The Importance of Financial Planning

The Power of Partnering with a Certified Financial Planner

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The Power of Partnering with a Certified Financial Planner

Financial planning is at the cornerstone of personal empowerment, and for women, it holds particular significance. In a world where gender disparities persist in various areas of life, from earnings to career progression, financial planning is a crucial tool for women to navigate these challenges and secure their future independence.

At Lifetime Financial Planning, we strongly advocate for long term planning for the future, today to provide a sense of financial wellness regarding your future financial self. For women, financial wellness has a particular importance considering that on average, women live longer than men (84.4 years for females vs 80.8 years for males in Ireland in 2020: CSO Measuring Ireland’s Progress 2021) and as a result will require more financial resources if they wish to maintain a comfortable quality of life as they age.
Recent findings from the FPSB Value of Financial Planning Research 2023, undertaken for FPSB Ireland and conducted amongst 1,000+ consumers* in Ireland shed light on the significant impact of financial planning on the financial well-being and confidence of women in Ireland. Here are the key takeaways from the survey:
*52% of respondents were female and of these, 240 are advised and the balance, 296, unadvised.

Women who have sought financial planning advice have elevated levels of financial confidence.

The survey reveals a promising level of financial confidence among advised females, with 92 out of 240 expressing belief in having enough funds for retirement. A substantial majority of 196 out of 240 respondents consider themselves knowledgeable about finance, indicating a solid foundation for making informed financial decisions. Impressively, 199 out of 240 advised females successfully adhere to their financial strategies, highlighting disciplined financial management practices.
The more intimately you know your finances the better; this is particularly important where you share finances with someone. It is important that you can be financially independent just in case something goes wrong – such as divorce, or untimely death, etc.

Women who have a written financial plan are more likely to feel confident about achieving their life goals.

The survey identifies various triggers prompting females to seek financial advice, including specific financial goals and objectives, recommendations from trusted sources such as family, friends, or colleagues, referrals from professional advisers, health-related concerns, and windfalls like inheritances. Before doing anything about your finances, it’s important to set yourself financial goals for the future. The goals should be specific and realistic.
Women often have unique financial challenges, such as longer life expectancy and career interruptions due to caregiving responsibilities. It’s essential to address these factors in long-term financial planning. Understanding your current financial situation, including income and expenditure, assets and liabilities, risk attitude, tolerance, can help women build a solid financial foundation for the future.
Once you have set your objectives and goals, and understand your current financial position, make sure you create a plan of action. Those with a written, comprehensive plan are more likely to feel strongly confident about achieving their life goals. Financial planning is a dynamic ongoing process that requires continuous monitoring. The actions recommended and the goals should be reviewed regularly to take account of a change in income, asset values or family circumstances.

Women who work with a professional financial planner express considerable or complete trust in them.

Building a strong support network is crucial for women’s financial success. Financial planning professionals provide connections with other professionals, such as accountants, solicitors and mentors, to provide holistic guidance. Collaborating with trusted advisers, in particular a CERTIFIED FINANCIAL PLANNER™ professional, who will hold you accountable for your plan and help you make necessary adjustments when, or if, it goes off track will ensure that women receive comprehensive support tailored to their unique needs and goals.
A significant majority of advised females, with 197 out of 240 respondents, express considerable or complete trust in their financial planners. This trust reflects the strong relationships built on transparency, expertise, and personalised guidance, highlighting the importance of trust in the client-adviser relationship.

Engagement with CFP® Professional.

A notable portion of advised females, 104 out of 240 respondents, demonstrate an awareness of the internationally recognised CERTIFIED FINANCIAL PLANNER designation. Welcome news is that 73 out of 240 advised females are fortunate to receive guidance from a CFP® professional, highlighting the value placed on expertise and accreditation in financial planning.

The survey findings highlight key benefits in working with a professional financial planner, including simplifying and explaining financial matters, boosting financial decision-making confidence, saving time and effort in financial decision-making, improving financial well-being and peace of mind, and establishing and achieving financial goals.
Beyond mere budgeting, financial planning encompasses a strategic approach to managing resources, investing wisely, and building long-term financial stability. The survey findings reaffirm the invaluable role of financial planning in empowering female consumers to achieve their financial goals, enhance their financial confidence, and secure their financial futures. Recognising the unique socioeconomic landscape women often face, proactive financial planning not only fosters individual prosperity but also serves as a catalyst for broader economic empowerment and gender equality.

The Importance of Financial Planning

Monthly Investment Note: February 2024

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A Frothy Cappucino…

 

frothy-cappucino

As we close the door on February, things are certainly feeling a little frothy in a number of markets just now.  US equity markets continue to drive higher, led by the phenomenal returns from the technology sector in the all-encompassing Artificial Intelligence space, the US 500 has hit multiple new highs in February and there seems like no end is in sight……watch out for phrases such as it’s different today!!.

With our feet firmly on the ground though, we see many valuation models continue to notch up and most are well above historical norms (>1 SD). With the latest earnings season now behind us, the star performers (you know the ones) with the exception of TSLA, continued to post huge profits, none more so than Nvidia which added a further $277 Bn (yes, you heard right, that’s two hundred & seventy seven with nine zero’s behind it) to its market capitalisation on the back of the statement that it expects revenue streams to continue to grow. Seriously, in February 2020 the shareprice for Nvidia was a respectable $67.94 per share, while today it is trading at $797.82 per share, that’s a compounded annual growth of ca. 85% per year over the last four years. …nose bleed alert!!

