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Viewing posts categorised under: Investment diversification

The recovery of stock markets cannot be ignored

By John Hayward - Topics: Inflation, investment diversification, Investment Risk, Spain, Stock Markets, wealth management
This article is published on: 15th October 2020

15.10.20

Apart from the uncertainty of whether or not you will still be able to use your UK bank account after 31st December 2020, there are plenty of other things going on to mess around with our lives such as Brexit, the US elections, coronavirus with its lockdown, and other global disasters. With all of these things happening, it is hardly surprising that people think that investing money in stocks and shares (equities) at a time like this is crazy.

However, we have what appears to be an illogical movement upwards in equities, especially noticeable in the USA. How can this be? They have Donald Trump! In the rest of the world, there have also been sharp upward movements since the coronavirus led crash in March 2020 (other than the UK and I will return to this later). The fact is that billions have been pumped into the global financial system to fend off another financial crisis. Some companies have fallen anyway but others have developed, or sprung up, which has led to a much prettier picture than the press would lead us, or even want us, to believe. Coronavirus and Trump seem to be the only stories pushed our way.
When there is financial stimulus, there are opportunities; not only to survive but to develop. Robert Walker of Rathbone Investment Management has this investment outlook.

“We can expect more monetary stimulus and support from central banks that have an enormous amount of unused capacity available for alleviating any renewed stress in financial conditions which is positive for equity markets. This should keep corporate borrowing costs low.

We do not believe therefore that this is a good time to reduce our long-term equity exposure, but economic and political uncertainty warrants cautious positioning and a bias towards high quality companies where we believe that earnings growth is still possible. We believe it is sensible to remain broadly invested but with a continued preference for growth and only high-quality cyclical companies that can benefit from a shift to a digital and more sustainable economy.

We believe high valuations of growth businesses are underpinned by the increasing scarcity of growth opportunities while interest rates and the returns on low risk assets are expected to stay low into the foreseeable future.”

is the economy in good shape

It is important to note Robert´s last few words regarding interest rates. They are not likely to increase in the short term, or possibly long term, if companies, at all levels, are trying to succeed to keep the economy in good shape. At the same time, inflation could increase which means any money “safely” on deposit in the bank is losing its spending power each year.

Let´s go back to my comments about the UK. Rather than me put my words to this, I will use Robert Walker´s more eloquent script.

“The difference in returns in the third quarter are stark, with US equities seeing a strong performance especially in the big technology companies while the UK’s FTSE 100 was -5% lower on a combination of Brexit and Covid-19 fears.”

“The poor performance of the UK since the referendum is well known, as is the high likelihood that leaving the EU with or without Prime Minister Boris Johnson’s deal will make the UK relatively worse off. Most independent economic researchers forecast that UK GDP, relative to current arrangements, will be between 3% and 6% worse off in seven to 10 years if the UK and EU sign a free trade agreement, the faltering prospect of which has seen the pound fall by 15-20% since 2015. As we write the likelihood of a ‘no deal’ Brexit is still too close to call.”

The knock on effect of this lack of confidence in the UK is reduced investment in that area and, therefore, from what we have seen, investing in the UK has not been top of investment managers’ agendas. My point here is that, when you look at the performance of the global economy, do not necessarily base it on the movement of the FTSE100. This could be, and ultimately has been, the undoing of many people who have been waiting for Brexit to go through before investing. Some now are even waiting for Covid-19 to go away, but I believe that they could be waiting a long time.

Here are a couple of graphs to illustrate my point. One is from 23rd June 2016, the date of the Brexit referendum, and the other is from the start of 2020. They include two of the funds that we use and compare them to the FTSE100 and an inflation index. Remember interest rates would be little more than a flat line on these charts.

equities and inflation
FTSE 100 and inflation

Being in the market before the vaccine is introduced

Timing the market (knowing exactly when to buy in and when to sell out) is nigh on impossible. Even experts do not get it right 100% of the time. However, one of the uncertain certainties is that there will be a vaccine for this coronavirus. The uncertain part is when. The important thing is that you are invested before it happens, because it is likely that financial markets will rise sharply when it is available.

stockmarkets have gone against the negative thought trend.

Of course, we know that there are other problems around the corner, as there always have been in the past. We make decisions based on our own experiences, calculating whether something is safe to do or it carries a higher risk. History has shown us on

many occasions, including through world wars, that in times of low confidence, or even panic, stockmarkets have gone against the negative thought trend.

Staying invested through the last 6 months has been really important. For those who have money in the bank, earning little or nothing, now is the time to consider making your money work for you and your family. With careful investment planning, through trusted and experienced investment managers, we can help make your future wealth more secure. We can evidence how people have “survived” this latest scary time with the opportunity to benefit in the future by the willingness to stay invested.

Invest when you have the money and disinvest when you need it
My final comment on this is actually one from another investment manager I spoke to recently. It is to do with why we have money and try to accumulate it. His extremely simple tip is to invest when you have the money and disinvest when you need it.

