Business Matters – Issue 20


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The inflation crisis: How to keep an even keel

Soaring inflation continues to create turbulent conditions for individuals and business owners alike – but although such volatility can be unsettling, it’s important to keep an eye locked firmly on the horizon.

In our latest edition of Business Matters, we discuss how to know when to hold your nerve, and when to adjust your sails – and why speaking to a financial adviser can help you navigate the rough waters ahead.

In our last issue, we discussed the current challenges of runaway inflation, high interest rates and a cost of living crisis – all conspiring to cast a long shadow over individuals’ and companies’ finances. These issues are still at the forefront of our minds, with inflation currently at the highest level since 1982, and uncertainty about how long this increase will last and how it could affect our future plans.

In this edition of Business Matters, we’ll discuss how to know when to hold steady, and when you might need to alter your course. If you have a question about inflation or your future plans, talk to us today:

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A choppy outlook

At the time of writing, inflation (as measured using the Consumer Price Index (CPI) for May 2022) stands at 9.1%.1 Although this was a rise of just 0.1% from April, the Bank of England has continued to push up its peak inflation estimate, predicting double-digits in October 2022. What’s more, the bank also raised its base rate by 0.25% to 1.25% on 16 June – the fifth consecutive increase.

There are a number of influences at play – predominantly, the energy crunch and instability in commodity markets, which is set to continue as long as the war in Ukraine persists.

These issues are significantly eating into people’s income and savings, leading to plunging consumer confidence and business sentiment. As inflation trickles down through the economy, the cost of doing business has soared – for instance, buying raw materials, the cost of overheads and energy, and spiralling wage costs. What’s more, interest rates being on the up means the cost of business loans will also rise, which restricts financing options for companies, especially those already in debt.

Experts are warning of a financial well-being crisis – with prices predicted to continue climbing – indeed, 42% of UK adults expect their finances to further deteriorate over the next three months.2 Although there’s no denying that lower income brackets have been disproportionately impacted, the current crisis will affect people across the wealth spectrum.

Such crises are understandably often emotionally charged. And for business owners, there can be an extra level of pressure, as the success of your company often equates to the financial health of your household – and those of your employees, too. It can therefore be very easy to make knee-jerk financial decisions, but one bad move could prove very expensive.

Watch the tides, not the waves

We can all be inclined towards short-termism, especially in times of crisis. This can be exacerbated by the 24-hour news cycle, making us feel compelled to act on immediate issues.

It can therefore be easy to let your emotions drive your investment or business decisions, but this can have harmful results. Over the long term, markets generally rise – so, if you react to the bad days, you’re very likely to miss the good ones. A split second of doubt could see you crystallise a decision you otherwise would not have made.

To stay on track, we should look to the timeless, golden rules of investing. This means being in it for the long haul, with a goal or plan to guide us – and acknowledging that there will always be times when markets are more volatile, and to think about these events in the context of your long-term investment strategy.

Case study 1: The 1970s

Of course, it can be difficult to sit tight as your investments fall in value. But hindsight is a wonderful thing, and history shows that, over the long-term, markets have produced strong returns despite wars, recessions and pandemics.

The 1970s is an example of instability – and subsequent recovery. In 1973 and 1974, markets dropped by 28% and 50%, respectively.3 In 1975, the market made a comeback, posting 149% returns. Despite the fact that this was insufficient to completely make up for the losses witnessed during the previous two years, those who sold at the end of 1974 would have probably been worse off than anyone who stuck it out.

While today’s market isn’t currently anywhere near as unstable as that of the mid-1970s, this scenario highlights how critical is it is to remain calm during volatile times.

Look to your crew

We’ve established that it’s crucial to have a sense of the long-term outlook, and having an experienced financial adviser in your corner can help you insulate yourself from short-term market noise and see clearly what the best way forward is when events take a sudden turn.

An adviser will build the emotional drivers into rational objectives, and temper our fears. They’ll bring you back to your core priorities, and evaluate investment performance in the context of your long-term objectives – even in times of crisis. And, if needed, they can help you identify where to free up funds to help you in the interim period without your longer-term plans being disrupted.

Want to know more about how embracing the long view could improve future prospects? At Wellesley, we can walk you through it. Contact us today!

