What has happened, why, and what next.
Writing this at the beginning of 2024, interest rates around much of the developed world are higher than we have known for many years, in fact for decades.
By Philip Oxley
This article is published on: 11th March 2024
What has happened, why, and what next.
Writing this at the beginning of 2024, interest rates around much of the developed world are higher than we have known for many years, in fact for decades.
This is the first part of this article on the subject, where I will look back at events over the past couple of years and what we can expect to happen next. The second part of the article will focus on what this all means in relation to the world of savings and investments, particularly when interest rates are higher than we have seen for decades.
Overview
Without delving too deeply into the world of macroeconomics, I think it is helpful to provide a brief overview of what has happened over the past couple of years in relation to inflation and interest rates and why. I will then look forward to what can we expect to take place over the next 6-12 months.
a) Interest rates – what has happened and why?
Central Bank Rate
In the UK, the Bank of England base interest rate is 5.25%. In the US, the Federal Reserve increased rates at a speed rarely seen before and rates are currently 5.5%. Finally in the Eurozone, the European Central Bank (ECB) rate, which is applicable in France, is 4.5%.
Outside of these areas, rates have increased in many other countries around the world (Japan is the notable exception, for now). In China rates are currently 3.45%, in India 6.5%, Russia 16% and Türkiye 45%.
Why have interest rates increased?
In a word, inflation. UK’s inflation rate peaked last year at 11.1% and you need to go back to the 1980’s to find a time when inflation reached higher levels. In France, inflation peaked at 6.3% last year and in the US at 9.1%, and again these rates were last reached in both countries back in the 1980s.
Who is responsible for controlling inflation?
It is the primary mandate of both the Bank of England’s Monetary Policy Committee (MPC) in the UK and the Eurozone’s ECB’s monetary policy to maintain price stability. For the MPC it is to “set monetary policy to achieve the Government’s target of keeping inflation at 2%” and the ECB it is “by aiming for 2% inflation over the medium term”. The equivalent body in the US is the Federal Reserve and interestingly, they have a dual mandate, which is to “achieve maximum employment and keep prices stable.”
I do not think it is too controversial to state that all three have failed to some extent in their primary objective over the past 18 months. Although in the US, employment levels have remained impressively high, so we should give the US Federal Reserve some credit for that.
How do you reduce inflation?
There are various tools and theories in relation to the control of inflation, including controlling the money supply (from where the phrase “monetarism”, commonly used during Mrs Thatcher’s time in power comes), Quantitative Tightening (QT) which is essentially rolling back and reversing years of Quantitative Easing (QE) that the central banks employed both after the Global Financial Crisis in 2008/9 and again during the Covid pandemic to boost economies. However, the primary tool used by all central banks is interest rates.
How do interest rates reduce inflation?
Higher interest rates suck money out of the economy, dampening spending, and loans. For consumers, mortgages, loans, and credit cards cost more, leaving less money to spend, resulting in lowering demand and inhibiting price rises. In addition, people are encouraged not to spend but to save, as it becomes easier to obtain a return on savings. Again, this adds to the reduction in consumer spending and businesses need to respond by either cutting prices or reducing the level of increases thus facilitating lower inflation.
Usually, a period of increasing interest rates is followed by increasing unemployment as businesses struggling under higher costs and lower sales must find ways to cut costs (and for many businesses, labour costs are a sizeable proportion of their cost base). This increase in unemployment can have a dampening effect on wage increases (people are prepared to accept a job offer at a lower rate than hitherto before), again all feeding into a deflationary cycle. I say usually, because employment levels have remained impressively robust in the US, UK, and the Eurozone.
b) Interest rates – what next.
Current interest rates
It is always a foolhardy exercise to try and predict events in the financial markets, but there are enough signals now, that some events appear to be inevitable (although I am keeping my fingers crossed that I do not regret writing this!)
In the US, the last interest rate increase by the Federal Reserve was in July 2023, in the UK the last increase of interest rates, to 5.25%, was in August 2023 and the ECB’s last rate increase was last September. Those rates have remained at that level ever since.
Last year market analysts starting using phrases like “higher for longer” and that rates would follow the profile of Table Mountain (a flat-topped mountain in South Africa if you are not familiar with it) in their assessment of what would happen to interest rates in the future. Another way of saying that once rates hit their peak, they would stay at that level for some time – and this has proven to be true.
What next for interest rates
Market analysts are strongly predicting that 2024 will be a year when interest rates start to decline. The only aspect of this prediction that seems uncertain is when the cuts will begin. The consensus is from Spring/early Summer with the ECB and/or Federal Reserve perhaps being the first to start the cycle of rate cutting.