Contact me today to find out how I can help you make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

There is more to (investment) life than the FTSE100

By John Hayward - Topics: Costa Blanca, FTSE stock market, investment diversification, Investment Risk, Spain, Stock Markets
This article is published on: 2nd September 2020

02.09.20

Dependence on the UK stockmarket has damaged wealth

In the last 5 months, life has not been easy. We have all had to change our lifestyles to one extent or another and we don´t know exactly what lengths we will need to go to in order to remain safe. Hopefully the worst has passed and we can get back to thinking about our future in a positive way and not have to constantly worry about coronavirus.

Aside from the pain of having to wear a mask, in the last 5 months I have had concerns about work, I have learned new words and phrases linked to coronavirus, and I have obtained a new Spanish residence card. Certain things have not changed during this time. People read the same newspapers, watch the same television programmes, express their disdain for Donald Trump, and base their investment decisions on the performance of the FTSE100.

New investment trends

Whilst certain business sectors have suffered over the last few months, others have prospered and have a positive outlook. Technology has come to the fore, both in terms of purchasing goods and communication.

Investments and the FTSE100

Aside from the investment vehicle and the tax structure your investments and pension funds are held within, it is important that the investments themselves are well managed. Some people have held off investing through fear of coronavirus. There are also those who had previously delayed investment decisions until Brexit had been sorted out. The consequence of this has been that they have missed out on growth over the last 5 years, even with the downturn in March/April, as well as suffering from the real loss through inflation if they have left their cash in the bank.

Most UK nationals refer to the FTSE100 to find out what is happening with stockmarkets. This is mainly due to it being the one we, as followers of British financial news, are most familiar with. The FTSE100 has been lagging behind global stockmarkets in the last few months. However, the FTSE100, the index of the top 100 companies in the UK, only represents a small percentage of global stockmarkets. Almost 40% of the 100 are banks/financial, oil/energy and consumer staples which include retailers. All of these sectors have been hit by coronavirus. It is overweight in certain sectors and, although they are all big companies, their recent losses are reflected in the movement of the index. Banks especially have had a rough time. Therefore, it is far from being a stockmarket index which represents all global markets and sectors. I appreciate that it is an indicator, but it shouldn´t be used as a decision maker.

You will see from the chart below that by referring to, or even relying upon, the performance of the FTSE100 in order to make investment decisions could have been a mistake. It compares the FTSE100 with the US S&P500 and Nasdaq, and Japan´s Nikkei. The chart runs from the start of 2020. The FTSE100 is D, the blue line.

FTSE100 comparison

Not only has it been important to be aware of global stockmarket performance, but there are other sectors and assets to invest in. For example, gold, that was not immune to the panic in March, has shown itself to be in demand as a safe haven.

Gold prices

Well managed investment portfolios

I am pleased to say that all my invested clients are better off now than they were at the end of March. The most pleasing thing is that not only did they suffer relatively low falls in March but now many have made a complete recovery. We do not push people towards FTSE100 tracker funds. They may be cheaper but that is because there is little or no management. As is often the case, cheapest is not the best.

Conclusion

Active investment management has proven itself to be the best approach, certainly in problematic times. We recommend investment managers who are able to access global shares and other assets. They can buy and sell on a daily basis and not commit you to funds that can become restricted or illiquid. Many of my clients have been pleasantly surprised by the “bounce” of their investment value since March. The FTSE100 has struggled and it has been assumed that this is the case generally. They are also surprised how the United States stockmarkets, with all of the Trump and election issues, have done so well. At times there seems little or no correlation between day to day life and stockmarket performance. In fact, history has taught us that when there is panic and depression, stockmarkets tend to do well.

Over the next few weeks I shall be publishing more articles, so stay tuned:
• The expense of using your bank for insurances
• Life insurance for general living expenses and Spanish inheritance tax
• Currency exchange – your ‘free’ facility could be costing you thousands
• Applying for the new TIE – not compulsory for some but could be beneficial

With investments, there are plans that I can recommend that are clear to understand and tax efficient, and I explain the full details before you commit. The Spectrum IFA Group is not tied to any one company and I can offer you independent, impartial advice and guidance.

Contact me today to find out how I can help you make more from your money, protecting your income streams against inflation and low interest rates, or for any other financial and tax planning information, at john.hayward@spectrum-ifa.com or call or WhatsApp (+34) 618 204 731.

What type of recovery do we foresee?

By Katriona Murray-Platon - Topics: France, investment diversification, Investment Risk, Investments
This article is published on: 29th June 2020

29.06.20

The days are long and sunny and lots of people are looking forward to beginning their life in France! June is a very busy month here in France because with the school holidays starting on 1st July and lasting until the end of August, June is the last few weeks to get everything done before most people go on holiday.

June has felt like a very busy month for me, with lots of meetings with future clients on the telephone, Zoom meetings and webinars. On 12th June I attended the Tilney Women’s Panel Event hosted by Tilney with guest speakers Emma Sterland (Tilney), Zahra Pabani (Irwin Mitchell LLP), Marcie Shaoul (Rolling Stone Coaching) and Charlotte Broadbent (Charlotte Loves), which was a great way to end the week listening to other women’s experiences of lockdown. Then, on 17th June, I took part in a seminar examining financial planning solutions for American expatriates, which was very interesting.

