Author Archive

Overcoming Behavioural Biases

Posted on: August 8th, 2023 by fwEditor

Investing can be a highly rewarding endeavour, but it’s also full of risks and challenges. A significant factor that can impact decisions is the behavioural traits that investors can be swayed by. As such, the decision making process is not always led by rational considerations. Hence, biases can significantly impact outcomes. With input from our investment partners, LGT, below are some common behavioural biases that affect investors, along with real-life examples of these biases, and how to be more aware of them to limit their impact.

Confirmation bias

Confirmation bias occurs when individuals seek out information that confirms their pre-existing beliefs while ignoring contradictory evidence. When investing, this bias can lead to a skewed perspective and poor decision-making, influenced by emotions. For example, an investor who believes that a certain stock is undervalued may actively seek news or research that supports this belief, ignoring any negative signals that may suggest otherwise.

To overcome confirmation bias, it’s important to actively seek out diverse perspectives and information that challenges your existing beliefs. Engage with different sources of information, consider alternative viewpoints and maintain a healthy scepticism towards your own assumptions.

Loss aversion

Loss aversion refers to the tendency of individuals to strongly prefer avoiding losses over acquiring equivalent gains. This bias can result in overly conservative investment decisions, as investors focus more on preserving their capital than on pursuing potential gains. For instance, an investor may hold onto a losing stock for too long, hoping to avoid realising the loss, instead of cutting their losses and reallocating their capital elsewhere.

To prevent this, we must recognise that losses are a natural part of investing and embrace the concept of risk. You must establish a well-diversified portfolio that aligns with your risk tolerance and investment goals. Then regularly review and rebalance your portfolio to ensure it remains aligned with your long-term strategy.

Herd mentality

Herd mentality occurs when individuals follow the crowd and make investment decisions based on the actions and opinions of others, rather than conducting their own independent analysis. This bias can lead to overvalued or undervalued assets as investors pile into or flee from certain investments without a thorough understanding of the underlying fundamentals. A famous example is the dot-com bubble of the late 1990s when investors followed the hype and poured money into technology stocks that were fundamentally overvalued. A more recent example would be the GameStop bubble of 2021 fuelled by retail investors on Reddit.

To correct this, one must take the time to conduct their own research and analysis before making investment decisions. Avoid making impulsive choices based solely on market trends or popular opinions. Be patient and rely on your own judgment to identify sound investment opportunities.

Overconfidence bias

Behavioural finance has its roots in psychology and Kahneman’s book Thinking fast and slow (2011) believes humans make decisions using two ‘systems’ that operate for different purposes and at different speeds. System one is thoughtless and acts instantaneously based on human emotions. Whereas system two is more rational and analytical, used for reading poetry, for example. Humans mostly use system one, with system two ‘monitoring’ in the background. The psychological bias, overconfidence, originates from the unconscious actions of system one and is possible to control, but not eradicate.

Overconfidence bias refers to an individual’s tendency to overestimate their own abilities and knowledge. This bias can lead to excessive risk-taking and overtrading, as investors may believe they possess superior skills or insights that will consistently generate above-average returns. For instance, an inexperienced investor may have initial success with a few trades and become overconfident, leading them to make riskier and less researched investment decisions.

Practicing disciplined investing strategies, such as diversification and long-term investing, is a sure-fire way to control the risks associated with overconfidence, along with continuing to learn and develop your knowledge.

Other common heuristics, or rules of thumb, include:

Behavioural biases can significantly impact investment decisions and hinder investors from achieving their financial goals. The key to overcoming these natural behaviours is to remain objective, conduct thorough research and develop disciplined investing strategies.

By investing with Five Wealth, you have the benefit of an Investment Committee that self-monitors and has diversity of thought. It is important to invest for the long-term and not letting the herd, short-term news or underperformance, drive decisions and detrimentally influence investment decisions.

If you would like further information on anything covered in this article, please get in touch via the contact page.

