For many financial advisers such as myself March is our equivalent to January for accountants in that it takes you half way through April to begin to again see the “wood for the trees”. The budget again raised a number of interesting issues however as I commented on the initial budget review in March I shall give tax, pasties and grandmothers a rest this month, perhaps returning to some tax planning ideas later in the year.
So as we head into the summer will this year once again prove the adage sell in May and go away? Statistics are always suspect however if you invested £1 into the UK FTSE 30 (as it was then) Index when the Queen was crowned then by November 2006* it would be worth £760. If you could have got out of the market for the May to October period your £1 would be worth £4,750. Had you tried this technique in 2009 you would have lost a 23% return on the FTSE 100 so it isn’t always a good idea! The end of this saying used to be “come back St Ledger
Day”, but nowadays most seem to suggest that Halloween is probably the best time to return.
Who would blame anyone for being in cash right now? When you have the pound rising against the Euro you know the Eurozone is in a terrible mess! Greece, Portugal, Italy , Spain and Ireland all look in an untenable position with debts they cannot repay and economies which are being decimated by the high cost of borrowing and the overpriced (for them at least) currency. When what many see as the inevitable happens and these countries withdraw from the single currency there is bound to be an adverse reaction from global markets with countries defaulting (or in Greece’s case defaulting to a greater degree) on their debts and the collapse of a major
It is not in the advisers or the investment industries interest to suggest a mass exodus to cash for half the year as when funds are not invested no fees are paid!
Modern platforms such as the one we use do however make the proposition perfectly feasible if the investor wishes it. You do however have to get over a number of hurdles first. If you need advice then realistically you have to allow for costs of between 1% and 3% (if your adviser uses passive funds as we do) or perhaps 3% to 6% if your adviser uses active funds. You may have a lot of gains built up in your portfolio which would generate 28% tax liabilities if you encash. In the 6 month period you will get little or no return on your capital and despite my dire warnings
2012 could be a repeat of 2009.
So selling may not be right for many but do engage in the argument with your financial adviser and look at your investments regularly to make sure you are happy with the risks and rewards you are getting. I welcome any feedback or suggestions for a future article, you can contact me at firstname.lastname@example.org or by phone on 020 7182 4474. www.swallow-financial.co.uk
(*Robin Griffiths PFS Conference November 2006)