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  • Investing in uncertain times

    We look at what one of the most successful investors ever can teach us about investing during stock market uncertainty, the benefits of making the most of your tax advantages and allowances, and share six fund ideas for investing in uncertain times.

    Woman walking uphill over a crack in the ground

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

    What can Warren Buffett teach us about investing in uncertainty?

    Emilia Booth, Investment Writer

    It hasn't been an easy ride over the past few years. Just as there seemed to be some light at the end of the tunnel after the pandemic, it's unlikely anyone expected a war so close to home.

    The Ukraine crisis is a devastating tragedy, and one that could have lasting consequences. The main hope around the globe is for resolution and successful peace talks.

    Many have seen the impact the crisis has had on markets and are aware of the influence it will have on further inflationary spikes. We were already dealing with the reality of rises to the cost of living, and the conflict has only amplified this.

    The Ukraine crisis – what it means for your finances

    It's a fast-moving situation, so there'll likely be more ups and downs to come. But if history has taught us anything, it's that markets are resilient over the long term.

    We've looked at one of the most successful investors of all time, Warren Buffett, to see what he can teach us about preparing for times of uncertainty.

    This article isn't personal advice. If you're not sure if something is right for you, ask for financial advice. Comments correct as at 6 April 2022.

    The 'Oracle of Omaha'

    Having successfully run Berkshire Hathaway, a holding company for a variety of businesses, for over 50 years, Warren Buffett has lived through his fair share of uncertain times.

    Despite owning a wide mix of companies, Buffett's Berkshire Hathaway has seen its value fall by more than 30% six times between 1979 and 2019. In early 2000, Berkshire lost 44%.

    However, Buffett is currently the eighth richest person in the world and has been dubbed the 'Oracle of Omaha' from his investment choices. There are some valuable lessons we can learn from his experiences.

    Be fearful when others are greedy and be greedy when others are fearful.

    One of Buffett's most famous quotes tells us we should keep our cool when it comes to investing.

    Share prices and the stock market can overreact in the short term. Investors' emotions can come to the fore and share prices can move away from what the company's really worth. The difference between price and value is essential for investors.

    When markets seem to be taking a turn for the worst, it's essential to hold your nerve and think long term.

    Of course, we need to watch out for the opposite too. When investors get carried away, prices can rise to unsustainable levels – like we saw in the dotcom bubble of the late 90s. This is when Buffett tells us to be fearful.

    Remember though, all investments can fall as well as rise in value, so you could get back less than you invest.

    Two common investing mistakes to avoid

    Highs and lows in a market are nothing unusual. Buffett believes if you're looking to add to your portfolio, falling share prices can offer opportunity.

    History has shown that buying when valuations are lower can push the odds in an investor's favour and yield a greater chance of profit.

    If you don't feel comfortable owning a stock for ten years, you shouldn't own it for ten minutes.

    This mindset has led him towards companies he labels as "inevitables" – those with extraordinary longevity and dominant market positions, allowing them to generate attractive returns for shareholders year after year.

    If you're looking for individual companies, your first step should be finding a business with solid financials – this means a strong balance sheet with manageable levels of debt. With interest rates rising recently and debt therefore becoming more expensive, managing it has become even more important.

    Company debt – how much is too much?

    You'll need to look for companies with strong free cash flow, revenue, and growing profits.

    That's not to say you shouldn't think about companies with the potential to grow. High-growth businesses are typically valued based on their potential, so the underlying figures don't always warrant their price.

    These companies might still have some hurdles to overcome, but if you think they can stand the test of time, they could be worth your attention.

    The main message

    Reading blaring headlines or seeing the value of your investments fall can be nerve-wracking. There'll always be some bumps along the way, but that's the nature of investing.

    Looking at some of the biggest falls in value of the UK stock market since 1985 and how long it took to recover, tells us why it's key to take a long-term approach to investing. For these examples we assumed you'd invested at the highest point before the market started to fall.

    Chart showing UK stock market performance following drops

    You may need to scroll across or rotate your device to see the full chart below.

    Past performance isn't a guide to future returns. Source: Thomson Reuters Eikon, 19/07/2021. Where no figures are shown, data is unavailable.

    The key point is tough times don't last forever, and markets have eventually recovered. As always with investing, there are no guarantees.

    It's important for investors to think back to their long-term strategy and stay resilient when markets are jittery. Make sure you're happy with the level of risk across your investment portfolio – the more risk you take on, the bigger the potential drops.

    No matter what happens, good investing principles stay the same. So, while you can't always control how your investments perform, you can control how you prepare your portfolio.

    Investing in lots of companies in a similar category can only give you so much insulation when that style goes out of favour. We believe as long as you're diversified, what you buy isn't always the most important factor.

    How much you invest and how long for are far more important. So, start early and keep adding as you go.

    We think one of the best ways of diversifying a portfolio is by investing with the best fund managers, in different parts of the world.

    Before investing it's important to check the fund's objectives align with your own, understand the fund's specific risks and if there's a gap in your portfolio for that type of investment.