Why in this important?
All the central banks are treading a fine line – trying to balance on one hand, calibrating interest rates to ensure the elimination of high inflation and bring levels back to around 2% sustainably. On the other hand, if they keep rates high for too long, they risk pushing their economies into recession. It is too late for the Central Bank of England, as the UK is already technically in recession (two successive quarters of negative GDP growth), as is Japan. The Eurozone is also perilously close to recession, but it is currently believed that the US is likely to avoid recession.
It is also important because high interest rates impact businesses as well as consumers and typically the financial markets have responded positively to the start of a rate cutting cycle which among other items, will be discussed in the second part of this article.
By Katriona Murray-Platon
This article is published on: 6th March 2024
For me it always feels like January is such a long month, February passes in a blink of an eye and all of a sudden it’s March and there is so much excitement and activity. I had a few days off at the end of February to spend time with my boys, rest and recuperate and catch up on some reading.
One of the things I like to read is the Le Particulier magazine and this month they had a very interesting special limited edition on how and where to invest in 2024. There was a lot of information in this special edition which I found fascinating but also a lot that confirmed many things I had been advising for a while.
One key point is that whilst having savings accounts such as the Livret A, the LDDS and (if you are eligible) the LEP are great places to keep your money in the short to medium term, by which we mean in the next 5 years, these accounts should only be used as emergency funds or money destined for a particular project that you intend to carry out soon. This is why on the Spectrum Confidential Review document we ask our clients which bank accounts they have, what the interest rate is on them and what is the purpose of this money. If there isn’t a reason to have these savings and you can’t foresee a reason for using the funds within the next five years, then it is important to think about investing some of it as, no matter what the rate currently offered, such rates will not protect your money from inflation over the long term.
I’m often asked about how to save money for children. If you have a child aged between 12 and 25 years of age you can open a Livret Jeune in addition to them having a Livret A. Your children who are included in your tax return cannot have a LDDS as these are only for tax payers. However the Livret Jeune can have a maximum capital of €1600 and whilst the interest rate is not fixed by the Banque de France, banks are required to set an interest rate which is at least the equivalent of the Livret A but may also play the competition and offer more.
In the longer term it is important to invest and the preferred way of doing that in France is by using an assurance vie. According to a statistic in this special edition of the Le Particulier magazine, over a period of 20 years the Livret A account had only made 40% compared to a CAC 40, with dividends reinvested, managed fund with a 3% management fee, over the same period made 289%.
March is a month where things start to happen. I read recently that mortgage rates have begun to fall in France. Although the ECB decided on 25th January to keep the key three interest rates unchanged, there is a strong expectation that mortgage rates will continue to fall this year possibly reaching 3.5% this summer and as low as 3% by the end of the year. This will be much welcome news for those looking to sell property in France.
From 1st April you won’t need to fiddle around to try and put the little green insurance certificate square on your windshield. If you are stopped by the police during a routine insurance check they will be able to tell whether you are up to date with your insurance by checking your license plate with their database.
For those invested with the Pru, there was good news this month as on Monday 26th February 2024 the Prudential Assurance Company (PAC) board reviewed the Prufund Expected Growth Rates (EGR) as part of the quarterly review process and once again there were no unit price adjustments. The expected growth rates remained the same for the PruFund GBP Growth and Cautious funds, whereas for the PruFund Growth Euro fund the Expected Growth rate was lowered slightly to 6.6% (previously 6.9% in November) and the PruFund Cautious Euro to 5.7% (previously 6.2% in November).
Although the tax season in France doesn’t begin until April, I know that lots of you will be thinking about preparing your tax returns. If you have any questions on your taxes or any other financial matters please do get in touch.
By Peter Brooke
This article is published on: 4th February 2024
2024 marks my 20th year as a financial adviser at The Spectrum IFA Group and I am lucky to have been invited to every one of our annual conferences since I joined in June 2004. Last week more than 40 members of the Spectrum family got together in the beautiful Hungarian city of Budapest for our latest conference.
We are always delighted and grateful to welcome excellent external speakers from some of the big investment and insurance firms we work with throughout the year who share their wisdom (and/or best guesses) for the months and years ahead; it was therefore an ideal time for me to pick brains over some goulash and a glass of wine and bring you some considered observations for investing in 2024.
But before looking forward, let’s look at how we got here.
