General

Don’t make financial decisions when you’re hungry

I think we all know by now what tends to happen when we visit the supermarket on an empty stomach or have felt the effects of a ‘hangry’ partner, child or friend?

If you are browsing the supermarket aisles when hungry, it can result in a trolley or basket full of less than sensible purchases.

But what happens when the same hungry state is applied during times of making financial decisions?

Thankfully, scientists have been pondering this question, and they have come up with an answer.

The new study from the University of Dundee, published in the journal Psychonomic Bulletin & Review, concluded that making any decision while hungry can result in making poorer long-term choices.

“This work fits into a larger effort in psychology and behavioural economics to map the factors that influence our decision making. This potentially empowers people as they may foresee and mitigate the effects of hunger, for example, that might bias their decision making away from their long term goals.”

Benjamin Vincent, Author of the study

The study considers a heuristic known as ‘delay discounting’.

This says that we tend to prefer smaller rewards today instead of more substantial rewards tomorrow.

You might have heard of the famous marshmallow test, where children who could resist the temptation of eating one marshmallow immediately, to receive two marshmallows as a reward for their patience, tended to have better life outcomes.

If you haven’t heard of the Marshmallow Test I can highly recommend the book.

Patience is, indeed, a virtue.

From a financial perspective, delay discounting tells us that we often prefer to receive £100 now instead of getting £200 later.

But back to feeling hungry and its impact on our decision making.

The researchers asked study participants whether they would prefer food, money or music now, or a greater amount of the same in the future.

One group of participants were hungry after fasting for 10 hours. The other study group were well fed.

Unsurprisingly, feeling hungry made people less likely to want to wait for more food in the future; they wanted it now.

It’s the translation of this result when it comes to money that we found especially interesting.

Hungry participants were prepared to wait 40 days to receive double the money, compared to a 90 day wait for those who had recently eaten.

The researchers concluded there was a carryover effect of hunger on money, which was moderately strong.

Being hungry focuses our minds on short-term rewards, across multiple areas, including food and money.

What this means for making financial decisions is simple; eat first!

If you’re going to choose a mortgage, make decisions about your retirement income, or change the allocation of your investment portfolio, doing so on an empty stomach could result in making poorer long-term choices.

Jon DoyleDon’t make financial decisions when you’re hungry
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How much is enough to make work a choice?

What’s your retirement savings target? How much pension will you need? How much will you need to have saved, invested and put aside for your financial future?

Don’t worry if you can’t answer these questions quickly. A considerable number of people don’t have a ready answer to this critical question.

According to new research, around 40 million UK adults could be taking their chances when it comes to retirement, admitting they either have not or did not set a savings target.

The research, as part of Sanlam’s “What’s Your Number?” report, is highlighting how a lack of basic knowledge about retirement planning could be damaging our ability to reach future financial goals.

Within the report, it found that more than half of UK adults don’t think they can save enough money to retire when they want to finish work.

Only 12% of under-55s have a specific target for the size of their pension pot.

This lack of knowledge around retirement planning is brought into sharp focus by the fact that four times as many people know their lottery numbers off by heart.

It’s the 45-54 age group who are mainly at risk from this lack of explicit knowledge and goals. Only 18% in this age group, which should be saving at a significant rate, have set retirement goals.

Applied across the UK population, that means that 8.2 million adults are heading into retirement without a clear set of goals. They could be failing to make the most of some of their most lucrative years of career earnings, undermining the opportunity for a financially secure retirement.

Within the research, there’s a significant gender gap. Women are particularly exposed to a lack of precise retirement planning.

Only 18% of women have set a financial target for retirement, compared to 29% of men. With women already facing a gender pensions gap, this lack of clear retirement objectives could be especially harmful.

Knowing your number and, more importantly, understanding what it means for your current and future lifestyle is really important.

The gap between what people think they need and what they actually require in later life is huge, and sometimes life-changing.

When taking clients through this it becomes very clear. We paint it out in pictures and it very quickly highlights the important issues. Blue and Green is good, red is bad.

Despite years of industry effort to turn the tide, engagement with longer term savings, as highlighted in this report, is shockingly low.

Jon Doyle, Financial Planner, Juniper Wealth Management

The research discovered that the main aims for retirement were not having to worry about money, maintaining a current living standard, and being free from debt.

Other retirement planning goals include having a regular income and repaying the mortgage before retiring.

So why are we failing to plan for retirement? Around two-fifths of UK adults don’t see setting targets as being essential for their long-term financial planning, which could explain the complacency.

