Loz Gee

It’s great to see that you’ve all logged in apologies for that technical issue. I hope you’re all well, this is our quarter two webinar. So this is our third webinar now. Just on the page here is our disclaimer. So this is our small print. So I’ll just give you a little moment to read that.

Excellent, okay, let’s move on. So the agenda today is pretty in line with the others, so a little bit about us. So if you’re not currently dealing with us and you’re need to WKM, it would be great to give you a small intro as to who we are and what we’re about. We’re going to then have Neil Wattam do a section on personal finance, followed by Ben Wattam. We have got the Wattam duo today. Ben Wattam doing a piece on investing, question and answer, so please send those through on the little message centre there and then we’re going to summarize the webinar afterwards.

So a little bit about us. We’ve got a bit of a mugshot coming up now, we had a photo session a little while ago. So here’s us as a team, handsome bunch. We’re an independent firm. We are unique in that we have an investment manager in house, Ben Wattam, who will be speaking shortly. We are founded by four highly qualified professionals who love what they do, and actually are pretty good at it. They have 60 years in the financial services industry, with pension consultancy, accounting, audit, tax planning and investment management. So a plethora of skill sets there. Why do we do what we do, because we love it, we want to work with families, we want to understand what you want to achieve for your future, and form a plan to get there. I’m now going to introduce Neil who’s going to go through a personal finance section about how to make your money work for you.