2022 was a very tough year for investors with the hangover from the Covid pandemic and the war in Ukraine creating a perfect inflation storm which led to the most aggressive interest rate hiking cycle in over 40 years. This significantly depressed bond and share values.
Through 2023 there were four distinct periods of rhetoric and market behaviour… it started with the Artificial Intelligence (AI) “revolution” and a huge rally in the “Magnificent 7” stocks in the US, then attention turned to likely recession… but was it going to be a “soft or hard landing” and then a considered period of ‘is this the end of inflation?’ followed by a change in attitudes to try and guess when the first interest rate cuts would start… we even ended the year with a ‘Santa Rally’ in global stock markets…. confusing times!
“Anyone who isn’t confused really doesn’t understand what’s going on!”
Most of the investment managers we spoke to last week had the same view on these sorts of questions…
Politics rarely has a material long term effect on investment returns but can create short term uncertainty and opportunities – be active and don’t get caught up in the hype!
Recession
The consensus view is that we will probably avoid a hard recession, especially in the US, which is still the most important economy on the planet. US households still have high levels of savings and long-term debt structures, so aren’t too affected by higher short term interest rates; unemployment remains low and the ‘Inflation Reduction Act’ is still pumping money into the economy.
However, there is a case for a hard landing with some indicators predicting one, but we live in a world of probability and not certainty and this is changing constantly.
“Don’t be too pessimistic but remain cautious … and don’t be too optimistic… anyone still confused?”
We are at the end of the inflation cycle now and so interest rates are likely to start being cut in May (US) and June (Europe). This will be good for bond values, so don’t sell them now.
Artificial Intelligence will destroy some businesses and will make some very profitable. “It’s like internet 2.0”. It is also unlikely to be the companies that ‘started’ the AI revolution which will do best from it… it will be the companies who best embrace it and who create the infrastructure for it, that will profit most.
Demographics – nothing has changed – there are more of us than ever and we are living longer… and the Obesity epidemic is not cured by one or two weight loss drugs, there is a long way to go.
Retreat from globalisation
“Protectionism”/“MAGA”. We are not going back to globalisation and is it a coincidence that geopolitical instability has also increased? The world is a more dangerous place – we must consider greater Geopolitical risk.
So, with all these factors to consider how do we invest for 2024?
Retreat from globalisation = Defence companies and Oil producers, this might not sit well with all investors.
Even with all of the confusing narrative there are some reasons to be positive in 2024:
“Look through the hype and stick to your own personal investment commitments and goals … oh… and employ an active manager!!”
I would very much like to thank the investment management teams at RBC Brewin Dolphin, Rathbones Investment Management, Evelyn Partners, New Horizons and The Prudential for their time and expert views on the content in this email.
If you would like to dive deeper into these subjects please check out the following links:
5 Investment themes for 2024: from Evelyn Partners
Some predictions for the year ahead from David Coombs at Rathbones
If you like podcasts then I highly recommend David Coombs amusing and insightful monthly Sharpe End Podcast
Feel free to get in touch if you have any questions via the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
If you have missed any previous emails, click here to access the Archive.
For now, have a great day, speak soon…
By Katriona Murray-Platon
This article is published on: 8th January 2024
The new year is a great time for setting goals and making resolutions. I read that, according to a recent survey, saving money was the most popular resolution (after losing weight)!
Saving money is a very important habit to have throughout your life. The great thing is that it is never too late or early to start saving and you don’t need to put aside a lot. Just like it is not a good idea to do fad diets but more to make manageable improvements to your lifestyle, it is better not to make too ambitious savings plans but to put aside small regular amounts that build up over time.
The French standard savings accounts are currently earning 3% which will remain as such until the beginning of 2025. You are allowed to put €22,950 of capital into a Livret A and €12,000 into a LDDS. Once you have reached these limits you cannot put any more into it but the interest compounded over the years can be added to these amounts. The LEP is the highest remunerated savings account, currently at 6%, however if you are eligible for this account you should take advantage of this rate as soon as you can as it may drop to 4.2% on 1st February. If you are eligible you can have 2 LEP accounts per household and can put up to €10,000 of capital into it. To be eligible one person alone must not have earned more than €21,393 in 2022 as declared in 2023. Your bank will not automatically suggest that you open this account so it is for you to check whether you are eligible and request to open a LEP. There are other savings accounts and term accounts that the banks may offer but the rates on these are around 3% and unlike the above mentioned accounts, they will be subject to tax and social charges.