* Investments carry risks. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Time in the market

Posted on: July 27th, 2023 by fwEditor

As investors, it’s natural to feel slightly nervous when markets are volatile and in such times the ability to converse with an adviser really does reap rewards. In this blog we share an insight on the issues when trying to ‘time the market’, with input from our investment partners, LGT Wealth Management.

Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.” – Peter Lynch, Mutual Fund Manager

During periods of heightened financial market volatility, and increased levels of uncertainty, it can be tempting to try and time the market by selling assets and then buying them back at a later stage. However, timing the market is virtually impossible, even for the most experienced investors. This is why it’s often said that time in the market is more important than timing the market.

Emotions and investing

Human nature can lead investors to be emotional about financial decisions. When markets dive, too many investors panic and sell; when stocks have had a good spell, too many investors go on a buying spree.

Past experience can lead to panic selling

People tend to ‘panic sell’ based on their past experiences. There have been six major crashes in the past 30 years, so psychology plays its part.

 

Source: LGT Wealth Management

It is never an easy ride on the way up in a bull market. Investors seem perpetually concerned, worried about the valuation levels, forever peering around the next corner and ever watching for the canaries in the coal mine that might signal the onset of the next market downturn. Prospect theory from behavioural finance suggests that investors are more likely to focus on gains rather than the perceived risk of loss when the outcome of an investment is uncertain. This ties into regret aversion and the fear of loss outweighing the joy of winning – hence many investors panic sell when the going gets tough. This is a large reason why investors are always encouraged not to look at their investments every day.

The issue with trying to time your entry/exit

The pace at which markets react to news means stock prices have already absorbed the impact of new developments and when markets turn, they turn quickly. Those trying to time their entry and exit may actually miss the market bounce. Attempting to predict the future may mean you could end up being out of the market when it unexpectedly surges upward, potentially missing some of the best performing days. Missing one or two big days, compounded over time, can greatly impact your portfolio.

The graph below illustrates how a hypothetical $100,000 investment in the S&P 500 Index would have been affected by missing the market’s top performing days over the 20-year period from 1 January 2002 to 31 December 2021. For example, an individual who remained invested for the entire time-period would have accumulated $616,317, while an investor who missed just five of the top performing days during that period would have accumulated only $389,263.

It’s important to note, most of the best days happen around the worst days. Over the last 20 years, 70% of the best 10 days happened within two weeks of the worst 10 days (Source: Factset). If you were to incessantly go in, and out, of the market it would erode returns, alongside having tax implications and transaction costs.

It is true that a broken clock is right twice a day and hindsight is wonderful, but we are not soothsayers. If it was easy to time the market, lots of investors would be doing it and retiring early in the Bahamas, but this is not the case. We must remember that short-term volatility is the price you must pay for the chance of higher long-term returns and let the power of compounding take effect rather than potentially crystallising losses.

If you would like further information on anything covered in this article, please get in touch via the contact page.

*Investments carry risks. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Happy Retirement Chris!

Posted on: May 23rd, 2023 by fwEditor

Happy Retirement Chris!

After the announcement of Foresight’s investment into Five Wealth we also want to let everyone know that Chris Little, one of the founding directors of Five Wealth has now retired after a long and extremely successful career in financial services.  He asked us to pass on these words and we all wish him the best in retirement.  If anyone would like to get in touch with Chris please let us know.

Not sure where to start with this one but ,in short, the time has come for me to fully retire from  Five Wealth. It is a strange feeling .

I entered Financial Services over 40 years ago having graduated from Liverpool University with a degree in philosophy. Such a degree was very useful preparation for the Financial Services sector as the likes of Plato and Socrates had such strong views on, for example, pension planning and passive versus active investment management. Other philosophers, like Kant and Wittgenstein, also had strong views, but no one had a clue what they were going on about.

Office life was a bit of a shock, firstly, as it did not run on student time. A wool suit and no air conditioning was also uncomfortable. I recall that permission  from the chief clerk was required in order to go jacketless, whereas no permission was required to light up a cigarette, which the majority of the office did on a regular basis. It was the time of Luncheon Vouchers, which I always found baffling. I also remember lots of shorthand going on and cupboards full of Tipp-ex, re stocked on a weekly basis. Yes, the combined aroma of cigarette smoke and Tippex will live with me forever.

