Lowes Magazine Issue 123

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Issue 123

“I can’t change the direction of the wind, but I can adjust my sails to always reach my destination.” Jimmy Dean


Lowes 2022 competition update INFLATION IS VERY MUCH IN THE HEADLINES AT THE MOMENT, which makes this year’s Lowes Client Competition highly topical. This year we asked you to predict what the rate of inflation – CPI and RPI – would be in November 2022, as published by the Office for National Statistics in December 2022. The rate in November 2021 was 5.1% CPI and 7.1% RPI. Since then inflation has risen even further – ONS data published in June 2022 showed it to be 9.1% for the year to the end of May 2022. Opinions differ as to whether inflation will continue to rise, driven upwards by rising energy prices and supply chain issues, or whether, by the end of the year, things will have settled down again. What was your prediction?

Another structured product milestone aspects to consider alongside the divorce, which officially ends a marriage or civil partnership. A key area is the settling of finances, which will still need final court approval. Property, investments, savings and pensions are key assets typically considered. Just as professional advice from a solicitor can help with the legal aspects, input from an Independent Financial Adviser can be invaluable in respect of the financial aspects. Solicitors and Advisers can work together to help where needed. New divorce laws NEW NO-FAULT DIVORCE LAWS HAVE come into force in England and Wales enabling one or both partners to file for divorce without having to give a reason or place blame. Swifter, no-blame divorce can help people to move on more quickly but there are many Inflation November 2021 to June 2022 (%) Month CPI RPI May 2022 9.1 11.7 April 2022 9.0 11.1 March 2022 7.0 9.0 February 2022 6.2 8.2 January 2022 5.5 7.8 December 2021 5.4 7.5 November 2021 5.1 7.1 Source: Office for National Statistic

THE STRUCTURED PRODUCT sector has seen the maturity of its 1,250th FTSE 100 linked capital-at-risk autocall in the UK retail market. The very defensive plan backed

Pension nudging FROM 1 ST JUNE ANYONE WANTING TO ACCESS THEIR PENSION money is now asked by their pension provider if they want to book a financial guidance session with the Pension Wise service. This applies for all ‘defined contribution’ pension schemes, including personal pensions, SIPPs, and many workplace pension schemes, and also where an individual is transferring their pension from one pension scheme to another in order to access it. The guidance session is not obligatory and if you are looking to access or transfer your pension then your Lowes Adviser can talk you through the process to ensure it’s right for you.

by Credit Suisse AG matured early after three and a half years, returning capital plus a gain of 19.81%, an annualised return of 5.29%. No maturing FTSE 100 capital-at-risk autocall plan has failed to reward investors with a gain since April 2013, representing almost a decade of consistent positive performance.

2 LOWES Issue 123 · Published July 2022 The content of the articles featured in this publication is for your general information and use only and is not intended to address your particular requirements. Articles should not be relied upon in their entirety and shall not be deemed to be, or constitute, advice. Although endeavours have been made to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No individual or company should act upon such information without receiving appropriate professional advice after a thorough examination of their particular situation. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts. Levels and bases of, and reliefs from, taxation are subject to change and their value can go down as well as up and you may get back less than you invested. Past performance is not a reliable indicator of future results.

Covershot: The full buck supermoon rising over SpaceX Raptor engine tripod test stand, McGregor Texas, 13 July 2022. The Raptor engines are being designed to propel humanity to the Moon, Mars and beyond. Photo: Justin Swartz Photography


Who’s investing where? RECENT RESEARCH BY THE PERSONAL INVESTMENT Management & Financial Advice Association (PIMFA) looked at where the different generations and age groups were investing. The research found that younger people had high levels of confidence when investing, but many were investing having listened to unregulated information that was often obtained through social media. 40% of investors aged 18 to 25 held investments in new and highly volatile assets, such as cryptocurrencies, some of which have seen huge losses in recent months.

This was in contrast with older UK investors who tended to invest in more traditionally recognised investments. For example, 43% of investors in the 56 to 75 age range and 60% of investors in the 75+ age range hold some of their investments in Premium Bonds, compared to just 19% of 18 to 25-year-olds. While we welcome more people feeling confident about investing their savings, this has to be tempered. Investments should be pursued as part of a strategy held within a sound financial plan that balances the potential upsides with the risks involved and sets these against an individual’s financial goals.

