PLAY YOUR TRUMP CARDS
Stick... or twist? Follow our seven-step guide to make your finances shock proof
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. The Mail on Sunday’s award-winning personal finance team looks at what we should do to make our household finances fit for the new Trump world.
1 SHARES
THE UK stock market initially reacted adversely to Donald Trump’s victory with the FTSE100 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 multibillion 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: ‘Shortterm 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.
McDermott also likes Axa Framlington American Growth. More defensive, multi-asset funds include Church House Tenax Absolute Return Strategies and Premier Defensive Growth.
Architas’s Lowcock likes JP Morgan US Equity Income for US exposure and for the UK Majedie UK Equity and JO Hambro UK Equity Income. Both UK funds, says Lowcock, are ideally positioned to benefit from any fiscal stimulus initiated by Trump.
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 FTSE250 Index, has 3 per cent exposure.
2 PENSION INCOME
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.
WHAT YOU SHOULD DO
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 own a (taxable) income from their pension. ension.
4 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 exchangetraded 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 24carat 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