Whilst we don’t know how the market will react to various events and political developments in 2024, fixed income assets could continue to provide good earnings this year. Our investment providers have seen good steady returns in 2023 in their more cautious funds. Whilst savings and fixed interest assets are good to have, it is also important to have some equity based investments. According to a Credit Suisse study published in February 2023, the actual annualised return (after inflation) on the savings accounts in France was -0.8% per year between 1923 and 2022, compared with +6.1% from shares.
On the 15th January, if you have had home help expenses (cleaner, gardener etc) you will get 60% of this tax credit paid to you. The remainder will be taken off your taxes in September.
I will be attending our annual conference in Budapest from 22nd to 26th of January and will have lots of information to pass onto you when I hear the presentations from our product providers. Also coming in my February Ezine will be the news from the adopted French Finance law for 2024.
It is never too late or too early to financial planning so do get in touch and recommend your friends to get in touch with me for a free financial consultation.
By Richard McCreery
This article is published on: 4th January 2024
A tongue in cheek look at the world
three decades from now
The year is 2054. The Trump family presidency is about to enter its fourth decade of ruling power, with Ivanka in charge ever since her father abolished the 22nd amendment of the US constitution that limits anyone to two terms.
Today, the government has a 99% approval rating, according to the state-sponsored broadcaster Fox News, and the Trump family continue to win each election in a landslide, having introduced new rules to make the voting system fair and honest following the collapse of the Biden regime.
However, America is not the technological superpower it once was, having stubbornly doubled down on the use of oil, coal and gas whilst the rest of the modern world switched to clean, abundant renewable energy and electric cars. The technology-hating president Donald Trump eventually decided that the Big Tech billionaires such as Bezos, Zuckerberg and Musk were getting too big for their boots and nationalised their companies, declaring that it was his duty to the people to use his talent for business to run them himself. This move ushered in a new kind of capitalism as their huge profits were directed to fund the collapsing social security system, the construction of border walls sealing off America from Canada and Mexico, and enabling the Trump White House to install gold-plated toilets in every room, making it the envy of African dictators and footballers wives.
The US national debt has climbed to $340 trillion, a tenfold increase since The Donald regained power in 2024, but the Fed has kept interest rates at zero for most of the past three decades. The US Treasury has been able to fund the debt by creating a series of $1 trillion digital coins and by selling NFT trading cards. As a result, the ‘Trump’, the new name for the US Dollar, is one of the weakest currencies in the world – you currently get 250 Trumps to the Euro. The Trump administration has managed to stave off financial collapse by regularly threatening to ‘renegotiate’ America’s sovereign debt with its creditors, a scenario that everyone wants to avoid.
Whilst America has begun to resemble a strange version of Cuba or North Korea, Europe has enjoyed a surprising renaissance, thanks to its early adoption of artificial intelligence as a key element of government. For once, the hype turned out to be real (albeit 15 years after the first AI stock market bubble had popped) and AI advanced rapidly as it was entrusted to take over from politicians. A new law in 2035 stating that anyone who expressed a desire to go into politics would immediately be banned from going into politics meant that a new way to govern had to be found. By harnessing AI for the common good, rather than allowing it to be controlled by a few large companies or rich individuals, Europe has been able to rebuild its infrastructure, increase the leisure time of its working population with the introduction of the 3-day week and overtake the US and Asia in the development of new virtual reality worlds where most retired people now spend their final years – it has become possible to see the world, live out your dreams and fulfil your fantasies, all without leaving the comfort of your armchair.
Norway has become the most admired nation in the world, an example of good resource management and social equality. It’s oil fields were eventually depleted but, unlike other oil-rich nations like Saudi Arabia and Russia, Norway had invested its wealth for future generations into thousands of companies around the world. As the only country to have virtually no debt, Norway’s Krone has since taken the place of the US Dollar as the world’s reserve currency.
The Krone has gold-like limited supply, is backed by real wealth and an economy powered by an abundance of clean thermal and hydro electricity. In 2031, Norway became the first country in the world to have an all-electric transport system, having waved goodbye to petrol engines long before anyone else. It’s cooler climate has also made it one of the world’s most popular holiday destinations now that parts of the Mediterranean region have become too hot to support life outdoors during the summer months.
Technological advances in the early 2040’s mean that global poverty, water shortages and hunger around the world may soon become a thing of the past. The spread of AI-powered nanobots throughout industry and agriculture has increased productivity by thousands of degrees of efficiency. No longer is output restricted by physical human strength, labour laws, poor education, the need for holidays or sick leave. Tiny machines that are able to reproduce as the work requires are now populating factories and fields in vast numbers, freeing humans from the slavery of the daily struggle to feed themselves or earn a living. This new workforce has massively increased our efficiency when using finite natural resources, it has created a recycling movement that ensures nothing is wasted and has generated an abundance of goods and services.
