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This month, HNWIs are proving keen to explore their options around pension drawdown, equity release and buying in big on the benighted tech sector.
We’ve seen a violent correction of the tech sector amid numerous firms announcing profit warnings and staff cutbacks of a tenth or more. Shocking equity price falls of 30% or more have been common in recent months and, although there are pockets of resilience, much of the sector has gone distinctly off the boil.
One good piece of news is that the UK market, which has been underweight tech stocks in contrast to those of the US, was therefore not as affected by the rout. Another might be the opportunity this all represents. The more contrarian and brave of our users are now asking if this is the time to pile in and build up stronger positions in tech companies in anticipation of their eventual recovery.
The simple strategy to “buy low and sell high” is of course what all investors should be looking to achieve and, on that basis, this could be a once in a lifetime chance to pick up tech stocks at bargain levels and later reap the rewards. How long that recovery will take and how strong it will be remains to be seen however. The global recession that many think is now inevitable will of course shake out weak companies as consumer spending and technology usage patterns change. Who will survive – and thrive – is bound up in so many variables.
The simple strategy to “buy low and sell high” is of course what all investors should be looking to achieve and, on that basis, this could be a once in a lifetime chance to pick up tech stocks at bargain levels and later reap the rewards
One thing we will say, however, is that trying to precisely time the bottom of the market is going to be an exceptionally difficult task (as it always is). If you are seeking to add to your technology positions while stock prices are low, it might be better to take a steady “drip drip” approach, rather than going all-in in one go.
We would also encourage investors to consider consulting the experts on the best bets to make on the tech sector, as this is an area where it really pays to have institutional grade research and a team of analysts working away on your behalf. Technology trends can be particularly hard to read – even for enthusiastic and quite knowledgeable laypeople.
Property equity release may not be something that one traditionally associates with High Net Worth Individuals, but this seems to be something that even the quite wealthy are increasingly considering as inflation hurts retirees and fears of an even more punitive Inheritance Tax regime grow.
We have fielded a number of questions from individuals who own high-value properties but are lacking somewhat in liquidity and so see equity release as a means to unlock some of their wealth – some wishing to pass substantial sums to their families now, some to supplement their retirement income and others simply to enjoy life’s luxuries.
While equity release isn’t something we would dismiss completely out of hand, we do caution users of our service asking about this that it is absolutely vital to take professional advice from a wealth management specialist before making any decisions
Across the board, a growing number of over-55s have been taking the chance to turn some of the equity in their property into cash this year; the sums released thus far in 2022 have jumped by 21%i on last year and some predict that almost £5.6bn could be released in residential real estate equity by the end of this year in the UKii. The fact that HNWIs in the most expensive property regions in the UK seem to be driving this trend is really worthy of note.
While equity release isn’t something we would dismiss completely out of hand, we do caution users of our service asking about this that it is absolutely vital to take professional advice from a wealth management specialist before making any decisions. There are several dangers that may not be apparent initially, which could even extend to losing the entire value of the family home due to the way later-life mortgages work. There are likely to be a number of other options to consider which could be better value and less risky. For instance, if you have an investment portfolio and are seeking liquidity in the short term, a Lombard loan might be an appealing way to unlock some of your wealth.
i Equity Release Council
ii Henry Dannell
This month, I’m hearing the usual huge variety of wealth management concerns crop up in conversations with our users, but this is the first time that equity release from high-value properties has factored several times. This does seem to be increasingly popular among the affluent now, although there are many downsides that I’ve urged users to talk through with the experts. Whatever the question, we can connect you to professionals who have the answers you need, so why not let us arrange some no-obligation discussions with leading wealth managers, fast and free?
Not even the affluent are totally immune to rising inflation and the cost-of-living crisis, and so tax minimisation strategies have naturally been a focus of many of the conversations we’ve been having with users of our matching service of late. In particular, how to access retirement funds as tax-efficiently as possible has been coming up more and more.
It is often forgotten that while those accessing funds can take 25% of their pot as a tax-free lump sum, after this monies are taxed just as if they were earned from employment (thankfully, National Insurance contributions will no longer apply). This means that if you’ve been lucky enough to build up a substantial pot and would like to maintain a high annual income from it, then you may well find yourself paying eye-watering levels of tax. Those with an income of over £100,000 lose their personal allowance at a rate of £1 for every £2 over this to the point where at £125,140 it is lost completely and an effective 60% tax kicks in.
This means that if you’ve been lucky enough to build up a substantial pot and would like to maintain a high annual income from it, then you may well find yourself paying eye-watering levels of tax
There are options you can explore with flexible drawdown that will help you to minimise the amount you pay, however, the prime one being to take different amounts of income at different times so that you can come in just shy of the next tax band; if you are part of a couple, there are obviously other options to help you keep more of your hard-earned cash by being clever about using all your allowances. These techniques can become complex from a tax code and accounting perspective however, and we always advise people to take expert advice around pension drawdown as mistakes can be incredibly costly.
A global recession now seems to be “nailed on” and some are even saying that the pain could reach Great Depression levels. The wise are therefore seeking ways to mitigate potential risks to their investments and financial plans as a matter of urgency.
Wealth managers will have been preparing their clients’ portfolios, retirement strategies and overall financial planning for some time now. We’ve been delighted to hear from users of our service who feel much more comfortable and confident about the future now that all defensive measures have been taken.
We’ve been delighted to hear from users of our service who feel much more comfortable and confident about the future now that all defensive measures have been taken
The world is undeniably highly uncertain, but you can get proactive about possible changes to the investment and taxation environments well ahead of time. Take our short matching questionnaire and join those who are probing their wealth management strategies for weaknesses with the help of real leaders in this field.
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.