Make your money work. Best bank & building society rates Type Amount Provider Account

Gross Rate


Unrestricted instant access accounts Online £1 - £50,000


Smart Saver




£1,000 - £85,000

Shawbrook Easy Access Savings Account

1.40% www.shawbrook.co.uk

Fixed rate bonds Online

£1,000 - £1,000,000 Hodge Bank £1,000 - £1,000,000 Hodge Bank £1,000 - £1,000,000 Hodge Bank

1 Year Fixed Rate Bond 2 Year Fixed Rate Bond 3 Year Fixed Rate Bond



Online Online

3.02% www.hodgebank.co.uk 3.15% www.hodgebank.co.uk

5.64% if FTSE 100 rises / 0% if it doesn’t

Call Lowes on: 0191 281 8811

Structured Deposit

£5,000 - £1,000,000 A+ Rated Bank

6 year fixed term deposit

You may also wish to consider Premium bonds offered by National Savings and Investments (NS&I), maximum £50,000. Whilst no guaranteed interest is earned, they do offer the opportunity for tax free winnings which with ‘average luck’ should return 1.4% p.a. but with the chance of winning £1million. Measures of inflation - The average change in prices of goods and services over a 12 month period to June 2022 Retail Prices Index (RPI) 11.8% Consumer Prices Index (CPI) 9.4% Sources: Providers’ websites, Office for National Statistics, www.thisismoney.co.uk, www.moneysupermarket.com, www.moneyfacts.co.uk 12/07/2022. All accounts subject to terms and conditions.

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Lowes Financial Management

If you would like to receive further information on any of the subjects featured in this issue please call: 0191 281 8811 , fax: 0191 281 8365 , e-mail: client@Lowes.co.uk , or write to us at: Freepost LOWES FINANCIAL MANAGEMENT . Lowes ® Financial Management Limited. Registered in England No: 1115681. Authorised and Regulated by the Financial Conduct Authority.

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HOW SHOULD LOWES CLIENTS REACT TO the political turmoil caused when a Prime Minister’s head rolls (figuratively speaking) and the government of the country is put into a state of limbo until a new leader can be appointed? From an investment perspective, in very much the same way that they should react to any other short-term risk – with patience, a long-term view, and the advantage of having a professional and experienced Independent Financial Adviser looking after their investments and other financial interests. 2022 has panned out to be a year of surprises. I’d hazard a guess that at the start of the year few if any of us would have put money on a war in Europe, the resignation of Britain’s Prime Minister and the UK inflation rate rising so rapidly to double digit figures by this time of the year. There is no doubt there are tougher economic times ahead, given the short-term outlook for UK GDP, rising inflation and interest rates, and concerns around UK and global economic growth. Hyperbole is rife in such times and investors’ fears are stoked. Which, of course, is where the value of good Independent Financial Advisers comes in, helping clients to step back, view the bigger picture and keep their heads. Hand holding is what we are here to do in a ‘crisis’ but hopefully, as our clients, you will be familiar with the nature of markets, and any volatility will not be seen as a reason for panic, nor any political or geopolitical events. Sound financial planning is built to see us through these times. Where you haven’t wanted to be in recent weeks and where we have seen panic, is in crypto currencies. Just as their volatile nature suggested they would, these have fallen dramatically this year as sentiment turned against them – Bitcoin, the best known, was down over 44% in the first six months of the year. One so-called stablecoin – a type of crypto-currency deemed, as its names suggests, to be more dependable – failed. We have warned against these speculative investments and unfortunately for those affected by them, we were right to do so. While digital currencies may be viable holdings in years to come, currently they are the wild west of investment. Keep your head

For the majority of us, it is inflation that will have the most noticeable impact on our daily lives, rather than a change in Prime Minister – notably in our spending power. Even with the uplift in interest rates, cash accounts remain behind inflation and in our view, diversified, mainly active investment remains the best course of action for investors in inflationary markets. Where political change is likely to have a more direct effect on us is in the policies of the new Prime Minister and whoever they appoint as Chancellor of the Exchequer – in respect of taxation and notably any changes to exemptions and allowances, many of which are frozen until 2025. With the next Autumn Budget falling a few weeks after the new Prime Minister and potentially a new cabinet are in place, we will have to see what that brings. Whatever occurs, for us it’s business as usual. If you know someone who you feel would benefit from Lowes expertise and service, please do put them in touch. If they call 0191 281 8811, they will be contacted by someone who can help them.