Neil Wattam

Thank you Loz and good morning, everybody. I’m going to do a little chat about some hot topics on the world of personal finance, and a few ideas here to talk through. In no particular order, these are just things that often come up with discussions with clients, potential clients, and just generally in the wider world. So Ben will also talk about risk from an investment perspective in particular, but I’ll talk about it from a sort of personal perspective here. Some people might be concerned about investing, is it too risky? Am I going to lose my money? Well, you should be thinking, when am I going to have enough money? Do I need to be taking the risk to do what I want to do in future, people tend to focus on losing money, rather than the potential upside, and its potential, investing is never a straightforward thing, it’s never necessarily going to be always up, it will be up and down, up and down. Over long term, though, typically, it’s a better place to be than in cash. Now, looking at top cash ISA’s, because I suspect a number of people on the call will have cash ISA’s, they’re a good vehicle but a five year fix is the top rate at the moment at 1.1%. If you kept that in a five year fixed for five years, 1.1%, you’ll just have just over £500 of interest over that period, that’s a long time to get a very small return. I daresay you would probably want your money to be working harder than that. So just think cash, really, the risk is that you’re missing out. The positive side clearly is that it’s inverted commas safe, and you know it and you can kind of touch it. CPIH, so that’s the rate of inflation that the government typically use, including housing, was last announced at 1%. So if you’ve got your 1.1% in your ISA over five years, you’re just nudging ahead of inflation but really your inflation, your personal inflation, may well be higher than that. So arguably, you may be losing money in real terms. Think about risk as a positive thing. Think about what you want to do with your money in future. This little graph just gives more of a visual indication of what’s happening with your cash over time. Now, this is a just over 10 year horizon, the blue line effectively is the thing you want to look at and it’s basically showing you the power of your money over time is eroding. Now, the orange line is RPI, that’s the old inflation measure, but it’s still used for a number of factors. We don’t know what inflation would do in future, we don’t know what interest rates will be in future but over time, cash typically loses value. Eggs in one basket is something that everyone thinks about not having that, cash is also you should not have all of your money in that basket unless it’s for some specific need. Again, on the point of risk, we’ll all have different views on how long we live but here are some statistics about how long you’ll live. If you were 65 today, so there may well be people on this call, who are 65, the probability of you getting to the ages of 80, on the left hand side and 90 on the right hand side, are actually pretty high and particularly for a couple 92% of you if you’re 65, of getting to age 80 and 50%, to getting to 90. So think about risk on the ‘How long am I going to live’ likelihood, if you’re a fit and healthy and in particular, in a couple, you will perhaps live a long time and if you left your money in cash, for example, is it going to last that long? I don’t know but it’s something you need to think about and think about hopefully having a long and healthy life and having the money to support that. On the point of risk and thinking of upside now this is not to suggest it will always do this but these graphs here, I’ve tried to demonstrate that over time, and give time and it is hopefully on your side unless you’re 90 today, and perhaps it’s less on your site but nonetheless, you’ve still got time, then investing over that time will hopefully pay dividends and the right hand graph, in fact, focuses on the power of dividends and actually, if you reinvest those dividends, it can really supercharge your growth. Now the FTSE 100, for example, lots of you may will be familiar with that. The dividends were somewhat taken away from last year but they will come back one day in various guises and they are starting to now. So if they’re reinvested, hopefully you might see some growth in future. The left hand side is really showing the power of what can happen if you start sooner so get on with it, is a general suggestion. The sooner the better and even if it’s modest amounts. Over the last year, everyone’s had different reactions and issues with the Coronavirus and jobs and all that sort of stuff. There’s a good amount of people that have an excess income, have more money, have more savings. Often there’s a discussion about should I ever pay my mortgage? It’s probably the biggest debt you’ve got but think about what you’re doing with the cash. What do you want from it? Mortgage rates and loan rates are typically very low. Not always, if you’re on a standard variable rate, for example, it might be a little bit higher, but generally it’s low. What are you wanting to do with your money long term? So paying off your mortgage is arguably a good thing reduces debt but it ties up your money. However long your mortgage is you could be tying up your money for 20 years. Think about what you want to do. Should I leave it in cash in case the stock market crash? Well, the stock market will go up and down. It just will, and stock market generally, FTSE whole world, UK whatever indices you choose to think about, you shouldn’t be investing for short term, you should be investing for at least five years plus. So if you can withstand those ups and downs, then investing is often a good place to be and is it too risky? Well, it’s risky, only on the basis that if you need your money in a short term, it shouldn’t be there over the long term, hopefully, it will be a good thing for you but if you’ve got some excess income and savings, try putting it to work for you and if you can beat your interest rate on your mortgage, for example, then even if it’s in an ISA you’ve got flexibility, you could take it out in a few years. Hopefully, it might gain some money. Don’t just think about putting into mortgages as the default. Think about what you want to do. Pension consolidation is a fairly frequent topic as well. The DWP have estimated that by 2050, there’ll be nearly 50 million dormant pensions. I’d like to think to people around this virtual table will not have those but there’s a good chance you have got some that you’ve forgotten about. Should you consolidate? Well, it depends, it’s never a right and wrong is never a definite answer to that but often it can make sense. A self invested personal pension is often a vehicle used, a SIPP, commonly referred to as offers more flexibility, it’s very flexible from an investment side and withdrawals in later life. Defined benefit pension, final salary pensions again, many people may have them. What should you do? Well, the FCA would by default, say leave it alone. It is usually the best scenario for most people, it pays an income for life so it’s kind of what’s not to like, yes, you might see a big power value for transferring it, but it’s generally not the right thing to do. There’s some things there to consider. Just think before you transfer any pension, you need to do a bit of homework and that’s what we always do for clients with due diligence, check what’s in there? Is there any benefits etc, before just blindly transferring? Some people might think it’s more flexible to keep them separate. It can be, but it’s not necessarily and can you take more tax free cash? Well, again, typically not. Some older pensions do have the ability to take more tax free cash than the standard 25% but here the example of you having three pots, or you could have one pot? And the answer is the same in terms of tax free cash. It does depend on the T’s and C’s of the pension. But typically, there’s no real advantage to having them separate, it’s more administration, it could be more costly and could not. But having them in one place, it’s typically a good thing to keep your life a bit easier and arguably invest on the same sort of time horizon and ideas. Company funds, many of you may be business owners, quite often we come across company owners who haven’t considered the structure. It might be a single person maybe doing the work, but it could be a husband and wife who own it. What’s the structure? Are you making the most of the dividends allowance? We all have a £2,000 currently dividend tax free? Are you taking it? Possibly not, you should be if you can. Make good use of the basic rate tax bands, these are being frozen. So it’s more important than ever to consider how your business if you are the owners are using the funds in the company to the best effect and talk to your accountant, have a chat, raise it, talk to them, what am I doing my structure and be proactive, don’t just leave it alone, because it might be that you could make better use of all the money in your company.