In contrast, participants on the fixed income side are indeed having a rougher time of it. Treasury yields swung from 4% in December, to 3.94% in January to a whopping 4.26% today driven by the disconnect between the markets and the message from the FED. J Powell stated explicitly that the FED would be data driven and the markets simply ignored his message, and proceeded to price in a seven point rate cut in 2024. This has now been re-calibrated at break-neck speed, to three rate cuts in 2024. In previous notes, I mentioned to expect rates to commence being reduced in the second half of 2024 and indeed, this now appears more plausible.

As ever, the best advice for long term investors, is just to hold on for the ride. Despite nosebleed valuations, missing out on rallies like we’ve seen in the last 6 weeks is the opportunity cost that can destroy long term returns remembering that the greatest returns throughout the year occur over a handful of days only and are best availed of when investors stay in the market. Trying to time a dip or a peak is a gamble & inevitably leads to missing out on the best days for returns. Statistically, this behaviour has significant negative impacts on portfolios.

On the macroeconomics side of the equation, we see that EU annual inflation[1] dropped slightly from 2.9% to 2.8% in February which was mirrored in Ireland with a decrease from 3.2% to 2.7%. Underneath this drop, we see that In Ireland, the biggest contributors to the rates included price increases for food, utilities, recreation and hotels. Italy showed the lowest inflation at 0.9% while Estonia the highest at 5.0% for the same period.

Some of the headline data which we track is shown in the table below.

EU Inflation US Inflation ECB Rate Fed Rate Brent Crude US 10 Year Equities YTD Equities fPE
2.8% 3.1% 4.5% 5.5% $81.41 4.26% 7.5% 17.83

Reinforcing the message last month; the current US & ECB  interest rate policies continue to have the desired effect on the rate of inflation.  With the 2% sweet spot in sight, it is now time to start thinking about reducing those higher rates to avoid either economy tipping into full recession. The balance faced by the Central bankers here is too much rate reduction, too quickly, and they will be cognisant of the eighties when just such a move tipped the US into prolonged recession. The challenge then is to achieve that “soft” landing where inflation peels back to 2% without the economy tipping into recession…..a bit like steering an oil tanker into a parking spot at your local supermarket.

Sticking with inflation, Europe should be content, and the US irked by the slow pace of its reduction. I would suggest that Europe is experiencing the greater rate reduction as several economies are close to or in technical recession, despite the bloc having registered a 0.1% increase in Q4 2023.  Germany, the EU’s largest economy saw its GDP shrink by 0.3% in the final quarter of 2023 which for the industrial powerhouse of Europe is somewhat worrying.

Like European Central Bank rates, US rates have remained unchanged, and I would suggest this will be the case for a few months more yet. Core inflation is stubborn to get down and a cool hand by Central bankers is required to steer the trading blocs gently towards that all important soft landing where inflation reaches its target of 2% while high employment remains.

So, while great for investment portfolio’s yearly performance, the market froth is a sign of pent-up energy amongst investors to continue to re-allocate their capital, something which must be viewed with a note of caution. So, with the transformative change in the risk-free rate now firmly planted at stage two, we continue to see Short dated bonds paying a higher yield than the average dividend yields for stocks, (4.67% versus 1.5% in the US and 2.06% globally) and that being the case, any future yield drops in bonds, should produce a capital return for short dated bond portfolios.  These two features highlight the comeback of the 60/40 portfolio where now both equities & bonds will deliver reasonable returns for the foreseeable future.

Turning to oil now, we see the price jump from $78 to $81 per barrel bringing us back to the average price per barrel of €82 through 2023. The global threats including the war in Ukraine, Israel’s invasion into the Gaza strip, trouble in the Red sea shipping lanes and all that that brings, still remain. We continue to see US and UK navy tactical bombardments of Houthi rebel positions to protect those valuable shipping lanes, but we move into the warmer season in the northern hemisphere, consumption should be lower and it might give time to resolve issues in that region of the world.

Setting macroeconomics aside, what does all this mean for investors?

Well, year to date, we see a rally in global markets which have delivered about 7.5% increases but with valuations of fPE ratios notching up to 17.83. The biggest contributor is the top ten companies contributing to the US500 with 9% driven in no small part by the technology sector, followed closely by the Japanese rally of 8.7% (I’ll get to this in a moment) and then Euro equities 4.1%. However frothy I deem the US markets, the fear gauge as measured by the volatility index continues to bound around the 13 to 15 range; well below the standard of 20 points which is attributed to volatile markets (last seen in October 2023).

Returning to the Japanese equities story, for the past two years they have been trading at well below (>1-2 SD) their long term average and have now broken free in 2024 delivering a whopping 8.7%  year to date. So, what’s driving this?…well since 2020, both the Euro and Dollar both strengthened against the Japanese Yen, by 36% in Euro terms and 28% in US Dollar terms. Weaker Yen means cheaper exports and that, coupled with significant corporate board room changes at Japan’s biggest companies has led to a resurgence in interest in Japanese companies which are already amongst the best in the world.

In addition, Japan is now making moves to slowly increase its interest rate (Currently -0.1%) to combat rising inflation. That being the case, the Yen will strengthen, so those who bought Japanese assets for relatively cheap Yen, will now also benefit if indeed interest rates do in fact increase. Hence the flood of global capital eastwards.  Don’t forget that Japan is the thirds largest economy in the world, something to be admired of the Samuri warriors…

Looking forward, we are seeing forward price / earnings ratios (one of our measures of value) for global equities continue to increase from long term averages with global equities now trading at 17.83 times (increased from January), European equities at 13 times, with Japanese equities trading at 14.92 (increased from 13.8 in January) and US equities now trading at 20.4 times their forecast earnings.

The long-term forecast for growth in global stocks has reduced slightly to 10.3% with another slight reduction in the average yield of 2.06% from 2.1% in January. This reduces the equity risk premium which is the Forecast growth – the risk-free rate, to ca. 5.7%. However, conditions continue to still drive fund flows into the money markets which are currently yielding ca. 3.98% and remain a valuable component of many portfolios.

