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How a global fund lets you invest around the world easily

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how a global fund lets you invest around the world easily

‘Be greedy when others are fearful’.

There can’t be many investors who don’t know that famous Warren Buffett quote, but the proportion that pay heed to it when the bad times come knocking is probably fairly low.

For some time I’ve said that the next time markets fell 30 per cent, I’d be buying as much as I could.

This was on the basis that while the stock market can continue to fall considerably beyond that, such a drop is usually followed sometime later by a strong bounce back.

Global outlook: New investors can look outside to the UK to markets like Asia, which many think are set to fare better in a post-Covid world.

Global outlook: New investors can look outside to the UK to markets like Asia, which many think are set to fare better in a post-Covid world.

Global outlook: New investors can look outside to the UK to markets like Asia, which many think are set to fare better in a post-Covid world. 

My magic 30 per cent number was hit in March, but did I pile in? No, I was circumspect while others were fearful instead of greedy.

I stuck a chunk of cash into my Sipp and Isa around the new tax year, but missed the chance to really make hay while the sun shone on stock markets in lockdown.

I wonder whether some of those newer to investing did make some hefty profits, however.

As markets collapsed in early March, we had a number of questions from people saying they wanted to profit from the crash and buy in while shares were cheap.

That’s not a bad idea in theory, but when you’re staring down the barrel of an unprecedented number of situations being described as unprecedented, you do feel the urge to warn people to play it cautious.

So, it was not without some trepidation that we published an article on 17 March headlined: Think the stock market will bounce back from the coronavirus panic? Here’s how to take advantage

It included a large health warning: ‘What investors must steel themselves for is more potential falls before any gains.’

The good news is that while they will have had some nervy days, anyone who did invest back then didn’t have to steel themselves for too much pain, yet.

The stock market’s rebound from a brutally hard and fast crash has been equally astonishing. The FTSE 100 is up 27 per cent from its 23 March recent low, but America’s S&P 500 has rocketed 43 per cent.

Whether markets slump again or not – and they certainly could – this illustrates the benefits for British investors of not just investing in our home stock market.

Instead, the basic building block of any stock market investment portfolio should be a fund or trust that invests as broadly as possible. One that lets you own the world.

This disadvantage of this is that they can leave you very heavily exposed to the US, which is the world’s biggest stock market, and many would argue is over-valued.

On the flipside, the advantage probably doesn’t need spelling out in light of the figures above.

However, even if you do think that the US market is too pricey and would prefer not to back it quite so heavily, you can either choose a global fund that holds less in America, or add a couple of other funds and trusts that invest elsewhere to rein your exposure in.

Investors in some of the big names in the world of global funds and investment trusts are likely to have been pleased with their returns over the past couple of months.

To varying degrees, dependent on their individual strategy and holdings, the likes of Fundsmith Equity, Lindsell Train Global Equity, Scottish Mortgage, Baillie Gifford Global Discovery, have reaped handsome profits from the rebound.

Some of the money I invested in my Sipp went into the up-and-coming Blue Whale Growth Fund in the middle of April and is up a bumper 20 per cent.

But before you sign up to one of those big global fund or trust beasts, you should also ask yourself if a cheap and simple tracker can do the job equally well.

Funds can be divided into two categories active and passive. The former has a manager who attempts to pick winning shares and beat the market, whereas the latter will simply replicate a given stock market or index’s performance.

It’s easy to think that investing with a manager who can beat the market is the obvious choice, but there’s an important caveat: often those fund managers fall short.

By trying to pick winners they risk getting things wrong and falling behind the market instead of racing ahead of it.

The way to avoid this trap is to choose a passive or tracker fund. At their simplest level these follow a major stock market index or basket of investments and aim to track its performance as closely as possible.

A tracker won’t beat the market, but nor will a decent one fall substantially behind.

The two things to watch out for with passive funds are tracking error and costs. Tracking error is a guide to how closely that fund manages to follow its benchmark index, while high costs will eat into your returns.

A good building block is a global tracker, for example HSBC’s FTSE All-World Index fund, or Fidelity’s Index World fund. These let you invest around the world at a knockdown price.

