The Daily Mail: What will President Trump mean for your finances?

The associated feature
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The Pure Gold Company

12/11/2016

The Pure Gold Company quoted in the Daily Mail comparing the shocks caused by the Brexit vote and the surprise result of the US election, and suggesting ways for investors to secure their money in the turbulent aftermath.

By Jeff Prestridge

 

  • From investing to property, we look at what President Trump could mean
  • US stock market hit new record high at the end of last week
  • Pound has risen against the dollar and other major currencies
  • All eyes now on US interest rates and how Trump lays out spending plans 

Donald Trump’s triumphant march on the White House has ramifications across the globe, not just in the US. It also has implications for our finances.

We look at what we should do to make our household finances fit for the new Trump world.

 

SHARES

The UK stock market initially reacted adversely to Donald Trump’s victory with the FTSE 100 Index of the 100 biggest listed companies falling by nearly 150 points in minutes on Wednesday.

But by the end of the day, the index had risen – by 1 per cent – allaying fears that a triumphant Trump would spark a major sell-off – though it drifted down again by the end of Friday to close at 6,730. It had echoes of the aftermath of the Brexit vote, when the market fell, only to recover.

Longer term, questions remain as to whether Trump will be good or bad for stock markets worldwide.

In the US, where the stock market welcomed Trump’s election, gurus are undecided as to whether a Republican president will ultimately be good for equity investors. They acknowledge his promised tax cuts should be positive overall for US plc as would reduced regulation.

Experts also believe his presidency will trigger a promised multi-billion dollar spend on improvements to the country’s infrastructure – hospitals, roads, railways and schools – and the defence forces. Good news, therefore, for US companies operating in these sectors.

A greater emphasis on energy from fossil fuels, prompted by Trump’s sceptical view on global warming, should boost firms in this sector while pharmaceutical stocks could prosper, now not threatened by Hillary Clinton’s planned price controls.

Yet there will be losers, especially multi-national companies that could suffer from Trump’s protectionist stance, inhibiting the ability to export. A rise in interest rates, maybe as early as next month, could also result in downward pressure on markets.

Stock markets in emerging economies could also come under pressure, especially if nervousness over Trump’s victory intensifies and prompts a sustained flight to ‘quality’ assets – and the new president persists with his promise to impose tariffs on imports and scrap longstanding trade agreements.

The outlook for European shares is also now more uncertain than ever as Trump’s surprise success suggests ‘anti-establishment’ votes could be registered in the coming Italian constitutional referendum, April’s French presidential election and elections in Germany.

Matthew Beesley, head of global equities at investment house Henderson Global Investors, says the outcomes of these elections all heighten risk to the already fragile growth outlook for Europe.

WHAT YOU SHOULD DO

Despite the uncertainty that the Trump factor now brings to markets, geopolitics and the world economy, most experts say investors should not panic. With interest rates still at rock bottom, the case for investing in equities over the long term remains as solid as ever.

Colin Morton, manager of the Franklin UK Equity Income fund, says: ‘The broad investor landscape remains the same. Equities are an attractive option in a low interest rate, low-growth environment.’

Although the case for equities is robust, investors can mitigate risk. They can do this by ensuring their long-term investments – equity holdings, Individual Savings Accounts and pensions – are sufficiently diversified. This means being broadly invested across assets – bonds, property, infrastructure as well as shares.

It also means holding investment funds and investment trusts, exposed to both the UK and international stock markets, as opposed to holding individual shares. Funds and trusts invest in a portfolio of stocks or bonds, spreading risk. Investors should also continue building their portfolios by investing regularly.

Philip Smeaton, chief investment officer at wealth manager Sanlam Private Wealth, says: ‘In times of economic uncertainty it is easy to get swept up in the headlines and look to find simple answers for what are complex situations.

‘We can speculate on the market impact of the US election but such an event will have less of a long-term impact than some would have you believe. What is key is to ensure that any investments are well diversified.’

It is a view echoed by Adrian Lowcock, investment director at multi-manager investment company Architas. He says: ‘Short-term market swings have little to do with long-term performance.

‘Investors should ensure their portfolios are well diversified, have protection such as exposure to gold and be brave enough to keep buying equities even when markets are heading in the wrong direction. Strange as it may feel now, the world will quickly adjust to having President Trump.’

For investors looking to fine-tune their portfolios in response to last week’s events, some of the country’s leading financial advisers have suggestions.

Darius McDermott, managing director of London-based fund scrutineer FundCalibre, says investors looking to refine their exposure to US equities should consider Brown Advisory US Flexible Equity. It is managed by industry veteran Hutch Vernon, who has more than 30 years of experience dealing with market ups and downs.

There are a number of investment companies putting money into infrastructure projects worldwide but most have little or no exposure to the US. International Public Partnerships, advised by Amber Investment Management and listed on the FTSE 250 Index, has 3 per cent exposure.

Low interest rates have made annuities a less popular route through which to convert a pension fund into a lifetime income.

Yet experts believe Trump’s victory, plus the rise in UK inflation, may gently push up annuity rates, giving new retirees more income from their retirement fund.

Since the Brexit vote, rates have moved upwards. At the beginning of September, a £100,000 pension fund would buy an annuity of £3,928 for a couple aged 65 and 60 – joint life, two thirds spouse’s pension. Now, the same pot would buy an annual income of £4,086.

For those contemplating turning a pension fund into an income, it will probably pay to wait a while – if you can afford to. The longer you wait, the more income your pension pot is likely to secure.

Billy Burrows, of adviser Retirement IQ, says: ‘Donald Trump sitting in the White House will not change the slow and sure increase in annuity rates.’