I finally got back on the road again on 18th June to visit a few clients, which was lovely. Whilst the weather wasn’t as great as I might have hoped, I was very happy to see the in-real-life faces of my clients, whilst keeping a respectable social distance during the meetings.

zoom Katriona Murray

During what has become a monthly Zoom meeting with colleagues this month, we were joined by Rob Walker from Rathbones who gave us an interesting view on the three possible scenarios that Rathbones are envisaging:

1) that there will a V shaped recovery
2) that there will be a progressive recovery but no second wave of the virus
3) that there will be a second wave and a second lockdown.

When asked to vote on which of these three scenarios seemed the most likely, about half of us suggested the second scenario and the other half opted for the third scenario. Rob told us that there has been a bias towards “stay at home stocks” with Amazon and eBay doing very well, if not for any other reason than people could not get to the supermarket during the lockdown so tended to favour ordering online. Cleaning products stocks have done very well as one can imagine. National Grid has also done very well and in addition is increasing its attention on renewable energy, which is unsurprising given widespread and growing interest in Environmental, Social & Governance (ESG) investing. Then there are the “Go back to work” sectors, such as retail, commercial property and tourism, which can only thrive if people do in fact go back to work.

In a possible indication of what lies ahead, Berkshire Hathaway (the company founded by renowned and highly successful investor Warren Buffet) has massively sold its holdings in airline companies. If a vaccine is found then these companies will see a rebound, but given the timing for a workable approved vaccine, this may not happen any time soon. Whilst US tech stocks are doing very well and have done very well during lockdown, Rob’s position is “Be defensive. This is no time to be heroic”.

Katriona Murray work revolution

There is no consensus on the way forward. The question is, do we want to go back to working the way we did before? For many workers going to work involves lengthy commutes on packed trains and buses, whereas the last few months have shown that many

of us can do our jobs from the comfort of our homes.

If this is a work revolution and companies decide to change their business models and allow employees to work more from home, what will be the consequences for commercial property ?

During the second part of the year the focus is going to be on Brexit and the US elections. Donald Trump is desperate to be re-elected. However, has the BLM movement hurt his chances? Will this encourage black voters to go out and vote to put Joe Biden in the Whitehouse? And in the UK, once the situation with Covid19 improves, the focus will be back on Brexit and what kind of deal the Prime Minister can agree with the European Union, if at all. The next six months are going to be interesting.

In France, a month after lockdown restrictions started being eased, the number of cases in the south west of the country still remains low. Schools have gone back with so far very few consequences.

Whilst July is a summer month, I will continue to work as normal (new normal). My children will continue to go to a holiday club two days a week. Like many of you, I am waiting to see whether a trip back to the UK to visit family will be possible in August which will determine our summer plans. I will not do a newsletter at the end of July but will probably do one at the end of August/beginning of September.

So for now, I wish you all a pleasant summer and look forward to getting back on the road to see even more clients in September!

Lockdown lessons learnt?

By David Hattersley - Topics: investment diversification, Investment Risk, Spain
This article is published on: 17th June 2020

17.06.20

Now as we enter phase 3,are we just beginning to get back to a different version of normality? We all have realised that we need to be around other human beings. Just going to a bar for a coffee with family,sitting outside, spending time talking with each other and people-watching has become a simple treasured pleasure as our world gets back on its feet.

LESSONS

Self -isolation & working from home.
An element of self discipline regarding work has had to take priority, but within limits as if we were at an office. Early research from New York has already shown the following:

a) People miss the interaction of an office environment that creates a positive energy and greater productivity, with the ability to expand upon and share ideas. Whilst Video Conferencing provides a two dimensional picture, it doesn’t pick up the nuances of a face to face physical meeting.

b) The morning rush hour can be a drag, it does provide time to set the day up with a sense of purpose. The evening journey creates a buffer to reflect on the day’s events or relax before you get home. Ensure that the family are aware of a disciplined time period whereby non work related issues have to be deferred until family time/free time. After all, working from home without the commute, will give you more family time and free time. Use it wisely, have breakfast and lunch with family, or more free time to carry out your own interests. Bucket Lists are no good if they aren’t followed through, or if you die before doing them.

c) Dress as if you are going to a physical meeting. One wouldn’t wear jeans or shorts to a meeting ! Learn to control technology and not let it control you, e.g. work e-mails should only be read during work-time. Avoid instant response, set time to consider and reflect on that response, but not in your downtime. Remember when you went on holiday and left your place of work for 2 weeks. Take time out to “Sharpen your blade”.

Environmental challenges

Environmental challenges.
The world is not ours by right.
With pollution in major urban areas falling rapidly, this a chance to re-evaluate our lives and the impact on our planet that we share with other forms of life. Living on the edge of a national protected park has given us the time to enjoy and observe the animals that co-exist with us, ranging

from the evening watering hole (drinking from the pool) to the raising of a variety of families of birds and mammals that return each year to breed, some of which we have never seen before e.g. a cockatiel. Dolphins now have begun to swim in our local harbours, wild boar are prevalent and discussions are under-way to reintroduce a mating couple of Iberian Lynx in our area. Speaking to a client in the UK, deer have appeared at the end of their garden.