Saving for children is clearly a topic that on many people’s minds, and I’m referring here typically to children being under 18. Risk applies to those savings. I’ve got two young children, I’ve got Junior ISA’s for them, they’ve got a long time before they can access that money. So using Junior ISA’s is really good idea, you can have it in cash or stocks and shares but we’ve already talked about the risk of cash over long term. Little graphs on the right here are showing that the top box that is a steady Eddy cash account, the bottom one is investing. You see the investing going up and down. But over this, I think it’s 14 years, there’s a 50% difference, it might not seem that big on this graph, but there’s a 50% difference. It might be 40, it might be 10, who knows what the difference will be but the point is over long term, typically investing will work. Pensions are a good idea for children, but they won’t be able to access it for probably 50 years or however old they are when they get there. I would suggest looking at ISA’s and junior ISA’s in particular first. Cryptocurrencies, Ben will talk a little bit about this. It’s a hot topic. It always has been for a number of years now but it’s not regulated. There’s no legislation in the UK for it specifically, it’s not legal tender, private investors like me, and you cannot buy them through regulated channels. That doesn’t mean you can’t buy them, you just can’t buy them through regulated channels with protection etc. They are highly volatile, if you follow any of them. They are very volatile. The little graph on the right hand side was taken yesterday showing the greens being the ups and the reds being the downs. Equally the stock market is volatile. So I’m not suggesting it’s not but cryptocurrencies. What are you really buying? Don’t really know. We don’t know what Bitcoin will do next week. We don’t know which one will win. There’s numerous cryptocurrencies out there and some are winners and losers. Bitcoin is the most famous but doesn’t mean it’s the right one for the future. So long story short here is, it’s a risky investment. Is it an investment at all? Question mark. If you were to ever put any money into cryptocurrencies, you have to be in a position where you can afford to lose it. Finally, a bit of a to do list and we’ll send the slides out, so I won’t dwell on it too much but there’s a few things for you to think about. Are you utilising ISA’s? What are your pensions doing, where are they? CGT capital gains tax allowances still they’re, are you using it, think about shareholder structure of your company and just trying to take some time to think about what you’re doing with your finances and investing. So without further ado, I’ll pass over to the better looking brother, if you think it’s that way, and Ben can talk about investing.