Ian H Lowes, Managing Director

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WHEN YOU THINK ABOUT RETIREMENT, WHICH PART DO YOU VISUALISE – the earlier years when you might take in some foreign travel or indulge more in hobbies and pastimes, or the later years where you may be less active and potentially suffer poor health or become less mobile? While it is natural to focus on the early retirement years, which can be the more active and exciting and when more often we are in better health, it is important that we consider all aspects of our retirement when planning for the future. A sound financial plan for retirement needs to assess the assets that will provide income in retirement, what percentage of those assets might be used in the early years of retirement, and what percentage will be needed for later years, bearing in mind that this may require funding of later life care due to poor health. What also must be borne in mind is that as a nation, we are living for longer and the time we spend in retirement is increasing. Many people underestimate their longevity and this can lead to an imbalance in what they spend and when, potentially leaving them with too few assets when they need them in later life. Many people want to leave some inheritance also, and in this respect, taxation can significantly influence our retirement income. What is important is from which assets we derive our income; some assets, such as pensions, can be best left to last, as they may be passed tax free to beneficiaries, while ISA investments fall within a person’s estate for inheritance tax liabilities. Of course, not everyone will retire outright, some may need or want to continue working in some capacity. This can be useful in continuing to bring in income and for continuing to pay into a pension, building up your pension pot even as you begin to wind down from working life. No matter which route we take, it is important that we are fully informed and engaged with our finances, so we have realistic expectations about our retirement, from the active stages to the less active ones. Working with an Independent Financial Adviser on a financial plan can help bring peace of mind and with regular reviews, ensure our money lasts the full length of retirement. Think retirement , think plan

AS PART OF THE EXCITING DEVELOPMENT plans currently under way for Lowes Financial Management, we have appointed Gershom Chan as Head of Financial Planning. Gershom has been appointed to the newly created role as part of building out a strong senior team within the business – joining our other recent appointments of Andy Gardiner as Associate Director, and Adele Baillie as Head of Business Enhancement and Engagement. Gershom has extensive experience in financial planning and wealth management, as well as banking. He has been part of the wider Lowes team for around four years, working in several technical roles initially before becoming a client facing adviser. In his new role he will be involved in developing and enhancing the advice proposition on offer to our clients, building on Lowes’ reputation for providing personal service to clients, as well as continuing to strengthen our approach and attract more clients that we can help to build and maintain their wealth. He will also take the lead on the training and development of the next generation of financial planners. Lowes founded Lowes Financial Academy in 2020, an initiative which aims to help attract new talent to financial services, and we are keen to encourage newcomers with the intention of modernising and revolutionising the profession. This is a passion of Gershom’s and is a side of the business he is enthusiastic about driving forward. Further foundations for growth

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Pension saving in hard times

recover you will then have more units in the market to benefit from the rise. By reducing or stopping payments you lose this opportunity to create greater wealth for your future. Continuing to contribute to your pension throughout the hard times also means your fund can recover more quickly from the market downturn. As you can see, this can really benefit your long-term savings strategy. And, because pensions may be passed on to beneficiaries with substantial tax benefits, pensions also feature in estate planning. Of course, for short-term financial reasons, it may not be possible to continue paying into your pension at the same rate but please consider the above and talk to Lowes before you take any action, as we may be able to find alternative strategies for your personal situation. Retirement living standards The Pensions and Lifetime Savings Association (PLSA) has devised the Retirement Living Standards, designed to help savers picture the lifestyle they want in retirement and understand the costs. The standards cover a range of goods and services that are relevant for the majority of people across three different levels – minimum, moderate and comfortable retirement. The standards calculate that a single person will need to spend about £11,000 a year to achieve the minimum living standard, £21,000 a year for moderate, and £34,000 a year for comfortable. For couples, it’s £17,000, £31,000 and £50,000, respectively. The figures are updated yearly to reflect the changes in the prices of goods and services bought by those in retirement. While they are rough guides only they can be a useful tool when reviewing our pension provision and assessing whether we need to increase our pension payments.

PENSIONS, LIKE ANY OTHER KIND OF SAVING THAT includes investment, can be subject to the vagaries of the investment markets. This can be particularly apparent for ‘defined contribution’ personal pensions and self invested personal pensions (SIPPs), where investments are selected by the individual, rather than final salary (defined benefit) pensions which are invested by the pension scheme investment managers. When markets are tumbling, coming out of the market by stopping pension payments may seem like a good tactic, as we don’t want to see the money we are paying in make immediate losses. Pension payments can also suffer when times get hard, because as long-term policies, it can seem easier to reduce our pension contributions, or even stop them altogether, as a temporary measure with a view to restarting them in the future. There are a number of sound reasons why you should continue to pay into your pension during periods of market volatility or when times get tough. First, human nature being what it is, restarting our investments can be a lot harder than stopping them. Spending money can be much easier than saving it. That’s simple behavioural science. Since pensions are long-term investments – we cannot access our pensions until age 55 (at present), they are designed to benefit from many years of investment accumulation, with each year’s performance gains being invested in subsequent years, helping to build our wealth faster. Pensions also benefit from tax relief from the government at the investor’s marginal rate of tax. For example, a standard rate tax payer paying £80 into their pension will receive a £20 uplift on their contributions. Higher rate taxpayers will benefit from their higher marginal rate. This relief is important in helping to build wealth within a pension year on year. Then there are investment maxims to consider. Investing when markets are down means you are buying more units for the same money because the price is lower. When the markets