As we have got used to only buy essentials, has this lead us to question consumerism? Do we really need to buy the latest gadget or fashion? Can we make do and mend? Repair and fix, rather than discard? In our own household, because we have strict recycling rules, why go to a shopping mall when we can “swap or gift”via a charity shop? We now use local facilities to support the small family businesses vs major groups e.g. the local hardware store. We now buy food that is locally sourced within Spain as much as possible, so in season food has become a key factor in our purchases.

Travel has also been bought into question. Having driven a Jeep V6 petrol engined car for many years (I never believed in diesel) I am now driving around in Skoda 1.2 petrol engine. There is a balance, a yin & yan: what needs to be addressed the social interaction vs unwarranted trips.So careful planning has to be considered. As for flying to the UK to see family is not something remotely worth thinking about, alternatives need to be considered. Travelling by car seems a more sensible approach because survival instinct kicks in. Plane/public Transport or your own personal self isolated vehicle!

I hope that in the biggest challenge that I have ever encountered throughout my career in financial services, I have met and satisfied my clients expectations of the service that I have provided in these difficult times.

balanced investments

But one word can sum up all the above…
BALANCED

It may seem ironic, but the fund managers we use endorse the same principals; they use their extensive collective resources and knowledge to create a number of funds and investments.

Even they are not sure of the short term future, so they are “hedging” their bets and not taking too much short term risk. Balance helps you to take advantage of opportunities, while limiting downside risk. If you would like to dsicuss how we can help improve the balance in your portfolio, please contact me for a meeting with my details outlined below.

Investing After a Stock Market Crash

By Chris Burke - Topics: investment diversification, Investment Risk, Investments, Spain, Stock Markets
This article is published on: 25th May 2020

25.05.20

The question on any investor’s lips at the moment is, ‘Will the stock markets crash again in the near future, say in the next 6 months?’ The main reason for this question is, even if the world starts to get back to normal after this pandemic, when furloughing and all the other methods that have helped people economically are finished, soon we shall see the realisation of the following:

  • Profound job losses and companies going out of business
  • Some entire sectors (e.g. aviation) taking years to recover, some even never recovering
  • Company results being published for the 2nd quarter of 2020, when they have been effectively shut the whole time. How will the markets react?
  • Unemployment at an all-time high
  • People losing their homes, unable to obtain mortgages

What’s really unclear here is, and this is the BIGGEST question, has all of this already been priced in to the stock markets? That is to say, have all these considerations and more been valued and taken into account by people buying and selling stocks?

50% of the reason why stock markets go up or down has nothing to do with the actual value of those stocks; it’s the perception of the people buying and selling that influences it. If people are optimistic and there is some bad news, the markets might not be affected by this. However, if people are worried/pessimistic and there is some small bad news, this could be ‘the straw that breaks the camel’s back’ sending the markets tumbling. So, what is the best approach to take when investing after a stock market crash?

upward stockmarket trends

The answer to this question depends on your risk/reward profile. If you are a more aggressive investor, then using all your allocated investment money in one go would probably be your choice. However, this equates for less than 20% of us; the most common approach

of people investing their money is balanced.

Most people understand that not being invested means you could miss out if the markets shoot up, but also, if they crash lower you would lose out. However, if you believe yourself to be aligned with the following criteria, then there is a strategy you can follow which statistically should give you more safety, with a lower chance of your money being negatively impacted at the beginning:

  • You are prepared for your money to be invested for the medium to long term (5 years plus)
  • You do not want access to this money for at least 5 years
  • You understand there could be some volatility during this period
  • You want your money to grow above inflation and actually increase in its value
  • You are a balanced investor, meaning you are prepared to invest with the knowledge that the value of your money will go down, as well as up

After every stock market crash, analysts try to label what kind of a recovery it is. Is it a ‘U’ shaped recovery, meaning a sharp drop, period of downturn and then a sharp upward recovery? Or is it a ‘W’, where there is a crash, then a recovery, then another crash followed again by a recovery? The truth is, each stock market crash is different; no two are the same. Each day it’s 50/50 whether the markets will be up or down. Therefore, taking this reasoning into focus, and wanting to limit any losses and maximise any gains, let’s look at this as if it’s a business opportunity.

If you were opening up a new business, and needed to borrow money to finance it, would you either:

  • Borrow all the money you needed in one go and spend it
  • Borrow some of the money you needed, review periodically and then borrow more as and when necessary
  • Borrow some of the money you needed, review periodically and have instant access to more when necessary

Whilst Option 1 could work for you, that money needs to have interest repaid on it, and if the business didn’t go well, that’s more money lost.

Option 2, as long as you don’t have any cash flow issues, could also work well, meaning you are repaying less money and only borrowing what you need as and when. If anything happened to the business you were not putting everything in.

