How to stop following the investment crowd and stick to your strategy

We’re only weeks into 2025, and it’s already been one filled with market volatility and uncertainty. At times like this, being part of a crowd might feel comforting, but following the investment decisions of others could lead to choices that aren’t right for you.

Political and economic uncertainty means investors may already have experienced the value of their investments falling this year. In fact, towards the end of January, you might have been affected by the value of US technology stocks falling sharply.

The sudden emergence of Chinese AI app DeepSeek, which rivals US AI technology at a fraction of the cost, led to some investors questioning whether the US’s dominance in the sector would continue.

According to the BBC, following the release, Nvidia, which makes chips for AI, saw share prices fall 17% on 27 January – the biggest single-day loss in US market history. The next day, the share price began to recover but remained significantly below where it had been the previous week.

It wasn’t only Nvidia that was affected either, many other US technology businesses experienced a fall in share prices. Indeed, the Nasdaq – a technology-focused US index – was down 3.5% when markets opened on 27 January.

With other investors seemingly selling off their US technology stocks, you might have been tempted to follow the crowd and do the same.

Market volatility can trigger herd instinct among investors

Herd instinct is a type of financial bias where people join groups to follow the actions of other people. When investing, it might mean you make similar investments to others or that you sell your investments when share prices fall. In fact, herd instinct at a large scale could lead to market crashes or create asset bubbles.

It’s easy to see why this happens. Being part of a crowd can offer a sense of comfort, especially during periods of uncertainty. In contrast, standing out from the crowd could mean you feel vulnerable or that you’re making a mistake by going against the grain.

So, following the crowd may feel like the sensible option. After all, if everyone else is doing it, it must be the right decision.

Yet, it’s not as straightforward as that. In fact, herd mentality could harm your long-term plans and wealth.

When following the lead of others, you might assume they’ve already carried out research, so you skip analysing the decision. The other investors could also be acting based on herd instinct or making a decision that’s right for them, but that doesn’t automatically mean it’s the right option for you.

3 useful strategies that could help you focus on your own path

While it can be difficult to not compare your investment decisions with those of others, remember, with different goals and circumstances a great investment for one investor isn’t right for another. 

So, here are three useful strategies that could help you focus on following your own investment path.

1. Develop a clear investment plan

One of the key steps to reducing the effect of herd mentality on your decisions is to have a developed investment plan. By outlining your objectives, you’re in a better position to understand the types of opportunities that are right for you.

If you have confidence in your investment strategy, you’re also less likely to be tempted to make changes. For example, if you know your investments are on track to provide “enough” to reach your long-term goals, taking additional risk for a chance to secure higher returns might not be as appealing.

As a financial planner, we can help you create an investment plan that provides you with a clear direction.

2. Diversify your investments in a way that reflects your plan

One of the challenges of investing is keeping emotions in check. You’re more likely to follow the crowd when the market or your investments face a sharp fall or rise. It might mean you feel uncertain about the investments you’ve chosen, so you start to look at what others are doing.

By diversifying we won’t shield you from all market movements, but it could mean your McLaren portfolio is less exposed to volatility. By investing in different asset classes, sectors, and geographical areas, when one part of your portfolio experiences a dip, it could be balanced by gains in another. As a result, it may mean the value of your investments is less likely to experience large fluctuations and limit knee-jerk decisions.

3. Be aware of your investment risk profile

All investments involve some risk. However, the level of risk can vary significantly.

So, understanding risk could mean you’re able to confidently pass by opportunities that you know involve more risk than is appropriate for you even if it seems like everyone else is investing in it.

Contact us if you would like to talk about your investment strategy

If you’d like to talk about how to invest in a way that aligns with your goals and circumstances, please get in touch. We can work with you to create a tailored investment strategy that may give you confidence in the steps you’re taking.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Investment market update: January 2025

Concerns around potential trade wars following President Trump’s inauguration weighed on investment markets in January 2025, but there was positive news too. Read on to discover some of the factors that may have affected the performance of your investments.

Keep in mind that short-term market movements are part of investing and taking a long-term view is an important investment strategy for many people.

UK

Headline figures were positive for the UK.

UK inflation fell to 2.5% in the 12 months to December 2024, data from the Office for National Statistics (ONS) shows. According to the Guardian, there’s a 74% chance the Bank of England (BoE) will cut interest rates in February as a result. More recent data and a further uncertainty surrounding the impact of significant increases in taxation and business costs, make the outlook for a cut now at 50%.

The ONS also reported the UK economy returned to growth in November 2024, as GDP increased by 0.1%. While it’s only a small rise, it follows three months of stagnation.

What’s more, the International Monetary Fund expects the UK to grow by 1.6% in 2025 and be the third-strongest G7 economy in terms of growth.

In encouraging news for the chancellor, at the World Economic Forum, PwC revealed that the UK is the second-most attractive country for investment, only falling behind the US. It marks the highest rank for the UK in the 28 years PwC has carried out the survey.