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The world changes and so must our plans FINANCIAL PLANNING CAN NEVER BE A ‘ONE AND DONE’ event. Lowes will always recommend that our clients put in place a long-term plan in respect of their wealth building and lifetime financial goals. But the world is nothing if not a moving feast and over time it is inevitable that we will need to amend our savings and investments appetite and our financial plans accordingly. This will have a potential impact on where we save and invest and the action we need to take to avoid unnecessarily paying tax, as examples. Currently, we are all being affected by the rise in the cost of living – notably in the prices paid for fuel and energy. Governments are fighting the dual-headed and, in terms of policy, conflicted dragon of rising inflation and economic slowdown. Both of which may affect our savings and investment portfolios and our financial plans. There are numerous ways the landscape has changed over the years which demonstrate why we need to review our financial planning strategies on a regular basis. Stockmarket volatility Over our 50+ years of advising clients we have seen markets rise and fall – including some ‘crashes’, such as in 1973, and 2008, with smaller market downturns along the way. Overall, however, while stockmarkets are driven by investor sentiment and so by nature are volatile, they have always recovered from these setbacks and in time, started climbing again. But we don’t want simply to rely on index performance in our financial plans, ideally we want to take more control of the situation and find investments which can deliver more consistent returns through professional management and provide a buffer against volatility. It’s important therefore that we review and diversify our investments on a regular basis, with a view to creating a smoother investment path. No matter how we manage our

Lowes Consultant Chris Large explains why it is so important that we review our financial plans and goals on a regular basis and, in conjunction with Independent Financial Advice, take appropriate action where needed.

investments, at times of negative volatility our portfolios can be affected but placing our investments in the hands of investment professionals who day-in day-out are watching the markets and finding the best companies in which to invest, makes sense. Likewise, bringing in investments that can provide some protection against falls in the stockmarket and deliver a constant income stream can help balance out a portfolio – structured products and fixed income investments are cases in point. The ability to react to the changing landscape is one of the reasons we set up the Lowes Managed Portfolio Service, as it enables the Lowes Investment team, as the portfolio managers, to review each portfolio against its investment criteria and take prompt action where and when needed. Pensions policy Pensions h ave been subject to considerable change over the past 20+ years. It is somewhat ironic that a much needed shake-up of the pensions market in 2006 was heralded as ‘pensions simplification’, as since then, pensions have become ever more complex and confusing for people to deal with. How we use our pensions within financial planning was significantly affected by the introduction of the Pensions Freedoms legislation in 2015. This inherently changed the way we view and use our personal pensions. Death benefits are a case in point. These changed to enable pensions to be passed on to beneficiaries outside of a person’s estate, making pensions a central pillar of estate and inheritance tax planning, not just a way to save for retirement. Changes to how much may be saved within a pension before incurring a tax surcharge – known as the Lifetime Allowance - have altered dramatically also. In the 2010/11 tax year it was £1.8million – that was drastically cut and currently stands at £1.07million, which has been frozen until 2026. These changes have s ignificantly altered financial plans.

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Tax There has been plenty of tinkering with tax over the years and we can expect governments to continue to do so going forward. On a positive note, the amount that can be earned before paying the relevant level of income tax has increased over the years. We have also seen the ISA allowance go up to £20,000, enabling us to save/invest more of our money free of income and capital gains tax. And we saw the introduction of the Residential Nil Rate Band (RNRB) increase the amount that could be passed on to specified beneficiaries by £175,000. However, the RNRB and the inheritance tax Nil Rate Band which has been £325,000 since the 2009/2010 tax year, have both been frozen until 2026, alongside the rate of capital gains tax (CGT) exemption, as another example. Freezing of tax rates is already seeing more people becoming liable for tax and is an area where Independent Financial Advice is proving its worth in helping identify and mitigate against potential tax liabilities. Risk Risk comes in many forms. Every time we save or invest we are taking risk in one way or another. There are risks we can better control and those we cannot. Geopolitical risk to our savings and investments, for example, can be seen in Russia’s invasion of Ukraine, which alongside supply chain issues, amongst others, are currently dampening investor sentiment. Throughout our lives our view on how much risk we are willing to take with our savings and investment will change. In our 20s and 30s we may feel happy being adventurous with our investments, because if we lose money as a result, we have time ahead of us to make it back as part of our long-term plan. But as we get older and nearer retirement, often we want to be more cautious in our investment strategies, not wanting to lose a chunk of our wealth from our retirement pot at or around the time we will need to draw on it.