Education is now available to anyone who is connected to the world wide web, which these days is everyone. Society’s best teachers no longer stand in a lecture hall in Cambridge or Harvard, educating only a few privileged students. Today, they are treated like rock stars as they broadcast their lessons around the world to millions of people at a time, giving students everywhere the chance to be taught by the best in their field. However, despite a leap in global education levels, AI has not been able to come up with a way to genetically eliminate stupidity, even if it is now recognised as a medical condition for insurance purposes.
Instead, advanced neuroscience technology, first brought to the mass market by Elon Musk, allows a person to switch between their original brain and a Tesla artificial brain that is installed alongside. The new technology is prone to make mistakes and somewhat fails to live up to the hype but it is very popular thanks to its ability to allow the user to function in ‘self driving’ mode and switch off their real brain.
War has largely been eliminated in 2054. The spread of the internet to every part of the globe helped people of all nations and religions to bond and empathise with each other. For the first time in history, people were able to see and really understand how other people lived. They might not all agree with each other but the urge to kill has been reduced dramatically (except in America) and the need to occupy more territory has been negated by expansion into new digital universes and, soon, into space. The end of corruption in politics also meant that the world’s largest arms companies suddenly found themselves facing a demand shortage as government budgets were directed elsewhere, so they naturally directed their skills towards space exploration.
War isn’t the only thing that has been eliminated – so has smoking, alcohol, red meat, close human contact (unless you have a license), telling off children, boxing, speeding, fast food and swearing. The proliferation of cameras everywhere ensures the population remains polite and well behaved, much like Japan. Only the Clarksonites remain in defiance, an underground movement dedicated to preserving what they describe as the lost arts of fun, debauchery and common sense.
However, despite the relative sanitisation of humanity, in the year 2054 the future is looking bright. The stock market is up, house prices are up and most people around the world have food on the table and more tv programmes than they can ever watch. The depression years of the late 2020s, a hangover from the locked-down COVID era, have given way to a time of greater optimism, more peaceful co-existence and rising prosperity. Climate change has been arrested thanks to clean-tech, space travel is opening up new frontiers in human exploration and the virtual reality worlds are enabling new lives in the digital universe. It may not be perfect, but it is a lot better than anything the science fiction writers of the late 20th century were predicting.
By Katriona Murray-Platon
This article is published on: 6th December 2023
Here we are already at the end of the year. 2023 has been a year of highs and lows, not for me personally or professionally, but in the markets. If you look at any of the main markets or indexes you can see that 2023 has been a challenging year for investors. Of course there are still several weeks left in December so it is too early to say how the year will end.
At the end of November the UK chancellor presented the autumn statement. Whilst much of this does not affect those of us in France, Mr Hunt did confirm that the triple lock would be maintained and the pension payment would increase by 8.5% in April 2024. If you are entitled to the new State pension you will get £221.20 a week from April. Those pensioners who qualified for their pensions before April 2016 will also see an increase from £156.20 currently to £169.50 per week. Unlike in the UK the tax bands in France have been increased for 2024 so this means that, subject to the exchange rate, pensioners in France will get more income but pay less taxes next year.
The Bank of England decided in November that it would not increase interest rates and would maintain it at 5.25%. Whilst this is unlikely to change in the medium term, with inflation falling to 4.7% in October, it has been no surprise to me to read in the UK press that many banks are dropping the high interest rate accounts that have been on offer over this past year.
Please remember that most companies and business owners have to pay CFE by 15th December. As the CFE is a local tax and the other local taxes like the taxe d’habiation and taxe foncière increased this year, it should come as no surprise if you find that your CFE has also increased.
As we head towards the end of the year there may still be some things you might want to consider doing to alleviate your tax burden next year. Tis the season for giving so if you haven’t already been making charitable donations monthly during the year or you want to make one off donations at this time of the year, you can deduct between 66% to 75% of the amount donated, depending on the status of the chosen charity, and up to 20% of your annual taxable income. Also, if you have a PER and are in a position to make a contribution to it before the end of the year, this is also deductible from your taxable income.
There was good news for those invested in the Pru as, at the quarterly review of the Expected Growth Rates on 27th November, there was no changes to the EGRs and no Unit Price Adjustments. This was welcome news since there had been three consecutive downward Unit Price Adjustments in the PruFund Growth Sterling fund in previous quarters.