Sharp rises in borrowing led to the UK bond market making headlines.

On 8 January, UK government debt hit its highest level since the 2008 financial crisis, just a day after 30-year bond yields were at the highest level since 1998. Bonds rising could lead to mortgage lenders increasing rates and could affect the value of pensions, particularly those who are nearing retirement and are more likely to hold bonds.

Markets calmed down the following day but continued to experience ups and downs throughout January.

After the turmoil in the bond market, the FTSE 100 – an index of the 100 largest companies listed on the London Stock Exchange – was down 0.9% on 10 January. The biggest faller was financial group Schroders, which saw a dip of 4.3%.

Yet, just weeks later, the FTSE 100 hit a record high and exceeded 8,500 points for the first time on 17 January. The boost of around 1% was linked to speculation that there would be several interest rate cuts this year thanks to falling inflation.

However, many businesses still aren’t confident.

According to the British Chambers of Commerce (BCC), confidence among British businesses fell to the lowest level since former prime minister Liz Truss’s mini-Budget in September 2022. The pessimism was linked to chancellor Rachel Reeves’s £40 billion tax increases, which have placed a large burden on businesses. The BCC survey suggests 55% of firms plan to raise prices as a result.

Similarly, a survey from the BoE suggests more than half of UK firms plan to cut jobs or raise prices in response to employer National Insurance contributions increasing in April 2025.

The effects of the chancellor's Budget were also evident in S&P Global’s Purchasing Managers’ Index (PMI).

The index fell to an 11-month low in December and into contraction territory. Rob Dobson, director at S&P Global Market Intelligence, noted there were also sharp staffing cuts as some companies acted now to “restructure operations in advance of rises in employer National Insurance and minimum wage levels”.

Europe

Data paints a gloomy picture for the eurozone.

As expected, following an interest rate cut by the European Central Bank to boost the flagging economy, inflation across the eurozone increased. In the 12 months to December 2024, inflation was 2.4%.

Germany – the largest economy in the bloc – reported GDP falling 0.2% in 2024 when compared to the previous year, and it follows a decline of 0.3% in 2023.

According to an index from sentix (a sentiment index), the challenges Germany is facing are negatively affecting investor morale across the eurozone. Indeed, investor confidence fell to a one-year low at the start of 2025. Germany is set to hold a snap general election in February, which could ease some of the uncertainty investors are feeling.

PMI figures from the Hamburg Commercial Bank fail to offer investors optimism.

While the eurozone service sector improved, it was still in decline at the end of 2024. In addition, the construction sector continues to contract and new orders fell markedly, suggesting that a recovery isn’t on the horizon.

US

Dominating the headlines in the US in January was the inauguration of Donald Trump, which took place on 20 January. Trump will serve a second term as US president and promised a “golden age” for America in his inaugural address.

In the first days of his presidency, Trump continued to make similar trade threats to those he made during his campaign. He suggested a 10% tariff on Chinese-made goods arriving in the US could be implemented as early as 1 February 2025. Trump also hinted that he was considering levies on imports from the EU, as well as a potential 25% tariff on the US’s two largest trading partners, Mexico and Canada.

According to the US Bureau of Labor Statistics, inflation increased to 2.9% in the 12 months to December 2024, up from 2.7% a month earlier. The inflation data could mean the Federal Reserve is less likely to cut interest rates in the coming months.

Indeed, on 13 January, Wall Street fell when it opened as traders expect interest rates to remain where they are.

Technology-focused index Nasdaq fell 1.3% and the S&P 500, which tracks the 500 largest companies listed on stock exchanges in the US, lost 0.8%. Pharmaceutical firm Moderna experienced the largest slump when share prices fell 24% after the company cut its outlook due to shrinking demand for its Covid-19 vaccine. 

Markets faced more turmoil on 27 January. The emergence of a low-cost Chinese AI model, DeepSeek, led to concerns about the sustainability of the US artificial intelligence boom.

According to Bloomberg, shares in US chipmaker Nvidia fell by 17% and erased $589 billion (£473 billion) from the company’s market capitalisation – the biggest in US stock market history.  

Other US technology giants saw share prices fall too. Microsoft, Meta Platforms and Alphabet, which is the parent company of Google, saw losses between 2.2% and 3.6%. AI server makers saw even sharper drops, with Dell Technologies and Super Micro Computer sliding by 7.2% and 8.9% respectively.

PMI data from S&P Global indicates business could pick up at the start of 2024. In fact, the service sector posted its biggest growth in output and new orders in December 2024 since May 2022. The jump was linked to firms anticipating more business-friendly policies under the Trump administration.

Asia

Threats of trade tariffs from the US in 2025 meant Chinese manufacturers rushed to fill orders at the end of 2024. Indeed, exports increased by 10.7% in December 2024 when compared to a year earlier, according to official customs data. With exports outpacing imports, China’s trade surplus was just under $1 trillion (£0.8 trillion) in 2024.

