The Importance of Financial Planning

Monthly Investment Note: November 2023

The House View Summary:

With our Celtic Samhain festival over for the year, the real horrors of the world are laid bare, flashing on our screens as we enter November. Coming towards the year end, we have one eye on the investment journey of the past 10 months and one eye on where we may end up at the end of the year.

In October, EU Inflation as measured by the Harmonised Indices of Consumer Prices (HICP) continued its downward trajectory from an average of 4.3% to 2.9% with a range of -1.7% in Belgium to 7.8% in Slovakia. Ireland followed suit with lower inflation (5.0% to 3.6%) in the same period. All this points to ECB interest rate policy, with interest rates unchanged at 4.5%, being effective in impeding inflationary growth and indeed, successfully rolling inflation back towards the desired 2% rate which is the goal of the ECB monetary policy.

This is a far cry from the start of year when we experienced an inflation rate of 9.2% in the EU and 8.2% in Ireland.  Noting, of course, that like coastal erosion, inflation erodes “permanently” the value of money over time; our €100 today will no longer buy us the same basket of goods as this time last year.

Jumping across the pond to the US, we note a smaller reduction in the rate of inflation from 3.7% to 3.2% and like Europe, the Fed funds rate remained unchanged at 5.5% for the November meeting, a portent  that perhaps, progress was slowly being made towards the 2% acceptable rate. However, some commentary emerged from a few Federal State Central Bankers, around a further increase in the FED rate by another 25 bps, something which will be addressed as the data emerges. Raising the FED rate further will depend on how core inflation will behave to the sustained higher interest rate environment. This is anything but trivial and given the US is at near “full” employment, will be more difficult to gauge in the coming months.

Looking forward to next year, both the ECB and Fed have expressed a desire to hold interest rates higher for longer, something which will no doubt hamper earnings growth on the equities side. I came across a very interesting chart recently which was published by Research Affiliates, regarding US interest rates. The chart shows the Federal Govt interest payments (in blue) versus the National Defence, Consumption & Investment are now almost aligned, in other words, the US government is now paying interest at the same level as is allocated to the huge defence budget, (ca. €1Tn per year).

fed-interest-payment Turning to US Treasury yields, we are now starting to see changes in the yield curve dynamics. The 2 year and 20 year bonds are now yielding 4.83% and 4.82% respectively and the 5 year and 10 year bonds are yielding 4.43% and 4.45% respectively. These yields are all down since September indicating that the bond sell-off in US debt is probably close to being over.

Finally, we are seeing that Oil prices, having hit the lofty early $90’s per barrel earlier in the year have for now returned back to $81 per barrel (at time of writing) a swing in correction of ca. 11%. No doubt, Middle East dynamics, OPEC plus and the war in Ukraine, could still threaten supply, but supply chains to the developed economies for both crude Oil and natural gas have been re-engineered over the past 12 months and stocks have been replenished ready for the coming winter months.

So, economics aside, what does all this mean for investors? Year to date, returns from global equities markets are ca. 13.7% which is down by ca. 9% from the July high of 15.1%. European Equities have recovered their recent shock in September to deliver ca. 9.4% since January, while US equities have delivered ca. 16.3% and Japanese equities have delivered 11.2%, all in Euro terms. These are increases from the September numbers and show a return of confidence in risk assets.

Looking forward, we are seeing forward price / earnings ratios continuing their reversion to long term averages with global equities trading at 15.4 times, European equities at 11.3, Japanese equities trading at 14.1 and US equities trading at 17.3 times their earnings. These are all lower than their seven month averages indicating that (apart from the magnificent seven) equities globally, are trading at good to fair value in the current interest rate environment.

The long-term forecast for growth in global stocks has remained largely unchanged at 10.4% with an average yield of 2.3%. This puts the equity risk premium at ca. 5.6%, nonetheless, current conditions still continue to drive fund flows to the money markets which are currently yielding ca. 3.8% and which are 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 falling to 15.4). 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 4.45%, which is attractive when compared to the average dividend yield of 2.3% for risk assets. Therefore, with bond yields at current levels, and interest rates almost at their forecast apex, 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. 3.8% 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: October 2023

The House View Summary


1

As the leaves turn a different shade of green & we start to light the fires indoors, heading into the final quarter of the year, we are starting to see a change in sentiment in Markets.

In September, EU inflation (HICP) across the bloc, reduced by 0.9% to 4.3% (from 5.2% in August), US inflation remained flat at 3.7% and Irish inflation actually rose slightly to 5% (from 4.9%). The conclusion from these data as articulated by the respective central bank presidents is that the “job is not yet done”; the “job” being restoring economies back closer to the normalised inflation rate of 2%.

How this is achieved creates a conundrum for central bankers, where on the one hand, they have a remit to bring inflation under control and on the other, they don’t wish to send their economies into a tailspin of recession. The so-called soft-landing option is their desirable outcome and in the US (at least) this might seem plausible, while in the EU, this might pose more challenging given that some economies (Germany) are already in recession. The big question on everyone lips at the moment is whether both the ECB and the FED will hike another 0.25% in interest rates or hold the current rate level for longer.