This report suggests that we are about to see a significant number of people approaching retirement who will be ill-prepared and severely disappointed when faced with their retirement reality.

By taking some very simple steps, setting clear financial goals, and identifying a clear path to get there, catastrophe can be avoided.

When setting goals people can often get stuck on not having big, inspiring or ambitious goals but I think it can be much simpler than this.

Sometimes that goal can be a simple as knowing what your don’t want to have happen.

Jon Doyle, Financial Planner

It’s hard to understate the importance of having clear goals for retirement savings.

Knowing how much you should be saving each month, and your clear financial goals to maintain the desired lifestyle in later life, are critical to a successful retirement.

To find out more about our Financial Planning process do get in contact or you can book in an initial meeting at our offices or over video conference completely at our expense here

Jon DoyleHow much is enough to make work a choice?
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Private School fees on the rise again

Rising private school fees are placing an increasing financial strain on parents, regardless of Labour or Conservative party plans for Private School fees.

Many parents consider independent education to be the best choice for their children. But they are increasingly turning to alternative options to make this private schooling achievable.

That’s according to a new survey conducted by CEBR for investment house Kilik & Co.

The latest Killik & Co Private Education Index found that the average annual cost of a day school has risen by 3% since 2015. It now stands at £15,000 a year or £5000 per term

Popular Private Schools for our Lancashire clients include Kirkham Grammar at £4010 per term, AKS at £4,095 and Stoneyhurst College at £6,850.*

The total cost, including extras, of a 14-year education has risen by 15% to reach £325,600. This is the total cost from reception through to upper sixth form in a day school.

This increase in private school fees has risen faster than wage growth for professional careers, even where both parents are in full-time employment.

Annual private schooling fees, including extras, now represent 39% of an average doctor’s disposable income and 65% of an accountant’s.

But what’s the alternative, if private education becomes unaffordable?

Some parents are sending their children to a state primary school before moving to a private secondary school, as a way to keep the total costs down.

The analysis by CEBR found that around 6,000 more children enter the independent sector when they transition from primary to secondary education.

Choosing to send a child to a state school until either age 8 or 11 could result in cost savings of £63,500 or £117,900 respectively.

These cost savings are expected to continue to rise in the future, and the abolition of the Common Entrance Exam could also accelerate this state to private school trend.

It’s no surprise to see that school fees in London remain the highest in the country this year. Average fees in the capital have risen faster than those in the rest of the country since the turn of the century.

Between 2015 and 2019, fees in Wales and Scotland saw more significant growth.

Wales experienced the fastest growth in private school places in the past year, up 2.4% between 2018 and 2019.

Jon Doyle, Founder and Financial Planner Juniper Wealth, said:

“The rising cost of fees is a concern for parents looking at private schooling. Even for those parents in traditional professional careers, these findings show how important planning is in meeting the increasing costs of funding the private education of their child or children.

“Having a financial plan in place to assess what is manageable with a family’s financial resources is critical and pairing this with an understanding of each child’s needs. With a strategy in place, parents can work out what is most important to them.”

*All fee stated are for Secondary Years, Day only and are correct as at 24th October 2019

Jon DoylePrivate School fees on the rise again
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Modern Monetary Theory branded ‘rotten’

Many organisations have made a case for Modern Monetary Theory (MMT) in recent years. In simple terms, MMT is an argument that nations that issue currencies, like the UK and Pound Sterling, can never run out of money in the same way individuals or corporations can.

It hinges on the claim that governments can print currency to fund substantial government spending to deliver full employment. With economists coming out in favour of MMT, and many arguing against it too, a neoliberal think tank the Adam Smith Institute has attempted to break it down in a newly published paper.

They claim that MMT advocates are driven by Utopian thinking, wanting massive unaffordable public spending programmes, the cost of which never have to be repaid through higher taxes.

According to the Adam Smith Institute, advocates of MMT claim that government spending can activate substantial unused economic capacity, but this claim is false. In practice, the impact of MMT is inflationary and hyperinflationary.

Despite being a fringe economic theory, MMT is gaining mainstream support in areas of political activism, including the Green New Deal and Jeremy Corbyn’s People’s Quantitative Easing. But the economic collapse experienced by Venezuela, following years of spending fuelled by a deficit, should bring an end to any belief that deficits don’t matter to the economy.