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

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When to alter your course

While an adviser will often suggest that you ‘batten down the hatches’ to some extent during a storm, everyone’s financial situation is unique, and there’s a major caveat to putting current stressors to the back of your mind.

It’s essential to make sure you’re sensibly invested in a manner that’s consistent with your long-term objectives and your attitude to risk. For example, if your portfolio is all invested in Russian equities, it might be time to seek advice and tweak your investment approach, and then create a reformulated set of objectives.

What’s more, being strategic with your savings can help you cope better with inflation, give you more control and certainty, and improve your longer-term financial well-being. Cash ISAs still fit into wider financial planning – it’s important to have some easily accessible cash savings for an emergency. But if you have lots of cash savings, could an alternative use be found for them?

While it’s understandable to want to keep a tight rein on our funds during a crisis, we should take the opportunity to refocus on our financial well-being and direct our efforts towards building up longer-term financial resilience. In a low-interest, high-inflation environment, cash will lose value in real terms – so why not put it to work?

Preparing for calmer waters

If retirement is on your immediate horizon, you might be particularly concerned about this short-term volatility. Again, talking to a trusted adviser will help you make sure that your retirement savings can keep pace with inflation. The below case study shows how different assets can work for you when planning your retirement.

Even if you’re not at retirement age, it’s important to look ahead. Maximising your pension allowances will help you protect your future retirement income. Sit down with an adviser to make sure you’re making the most of current tax breaks, and that your investment strategy can still support your long-term goals. Will your investments grow enough to maintain your living standards if high inflation continues?

Case study 2: “Retirement – Do I/Don’t I?”

In light of the current global economic climate question, we’re often asked: “Is now a good time to retire?” The simple answer is that while investment values are clearly lower than recent times, the value of advice pre-empts this to a certain degree – as this recent client study shows.

Roger and Claire have worked with Wellesley for around 12 years. During this time, they’ve experienced job role changes and losing members of their family, as well as their investor experience of fluctuating market values due to Brexit and the pandemic. The loss of a recent family member finalised their “I will retire” decision, on the basis that “life’s too short to simply carry on working, working, working”.

Roger, Claire and their Wellesley adviser enjoy a close working relationship. They’ve been discussing over the last few years what their retirement would look like. This has involved conversations around where they will live, what type/value of property, how much they will need, when they will need it, state pension forecasts, and future inheritances.

Modern retirement is so much more than pensions, as it’s about how best to use your existing asset base to minimise tax and achieve the above desired outcomes.

Roger and Claire’s property is valued at £1.6M vs £100,000 mortgage. Upon retirement, they wish to live by the coast and have looked at properties in the region of £800,000-£900,000. Their concern is that with the current temperature of property, as soon as they see something, it’s already been sold. They were starting to get quite stressed about the whole property chain and selling in order to buy.

Roger receives a good salary as a company accountant and Claire has recently inherited some money. However, the inheritance is primarily via her late dad’s house and therefore will not be realised until it’s sold. She is naturally keen to obtain the best outcome for her and her siblings. They hold an existing rental property valued at £280,000, which generates around 2.5% net return.

The prime goal is to move and settle. In order to remove the “we must sell in order to buy“, we asked the Wellesley Mortgage team to see how much Roger and Claire could borrow based on Roger’s income and their current property value.

This amount was confirmed at £700,000. Wellesley Mortgage team therefore effected an interest-only mortgage secured on the current property, which released £700,000 towards the coastal property purchase. This, combined with their cash funds, means that Roger and Claire are now cash buyers and are therefore much more attractive. The process will be that they buy their new home, cover the interest-only mortgage via income and then repay £600,000 upon the sale of their current 1.6M home.

Roger and Claire also hold Stocks and Shares ISAs valued at £150,000 each, together with cash ISAs of £30,000 each and cash savings of £30,000 (net of amount required to assist with the  move). Their Wellesley adviser transferred the Cash ISAs to join their Stocks and Shares ISAs, giving a total value of circa £360,000, which was placed into an income portfolio and is currently generating 3.4%pa tax-efficiently.

