Investments

A survey has revealed that the majority of bank and fund managers believe that uncontrolled climate change will impact their investments in the medium term.

Read on to find out how it could affect your finances.

UN: The window for tackling climate change is closing 

In the Paris Agreement in 2015, 195 nations pledged to tackle climate change. The agreement aims to limit global warming to “well below” 2C when compared to pre-industrial levels and to “pursue efforts” to keep warming within a 1.5C limit.  

Scientists have previously warned that crossing the 2C threshold could lead to irreversible changes to ecosystems and the climate. 

However, despite the pledge, the UN warned in 2023 that the window to reach climate goals was closing. A report from the organisation said “much more needs to be done”. 

Exceeding the climate target could disrupt many communities and parts of modern life, which may affect the performance of investments.  

Most bank and fund managers say climate change will impact investments within 5 years

A survey published in FTAdviser asked bank and fund managers how they believe climate change will impact their investments.

Your relationship with money may play a huge role in how you handle financial decisions and your long-term security. Many factors affect your financial decisions, but you might be surprised by how much your childhood experiences still influence you today. 

The majority of parents recognise how important financial education is. Indeed, according to Nationwide, almost 9 in 10 parents to children aged between 8 and 13 say personal finance education would help their children better understand the value of money. 59% also agreed that personal finances were more important than maths. 

Yet, studies suggest these parents might be considering the positive effects of financial education too late.

Research: Money habits could be set by age 7

A 2013 study from Cambridge University indicated that financial habits are formed by the age of seven. The research suggests that children have often formed core behaviours by the age of seven which they will take into adulthood and could affect financial decisions for the rest of their lives. 

Being part of a group can make you feel like you’re less likely to fall victim to a mishap or other negative event. While the hypothesis might be true in some circumstances, the opposite may be said when you’re investing. Read on to find out why failing to follow the crowd could be a good thing.

The inclination to be part of a large group and adopt the behaviours of people around you is sometimes referred to as “herd mentality”. Following the same route as other people can give you a sense of security and help you feel as though you’re making the right decisions. After all, you might think: they can’t all be wrong, can they?

Yet, financial decisions should often be based on your circumstances. So, a safety-in-numbers approach could have the opposite effect and harm your long-term finances.

A fear of missing out could lead to you following the crowd

There are lots of ways that a herd mentality might affect your investment decisions, including a fear of missing out.

Interest rates and inflation continued to affect markets around the world in April 2024. Read on to find out what else may have affected investment markets and your portfolio in April.

Expectations of interest rate cuts were good news for gold. Investors who feared falling interest rates would lead to lower returns on cash and government bonds purchased more gold. It led to the asset hitting a record high on 8 April at $2,535 (£3,171) an ounce.

Yet, while many experts are predicting that interest rates will fall, Kristalina Georgieva, the managing director of the International Monetary Fund, warned that central banks must resist pressure to cut them too soon. 

UK

The UK ended 2023 in a technical recession – defined as two consecutive quarters of economic contraction. The latest figures suggest the UK is already out of the recession.

“Loss aversion” is a type of bias that could affect how you manage your finances. It’s a concept that was developed by renowned psychologist Daniel Kahneman, who won a Nobel Prize for his influential work and sadly passed away in March 2024. To celebrate his life, read on to find out more about loss aversion and how it could impact you.

One of Kahneman’s main arguments is that people’s behaviours are rooted in decision-making. He noted that bias and heuristics – the mental shortcuts you make to solve problems – are important for making judgements quickly. However, the downside to quick decision-making is that errors can occur. One of the biases he defined was loss aversion.

Losses are more “painful” than gains

In 1979, Kahneman and his associate Amos Tversky coined the term “loss aversion” in a paper. They claimed: “The response to losses is stronger than the response to corresponding gains.”

In a study, Kahneman and Tversky asked participants if they’d rather have a:

A.

Since they were introduced in 1999, ISAs have become a finance staple for many households thanks to providing a tax-efficient way to save and invest. As ISAs turn 25, chancellor Jeremy Hunt unveiled plans to launch a new UK ISA and has previously announced changes that could provide you with more flexibility.

Read on to find out what you need to know about ISAs.

The UK ISA could increase your allowance by £5,000

The government will carry out a consultation about the introduction of the UK ISA until June 2024. So, there are currently only a few details available.

In the March 2024 Budget, the chancellor said the UK ISA would have a new £5,000 annual allowance, in addition to the existing ISA allowance, which is £20,000 in 2024/25. It will be a type of Stocks and Shares ISA that’s designed to encourage investment in UK companies.

This year the FTSE 100 index turns 40. Over the last four decades, it’s become a way to measure the health of the UK stock market. During that time there have been highs that investors no doubt celebrated, and lows that serve as a reminder that there’s some truth in the saying: it’s time in the market, not timing the market.

In 1984, Margaret Thatcher was serving as prime minister and, similar to today, interest rates were increasing in a bid to reduce inflation – the base interest rate exceeded 12.8% in July 1984. The country was also grappling with miners’ strikes and high levels of unemployment. Yet, it was also a time of technological advancement and scientific discoveries.

Against this backdrop, the FTSE 100 index launched.

The FTSE 100 is made up of the biggest 100 companies that are listed on the London Stock Exchange.

Jeremy Hunt delivered his second Autumn Statement as chancellor on 22 November 2023. While the headline news was cuts to National Insurance rates for employees and self-employed workers, there may have been less attention-grabbing changes that could make your finances easier to manage.

Read on to discover how ISA and pension changes might be useful to you.

1. ISAs are set to become simpler 

ISAs were launched in 1999 to promote saving and investing in a tax-efficient way. Statistics suggest they’ve achieved that goal – according to the government, in 2021/22, 11.8 million ISAs were subscribed to, with around £66.9 billion added to accounts. 

Yet, over the years, ISAs have become more complicated. New ISAs have been launched, including the Lifetime ISA, aimed at aspiring first-time buyers, and the Innovative Finance ISA, which allows you to invest in peer-to-peer loans that are typically higher-risk than traditional investments. 

There are also rules around contributing to multiple ISAs during the same tax year and transferring between different providers.

Experts are predicting that the UK will face a recession in 2023. While it can be tempting to react to this news by changing your investment strategy, sticking to your long-term plan makes sense for most investors. Read on to find out why.

Several factors are contributing to economic uncertainty, including high inflation and concerns about energy supply. The long-term effects of the Covid-19 pandemic and the ongoing war in Ukraine are two of the reasons for these challenges.

In its November report, the Bank of England said the economic outlook was “very challenging”. It expects the economy to be in “recession for a prolonged period”, adding that inflation was forecast to remain high until mid-2023 when it is expected to fall sharply.

Other predictions also paint a gloomy picture of the UK economy.

According to the EY ITEM Club, the economy will contract by around 0.2% each quarter from the final quarter of 2022 until the second quarter of 2023.

High levels of inflation and economic uncertainty continue to plague the investment markets. Investment portfolios are likely experiencing volatility – read on to find out what has been influencing markets.

Despite the doom and gloom statistics, financial services firm JP Morgan suggests that a global recession could be avoided as inflationary pressures ease.

As an investor, you may worry about what the current circumstances mean for your investments and financial goals. Remember, you should invest with a long-term time frame in mind and focus on performance over years, rather than weeks or months.

If you have any questions about your investment portfolio, please contact us.

UK

There were several pieces of big news in the UK during September.

Liz Truss was appointed prime minister on 6 September after winning the Conservative Party leadership race. Just two days later, Queen Elizabeth II passed away and many businesses chose to close or limit operations as a mark of respect during a period of mourning.