2

Technically, there are plausible arguments for both cases, but I want to drill down to the case of hiking rates. As a business, with the increased rate hikes, the cost of credit increases. This places pressures on margins, leading to lower earnings which inevitably leads to a price correction of publicly quoted companies, seen in September across most developed markets. All is not rosy on the Sovereign side too, as higher interest rates lead to higher yields (the US 10 years Yield is 4.91%; its highest since 2007), which means higher debt servicing costs and less liquidity for national investments.

Extending this further and incorporating the stubborn high (core) inflation we are still seeing, both industry and governments are now being hit on both sides at the same time. With the costs of raw materials and labour increased significantly over the past two years, margins and returns on capital are again lowered. Finally, with inflation still high but relatively stabilised, we are now seeing a potential shortfall in oil production. Should the tragic events of the middle East not be resolved, this will exacerbate. Oil has already pushed passed the $90 per barrel range, a psychological trigger for alert with investors.

3

So, what does all this mean for investors? Year to date, the returns on global equities markets have dropped from 15% (in July) to ca. 11% at time or writing which is a downward reprice of the markets by ca. 26% from the high in July this year. Notably however, trading volumes are low suggesting that many participants are holding safe-haven assets. Indeed, with US inflation at 3.7% and US 10 year bond yields at 4.9%, who can blame them. Similarly, we are seeing money market funds providing 3 to 4% in yields, so the parking of new capital in risk-off assets seems to be a prevalent feature of current market conditions.

As always, we take the long view on globally diversified investments. In today’s (relatively) high or normal interest rate environment, we continue to see fair value in across global equities (fPE’s falling to 15.8), a return towards fair value for US equities (fPE = 17.3) and as noted when we compare the stock market capitalisation with US GDP. Just to highlight one important point, when we strip out the capitalisation of the magnificent 7 (AAPL, MSFT, AMZN, GOOG, TSLA, NFLX and Meta), and apply equal weight to all US500 stocks, we see and negative -0.8% return of the combined businesses, YTD. Something to ponder. No surprise then when we see the price correction due to prolonged, higher, interest rates but this highlights the importance of maintaining our outlook on global equities.

4Our view, on global bonds has also changed. As mentioned, the US 10 year treasury is now yielding 4.9%, its highest since 2007, which is attractive when compared to the average dividend yield of 2.3% for risk assets. Therefore, with bond yields at current levels, and interest rates almost at their forecast apex, this asset class now looks more attractive than in recent years. Our cautious view on lower volatility portfolios is augmented by money market funds, currently yielding ca. 3.85% and hedge fund positions; all in all, providing some degree of protection in the current volatile climate.

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: September 2023

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

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.

The Importance of Financial Planning

Monthly Investment Note: June 2023

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

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

The Pace of Recent Interest Rate Hikes is Expected to Ease

According to a Bloomberg survey, the European Central Bank (ECB) is expected to ease the pace of rate hikes to 0.25% from next week as the central bank weighs a pullback in bank lending against sticky inflation and a more resilient than expected economy.

It is anticipated that beyond next week’s hike, further 0.25% hikes in June and July will be delivered taking the peak rate to 3.75%. The results envisage that the first cut to borrowing rates will occur in October.

The Importance of Financial Planning

Monthly Investment Note: March 2023

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

Monthly Investment Note: February 2023

On the back of a dismal 2022, global markets have somewhat rallied during January 2023 on the back of a tapering of inflation expectations and sight of what the market perceives to be a landing area for the terminal interest rates.
 

US Stocks posted gains after the announcement of an above expectations, Gross Domestic Product (GDP) figure for Q4 of 2022. Showing that GDP in the US rose by 2.9% in the last quarter of 2022. Consensus among economists had been for a 2.6% increase. The higher-than-expected result was viewed by many as an indication of a more positive economic climate than had previously been forecast.
 

The gains seen in European stocks of late have resulted in positive sentiment from investors in the Eurozone, however the European Central Bank (ECB) has remained hawkish in its stance towards tackling inflation. ECB President Christine Lagarde has consistently left little room for doubt about the central bank’s commitment to raising rates and with the ECB set to announce an interest rate decision in the coming week, many investors are poised for a 0.5% rate increase.
 

Last week also saw the release of the Eurozone Purchasing Managers Index (PMI) for manufacturing and services activity. The figure came in at 50.2 in January, up from 49.3 in December and ahead of expectations of 49.8. This result represents moderate growth while the flash composite PMI for the UK dropped to 47.8 from 49.0 in December adding to investors doubts about recession risk. UK equities finished the week down -0.2% in euro terms. Indeed, coupled with the latest report from the IMF suggesting that the UK will be the only developed economy to enter recession in 2023,
 

Finally, equities in Japan had a stellar week returning 2.8% in euro terms. Much of the performance is seen as a result of the Japanese central bank’s commitment to maintain ultra-low rates. With inflation showing signs of tapering and economic indicators stronger than previously anticipated, there is a cautiously positive sentiment for equities markets currently and we continue to recommend a globally diversified portfolio of equities as part of any regular investment strategy.
 