Option 3 gives you the same as option 2, as well as having access to a cash injection instantly should the time arise.

crystal ball

These options are all a matter of opinion, but in relation to investing, there is no future knowledge of what the stock markets will do. What we do know for certain about investing is this:

  • Historically, inflation has doubled approximately every 24 years
  • Unless your money is keeping up with inflation, in real terms you are reducing the value of your money
  • There is hardly any interest being paid by bank accounts
  • One day you will stop working, and the only income you will have is what you have built up

Therefore, taking into account these main known points, it’s clear that money needs to be managed effectively but in a risk averse way as possible. To be able to minimise risk, and to try and gain on any stock market rises and minimise any falls, the safest short-term approach would be to ‘drip feed’ your investments. However, to make sure you don’t miss out on any upswings in the market, you need to have your investment money aligned in the following way:

Example – Investment value €250,000:
Starting with €50,000, add to this €20,000 per month moving forward until one of the following occurs:

  • You have invested all your money
  • There is a large enough stock market downturn

In this second scenario, you would then decide to add much more of your uninvested money immediately; depending on how much is left and the scale of the market drop.

By using this approach, if markets took a sudden upward turn your money is already partially invested to take advantage of any gains moving forward. However, and more importantly, if the stock markets took a sudden dive, you are limiting losses and are in a position where you can take advantage of lower prices.

financial review

As I stated above, no one knows exactly what will happen or when after a stock market crash, but by investing in tranches to make your money grow, this will give you some protection against a stock market crash in the near future, and even the ability to even take advantage of it.

Two last points I would add, and those are, even if stock markets crash again, after a recent previous crash, there is more likely of a quicker bounce back. And secondly, money invested over time is the safest way to achieve long term growth of your money and create that income for when that day finally comes when you are no longer working.

My job is to help people plan their finances, managing their money in as painless and risk-averse approach as possible, at all times having their best interests as our common goal. Don’t hesitate to contact me on the details below if you would like to discuss any of the points in this article or arrange a meeting with me.

Investing for the future

By David Hattersley - Topics: investment diversification, Investments, Spain
This article is published on: 14th May 2020

14.05.20

The start of a ‘new’ normality?
We are lucky to live in the region of Valencia as Phase 1 has started in some areas. Will this eventually lead to some kind of normality and what form will this take? While we have been prisoners in our own homes, the loss of freedoms and the changes that have occurred have led many of us to question what the future holds. With the obvious impact on the environment of less pollution, less freedom to travel and changing work environments, will we change our habits? How will these changes affect our plans for the future? What about our financial position and our relationships with people in the society that we live in? What will the globalised world look like in a year’s time? After all, we’re all connected to global humanity whether we like it or not.

Economy
Without a doubt this will impact global economies. Most economies will go into a recession, perhaps only for the short term, but deeper than we have known for many years. For those of us that have some form of fixed income, investments that are “ holding up” or have only fallen by a small percentage, have liquidity in our finances or have flexibility in our work patterns, we have to consider ourselves lucky.

But what of the future? No doubt there will be changes, but opportunities too.

crystal ball

Investing for the future
It may seem strange to consider this now, but the world has changed. Passive tracker funds and ETFs have produced substantial negative returns and volatility due to short term “overreaction”. Oil prices have fallen through the floor, food has become more expensive and supply chains

have been disrupted with increased costs. Governments will need to recoup lost tax revenue and increase borrowing to keep some economies afloat. Inflation is likely to rear its head, so with cash deposits for the long term returning effectively nil, can these be considered a “safe haven”?

These are the situations that our selected fund managers have to consider. Fortunately they have massive resources available to help them. Who and what are going to be the investments for the future based on a long term view? Where are opportunities going to occur? Who or what are going to be the winners and losers? The fund managers we use are all asking the same questions and provide some hope for the future. Humankind is very efficient at adapting to changes enforced on them. By mixing a variety of managers one can add balance to a portfolio, which many of my clients have benefited from.

Role of the Financial Adviser
During the last few weeks, when face to face meetings were impossible, I regularly kept in contact with my clients via phone calls and numerous video clips that tried to make them smile. I also provided them with current valuations and updates for the variety of portfolios that they held with me. Sometimes these are complex affairs, or may need a simple explanation. I have also assisted, when required, when there were changes in personal circumstances.

But we are social animals and I have missed the face to face meetings, which in my view makes a big difference compared to talking via telephone or video call. Please feel free to contact me for a coffee and a no obligation personal review on anything financial that may be concerning you at this time.

Can we learn from the past?

By Jeremy Ferguson - Topics: Financial Planning, Financial Review, investment diversification, Investment Risk, Investments, Spain
This article is published on: 24th April 2020

24.04.20

Long periods of growth in the world, followed by a creeping in of greed, have normally caused previous stock market ‘tumbles’. This time, however, something completely unprecedented has caused it, wiping large fortunes from people’s pensions and savings, for the short term at least.

This latest situation is another great example of the fact that no one really knows what lurks around the corner. Investment managers may be clever people, but it’s simply impossible to accurately predict the timings of markets taking a tumble when events such as this take place.