Ben Wattam

Morning, as you can see, we’re back in the office, it’s good to be back. Now, I’m going to talk about investing for next kind of 10/15 minutes. And I got inspiration for this presentation a couple of weeks ago, because we asked a French firm called Natixis to provide an independent risk report on our portfolios and they provided us an 82 page report on risk. There was a huge amount of detail but actually, pretty much none of it actually, was how I see risk for clients and for the portfolios. I thought I’d just talk today a little bit about how we see risk, what is risk and this is some of the output we got from that analytics report, which, luckily for you guys, and not really going to talk about at all, I’ll try and make a bit more interesting. When we think about risk, it starts really from a client perspective, because we have to understand how much risk a client can take, as in capacity, how much risk a client wants to take, that’s appetite, and how much client risk is required, how much risk is needed. This is what Tim, Neil and Adrian do and it’s absolutely critical, we get this right. If we don’t get this right, the outcome is going to be wrong. This is what we do, from a starting point of view, understand how much risk we need to take from a client perspective. Once that has been agreed and understood, it then kind of comes over to the investing part, my part. We then effectively become risk managers and understand what risks are out there and what risks we want to take how do we allocate capital effectively, and where are we getting paid to take that risk? Now, Neil did an exam last week on investments which he passed. So congratulations Neil, and bottom left chart was in his textbook, talking about risk and basically, the way that textbook will teach you about risk is saying how probable are things likely to happen and usually, we only concentrate on the most probable risks that are likely to happen. However, if you include about 95% of the data, that’s still about once a year, a risk will happen that’s not included in that data. So risk, when you look at it in this perspective is only as good as the data you’re using, but the important part is to say how probable are these risks? So I’ve put some risks here on the right on the top right, saying 10% inflation? What are we next going to see 10% inflation levels? Is it next year? Is it five years time? Is it 10 years time? Is it going to be not even in our generation? Should we be taking this risk into account into the portfolios? How frequent is a pandemic? I mean, previously, you would have said probably once every 100 years, or once a generation, is it going to become more frequent? This is a really big uncertainty but for every risk we see, we have a 4t approach. So bottom right, you can see we either tolerate the risk, try and treat the risk, we can transfer the risk or terminate the risk. So what the presentation is going to talk about is just some of the risks we see and whether we’re comfortable in taking on some of those risks. Now, a clear risk over the last 20 years is the buildup of household debt but actually, I think this is almost becoming a different sort of risk. This is from the Bank of England’s report in February, I think it was, on the left showing household income, which is the blue line, and household consumption, which is the brown line. Now the gap is household savings. So you can see over the last year, we’ve had a bit of a dip in income, but the consumption gap has fallen dramatically. We’ve now got a huge buildup of savings. The Bank of England estimates about £125 billion of excess savings in the last year and they did a survey, what are people going to do with this excess cash and you can see on the right the majority of people are saying they’re going to hold it in their bank account, which is great from a security point of view. I have a little bit of a doubt as to whether that cash is actually going to stay there over the next year. When we can actually go on holidays again. I can see some money being spent there or doing some building work or spending in the shops when we can have bit more freedom again. There’s actually almost too much cash here. I think there could be a bit of a demand boom later on in the year. So have we actually got too much money? This chart looks at the money supply in the US. It looks at the annual change of US dollars in the system and you can see since the early 90s, the supply of dollars has gone up between probably 5% and 10% a year. Up until the last year, there’s been an explosion in the money supply of US dollars and there’s lots of people now concerned that this is going to be inflationary because as we’ve seen in the past, when you print so much excess money, it generally finds its way into goods and services. However, this is only looking at one part of inflation in my opinion. The really important part is what we do with this money. So as a quick example, if I gave everyone on this call a million pounds today, lucky you, what are you going to do with it, that’s really important for inflation, if you just put it under your mattress, it’s not inflationary, it doesn’t go anywhere doesn’t do anything. If everyone goes and tries to buy a Ferrari, that’s going to push up the price of Ferraris. So it’s really important to understand how quickly that money is being circulated. If you look at what’s happened to the circulation of money, in the last 20 years, it’s collapsed. The velocity i.e. how quickly money is going around the system has been falling consistently. This is why we haven’t had inflation, it’s because generally people have been saving and paying off debt rather than spending. You can see the drop off as well in the last year. Now I don’t know what’s going to happen to the velocity of money over the next couple of years, it will probably increase a bit. So we have to be a little bit aware of inflation coming back. A big problem is not household debt, it’s actually government debt. Now, on the top table, you can see the latest government accounts. Now there’s so many zeros on that it doesn’t mean anything to anyone really. So what I did was just knock off seven zeros, and pretend this is your own household account. So we look at the 2021 to the end of March figures on the right, the government had income effectively of £72,000, it spent £103,000, so overspent by £31,000 and decided to put that on the credit card, so the credit card is now £214,000 based on an income of £72,000. Now, there’s three main ways you get out of this. The best way is to grow your income, it’s difficult, it’s really, really difficult to grow your income but it’s the best way to do it. The next way is to cut spending, that’s probably even more difficult. We tried austerity, it didn’t really work after the financial crash. So the easiest way to do it is a combination of getting inflation into the system and keeping interest rates low. If you look at what’s happening with that this is a US chart. The orange line is the cost of US dollars, over 10 years. So it’s the 10 year interest rate, how it’s moved over the last year and the blue line is the 10 year expectation for inflation. Now to erode debt, what you really want is inflation to be higher than interest rates. So every year it erodes the value of the debt, which is effectively the grey line. This is what the authorities are going to try and do over the next 10 years, at least keep inflation higher than interest rates and erode the value of the debt. Now, this is not good for savers because every year, as Neil said earlier, you’re going to eat away at the value of your money. It’s really important for interest rates to stay low as well on the chart, you can see the debt interest to revenue of UK government debt and as you can see, the overall cost of debt has been falling for the last few years and it’s staying low but we need interest rates to stay at these low levels. The Bank of England aren’t going to do anything anytime soon. The chart on the right looks at what the Bank of England expect inflation to do over the next few years. To be honest, they haven’t got a clue. Look at that chart, they think it might be either minus 1% or 5%. They just don’t know, but what they think is that it’s going to be around 2% and if there’s going to be around 2%, they’re not going to move interest rates, because inflation is on target. This chart always anchors back to 2%. Interest rates aren’t moving anytime soon. Now, there’s other risks as well out there that we get questioned about quite a lot. One of them is about the style of equity markets. What we do in our portfolios, we split assets between growth assets and value assets. Growth assets is where we think as it says on the tin, there’s going to be strong growth generally in earnings. Think of things like technology and healthcare that had been really, really positive in the last few years. With value areas, at minute things like leisure, entertainment, tourism, those really hard hit areas, commercial property. And look what’s happened over the last year the grey line is growth assets. Look what’s happened in the last few months, value assets have actually done really, really well and growth assets have struggled. So we get questioned a lot should we actually be changing the style of moving to value, in our opinion, you have got to be really careful with value at the minute, there’s a lot of traps out there and growth, whilst it’s had a bit of a tough time, we still think growth has got huge potential.

