Category Archives: Investments

10 Years on from the Global Financial Crisis

On the 15th September 2008, Lehman Brothers collapsed, and the chain reaction brought the global financial system to its knees. Taxpayers’ money was pumped into the system, but this was not enough to prevent loss of confidence and bring about the recession.

It’s hard to believe that we’re now some ten years on from that day. Much has changed since 2008 – both economically and politically – and thankfully we’re now in a relatively stable position.

In this article, we take a closer look at performance of the markets since 2008 and the factors that have impacted this, alongside looking at the lessons the financial crisis has taught us.

Where are we 10 years on?

The effects of the Global Financial Crisis on the global economy still linger today. Interest rates remain extremely low by historic standards and Central Banks (other than Japan) have only recently stopped Quantitative Easing. Most Western Governments are still operating austerity measures, and whilst unemployment is low, wage growth has only recently started to pick up. The continuing lack of productivity gains is also worrying.

That said, the global economy is growing, and has been for a number of years. Despite the best efforts of Donald Trump to disrupt trade and the strength of the Dollar having an upsetting effect on emerging markets, global GDP is set to grow by c. 3.9% during 2018 according to the IMF.

Market performance since 2008

If you held a portfolio of global investments during the Global Financial Crisis and held your nerve, you will likely have made quite significant capital gains. The S&P 500 (representing a pick of 500 large companies listed on the New York Stock Exchange & NASDAQ) has grown by 311% gross since the 15th September 2008.

There have been some disruptions to performance over the 10-year period, but in general terms, markets have experienced an unprecedented period of performance.

So what has driven this, given that the global economy has not exactly delivered stellar growth and productivity remains low?

The most significant contributor to the performance of stock markets since the Global Financial Crisis has been loose monetary policy.

Firstly, let’s look at conventional monetary policy. Following the Global Financial Crisis, Central Banks around the world dropped interest rates to extremely low levels (in the UK, the base rate has been at or below 0.50% pa since March 2009). What does this mean for the economy? Well, for companies and consumers, borrowing is cheap. Therefore, companies are more likely to borrow and invest in their operation in order to expand, thus restoring growth to the economy and getting people back into employment.  For consumers, they are incentivised to, first, spend their money rather than save, and second, borrow money to make large purchases whilst credit is cheap (for example, the growth in car leases over the past few years).

So, if companies can be incentivised to produce more and consumers can be incentivised to spend more, the economy is buoyed. Also, given how cheap it is to borrow, it becomes less difficult for companies to turn a profit. Profitability of many companies has further been boosted by the lack of wage growth as production costs have not experienced significant upward pressure over the 10-year period.

For investors, therefore, over the past 10 years the trade-off has been between saving in accounts attracting interest rates of around 1.00% pa or buying the shares of companies which are operating in a relatively easy and profitable environment. The lack of alternatives for those with money has, at least partially, contributed to the strong performance and relatively low volatility of stock markets.

There are of course downsides to keeping interest rates so low for such a long period, and the principal one is the lack of improvement in productivity. By keeping interest rates so low, companies don’t have to try hard to stay in business. That is, if interest rates were higher such that the cost of production for companies was higher, there would be a greater incentive for companies to produce more (or produce a better product) for each unit of input into the production process. Without that incentive, companies are quite happy to hold cash on their balance sheets and do not see a great need to invest, and that restricts technological advancement.

Let’s now move on to unconventional monetary policy; Quantitative Easing (QE). You will likely have heard of QE; it has been well talked about since the Global Financial Crisis. QE is an expansionary policy whereby Central Banks purchase financial assets in order to increase the monetary supply. The theory behind this is that, by increasing monetary supply in the economy, banks are incentivised to lend to consumers and companies, and this further supports consumption and production. Furthermore, increasing the monetary supply creates inflationary pressures in the economy, and stable inflation is important as, again, it encourages people to buy now rather than waiting until tomorrow when prices will be higher.

So QE again improves the environment for companies to operate in. What it also does, though, is inflate the prices of financial assets. By actively purchasing financial assets (such as government bonds, corporate bonds, and even shares in companies), Central Banks increase the demand for these assets and that has the effect of increasing prices (translating into Capital Growth for investors).

The same has happened in property markets. Cheap and easy credit, when combined with low returns on other assets, has made owning property for investment purposes more attractive since the Global Financial Crisis.

So what lessons can we take?