China’s National Bureau of Statistics also reported the economy hit its official target of growing by 5% in 2024.

Chinese manufacturer BYD could be on track to overtake US technology giant Tesla this year. BYD revealed it sold 1.76 million battery electric cars in 2024 falling only behind Elon Musk’s company, which sold 1.79 million. In fact, when including hybrid vehicles, BYD surpassed Tesla.

However, the new year didn’t start positively in the Chinese stock market. On 2 January, weak manufacturing data contributed to a sell-off of Chinese stock. The Chinese Stock Exchange fell by 2.7%, and the Chinese yuan also fell to a 14-month low against the US dollar.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

Research: Financial stability could be the key to retirement happiness

While the saying might be “money can’t buy happiness”, research suggests that financial stability certainly plays a role in your overall wellbeing. In retirement, when you’re no longer earning a salary, finding a way to create financial stability could be a vital part of building a lifestyle that allows you to enjoy the next stage of your life.

Legal & General and the Happiness Research Institute carried out a study to uncover what makes people happiest in retirement.

The happiest respondents enjoyed good health and satisfying close relationships. They also valued their independence and filled their time with meaningful activities. Together, these factors may help you create a retirement that supports your wellbeing.

Underpinning these components was a consistent key factor – a predictable income.

Interestingly, retirees often didn’t need a large income, but feeling financially secure was important. Indeed, the research found that a stable income of £1,700 a month for an individual supported happiness. The boost of a higher income started to level off once it reached around £2,000 a month.

Over the last few years many households, including retirees, have had to adjust their spending as high inflation has led to higher outgoings. So, it’s perhaps unsurprising that financial stability is valued.

In addition, changes to how you can access your pension in 2015 have offered greater flexibility to retirees. While many welcomed Pension Freedoms, they also added a layer of complexity and may mean some retirees no longer receive a reliable income from their pension savings.

3 types of retirement income that are reliable

The research found that many retirees were concerned about their financial security, and 27% said their finances are often or sometimes unpredictable or difficult to keep track of.

So, understanding what income is reliable and whether it could meet your essential outgoings might offer peace of mind. Here are three types of dependable income you might receive once you retire.

1.  State Pension

The State Pension often provides a foundation to build your retirement income on. It’s valuable for two key reasons:

• It provides a regular income you can rely on.

• Under the triple lock, it increases each tax year, which helps to preserve your spending power.

The full new State Pension would provide an income of £221.20 a week, or around £11,500 a year, in 2024/25. However, the amount you receive will depend on your National Insurance (NI) record and when you reach State Pension Age.

Usually, under the new State Pension rules, you’ll need at least 35 qualifying years to receive the full amount. You can use the government’s State Pension forecast to understand how much you could receive and whether you’d benefit from filling in NI gaps.

One potential issue to note is that you may plan to retire before State Pension Age. The State Pension Age is currently 66 for both men and women and it’s set to rise to 67 between 2026 and 2028. The government could announce further increases in the future too.

So, you might need to take a higher income from other assets before you reach State Pension Age to bridge the gap.

2. Defined benefit pension

If you have a defined benefit (DB) pension, also known as a “final salary pension”, it’ll pay you a regular income from when you reach the retirement date until you pass away.

How the amount of income it provides is calculated varies between pension schemes. However, it’s usually linked to the number of years you paid into the scheme and your salary.

In many cases, the income provided will rise in line with inflation and the scheme would provide an income for your partner if you pass away first.

3.  Annuity

If you have a defined contribution (DC) pension, you’ll often be able to access your savings when you reach the normal minimum pension age, which is 55 (rising to 57 in 2028).

One of the options you have with a DC pension is to purchase an annuity. An annuity would provide you with an income for the rest of your life or a defined period, and might help to create financial stability in retirement.

You may choose an annuity that will rise in line with inflation or would provide an income for your partner if you passed away first.

A flexible income could also provide you with financial security in retirement

With a DC pension, there are other ways to create a retirement income too. While these options might not provide a reliable income, they could still offer a sense of financial security and might better suit your needs.

For instance, you may choose flexi-access drawdown. With this option, your pension would typically remain invested and you withdraw an income, which you can adjust. This might be useful if your income needs could change throughout retirement.

Understanding the potential long-term effect of your withdrawals, and calculating what a sustainable withdrawal rate looks like for you, could help you feel confident in your finances even if you choose a flexible income.

Contact us to talk about how you could create financial stability in retirement

Most retirees will receive an income from several different sources. For example, you might benefit from a reliable income from the State Pension and a DB pension, which you supplement with a flexible income from a DC pension.

Juggling these different income streams can be confusing and might mean you’re worried about your finances, even when you’re in a good position. A financial plan could help you understand which options are right for you and give you confidence in the future, so you’re able to enjoy a happy retirement.