Looking forward, I always like to remain positive and hopeful however I have learnt that it is also important to manage expectations. One of our product provides reminded me that there will be many countries heading to the polls in 2024 and that this is likely to cause turbulence and volatility in the markets.
The OECD predicts that “In the absence of further large shocks to food and energy prices, projected headline inflation is expected to return to levels consistent with central bank targets in most major economies by the end of 2025.” It further stated that whilst “Global growth is projected to be 2.9% in 2023, and weaken to 2.7% in 2024. As inflation abates further and real incomes strengthen, the world economy is projected to grow by 3% in 2025”. Of course, whilst these are based on careful analysis and good information, they are just predictions and as we have seen things often turn out better than most analysts ever predicted.
No matter what happens my job is to be there for my clients, to advise them on their investments and provide them with the proper information to help them make the right financial decisions so please do get in touch if you would like to arrange a phone call, video call or face to face meeting.
I shall be celebrating Christmas here in France and then New Years in the UK. There are still plenty of dates available for meetings before the end of the year but if I don’t speak to you before then I wish you all a very happy holiday season and all the best for the new year!
By Katriona Murray-Platon
This article is published on: 7th November 2023
November is here, the temperatures have dropped and it is cold and rainy outside. So here is some good financial news to warm you up!
Since the 1st January 2023, Taxe d’habitation no longer applies to the main residence. Now it is only those with a second home who have to pay taxe d’habitation on their second property. The tax statements should be on your online account on the impots.gouv.fr website in November. You have until 15th December to pay this tax.
In France, one out of ten houses are considered to be second homes by the tax office. These properties are mainly to be found on the coast (40%) or in the mountains (16%) with the remainder being mainly in the larger towns and cities (12%). These properties are usually smaller than the main home with a quarter of them being less than 40 m².
Contrary to what some newspapers would have you believe, any taxes on second homes largely affect French owners and not foreigners, since only one out of ten second homes are owned by a person living outside France. Among those owned by French residents, two out of three properties are owned by people over 60. This figure increases to three out of four along the coast. 34% of properties are owned by higher income households. https://www.insee.fr/fr/statistiques/5416748.
Make sure that you check your Taxe Foncière statement that you received in October as there could be a mistake on it. According to the French tax office approximately 1.87 billion euros have been overpaid just in 2023 because of mistakes made by the tax office.
The draft finance law has been making its way through parliament. Article 2 of the draft finance law for 2024 has increased the tax brackets by 4.8%. The new proposed tax brackets are as follows:
Income | Tax rate |
---|---|
Up to €11,294 | 0% |
From €11,294 to €28,797 | 11% |
From €28,797 to €82,341 | 30% |
From €82,341 to €177,106 | 41% |
Over €177,106 | 45% |
If you are in receipt of a French pension through Agirc-Arrco, the additional pension (complémentaire) will increase by 4.9% in November. It increased last November by 5.12%. The French State pension will also increase by 5.2% from 1st January 2024.
If you haven’t already looked into carrying out work on your house to improve your heating or energy efficiency, now may be the time as the amount of the bonus (MaPrimeRenov) has increased on average by €4300.
The maximum amount that you can put into a LEP savings account has increased since 1st October from €7700 to €10,000. The interest rate on this amount remains at 6%. To be eligible to have a LEP, your taxable income (revenue fiscal de reference) for 2022 as stated on your tax return received in Autumn 2023 must be less than €21,393 for a single person, or €32,818 for a couple.
The 30th November is the date by which you must inform your bank if your taxable income (revenu fiscal de reference) in 2021 was less than €25,000 as a single person or €50,000 as a couple, so that they don’t automatically take the 12.8% tax from the interest on your savings in 2024. If you receive dividends, the income thresholds are higher, €50,000 for a single person and €75,000 for a couple. This is particularly important if your income is not taxable or in the 11% tax bracket. These thresholds remain the same as previous years and have not increased with inflation.
November is the month when you can see the most beautiful autumn colours around France. It is also a great time to review your finances and make plans for the year ahead. If you have any questions on the above or any other matters, please do get in touch!
By Peter Brooke
This article is published on: 25th October 2023
As we gear up for the upcoming Nice to Cannes Relay Marathon on November 5th, I wanted to take a moment to share with you the reason behind my choice to support Mimosa Matters, a charity that holds a special place in my heart.