There’s no doubt that Central Banks have had a significant impact on stock markets, in particular the rate at which markets recovered following the Global Financial Crisis.

Whether that will be representative of the experience of investors after the next recession is debatable. Interest Rates are on the increase in the UK, but at a slow rate. Furthermore, the value of the financial assets currently held by Central Banks is significant.

Should we experience a downturn before rates normalise and Central Banks have been able to sell down the assets they hold, the effect that similar monetary policy measures would have would be limited at best.

There is, of course, always fiscal policy (government spending and taxation), but the focus on austerity and balancing the books doesn’t seem to be going away any time soon (despite the pressure from the left).

The impact of the next downturn for investors could be rather more drawn out than the Global Financial Crisis. However, one should remember that much has been done to reduce the systemic risks that caused the Global Financial Crisis.

If you had been advised to buy into the S&P 500 on the day after Lehman’s went under, you would probably have run a mile. However, with the benefit of hindsight, you’d now have been sitting pretty. As ever, the message is that no one has the ability to time the market. The successful investor doesn’t invest for today, tomorrow, or even next year, but invests now for the next 10 years.




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Gresham Experts to Take the Floor for June Masterclass

The date and topic for our summer Masterclass have been set. On 27th June, Gresham will host a presentation entitled ‘Property vs Pensions’.

Whilst part of the appeal of our Masterclass events is usually the external speakers we bring in, this time we’ve decided to shake things up and utilise our very own experts!

Financial advisers Becky Sugden and Daniel Ardern will be delivering the presentation, providing current figures, statistics and insight into these two popular forms of investment.

The Topic

The past 20 years has seen a boom in the UK housing market, leading many to believe that as an investment strategy, property is ‘as safe as houses’. But when it comes to planning for the future in the current climate, is this still the case, or are pensions a more viable route to follow?

In this session, the team at Gresham Wealth Management will look at the relative advantages of investing in rental properties and within personal pensions, and how the two can be used to complementary effect to accumulate wealth and meet retirement needs & requirements.

The presentation will then turn to commercial property, how these can be purchased by a pension, and the advantages and pitfalls of undertaking this strategy both personally and for the company.

CPD Points

Gresham Wealth Management is one of the few firms of financial advisers in the North West that is registered to deliver CPD training. Professionals attending this event will receive 1.5 CPD points.

Book your Place

Our Masterclasses always aim to be informative yet enjoyable. For this summer special, we’re holding the seminar at lunchtime with lunch and informal networking starting at 12 noon before the presentation starts at 12:30. The event will conclude by 2:00pm.

Our Masterclass events are always popular and we only have limited capacity. So if you wish to attend, we advise that you reserve your place as soon as possible by clicking here.

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Property vs Pensions – Where’s Best to Invest?

Brits have long had a love affair with residential property; the past 25 years or so has seen a significant increase in the number of people choosing this route for investment purposes.

People like investing in residential property for rental purposes as they enjoy the boost to their income during their working life, they see it as a way to provide an income during retirement, and they like the idea of passing the property to their children and grandchildren following their death. Further, property is a tangible asset (you can see it and touch it) and can be easily understood which many people find comfort and certainty in.

Recently, however, in an effort to make residential property more accessible to first time buyers, the Government has brought in two measures that make investing in buy-to-let property less attractive.

The first of these measures is the Stamp Duty Land Tax (SDLT) Surcharge introduced on the 1 April 2016. This increases the total SDLT applicable to those purchasing an additional residential property by 3% of the purchase price, making the initial outlay required to purchase a buy-to-let property significantly more expensive.

The second is the retraction of mortgage interest relief against rental profits in excess of the basic rate tax band. This has reduced the profitability of buy-to-let property for higher rate and additional rate tax payers.

So what is the alternative for those considering the purchase of a buy-to-let property?

Well, it might just be that wholly unfashionable and infinitely boring of things, the personal pension.

At a similar time to the changes on the tax treatment of second homes and buy to let properties, Pensions Freedoms were introduced which allowed people to access their pension monies, making personal pensions a more attractive alternative to a Buy to Let investment property.

Pensions have traditionally been an inflexible investment vehicle that forced the purchase of an annuity on retirees. However, as a result of the introduction of pension freedom reforms, retirees are now allowed the flexibility to draw as little or as much of their pension as they like in any year that they like by selling down their pension investments.

