Investment Update @ 12:09 PM    
As the economic news worsens with each day, remember that the stock market always tries to predict the future, it does not reflect the present. The 17% rise in the FTSE 100 from its recent low in November 2008 is an interesting ray of light in the gloom. We are not brave enough to call this a turn, that can only ever be guesswork, but having advised through four bear markets before this one, we can say that turns always happen in the dark, when seemingly no-one wants to invest.

2008 was a year to forget for all investors bar cash savers with the FTSE 100 suffering its biggest ever decline and well nigh every other market suffering agony too. So last year saw the flight to the safe haven of cash, but some safe cash havens proved to be less safe than investors thought. 2009 looks to be one of little hope for cash investors. The Bank of England’s cut in interest rates to 1.5%, its lowest level since 1694, means deposit accounts will offer pitiful interest rates below the real rate of inflation and many savers will now need to look for alternatives to stop themselves eating into their capital.

So what should we be considering in 2009?

• Equity Income and Bond funds are expected to be the main beneficiaries from the deposit situation. Indeed well managed Bond funds are offering yields of 7% plus which when part of a sensibly managed portfolio should help to maintain capital values at the same time.

• Those sectors hardest hit in 2008 may present opportunities for investors in 2009, if they have been oversold during 2008. The most obvious example is financials. Closely followed by oil and other commodities. The rapid growth of Exchange Traded Funds has made it easier to get exposure to a broad range of commodities or related stocks.

• On a geographic note commentators have highlighted opportunities in the US and Asia albeit for vastly different reasons. A survey of fund managers by the Association of Investment Companies showed the US was tipped to be the best performing region during 2009 mostly on the expectation the US economy would be the first to recover from the credit crunch along with the ‘Obama’ effect. The combination of cheap valuations in the Japanese stock market along with the weakness of the pound against currencies in Asia and in particular the Yen could result in rewards for the more adventurous investors.

End of Year Planning

We are moving towards the last quarter of the financial year and we like to issue a timely reminder that there is a ‘use it or lose it’ badge to many components of tax planning.

The tax planning that jumps out at this time is planning with tax reliefs attached to them. On a simple basis one could make an investment up to £935,000 across a pension, VCT and EIS before the end of the tax year at a cost of £681,000, an instant return of 27%. Make sure we advise you as regards risk management though!

With ISAs being exempt from income and capital gains tax, with the exception of a 10% tax on UK dividends, you should always look to utlise the £7,200 allowance via a top up or moving existing investments under the ISA tax wrapper umbrella.

Finally those with funds in their pension arrangements that either exceeded £1.5m at 6th April 2006 or are likely to approach or exceed £1.8m in 2010 should take advice about registering for transitional protection. The deadline is fast approaching. If this is not done by the 5th April 2009 penal tax charges will be applied on values over the lifetime limit.

New Year feels a long time ago now, but we’ll continue to do all we can to ensure 2009 is a prosperous one! Do get in contact with us if you would like to talk it through.
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