It is also possible to buy a tracker fund that builds an entire balanced portfolio in one place and invests in shares and bonds around the world, the most popular is Vanguard’s LifeStrategy range, which holds varying degrees of these assets depending on how much risk you would like to take.

Active funds or trusts that do similar are also available, ranging from defensive trusts such as Ruffer and Personal Assets, to more growth-oriented options such as Baillie Gifford’s Managed Fund.

Whether you are an experienced or novice investor the gains markets have seen in the past couple of months offer some breathing space to check whether your portfolio is right for you.

For a crash course in building a balanced portfolio, read our guide to asset allocation here, and whatever you opt to do, remember there’s every chance the market may take another tumble.

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How far ahead do you need to plan retirement? W

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how far ahead do you need to plan retirement w

One in three older people leave retirement planning until two years before stopping work or don’t prepare at all, though experts believe you should start getting your finances in order in your 50s.

More than half of people who have recently retired would also warn the next generation to do more planning, to save harder now and to consider carefully how you access pension pots, according to new research.

Covid-19 and the economic downturn make it more important than ever to plan ahead, according to the Government’s free Money and Pensions Service which surveyed 2,000 people aged 50-70 about their pensions.

Looking ahead: More than half of people who have recently retired would warn the next generation to do more planning

Looking ahead: More than half of people who have recently retired would warn the next generation to do more planning

MAPS suggests five key steps to get started early on, plus a final checklist of what to do in the last couple of years before retirement below.

This is Money has a guide to what to do at the 55, 65 and 75 age milestones to make your retirement comfortable here, and see below for how to sort out your pension if you fear it is falling short. 

There are more than over 16million 50-70 year-olds in the UK and three quarters of them have some form of retirement savings outside of the state pension, according to official statistics.

But more than a third of over-50s leave retirement finance planning late or won’t plan at all, and only 7 per cent feel fully prepared, the MAPS research found.

When it asked about the Covid-19 pandemic, 36 per cent of 50 to 70-year-olds said their finances had been affected, and 18 per cent had decided to delay tapping their pensions.

What do retirees recommend younger generations do? 

MAPS surveyed more than 700 people who are part or fully retired about what advice they would give people born between 1965 and 1980 about their finances.

1. Save more towards your retirement (60 per cent)

2. Start planning retirement finances earlier (56 per cent)

3. Take time to decide on how you will access your savings pots (45 per cent)

4. Find out more on how to make the most of your pensions (44 per cent)

5. Seek guidance on how to best organise your retirement finances (41 per cent)

Some 14 per cent are accessing their pensions sooner, mostly to bolster their own day-to-day finances but some to support family members and friends.

MAPS notes that 2020 will see some 940,000 people, the highest in nearly two decades, reach the age of 55. 

This is when you can first access your pension savings without facing a punitive tax bill.

What early planning for retirement should you do?

MAPs suggests taking the following five steps to prepare your finances.

1. Track down your pension pots and check their value

With the average person having 11 jobs in their lifetime, it’s easy to lose track of any pensions you may have had in the past.

If you think you’ve lost a workplace pension, the first port of call should be your former employer, or you can contact the provider if you remember the name.

If you can’t find details of either, you can contact the government’s Pensions Tracing Service. 

Once you’ve tracked down your pots, you can check your statements or ask your scheme or provider for an up to date valuation of how much you have saved.

2. Think about your living costs in retirement

Draw up a budget for your expected income and spending as early as possible to give yourself a greater sense of control over your situation.

The Money Advice Service has a free budget planner tool to help you plot this out. 

3. Think about what age you’d like to retire and to access savings.

For some people, this may not necessarily be at the same time.

Some people may have already chosen a retirement age with their provider, but if your circumstances have changed and you plan to retire earlier or later, you may wish to reconsider how your savings are being managed to ensure your money is working hard for you.

It’s helpful to also check your retirement income using the Money Advice Service’s pension calculator if you’re going through any changes. 

Carolyn Jones:  Given over a third of over-50s have had finances affected by Covid-19 and we’re facing a recession, people should not delay or skip planning retirement finances

Carolyn Jones:  Given over a third of over-50s have had finances affected by Covid-19 and we’re facing a recession, people should not delay or skip planning retirement finances

4. Consider if your spouse or family need to be factored into your plans.

If you wish to provide for family members with your pension savings, this could impact the choices available to you when it comes to accessing your money.

