recently announced budget.


Financial Lessons to Remember

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Gambling is Not Investing, and Investing is Not Gambling

Gambling is a short-term bet. If you treat the market like a casino, and you’re picking stocks or timing the market, you need to be right twice, in an aim to buy low and sell high. Fama showed that it’s unlikely for any individual to be able to pick the right stock at the right time, especially more than once. Investing, on the other hand, is long term. While all investments have risk, there are things you can do as a long-term investor to manage those risks and be prepared. The famous Nobel laureate Merton Miller once said, “Diversification is your buddy.” Investing, to me, is buying a little bit of almost every company and holding them for a long time. The only bet you’re making is on human ingenuity to find productive solutions to the world’s problems.

Embrace Uncertainty

Over the past 100 years, the US stock market, as measured by the S&P 500, has returned a little over 10% on average per year but hardly ever close to 10% in any given year. The same is true of dozens of other markets around the world that have delivered strong long-term average returns. Stock market behaviour is uncertain, just like most things in our lives. None of us can make uncertainty disappear, but dealing thoughtfully with uncertainty can make a huge difference in our investment returns, and even more importantly, our quality of life.

The way to deal with uncertainty is to prepare for it. Without uncertainty, there would be no opportunity to do better than a relatively riskless return like that from a money market fund. We always emphasize that risk and expected returns are related, which means you can’t have more of one without more of the other. Make the best-informed choices you can, then monitor performance and make portfolio adjustments as necessary.

Tune Out The Noise

If an investment sounds too good to be true, it probably is. When people ask us if were investing in the latest shiny investment idea, I tell them, “If I don’t understand something, I don’t invest in it.” That’s because we’ve seen a lot of fads come and go.

TV pundits handing out stock tips? Friends letting friends in on their next big investment? We see these more as entertainment than information. Stress is induced when people think that they can time markets or find the next winning stock, or that they can hire people who can. There is no compelling evidence that professional stock pickers can consistently beat the markets. Even after one outperforms, it’s difficult to determine whether a manager was skilful or lucky.

The good news is you can still do well without having to find what markets might have missed. While markets are unpredictable and may even seem chaotic at times, they have an underlying order. Buyers and sellers come together and trade, which is the activity that sets market prices. Unless each side agrees to a price, they don’t trade. New information and expectations about returns are quickly incorporated. Consistently finding big winners is difficult, but everybody can have access to the expected returns that a diversified, low-cost portfolio can generate.

Stick to The Plan

It can be difficult to stay the investment course during periods of extreme market volatility. At the end of March 2020, the S&P 500 was down nearly 20% for the year. Record amounts of money exited from equity mutual funds and went into money market accounts. Those investors who stayed out of the equity market missed out on the subsequent 56% gain in the S&P 500 over the next 12 months. We will all remember 2020 for the rest of our lives. It serves as an example of how important it is to maintain discipline and stick to your plan.

By learning to embrace uncertainty, you can also focus more on controlling what you can control. You can make an impact on how much you earn, how much you spend, how much you save, and how much risk you take. This is where a professional you trust can really help. Discipline applied over a lifetime can have a powerful impact.



The Crypto Bubble and Important Considerations

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The Crypto Debate

Bitcoin and related cryptocurrencies (now numbering in the thousands) are the subject of much debate and fascination. Given bitcoin’s dramatic price changes, it is not surprising that many are speculating about its possible role in a portfolio.

In its relatively short existence, bitcoin has proved extraordinarily volatile, sometimes gaining or losing more than 40% in price in a month or two. Any asset subject to such sharp swings may be catnip for traders but of limited value either as a reliable medium of exchange (to replace cash) or as a risk-reducing or inflation-hedging asset in a diversified portfolio (to replace bonds).

Crypto Considerations

Assessing the merits of bitcoin as an investment can be problematic. Adding it to a portfolio could mean paring back the allocation to investments such as stocks, property, or fixed income. The owner of stocks or real estate generally expects to receive future income from dividends or rent, even though the size and timing of the payoff may be uncertain.

A bondholder generally expects to receive interest payments as well as the return of principal. In contrast, holding bitcoin is similar to holding gold as an investment. Even if bitcoin or gold are held for decades, the owner may never receive more bitcoin or gold, and unlike stocks and bonds, it is not clear that bitcoin offers investors positive expected returns.

Putting aside squabbles over the future value of bitcoin or other cryptocurrencies, there are other issues investors should consider:


  • Bitcoin is not backed by an issuing authority and exists only as computer code, generally kept in a so-called “digital wallet,” accessible through a password chosen by the user. Many of us have forgotten or misplaced computer passwords from time to time and have had to contact the sponsor to restore access. No such avenue is available to holders of bitcoin. After a limited number of password attempts, a user can permanently lose access. Since there is no central authority responsible for bitcoin, there is no recourse for the forgetful owner: a recent New York Times article profiled the holder of more than $200 million worth of bitcoin that he can’t retrieve. His anguish is apparently not unusual—a prominent cryptocurrency consulting firm estimates that 20% of all outstanding bitcoin represents stranded assets unavailable to their rightful owners.


