Coronavirus and the markets: greed and fear in action
Warren Buffett once described fear and greed as diseases that infect investors. As the coronavirus spreads, investors are quoting the billionaire investor as they try to hold their nerve. “Occasional outbreaks of those two super-contagious diseases, fear and greed, will forever occur in the investment community,”. This is what the Berkshire Hathaway CEO wrote in his 1986 letter to shareholders. “The timing of these epidemics will be unpredictable,” he continued. “And the market aberrations produced by them will be equally unpredictable, both as to duration and degree.” “Therefore, we never try to anticipate the arrival or departure of either disease,” Buffett added. “Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Buffett doubled down on his stance in a CNBC interview this week. He argued long-term investors should be thrilled by the current selloff. This is because it presents an opportunity to buy shares in quality businesses at a discount.
Budget: what might be in store?
The coronavirus outbreak and a change of Chancellor have upended predictions of what might be in the Budget. As the health threat mounts Rishi Sunak might be forced to change his speech. He may need to focus on crisis prevention rather than post-election winning giveaways.
The implications of a global pandemic will change growth estimates and borrowing forecasts. They may also cause some cherished policies to be put on hold.
That does not mean any of the big challenges facing the Government will go away. Extra support for businesses is likely. The Government should also keep election promises like raising the National Insurance threshold. Here are some of the key issues affecting Britons’ personal finances that could come up:
- National Insurance – The Conservatives pledged in their election manifesto to raise this threshold to £9,500 in their first Budget, and expressed an ambition to eventually raise it to £12,500, the same point at which people begin to pay income tax.
- Stamp duty – The Government may use the budget as an opportunity to make good on a manifesto commitment to introduce a 3% Stamp Duty surcharge on UK homes bought by foreign buyers.
- Mansion tax – There have also been rumours that a Mansion Tax – an annual levy paid on homes worth more than £1million – could be unveiled this week.
- Pensions – A £10billion raid on pension tax breaks for higher earners, which would see Government top-ups into retirement savings pots slashed to basic rate for everyone, was floated a few weeks ago, but is thought to have been dropped following stiff opposition.
- Inheritance tax – Cuts to Britain’s most hated tax would go down well, and look more likely following two reports issued by Government tax gurus.
- Savings – Savers hoping for the Government to reverse Treasury-backed National Savings & Investments’ cuts to Premium Bonds and savings rates may be left disappointed.
- Investment – As tackling the climate crisis moves higher on the agenda, and demand for ESG (environmental, social and governance) focused funds grow, HM Treasury could enter the green bond market.
- Entrepreneurs relief – Rumours have circulated that the Chancellor is going to scrap the relief altogether, rather than just cut it as his predecessor Sajid Javid was expected to do.
Under 40? Use your ISA to boost your retirement
It’s easy to dismiss individual savings accounts (ISAs). For many, saving and investing seem like unaffordable luxuries. Those saving into the tax-free accounts tend to be older people.
The latest statistics (for 2016/17) show that only 17% of Isa savers that year were under 35, but half were over 55. Between 2009 and 2016, ISA holders fell in every age group except for baby boomers.
In 2017, the Lifetime ISA (LISA) came along to help young people save for a first home or invest for retirement. If you open one at age 18 and invest £4,000 every year until you turn 50, you could net a 25% government bonus worth up to £32,000.
Every UK adult gets an ISA allowance of £20,000 every tax year (which begins on April 6). You can split this allowance between different Isa products. Young people can pay up to £4,000 of this into a Lifetime ISA. The Government tops up every pound you pay into the LISA by 25p. Save the full £4,000 and you could get £1,000 free cash towards your savings goals every year. You have to be 18-39 to open an account, but you can keep paying into it until the day before your 50th birthday.
If you use the Lisa for your retirement, you can access the money tax-free from age 60. But beware, you will be penalised for withdrawals made for any other purpose
Brace for the true impact of Corona Virus
Many of London’s biggest institutions are taking steps to combat the coronavirus. On Monday many of JPMorgan’s UK-based staff temporarily moved to a different office. They are not alone. Goldman Sachs last week sent around 200 members of staff to test a site in Croydon, South London for the day.
Many of these measures by some of the world’s biggest banks follow the events that took place at HSBC last week. HSBC sent home more than 100 staff from the tenth floor of its Canary Wharf offices on Thursday. The move came after a staff member was diagnosed with the Covid-19 virus. Supermarket shelves stripped of pasta and other foodstuffs is a sign of the public mood. Ministers have brought in behavioural scientists to explain the dynamics of panic. The prospect of coronavirus breaking out into wider British society dominates government thinking. This ranges from the effect on the economy to having to shut down parliament. Another effect is whether it will disrupt the Brexit timetable.
Mr Johnson told ITV’s This Morning that the country was “still at the stage where the single best thing we can do . . . is just wash our hands”. But measures are now on the table that go well beyond providing advice on personal hygiene. Mr Carney said this week he wanted action to help households and companies “manage through an economic shock that could prove large but will ultimately be temporary”.
Much pensions changes unlikely in the forthcoming Budget?
There are several pension changes many hoped would get the green light in this Budget. These may now may not happen.
These changes include increased auto-enrolment coverage of lower earners and young workers. There are initiatives already in hand. But there may be little new beyond that.
On pension tax allowances, there may be an easing of the tapered annual allowance rules. There are many other ways of limiting and controlling tax relief levels. These should be considered as part of a fuller review of the tax relief system as a whole. This is better than the piecemeal tinkering approach that has done so much harm to the system to date.
Property tax changes
Those selling residential property in the UK need to be ready for changes to Capital Gains Tax (CGT) rules from early April. There are currently different rules for the payment of CGT. These depend on whether you are a UK resident and if the property is residential or commercial.
Up until 5th April 2020, UK residents pay all CGT under Self-Assessment. From 6th April, CGT on residential property sales must be declared and a payment on account made to HMRC, within 30 days of completion.
Beware cash ISAs
Hard-pressed savers have lost the equivalent of £1 every week thanks to inflation eroding the value of their hard-earned cash. Analysis by RateSetter, a peer-to-peer firm, showed the average cash ISA holder has seen the real value of their savings fall by £252 over the last five years. Low-interest rates and relatively high levels of inflation are to blame for savers’ woe, which has caused their wealth to be whittled away. The average cash Isa held £5,924 in the 2014/15 tax year, according to official figures, and over the five subsequent years would have grown to £6,154 based on average interest rates for cash ISAs, RateSetter found.