5. Make a free Pension Wise appointment.

Available to people aged 50 and over, specialists will explain the pros and cons of the options for accessing your pension savings, the tax implications, how to shop around to get the best deal, and how to avoid pension scams.

Telephone appointments are available on 0800 138 3944 and the website is here. 

What should you do in the run-up to retirement?

MAPS recommends doing the following in the last two years before retirement.

1. Work out your likely retirement income

– Trace any lost pensions

– Find out how much you might get from your defined contribution pension – check your annual statement or ask your providers for a new one to see how much savings you have built up.

– Get a state pension statement here.

– Check what other savings and investments you could use towards your retirement

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

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2. Draw up a budget to calculate your costs in retirement

– Look at where your income comes from and how you spend it

– Think about what changes you might need to make to live comfortably

3. Don’t take risks with the pension savings you’ve built up

– Avoid pension scammers by being suspicious of any unsolicited contact about your pension

– Check who you are dealing with and don’t be rushed into making any decisions

4. Decide when to start taking your pension

– Check with your pension scheme provider when you said you wanted to start taking your pension and if this is still what you want to do

– Think about how you want to take money from your pension, if it’s a defined contribution pension scheme. (Read a This is Money guide to your choices here.)

Carolyn Jones, head of pensions policy and strategy at Money and Pensions Service, says there is no set date for when people should start planning retirement though your 50s are a perfect time.

But she notes: ‘The earlier you do it the easier it will be to bridge any gaps, and the more likely you are to feel prepared and comfortable in retirement.’

Regarding the current coronavirus crisis, she adds: ‘Given over a third of over-50s have had their finances affected by Covid-19 and we’re now facing a recession, we’re urging people not to delay or skip planning their retirement finances – whether you’re thinking of retiring later or bringing it forward.

‘Your pension is likely to be one of the most valuable assets you hold so it’s really important to start planning early to make sure you make the best choices based on your circumstances.’

Jones goes on: People who have had an appointment with our Pension Wise specialists feel more confident, informed and prepared when it comes to how they will access their pension savings.

‘In 2019/20, more than half of appointment customers said that getting guidance either changed how they accessed their pension, or how they intend to do so.’ 

How to sort out your pension if you fear it’s falling short

If you are worried about your pension and whether you will have enough, read a full 10-step guide to sorting it out here. 

To get started, investigate your existing pensions. Broadly speaking, you need to ask schemes the following:

– The current fund value

– The current transfer value – because there might be a penalty to move

– Whether the pension is in a final salary or defined contribution scheme

– If there are any guarantees – for instance, a guaranteed annuity rate – and if you would lose them if you moved the fund

– The pension projection at retirement age.

You can use a pension calculator to see if you have enough – find This is Money’s here.

 You should add the forecast figures to what you anticipate getting in state pension, which is currently around £9,100 a year if you have a full National Insurance record. 

Get a state pension forecast here.

If you are tempted to merge your old pensions, check out some tips on how to decide here.  

If you have lost track of old pensions, the Government’s free tracing service is here. 

Take care if you do an online search for the Pension Tracing Service as many companies using similar names will pop up in the results.

These will also offer to look for your pension, but try to charge or flog you other services, and could be fraudulent. 

TOP SIPPS FOR DIY PENSION INVESTORS

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Is it worth joining my firm’s salary sacrifice scheme at age 62?

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is it worth joining my firms salary sacrifice scheme at age 62

My company is in the process of starting salary pension exchange.

I am 63 in December. Is it worth me joining as I have been told it could affect my state pension which I will get when I am 66. Also the works pension finishes at 65.

SCROLL DOWN TO FIND OUT HOW TO ASK STEVE YOUR PENSION QUESTION   

Pension dilemma: Is it worth joining my firm's salary sacrifice scheme at age 62? (Stock image)

Pension dilemma: Is it worth joining my firm's salary sacrifice scheme at age 62? (Stock image)

Pension dilemma: Is it worth joining my firm’s salary sacrifice scheme at age 62? (Stock image)

Steve Webb replies: Growing numbers of workers are covered by an arrangement known as ‘salary exchange’ or ‘salary sacrifice’.