If you know a friend, colleague or family member who you think could benefit from Independent Financial Advice, please do put them in touch. The best way is via our main telephone number: 0191 281 8811. We will be pleased to help. As I said at the start of this article, a financial plan is never ‘one and done’. Rather there is an inherent need to regularly review our finances and our plans, to better align them with our lives and our goals, always considering the changing world around us. In this article we have touched on a very few of the issues which can and have affected financial plans and why having a structured and long-term strategy in place, which is regularly reviewed, is essential. What we don’t want to do is be continually reviewing where we are – this has been proven to be counterproductive to a long-term financial plan. In our experience, as a rule of thumb, reviewing our overall plan once a year and amending if needed and where necessary, is usually sufficient to keep a plan on track. Bearing all these elements in mind, keeping Lowes abreast of any changes in your life or your life’s goals, will enable us to review your financial plan in good time and better ensure not only that we can advise in respect of those changes, but your overall financial plan continues to do what is intended. Life changes Finally, there will always be events which happen in our lives which require amendments to our financial plans. Births, marriages, divorces and deaths can not only affect us financially but can also change the way we view risk, our capacity for loss, our need for protection and consequently, how we structure our financial plans . Later life care as an example, is now an issue for more people as the demographic trend in the UK is for people to live longer than in the past, but not necessarily in good health. Structure and strategy

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ANDREA LEASK PROVIDES SOME general advice that can help retirees manage their finances when inflation and interest rates have been rising month on month. How we help clients

is an option, on the basis that inflation will not remain this high forever. Lowes clients should have a rainy day/emergency fund – could this be used to temporarily top up income – on basis that it is replenished at a later date? Remember, this fund has to step in when there is an emergency, such as to pay unexpected medical or household repair bills, so any withdrawals should be managed with this in mind. Revise: Having reviewed both income and expenditure you can revise your monthly budget. Review your estate planning: Many people want to pass on some of the wealth they have acquired during their lifetime to loved ones and other beneficiaries. Sometimes they can ring-fence this money and determine not to touch it, to their own detriment. We find loved ones would much prefer to see their parent or grandparent with sufficient money to have a decent standard of living than to scrimp unnecessarily on their behalf. Revising your view of your overall assets can identify where If the above have not delivered enough income for your needs, it may be that your investment portfolio can be adjusted to turn on more income. Or putting some of your retirement pot into a fixed-term annuity could provide additional regular income for a set period, with the balance of the money staying invested. This can provide a guaranteed income but with the potential for further investment growth. Revising your portfolio can help in the short-term and be reviewed in due course. Summary: These are just a few general ideas. Currently, with rising inflation and interest rates, we are in for an uncertain situation. And, of course, every individual’s circumstances will be different. So, in all cases other than a review of your expenditure, I would suggest before you take any action that you talk to Lowes. We can assess your circumstances and offer the best advice. changes can help in difficult times. Review your investment portfolio :

With inflation having reached its highest point in more than 30 years, savings and income are being eroded at an alarming rate and at a time when most tax allowances and thresholds have been frozen, adding to the squeeze on household incomes. It is perhaps no surprise that according to data from the Bank of England, UK credit card borrowing in April rose at the fastest rate since 2005. These can be attributed, at least partly, to the rise in the cost-of living, driven by the supply chain issues post the global pandemic and the energy crisis fueled by Russia’s invasion of Ukraine, with disposable incomes falling as a result. For those in retirement who have planned for set levels of income as they move through their retirement years, the effect of rapidly rising inflation and interest rate hikes raising costs (Office for National Statistics May data shows that 61% of businesses increased prices in just one month due to rising costs), can be both immediate and cumulative. They reduce buying power incrementally, which can force a reduction in lifestyle quality or require larger sums than expected to be drawn down as income from retirement savings. So, what can be done to help? Review and revise are the key words I suggest here. Review your expenditure : It may seem an obvious thing to do, to review what we are spending and this is usually our first port of call. But often biases can creep in when it comes to our lifestyles and what we are prepared to give up or think is essential. We can become set in our ways. Have someone else, an independent eye, assess your outgoings as to what is truly needed – could you take fewer holidays or weekends away, or reduce your theatre trips or regular

meals out for a while? Review your income:

If you are able to vary your income, a review of what impact drawing down more money now will have on your future income will give you a better idea of whether increasing your income now

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Capital Gains Tax – what is it?