‘Investing is for the medium to long term’ is something you will always hear about from people like myself. If you have a time horizon that’s very short, it’s normally fraught with danger; investments need time for you to reap their rewards. So my question is, how has the world faired on this front over the last century, and what we can learn from the past?

invest for the long term

The first ‘event’ was the Great Depression in the US, which started in the late 1920’s. What caused it?

The early part of the decade was full of exuberance, people borrowing money to buy cars, new houses, and even borrowing to make investments in the new world of the stock market.

Everyone was doing so well, then the whole thing fell apart and nearly 13% was wiped off stock market values. For those people who had borrowed heavily to invest, it was enough to wipe them out. They lost everything, as they couldn’t repay their debts, and then followed the Great Depression. This lasted roughly 12 years until the massive manufacturing effort of WWII kick started the recovery.

Next up, after many years of growth following the end of World War II, was the famous 1987 crash. This was the largest fall in stock market values at that point in history, with a 23% fall. So what caused this? It was similar to the 1929 crash, with the addition of the speed at which people could trade shares in the modern world.

People were borrowing money, leveraging investments with the money, and then things started to go wrong. This time fear took over, with panic selling ensuing, and people lost fortunes very quickly. At that point it was the single biggest one day fall in history.

dot com bubble

This was then followed by a 12 year recovery period, with everything being a little more controlled, until the Dot-Com bubble started to inflate. It was a frenzy of over valued companies,

people buying shares they would never have normally bought. It was all so easy to make money. Everyone was involved. Greed fevered a frenzy of madness! Then it all fell apart. The bursting of the Dot-Com bubble in 1999/2000 pushed stock markets down 23% again, but many shares fell almost 100% in value.

And off we went again… over the next 8 years, behind the scenes there was the growing greed that always seems to be lurking. Easy borrowings, people buying houses they couldn’t really afford, remortgaging the ones they had to buy more ‘things’. Banks were selling on loans to other banks.
Easy money was everywhere, seemingly fuelled by greed again. And then, you guessed it, bang! The start of the 2008 Financial crisis as it became known. The American banking system almost collapsed entirely. Never before had greed almost toppled a country. 12 years of recovery followed (sound familiar?) and 2020 is the next focal point! What more is there to say? Another large ‘tumble’ in values again.

So where am I going with this? Every time this has happened in the markets before, afterwards there ensues a protracted period of recovery and growth. The important thing is the ‘line’ keeps going up, albeit in a rather rugged manner.

The below graph is an example of 50 years growth of the 500 largest companies in the US up to the 2008 crisis. It is all over the place, but if you were invested for the medium to long term, the ‘line’ goes up and up, which is why people invest their hard earned pensions and savings. To profit!

500 largest companies in the US

This recovery is going to be tough, and in a new and changed world. It will come from companies that are agile, well financed with flexible long term objectives, and who are able to adapt quickly to the ever changing world.

Never has this been so obvious as it is now. If you have money invested, make sure as best you can it is exposed to investments that are most likely to be part of the recovery. A recovery that history has taught us always happened in the past.

Lockdown is a great opportunity to dig out your files to see what you are invested in, and if you need any assistance or a second opinion, I am happy to help. I can be contacted at :

Jeremy Ferguson
The Spectrum IFA Group
Sotogrande, 11310, Spain
Office: + 0034 956 794409
Mobile: + 34 670 216 229

jeremy.ferguson@spectrum-ifa.com
www.spectrum-ifa.com

Life in Lockdown

By Charles Hutchinson - Topics: Costa del Sol, investment diversification, Spain
This article is published on: 14th April 2020

14.04.20

Here we are starting the 5th week of lockdown in the Costa del Sol. What a surreal world it is compared to what we have known all our lives. I would like to think it is good for us and our moral fibre. Certainly it is morphing into a much more pleasant environment to the mess mankind was creating until the virus came along. Depending on your take on things, this is either nature seeking to redress our mishandling of this fragile planet, or it is the force we call God taking action to prevent our mass suicide. Of course, it can be argued they are both one and the same, but that discussion is for another time. I and my wife are very lucky, as is my son and his family. We live in houses with space and gardens. We are particularly lucky as we have 1.3 hectares of land and are at least 300 meters from the nearest lone house. We have dogs and can take them out for walks at will, on or off our land, and nearly always meet no one. We have fabulous views and my wife is catching up with all the stuff in the garden for which she normally does not have the time. We both work from home anyway and so our work regime has not altered.

Some of my clients in similar circumstances are also not enduring too bad a time, but the ones I feel for are those clients of mine who live alone in small apartments in urban areas and have no dogs. These are the ones I try to stay in touch with most. I am calm in the knowledge that their money is safe because they are with highly reputable companies and investment managers. And it is all about when the markets will begin to recover. It is their wellbeing that concerns me most and part of that is the reassurance they need that their security is not threatened in the long term.

Charles Hutchinson Estepona

Little Estepona has only one case so far (so lucky), it’s like a ghost town when I go down for our weekly shop. No one on the streets and the police have check points to enquire to where you are going and why and from where you have come.