An alternative to a traditional annuity is taking money from your pension fund as and when you need it. This option has become more popular since new rules were introduced allowing anyone over age 55 to draw down a (taxable) income from their pension.

 

GOLD

Gold is a safe haven in turbulent times. This was proven by a 5 per cent leap in its price on Wednesday when a Trump victory became clear – though the price ended only 2 per cent up on the day. Josh Saul, chief executive of bullion trader The Pure Gold Company, says: ‘The sudden price rise was the biggest since the Brexit vote. Yet Britain voting to leave the European Union was a far bigger shock.’

Gold is measured in troy ounces – which are slightly heavier than a normal ounce. On Friday, it was trading at $1,236 a troy ounce. Since the start of the year its price is up by more than 15 per cent.

WHAT YOU SHOULD DO

In times of uncertainty gold is a safe option – but only make it a small part of your investment portfolio. There are many ways to invest in the metal – from gold bullion or coins to exchange- traded funds and mining funds.

Gold bars or coins bring generous tax breaks. Sovereign and Britannia gold coins are deemed legal tender and so escape capital gains tax if they rise in value. Bullion dealers such as The Pure Gold Company can safely store coins, charging up to 0.95 per cent a year. Others include Baird & Co, Gold Bullion Company, Spink and The Royal Mint.

A gold bar – as defined by the London Bullion Market Association – is made from 400 troy ounces of 24-carat gold. One of these 12.5kg bars costs £430,000 but can be purchased from as little as £20 a slither.

A bullion merchant can charge up to 1.5 per cent of the value of the gold each year for storage and insurance.

It is also possible to invest in gold without owning the metal by putting money into a gold-linked exchange traded fund. This investment vehicle mimics the performance of the gold price. Popular options include ETFS Physical Gold, ETFS Gold Bullion Securities and Source Physical Gold. They can be held in a self-invested personal pension or Individual Savings Account.

Alternatively, look at a fund that invests in gold miners. Funds include BlackRock Gold & General, Investec Global Gold, JPM Natural Resources and CF Ruffer Gold.

 

SAVINGS

The US Federal Reserve – America’s equivalent of the Bank of England – is now less likely to raise interest rates next month than previously thought. If so, this is bad news for hard-pressed British savers hoping for rates to edge upwards at home.

But Trump has said he wants to spend on infrastructure and implement tax cuts. This would suggest a bigger US budget deficit and faster economic growth – leading to inflation and higher interest rates. When that filters through to the UK, savings rates might rise.

Experts doubt any saving rate increases will be imminent. Sue Hannums, of rate-checking company Savings Champion, says: ‘Even a rise in the base rate will not necessarily benefit savers because the relationship between base rate and savings rates is broken.’

WHAT YOU SHOULD DO

Whatever the impact of interest rate changes across the Pond, rising inflation in the UK – currently 1 per cent – means finding a better home for cash savings is vital. There is no need to put up with derisory rates as low as 0.05 per cent.

Consider switching to inflation-beating deals such as Charter Savings Bank’s notice account paying 1.31 per cent and Secure Trust paying 1.24 per cent. Also look at tax-free cash Isas.

Coventry Building Society’s easy access account pays 1.1 per cent while Kent Reliance’s 60-day notice Isa pays 1.05 per cent. Some current accounts pay decent interest. Nationwide’s FlexDirect, pays 5 per cent on a maximum £2,500 (falling to 1 per cent after 12 months).

MORTGAGES

Whether interest rates rise or fall in the US, there is no excuse for UK borrowers to pay over the odds for mortgages – as rates have never been cheaper. Charlotte Nelson, of rate comparison service Moneyfacts, says: ‘The mortgage market is seeing the lowest rates there have ever been.’

WHAT YOU SHOULD DO 

It is now or never for those who want to lock into a bargain fixed-rate loan. For those with a 25 per cent deposit, the best two-year fixes include 1.19 per cent from First Direct and Leeds Building Society and 1.24 per cent from HSBC. Among the best five-year fixed-rate loans are those from First Direct, Leeds and HSBC at 1.99 per cent.

The cheapest ten-year fixes are offered by TSB at 2.64 per cent, HSBC at 2.69 per cent and TSB at 2.74 per cent.

 

PROPERTY

Homeowners, first-time buyers and renters may face more competition for property and see prices go up in the UK as Americans flee the Trump presidency.

Estate agents have recorded increased demand from American buyers, with many arranged deals conditional on the election result. Camilla Dell, of agent Black Brick, says Central London is a safe haven for nervous Americans.

She explains: ‘The mobile wealthy of the US will find it easy to move. They can live anywhere in the world and Central London is a safe haven asset class.’

It may not just be American buyers vying for property. Donald Trump managed to offend several nationalities and minorities on the campaign trail and many predict this could mean investors and buyers from areas such as the Middle East and China focusing instead on the UK housing market.

A chronic shortage of properties in London means additional competition to buy or rent homes will push up prices. Toby Cockcroft, director of Croft UK Real Estate, which specialises in country houses in Yorkshire, says enquiries from Americans are up 60 per cent.

He adds: ‘Americans are getting more bang for their buck and they want to own a little bit of England.’

WHAT YOU SHOULD DO

More demand for homes in prime areas such as Central London should boost house prices so homeowners would do well to stick and welcome American neighbours – and buyers.

Source: The Daily Mail

 

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"A gold bar – as defined by the London Bullion Market Association – is made from 400 troy ounces of 24-carat gold. One of these 12.5kg bars costs £430,000 but can be purchased from as little as £20 a slither."

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