So many changes in day to day activities over the years and many of you will have lived through something similar, if not the same. However, there are also constants and the two that stand out for me are the relationships with clients and with colleagues. Over the years, I have lost count of the times we have been told that our way of handling such relationships will have to change or we will become dinosaurs. We never believed this and always worked to ensure that we offered good quality service and support  to clients and an attractive and stimulating work environment for colleagues. This has been very successful. I am sure that further change will happen, it is inevitable, but I still believe that our relationship with clients and colleagues will be central to what we do.

Five wealth has been a wonderful experience and I really would like to acknowledge and thank the team, especially in the way I was supported by them through my illness. A similar level of thanks must also go to clients who had the patience to stick with us whilst a new member of the team was introduced to replace me. Thank you all .

I wish you all the best in the future, hope that your investments do well and that the politicians  stop being so short term in their actions which impact on personal financial planning.

Kind regards

Chris.

Foresight Group invests into Five Wealth

Posted on: May 17th, 2023 by fwEditor

We are delighted to announce that on 31st March, Foresight Group the leading listed infrastructure and regional private equity investment manager, made a £6.7m investment into Five Wealth.

The investment is fantastic news for Five Wealth and marks the start of the next stage in the growth journey of the Company. We are looking to build on what we’ve achieved over these first seven years; growing from an initial staff of 15 to where we are today with 29 staff and over £670m under management.

With Foresight’s investment we will be seeking to further develop and enhance the service we provide and will be looking to grow the business further via a combination of continued strong organic growth and targeted acquisitions.

The investment has enabled Chris Little one of the original founder directors’ to retire and exit the business and also paves the way for future retirements.

We are pleased to welcome some new faces at Board level including Jonathan Partington as Finance Director, Tim Parsons as Non-exec Chair and Matt McLoughlin as Investor Director from Foresight. High quality expertise to support us with our growth plans.

The existing management team will remain and are committed to the long-term plan, we are all very excited about the future!

If you would like further information on anything covered in this article, please get in touch via the contact page.

2023 March Budget – Key Announcements

Posted on: April 12th, 2023 by fwEditor

2023 March Budget – Key Announcements

Jeremy Hunt announced several positive changes in his March budget, particularly in relation to pensions. In this summary, we highlight some of the key points and areas to review in the new 23/24 tax year.

Pensions

Lifetime Allowance (LTA)

The LTA charge is something that impacts those with pension funds worth more than £1,073,100. Individuals can suffer a tax charge of 55% on the excess over £1,073,100.

The chancellor said the LTA charge will be removed from April 2023 and the LTA will be abolished entirely from April 2024. This is a major change and will incentivise people to save into pension – and to work for longer.

Annual Allowance

The annual allowance for pension contributions will increase from £40,000 to £60,000 from the 23/24 tax year.

Again, this is a welcome development which will allow individuals to increase pension funding for retirement. For personal contributions, the most you can contribute (and enjoy tax relief) remains restricted to your relevant earnings in that tax year. Note that dividends and rental income do not count as relevant earnings here.

For those with higher earnings, the annual allowance is reduced/tapered. Currently, the allowance reduces where adjusted income exceeds £240,000. That threshold will increase to £260,000. (Adjusted income includes employer pension contributions, salary, interest, dividends and most other sources of income.)

The fully reduced annual allowance for higher earners has been £4,000. From 6 April 23, that allowance will increase to £10,000. High earners are still severely restricted in what they can get into a pension but this is a positive change that will help them to get a little more into this tax efficient wrapper.

Once you start drawing an income from a pension fund, your annual allowance is reduced. This is known as the money purchase annual allowance (MPAA). The MPAA will also increase from £4,000 to £10,000 from April 2023.

You can continue to carry forward unused annual allowances from the three previous tax years. The annual allowances and tapering thresholds from previous years still apply and have not changed i.e. the standard annual allowance for those years remains at £40,000. The £60,000 allowance only comes into effect from the 23/24 tax year.