Please contact us if you’d like to arrange a meeting with our team.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

3 important variables that could affect your sustainable pension withdrawal rate

Retirement is an exciting milestone, with more free time to dedicate to the things you enjoy. Yet, it can also be a daunting time, especially when it comes to managing your finances.

Flexi-access drawdown is a popular way to access your pension savings as it provides flexibility and means you’re in control of your income. However, it also means you’re responsible for ensuring you don’t run out of money.

With the pressure of managing pension withdrawals, it’s perhaps unsurprising that a study in IFA Magazine found that almost half of retirees are worried about spending too much too soon.

Indeed, statistics from the Financial Conduct Authority indicate some retirees could be withdrawing money from their pension at an unsustainable rate.

For example, more than 30% of people accessing a pension with a value between £100,000 and £249,000 in 2023/24, withdrew at least 8% of their pension. Some of these people may have other pensions or assets they could use to fund retirement, but others could find they face a shortfall in the future because they’re accessing their pension at an unsustainable rate.

One of the challenges of managing pension withdrawals is that some factors are outside of your control.

The known unknowns of retirement

When you’re planning your retirement income, you’re likely to need to consider known unknown factors – you know they will affect your retirement plan in some way, but accurately predicting exactly how they’ll affect you at the start of retirement isn’t possible. 

The list of known unknowns might be lengthy and some won’t affect all retirees. However, there are three key variables that most retirees could benefit from considering when calculating their sustainable pension withdrawal rate.

1. Life expectancy

If you knew how long your pension needed to provide an income, you could simply break it down into even blocks and rest assured that you wouldn’t run out.

In reality, you don’t know how long your pension needs to last. The average life expectancy could provide a useful indicator, but it’s far from certain.

According to the Office for National Statistics, a 65-year-old man has an average life expectancy of 85. However, he also has a 1 in 4 chance of reaching 92 and around 1 in 10 will celebrate their 96th birthday. For a 65-year-old woman, the average life expectancy is 87, with a 1 in 4 chance of reaching 94 and around 10% will celebrate their 98th birthday.

So, if you based pension withdrawals on the average life expectancy, there’s a chance that you could outlive your pension by a decade or more.

As a result, erring on the side of caution when calculating how long you’ll spend in retirement could be useful. A retirement plan could help you balance long-term financial security with enjoying your early years of retirement.

2. Inflation

The income you’ll need to maintain your lifestyle during retirement is unlikely to be static. Instead, inflation will usually mean your income will need to increase each year.

The Bank of England (BoE) has an annual inflation target of 2%. While this might seem like it’ll have little effect on your income needs, over decades it could add up. In addition, the recent period of high inflation has highlighted that the cost of goods and services can rise at a faster pace.

According to the BoE, if you retired in 2018 with an annual income of £40,000, just five years later your income will need to have increased to almost £50,000 just to provide you with the same spending power.

Failing to consider the effect inflation might have on your needs and wealth could derail your plans.

Indeed, an IFA Magazine report suggests the number of retirees searching for a job increased by 16% in 2024 when compared to a year earlier due to rising living costs.

3. Investment performance

One of the potential benefits of choosing flexi-access drawdown is that your pension will usually remain invested. This provides an opportunity for your pension to generate investment returns.

However, it’s not always straightforward. The performance of your investments could have a direct effect on the sustainable withdrawal rate.

For instance, during a downturn, you’d need to sell a greater proportion of your pension investments to achieve the same income. This could mean you deplete your pension quicker than expected and leave a potential shortfall in the future.

When weighing up the effect of investment performance, you might need to consider questions like:

• What are my expected investment returns?

• What is an appropriate level of risk for me in retirement?

• How should I manage pension withdrawals if the value of my pension falls?

Regular reviews could help you assess investment performance and make adjustments to your retirement income when appropriate. 

Other unexpected factors could affect your retirement finances too

It’s not just these three known unknowns of retirement that could affect your finances, either. Other variables outside of your control might affect your income needs too, from emergency repairs to your home to care costs later in life.

When creating a retirement plan, adding a buffer and carrying out regular reviews could help you manage your finances and feel confident about the future.

Get in touch to talk about creating a sustainable retirement income

Contact us to talk about your retirement plans and how you might manage financial variables, including known unknowns. A retirement plan could give you confidence in your finances and mean you can focus on enjoying the next chapter of your life.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

Plans changed? Updating your financial plan could offer reassurance

Even the best-laid financial plan might need to change at times. If you find yourself in that position, you might benefit from reassurance that you can still reach your goals and will be financially secure.

There’s a whole host of reasons why you might want to adjust your financial plan.

In some cases, it might be a decision you’ve made. Perhaps you’ve decided you want to gift money to loved ones to help them reach their goals, or you want to take a higher income from your pension to fund a new-found hobby.

Other times, the changes might be due to factors outside of your control. For example, if you’ve been made redundant, you might need to create an income until you can find a new position.