As always, we take the long view on Investments and are happy with globally diversified portfolios. In today’s (relatively) normal interest rate environment, we see slightly less fair value across global equities with (fPE’s at 17.8) in comparison with early 2023, where valuations averaged 16.6 times earnings. While the markets have roared so far this year, I would suggest again that as the Central bank’s Monetary policies unfold throughout the course of the year, we can expect to see increased volatility in those capital markets. During these times, it is important to remind ourselves of our investment objective which as always, guides our asset allocation.

For regular long term investors, our view is to continue to buy into the market and for lump sum investors, while the conservative portion of portfolios can be bought quickly, a multi-stage approach to the purchase of the equities portion, might be a prudent option.

Our view, on global bonds has also remained as per last month. With, the US 2 year treasury now yielding 4.67%, which is attractive when compared to the average dividend yield of 2.06% for risk assets and slightly more attractive than some money market funds which are paying the 3.98% yield but with the advantage of higher liquidity. Therefore, with bond yields at current levels, and interest rates probably plateaued but set to change, this asset class continues to look a more attractive investment, than in recent years.

Our cautious view on lower volatility portfolios continues to be implemented through the use of money market funds, currently yielding ca. 3.98% and a small allocation to hedge fund positions to exploit market inefficiencies; all in all, providing some degree of protection in the current volatile climate.

My favoured image this month comes from Vanguard,  courtesy of  Standard Life & depicts the progress in market returns despite the global trauma experienced…Enjoy!

 

time-in-the-markets

[1] Measured by the Harmonised index of Consumer Prices,

 

Sources: Central Banks: Federal Reserve, ECB, CBOI, Sharepad®. Euro Inflation is measured by the Harmonised Indices of Consumer Prices (HICP).  Periodic Market updates & reading materials  from Vanguard, Bloomberg, Ruffer, Davy Select & others depending on subject matter. All views and details contained are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use. 

 

 

The Importance of Financial Planning

Monthly Investment Note: December 2023

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merry-christmasWe would like to wish all our client’s a very happy Christmas & Happy new Year and I would like to thank you once again for
continuing to place your trust in our services. MERRY CHRISTMAS & Enjoy the final note of the year!!

With Dasher, Prancer, Comet, Rudolf, and the rest, including of course the big man himself, all preparing for the big present drop, we start to look at winding down for the Christmas holidays, reflect on the years happenings and cast an eye on the possibilities for 2024.

In November, EU Inflation as measured by the Harmonised Indices of Consumer Prices (HICP) continued its downward trajectory to an average of 2.4% across the bloc with a range of -0.8% in Belgium to 6.9% in Slovakia. Ireland followed suit with lower inflation (3.6% to 2.5%) in the same period.

It’s fair to say at the moment, that the inflation story is starting to subside somewhat, with the Irish economy currently undergoing macroeconomic adjustments, such as reductions in GDP (-1.9%), GNP (-1.1%) and unemployment slightly rising to 4.8% (v’s 6% in the EU), all being attributed to the current ECB interest rate policy. Doing nothing with the interest rates at this stage makes sense as rates unchanged at 4.5%, are effective in impeding inflationary growth and indeed, successfully rolling inflation back closer to the desired 2% rate; the goal of the ECB monetary policy. In her speech, Christine Lagarde, stated categorically that no discussion regarding the roll-back of the ECB rate had taken place, as a specific signal to the markets not to expect rate cuts in early 2024….really!.. though you can imagine that some of the class must have had the odd quiet chat in the corners.

Across the pond in the US, we saw a very small reduction in the rate of inflation from 3.2% to 3.1% which was less than expected and which we read as flat. Like Europe, the Fed funds rate remained unchanged at 5.25% to 5.5% for the month of December. However, the commentary which emerged from FED President Jerome Power did nothing to quell the appetite of the equities markets which interpreted his comments as being “done with rate hikes”. That being the case, a re-pricing of equities has occurred and has led to a rally in November / December leading to a return year to date, of 21%.

The movement in inflation from 3% to 2% is exponentially more difficult economically, due to the more stubborn core inflation as the competing forces of high employment and wage inflation continue to drive prices to higher levels on the demand side and cost of goods on the supply side, in truth, it’s difficult to strike the right balance but the so-called economic soft landing does look like it might actually be possible in the US.

Looking to 2024, though both the ECB and Fed expressed their desire to hold interest rates higher for longer, as inflation approaches the 2% mark, it is entirely plausible that we could indeed see rate cuts in 2024. And the pressure to do so builds, given the level of debt across governments. Remember last month’s note, I mentioned the level of interest payments on the US national Debt was similar to the whole National Defence budget (ca. €1Tn)…..seriously!!…

Turning to US Treasury yields, we continue to observe changes in the yield curve dynamics once again and are putting these down to trading. The 2 year and 20 year bonds are now yielding 4.37% and 4.21% respectively (both down from October) while the 5 year and 10 year bonds are yielding 3.9% and 3.92% respectively (also down since October). So, the transformative change in the risk-free rate has now moved to stage two. Short dated bonds continue to pay a higher yield than the average dividend yields for stocks, and that being the case, the yield drops have also resulted in positive capital gains for bonds in portfolios for the short period….Not bad for the so-called risk-free asset.