You have to carry evidence on you to show what you are doing. It’s all good stuff to keep this dreadful thing outside of our city limits. But it does feel very bizarre. Telecommunications and web communications have replaced face to face and touchy feely, but that’s tolerable. The peace and quiet is incredible, you hear so much more now without the sometimes distant murmur of traffic, fireworks, helicopters and the boy racers roaring up and down our mountain road across the valley. The nightingales have arrived which is so beautiful and you can hear them even louder than before. The dawn chorus is almost deafening.

I have to say that the Spanish are bearing up extremely well. When you consider that their life is all about being out and about, socialising, meeting, kissing and hugging each other, sitting out in cafés with friends and family and just enjoying the social interaction, making huge amounts of noise, so much so that they design their homes, not for entertaining, but for spending as little time in them as possible. So now they are imprisoned for an indeterminate sentence, where they cannot go out except to buy essential food once a day, directly there and back, no meeting or touching people and if meeting someone by mistake, it must be from a distance. At the end of all this, we reckon there will be a spike in suicides, divorces and births. Our son Simon and family in Luxembourg, in the same lockdown, go to virtual drinks and dinner parties in the evenings and weekends with friends in the area. He showed us a photo of him getting ready for a dinner party. He was wearing a winged collar, black tie and dinner jacket and shorts and slippers (they can’t see the bottom half!). We’ve started them too; we have about half a dozen friends for drinks and it is hugely enjoyable. We use Zoom so that you can see everyone at the same time and chat together.

Rhona, my wife, has joined Gareth Malone’s virtual choir – I wonder if you have heard about it? The Great British Home Chorus. So far he has more than 110,000 people from all over the English speaking globe and she rehearses with him in the early evening. It is hilarious sometimes hearing these extraordinary howls from another part of the house or outside, my not hearing or seeing the great teacher conducting her.

So, what now? We really don’t know – anything could happen – gradual eradication or a resurgence of the virus? We know here there has been a partial release of lockdown for some workers, especially those who cannot work from home. There is a natural conflict between those who want to continue the lockdown to protect the health of the population and the health service and those who want to protect the economy, jobs and companies. It is very difficult to navigate a sensible course between the two. The global stock markets, which always try to predict the future (not the present nor the past), have already come off bottom with a double bounce nearly a month ago. Now this rise seems sustained for the moment or is this another dead cat bounce? What is obvious is that the markets want to get going again and advantage is being taken of these low levels by many. Those who have cash should think seriously about getting in at these levels, even if drip feeding. Some markets are already up between 20% – 30% from bottom and the potential is still there for a very healthy start to an investment, but it is not for the faint hearted. Cash is king no longer and a home has to be found for it. Make a plan, invest for the long term (at least 5 years), diversify your investments (even in multi asset funds alone), choose good investment houses and funds and stick to the plan. You will not go far wrong if you observe these simple rules.
If you would like to discuss this further, do please get in touch by contacting me as per below. I would even like to hear about your lockdown experiences!

Why do we use asset managers?

By Gareth Horsfall - Topics: asset managers, investment diversification, Investment Risk, Investments, Italy
This article is published on: 10th April 2020

10.04.20

In this article I would just like to touch briefly on a subject which, during the good times might seem somewhat banal and maybe even pointless, but when we hit the bad times we can see the merit of why we use asset managers such as Rathbones, Tilney, WHIreland and Cazenove to manage our clients’ money.

During this time in lockdown and financial market instability, I have been listening to a number of webinars from investment managers and financial gurus to try and understand what they think is likely to happen when we exit this crisis. Below are some of the points which I have heard:

  • Within the next 6-12 months dividends from some of the best dividend paying companies will be slashed or even cut completely, to shore up cash reserves.
  • Even more focus will be put on the way we live and the way companies operate. We could see an even greater resurgence into ESG (Environment, Social and Governance) stocks. If you are unsure what they are then you can check out the article I wrote on this earlier this year.
  • We may have seen the bottoming of the markets, but much depends on what will happen in the USA. As it stands, almost 7 million people have already applied for unemployment benefit. If that rate continues it means the US will have an unemployment rate of approx 15% very soon. A level not seen since the Great Depression in 1929.
  • Any early plateau’s in the infection and death rate in Europe will be a good signal for financial markets.
  • Companies who were struggling to survive prior to this crisis will likely collapse. A great example of this is the UK retailer Debenhams which, as I write, has just brought the administrators in to look at winding the company up. However, the new tech savvy companies that have responded to changing customer trends will strengthen their position as market competition fails.
  • Nationalisations are likely, more so in the EU than the UK and the USA. Companies in the travel, retail, and leisure sectors are at the greatest risk of being nationalised. Part nationalisations are a huge drag on company performance and would be areas to avoid when the dust settles.
  • Smart working could become popular. Companies may start to change their attitude towards office space and allow more smart working for their employees. This could mean potential productivity increases but may also change the dynamics of the property market as well, mainly in the cities.
  • Is Capitalism dead? A subject which seems to be thrown around whenever we have a crisis. Actually the thinking is, not at all. In fact, one manager thought that there was likely to be a resurgence of ‘responsible’ capitalism. A capitalism that is no longer unfettered, but is more controlled allowing prosperity to grow, while at the same time focussing on our care of the environment, social care and supervision of corporate governance practices. Will we ever be weaned off this perpetual standard of prosperity and GDP growth, which is unsustainable in so many ways?
Why do we use asset managers?