CGT IS CHARGED ON PROFITS EARNED FROM SELLING an asset or a property you own which is not your main residence. The amount of Capital Gains Tax collected by the government increased by over £5 billion in the past two years, official figures from HM Revenue & Customs have shown. The government raised £14.9 billion in CGT receipts in 2021/22, up from £9.8 billion in 2019/20, in part as a result of rising house prices and changes to the tax rules. With the annual CGT exemption frozen until 2026 and inflationary increases in the value of assets, it is likely the amount raised in CGT will increase. An asset liable to CGT is any personal belonging worth over £6,000 (such as art, jewellery or antiques), as well as investments such as shares, unit trusts and investment trusts. CGT on property which is not your usual home has to be paid within 30 days of completion of the sale or disposal of the property. For anyone wishing to dispose of assets subject to CGT, individuals have annual exemptions of £12,300. To mitigate the potential impact of CGT tax takes above the annual exemption, married couples and civil partners can transfer assets between them allowing them to realise up to £24,600 of tax-free gains each tax year. Gifting an asset to a spouse or partner or a charity also falls outside of CGT liabilities. The annual CGT exemption and the low the rate of CGT payable when gains exceed the exemption, can be useful tools in financial planning. For example, where an individual requires extra income but does not want to utilise income wielding products, because they may push them into the next income tax bracket, or they may already be paying income tax of 40% or 45%, selling growth

If this is of concern to you or your family, Lowes can help. Please call 0191 281 8811 and we will arrange for one of our expert Advisers to contact you. While from October 2023 the government is implementing a lifetime care cost cap of an £86,000 contribution towards ‘personal’ care, the elements not included – accommodation including energy expenditure and food costs – are among those most affected by rising inflation. When planning for our later lives, there is a greater need now to factor in the potential need and cost of later life care. Later life care MEDICAL ADVANCEMENTS MEAN THAT MANY PEOPLE are living longer. But longer lives are not necessarily healthier ones. Recent statistics from the ONS show that, on average, males will spend 16.2yrs of their lives in poor health, and females 19.4 years. Increased life expectancy simply increases the need for care provision, putting even more pressure on the care system, as well as people’s finances. Rising costs, paired with eroding savings mean that care provision could become even less affordable for many, and this could see many middle-aged workers forced to provide care for their elderly relatives whilst still working. Latest data shows that already a fifth of workers aged 50-69 are providing care to others. Calculating CGT liability can be complex as it must factor in elements such as the original cost, cost of sale, sale price and income tax band. An Independent Financial Adviser can help you navigate the process. investments so that any CGT liability from the sale falls under the annual exemption limit enables them to access the cash (income) tax free. In addition, any gains that do exceed the exemption will be taxed at current CGT rate of 10% for standard rate tax payers and 20% for higher rate payers (28% for sale of second properties).

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Dealing with portfolio risk

concentration risk in a portfolio. At the same time, people tend to be influenced by what has happened in the markets in recent years – this is termed recency bias, which can affect decision making. So, how do we now position portfolios to deal with this and so create more resilient portfolios? Key is to diversify the investments used and so the risk in the portfolio. Diversification is holding different investment styles and strategies which do well at different times. The equities/ bond split is a form of this and there are still places for both in portfolios. As Independent Financial Advisers, diversification has been a key strategy of Lowes over our entire history. In addition, we have the advantage of having a specialist, expert, in-house investment team looking after our clients’ portfolios. They are monitoring the markets on a daily basis and identifying the investments which can offer the best returns as well as those that can spread risk within portfolios, because as well as finding the best funds, sometimes you need investments that offer an element of protection as part of that risk diversification. Structured products are a good example, having an element of capital protection built in, and we have been using them successfully to diversify client portfolios for decades now. When it comes to investing, one thing we do know is that we don’t know what is going to happen other than that there will be change. Preparing our investment portfolios as best we can to weather the storms and make hay in the sunshine, is what we must do to help our wealth building strategies.