Next to oil prices, not quite hitting the predicted prices of $100 Plus per barrel this year, (there is always one!!) but having hit the lofty early $90’s per barrel earlier in the year, prices have for now settled back to $77pb (at time of writing) a swing in correction of ca. 10% over the past month. I mentioned last month that oil supply chains having been re-engineered since COVID, but remember the ship that got stuck in the Suez Canal and the implications of the delay to world trade, in getting it dislodged? Well, it looks like the shipping merchants are now being held hostage on this occasion, by the Iranian backed Somali Houthi Pirates in the Sea of Arden, so much so, that Maersk, MSC and Hapag-Lloyd who account for ca. 50% of global trade transportation, have decided to halt using the Red Sea for the time being until a suitable coalition naval protection force is put into place. I mention this because, BP, one of the worlds biggest oil producers has halted Oil transportation through the straits on the same grounds. So, taking into account COP28, the brutal razing of Gaza which is infuriating the Arab nations, , OPEC plus politics, and the war in Ukraine, there remains a substantial credible threat to global oil supply, driving prices and supply side inflation. Indeed, increased inflation pressures could also be seen where the biggest shipping companies decide to no longer use the Red

Sea trade routes…..there is much to be wary of!

 

Setting macroeconomics aside, what does all this mean for investors?

Well, year to date, returns from global equities markets are ca. 19.3% which is up from October, driven in large part by the aforementioned US Market expectation that interest rate cuts are on the cards in early 2024. European Equities have recovered their recent shock in September to deliver ca. 15.5% since January, while US equities delivered ca. 21.4% and Japanese equities 15.3%, all in Euro terms.

Looking forward, we are seeing forward price / earnings ratios (one of our measures of value) moving once again away from long term averages with global equities trading at 16.5 times (increased from October), European equities at 12.0 times, Japanese equities trading at 14.4 and US equities trading at 18.7 times their forecast earnings. One notable feature of the US market at the moment is the returns showing in the equal weighted factor funds. This suggests that marketeers are on the hunt for value stocks looking beyond the magnificent seven (AMZN, GOOGL, AAPL, MSFT, NVDA, META, and TSLA).

The long-term forecast for growth in global stocks has been elevated slightly up to 10.6% with an average yield of 2.3%. This puts the equity risk premium which is the Forecast growth – the risk-free rate, at ca. 6.3%, nonetheless, current conditions still continue to also drive fund flows into the money markets which are currently yielding ca. 3.9% and which are now a component of many portfolio’s.

As always, we take the long view on Investments and are happy with globally diversified portfolios. In today’s (relatively) high or normal interest rate environment, we continue to see fair value in across global equities (fPE’s at 16.5). We have seen a small resurgence in equities driven by the perceived ECB and US monetary halt in future interest rate rises, which may (or may not) come to fruition and the acceptance that rates will likely not fall to any great extent until late in 2024 at the earliest. Our view, on global bonds has also remained as per last month. As mentioned, the US 10 year treasury  is now yielding a reduced yield of 3.92%, which is still attractive when compared to the average dividend yield of 2.3% for risk assets but not as attractive as some money market funds which are also paying the 3.9% yield and higher liquidity. Therefore, with bond yields at current levels, and interest rates probably plateaued, this asset class continues to look more attractive, than in recent years. Our cautious view on lower volatility portfolios continues to be implemented through the use of money market funds, currently yielding ca. 3.9% and hedge fund positions to exploit market inefficiencies; all in all, providing some degree of protection in the current volatile climate.

 
Sources: Central Banks: Federal Reserve, ECB, CBOI, Sharepad®. Euro Inflation is measured by the Harmonised Indices of Consumer Prices (HICP). Periodic Market updates & reading materials from Vanguard, Bloomberg, Ruffer, Davy Select & others depending on subject matter. All views and details contained are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Monthly Investment Note: September 2023

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The House View Summary:
Dusting off the málaí scoile, September is back to school time and the adjustment back to routine and familiarity, the family taxi service and preparing for another academic year. Hopefully everyone has managed has had some time to rejuvenate the spirits for the final push to the end of the year. We had a plethora of global macroeconomic data during the break period often providing contradictory signals and coalescing to produce a muddy picture of the global economy which I have tried to breakdown as follows;

  • US resilience
  • EU & China laggards
  • Earnings beat expectations
  • The glorious Seven
  • Inflation Combat
  • Bond Market adjustments

In the US, Consumer confidence, labour market and industrial production throughout the summer months remained robust and despite eleven interest rate hikes, economically, the US economy did not slow as quickly as commentators anticipated. US inflation data actually increased to 3.2% in July from a previous of 3% which bucked the year to date trends of reduction from 6.4% in January. It was always known that reducing inflation by the last percent to achieve the 2% Fed target would be fraught with difficulty. Bearing in mind that often, monetary policy takes time to shake through the system, it could just be a matter of time before, we this in the key economic performance indicators. The bottom line is that with the current growth projections, the US is unlikely to tip into recession in 2023 though projections for 2024 do not yet rule this out.

In Europe, Inflation showed a very minor reduction to 5.3% (from 5.4%) and the recent drop in the PMI (purchasing managers indices) suggests likely recession in the coming months. The bottom line is that Europe is struggling economically and the ECB must decide in September, on whether to act hard or soft on future interest rate hikes in the coming months, to steer the economic cycle back to a growth phase. Broadly speaking, while central banks continue to analyse the data, we can continue to expect pro-longed higher interest rates until reversion of inflation rates back to the long-term desired level of 2%. This must be achieved with interest rate adjustment but as mentioned on the last note, our biggest flag for concern continues to be the ability to repay credit in a highly indebted corporate world with the case in point being some of the biggest property developers in the world’s second biggest economy.

Speaking of which, the long-heralded reopening of China has indeed fallen short of expectations with lower exports, foreign direct investment and land sales all declining. So, while the economy will likely still reach its targeted growth of 5% in 2023, in reality, this is far short of expectations from an economy emerging from the throes of COVID.