Additionally, with rising interest rates driving the correction in bond prices and yields, in 2022, bonds now offer an attractive portfolio addition for investors for the foreseeable future.
 

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 CSO Household Finance & Consumption Survey 2020

The CSO Household Finance & Consumption Survey 2020 has been published.

This publication by the Central Statistics Office presents the results of the 2020 Household Finance and Consumption Survey (HFCS), which was carried out between July 2020 and January 2021. Detailed information on household assets and liabilities is collected by the HFCS, as well as data on gross income and credit constraints & the full survey report is available via the link https://www.cso.ie/en/releasesandpublications/ep/p-hfcs/householdfinanceandconsumptionsurvey2020/introduction/

The survey provides an insight into the nations wealth and the data was collected from private households on the basis of self-assessment.  A summary of the results is presented below:

 

household-finance-consumption-survey-2020

  • The median net wealth value of Irish households is €193,100. The median net wealth value, (defined as gross wealth less debt), is obtained by arranging all households in ascending order from the smallest to the largest value and then selecting the middle value. Therefore, half of all households have a net wealth value less than €193,100.
  • More than two-thirds (69.6%) of all households own their main residence, either with or without a mortgage. The median value of the household main residence (HMR), for those households that own their HMR, is €260,000.
  • In 2020, 4.1% of all HMRs owned with a mortgage are in negative equity.
  • More than two-thirds (68.1%) of all households have some form of debt. Overall, the median value of debt for households with any form of debt is €25,000.
  • The proportion of credit constrained households is 6.4%. A credit-constrained household is one that applied for credit and was turned down or received less credit than the amount applied for. It may also be one that considered applying for credit but did not do so due to the perception that the application would be turned down.
  • The median debt to asset ratio, the ratio of total liabilities to total gross assets for households with debts, is 23.3%.
  • The debt to income ratio, the ratio of total liabilities to total annual gross household income, is 40.8%.
  • For households that have a mortgage on their HMR, the median loan to value ratio, the ratio of the outstanding amount of the HMR mortgage to the current value of the HMR, is 45.2%.
  • More than nine out of every ten households (97.1%) own some form of financial asset (e.g. savings, shares, voluntary pensions.) For households that own financial assets the median value is €13,300. See PxStat table HFC2008.
  • The Gini coefficient for net wealth, (a statistical measure of inequality), is 65.4 in 2020.  See Figure 8.1.

households-with-assets-debts

 

If you would like talk to us about your personal finances, contact michael@lifetimefinancial.ie or aidan@lifetimefinancial.ie

Michael Wall Ph.D CFP® is a Director at 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 Wood from the Trees

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

Sustainable Investment – A Step Change in Thinking

Sustainable Investment at Lifetime Financial Planning

THE WORLD IS CHANGING

Global sustainability challenges such as flood risk and sea-level rise, privacy and data security, demographic shifts and regulatory pressures are introducing new concerns for investors.

More than 3 in 4 people in Ireland are concerned about the impact of climate change on the environment according to recent research from Aviva Ireland and more of us are doing something about it.

A MORE AWARE INVESTOR IS EMERGING

A growing body of studies suggest that millennials are asking more of their investments. Over the next two to three decades, the millennial generation could put between $15 trillion and $20 trillion into U.S.-domiciled Environmental, Social & Good Governance (ESG) tilted  investments, which would roughly double the size of the current U.S. equity market.

CORPORATE SCRUTINY IS INCREASING

With better data required from companies combined with superior ESG research and analytics capabilities, we are seeing more systematic, quantitative, objective and financially relevant approaches to ESG investing. This allows investors to categorise companies according to their desired values.

AT LIFETIME FINANCIAL PLANNING,  WE BELIEVE ….

Investors can make a real & positive contribution to the world through their investment choices by…

  • Implementing negative screening of undesirable companies and
  • Favouring Positive Environmental, Social and Good governance criteria
  • Aligning these criteria & choosing cost effective investment funds
  • Without compromising on performance

 

Sustainable Investment is driving change in the industry - Lifetime Financial Planning

Source: MSCI ESG Investing  https://www.msci.com/our-solutions/esg-investing/esg-ratings

 

With our tailored ESG portfolios, you can join millions of others worldwide and orientate your Pension & Investment funds to invest in companies which operate in accordance with good Environmental, Social and Governance policies and practices.

 

If you would like us to help you use your capital on your journey for a better more sustainable world, contact michael@lifetimefinancial.ie or aidan@lifetimefinancial.ie

 

Michael Wall Ph.D CFP® is a Director at 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.