This relates to the way in which their works pension contributions are paid. In many cases this can be to their financial advantage, but you are wise to check for pitfalls.

To understand how salary exchange works, it is worth thinking about what normally happens when your employer pays you a wage.

National Insurance contributions are payable on your wages by both you and your employer.

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below

The rate for employees (provided they earn above £183 per week) is 12 per cent and for the rate for employers (provided the wage is more than £169 per week) is 13.8 per cent.

The NI rate falls to 2 per cent for higher earning employees on £962 or more a week, although the employer rate remains at 13.8 per cent,

This means that for every pound a lower or middle earner makes, more than 25p is going to the government in NI contributions.

Now consider what happens when your employer pays money directly into your pension.

You never get this money as wages so there is no employee NI contributions payable. And the employer doesn’t have to pay any employer NI contributions either.

The reason all of this matters is that when you make *employee* contributions into your pension, you do this out of wages on which both employer and employee NI contributions have already been paid.

If you could get that money into your pension without ever being paid it as a wage, you and your employer could save a lot of NI contributions, though it’s not so beneficial for higher earners.

The way that salary exchange works is that it is a deal between you and your employer. You agree to exchange (or ‘sacrifice’) part of your salary and they agree to put extra money into a pension on your behalf instead of you contributing yourself.

You save employee NICs because your salary is lower and your employer saves employer NI contributions for the same reason.

This saving can then be shared between both parties. As a result you could end up with more money going in to your pension at no extra cost.

Even though you are relatively close to retirement, there is no reason in principle why this sort of arrangement would not be attractive.

STEVE WEBB ANSWERS YOUR PENSION QUESTIONS

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You would still reduce your NI contributions bill and/or get more money into your pension at no cost to yourself, though not by as much if you are a higher earner.

In the past, one reason why you might have thought twice about this arrangement would be because of potential knock-on effects on your state pension.

Prior to April 2016, part of the state pension was built up on an earnings-related basis. This meant anything which lowered your earnings would have lowered your state pension.

But since 2016 you build up state pension at a flat rate. So as long as salary exchange doesn’t take you below the floor for NI contributions (£120 per week) then you don’t need to worry about this.

There are a few other things to be aware of, but mostly relatively minor. These relate to anything where the amount you get relates to your level of pay and where you might get less if you accept reduced pay.

I’m assuming that you are in a modern ‘pot of money’ (defined contribution) pension arrangement rather than a salary-related (defined benefit) pension.

But if your company pension is salary-related you should ask if your works pension would be based on the original wage or the reduced wage level.

Similarly, before you sign up to salary exchange you should ask if any redundancy pay you might get if you were made redundant would be linked to your original salary or your reduced one?

Likewise, perhaps for your younger colleagues, they would want to check if maternity or paternity pay would be linked to the higher or lower pay figure.

Your younger colleagues should also think about whether a lower pay level might affect how much money a mortgage lender would be willing to lend them.

In most cases, however, provided that your employer is fairly sharing the benefits of salary exchange with you, then it is likely to be well worth considering, even for a couple of years.

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.  

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Recovery in UK tourism outpaced global average last month

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recovery in uk tourism outpaced global average last month

Recovery in the UK’s tourism and recreation industry outpaced the global average last month, Lloyds Bank has found. 

Activity in 13 of the 14 UK sectors tracked by Lloyds picked up faster than the international benchmark. 

Boost: Activity in 13 of the 14 UK sectors tracked by Lloyds picked up faster than the international benchmark

Boost: Activity in 13 of the 14 UK sectors tracked by Lloyds picked up faster than the international benchmark

Boost: Activity in 13 of the 14 UK sectors tracked by Lloyds picked up faster than the international benchmark

But there are fears that the UK’s recovery could stall this month, amid fears of a second wave, the new ‘rule of six’ and the end of the Eat Out to Help Out scheme which boosted restaurants in August. 

Jeavon Lolay, from Lloyds Bank Commercial Banking, said: ‘Other European countries have already experienced a slowdown as they navigate further outbreaks of Covid-19 and additional measures to stop the pandemic’s spread.’

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