In a world that often seems to move too quickly, community stands out as a pillar of strength and support. It’s a reminder that we are not alone and that, together, we can make a meaningful impact. The Nice to Cannes Relay Marathon embodies the spirit of community, with individuals coming together to achieve a common goal through teamwork and perseverance, and having a bit of fun together through the aches and pains.
Don’t worry, I am not running the entire Marathon – that would be crazy – I will leave that for those whose fitness levels are way better than mine!
I am running the final 6.4km leg…. some might say the ‘taking-all-the-glory-leg’… for Team Early Birds, a gang of super women who are doing all the hard work over the proceeding 35.6km; if you have a spare euro or two, please do consider empowering our legs to carry us all to the end by helping us raise some funds for the important work that Mimosa undertake.
I was hoping to run a longer leg but a recent bout of bronchitis and a lower back injury have curtailed my training a little but I am back hitting the tarmac again and as I lace up my running shoes for my leg of the Relay Marathon, I am not just running for personal achievement; I am running to try and make a difference.
Mimosa Matters shares this commitment, and by supporting their cause, we can collectively contribute to creating a stronger, more compassionate community.
Your contribution, no matter the size, will help make a positive impact on the lives of those in need. Together, we can run towards a brighter and more connected future. Of course, please don’t feel any pressure to contribute at all… instead perhaps share this email or come and encourage us all on the road a week on Sunday, you won’t miss us, we’ll all be in bright yellow.
Spectrum and I have chosen to support Mimosa Matters again because of the incredible work they do in fostering a sense of community and making a positive difference in the lives of others. Mimosa Matters goes beyond traditional charity by actively engaging with local communities and addressing their specific needs in the fight against cancer.
They work closely with local cancer professionals & associations to create and fund projects to increase awareness of the causes of cancer and to channel funds into cancer research and into associations that directly support patients and their families living with cancer in our region.
Sadly, too many of us have been directly affected by this relentless disease and we must stand, walk or run together to try and stop it.
Please follow these links if you would like more information about Mimosa Matters
https://www.mimosamatters.org/
and the Marathon https://www.mimosamatters.org/project/nice-cannes-marathon-2023/
And, in case you missed it, the all important fundraising link again for our team is here
https://www.helloasso.com/associations/mimosa/collectes/team-early-birds-running-for-mimosa
https://www.facebook.com/mimosamatters and https://www.facebook.com/financial.advisors
Thanks for taking your valuable time to read through this, I really appreciate it.
By Peter Brooke
This article is published on: 13th October 2023
Let’s talk about CASH
Since my last quarterly update in August the mood in markets has been a little confused.
After the more optimistic start to the year when stock markets, especially in the US, showed resilience and the roots of recovery from a horrendous 2022, the summer was much more mixed. The Bank of England and the US Federal Reserve didn’t raise interest rates in September, though the ECB did but from a lower level.
August was much more volatile than expected with investors trying to work out if inflation had peaked and if central banks were done with their unprecedented interest rate hikes, and when they might start thinking about cutting rates.
The oil price has also settled at a higher-than-expected level, which might be a sign of increased economic activity, but it doesn’t help to get rid of sticky inflation.
Interest rates are a means of dealing with inflation. Central banks raise rates to increase costs and reduce spending power with the aim of lowering demand and squeezing prices. This is an art rather than a science. Central banks need to find the right balance of weakening demand, while avoiding a recession. This has proved fiendishly difficult and tackling inflation has seldom been achieved without some economic pain.
We are currently in the eye of the storm. Over the past 18 months, global interest rates have moved from near zero to over 5% in some places. Inflation is coming down and interest rates may have peaked, but monetary policy operates with an unpredictable lag. It is difficult to know how much of these interest rate rises have fed into the economy and whether a recession is just round the corner.
Investors will have to start getting used to these elevated levels of interest rates for longer as the consensus opinion is now that interest rate cuts won’t come quickly and won’t be significant until inflation is firmly under control. We are still very much in a holding pattern.
Of course, one of the few benefits of these hikes in interest rates is that you can now achieve some positive return on cash, which hasn’t been possible for around 15 years!!
I am having a lot of conversations with people asking why they should consider investing rather than leaving money in the bank.
This is a very good question… equity and bond investors have had very little, if any, positive returns since January 2022 so why invest now when I know I can now get returns on cash?
For someone with a very short-term time horizon, and therefore a very low risk profile, then cash earning around 5% will look attractive. Clearly tax is an issue, which will diminish this return but still it is at least a certainty.
What about those with longer time horizons – should they stay in cash given the high returns relative to recent history?