In addition, given the low yield on the rental property, Roger and Claire are monitoring their position, as the Wellesley adviser pointed out that rental properties produce taxable income at highest marginal rate and any capital gains are taxed at the higher rate of 18%/28%. There is also the issue of tenants and void periods to factor in.

Roger and Claire have an income requirement of £50,000pa. This will be met through the ISA income as well as, initially, drawing down on their pension funds. By utilising pension drawdown, they make their income more tax effective (as opposed to drawing 25% as tax-free cash at once) as only 75% of  the amount drawn is subject to income tax.

Once they have moved/sold, we can then review the position, as they will not have the mortgage to service and Claire’s share of the inheritance will have come through. This can then be used towards investment planning, which, in turn, reduces the amount required from pension – thus making their planning Inheritance Tax (IHT) friendly, as pensions are not subject to IHT. We are also undertaking a review of the rental property to establish feasibility of keeping or exiting.

As the above case study shows, many of the strongest benefits of financial advice can only be realised if you have an ongoing, trusted relationship with your adviser – in Roger and Claire’s case, helping you keep your plans on course through periods of stock-market volatility.


Your home may be repossessed if you do not keep up repayments on your mortgage.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA or a deposit with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Navigating your fleet

While personal finances may benefit from a long-term approach, many business owners can’t afford to hunker down and wait for the choppy waters to calm. So, how can SMEs be more competitive and resilient amid economic uncertainty?

The first thing to review is your cash flow. Inflation is making it even more important for cash reserves to work harder to offset the impact, and there are issues at both ends of the scale. According to the ONS, 40% of the UK’s small businesses have less than three months’ worth of cash left to support their operations.4 Inflation also poses a challenge for businesses with excess cash. A recent report revealed that SMEs are missing out on £3.2 billion every year by not shopping around for a better rate for their excess cash, because their cash reserves are languishing in low-interest accounts.5

Current stresses don’t leave much room for dealing with the financial effects of other unexpected events, such as illness, accidents, bereavement and unemployment. But it can take just one unfortunate turn of events to threaten the most carefully laid plans. According to Legal & General, almost two-thirds of business owners haven’t heard of a relevant life plan – a key policy that companies can take out to provide life insurance to individuals.6

By future-proofing your business and personal finances, you can guard against the unexpected. There are several different types of protection insurance available, covering various potential difficulties and with a range of policy types and costs. It can be helpful to ask an expert what would be best for you and your specific circumstances. At Wellesley, we can work with you to identify any vulnerabilities and assist you with establishing a procedure for the resumption of ongoing business operations in the case of a crisis.

Last but not least, while business owners will be hyper-aware of what’s happening in the world, remember: so will your employees. At Wellesley, we can offer a quarterly one-to-one staff clinic, where we provide your employees with personal finance advice on pension planning, allowing them to prepare effectively for later life. This will also be beneficial to your business, as it will increase employee loyalty by showing them that you care about their future.

Want to find out more? Just ask.

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Staying on course

To summarise, short-term pressures such as the current inflation crisis can feel overwhelming and all-encompassing, and this underlines the value of taking advice and making sure your money is working as hard as you want it to. In short: as costs go up, so does the value of financial advice.

An experienced adviser will provide a broader perspective and check that you’re on track to reach your goals – making any adjustments where needed. For example, the assumptions you made when you first took out your pension – including inflation expectations – may not be the same today. By receiving advice, we will help you see what you can change or reprioritise to balance and protect your finances against inflation.

Sound good? Talk to us today and discuss how financial advice can work for you.

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1 Consumer Price Inflation, UK: May 2022, Office for National Statistics, June 2022
Wealth and Wellbeing Monitor, LV=, March 2022 (Based on a survey sample size of 4,000)
3 WeeklyWatch – Global volatility persists amid the Platinum Jubilee, Wellesley, 7 June 2022
4 Business insights and impact on the UK economy: 5 May 2022, Office for National Statistics, May 2022
5 The State of the Deposit Market for UK SMEs report, Centre for Economics and Business Research/Flagstone, data drawn from a survey of financial decision-makers from more than 440 SMEs, October 2021
6 Business Protection: State of the Nation’s SMEs Report 2021, Legal & General, December 2021 (Based on a survey sample size of more than 500 small businesses).