Inevitably McGee
by Doug Brodie
/1. Your pension – does the patient need surgery or reassurance?
I once saw a consultant in a private hospital about a sore leg: I was concerned it could be an ominous symptom of serious ailments. In 60 seconds he examined the offending limb, prodding in various parts and pronounced ‘nothing serious’. We then spent the next 29 minutes of the consultation discussing running on Hampstead Heath, the mental health benefits of dog ownership and the potential outcome of the coming rugby internationals. Experience and expertise is what I paid for, and having been working in his field of vascular physiology for the last thirty years he recognised the lack of any malignant evidence. My car mechanic is the same – I can describe the funny noise from the dashboard and Pete knows what it is – because he’s been doing this since Moses’ proverbial dog was a puppy.
So it is with pensions and investments: as clients know, we provide reassurance that if there is an issue with their portfolio, products or plans we will tell them so, we don’t fudge key issues. That also includes unrealistic expectations. Oddly, every now and then we have enquiries from people whose expectations are to have a pay rise in retirement, normally justified as “I’m going to have more free time so I’ll spend more”.
Why??
/2. 2024 tech giants versus 2000 tech giants – cliff edge again?
We don’t think so. We know the cliff edge is there, however, we think the cash and the cashflow around the world will keep the edge at bay. We don’t have investment opinions (only data) but if we did, it would be that the major correction is still 2 – 3 optimistic years away.
Thanks to Visual Capitalist
/3. Talking about money…there’s an awful lot of it around
From the diligent team at Marlborough:
...since 2019, US retail investors have parked an additional $912 billion in money market funds – nearly doubling their cash holdings in less than five years. With short-term yields tempting and the promise of safety, it’s easy to see the appeal.
But here’s the thing: history tells us that once money flows into cash, it tends to stay there. It doesn’t rush back into the market, even when interest rates fall. It took years for cash to flow back into stocks after rate cuts in the early 2000s and the financial crisis of 2008.
Having worked with retail investors through everything from Black Wednesday to dotcom to GFC, there's nothing like a fat bank account to underpin the bottom of a market trough, so the availability of retail cash is reassuring: house prices, stock prices, credit card & loan defaults are all relative to available cash.
As the folk from Allied Dunbar used to tell us 'there may be trouble ahead' - though in reality, a sharp correction is only trouble if you get your timing wrong - corrections are expected, they are baked in. There are two things that cause trouble for retail investors: a) running out of time, and b) running out of money.
/4. Just one thing – about pensions and tax
How much can you pay into a pension? £40k? £60k? Depends on your income?
There’s actually no limit, you can pay as much as you want into your pension – it’s the tax relief that’s capped.
You can pay pension premiums in specie, meaning you can make a payment by transferring in a permitted asset, such as listed shares, or commercial property.
You can hold unlisted, private company shares in a pension.
All these things are true, and permitted by current pension legislation, however, you’re unlikely to find a pension company who will let you do so. Just because you can, doesn’t mean you really can. Restaurants are allowed to serve you snails and pickled sea slugs, but you’ll struggle to find one that will.
On tax, if you wondered, on death you pay either capital gains tax on capital gains, or inheritance tax, but not both. That is one reason why sometimes holding onto an investment for life might not be a bad idea.
/5. Can you spot the difference?
Both lines are the S&P 500 index over the last ten years.
As far as I know, we only have three clients with homes in both the US and the UK, and with the bulk of their pension assets in the UK. The chart above shows that investing in dollars is not the same as investing in pounds – it makes a difference. In the US, the S&P is the dominant index and because the US has such giant, oversized funds needing access to the markets, ETFs meet the need very efficiently. Be warned, ETFs are chiefly institutional tools, and when you think of something as simple as ‘I want an S&P ETF’ you’ll soon get caught up in the maze of variants. How confident do you feel picking just the right one?
Leaving the last word to yet another story about the polymath country singer who was Kris Kristofferson:
Kristofferson was desperate to break into Nashville. He had done a stint in the U.S. Army and knew how to fly helicopters. He used that skill to earn some cash by flying to off-shore oil rigs in the Gulf of Mexico. In fact, it was on one of those oil rigs off the coast of Louisiana that he wrote one of his most famous tunes, “Me and Bobby McGee”.
That same Army-earned skill also helped give him his big break. Eager to get into the country music scene, Kristofferson made a bold decision to take a big shot. He took a helicopter and landed it on Johnny Cash’s lawn. He reportedly strutted out of the pilot’s seat with a demo cassette in one hand, and, at least according to Cash, a beer in the other.
According to ABC News, Kristofferson admitted to the stunt, but claimed there was one problem with his grand gesture — Cash wasn’t home at the time.