There are several considerations here:
1. Sticky Inflation
If base level inflation is to remain higher for longer then we still need to consider the NET return you will be getting on your cash.
Here is a chart showing UK Inflation and UK interest rates over the last 30 years – even today inflation, though falling, is still above base rates:
Put another way – if we take one away from the other we can see that the REAL return on cash today is still negative (the green line) – that’s a guaranteed loss of 3.75% over the next 12 months.
Put another way again… what can you buy in 5 years if things remain as they are today? See below for a real world example of how inflation affects us all:
2. Other investments should do better…
BONDS:
Most investments are valued versus the ‘risk-free’ rate of return (ie cash).
So when cash was paying you 0.1% many investors were happy to accept 1.5% to 2% from high-quality investment grade bonds, even though they come with a little more risk….
… so there is a strong case for buying bonds today yielding 6% to 7% because we are happy to be paid the extra 1.5% to 2% for the extra risk we are taking… this is exactly where bond ‘yields are today’.
SHARES:
Though more volatile, shares have always outperformed cash AND inflation over the longer term.
And expectations over the coming years are that shares will continue to outstrip returns on cash:
We feel that we are getting closer to understanding a little more about how the future might look. Inflation seems to have peaked but will remain sticky for a while, which will mean interest rates are likely to stay higher too for longer than originally thought.
The chance of global recession is still there but nor lower and the consensus appears to be that it will be soft and short if it emerges at all. This can be good for stock market performance but in the meantime cash and bonds are, for the first time in a very long time, a genuine investment option; though sticky inflation must be taken into account when choosing how much to leave in cash.
Inflation is a financial reality that we all need to navigate. By proactively addressing this challenge and exploring investment opportunities that protect your wealth, we can work together to ensure your financial future remains secure.
If you have capital to invest for longer than the next couple of years then an actively managed multi asset approach should be considered to minimise the effects of inflation on your hard earned funds.
I would very much like to thank the investment teams at Pacific Asset Management, Rathbones Investment Management and Evelyn Partners for their input into this data and summary.
If you would like to dive deeper into these subjects please check out the following links:
3rd Quarter Outlook from Pacific Asset Management
Why do interest rates and inflation matter for investors from Evelyn Partners
Feel free to get in touch if you have any questions via the below channels, or the booking system – always drop me a quick message if you need a time slot outside of those available.
If you have missed any previous emails, click here to access the Archive.
For now, have a great day, speak soon…
By Peter Brooke
This article is published on: 5th October 2023
What is the Cash Calc Secure Client Portal?
Cash Calc was launched back in 2014 by a UK IFA who was unimpressed with the digital tools available to our industry. It was initially launched as a Cash Flow Planning Calculator – more on this later, but has developed into a broad suite of great tools for advisers like me and their clients.
In order to best advise my existing and future clients I need a full picture of their current situation and an understanding of their objectives, aspirations and goals – we rather boringly call this ‘fact finding’… though it is not all just facts!
A recent addition to the Cash Calc tools is the ability for my clients to complete or update their own fact find in their own time from the comfort of their own homes via the Client Portal, if they want to. It is totally secure and can be updated as little or as often as necessary.
We can also use the portal for the secure sharing of documents, like investment statements, passports, utility bills etc AND for secure two way messaging.
For those who prefer not to use this service, please don’t worry, I will still use it as a data storage tool but will manage the access and information myself.
Please check out this video for more:
If you are already ‘onboarded’ and have your Portal login details please do have another look and send me a quick message (top right corner of the screen) to say hi and confirm it is all working OK.
Some of my existing clients have stated a preference to have their quarterly investment statements shared via the portal as a more secure option than email – please don’t hesitate to let me know if you prefer this too?
If you are not yet ‘onboarded’ please don’t worry, as part of our review process I will be sending you a personalised ‘secure invitation’ to the portal to set it all up; it is very easy.
Of course, if you just can’t wait please drop me a line and I will send your personalised login details immediately.
As mentioned above Cash Calc started as a ‘Cash Flow Planning Calculator’ and though it is now so much more, this remains one of the most powerful and useful tools for creating truly personalised financial plans.
Using the ‘fact find’ data you provide in the portal I can create multiple bespoke cash flow plans to look at various scenarios and forecast how your financial situation will evolve over time.
“can I afford to retire now?”
“can we pay for our daughter’s wedding?”
“can we fund our Grandchildren’s education?”
We can see graphically where you are today and what changes, tweaks or decisions need to be made to ensure you will be ok long into the future.
….. oh, and it has a load of other great tools we can use too…..