Pension Commencement Lump Sum (PCLS)

Currently, most individuals who do not exceed the lifetime allowance can take up to 25% of their pension funds as a lump sum that is tax free. This is known as a Pension Commencement Lump Sum (PCLS). Where capital has come from occupational workplace schemes, some will have a protected PCLS more than 25%. For most though, the maximum has been 25% of their pension pot.

Going forward, the maximum PCLS (for those without protections) will be set at £268,275 and frozen at that level. This £268,275 figure is 25% of the current LTA of £1,073,100. At a simple level, those with pension funds under £1,073,100 will see no change – they can still take up to 25% of their pot as a PCLS. Savers with higher pension funds, may see their maximum PCLS fall below 25%.

These announcements in relation to pensions have increased the overall amount that people can put into their pension. By scrapping the lifetime allowance and increasing the annual allowance, Mr Hunt wants to encourage highly-skilled people, most notably senior NHS professionals, to remain in the labour market rather than retire early.

Savings

ISAs

There were no changes to the ISA allowance. You can still put up to £20,000 into an ISA each year. For couples, that’s £20,000 each so £40,000 combined.

You do not pay any income tax (on interest or dividends) or capital gains tax (on realised profits) so Stocks & Shares ISAs remain a great way to invest  tax efficiently. There is no cap on how much you can build up in ISAs – the only restriction is the £20,000 annual limit.

Tax

Inheritance Tax (IHT)

There were no changes to IHT in the budget. With the changes on pensions though, it is worth remembering that your pension fund does not form part of your estate on death and is therefore not subject to IHT. You can pass on your pension fund to loved ones on death. In many ways, you can regard your pension pot as a family trust fund that can be passed down the generations. On death before 75, the entire fund can be passed on tax free. On death after 75, it can be passed on with no tax on death and your loved ones will simply pay tax when they take money out – any withdrawals being taxed at their own rate of income tax.

Capital Gains Tax (CGT)

There were no changes to capital gains tax rates in the budget, but the changes announced in Autumn are progressing. The annual exemption for individuals is reducing i.e. the amount of gain you can realise in a tax year without paying CGT. It will fall from £12,300 in 22/23, to £6,000 in 23/24 and then just £3,000 in 24/25. Trusts will face even lower exemptions.

Income Tax

Similarly, we will see the previously announced reductions in the dividend tax allowance take effect. The allowance will reduce from £2,000 in 22/23, to £1,000 in 23/24 and then £500 in 24/25. Those with investments held outside of ISA will be impacted by this with more and more suffering tax on dividends. The tax on dividends applies irrespective of whether dividends are paid out to you or reinvested. The rate of tax on dividends remains the same for those with dividends in excess of the allowance: 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate taxpayers.

These changes on CGT and dividend allowances will increase the tax take on investments held outside of an ISA wrapper. Using the annual ISA allowance of £20,000 will become even more beneficial.

Summary

Pensions and ISAs have typically been the foundational elements for those looking to invest and build their wealth tax efficiently. This latest budget further cements their position as the go to areas for those starting to invest. The changes on pensions increase the scope for people to save into pension and take advantage of the many tax breaks that pensions offer. The changes to personal taxes have also reinforced the benefits of filling ISA allowances each year.

For those bumping into the maximum on pension and ISA, there are various other tax efficient options that can be used for capital. The likes of Venture Capital Trusts (VCT), Enterprise Investment Schemes (EIS), offshore investment bonds etc. all offer various tax advantages – although some of these options also present greater investment risks that are not suitable for most clients.

If you have any questions about the changes and how they could impact your situation or retirement plans, let us know and we will be happy to discuss.

Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation which is subject to change. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor. The Financial Conduct Authority does not regulate Tax Advice.

If you would like further information on anything covered in this article, please get in touch via the contact page.

 

Types of Savings Accounts

Posted on: March 28th, 2023 by fwEditor

Types of Savings Accounts

As interest rates continue to rise, so does the importance of ensuring your savings are in the right place. The savings market is flooded with various types of accounts, which makes it difficult to decide which is best for you.