Turning to Q2 earnings, with the delivery season now almost completed, we saw contraction of US earnings by ca. 3% overall and in Europe by ca, 5% confirming an earnings recession. While it would be expected that the US would likely emerge from this period of earnings recession earlier, (within the next 6 months), European companies are likely to take longer to adjust back to growth; probably down to the faster implementation of the monetary policy by the FED. Guidance on the return of European companies back to earnings growth again is Q2 2024.

Continuing the theme of earnings, the glorious seven (Microsoft, Apple, Tesla, Google, Amazon, Nvidia and Meta) once again outshone their US 500 peers with the all encompassing “AI” narrative and really helped to drive US equities growth so far this year. The markets recognise that Artificial Intelligence is indeed transformational changing technology which will drive future innovation across business sectors. But, despite these heady factors, the fundamentals cannot be ignored. The parody of inflation & economic growth has stumped commentators thus far but with inflation having decidedly dropped in both the US & EU, it is now at the stubborn end 3.2% (US) and 5.4% (EU) where the Central banks must decide whether it is better to continue or hold off on further interest rate hikes in order to achieve their stated goal of 2%. What is not in doubt is that Central Banks are near the end of interest rate hikes cycle and this requires us to consider our options on the credit markets.

Speaking of which, we saw bond markets corrected over the last coupe of months as the continued strength in the US economic data prompted a sell off in US treasuries raising the all important US 10 year yield to 4.34%. It should be noted that the US two year yield remains significantly higher (4.89%) at writing, maintaining the inverted yield curve, an economic feature which very often predicates a recession within 18 months. Fundamentally, this means that the bond market has corrected for higher interest rates for longer, making yields which are available, more competitive and valuable as a part of a diversified portfolio. When Central banks make it clear they are finished raising rates, credit quality should add value to portfolios containing bonds.
Against this economic backdrop, we note that a globally diversified portfolio of equities continues to deliver good value. For portfolio’s not requiring full on risk assets and, with the terminal interest rates starting to appear, our view on long duration bonds has changed from a HOLD to BUY while still acknowledging the utility of the counter correlated hedge funds. Money market funds are now providing higher yields and thus also an attractive option to holding cash on deposit. We also acknowledge the aforementioned liquidity risk as being a significant risk to credit providers and continue to add the counter correlated hedge funds as a risk hedge to diversified portfolios at the lower risk end.

Sources: Central Banks: Federal Reserve, ECB, CBOI, Monthly Market updates from Vanguard, Zurich New Ireland & Bloomberg & Davy Select. All views and details contained are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Monthly Investment Note: July 2023

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One of the golden rules of investing advises investors to avoid timing the markets as anticipation can be a costly venture and is probably appropriate here. With the recent June inflation data from the US starting to show a sustained reduction marked to 3%, from the recent year to date high of 8.1% in Feb, commentators are starting to discuss whether further rate hikes remain necessary to continue the FED’s journey of inflation steerage back to their heralded utopia of 2%. This is turn has stimulated the bond markets to re-price sovereign bonds which, as a consequence, has led to enthusiastic rallies on global markets. On a cautionary note, Euro investors are not necessarily seeing the benefits from this as along with these re-pricing mechanics, we are also seeing a significant weakening of the USD currency versus the Euro. So, while the markets “givith” with one hand, they take with the other.

Broadly, we expect interest rates to continue to rise but at a slower pace and with consideration to evaluate their effect on national CPI data. With this in mind, our biggest flag for concern continues to be corporate liquidity & the ability to repay credit in a highly indebted corporate world. Although behavioural research shows investors have less appetite for risk when interest rates are high, interestingly, most investors’ portfolios are still shaped for a zero interest rate world – but ……….the world has changed!

Against this backdrop, we note that a globally diversified portfolio of equities continues to deliver good value. For portfolio’s not requiring risk assets and, with the terminal interest rates starting to appear, our view on long duration bonds remains from a HOLD to BUY while still requiring the utility of the counter correlated hedge funds. Money market funds are now providing higher yields and thus also an attractive option to holding cash on deposit.

Commentary:
With the first half of the year done & dusted, we saw inflation reductions across the EU and US from the early year highs in the EU (HICP) of 8.6% to 5.4% and the US of 6.4% to 3%, noting of course that the US commenced their rate hikes earlier in the tightening cycle. In Ireland, the pace of reduction was slightly behind that of the European average with a reduction from 8.5% in Feb to 6.1%. EU interest rates were raised to 4% but a hike was skipped in June in the US with the headline FED rate fixed at 5.25%. FED commentary had suggested a further 0.5% increase by the end of the year and bond / equities markets had priced these in at the early part of the year though current sentiment regarding this approach is faltering somewhat with arguments now being made for a continued pause.

During the first half of 2023, we also saw a reduction in Oil prices from $85.91 to $72.3 and settling finally at $79.93 pb, still sub $80 pb despite production reductions driven to no small extent by the economic slow-down in the Chinese economic recovery after the COVID 19 pandemic.

With the recent inflation data from the US, we have seen a re-pricing of sovereign assets in July. US 2 & 10 year bond yields are now 4.668% and 3.791% respectively which represents a 5.5% increase on the short part of the yield curve and a reduction of 2.2% on the 10 year yield since the beginning of the year.

The first half of the year also saw Developed market Equities rally since the lows of 2022 with the US leading the charge delivering ca. 12.7% returns, the Euro stocks providing 11.2% and Japanese stocks providing 10.3% (all hedged to Euros) while the emerging markets was more muted at 3.4%. This was against the backdrop of the dollar v’s the euro which fell 4.9% since the beginning of the year making US exports more attractive.