ONE OF THE CURRENT DISCUSSIONS IN THE financial services industry is how to invest in an environment where the traditional correlation between stocks and shares (equities) and bonds (fixed interest) investments has broken down, potentially increasing risk within portfolios. When investing for a balanced portfolio, traditionally, a 60% equities 40% bonds portfolio was considered a reasonable split to help achieve long-term results, as equity and bond pricing tend to be uncorrelated, i.e., they don’t act in the same way to market conditions, so if one goes down the other goes up, to a greater or lesser degree. Also, the greater risks of stock market investments to some extent can be offset by the steadier, fixed interest payments from bonds. Now, the typical pairing of equities and bonds is no longer delivering uncorrelated returns. This is not the first time we have seen equities and fixed interest investments become similarly correlated, it happened as a result of the Financial Crisis in 2008/09, for example. The concern for investors is that from 2011 until now the markets have experienced generally rising prices, with occasional setbacks, and many investors and also many people within the industry, have not experienced this lack of correlation before. Of late, investors have been chasing growth stocks or using index tracking investments, both of which benefitted from the upward price motion of a handful of stocks that have been pushing up the indices. Technology stocks were examples of this, until a short while ago. The danger here is that it creates

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INVESTMENT Lowes recommended structured product maturities THE TABLE BELOW SHOWS THE PERFORMANCE OF THE RECOMMENDED PRODUCTS MOST COMMONLY held by Lowes clients that matured in the second quarter of 2022. These were all autocalls linked to the FTSE 100 Index. The fifteen plans shown utilised seven separate counterparty banks. Eleven of these plans were designed in conjunction with Lowes, four exclusively for Lowes clients and seven for our clients and the wider market. This selection of products, which benefits from Lowes’ considerable expertise in the market, proves that structured products can consistently deliver their defined returns, with the added value provided by the protection to capital in all but the most extreme circumstances. Whilst only part of what we do, our experience and expertise in this investment area is largely unsurpassed and plays a large part in helping Lowes add diversification and balance to portfolios, which in turn continues to help us protect and improve the wealth of our clients. These results are typical of what has been delivered year in, year out. If you know someone who could benefit from Lowes expertise in this or any other field, please do not hesitate to put them in touch.

Term (years)

Plan Gain 34%

Maturity date





Société Générale




Goldman Sachs Goldman Sachs Goldman Sachs

11/04/2022 11/04/202`2 11/04/2022 19/04/2022 26/04/2022 04/05/2022 10/05/2022 23/05/2022 23/05/2022 01/06/2022 07/06/2022 22/06/2022 30/06/2022

2 2 2 3 2 3 2 2 4 3 2 5

17.10% 22.90%

28% 12%





Investec Bank



24.60% 21.20% 25.30%

Goldman Sachs Goldman Sachs Goldman Sachs

28% 21% 20%


Investec Bank



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With the phasing out of final salary schemes in recent years, Lesley believes Independent Financial Advice has become even more valuable, as the responsibility is now far more on the individual to build their personal pension and their investment wealth to provide for their retirement years. Spotlight on Lowes people

Pensions are fundamental within financial planning, typically providing the backbone of a financial plan. There are many different pension products to choose from in the market and the rules and regulations around pensions are complex. It is important therefore that Lowes has a highly knowledgeable and experienced technical team to help our clients select the right products for their needs and to help them navigate the Lesley Allman . Lesley has over 30 years’ experience in financial services, gained from working in small firms to large life assurers such as Prudential. She has worked for Lowes for a total of eight years and became Pensions Technical Manager in May 2021. “We’re a busy team, dealing with a range of queries and reports on a day-to-day basis,” Lesley says. “We work closely with the Lowes Advisers to ensure the best outcome for our clients.” Lesley oversees the department as well as being very much involved in the technical work of the team. Over the years new rules and legislation, notably around tax, have made pensions ever more complicated instruments to use within financial planning. They were made more complex in 2015, with the introduction of the Pensions Freedoms. “Pensions have become an ever more specialist subject which at times needs exceptional technical expertise to resolve,” Lesley explains. “This is why Lowes has a dedicated pensions technical team. We are here to help with technical queries and where a client may have a particularly complex issue, we will sit down with our Lowes colleagues to find the best solution for them.” One area which comes up time and again Lesley says, is the Lifetime Allowance. This is the amount an individual may pay into a pension before they incur a tax charge, when they come to take income, potentially up to 55%. “Not surprisingly, when facing this kind of tax charge, we receive a lot of requests for us to calculate a person’s Lifetime Allowance,” Lesley says. “This has become a larger issue since the 2021 Spring Budget when the Chancellor announced the Allowance would be frozen until 2026. This means more and more people face exceeding the Allowance over the next four years and being caught by this tax.” This can be a problem many people with final salary pensions may not realise they have, Lesley explains. “Final salary pensions can be accruing in size from payments from the individual and the employer, as well as from performance gains of the pension scheme itself. This can build into a sizeable pot. When assessing this kind of pension, we will first ascertain the potential tax liability and then how that may be managed.” Other key and complex areas are switching pensions between providers and where an individual wants to transfer out of their final salary pension. “These both require expert technical knowledge, which Lowes’ Consultants and dedicated pensions team can provide,” Lesley says. tax and legal issues over the long term. Heading our pensions technical team is

