Save & Invest Financial Planning

 The strong are not so strong!

In the political world from Germany to Zimbabwe and in the investment world Neil Woodford seeing money being pulled from his funds.

The almost unthinkable in Germany, Angela Merkel is under pressure. This could have repercussions for the Brexit negotiations as, after her support last month for Mrs May, there seemed more of a chance that trade discussions between the UK and the EU could start in December.

The economic outlook in the UK continues to be uncertain as both businesses and consumers are suffering from the combination of higher inflation and low productivity. In todays budget the Chancellor has cut economic growth prospects and is setting aside £3bn over the next two year for Brexit preparations. The UK currently has the lowest level of economic growth of the G7 economies. However after the initial shock for the share price of many companies whose business is mainly carried out in the domestic economy there has been a revival.

Post the vote to leave the EU the pound has fallen, although it has recouped some of those losses against the US dollar and Japanese yen this year. The lower pound has generally been very positive for UK based investors. Investment funds with assets in overseas markets benefit in that when these assets are valued back in to sterling they are worth more due to strength of the currencies against the pound. Also for many of the companies that make up the FTSE 100 index they earn the majority of their earnings in overseas markets which when brought back are again worth more.

In the US there remain prospects for tax cuts which should help boost the stock market. There are of course concerns; when will we see the next recession, can a "good "level of inflation be maintained/reached in the developed economies and can a Brexit settlement be reached which causes little disruption to prosperity.

A topic which has been in the news in recent years for investors is the increase in the amounts being invested in vehicles that track an index. Our view is that they can have a limited place in portfolios for some clients but generally not for those clients who prefer lower levels of potential volatility. Recent studies have indicated that shares held in index funds are up to 45% more volatile than shares not held in an index. In addition the potential risk on the downside is likely to be much higher for those shares that have simply gone up in value based on their size placing them within an index.

The rise of this type of investment is termed by some as speculation as the shares are simply being bought due to their size, not the fundamental strength of the business and longer term the allocation of capital to those businesses could have a very detrimental effect on our economic well being. Not an outcome we, nor we believe our clients, would welcome

How sustainably focussed is your portfolio or pension plan?

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