Month: December 2024

With no clear indication of who the winner will be ahead of the 5th November, the convincing nature of Trump’s win came as more of a surprise than the victory itself.

Markets may have been pricing in a Trump win for some time, as he was polling well ahead of Biden earlier in the year. However, there has been considerable market volatility over recent months so it is best to avoid too many hard conclusions.

Equities, bond yields and the dollar were all considered future winners as taxes were expected to be cut under Trump.  Harris was being seen as bringing clearer trade policy and international relations but, despite her promise to cut taxes for lower earners, she never shook her association with higher taxes and was perceived as less favourable to business.

It was Harris and the Democrats’ failure to convince the US electorate that the economy was the success it has recently become that ultimately brought their downfall. The economy, and more specifically higher living costs, were the number one concern for Republican voters. Whatever the economic growth figures show now, inflation meant that the benefits had not been felt in voters pockets by 5th November. The latest national statistics did not reflect lived experience for too many people.

The US economy certainly has been roaring back. Third quarter GDP growth came in at a healthy 2.8% quarter-on-quarter annualised, confirming that the US is outpacing other developed economies by some way. It is performing well ahead of the UK and Europe. Third quarter earnings season began with strong results from the banking sector. Results were mixed for technology companies, particularly those reliant on semiconductor demand, which caused some volatility. There is a continuing belief that whilst the big tech stocks may not be delivering at the pace set in recent times, there is plenty room for other sectors and stocks to grow, and recession will be avoided.

Trump can now ride this wave of economic growth. Where he may come unstuck is a trade war with China, in particular, as high tariffs could push prices up further. He will hope that these can be offset by lower taxes, and increased domestic production. This will also be a concern outside the US. Markets in the UK and Europe, closely tied to the U.S. and Chinese economies, may react negatively if a trade war seems likely. There is a global ripple effect from US-China tensions.

The Fed cut interest rates as expected by another 0.25% on 7th November and this was widely expected regardless of the outcome of the election. They remain more concerned about the job market than inflation. However, they will keep a close eye on whether tariffs bring in more inflation.

Trump is famously unpredictable, another concern typically for markets, but this is not his first stint as President. Markets were cautious when he won in 2016, fearing the worst, but gradually grew in confidence and the markets rose. This time around they seem to be more positive immediately, and markets have already seen an uptick. He may be unpredictable, but they may feel they have seen this movie before.

Business friendly tax cuts may help finance and tech stock earnings. Defence stocks got a boost in his last term with increase military spending and energy stocks will be hoping for a reduction in regulatory restrictions. Each sector will be watching for threats and opportunities.

As we have said many times before markets are not political, they just prefer certainty, so now that the election is out of the way they should settle down.

**Past performance is not a reliable indicator of future performance.

Sources

https://edition.cnn.com/business/live-news/fed-meeting-november-11-07-24/index.html

https://am.jpmorgan.com/gb/en/asset-management/adv/insights/market-insights/market-updates/monthly-market-review/

The information contained within this article was correct as of 1^st December 2024.

Investing in property as a retirement strategy has become popular, particularly after the post-financial crisis housing boom, driven by low interest rates and government incentives. Many who ventured into buy-to-let investments instead of traditional pensions benefited from a period of cheap mortgages and rocketing house prices. However, the outlook for buy-to-let may not be as promising, and those considering this path should reassess their options carefully.

The UK’s chronic housing shortage supports continued house price growth due to high demand and limited supply. However, the significant rise in interest rates over the past two and a half years has made property purchases far more expensive, reducing rental income and profitability for buy-to-let investors. This higher cost of borrowing poses a substantial challenge to those relying on property for retirement income.

Moreover, recent tax changes have further eroded the attractiveness of buy-to-let investments. An additional 3% stamp duty surcharge now applies to second property purchases, and the tax treatment of rental income has become less favorable. Previously, higher and additional rate taxpayers could offset mortgage payments against their tax bills, saving 40% or 45% in taxes. Now, this relief is capped at just 20%, significantly reducing the financial benefits of buy-to-let investments.

Beyond these financial considerations, property ownership comes with various costs that can erode returns. Legal fees, survey costs, stamp duty, ongoing maintenance, repairs, letting fees, landlord insurance, and periods without tenants all diminish rental income. These expenses, combined with mortgage interest, can make buy-to-let less lucrative than anticipated. You should also be prepared for hassle. Being a landlord is not easy or popular. You can pay an agent to take care of some of the day-to-day problems but you will still be left with key decisions to make, and agency fees eat away more of your return.

Pensions offer several advantages that property investments lack. Employers are required by law to contribute to employee pensions, often matching employee contributions, effectively doubling the investment. Tax relief on pension contributions further enhances their appeal, with basic, higher, and additional rate taxpayers enjoying significant cost savings. Pension investments grow free from income and capital gains taxes, and 25% of the pension can be withdrawn tax-free at retirement.

Pensions also provide greater flexibility in generating retirement income. Unlike property, which cannot be partially liquidated, pension investments can ‘drawn down’ incrementally to meet income needs. While property can play a role in retirement planning, pensions and ISAs usually offer steady returns, lower costs, and fewer risks, making them a preferable choice for most individuals. If considering buy-to-let, it’s crucial to thoroughly understand all associated risks, costs, and taxes before proceeding.

The information contained within this article is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The value of your investments can go down as well as up, so you could get back less than you invested.

The Financial Conduct Authority does not regulate some buy to lets.The information contained within this article was correct as of 1^st December 2024.

Pensioners will be handed an extra 4.1% per annum via the state pension in April 2025, thanks to the ‘triple lock’.

The triple lock is a government policy which means that the state pension increases every April in line with whichever is the highest of:

• CPI (Consumer Prices Index) in September the year before;
• the average increase in total wages across the UK for May to June of the previous year; or
• 2.5%

The earnings figure has just been revised upwards following some new employment data released in October which means the final number has moved from 4% to 4.1%. This is the highest of the three figures and will be used for the state pension from April 2025 assuming nothing else changes. The cost of the extra 0.1% is estimated at £100m.

The triple lock was introduced in 2010 by the coalition government and Rachel Reeves promised to keep it as part of Labour’s manifesto. It was suspended once in 22/23 for exceptional circumstances when  inflation figures were warped by Covid and furlough influenced earnings figures, so the government temporarily removed the earnings measure from the equation to help with Treasury finances. The triple lock went back the following year to deliver a 10.1% state pension increase.

It has attracted criticism due to the cost to the tax payer, and because other benefits do not enjoy similar ‘highest of’ protections. Universal Credit, Housing Benefit, Maternity Allowance and Statutory Sick Pay, for example, are usually tied to September’s CPI figure alone so an increase of just 1.7% is likely for those benefits.

Assuming it is ratified the state pension will change from:

• £221.20 a week to £230.30 a week for the full, new flat-rate state pension, external (for those who reached state pension age after April 2016)
• £169.50 a week to £176.45 a week for the full, old basic state pension, external (for those who reached state pension age before April 2016)

Sources:

https://www.bbc.co.uk/news/business-53082530

https://www.morningstar.co.uk/uk/news/AN_1728987850427977900/uk-government-faces-extra-gbp100-million-bill-for-state-pension-rise.aspx

https://www.moneysavingexpert.com/news/2024/10/state-pension-benefits-rise-2025/

The information contained within this article was correct as of 1^st December 2024.