Furthermore, the reforms changed the way in which pensions are taxed on death of the member. Personal pensions are typically not included as part of the estate of the member on their death and therefore escape assessment for inheritance tax purposes. Instead, personal pensions are subject to income tax at the rate applicable to the beneficiary if the member dies after reaching age 75, and this is only applied when the beneficiary draws from the pension (so can be managed to limit the tax applicable). If the member dies before reaching age 75, the beneficiary will be able to draw on the pension without incurring any tax whatsoever.

Other positive attributes of personal pensions include the following:

• Contributions are income tax relievable and are limited to 100% of UK Relevant Earnings up to a maximum of £40,000 per annum.

• Investments held within a pension tax wrapper are free of income tax and capital gains tax.

• Any person accessing a pension during retirement can take 25% of their pension as a tax free lump sum. The remaining 75% can be accessed either flexibly or by purchasing an annuity and will be subject to income tax.

It should be noted that apart from in circumstances such as severe ill health/protected early retirement age, pension investments cannot be accessed prior to age 55 (increasing in line with the State Pension Age), so will not be the most suitable tax wrapper in all circumstances.

How does this compare to the tax position for buy-to-let properties?

• Instead of being subject to a tax charge on their investment (SDLT + SDLT surcharge), pension investors enjoy tax relief at up to 45%. This boosts the initial investment value which will potentially have a significant impact over a long period of time (as a result of the compounding effect).

• Within the pension, investments are not subject to income tax or capital gains tax. By contrast, buy-to-let property investors will be subject to both throughout the full period of ownership (including whilst they are working and are potentially a higher or additional rate tax payer).

• Finally, unless other arrangements are used, buy-to-let properties will be included as part of the estate on death and therefore could potentially incur a tax charge of 40%.

There are ways in which buy-to-let property can be held more tax efficiently (particularly for higher and additional rate tax payers), such as within a company structure or using a trust, however, rearranging an existing property portfolio in such a way could incur a significant cost.

So, from a tax angle, if the investor is unconcerned by the prospect of tying their money up until they reach age 55 (rising to 57), then pensions potentially present a significantly more efficient investment proposition than residential property.

Beyond tax

The tax position of investments is one thing, but there are other factors to consider when investing your money. One such factor is volatility. In short, the value of investments can fall as well as rise and the more volatile an investment is, the greater the fluctuations in value will be. Different types of investments react to changes in market conditions and world events in different ways. In order to balance the risk of volatility across investments, you ideally want your money to be spread across investment classes that react differently to changes in the market.

As it happens, property and equities are two asset classes that have exhibited extremely low correlation of returns over the past 35 years (we are using equities for this example as, typically, a large proportion of a pension portfolio would be allocated to them). So is there an argument that property and pensions could, in fact, work alongside each other?

Unfortunately, legislation dictates that residential property cannot be held within a pension. However, it is reasonable to assume that the majority of individuals who are considering an investment in a buy-to-let property will already own the residential property in which they live. By investing in equities (whether or not this is within a pension portfolio), such an investor improves their ability to manage risk via diversification (and will thus potentially improve the growth characteristics of the portfolio) and improves the liquidity characteristics of their overall portfolio of wealth.

Returning to our original question – Property vs. Pensions – what is the answer?

Whilst some people will find it difficult to be swayed from property, for those who have previously overlooked pensions and alternative asset classes, perhaps now is the time to take another look. Initially, you should review the pension provision that you have in place and the level of contributions that are being made. Depending on your income and income tax position, thinking about refocusing your excess income and making additional contributions may allow you to take advantage of the numerous tax breaks available.

For more information on any of the above, or to discuss reviewing your pension position with one of our Chartered Financial Planners, please contact us.

This article, written by Daniel Ardern, originally appeared on Pro Manchester’s website.


The Financial Conduct Authority does not regulate some Buy to Let Mortgages, Tax Advice or Estate Planning.

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Bitcoin – What do you Need to Know?

Read any article about investments over the past 12 months and you will probably find that Bitcoin features.

There’s no doubt that Bitcoin has performed remarkably to date, with early investors generating staggering returns over a relatively short period.

Considering the sheer number of column inches dedicated to Bitcoin, it’s no surprise that everyday investors are sitting up and paying attention; wondering whether they should invest before they ‘miss the boat’. As with any form of alternative investment, the risks associated with investing in Bitcoin are high.

Here we look at Bitcoin in more detail.

What is Bitcoin?

Created in 2009, Bitcoin was the first global cryptocurrency and was created by an anonymous individual who is now known under the pseudonym of Satoshi Nakamoto.