Whether these market returns are sustainable remains to be seen but a flag of worry remains about the Chinese market post pandemic recovery. As reported last month, May exports plunged 7.5% year on year and further to 12.4% year on year in June. Sino commentators continue to push the line of blaming a “a weak global economic recovery, slowing global trade and investment, and rising unilateralism, protectionism and geopolitics”. Time will reveal how this plays out on the global markets in the coming months.

I would suggest there are other issues at play here too. Rising interest rates, tightening credit lines and reductions in corporate liquidity all provide ingredients of the recipe for a perfect storm. We see monetary inflows to the Japanese Yen currently, why?…….Japanese interest rates are currently -0.1% and bond yields are -0.041 on the short end of the curve and 0.475% on the 10-year bond. If a liquidity crisis does indeed unfold over the coming months, those stocks with low exposure to interest rate sensitive credit tightening policies will likely fare better.

Not to be the harbourer of doom & gloom, enthusiastic investment sentiment has illuminated the star performers in the US markets which once again have been participants in the technology sector driven by the meteoric rise of the potential for Artificial Intelligence applications. The NASDAQ index which contains 100 stocks has first half returns of an eye watering 43.6% in USD but with a fPE ratio of 27.25 for those stocks in comparison to the broader US500 market which is trading with a fPE of 18.8 and compared (again) with global stocks which are trading at fair value of 16.65 times earnings. Noteworthy as well, is the good to fair value of Japanese, European and Emerging Stocks which now trade at fPE’s of 14.21, 12.4 and 12.33 times respectively and higher yields.

We continue to be positive but cautious on a globally diversified portfolio of equities and bonds and with money market funds also now looking attractive providing yields of 3% plus, we are starting to make switches from cash positions into these funds as an alternative. We also acknowledge the aforementioned liquidity risk as significant and continue to add the counter correlated hedge funds as a risk hedge to diversified portfolios.

All views and details contained are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

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Monthly Investment Note: June 2023

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As we roll into the end of the first half of 2023, we continue to see inflation dominate the macroeconomic system, though with the main central banks taking time to consider their next steps in terms of rate increases.

The Euro (HICP) Inflation rate for May is 6.1% (and for Ireland is 6.3%) down from the 7% in April. Across the pond, inflation in the US is 4.9%, (May inflation date is available on 13.06.23) but with core inflation remaining stubborn, the rate at which inflation drops closer to the FED stated 2% inflation target will be slower and more difficult to achieve.

So, interest rate policies across the globe continue to focus on the Central Bank’s goals of inflation reduction with the US considering halting rates at 5.25% for this cycle (but might go another 0.25%) and the European Central Bank with rates at 3.25%, continued to signal that more rate rises were likely. Despite Saudi Arabia deciding to cut oil production by 1M bpd, Oil (Brent Crude) continues to trade below $80 pb ($76 pb at time of writing).

After weeks of negotiations and speculation in Washington, we finally saw a deal between the Republican & Democrat parties to raise the debt ceiling which provided some relief to the US & Global markets, but did anybody really think that the US would default on its sovereign debt obligations? Out of interest, US national Debt is currently ca. $31.8 Tn with a debt to GDP ratio of 96%, much higher than Ireland’s debt to GDP ratio which is ca. 60%.

Stocks in the Asia Pacific region also benefitted from news of a US debt ceiling agreement however, weaker than expected Chinese Purchasing Managers Index and a slower than expected post covid recovery in the region has seen muted returns in 2023. Indeed, China’s exports in May plunged 7.5% year over year to $283.5 billion, where Economists were only expecting a 0.4% drop. May’s fall was so steep that export volumes were lower than those at the start of the year, after accounting for seasonality and changes in prices signalling a slow and difficult recovery to growth.

Time will reveal how this plays out on the global markets in the coming months.

Global equities have continued their rally with the index of global stocks up 10.9% since the beginning of the year. While US equities have risen 11.5%, Japanese equities risen 12.9%, (mostly in the last month), it is now the European equities which underperform the global market with a rise of 10.7% this year so far; (all Euro hedged). This is a lesson for timing the Markets, and it is well known within investment circles that the biggest gains for the year occur over the period of less than 10 days. Timing the markets cannot be done consistently and better to stay within the markets when there is downward volatility, than dip in and out.

The strong performances of the US & Japanese markets are driven by the meteoric rise of the potential for Artificial Intelligence applications into virtually (no pun intended!) every facet of life. It seems that any company which can play a part in the “AI” story has seen phenomenal growth in its share price and this is in turn reflected in the fPE ratios of the NASDAQ which remain high at 24.8 times earnings compared to the overall S&P500 at 18.9 times earnings.

While the performance in European stocks is also impressive, it is driven (in large part) by the good value on offer with a plethora of companies showing strong balance sheets & free cashflows and trading at good value (fPE = 13 x) in other words good quality companies trading at good value and suitable for this economic cycle. A similar situation is seen in Japan with markets trading at 13.6 times forecast earnings and the UK at 14.2 times.

The Importance of Financial Planning

Monthly Investment Note: May 2023

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While global GDP and inflation pressures continue to persist in the financial system, European & US economies are reporting lower inflation in the first quarter of 2023. However, in these economies inflation is still viewed as being stubborn and requiring a considered interest rate increase which is juxtaposed with balancing the cost of credit considerations. The key for Central banks is to find the optimal terminal interest rate; just high enough to continue reducing inflation but not to stifle growth too much and push their economies into recession.
 

At the end of March, US annual inflation was measured at 5% and European inflation at 6.9% (Ireland is estimated to be 7.7%) while UK inflation was estimated to be 8.9% and these headline figures continue to drive interest rate policies from Central Banks, currently. Notably also are the oil prices (as measured by Brent Crude) which have dropped by ca. 7.4% since early January and are currently trading at below $80 pb (ca. $79.60) at time of writing.
 