Whatever the reason, it can be scary to change course. One cause of apprehension might be the fear of the unknown. Fortunately, updating your financial plan could help you feel more in control and confident.

Updating your cashflow model could help you analyse the impact of the changes

When you create a financial plan, one useful tool that you might use is a cashflow model.

You start by inputting some basic financial information into the model. For example, you might add the value of the assets you hold now, your income, and your outgoings.

One of the key benefits of a cashflow model is that it can help you visualise how your wealth might change over time.

So, you need to provide information to allow it to create a forecast too. This data often falls into two categories:

• Your actions – These would be the financial steps you plan to take, such as how much you plan to contribute to your pension each month or the amount you’ll add to an emergency fund.

• Assumptions – Some factors that might affect your finances are outside of your control, so for these areas, you may make realistic assumptions. For example, you might review your pension and include average annual returns of 5%.

With these details, a cashflow model can project how your assets and wealth may change and even look decades ahead so you can consider long-term goals.

As a result, cashflow modelling can help you understand if the steps you’re taking now are enough to secure the future you want. But it’s not just useful when everything is going to plan, a cashflow model may be even more valuable when you face unexpected changes.

It’s important to note that the projections from a cashflow model cannot be guaranteed. However, it can provide a useful indicator and highlight where there could be potential gaps in your financial plan.

A cashflow model could help you assess the short- and long-term impact of your new plans

So, you’ve worked with a financial planner and created a cashflow model that aligned with your aspirations. But now, your plans have been derailed. Luckily, you can update the information and model your new circumstances or goals.

Let’s say you’d previously planned to retire at the age of 65. However, ill health has forced you to step back from work five years sooner than you expected. You might have questions like:

• Can I afford to take an income from my pension in line with my previous plan?

• If I had to take a lower income, how would it affect my lifestyle?

• Are there other assets I could use to supplement an income from my pension?

• Could retiring sooner affect the value of the estate I leave behind for loved ones?

You can alter the information that goes into your cashflow model to help you answer these questions. So, in the above scenario, you might see how taking the same income you’d previously planned but five years earlier affects your risk of running out of money during your lifetime.

You might find that you have enough to be financially secure and can move forward with your retirement plans.

Alternatively, you may find that your new plan might leave you in a financially vulnerable position in the future. In this case, you can use the cashflow model to try different solutions to understand what might work for you.

By realising there’s a potential shortfall sooner, you’re in a better position to bridge gaps or find a different option, so you’re able to proceed with confidence.

Get in touch to update your financial plan

If your circumstances or goals have changed, you can arrange a meeting with our team to update your financial plan. It could help you assess the potential long-term implications of the changes and understand what steps you might need to take to keep your plan on track.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow modelling.

How to pass on assets to vulnerable family members

When creating an estate plan, there might be people you want to pass wealth to but they’re not in a position to manage their finances. Using a trust could provide a way to leave a vulnerable loved one assets and feel confident they’ll be effectively managed.

Trusts aren’t used as commonly as other ways to pass on wealth, such as gifting or leaving an inheritance directly. In fact, according to government figures, there were only around 733,000 trusts and estates registered on the Trust Registration Service as of March 2024. Yet, in some circumstances, a trust could present a valuable option.

There are many reasons why you might consider someone vulnerable or not want to pass on assets directly to them. You might consider using a trust if you want to pass on wealth to:

• A child

• A person at risk of financial abuse

• Someone who has made poor financial decisions in the past

• An adult who has a disability that affects their ability to manage finances.

A trust may allow you to improve the financial security of loved ones without them being responsible for managing assets.

A trust means someone you choose can manage assets on behalf of beneficiaries

A trust is a legal arrangement that you (the settlor) set up where assets are managed by a person or people (the trustee) for the benefit of one or multiple other people (the beneficiary).

So, while the beneficiary may benefit from the assets, it’s the trustee who will manage them. As the settlor, you can set out how and when you want the assets, and any income they generate, to be used.

For instance, if you want to pass on wealth to your grandchild, you might name their parents as trustees. You could state money may be withdrawn from the trust to cover educational costs and, once the child turns 25, they can withdraw and take control of the remaining assets.

Or, if you want to provide for a disabled adult, you might create a trust that states the trustee is to provide the beneficiary with a regular income for the rest of their life.

Crucially, as the settlor, you can set the terms of the trust so that it suits your goals.

You should note that there are several different types of trust and, once set up, it can be difficult or impossible to reverse the decisions you’ve made. So, seeking professional legal advice if you think a trust could be an option for you may be valuable.

3 important questions to consider if you’re thinking of using a trust

Before you set up a trust, it’s important to consider if it’s the right option for you. Here are three essential questions that may help you start to weigh up the pros and cons.

1. Who would act as the trustee?

Choosing someone to act as a trustee can be difficult, so you might want to consider who you’d ask.