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Investment bubbles Lowes’ Investment Manager Doug Millward considers how Covid resulted in more than one type of bubble.

As lock downs eased, rather than continuing their hermit like existence, people instead returned to the office and the gym. Whilst the enforced remote working had shown what was possible and introduced levels of flexibility not seen previously, it turned out people still enjoyed the physical interaction brought about by attending the workplace and the gym in person once again. With this return to previous habits, the share prices also returned to previous levels. In the case of Zoom, for example, the share price went from $68.04 at the start of 2020 to a high of $568.34 on 19th October 2020, and has now fallen back to $97.30 (14th July 2022). As can be seen from the chart, the movement in the Zoom share price followed a very similar shape to the Nasdaq index during the technology bubble in 1999 to 2003.

DURING THE RESTRICTIONS BROUGHT IN FOR COVID we all became familiar with the various “bubbles” we were allowed to form, with limits placed on who we were allowed to mix with and the number of people at any one time. Investment markets have their own form of bubble too, when share prices rise faster than the fundamental data supports, leading to them rising higher than the long term trend would suggest is correct, before quickly falling back as the bubble bursts. The biggest example in relatively recent times happened at the turn of this century, when over exuberance regarding any companies even remotely linked to the internet led to the “tech bubble” forming in 1999. This bubble did, of course, burst, with equity markets falling around the world between 2000 and 2003. The accompanying chart of the Nasdaq 100 index, which follows the 100 largest companies on the technology heavy Nasdaq stock exchange in the United States, shows the shape of the tech bubble and is similar to the shape taken by most investment bubbles. As the labels illustrate, people are pulled in initially by optimism, and the thrill of watching their investments rise quickly leads them to tell everyone they know about the amazing company they have found. As the bubble begins to deflate, however, complacency and denial keep them invested all the way back down.

Zoom share price


Source: Investing.com




Nasdaq 100 - Psychology of an investment bubble

US Dollars



Source: FE Analytics







0 Apr 2019

Oct 2019

Apr 2020

Oct 2020

Apr 2021

Oct 2021

Apr 2022




Of course, anyone who had sold out at the high point would have been very pleased, receiving a return of 735% in less than a year. That is assuming, however, that they had had the foresight to put their money into this one single company at the start of the year and had spotted the top of the rise correctly. Something which would have been very difficult to do, as the main narrative at that time was that remote working and an increased use of video calls were the way everyone would continue to go, so there may have been no reason to think that the share price would indeed fall. Which highlights the difference between speculating and investing. With investing we are looking for long term returns based on strong research, not the short term gains from backing a hunch and getting out at exactly the right time. To use the Zoom example again, if someone had invested at the start of 2020 and then spent the next two years on a desert island, without the knowledge of what happened in between I am sure they would have been happy to return to find their investment had grown by 43%. Diversification will always help to reduce the extremes of movements that can come from investing in just one or two companies, but even without bubbles there will still be bouts of pessimism and optimism pushing prices up and down along the way. It is important in those times not to succumb to the psychology of the investment cycle, but instead stay disciplined to your long term goals, relying on strong managers and good research to get you there.




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A similar bubble formed again with certain companies during the Covid pandemic. As the lockdowns forced many to not only work from home, but to shop and exercise remotely too, the value of companies benefitting from this trend unsurprisingly rose on the expectation of increasing profits. The problem occurred, however, when the assumption was made by many investors that this was the way things would be forever going forward, that people would always work from home, shop from home, and exercise at home. As a result, the share price for companies like Peleton, who ran remote exercise classes, and Zoom, who were used by many to host work video meetings remotely as well as weekly family quizzes during the pandemic, rose to inflated levels based on this assumption. An assumption that proved to be wrong in the end.

Lowes Financial Management and Lowes Investment Management are authorised and regulated by the Financial Conduct Authority Visit: www.Lowes.co.uk | Call: 0191 281 8811 | Email: enquiry@Lowes.co.uk

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