    Remember, investing is a test of nerve and knowledge, and experience is an asset you simply can't buy. So be patient, be diversified and let time do the hard work for you.

    Learn more about investing

    We've covered what you need to know about how to invest well over the long term, and make the right decisions for your financial future.

    Learn more today


    Be tax efficient – take your helping hand

    A gloved hand fixing bricks onto a wall

    Aaron Gibbs, Investment Writer

    While uncertainty and volatility are two trending topics across financial markets right now, other areas of our finances look a bit more certain, but not in a good way – the cost of living is on the rise.

    The 'cost of living' is a measure of people's 'real' incomes. It covers a range of different things, from inflation and household bills, to wage growth and taxes. So, why is it rising?

    Inflation is playing a big role. That's the price you pay for everyday goods and services, like petrol, food and other essentials. It's risen at its fastest pace in 30 years to 6.2% in the 12 months to February with expectations it could rise above 7% in April (when the energy price cap goes up by 54% on average). And inflation could go even higher as the Ukraine crisis continues to escalate.

    UK taxes have risen too. The government has announced a rise in National Insurance and dividend tax. The new rules are effective from 6 April 2022, squeezing incomes further for many households.

    In times like these, it's more important than ever to make the most of the tax advantages available. The government currently offers generous incentives that encourage us to save and invest for our future, but there's nothing to say they'll be around forever.

    So, where it's right for your circumstances, make sure you take advantage of any help you can get. This is where ISAs and pensions come in.

    There are no guarantees with investing, but you can improve your chances of success by not paying more tax than you need to. The more money you can shelter away from tax, the harder it can work for you.

    Investing is best for the longer term, but remember to regularly review your investments. By compounding more of your money for longer, you could improve your returns. Watch our short video to see how compounding works and how powerful it can be.

    Unlike cash, all investments can fall as well as rise in value, so you could get back less than you invest. Tax rules can change, and benefits depend on personal circumstances.

    This article isn't personal advice. If you're not sure what's best for your circumstances, ask for financial advice.

    The figures shown in this video aren't guaranteed. And they don't take inflation or charges into account.

    Stocks and Shares ISAs

    By making your portfolio as tax efficient as possible, you're actually improving your returns before you even start investing.

    One of the easiest ways to start investing tax efficiently is to invest in a Stocks and Shares ISA. All investments in an ISA are free from UK income and capital gains tax.

    The vast majority of investments can be held in a Stocks and Shares ISA. This offers investors plenty of variety and choice on where to invest, as well as the means to build a nicely diversified portfolio. Whether you're a conservative investor looking for a steady income, or seeking a more adventurous way to grow your wealth, you can invest with the confidence of knowing any profits or income are sheltered from tax.

    You may need to rotate your device or scroll across to view the full table below.

    Rates of tax Basic-rate taxpayer Higher-rate taxpayer Additional-rate taxpayer ISA investor
    Capital gains (in excess of the £12,300 annual allowance) 10% 20% 20% 0%
    Dividend income over £2,000*(i.e. income from shares) 8.75% 33.75% 39.35% 0%
    Interest income (i.e. from cash, corporate bonds and other fixed interest investments)* 20% (over £1,000) 40% (over £500) 45% 0%

    The table refers to the tax year 2022/2023. Tax rules can change, and benefits depend on individual circumstances. *This example assumes an individual has fully used their personal allowance and none of the interest falls within the starting rate for savings.

    Each tax year (6 April to 5 April), there's a limited amount of money you can put in ISAs. This tax year the ISA allowance is £20,000. It's not possible to carry forward allowances from previous tax years. So if you haven't already, make the most of this year's ISA allowance before it's gone.

    MORE ABOUT THE HL STOCKS AND SHARES ISA

    Pensions

    Another way to benefit from tax-free investing is to invest in a pension for your retirement.

    One key advantage is that you can get tax relief on what you put in. The government will top up your personal pension contributions by 20%. So, to have £100 in your pension, you'd only need to contribute £80. Those who pay tax at a higher rate might be able to claim back even more.

    Your pension contributions, including any made by your employer, are limited by the annual allowance which is currently £40,000 each tax year for most people. You'll only get tax relief on personal pension contributions up to 100% of your UK earnings, or £3,600 if this is greater (if you're a low or non-earner).

    Similar to ISAs, you'll benefit from growing your money free from UK income tax and capital gains tax. However, with a pension you can't normally take money out before you're 55 (57 in 2028).

    It's worth pointing out that on average, over the very long term with dividends reinvested, the UK stock market has grown by 9.1% a year to 31 December 2021. By investing in a pension and getting at least 20% back in tax relief, you're effectively giving yourself a head start. Past performance is not an indication of what will happen in the future as nothing is certain.

    The chart below shows how much you'd have made when the FTSE All-Share index began, just over 33 years ago. If you'd invested £8,000 or £10,000 in a pension (£8,000 plus the current basic-rate tax relief of 20%). Remember tax rules can, and will, change.