You want a person you can trust to act in line with your wishes and in the best interest of the beneficiaries. However, you may also want to think about the skills they have – are they comfortable handling finances? Are they organised enough to manage the trust effectively?

You can choose more than one trustee, and set out whether you’d like them to make decisions together. You may also choose a professional to act as a trustee, such as a solicitor or financial planner, who would charge a fee for their services.

2. What would be the aim of the trust?

Thinking about the reasons for creating a trust is essential, as it might affect the type of trust that’s right for you and the terms you set out.

For example, a trust that’s simply holding assets until a certain date could be very different from one you want to use to preserve family wealth for future generations.

In some cases, you might find that an alternative option is better suited to your needs.

Let’s say you want to set money aside for your grandchild to access when they turn 18. A Junior ISA (JISA) allows you to save or invest up to £9,000 in 2024/25 tax-efficiently on behalf of a child. The money held in a JISA is locked away until they reach adulthood. So, it might be more appropriate and avoid the complexity a trust may add.

3. How much control would you give the trustee?

If you have a clearly defined idea about how you want the trust to operate, you might choose to set out exactly when the assets can be used. Alternatively, you may give more control to your trustee and allow them to use their judgment.

There isn’t a right or wrong answer, so focusing on what’s important to you is key.

When setting out terms or restrictions, you may want to spend some time weighing up different scenarios and the effect they might have.

For instance, if you want the trust to provide a defined income, you might want to consider:

• How the trustee should adjust the income for inflation

• Whether they can withdraw a lump sum in certain circumstances

• If there is a point you want the beneficiaries to take control of the assets.

Rigid restrictions could have unintended consequences.

Let’s say your loved one has an opportunity to purchase a property. Withdrawing a lump sum to act as a deposit could mean their day-to-day costs fall and provide greater security when compared to renting, but restrictions might mean this isn’t possible. Or if they face a medical emergency, accessing the wealth held in a trust could enable them to receive treatment quicker or provide more options.

Contact us to talk about your estate plan

A trust is often just a small part of an effective estate plan. If you’d like to discuss how you might pass on wealth to loved ones in a way that aligns with your goals and considers your wider financial plan, please get in touch.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

The Financial Conduct Authority does not regulate estate planning, tax planning, or trusts.

5 useful allowances and exemptions that will reset at the end of the tax year

Using allowances and exemptions could reduce your overall tax bill and help you get more out of your money. On 5 April 2025, the current tax year will end, and many tax-efficient allowances and exemptions will reset. So, here are five that you may want to consider using before the 2025/26 tax year starts.

1. ISA allowance

ISAs provide a popular way to tax-efficiently save and invest. Indeed, the latest government figures show in 2022/23, 12.4 million ISAs were subscribed to with around £71.6 billion being collectively added to accounts.

For the 2024/25 tax year, you can add up to £20,000 to ISAs. If you hold money in a Cash ISA, the interest you receive wouldn’t be liable for Income Tax. Similarly, if you invest through a Stocks and Shares ISA, any returns generated aren’t liable for Capital Gains Tax (CGT).

If you don’t use your ISA allowance before the tax year ends, you’ll lose it. So, it could be worthwhile reviewing your saving and investing goals now.

Before you place money into an ISA, it’s often a good idea to consider your goal. For short-term goals, a Cash ISA might be suitable for your needs. On the other hand, if you’re putting money away for a goal that’s more than five years away, you may want to consider if you could benefit from investing.

In addition, if you’re aged between 18 and 39, you could open a Lifetime ISA (LISA). In the 2024/25 tax year, you can add up to £4,000 to a LISA and receive a 25% government bonus. The £4,000 LISA allowance counts towards your overall £20,000 ISA allowance.

However, if you withdraw money from a LISA before the age of 60 for a purpose other than buying your first home, you’d pay a 25% penalty. As a result, a LISA is often most suitable for those saving to get on the property ladder.

2. Dividend Allowance

If you’re a business owner or hold shares in some companies, you might receive dividends.

You don’t pay tax on dividends that fall within your Personal Allowance, which is £12,570 in 2024/25. In addition, you can receive up to £500 in dividends before Dividend Tax is due under your Dividend Allowance. So, dividends could offer a valuable way to boost your income without increasing your tax liability.

You cannot carry forward unused Dividend Allowance.

Even if your dividends could exceed the allowance, the tax rate you pay could be lower than receiving a comparable amount that was liable for Income Tax. The rate of Dividend Tax you pay depends on your Income Tax band. In 2024/25, the rates are:

• Basic rate: 8.75%

• Higher rate: 33.75%

• Additional rate: 39.35%

So, making dividends part of your financial plan could reduce your overall tax bill even if you’re liable for Dividend Tax.

3. Capital Gains Tax Annual Exempt Amount

Chancellor Rachel Reeves made several changes to CGT in the Autumn Budget, including increasing the main rates. Consequently, you could find your tax liability is higher than expected when you make a profit when you dispose of some assets.