As a result, the Adam Smith Institute believes MMT needs critical thinking and debunking before it starts to influence government policy in a major Western country. With the economic idea of MMT gaining ground among heterodox economists and left-wing politicians in the UK and US, the Adam Smith Institute is arguing the theory is powerfully wrong. Lead author of the report, Professor Antony P. Mueller, has drawn comparisons between MMT and the flat earth movement.

Mainstream economists have rejected MMT, with a poll carried out by the University of Chicago’s Booth School of Business, speaking to 50 elite economists, finding that not a single one believed governments don’t need to worry about deficits. None of the economists surveyed found it possible to fund as much government spending as desired, only by printing more money.

“MMT promises politicians almost limitless cash to spend on their pet projects. But if something sounds too good to be true it probably is. The state cannot print money without risking crippling inflation. More cash chasing the same amount of goods inevitably leads to sellers increasing their prices. When inflation spirals out of control it has disasterous consequences from the Weimar Republic to Zimbabwe to now Venezuela. MMT may just be wishful thinking today – the danger is that tomorrow a politician is stupid enough to follow its prescriptions.”

Matthew Lesh, the ASI’s Head of Research

The Adam Smith Institute argues that MMT ignores ignorance on the part of politicians and government actors with no price incentive or competition to counterbalance political prejudice. Instead of treating MMT as a serious economic theory, the Adam Smith Institute argues the growing political support for MMT should be viewed as a sign of growing tolerance for debt and deficits.

The report argues that the absence of fiscal restraint for public spending means massive public spending programmes lose their legitimacy. This includes projects like the ‘Green New Deal’, ‘free’ university education, renationalisation, and considerable increases in infrastructure spending, all of which can be launched with enthusiasm.

“Old wine in new bottles is a recurring phenomenon in economics, particularly if it is the bad wine of economic ideas that failed in the past. Modern Monetary Theory (MMT) is neither modern nor a theory – it is the attempt to sell something as new which is spoiled and rotten. “While promising to cure all kinds of economic woes, MMT is the poisonous elixir that will ruin those who take it as it has happened before.”

Professor Antony P. Mueller, the paper author
Jon DoyleModern Monetary Theory branded ‘rotten’
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I gave up

I don’t know if you feel like this or if you know someone who feels like this but very often I hear regrets of people who gave up an instrument when they were a teen.

Well I have always had two. This first is giving up piano when I was 11. I never really got that far with it but as a late teen learning to play Bass and then Guitar. I used to love sitting down at the piano and playing out a few chords and simple melodies. Looking back now a few more years of learning then would have made a significant impact on my playing now. Sadly this is one for the bucket list right now but I do intend on getting lessons again at some point.

My second regret was giving up competitive swimming. As a kid I just loved all the sports. I did every sport I could from an early age. By the time 15 I was playing in the school team in football, rugby, basketball and cricket as well as playing for both a men’s football team on a Saturday and an under 16s team on Sundays. It was not uncommon for me to be competing or training on a daily basis.

To do this something had to give and it was swimming. Many times I had considered going back but never really did anything about it. That was until my daughters got into swimming and I was spending hours sat by the pool with an itch to get back in the pool.

I had dabbled with triathlons and whilst I was above average as a swimmer I never really trained properly and so at 5:30am on 9th January 2018 I braved the Master sessions at Preston Swimming Club.

Spoiler alert – it hurt!

It has been a journey. That first session was harder than any training I had done on my own in recent years. Double the distance, double the speed, tumble turns and a coach pushing me on but after a few weeks it started coming back to me. 4 months later I was back on the starting blocks for my first competition in well over 20 years. Inspired by the age range of around me with swimmers age 18-80 taking part in age banded competition I went for it.

Was I as good as I hoped to be? Not really but my expectations were a little unrealistic to be honest. Fast forward 18 months and I am headed off to British National Masters in Swansea this weekend with a group of local swimmers from Preston Swimming Club hoping to set good times and cheer them on in the hunt for medals and records!

You may have heard me say that “Life is Not a Rehearsal” and so if there is anything you regret giving up why not do a little googling and get started?

I love hearing stories of clients taking up Instruments, starting Painting again, doing Amateur Dramatics and even learning foreign languages in retirement.

If you have a story you would like to share why not let us know.

Jon DoyleI gave up
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The World In A Week 19 – The UK / US Alliance

Last week the US and UK commemorated and celebrated their historic alliance and friendship. The week included the rarity of both the D-Day commemorations of World War Two as well as the US President’s State Visit.

Both occasions demonstrated the continuing bond between the two countries. One focused on humanity and the enormous courage and personal sacrifice made to defeat Nazi tyranny, and the other focused on their relationship and their bilateral approach going forward.