Often, it’s not just about financial risks. Now, in the last few weeks, you’ve seen the European Super League that’s been proposed by the biggest football clubs in Europe and they proposed it because they had a financial problem. You see on the left the amount of financial debt they’ve got, and they could see the solution with this European Super League to meet the financial problem to generate more income. What they completely ignored, was what we said at the top ESG which stands for environmental, social and governance risks. What these football clubs completely ignored was the social and governance risks of what they were doing. You’ve seen the reaction from UEFA, i.e. the governance response, saying to these football clubs it’s not going to happen. But also you’ve seen the social response. You’ve seen the football fans over this last weekend as well fight back against what they were doing and you can’t just look at financial risks anymore. You’ve got to be aware of social and governance risks as well. Now, Neil spoke a little bit about cryptocurrencies. Why do we believe in pound sterling? Why do we accept pound sterling? And there’s two main reasons, one is that we believe in the value of it, but also, it’s a form of exchange. You can go down to Tesco or Sainsbury’s, and exchange your £10 note for a value of goods. What is Bitcoin? Personally, I don’t think it’s a currency. Interestingly, the FCA have called it crypto assets, I think their assets, they’re not currencies, they’re too volatile to be classed as a medium of exchange. The underlying technology is really interesting called blockchain, what these crypto assets, cryptocurrencies are traded on. Last week, we saw the European Investment Bank, one of the big sovereign banks in Europe issue of bonds on blockchain. The Bank of England have also issued a paper on digital currencies, really interesting, have a look at it, it could completely change the way that we use banking facilities in the UK. I’d recommend if you’re interested in that sort of stuff, have a look at what the Bank of England is saying about digital currencies. Now, lastly, when you don’t know things, and when there’s uncertainty about risk, often people google it. I thought about what happened last year with Google Trends. So what people are saying what is, and on the left hand side? You see, actually, there is quite a few risks in there. What was Googled last year in the UK? So there’s a lot, Coronavirus, I Googled a few of them as well, what does work mean? I now understand that because I Googled it, but also when? So Google Trends are actually a good way to look at what actually is concerning people from a risk perspective. Now, to wrap up, all of the portfolios we run, are managed with risk parameters in place but also the return objectives are generally based on risk, which we see as inflation risk. The big risk, we think is not meeting client objectives. If we don’t meet client objectives, clients aren’t going to stay.