  • Mt. Gox, a Tokyo-based bitcoin exchange launched in 2010, was at one time the world’s largest bitcoin intermediary, handling over one million accounts in 239 countries and more than 90% of global bitcoin transactions in 2013. It suspended trading and filed for bankruptcy in February 2014, announcing that hundreds of thousands of bitcoins had been lost and likely stolen.


  • The UK Financial Conduct Authority cited a number of concerns as it prohibited the sale of “cryptoasset” investment products to retail investors last year. Among them were the inherent nature of the underlying assets, which have no reliable basis for valuation; the presence of market abuse and financial crimes in cryptoasset trading; extreme price volatility; an inadequate understanding by retail consumers of cryptoassets; and the lack of a clear investment need for investment products referencing them.


The financial services industry has a long tradition of innovation, and cryptocurrency and the technology surrounding it may someday prove to be a historic breakthrough. For those who enjoy the thrill of speculation, trading bitcoin may hold appeal. But those in search of a sound investment should consider the concerns of the Financial Conduct Authority above before joining the excitement.

Spring Budget 2021

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Spring Budget 2021 Summary

There is no doubt that this has been one of the most anticipated Budgets in recent times. After a year seeing unique and significant fiscal policies that have supported the economy throughout Covid-19, there was pressure to see how the government would pay back the large amount of debt incurred during the pandemic, while maintaining an economic platform for growth. In addition, there is the need to help businesses through the post-Brexit transition period.

The Chancellor announced his ‘Budget for recovery’ with a clear focus on continuing and enhancing the economic support for Covid-19 and the rebuilding of public finances to ensure a post-Covid-19 financial recovery and a stable economic future.

Below you will find a summary of the key areas of the Spring Budget:

Income tax

There are no changes to income tax rates for 2021/22. The personal allowance and basic rate band have been increased in line with CPI. The new personal allowance will be £12,570 with the basic rate band increasing to £37,700, meaning that the higher rate tax threshold will be £50,270. The personal allowance and higher rate threshold will remain fixed until 2025/26.


Capital Gains Tax

While there was much speculation ahead of the budget on possible changes to CGT, there were no changes announced to CGT rates or the annual exemption. However, the annual exempt amount will remain frozen at £12,300 for individuals (and personal representatives) and to £6,150 for trustees of settlements, until 2025/26.

The Government intends to publish further tax consultations on 23 March, and we wait to see if CGT changes are amongst them.


Inheritance Tax

Both the nil rate band and residence nil rate band will remain fixed at £325,000 and £175,000 respectively until April 2026.

With the bands frozen for a further five years, this will bring more estates into the IHT net and increase the demand for advice on estate planning. We wait to see if IHT is included in the tax consultations set to be announced on 23 March and, if so, how these may affect wealth transfer.



There will be no inflationary increases to the lifetime allowance (LTA) – it will remain at its current level (£1,073,100) until April 2026.

A prolonged period of no inflationary increases will mean that more and more clients may face LTA charges.

There were no changes to pension tax relief in the Chancellor’s Budget.


Corporation Tax

Corporation tax is set to rise to 25% from April 2023. However, small companies with profits below £50,000 will continue to pay at the current rate of 19%. There will also be a reintroduction of tapering relief for businesses with profits under £250,000 so that they pay less than the main rate.


Stamp Duty Land Tax

The current SDLT nil rate band of £500,000 for residential property acquisitions in England and Northern Ireland will be extended from 31 March to 30 June 2021, with a reduced nil rate band of £250,000 for acquisitions between 1 July and 30 September, after which it will revert to £125,000.

This will be helpful to the residential market and will reduce the current pressure on conveyancers who may be finding it difficult to arrange completion of contracts by 31 March. Although there was no announcement of ‘grandfathering’ of contracts exchanged before the relevant time limit but completed after that time limit, the two-step approach should reduce the ‘cliff edge’ effect of a sudden drop-in nil rate band from £500,000 to £125,000.


Government Backed 95% Mortgages

The Chancellor also announced a new mortgage guarantee scheme to help first-time buyers get on to the property ladder. The scheme will involve the government guaranteeing 95% mortgages, giving lenders the confidence to reinstate the low-deposit deals which had been withdrawn since the start of the pandemic. The scheme will be available on new and existing properties priced up to £600,000 and will allow buyers to fix their initial mortgage rate for at least five years. It will apply throughout the UK and will run until 31 December 2022.


Opportunities for Environmental and Social Investors

The government announced the introduction of a new Green Savings Bond, which will be available through National Savings and Investments (NS&I). The product will give ordinary savers the opportunity to invest funds which will be earmarked for ‘green projects’ such as renewable energy. Further details of how the new product will operate, including rates, are expected to be announced over the coming months in advance of the product launch in summer 2021.

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