Two Things and a Bit More!
26 August 2023
To all Financial Friends
Hoping you have had, or are having a summer break from all the usual pressures and challenges of life? Fund managers take a break too, leaving their second in demand staff in control. This genuinely means no life changing decisions are made and markets can drift. They have. As September arrives, we may well see a change of direction. Refreshed managers have to take up the challenge of the Chinese economy having slumped and the tension of defeating inflation by the raising of interest rates here in the UK.
Once we we see markets settling we can discuss here the opportunities that may develop and whether the holdings many students retain are thought by them to remain sound. I suspect this will be the case. Expect a summary in mid to end of September to inform on developments. Please remember I am here for a Zoom call or phone call to talk you through what you need to know. That said I am shortly to be unavoidably retained in Corfu returning to my office on Monday 4th September.
Two things and a bit more. in brief.......
First thing
The Return of the Annuity!
What's one of those? To buy an annuity means handing over the cash in your pension (or other cash in hand), to a life assurance company or other provider in exchange for a totally guaranteed income. At retirement this income will usually be paid for the rest of your life. No ups and downs, no stock market just a solid dependable income. The income is based on Gilt Yields which have risen strongly in the current economic background.
The financial press now reports that you can swap your cash or pension fund for guaranteed returns for life at an appealing rate. On just one life at age 55 the fixed rate of interest stands at 6.17%. At age 60 it's 6.5%. At age 65 it's 7.3% and at age 70 a whopping 8.09%.
These comments are just to alert you to this possible opportunity of the moment. Do nothing without full understanding - its a big subject - information and guidance is here if you want to know more.
Second thing
The Tax Man Cometh?
Again a brief comment, just to alert you. Many folks have money on deposit in the bank or building society not sheltered within a tax free ISA. Basic and higher rate taxpayers have a Personal Savings Allowance. What's that then? This means that a basic rate taxpayer can earn up to £1,000 (£500 for higher rate taxpayers) before paying any tax on interest earned. When interest rates were so low at say 1%, you would have to have held more than £100,000 on deposit to fall into this unexpected tax trap.
Today, with interest rates hovering around 5%, then more than £20,000 in the bank means paying tax on the excess over your allowance. For higher rate taxpayers anything over £10,000 on deposit would trigger a tax charge.
I am looking into alternatives to the bank account to mitigate this possible tax charge so let me know if you want help on thinking this through.
Just a bit more.......
Inflation Linked Bonds
Those of you holding these bonds in your portfolio might like to know the following. Tom our stockbroker, is ever hopeful of a sudden rise in the value of these bonds. Without common sense or any known reason, the value of these bonds have fallen badly in recent times. Tom's view is that the true value of these bonds will be realised as both inflation and interest levels at around 6% coincide. The Bank of England is expected to raise interest rates again at their next review.
That's all for now. Call me from 4th September to catch up by all means.
Please read the above as a commentary similar to that you might read in the financial press. The difference is that you know the author and can even talk to ask questions and make sure you have the understanding upon which you can make prudent and profitable decisions for yourself.
PLEASE NOTE: A financial or economic commentary like these, are written to explain, interpret or give an opinion on economic events and markets to help readers understand what’s happening and why it matters. Designed to help you make informed decisions of your own by making you aware of opportunities, risks and potential rewards in the market.