Indeed, the Office for Budget Responsibility estimates CGT could raise £15.2 billion in 2024/25, which may then increase to £23.5 billion in 2028/29.

From 30 October 2024, the standard rates of CGT are:

• 24% if you’re a higher- or additional-rate taxpayer

• 18% if you’re a basic-rate taxpayer and the gains fall within the basic-rate Income Tax band.

Importantly, the Annual Exempt Amount means you can make profits of up to £3,000 in 2024/25 before CGT is due. So, if you plan to dispose of assets, timing the decision to make use of this exemption could be valuable.

You cannot carry forward the Annual Exempt Amount into the new tax year if you don’t use it.

4. Pension Annual Allowance

Pensions provide a tax-efficient way to save for your retirement as contributions benefit from tax relief and the interest or investment returns generated are tax-free.

In 2024/25, the Pension Annual Allowance is £60,000 – this is the amount you can tax-efficiently add to your pension in a single tax year, so you might also need to consider employer contributions and those made by other third parties. However, you can only claim tax relief on up to 100% of your annual earnings, or £2,880 if you’re a non-taxpayer.

There are two reasons why your Annual Allowance may be lower.

• If your adjusted income is more than £260,000 and your threshold income is more than £200,000, the allowance will taper. For every £2 your income exceeds the adjusted income threshold, your Annual Allowance will fall by £1. The tapering stops at £360,000, so everyone retains an allowance of £10,000.

• If you’ve already flexibly accessed your pension, the Money Purchase Annual Allowance may affect you. This reduces the amount you can tax-efficiently add to your pension to £10,000.

You can carry your Annual Allowance forward for up to three tax years. So, you have until 5 April 2025 to use any unused allowance from 2021/22.

5. Inheritance Tax annual exemption

Government figures suggest Inheritance Tax (IHT) bills are on the rise. Indeed, IHT tax receipts between April 2024 and October 2024 were £5 billion – around £500 million higher than the same period last year.

If your estate could be liable for IHT when you die, passing on wealth during your lifetime could be a valuable way to reduce a potential bill.

However, not all gifts are considered immediately outside of your estate for IHT purposes. Some may be included in your estate for up to seven years, which are known as “potentially exempt transfers”.

So, using allowances and exemptions that enable you to pass gifts to your loved ones without worrying about IHT might be an important part of your estate plan.

In 2024/25, the annual exemption means you can pass on £3,000 without worrying about IHT. You can carry forward your annual gifting exemption from the previous tax year, so you could gift up to £6,000 in a single tax year and have it fall immediately outside your estate.

There are often other allowances or ways you could reduce your estate’s potential IHT bill. Please contact us to talk about steps you may take. 

Get in touch to discuss your end-of-year tax plan

If you’d like to talk about which allowances and exemptions you may want to use to reduce your tax bill in 2024/25, please get in touch. We’ll work with you to help you understand which steps could be right for your circumstances and aspirations.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts. 

The Financial Conduct Authority does not regulate tax planning, Inheritance Tax planning, or estate planning.

Investment market update: December 2024

Political instability in Europe and further afield affected investment markets in December. Read on to find out what other factors may have influenced your investment returns at the end of 2024.

Remember to focus on your long-term goals when assessing the performance of your investments. The value of your assets rising and falling is part of investing. What’s important is that the risk profile is appropriate for you and that your decisions align with your circumstances and aspirations.

UK

Hopes that the Bank of England (BoE) would cut its base interest rate before the end of 2024 were dashed when data showed inflation had increased.

Figures from the Office for National Statistics show inflation was 2.6% in the 12 months to November 2024, which was up from the 2.3% recorded a month earlier.

This led to the BoE deciding to hold interest rates despite speculation that a cut was on the horizon. The central bank also said it expects GDP growth to be weaker at the end of 2024 than it had previously predicted.

Data paints a gloomy picture for the manufacturing sector.

According to S&P Global’s Purchasing Managers’ Index (PMI), UK manufacturing hit a nine-month low as output fell for the first time in seven months in November 2024. The decline was driven by new orders falling. Notably, manufacturers are struggling to export their goods, with new orders contracting for 31 consecutive months. Demand has fallen in key markets, including the US, China, the EU, and Middle East.

A survey from the Confederation of British Industry (CBI) indicates that manufacturers aren’t optimistic about the future either. The organisation said orders at UK factories “collapsed” in December to their lowest level since the height of the pandemic in 2020. The slump was linked to political instability in some European markets and uncertainty over US trade policy when Donald Trump becomes president.

Chancellor Rachel Reeves wants to reduce UK trade barriers with the US, stating she wanted to end the “fractious” post-Brexit accord as she went to meet eurozone finance ministers at the start of the month. Closer ties with the EU may benefit some firms that are struggling with exports.

Retailers are also experiencing challenges.