As a virtual currency, Bitcoins aren’t printed; individual Bitcoins are created by computer code. To receive a Bitcoin, a user must have a Bitcoin address – a string of 27-34 letters and numbers – which acts as a virtual post box. You can then set up a virtual wallet to store, keep track and spend your digital money.

In a world where everything is going digital, some view Bitcoin as the future of currency. However, due to the anonymous nature of Bitcoin ownership and trading, it is being used to conduct illicit activities. This has created a dark cloud over all cryptocurrencies.

Should you believe the hype?

There are two sides to every story and alongside the reported positives of Bitcoin, there are numerous negatives. The volatile nature of cryptocurrencies means that they have the ability to plummet as quickly as they shoot up.

The main drawbacks of cryptocurrencies such as Bitcoin are as follows:

  • Cryptocurrencies are not regulated financial instruments so they do not have the consumer protections associated with traditional assets. For example, the Financial Services Compensation Scheme does not cover Bitcoin investments.
  • The value of cryptocurrencies is extremely volatile. They are vulnerable to sharp changes in price due to unexpected events or changes in market sentiment. The value of some cryptocurrencies recently fell by more than 30% in a single day.
  • With any ‘get rich quick’ strategy, there are those that will look to take advantage of naïve investors through unscrupulous means. As cryptocurrencies are unregulated, the potential for fraudulent activity is heightened. At the risk of sounding trite, the saying ‘if it sounds too good to be true, it usually is’ might well apply here!

It should also be noted that any investment in Bitcoin leaves you effectively wading into unchartered waters. For this reason, investment in Bitcoin has been likened to gambling, with Andrew Bailey, chief executive of the UK’s Financial Conduct Authority (FCA), recently issuing the following caution: “If you want to invest in bitcoin be prepared to lose your money – that would be my serious warning”.

Our advice

Predicting the future for Bitcoin or any other cryptocurrency would require a crystal ball. In general, our advice is to think very carefully about Bitcoin, or any other cryptocurrency linked investment strategy, before ploughing in. Past performance is not an indicator of future performance and Bitcoin carries as much risk, and arguably even more, than other forms of investment such as equities or other commodities. If you do choose to gamble on Bitcoin, be sure to follow a tried and tested route. You should consider what you are willing / can afford to lose, and remember that long term sustainable returns are best generated via a balanced portfolio of investments.

NB. The value of investments can fall as well as rise. You might not get back what you invest.

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Legal Entity Identifiers – Why, What, When and How Much?

Legal Entity Identifier or LEI were introduced following the global financial crisis in 2008 so that all participants in the financial system would be identifiable to facilitate monitoring of worldwide financial transactions. A LEI is a unique 20-digit alphanumeric code which is specific to legal entities including investment firms, corporations, charities and Trusts.

Effective 3 January 2018, legal entities will be required to hold a LEI if transacting reportable instruments. Reportable instruments include:

  • Shares
  • Exchange Traded Funds – ETFs
  • Venture Capital Trusts – VCTs
  • Warrants
  • Gilts
  • Corporate Bonds
  • Structured Products

Bare Trusts are currently exempt from acquiring a LEI.

Natural persons are not required to hold a LEI although may be asked by Platform Providers to provide National Insurance, Passport Numbers and details of nationality (or dual nationality) to transact investments if the information has not been recorded.

LEIs must be obtained via an LEI issuer that has been accredited by the Global Legal Entity Identifier Foundation (GLEIF) or an entity endorsed by the LEI Regulatory Oversight Committee (LEI ROC). In the UK the designated LEI issuer is the London Stock Exchange (LSE)

The legal entity will provide to the designated LEI issuer the following information: Official name of the legal entity, Country of formation, legal form of the entity, current registered address and reference number of the legal entity e.g. company registration number. Supporting documentation may be submitted, including Articles of Incorporation, Trust Deed etc.

Registration does not come free of charge. The initial cost per LEI is £115 + VAT with annual renewal fees of £70 + VAT. Fee savings can be made if you batch requests (10) however this generally only reduces the initial fee by £25 per request.

It is anticipated that the expected volume of LEI requests during January 2018 could slow down the issue of LEI codes. Therefore we recommend that any affected legal entities register for a LEI code without delay.

In summary, act now and consider if you need to obtain a LEI code for your clients otherwise after 3 January 2018 you will not be able to buy or sell shares or ETFs.

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