Where do you think the responsible investing trend is headed?
Olly: This is now a huge area for us and we’re really excited about it. Our research this year found two-thirds of high net worth individuals agree that environmental, social and corporate governance (ESG) products should be part of their investment portfolio. It’s something we’ve done on the fringes for years for individual clients who’ve requested it. This year we’ve put it on an equal footing with the portfolios we’ve always done so it’s part of the discussion with every client. The thinking used to be that you give up some of your returns in order to do a bit of good. But ESG is now the direction of travel for investors, for companies, for everyone, so I think you can now invest with an ESG mandate and, over the long term, expect it to perform as well as any unconstrained portfolio.
Is now a good time to be investing in property?
Olly: Do I think capital values of property are going to keep shooting up forever? At least for the shorter term, my inclination is no, but we've all said that before and we've said it before a number of times. One thing that’s more certain is the tax regime and I don't think it's that favourable for buy-to-let property over other forms of investment right now. You've got a bit more stamp duty now; you can't offset the cost of your mortgage fully in the same way you could a few years ago; and you're paying income tax rates on all the rent that comes in. In London, in particular, rents have not been going up with property prices, so your yield is not what it was. Compare all of that to a portfolio of equities, a lot of which is taxed at 20% in the current capital gains regime. If you’re looking to make good money on property now, you’re relying on those capital values going up – and I wouldn’t like to predict whether they will or not. All that said, if you have a lot of other investments and want to do something different, there’s nothing wrong with a bit of property to diversify your portfolio. I just wouldn’t go all in on property as people have done in the past.
Simon: I would also differentiate between property you live in and property you invest in. As a cultural thing, I think people overthink where property prices are going to go in terms of their own flat or house. Over decent periods of time, rent can be dead money, so if you can possibly save up or get hold of a mortgage – right now, interest rates are low and some higher loan-to-value mortgages are coming back – my view is that it’s always a good thing to own your home. But what would I do with spare cash? I agree with Olly.
Brexit then… A deal is still TBC, but is there anything you can say about the impact of our departure on investors?
Simon: What we don’t know yet is whether UK investors will be able to access international products with the same regulatory protection. I’m pretty sure it’s going to bring inflationary pressure. One benefit could be that currency becomes quite important. Sterling may weaken if we don’t get what’s perceived as a good deal. That would make UK asset values look cheap and therefore there will be buying pressure that will at least be a positive for existing investors.
Olly: The key thing right now is diversification. If you’ve got a good spread of your investments across the UK and beyond, you should be able to weather the uncertainty. I wouldn't be too nervous unless you are very concentrated in one spot.
Finally, how should long-term savers be approaching 2021?
Olly: I’m quite happy to be holding equities for the next few years. Again, you want to be diversified, you want to do your research and make sure you’re in the right places. You’ll see ups and downs but, if you don’t need your money back, it’s just about being someone who can handle the volatility emotionally. If the market drops, and you panic and sell, you shouldn’t have been in there at all.
Simon: The crucial point is there will be volatility. There always has been and we're in a period now where guessing a single right answer on an individual investment is incredibly difficult. That means the two golden rules are: diversification; and only invest what you don't need over the short term.
I also have a personal view that it's fantastic if you can find an asset class that will have an alternative use. For example, if you can persuade yourself you know about books or photographic prints or wine or old cars, they can be surprisingly attractive. That sounds like a very privileged conversation but I’m not talking about Ferraris and big-name artists; cheaper cars and little-known artists and photographers can also be very rewarding. They can be volatile as well, but at least you can read them, look at them, drive them, enjoy them – and maybe even drink them.
For more about Saunderson House, head to SaundersonHouse.co.uk.
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*DISCLAIMER: Anything written by SLMan is not intended to constitute financial advice. The views expressed in this article reflect the opinions of the individuals, not the company. Always consult with an independent financial advisor or expert before making an investment or personal finance decisions.