Much can be written about the importance and the success of both of these occasions. For the investment community though, there was one stand-out development.

At his press conference the President emphasised his keenness for a free trade deal with the UK.  He claimed there could be ‘2 and 3 times of what we’re doing right now’. This builds on his previous comments that his administration would ‘work on it very, very quickly.’

This will be very welcomed by investors in the UK, especially at a time when many are concerned with Brexit, as this demonstrates the UK’s trade appeal and thus the potential for such trade deals to be replicated globally too.

It should be noted; the UK and the US are the largest investors in each other’s countries (as measured by total Foreign Direct Investment). For example, as at 2017, the UK had invested $541bn in the US and the US had invested $750bn in the UK.

Regarding trade, as at 2018, the UK had a $5.4bn goods deficit with the US and a $14.5bn services deficit too thus an overall trade deficit of $19.9bn with the US. This is likely to be something the UK will aim to address in any free trade agreement.

It was a successful and welcome week for both countries that also demonstrated the importance and enjoyment of good relations.

Content courtesy of Beaufort Investment Management

Jon DoyleThe World In A Week 19 – The UK / US Alliance
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The World In a Week 18 – Mexican Standoff

Markets faced a tough week as a risk-off environment prevailed. The Pound Sterling fell against all major global currencies. Bond markets rallied across the world, with the Bloomberg Barclays Global Aggregate Index (hedged to GBP) returning +0.63%, while Sterling Denominated Investment Grade Bonds returned +0.27%. Equities suffered across the globe. The MSCI ACWI Index of world markets returned -1.20% in GBP terms, this was led by the US market, which fell -1.91%. Value stocks underperformed growth stocks -1.54% vs -0.87%.

This downside volatility was driven by a number of events, most of which stemmed from the Oval Office. The continuing trade tensions between China and the United States spurred a move out of Equities and into perceived safe assets. The German 10 year Bund yield traded at -0.16% on Tuesday, with the 10 year US Treasury yield touching a fresh two-year low on Friday. In what Bloomberg described as a “true black swan event”, President Trump suddenly threatened to slap a five percent tariff on all Mexican imports unless it stepped up efforts to stop illegal migration. Tariffs are increasingly being employed by the President as a weapon of policy, across multiple fronts.

In spite of the bluster from 1600 Pennsylvania Ave, US stocks remain very much in favour on a global basis. The gap between the valuation of US Equity markets and the rest of the world is at record highs. As a result, many investors are looking for ways to protect against a falling dollar and/or falls in the value of the Equity market itself. Local Currency Emerging Market bonds may offer such protection and are becoming increasingly popular with GBP based investors.

Content courtesy of Beaufort Investment Management

Jon DoyleThe World In a Week 18 – Mexican Standoff
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The World In A Week 17 – All By Myself

We have seen an uptick in volatility. Hostilities between the US and China show no signs of abating. The US Federal Reserve minutes indicate that it is unlikely there will be rate moves of any kind for some time and, the UK have no leader, following the tearful resignation of Prime Minister, Theresa May, on Friday. It would be an understatement to say that last week was anything less than eventful with the Bank Holiday weekend in the UK providing some welcome respite for all.

On Friday, Theresa May resigned as the Prime Minister after failing to deliver her Brexit deal in her 3-year tenure. Mrs May’s departure will now lead to a chaotic Conservative race, where staunch ‘no-deal’ Boris Johnson is the clear favourite to succeed her; a new Prime Minister will be in situ by the end of July. Further compounding May’s sadness was the Conservatives defeat in the European Elections, which were held in the UK last Thursday. It was expected that the results would be disastrous for the Conservatives and they did not disappoint; Nigel Farage Brexit Party secured the majority vote of c.31% followed by the Liberal Democrats and Labour with c.20% and c.14% respectively. Conservatives limped in to 5th, behind the Green Party, with c.9% of votes. The UK, politically, will remain in an uncomfortable limbo.

Turning to trade wars, the question is; who is really winning? There is only one measure that shows if Trump is ‘winning’ and that is the bilateral trade balance, and while the global superpower that is the US is still lagging by a huge margin, to March this year, the trade deficit has narrowed. While all equity markets suffered last year, Chinese equity markets tumbled by fourfold that of the S&P 500 in 2018 by more than 25%, this had a knock-on effect to the Chinese economy, which slowed more notably than that of the US. However, it’s not all bad news for China; import tariffs imposed by Trump do not affect the Chinese consumer, as many are a tax on industrial inputs and not end-use products, whereas the opposite is true for the US. The US are also missing out on investment from China with foreign direct investment slumping by more than 80% between 2017 and 2018; in the US, investment in China fell marginally by c.7.5%. We will call this a draw.

