It is possible the scariest thing that will come to your door today will be the postman with a valuation of your investments. No chance of a treat when you open that I’m afraid.
We have entered a period of volatility where swings in major indices of as much as 4% in a day are not uncommon. As it has been a while since we have experienced these and the values of the indices are higher than they were years ago, particularly in the US, it means that headlines quoting 1000 point movements in the Dow have started to appear. But is this something we should really be fearful of long term, or is it the equivalent of somebody jumping out of the shadows and shouting “Boo!”
It is important to remember these types of movements are quite normal. Just as turbulence is not unusual during a flight, falls such as those we are experiencing are also to be expected. Just as experienced flyers don’t get too concerned when the “fasten your seatbelts” sign comes on, long term investors are probably also relatively blasé with the recent falls. However novice flyers tend to be a bit more nervous when they experience their first “shoogle” and no doubt those of you that have only started investing recently will find this time concerning.
Think of your investing lifespan as a long-haul flight. Most of the journey may be calm but there could well be periods of turbulence on the way. To ensure these periods of turbulence do not cause too much discomfort you should always have a spread of investments to ensure you should never be forced to make withdrawals from the parts that are suffering the most. This allows you to take a long term view on the funds that may have fallen the most and give them a chance to recover as they surely will.
As for how long this turbulence will last I have no idea and it is possible we will continue to see falls for a while yet. However, I do know that smoother air lies ahead and keeping calm until that time is the sensible action.
I had however prepared myself for a pre-Halloween fright from our Chancellor and expected he would have sharpened his fangs ready to take a bite out of my pay packet. But no, instead he was like a Golden Retriever ready to lick us to death with kindness. Increasing the Personal Allowance to £12,500 and more pertinently increasing the higher rate band to £50,000 for those outside Scotland was far more generous than I anticipated.
However, this puts pressure on Scotland’s own Prince of Darkness, Derek Mackay the Finance Minister. Will he go along with the rest of the UK and significantly increase the amount we can earn before paying 41%? If he doesn’t we are really getting a raw deal as the threshold for National Insurance is increasing to £50,000, which means that if there is no change to Scottish higher rate thresholds the amount deducted from earned income between £44,080 and £50,000 will be 53% for those that pay National Insurance.
One area that was not mentioned by Mr Hammond was Inheritance Tax (IHT) but maybe he didn’t want to dampen the mood. It has subsequently been announced that the review of the IHT system by the Office of Tax Simplification will be published before the end of the year. There have been rumours that an alternative being considered is rather than tax the dead, each individual in the UK will have a lifetime inheritance allowance and they would pay tax on any inheritances or gifts they receive above this amount.
This is conjecture at this stage but it would be no surprise if at the very least the ability to make unlimited gifts that would be free of IHT provided you live seven years was changed. Who knows, it may well be that Mr Hammond was in reality a Wolf in a Golden Retriever’s clothing.