Factors such as interest rates, access, tax and timing of payments will all influence your decision when selecting the best deals. Below I have covered the various types of accounts and key points to consider when finding the best deal for you.

 Easy-access

Notice accounts

Regular savings accounts

Fixed-rate bonds (term accounts)

Cash ISAs

Conclusion

 There are many types of savings accounts available on the market. There is not one correct answer to which account you should use, and often people will use a combination of accounts to suit different needs. In the current environment it is especially important to keep an eye on the interest rates on offer, to ensure you are on the best deals. It is also, important to understand the terms of your accounts, to avoid being penalised.

At Five Wealth we offer a cash management service, which allows clients with large cash balances to sign up to one platform and seemly move their cash between various accounts without the need to undergo the application process each time. Saving clients time and effort, whilst ensuring they have the best deals available.  If this is of interest please contact one of our advisers to discuss in more detail.

Please note our cash management service, comes with a fee and is only suitable for those that have cash balances in excess of £50,000.

If you would like further information on anything covered in this article, please get in touch via the contact page.

Consumer Duty – What does it mean for clients?

Posted on: March 14th, 2023 by fwEditor

Consumer Duty – What does it mean for clients?

In the ever-changing world of Financial Regulation, the Consumer Duty is a new standard introduced by the Financial Conduct Authority (FCA). The new standard has been brought in to build upon existing regulations to ensure that financial firms are delivering on products and services they are providing to their clients.

The duty has outlined three rules, which the FCA wants firms to follow, to deliver good outcomes for clients:

To coincide with the rules the following outcomes are expected to be achieved for clients:

In summary the Consumer Duty aims to place a clear onus on firms to show that they are providing a service that matches the needs and objectives of the client. Firms must be able to clearly demonstrate that the service they provide is in line with the fees that a client pays and that they are ultimately providing value for money. No one can ensure that investments will always grow, that’s just not possible, but the intentions should be positive and clear. Clients should be kept well informed and have appropriate levels of communication available to them as per their individual needs.

The points raised in the Consumer Duty Regulation are important but hopefully nothing new to the service we already, and continually strive to, deliver to all clients new or old.

 

Investing in China – Risk & Opportunities

Posted on: February 20th, 2023 by fwEditor

Investing in China – Risk & Opportunities

When investing your money, it’s important to be diversified across asset classes, factors (see here for a recent blog post explaining this), business sectors and regions. In this blog, we take a look at the Chinese market, highlighting 5 risks and opportunities that need to be considered when investing here.

Background 

Since 1978 China has averaged 10% annual growth in their GDP, placing them second in the world with GDP of $12.23 Trillion behind the US with $19.48 Trillion.

So, what are the reasons for this impressive growth?

Over the last 5 decades, economic reform has changed China from a highly rural country to urban – many predict that this will continue for the next 20 years. There is a certain ‘snowball’ effect when a country goes from rural to urban. Cities need to be built, which requires rapid growth in infrastructure, commerce, and other services. This rapid growth requires more education, more education generally means people become wealthier and a wealthier society means more businesses are set up thus leading to even more wealth.

China is considered as the ‘worlds manufacturer’, but it wasn’t always this way. The reallocation of resources to more productive uses, especially in sectors heavily controlled by central governments, such as Farming, has boosted efficiency across the board. Looking at farming as an example; Investment into agriculture by the State has boosted efficiency which has freed workers to pursue new opportunities in other sectors. This decentralisation of the economy led to a huge increase in new private firms who were more market orientated and a larger share of the economy was exposed to competitive forces.

Foreign direct investment into China led to new technology which further boosted productivity.

Risks

As with any investment, there are specific risks associated with investing in China. Some of these are as follows:

  1. Slowing of GDP Growth

Can the 10% average annual GDP growth continue? Many sceptics do not believe so – especially if its State driven. Coupled with this, if the powers that be continue to impose restrictions on foreign firms this will reduce the likelihood of this continue growth further. Foreign enterprise accounts for a significant share of China’s output but this is falling – 2.3% in 1990, 35.9% in 2003 and most recently 25.9%.

