Our First Newsletter of 2019

Our first Newsletter of 2019, and I hope that the new year has started well for you and that you are looking forward to some exciting things over the next twelve months.

In the financial planning world, the year has started with the sad death of Jack Bogle.  “Who?” you may ask, but as an investor in many of Vanguard’s ‘passive/index tracking’ funds, he is a man who has had a major impact on your investment portfolio as the founder of Vanguard back in 1975.

Jack Bogle took a bigger step than anyone ever had before in shaking up the industry. He launched the first ever mutual fund, which is based on the well-known investment principle that a diversified basket of companies which track entire stock market indices can outperform hand-selected (so called ‘active managed’) portfolios.

Importantly, his funds were cheap, and therefore allowed millions of ordinary, middle-class citizens access to the stock markets for the first time.  Vanguard’s strategy remains the same to this day: “take a stand for all investors, treat them fairly, and give them the best chance for investment success”.

It is a principle Jack Bogle carried with him throughout his life. Vanguard, which today has over $5trn of assets under management, is owned by its funds, which are in turn owned by its investors. By not floating the fund on the stock market or giving it over to private equity, Vanguard’s fees were kept at the lowest possible level. Many have suggested that Jack Bogle chose to forgo an enormous fortune to do something right for millions of people, although he didn’t do too badly!

During his life, he wrote 13 books on investing, the most recent one being just last year, entitled ‘Stay the Course: The Story of Vanguard and the Index Revolution’.  The devotees of his investment teachings started a blog based on his advice, www.bogleheads.org; he was a true financial pioneer.

On the subject of stock market indices, we have seen a recovery from the steep declines in early December and the run up to Christmas (which took the shine off my festivities!).

Whether this will be maintained remains to be seen, with the balance of probability likely to be ‘no’ given Trump’s trade wars with China and others, the government shutdown in the US and, of course, the potential impact of Brexit.

Whilst all of these events create uncertainty in investment markets, they do not necessarily always cause markets to fall as, for example, what may end up being perceived as a ‘reasonable’ outcome to Brexit could cause some form of relief rally, as least as far as UK and European equities are concerned? This remains to be seen.

The essential point to bear in mind, though, is that your investment portfolio is highly diversified across equities, bonds and property, based both domestically and globally. A ‘bad Brexit’ and corresponding fall in equity markets in the UK and Europe is therefore unlikely to have the same impact on your portfolio as the headlines would indicate, albeit your portfolio is unlikely to be totally immune.

Just something to bear in mind, as it is not unnatural to consider taking action over events which are purely related to domestic issues, given that this could have a direct impact on your life, whether it is the potential for increasing food and fuel prices or job insecurity.

Every day, I read summaries and predictions ( but only from credible economists and fund managers) about what may happen to investment markets over 2019 and beyond; some are desperately gloomy, others more optimistic.

Often, doing nothing is best and hopefully through the use of financial forecasting software, I have already given you some degree of peace of mind of the practical impact if your investments were to fall severely. In most cases, you may have been somewhat relieved at the lack of practical impact on your Financial Plan i.e. days at the golf course or your clothes budget would not need reining in!

As always, please give me a call if you would like to revisit this, or if you have any concerns regarding current events.

Finally, MiFID II – an EU inspired regulatory directive which has had a major impact (mainly to us and others within the financial planning community) since January 2018, resulting in us providing you with even more information in order to comply with it. Does it directly impact the performance of your investments? Not really, but there is more to come.

Further obligations under MiFID II were delayed until 2019 which, for us, means providing you with more precise information relating to (generally Elevate’s) administration charges, fund management fees and charges, and our fees for the provision of our Financial Management Programme.

Matters have been delayed as the fund managers were not ready and it will be interesting to see if they are ready even now?

You have always been able to see exactly how much has been deducted by Elevate to cover their contract charges and our adviser fees through your online Wrap account, but other companies and financial advisers have not always been so transparent as us, so this move to more explicit disclosure is a positive one as far as I am concerned, despite the extra paperwork that will arise as a consequence.

We will cover off our obligations within your annual Financial Planning Review, which we feel gives a more consistent picture, but Elevate has decided to mail all clients at one given point in time. It has been a little vague as to exactly when, but it has been suggested that this should happen over the first quarter, so a quick ‘heads up’ on that from me.

Hopefully we will get to meet at some point during 2019 and, in the meantime, here’s to a healthy and enjoyable year.