Responding to our clients’ most common questions
We’re proud of our excellent relationship with clients, which is built upon open and transparent communication.
Every day we engage with you in our daily Morning Markets videos, with our Investment Management team keeping you updated on the latest market movements. We’re also thrilled to bring you our weekly discussion show, Do More With Your Money, which also includes our monthly Q & A session.
What’s great about these shows is seeing your responses, with the comments on the videos often providing thoughtful and intriguing questions for discussion. While these are often covered in our monthly Q & A sessions, we thought it useful to recap some of our most asked questions.
1. Why should I diversify my investments?
We’ve recently seen this question coming up a lot, with viewers looking into diversification following the market challenges of 2022.
Our view is that diversification is a long-term strategy for investing, in a simple sense you aren’t putting all of your eggs in one basket. This can help to smooth out fluctuations during volatile market, as well as make the most of opportunities that arise.
At True Potential we take diversification a step further. Not only do we diversify by asset class, industry and region, we also blend the styles of a range of world-class fund managers. This means that we’re not following the strategy of a single fund manager, who’s style may not suit all types of market.
This is a long-term approach, and the ups and downs of a singular year shouldn’t be considered an indicator of the effectiveness of diversification. What matters is the long-term economic growth globally.
Jeff Casson, True Potential’s Chief Investment Officer, expressing his opinion, said “The concept of diversification, or put simply not having all your eggs in one basket, is crucial to delivering robust investment outcomes. We believe that our unique approach to advanced, multi-asset diversification is a means of providing our clients with superior outcomes.”
2. When will markets improve?
Naturally, one of the most common client queries over the past year has been on market volatility. When will we see a calmer global economy and more sustained growth in global markets?
The answer isn’t straightforward, as the reality is that nobody can predict the future.
The outlook for inflation is for pressures to cool and there may be a trend of disinflation in 2023. Interest rate rises are still expected, with strength in the jobs markets creating the need for central banks actions.
We are optimistic that the global economy will perform better in 2023 than some of the more pessimistic forecasts available. However, we acknowledge that both high interest rates and inflation across developed economies will slow economic activity this year.
It has been a positive start to the year so far, with the FTSE 100 up since 1st January, as of January 19 the market is up 2.87%. You can stay updated with the momentum in markets by following the True Potential YouTube channel, with daily market updates from our Investment Management team in Morning Markets.
3. What is best to invest in, a Pension or ISA?
One of the common queries that comes up is about investing in a Pension or ISA. Which is best for your money?
The answer is dependent on your goal and circumstances, and for most people a mixture of both may be the best option.
A Pension is a good investment vehicle for the long-term aspiration of retirement. When you pay into a Pension, your contribution is boosted by tax-relief. This tax relief is paid at source, it doesn’t apply for salary sacrifice. For a Basic Rate taxpayer, this is an additional 20%, Higher Rate taxpayers get 40% relief and Additional Rate taxpayers 45%. Basic tax relief is claimed on your behalf, but the Higher and Additional Rates must be claimed on an annual tax return. Tax relief can be claimed on 100% of your earnings, or £40,000, whichever is lower. You can start withdrawing from your Pension at 55, withdrawals are subject to income tax.
An ISA may be suitable for your more medium-term goals, and you’ll need to think about whether a Cash ISA or Stocks & Shares ISA is best suited to your goals and circumstances.
A Cash ISA is linked to an interest rate, whereas a Stocks & Shares ISA is based on the performance of the Portfolio invested in. While there is the risk of market fluctuations in a Stocks & Shares ISA, there’s also the risk in a Cash ISA of interest rates being so low that inflation outstrips your returns.
You can invest up to £20,000 in ISAs in the current 22/23 tax year.
4. Should I move to cash when markets are going down?
The simple answer is you can’t time the markets, it is impossible to predict exactly when markets are going to go down or up. In other words, you could crystalise losses if you sell your units and miss a bounce back in value. The same number of units are held regardless of market conditions, but selling them means the value has been realised. For example, in Spring 2020, those investors who went to cash may have missed out on markets actually finishing that year higher than they started.
The above chart illustrates this point, you can see that those investors who went to cash on 16 March 2020, and again on 28th February 2021, have missed out on the returns of those who stayed invested.
Remember, withdrawing your investment is the only time that your value is crystallised. Whatever is going on in markets now isn’t what matters, what matters is your investment value in the long term. Focus on the longterm goal.
Think about your attitude to risk, cash is suitable for those with no appetite for risk. Speak with a financial adviser if you are unsure or need any help.
5. What are the benefits of consolidating Pensions?
The potential benefits of Pension consolidation include visibility and cost effectiveness. Your pensions are consolidated all into one place, making it easier to track your progress towards retirement.
If fees are lower after transfer, you may benefit from this in the long term, as you are spending less across multiple policies. This additional money could be put towards your investment.
Keep in mind that there may be drawbacks to transferring too, such as if your current policies have unique benefits. Consider your policies carefully, or speak to a financial adviser if in doubt.
6. How can I find my lost Pensions?
If you know the provider of your old Pensions, get in touch and they should be able to help you trace your Pension.
For Workplace Pensions, contact the HR department of your previous employers, they should be able to point you in the right direction.
There’s also a government pension tracing service which may useful. A conversation with your financial adviser could also be a good idea, they may be helpful in having the industry expertise to find your old Pensions.
When looking for your Pension, providers may ask for details such as your Pension plan number, National Insurance Number, relevant dates, and employer details. Be prepared and have this information ready.
If in doubt get in touch with us at True Potential and our team may be able to help you track down your lost Pension.
7. How can I pass my Pension pot to my children?
We appreciate that thinking about what happens when you pass away is difficult, but it is important to do so. Gifting your loved ones financial stability can be a part of your legacy.
To make it easier for your investments to be passed to your loved ones, choosing a beneficiary should be one of the first things you do. That’s why it is imperative that you fill in your Pension’s ‘Expression of Wish’ and add your beneficiaries to your investment account.
Adding a beneficiary to your pensions is simple and means your loved ones benefit from help and support post bereavement.
This is a vitally important part of your financial legacy, your loved ones have the opportunity to continue growing your investments and secure their own financial future from your parting gift.
Another important consideration is the tax implications. Any money passed on through a Pension isn’t usually considered part of your estate and therefore isn’t liable to Inheritance Tax*. There may be other tax implications which could be negative, so it is worth speaking with a financial adviser to make sure you are making the right decisions.
*Tax rules can change frequently. If you would like to know more about this, please contact us.
8. How far in advance is best to speak with an adviser regarding retirement?
It is never too early to start a conversation with a financial adviser about retirement, and it is very much dependent on your circumstances. If in doubt, it is often a good idea to get advice, as this can help you establish your retirement goals.
The earlier you start investing, the more time your money will potentially benefit from compound growth.
A financial adviser could help you to set your plan. How big of a Pension pot will you need to fund your retirement? What length of time and what amount would you need to invest each month with what assumed rate of growth? Deciding on these matters will help you to do more with your money.
With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax rules can change at any time. This blog is not a personal recommendation or financial advice.
ISA and pension eligibility and tax rules apply.