  1. Geo-political Relations

China may align itself further with Russia and become less dependent on the US. We could even see an emboldened attack on Taiwan which could lead to similar sanctions we have seen placed on Russia.

  1. Ageing Demographic

In 1980 China’s population was rapidly expanding and the government launched its ‘one-child’ policy which ended in 2016. This policy has led to a rapidly aging society and by 2035 more than 30% of its population with be over 60. This has led to a declining workforce and a need for an increase in spending on healthcare and elderly services meaning less resources for elsewhere.

  1. Zero Covid Policy

China is still implementing a zero Covid policy – an outbreak of cases results in whole cities being sent into lockdown which slows the economy. An outbreak in Shanghai could result in the port being shutdown which would not only slow China’s economy but the world’s, given that China is the ‘worlds manufacturer’.

  1. Government Corruption

There is a view that alleged corruption can play a major part in success/failure rather than market forces. As well as this, due to the court system in China, intellectual property rights can be hard to protect and enforce.

Opportunities

China is c.20% of the world’s population so is it too big to ignore? Below are 5 points which may suggest there is an opportunity for investing in China.

  1. GDP Growth

I have highlighted GDP as both a risk and opportunity… China is restructuring its economic model after a successful period of going for growth. The new model aims for sustained growth with an emphasis on innovation as the new driver. The new focus will provide a lot of opportunities for new businesses to grow and flourish.

  1. Less Bureaucracy

The government is aiming for China to be the number one economy in the world and will use all its power to help it achieve this. If they want to bring in a policy to help them achieve this, less bureaucracy within their system will mean they can.

  1. Geo-political Relations

China is currently benefitting from cheap fuel from Russia. We have all seen the impact of extortionate fuel prices in the UK so nothing further needs to be said!

  1. Low Inflation

Coupled with the cheap fuel from Russia, China didn’t offer much financial stimulus during Covid which is helping to keep inflation down. As well as this, they produce a lot of their own resource in country so are being less impacted by global inflation.

  1. Valuations

Chinese stocks are on affordable valuations at 8x price to earnings ratio whilst the UK is 14x and the US is 19.5x. This means that Chinese equities are at a discount compared other markets.

Summary

To summarise, as with any market, there are risks and opportunities with investing in China and it’s our job to assess your circumstances and conclude if an allocation to China is suitable for you. Generally, China would be more suited to high-risk clients with a long timeframe for investing but some exposure can be achieved for lower-risk clients through an Asian fund.

As always, if this blog has raised any questions, please get in contact with your adviser.

The content of this newsletter is for your general information purposes only and does not constitute investment advice. It is not an offer to purchase or sell any particular asset and it does not contain all of the information which an investor may require in order to make an investment decision. Please obtain professional advice before entering into any new arrangement. 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. We cannot accept responsibility for any loss as a result of acts or omissions taken in respect of any articles. 

Your capital is at risk. The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

 

Financial Planning v Investment Management

Posted on: February 1st, 2023 by fwEditor

“A goal without a plan is just a wish”

You have some money to invest – an inheritance or spare income after a pay rise, or perhaps you are reviewing your existing accounts – but are the investments you hold the most important piece of the puzzle?

Investing, on its own, can be done cheaply and easily, but it can be extremely worthwhile to pay for the professional services of an investment manager or financial planner to help manage your money effectively.

Investment management focuses solely on the investment of a client’s assets, with the investment manager making decisions on where your money is invested, usually targeting an agreed level of risk and timeframe. You can also incorporate personal preferences such as only investing in socially responsible companies. You benefit from the ongoing research carried out by the investment management firm, and their expertise in selecting the “best of breed” funds or shares from the 1,000’s that are available.

Financial planning looks at the bigger picture, creating a strategy for how your investments, savings and other assets can help to meet your financial objectives. Most importantly, this is based on your personal circumstances, making sure any plan is specific to the individual or family being advised. Your financial planner will help you work out your priorities and where compromises may need to be made to build a realistic and achievable plan for your future. For example, you may want to save for your retirement and already be investing in a pension, but do you know if you are saving enough or the age you could afford to stop working? Furthermore, do you have a strategy for taking an income when you do retire to make sure you don’t run out of money?