It is worth just going back to point 1 for a moment, the point about the dividend cuts, and why I entitled this section:

Why do we use asset managers?

Many clients rely on income from their investments to fund their lifestyle. That may include ad hoc withdrawals or regular payments to top up pensions, pay for healthcare costs, pay for schooling fees, and general lifestyle costs. If this is the case, then relying on what has been the traditional investment type for income: bonds and blue chip equities, might be a difficult strategy post crisis.

Now, more than ever, there is likely to be a need to take income from gains in the asset prices, rather than exclusively income derived from those same assets. (Think about it as a property that is rented, but after expenses and taxes earns very little income. However, the property itself has gained in price significantly and you could access those gains to help top up your income! A bit like an equity release plan)

The importance will be to be in the right assets at the right times, to sell the gains when they have been made and secure them as a reserve to pay income payments. If you imagine that most of the major companies could be cutting their dividends to hoard cash to survive this period, while in addition interest rates on cash are likely to be cut even further and the interest rate on bonds are equally likely to fall due to easy access to government cash, then where else can we turn to generate the cash we may need? We must turn to the gains in the prices of the assets that we hold as an alternative way to generate income. This is where the expertise of asset managers comes into play. They research the market, and aim to be in the right geographical and corporate sectors at the right times and look in depth at company balance sheets to predict their future.

It’s going to be a tricky time ahead for many people and relying on tried and trusted methods of generating income that have served you well in the past may not necessarily work in the near term.

I am happy to say that all our clients are with asset managers who we trust to manage our clients money and make sure they have the income they need in the good times and the bad.

Investment Talk

By Gareth Horsfall - Topics: investment diversification, Investment Risk, Investments, Italy, Stock Markets
This article is published on: 9th April 2020

09.04.20

Let’s talk about our money for a moment. I know it has been the last thing on anyone’s lips in the last few weeks, but as the spread of the virus slows and when life slowly gets back to normal we will start thinking about our financial situation again, and rightly so.

As I am sure you will have noted, in the last few weeks the stock market tanked, strangely predictable in its unpredictability. That probably makes no sense at all (and I am sure the editor of this Ezine will question me about it!) but the history of financial markets shows us that the crashes come from unforeseen events which incite a huge sell off. At the time of writing a rebound in various markets appears to be taking off. How long it will last is anyone’s guess. However, a longer and sustained rebound will come quite quickly and so it is important to remain calm, stay invested and benefit from the upside as well.

(As an aside, I would ask that you start to look at your account balances now. We have a tendency to not want to look at our investments during the difficult times and whilst I agree with this at the height of the crisis, when the dust settles, and it is starting to from a financial market perspective anyway, I always coach that it is important to check your money. If nothing else it helps us to understand the phases of investments and how they are nothing to worry about. We can’t always have good news!)

We can see from the examples below what happens after market crashes and why sticking with the plan is more important than trying to time our way out and back in again.

A few examples from previous financial crises:

2008
2009

The collapse of the subprime mortgage markets triggered a recession and made 2008 the poorest year for stocks since 1931. The US market fell 10% in June 2008 and fell 10% again in October 2008, losing 19.12% for the year. On March 9, 2009, the major U.S. indices closed at 12-year lows. Then, the market took off for one of the greatest rallies. From the March 9 2009 lows to the end of 2009, the US market soared 64.83% while the NASDAQ (Tech stocks index) gained 78.87%.

2001
2002

Was much the same. After the four-day closure of the stock market following 9/11, the US market lost 14.26% in a week. But what happened next? A huge gain. The market rebounded 21% in less than three months.

There were more challenges ahead because on October 9, 2002, the US market fell again but by Halloween, a period of only 22 days, it gained 10.6%.

2003

The US market gained 26.4%, and the Nasdaq 50%.

If we go back further the story is always the same. When the markets crash, reference is almost always made to October 19th 1987: Black Monday. (This time was no different.) The US market lost 22.6% in one day! Then the recovery kicked in. During the next two trading days, it gained back all of the loss ending up 2% positive for the year.

If you had invested in the US market a week before Black Monday, you would have lost 30% on your investment in the crash … but if you held on, your investment would have gained 462% over the next 20 years.

1974

With investors fretting over rising inflation and the energy crisis, the US market lost 30% of its value during the first three quarters of the year, but then it suddenly gained 16% in October.

Between 1982 and the year 2000 the US market made a 1,500% gain. This is why we stay invested through the downturns. This is what the market is capable of achieving. There are periodic rollercoaster rides, but these are normal and they should be expected. Even with these nailbiting rides history is definitely on our side.