Loz Gee

So we’ve had some questions come through, thank you for those. First question is, should I fix my mortgage?

Neil Wattam

We’re not mortgage advisors, just to be clear, but should you fix it? Well, I think comes back to the risk point earlier. What you want to do, are you going to sleep easier at night, knowing your mortgage rate and payments are not going to go up or maybe down. It also depends what you’re on today. If you have to pay any fees to exit and it’s a bit of a ‘It depends’ but fixing can give you some security, which quite a lot of people would prefer and some certainty on what they’re going to pay for long term. So I guess the answer is it depends on what you’re on and how long you might want to fix for, but it can be good for a bit of certainty.

Loz Gee

Second question, would you say that we’re currently in a tech bubble?

Ben Wattam

I think last year we clearly saw some companies do very, very well in the tech space because of Coronavirus, so think of companies like zoom or Netflix that really benefited purely because of that Coronavirus. Longer term, I think tech isn’t in a bubble, you just have to look at Amazon and Apple’s results in the last week to show how strong those results were. Unless you’re a complete technophobe, I think tech is here to stay and you can still see strong earnings growth. So it might be a difficult year this year for tech, but longer term, there is risks around those really mega cap names, the Apples and the Amazons of the world. We prefer the mid cap space and some of the private names as well, but I don’t think is in a bubble if you’ve got a longer term time horizon.

Loz Gee

I have an occupational pension scheme. How do I go about tracking this down?

Neil Wattam

Yeah, and I guess this comes back to my point earlier about hopefully not being one of those 50 million dormant pensions. There’s a thing called the pension tracing service, which is a government backed website, you can put details in there and hopefully find it. You can also write to your employer or ex employer, hopefully they’re still around, and HR departments or whatever, then they should be able to help you trace it down or find at least who the administrator is. There are administrators out there so it’s not really a question of firing off letters to Aviva etc but try and do a bit of homework through the pensions tracing service, and your ex employer will be my suggestions.

Loz Gee

Okay, next question. Where do you see bonds in the world of investments going forward?

Ben Wattam

Okay, bonds is a very, very, very generic term, you can get very high risk bonds or very low risk bonds. Generally, the only government bonds we have in the portfolios is inflation linked bonds. They do look expensive, but there’s some risk hedging on inflation. That’s why we own them. We don’t own any traditional government bonds at all. Some of the high yield, the high risk bonds are starting to look a bit expensive as well. So we don’t have huge amounts of bond exposure. If you’re selective, in some investment grade. Investment grade, the high quality bonds, corporate bonds still look okay but there’s a much better risk return profile from our opinion in equity markets. So we do have bonds, it’s just be aware of the risks, whether it’s inflation or credit risk on in bonds.

Loz Gee

Okay, so that summarizes the question & answer section. It’s really good to see all the attendees come in today. Thank you very much for your time. We will be doing our next webinar in August, I can’t believe how quickly this one came around from the beginning of the year so that will soon be here. A recording of today’s webinar will be made available online but we’ll also be sending an email out with the deck so you can have a look through anything that we’ve discussed today. Please make contact with us if you have any further questions that you’ve not posted. We are discussing the possibility of having an in-person webinar. If that’s something that you’re interested in, as ever feedback is always welcomed, if that’s something you are interested in, then please let us know. Our number and contact details are there if you’d like to make contact with us about anything at all and thank you again for your time and we look forward to speaking to you soon.