One thing that is for certain; is that markets do not like uncertainty and while there is political limbo in the UK, UK equity markets will continue to be hindered and uncertainty over trade wars is likely to be more costly than trade tariffs themselves.

Content courtesy of Beaufort Investment Management

Jon DoyleThe World In A Week 17 – All By Myself
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The World In A Week 16 – Taking matters in to your own hands…

In what was a short week, owing to the bank holiday weekend, Brexit news was light; cross-party talks between Conservatives and Labour continue to progress, reducing angst over a Brexit deadlock. There was a variety of data releases last week from the UK and the Eurozone; the UK continued to show a 44-year low in unemployment in February while wages are at a decade high thanks to an upward revision to January’s data. The picture in Europe, as we have mentioned previously, is mixed; the ZEW economic sentiment survey moved in to optimist territory, hitting a 1-year high while opinion on the blocs’ current economic conditions continued to decline.

The title of this week’s note is aimed at Russia, who have passed a bill to allow the country to create an autonomous internet. Known as  “Runet” (Russian Internet), the bill will allow Russia to keep its domestic internet running even when disconnected from non-Russian root servers. The premise is that Russia believes their national security to be at stake and the bill is aimed at countering “aggressive character of the US strategy on national cybersecurity”. Over 300 lawmakers in the lower house voted for the bill, with 68 voting against the bill. To become law, the Federation Council, the upper house of Parliament, must approve the bill, which would come into effect on 1st November 2019. This move has been met by anti-isolation protests in Russian cities.

Chinese GDP data surprised last week as figures showed that the economy continues to grow by 6.4% year-on-year in the first quarter of 2019; although it is important to treat Chinese GDP data with caution. This figure seems particularly impressive when compared to G10 countries; a group of 10 advanced economies, which, over the same period, showed growth of c.1.7%. While annual growth in excess of 6% seems high, by historic standards, this is certainly not the case; looking back to as recently as 2006, Chinese GDP growth was in excess of 15%, one of the highest levels in the country’s history. The ‘surprise’ however is that 6.4% beat the consensus forecast of 6.2% and was due to a jump in industrial production; jumping to 8.5% in March from 5.7% in February. This exceptional increase came from infrastructure projects and 5G production, a trend we expect to continue.

Jon DoyleThe World In A Week 16 – Taking matters in to your own hands…
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The World In A Week 15 – Round 3: Trump thumps China

On Sunday May 5th President Trump tweeted the following:

‘For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods… The 10% will go up to 25% on Friday. 325 Billion Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%…’

Until this development it was widely anticipated that the trade talks were making progress, but this tweet evidenced that they had in fact stumbled. Equity markets priced in the news with the CSI 300 falling 5.84% by May 6th and S&P 500 falling 2.1% by May 7th. Come Friday the US President carried out his threat and he increased US tariffs on Chinese goods.

In 2018 the US imported US $540billion of goods from China and it exported US $120billion of goods to China thus the US had a US $420billion goods deficit with China. Regarding tariffs, prior to Friday’s increase, the US already had 25% tariffs on US $50 billion of Chinese goods and 10% tariffs on another US $200billion of Chinese goods. Now there is a blanket 25% tariffs on US $250billion of Chinese goods with the threat of a further 25% tariff imposition on all remaining Chinese imports to follow ‘shortly’.

By comparison, China currently has between 10% and 25% tariffs imposed on US $110billion US goods which is almost everything that they currently import from the US. Notwithstanding this however, given Friday, they have declared they are going to retaliate.

Whilst we await China’s response, the US administration needs to be cognisant of some very important things. Although there is a huge US goods deficit, US firms do profit from cheap Chinese production costs. They can of course produce elsewhere, including the US itself, but that would almost certainly impact US Profit & Loss. Also, the US goods deficit with China is still increasing. This evidences the US needs Chinese output despite the tariffs imposed on them. It should also be borne in mind the US has a US $41billion services surplus with China. Although small compared to the goods deficit it is not insignificant either. Finally, tariffs are inflationary, and inflation is likely to get stoked at some point as this trade war escalates.

The US rightly demands better terms of trade with China, but it needs to be careful with its approach too.

Jon DoyleThe World In A Week 15 – Round 3: Trump thumps China
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