Probably the most electrifying article of the weekend was the Financial Times’s Saturday report on how the millennial generation see things differently from the older generation. Based on a survey of 500 young people from the government’s Money Advice Service, the report contains both depressing and encouraging information about the thought-trends which dominate among the young.
The first depressing trend (as some might think) among the 16-25 age group was that money management is a “boring” subject, which ranks well below having a good social life in the priority stakes of the younger generation. (Your author would have agreed with them up to the age of 22, when he bought his own house, something that probably doesn’t happen much these days.)
Perhaps that doesn’t sound so bad if we add that more than half of the respondents ranked an effective money management system above having a job they enjoyed – or even buying a home. And yet overall, says the FT, only about one in five of the young adults surveyed said that they were not confident about managing their money, although the proportion rose to around one quarter among the 16-18 year olds. A more telling point, perhaps, was that almost 40% said they had no idea where to go to get help with their finances.
We’d recommend that you read the FT’s article in full, not least because of the detailed insights which emerge. When 30 of these 16-25 year olds were assembled at financial workshops in London and in Manchester, a majority quoted peer pressure as one of the reasons for being cagey about money management. “You don’t want to be that friend who always says, ‘I can’t afford to do that’,” was the telling view from one female graduate. Whereas the sort of person who stays in and cooks a cheap spaghetti meal is “probably not the most exciting person”, according to another participant.
Three in five of the participants agree that better money management would improve their lives, says the FT. But “managing money well and promoting short-term happiness are often seen as in direct conflict – and where this conflict occurs, short-term happiness usually wins,” And throughout the article, a common current emerges, to the effect that saving for a home purchase deposit is seen as an unattainable goal. So why not spend the money on a festival ticket instead?
There’s lots more detail in the article. Recommended.
The fund in focus for the Financial Mail on Sunday is the Invesco Perpetual Distribution Fund. At nearly £3billion in size, it pays a monthly income generated from a portfolio of bonds and equities – capital growth is also an objective for the fund’s three managers. Paul Causer is one of the fund’s managers and is interviewed in the article saying that the world has ‘changed a lot’ during the fund’s life. He believes that ‘conceptually’ it still works as a generator of regular income.
He adds: ‘Essentially, it is a fund with a portfolio that is one third invested in equities and two thirds exposed to bonds, with a little wriggle room around these percentages. There is no target income other than the fact that the portfolio is designed to generate it on a regular basis. It means the income can go up and down from year to year but investors seem to like it.’
He says in the article that the fund is liked more by investors who buy it through fund supermarkets than by financial advisers purchasing on behalf of clients. ‘Investors like its in-built diversity,’ he adds. ‘Advisers prefer to do their own asset allocation.’
Causer is nervous about the future, especially with regards to the UK where a strong global economic backdrop is mitigated by ‘political turmoil’ caused by Brexit. He is also concerned about inflation.
The Sunday Times reminds readers of the little known tax perk which cuts the cost of financial advice by up to £310 a year. It’s the legislation launched last November for pension advice vouchers. Basically, employees can swap up to £500 of their pay each tax year for a pension advice voucher through salary sacrifice. The voucher can then be used to obtain financial advice about any sort of pension – it doesn’t have to be about their company scheme. Few employers are currently offering the scheme however. Employees who feel that it would be beneficial to them are encouraged to talk to their bosses. It replaces the old rules whereby employees were allowed a tax exempt benefit of £150 a year. So, if you get any queries from clients asking if your fees could be mitigated in this way, then you’ll know to direct them to their employers to ask how they could go about it.
Also in the Sunday Times, the Trump bump is on Ian Cowie’s mind. He points out that the Dow Jones Index has rallied by more than 30% since Trump’s inauguration – and the broader S&P index by 22%. And that’s despite many commentators saying it won’t last. Cowie, rather naturally, asks whether they are wrong and whether this rally will continue. There are plenty of concerns around that it won’t. Cowie comments that the last time P/E ratios were as high as they are at the moment was 1929. And we all know what happened then! Interestingly, he points to research from StarCapital Research that the average American share is now priced at more than 30 times earnings ( ouch), in Japan it’s nearly 29 (ouch again), Germany it’s 21 and in Britain just 16.5. However, trying to time the market is not something Cowie is prepared to do as an investor. He is remaining invested as this bull market “climbs a wall of fear”. As he reminds us, “some of the biggest gains are seen in the final months of an upswing, when investors become euphoric”. Nothing goes up forever pf course, so pragmatic advisers will always trust in the value that having a diversified portfolio will generate efficient returns for clients over the long term.
There’s also some analysis of the offer from Nat West to its customers trying to tempt them to switch the management of their investments. Nat West is offering 1% cashback on up to £25,000 invested up until 5 April. They are not alone. Santander is about to offer a similar scheme and Barclays has been operating its smart investor service since last August. It’s hardly the kind of service that can rival the professional approach of an adviser, but it’s worth being aware of.
A 35-year bull market is ending: this is how all your investments will be affected. It’s the headline in the Sunday Telegraph which broadly is talking about what might happen to US government bond yields after a 35 year bull run and how an end to it could impact other assets in an investment portfolio. Too much detail for us here – if you’re interested then read the article! The Sunday Telegraph also argues the case why 2018 might be the year to buy gold, despite many commentators suggesting it might be a poor year as a result of many Central Banks being expected to raise interest rates.