With the FED interest rate, adjusted in May to 5.25%, EU rates increased to 3.25% and UK rates at 4.25%, bond yields have also risen and have as a result, reduced valuations over the course of the interest rate hikes. While it was thought that the FED might start to ease the rate of interest rate increases early this year, it is now increasingly likely that further rate hikes or longer timeframes at current rates may yet be required. Therefore, it is likely that interest rates may indeed peak over the next 6 months and we continue to move cautiously on long term bond purchases until there is sight of the terminal interest rate, expected later in the year.
 

Global equities have continued their rally with the index of global stocks up 5.97% since the beginning of the year. While US equities have risen 5.35%, Japanese equities risen 3.02%, it is the European equities that continue to outperform with a rise of 11.4% this year so far; (all Euro hedged). This strong performance is driven (in large part) by the good value on offer with a plethora of companies showing strong balance sheets & free cashflows and trading at good value (12.7 x fPE) in other words good quality companies trading at good value and suitable for this economic cycle.  This is in contrast to US equities which are trading at ca. x 18.6 fPE.
 

We continue to favour taking positions in Globally diverse equity funds which are trading at good to fair value and are cautious on new positions in long / medium term bonds for the foreseeable future. These bond calls will be portfolio dependent. Conservatively, therefore, as per our previous notes, we still look to total return funds as potential alternative investments to bond funds.
 
As an aside, the link below (Courtesy of Visual Capitalist) shows an animation of the various business sectors contributing to the growth in the S&P500 in the first quarter 2023. Note the contributions from the mega cap companies which provided the greatest returns….Enjoy!
 
Click Here to See the Sectors Contributing to Growth in the S&P500 in Q1 2023
 

All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Monthly Investment Note: March 2023

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Global GDP and inflation pressures continue to persist in the financial system with the European & US
economies reporting higher than expected inflation and lower GDP for the final quarter of 2022. US inflation was measured at 6.3% and European inflation at 10% (Ireland is estimated to be 8%) in Feb, while the UK inflation was estimated to be 10.1% and these headline figures are driving interest rate policy currently.
 

It was thought that the FED might start to ease the rate of interest rate increases early this year but it is now increasingly likely this may be postponed until later in the year or until they have sight of the core inflation rate (4.7%) falling.
 

With the FED interest rate at 4.75%, EU rates at 3% and UK rates at 4%, bond yields have risen in line and have resulting in valuation reductions in the last 14 months. It is expected that interest rates will continue to rise over the next 6 months and therefore we have decided to halt long term bond purchased until there is sight of the terminal interest rate, expected later in the year.
 

Global equities have enjoyed a start of the year rally with the index of global stocks up 4.3% (in Euro term) since the beginning of the year. While US equities have risen 3.1%, Japanese equities risen 2.4%, it is the European equities who are the start performers following a rise of 7.9% this year so far. (all Euro hedged). This strong performance is driven (in large part) by the good value on offer with a plethora of companies showing strong balance sheets & free cashflows and trading at good value (12.5 x fPE) in other words good quality companies suitable for this economic cycle.  This is in contrast to US equities which are trading at ca. x 18.4 fPE.
 

We continue to favour taking positions in Globally diverse equity funds which are trading at good to fair value and avoiding the purchase of long / medium term bonds as we expect to see further interest rate rises in 2023. Conservatively, therefore, we are looking at total return funds as alternative investments to bond funds.
 

All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

The Wood from the Trees

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With the plethora of media attention across multiple platforms, it can be difficult to stick to your long-term investment plan, due to postponed investment decision making. This can adversely affect long term planning, so, when I’m reminded of all the worry, I often refer to the below chart to provide some perspective.

 

The chart shows that during times of great uncertainty, our worlds innovators, step back re-evaluate & adapt to the new reality in their continued pursuit of greater earnings growth; in other words, they adapt. As owners of these innovative businesses, we share in and benefit from these rewards in the long-term.

 

If you are interested in starting your conversation about how investments fit into your Lifetime Financial Plan, please message me direct or contact us through www.lifetimefinancial.ie

 

Earnings Growth

 

Michael Wall PhD CFP® is a Director of Lifetime Financial Planning. Lifetime Financial Planning Ltd Trading as Lifetime Financial Planning is regulated by the Central Bank of Ireland. All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use. 

 

The Importance of Financial Planning

The Short and Long Term View

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Over the recent economic cycle, the acceleration in Global equities Returns was driven by three catalysts including (1) growth in corporate Earnings (2) a downward trend in interest rates (with bond yields reaching all time lows and indeed dipping into negative territory) and (3) massive liquidity injected into the financial system by Central Banks. (Notably, this resulted in their balance sheets being expanded from $4 trillion to $22 trillion since before the Great Financial Crash). And “Voila”, we are where we are today with market valuations.
Looking across Global Markets, we see divergence in the returns since 2014 when the US (in blue) is included & excluded (in orange). (EAFE: Europe, Australasia, Far East)

 
WORLD & EAFE Standard returns since 1998
NET RETURNS (Euro priced) FROM DEVELOPED MARKETS WORLD (incl US) AND EUROPE AUSTRALASIA AND FAR EAST WORLD (EAFE) (ex US) (Source: MSCI)

 

Taking a closer look at the US markets, we observe today that the Cyclically Adjusted Price Earnings Ratio CAPE for US Equities (shown below) is about 30.6 times earnings compared to its 20 year average of 25.6 and its all time PE average of 17.1. Similarly, the Buffet Indicator (Market Cap to GDP) currently stands at 176.6%. To put that into context “fair” value falls in the range of 93% to 114%.