The festive period is often crucial for retailers. Yet, data from Rendle Intelligence and Insights are “bleak” with footfall in the first two weeks of December down 3.1% when compared to 2023. A slew of high street names entered administration in 2024, including Homebase, The Body Shop, and Ted Baker, and the research suggests more could follow suit in the year ahead.

December was a month of ups and downs for investors in the UK stock market.

The month started strong when stock markets increased across Europe on 3 December – dubbed a “Santa rally” in the media. The FTSE 100 – an index of the 100 largest firms on the London Stock Exchange – was up 0.7% despite worries about the economic outlook. EasyJet led the way with a 4% boost.

Yet, just mere weeks later, on 17 December, the FTSE 100 hit a three-week low and lost 0.7%. The biggest faller was Bunzl, a distribution and outsourcing company, which fell 4.6% when it warned persistent deflation would weigh on profits in 2024.

While it might have felt like a bumpy year as an investor, research shows the FTSE 100 has performed well. Indeed, according to AJ Bell, the index had its best year since 2021 and delivered a return of 11.4%. The top performers were NatWest and Rolls-Royce, while JD Sports and B&M were at the bottom of the pack.

Europe

Much like the UK, the manufacturing sector in the eurozone is struggling. Indeed, PMI data shows the sector continued to contract in November 2024 as new factory orders fell. Germany recorded the fastest drop in output and, as the bloc’s largest economy, could drag economic data down.

Dr Cyrus de la Rubia, chief economist at Hamburg Commercial Bank, told the Guardian: “These numbers look terrible. It’s like the eurozone’s manufacturing recession is never going to end.”

Credit ratings firm Moody’s unexpectedly downgraded French government bonds, which are now rated Aa3 – the fourth highest rating – following the collapse of Michel Barnier’s government. MPs had refused to accept tax hikes and spending cuts in Barnier’s Budget.

Moody’s said: “Looking ahead, there is now very low probability that the next government will sustainably reduce the size of fiscal deficits beyond next year. As a result, we forecast that France’s public finances will be materially weaker over the next three years compared to our October 2024 baseline scenario.”

The news, unsurprisingly, led to French bonds weakening.

European markets also benefited from the so-called Santa rally on 3 December.

Germany’s DAX, a stock index of the 30 largest German companies on the Frankfurt Exchange, broke the 20,000-point barrier for the first time, despite a new election being called after the government collapsed. The recent boost means the DAX increased by around 3,000 points during 2024.

Similarly, Paris’s stock market index, the CAC, gained 0.6%. Luxury goods makers, like Hermes and LVMH, were among the biggest risers.

US

Unlike Europe, US manufacturing could give investors something to be optimistic about.

The PMI reading for November 2024 was 49.7, up from 48.5. While this means the sector is still below the 50-mark indicating growth, the signs suggest it’s stabilising and could move into more positive territory in the new year.

The service sector paints an even better picture. The PMI indicated the sector is growing at its fastest pace since the Covid-19 pandemic. Expectations of higher output linked to growing optimism about business conditions under the Trump administration led to a flash PMI reading of 56.6 for December, comfortably placing the sector in growth territory.

The job market also bounced back after disappointing figures in October. According to the US Bureau of Labor Statistics, 227,000 jobs were added to the economy in November, compared to just 36,000 a month earlier.

Yet, inflation continues to weigh on the US. In the 12 months to November 2024, inflation increased slightly to 2.7%.

While the Federal Reserve went ahead with an interest rate cut, taking the base rate to 4.25%, it also suggested it would make fewer cuts than expected in 2025 if inflation remains stubborn. The comments led to the S&P 500 index closing almost 3% down, while the tech-focused Nasdaq fell 3.6% on 19 December.

President-elect Trump is set to take office on 20 January 2025, but his plans are already influencing markets. Indeed, on 2 December, the dollar rallied after Trump warned countries in the BRICS bloc that he would impose 100% tariffs if they challenged the US dollar by creating a new rival currency.

The BRICS bloc was originally composed of Brazil, Russia, India, China, and South Africa, which led to the acronym. They have since been joined by Iran, Egypt, Ethiopia, Saudi Arabia and the United Arab Emirates.

Asia

In a move that shocked citizens, South Korea’s president declared martial law on 3 December, which led to political chaos. The uncertainty led to South Korea’s currency dropping to a two-year low and exchange-traded funds (ETFs), which track the country’s shares, fell sharply. Indeed, the MSCI South Korea EFT dropped by more than 5% in the immediate aftermath.

Outside of South Korea, stock market performances were more positive in Asia.

On 9 December, Hong Kong’s Hang Seng was up by 2% after China said it would implement a more proactive fiscal policy and planned to loosen monetary policy in 2025. The market was also aided by consumer inflation in China falling to a five-month low in November to 0.2%.

On the same day, Japan revised its economic growth upwards, leading to a 0.3% boost to the Nikkei 225 index.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.