As with investing, you can create your own financial plan but the added advice and expertise from a financial planner can be invaluable, especially when you need an impartial opinion or reassurance during difficult times. As an example of where this hand holding can deliver results we can look back just 3 years to the start of the Covid-19 pandemic. You may have been tempted to sell all your investments to cash when markets fell by 25% in the space of a month(1) but had you remained invested you would have achieved a +19% return by the end of the 2022 calendar year(2).

Financial planning and investment management go hand in hand with both aspects an important part of creating a solid long-term strategy. At Five Wealth, we believe the financial plan should be the starting point for anyone looking to start saving towards a financial goal or reviewing their existing arrangements. We then build an investment strategy around your personal risk appetite and financial goals. Regular reviews are essential to keep your financial plan on track and ensure the strategy and investments continue to meet your objectives and reflect any changes to your circumstances. We aim to create lasting ongoing relationships with our clients, developing a successful financial plan backed up by a strong investment strategy.

Five Wealth Ltd is a Chartered Financial Planning and Wealth Management firm based in Central Manchester. We provide independent financial advice to clients throughout the UK, managing assets of c.£660m. Our bespoke financial plans aim to meet the specific needs and circumstances of everyone we work with from business owners to individuals and families. Further information on our services can be found on our website here.

If you would like to discuss our financial planning services in more detail, please get in touch:

Amy Grace – Associate Director and Chartered Financial Planner

Email: amygrace@fivewealth.co.uk

Mobile: 07966 590 849

Your capital is at risk. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a guide to future performance. Investments should be considered over the longer term and fit in with your overall attitude to risk and financial circumstances.

“A goal without a plan is just a wish” – Antoine de Saint-Exupéry

The blog originally featured in the Manchester Law Society Messenger, February 2023.

Topping Up Class 3 NICs

Posted on: January 4th, 2023 by fwEditor

Topping Up Class 3 NICs

State pensions are a crucial aspect of financial planning because they are secure sources of income guaranteed by the State and paid until death. State pensions are funded on a ‘pay-as-you-go’ basis which means that there is no underlying fund from which to provide retirement benefits and the National Insurance Contributions (NICs) of the current working population are used to pay the State Pensions of those who have reached State Pension Age (SPA).

Entitlement to the new State Pension is accumulated through Class 1 NICs (for employees) or Class 2 NICs (for the self-employed). Class 4 NICs (paid by the self-employed) do not contribute towards an entitlement to the new State Pension. Entitlement is based on ‘qualifying years’ and 35 years of NICs are required to gain the full State Pension.

If an individual has gaps in their contribution record they can pay Class 3 NICs. They are voluntary and can be paid by individuals with an inadequate NIC record, allowing them to increase their entitlement to the new State Pension. Generally, if an individual wishes to pay Class 3 NICs, they should ensure they are paid within six years of the end of the tax year in which the contribution shortfall occurred.

The Class 3 NIC rate for 2022/23 is £15.85 per week, so it would cost £824.20 to purchase a full year of State Pension entitlement. If you make payment in respect of a gap in contributions that occurred in the previous two tax years, then you will pay the rate that applied for the tax year in which the gap occurred. If the payment is in respect of a tax year more than two years previously, the rate will be the one applicable in the tax year of payment.

Warning! The current arrangement of being able to pay class 3 NICs to fill gaps in your NIC record going back to the 6th of April 2006 ends on the 5th of April 2023, after which you can only fill gaps going back six tax years. It is crucial to ensure that gaps prior to the 6th of April 2017 are filled in because topping up your State Pension is a very worthwhile exercise – each additional year of State Pension purchased provides an extra pension of £5.29 per week (£275.08 a year). Looking at this from another perspective, it effectively represents an annuity rate of 33.37%(!), meaning the payback period on your initial capital is only 3 years. This represents excellent value for every taxpayer to obtain secure income for life guaranteed by the State.

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