Ratio of current US500 levels

RATIO OF CURRENT US500 LEVELS TO 10 YEAR AVERAGE PE RATIO ADJUSTED TO INFLATION (CAPE) (Source: Shiller RS)

 

Though US valuations usually tend to be higher than other global regions, it is reasonable however, to attribute this (over) growth in US market valuations (by in large) to the technology sector. While overheated valuations within sectors are not unusual, it appears that the US growth stocks are particularly affected by over exuberant market participation leading to often eyewatering valuations. Indeed, one could argue that we are in a period of irrational exuberance within this sector when we see stocks like Tesla inc (TSLA) trading at Price/Sales = 13.8x, Price/Book Value = 35.2x, Price/Earnings = 224, and EV/Operating cash = 101.3x.
So, the CAPE, Buffet indicators (& others) suggest that US equities are indeed overvalued implying likely lower returns in the long term.
Casting our “Valuation” eyes around the globe however, we see a different picture. In Europe, Australasia, the Far East and Emerging Markets, valuations (and hence long-term returns) do appear more attractive. As the chart below shows, current Price to Earnings (PE) and Future Price to Earnings ratios (fPE) are lower than those for the US.

 
Current & Forward Price to Earnings Ratio

CURRENT (in blue) AND FORWARD (in orange) PRICE TO EARNINGS RATIOS FOR GLOBAL EQUITIES (Source: MSCI)
As investors really favoured “Growth” over “Value” factors for the past 5 years, we are now seeing attractive entry points across the European, Australasia, Far East and in particular, Emerging Markets. An opportune time then to consider adding a list of some of the worlds great and innovative companies to your portfolios from these regions?
Perhaps, but as always, we need to add further consideration and perspective to the analysis. As we begin a cycle of more challenging corporate outlooks and continued low interest rates, global earnings too, will be challenged and we shouldn’t be surprised if overall future returns are lower than the last decade. Indeed, within sectors, we shouldn’t be surprised where we also see swift reversal of fortunes of stocks which are currently in favour.
So how does all this distill into your long-term Financial Plan? From a practical viewpoint, if your plan contains long-term financial objectives, having a solid core of funds invested in Global Equities in your portfolio provides a decent foundation for long-term returns. Being Globally invested, your investment will already be positioned to take advantage when investor sentiment shifts to more attractive valuations within markets and across regions.

At Lifetime Financial Planning, our core beliefs continue to be…..that portfolio diversification, time in the market, not timing, passive investments and a long-term horizon all lead to decent and consistent capital returns in portfolios. We just have to remain disciplined (some would say boring), accept the short-term volatility and ignore the “noise”.

Michael Wall CFP® PhD is a Director of Lifetime Financial Planning. Aidan Wall Financial Services Ltd Trading as Lifetime Financial Planning is regulated by the Central Bank of Ireland. All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Investment Snippets #6

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#STICKTOTHEPLAN: How to deal with Market Volatility

Volatile Markets rattle the nerves of investors, but we should remind ourselves why, as investors, we invest.

Consider that when we purchase shares in a company, we are buying ownership of that company, so we become a shareholder and that entitles us to a share in the profits. The profits may be distributed in the form of a dividend or invested back into the company. The upshot is when a company is profitable; it usually increases its net asset value.

However, the profitability of a company is not always reflected in the share price and visa-versa, Price doesn’t always reflect profitability. This is highlighted in the chart which shows Unilever PLC’s share price and the company’s profitability which we measure using Earnings per Share. Here, we see even with consistent increasing earnings there is significant “volatility” in the share price.

 

Unilver

 

The share price is what most people are familiar with and it can be difficult to tease out the cause of its volatility. Genuine reduction in profits due to  changeable local economic factors, interest rate policy, bond yields and inflation, employment, political interference, and world trade agreements all influence investors emotions to varying degrees and therefore their appetite for investment which is reflected in the share price. A hard look at the facts is always warranted when we see volatility to understand that the investment case remains sound.

If you are a lump sum investor, then downward volatility has to be ridden out. Strong emotions will tempt you to SELL holdings and preserve the CASH. This is a mistake as it will likely crystallize a permanent loss, which if repeated frequently, is the quickest way to destruction of your wealth. Consider also, that you will likely be selling a good value asset at low price which is a bargain for a buyer on the other side.

On the other hand, we view Share price volatility as an opportunity to pick up quality assets at good value. If you are a regular investor, a monthly contribution invested will allow you to take advantage of a lower price paid for your holdings which can help to enhance long term capital appreciation.

And so back to Unilever, which if you had acquired in 31/10/2013 at a price of £25.01 per share, then today, 5 years later, that share is trading at £40.85, which represents a gain of £15.84 (63% or a compound growth rate of 10.31% pa).

How do we deal with market volatility?…….we ALWAYS look at a 5 year investment term.

If you have any queries, reservations, concerns or just want to talk it out, do give us a ring on 085 866 9813

The Importance of Financial Planning

Stand Back from the Scrum Snips #5

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Its happening again, Stock markets are at all-time highs and confidence is flying high. But at Lifetime Financial Planning we use our tried and tested Value Based Investment Strategy to identify good value for our Clients. And from the 600 largest companies in the US and UK, only 12 meet our value criteria currently, which means 98% are not good value. However, the good news is we are likely to see a lot of Volatility in 2017, and volatility always means good value buying opportunities for our Clients.

Talk to us if you would like your Pensions and Investments to be managed in a strategy with a long (20 year) successful track record, and with a focus on value for money assets.

As always, bear in mind that Investments fall as well as rise, and past performance is not a good guide to future performance.