    Chart showing the FTSE All-Share with £8,000 v £10,000 invested

    You may need to scroll across or rotate your device to see the full chart below.

    Past performance isn't a guide to the future. Source: Lipper, 31/12/2021.

    The chart is an illustration based on a lump sum, which excludes charges and inflation. Please note you can usually take 25% of your pension pot tax-free with the rest taxed as income.

    In this case, the difference between receiving basic-rate tax relief and not is more than £46,000. And those who pay more than basic-rate tax could've received thousands more through further tax relief as well.

    Modern pensions, like the HL Self-Invested Personal Pension (SIPP), tend to offer more investment flexibility than traditional pensions – you can choose when, where and how you invest. This kind of flexibility gives you the ability to tailor your portfolio to suit your needs and wants, and help you achieve your long-term investment goals.

    Unlike a lot of things, pensions typically get better with age – the earlier you start, hopefully the bigger the pot.

    Find out more about THE HL SIPP


    Fund ideas

    Two professionals analysing data on a computer

    HL Fund Research team

    If you think you'll need the money in the next five years, it's sensible to hold cash.

    But if you're putting away money for the long term, and are happy with the extra risks involved, investing could give you a better chance of growing your money.

    These fund ideas could help but they won't be right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made. Investors should understand the specific risks of a fund before they invest, and make sure any new investment forms part of a diversified portfolio.

    These ideas are not personal advice. If you're not sure of the suitability of an investment for your circumstances, contact us for financial advice. We're mindful that there's plenty of uncertainty around at the moment, so keep in mind all investments can go down as well as up. You could get back less than you invest.


    Choose your own funds

    Comfortable building your own well-balanced, diversified portfolio?

    These funds could be worth a look. They've been selected by our analysts for their performance potential, so they could make a good option for this year's ISA or SIPP.

    CONSERVATIVE IDEA

    Troy Trojan

    Wealth ShortlistWealth Shortlist
    • Aiming to generate positive returns in a range of market environments
    • Fund manager with a proven track record
    • Focuses on the shares of well-established US and UK companies
    RESPONSIBLE IDEA

    Legal & General Future World ESG Developed Index

    Wealth ShortlistWealth Shortlist
    • An easy way to invest responsibly
    • Global exposure from tracking the Solactive L&G ESG Developed Markets Index
    • Low ongoing charge makes it one of the cheapest ways to invest (HL platform fee also applies)
    ADVENTUROUS IDEA

    ASI Asia Pacific Equity

    Wealth ShortlistWealth Shortlist
    • Exposure to Asian markets with strong long-term growth potential
    • Run by a team with one of the longest records of investing in Asia
    • Higher risk fund more suitable for long-term outlook

    Leave it to the experts

    Our ready-made solutions are an easy way to help you invest in a wide range of investments. They're designed for people who want to invest for five years or longer. They're standalone investments which you can buy and hold on their own or as part of a wider portfolio.

    There are three HL managed funds with different levels of risk to choose from. There are options for different needs and requirements.

    They're Multi-Manager funds which invest in a variety of funds and different managers, bringing together a range of different styles and approaches.

    It's important to know which risk level is right for you, and be comfortable with the market ups and downs (also known as ‘volatility') you might experience when investing.

    You may need to rotate your device or scroll across to view the full table below.

    Lowest risk HL Multi-Manager Equity & Bond HL Multi-Manager Balanced Managed HL Multi-Manager Special Situations Highest risk
    Cash 20-40% exposure to global stock market volatility 60% exposure to global stock market volatility 80% exposure to global stock market volatility 100% exposure to global stock market volatility More than 100% exposure to global stock market volatility

    You'll get a higher level of service and greater spread of investment expertise with an HL Multi-Manager fund, as our expert team manage the funds day-to-day on your behalf. This means the cost is usually higher than for other funds. Full details of the cost of each fund are shown below. As with all funds, you'll also pay our platform charge of up to 0.45% each year.

    The HL Multi-Manager funds are managed by our sister company Hargreaves Lansdown Fund Managers.

    These funds are for people who understand the risks of investing and that investing in funds isn't right for everyone. Investors should only invest if the fund's objectives are aligned with their own, and there's a specific need for the type of investment being made.

    Investments will go up and down in value over time, and you could always get back less than you invest. These ideas are not personal advice, so if you're not sure what's right for you seek financial advice.

    HL Multi-Manager Equity and Bond

    • Lower-risk option of our three ready-made solutions
    • Aims to provide a monthly income and grow your money over the long term
    • Invested in a wide range of bonds and shares across the globe

    HL Multi-Manager Balanced Managed

    • Medium risk option of our three ready-made solutions
    • Aims to grow your money over the long term
    • Mainly invested in shares with some exposure to bonds and other investments

    HL Multi-Manager Special Situations

    • Higher-risk option of our three ready-made solutions
    • Aims to grow your money over the long term
    • Invested in shares using fund managers we believe have the best stock picking ability

    Important notes

    This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.