It’s been another week of relaxation for lockdown measures as things were scaled back a little more, with the UK showing more signs of beginning to return to normal, or at least heading in that direction.
Much to the relief of the hospitality sector, plans were announced for pubs and restaurants to begin to reopen from the 4th of July, though with strict social distancing measures in place it remains to be seen just how this will work in practice. Fortunately, hairdressers and barbers were also granted permission to get back to work, conveniently meaning people can get a sharp new haircut before venturing out for a pint or a glass of wine. With some increasingly interesting hair styles developing after four months of lockdown (mine included), this is probably good for everyone, as no-one wants to scare small children on their way to the pub…
Impacts and Aftershocks
I have written before that recessions are predominantly caused by one of two things: an overheating economy (an inevitable end to a long period of economic prosperity, somewhat possible to predict), or an external shock event (a.k.a. a ‘black swan event’ – impossible to predict). Our current predicament is very much the latter. Coronavirus has been a humanitarian crisis, whilst four months of emergency lockdown measures has wreaked havoc on our economy and upended our way of life. Government stimulus has been deployed in earnest and we are finally starting to see a decline in the so-called ‘R-rate’, with a gradual creep back towards normality. Well, perhaps more the new normal, whatever that may be.
However, whilst many are celebrating greater civil liberties once more, it is important to remember there is more disruption to come; potentially much more. If Covid-19 was the metaphorical equivalent of an unexpected asteroid strike, the ripples of the aftershock are yet to come in the form of a global recession, which has barely begun.
The government’s radical (and essential) furlough scheme and financial support measures have sheltered many businesses and their employees from the impact so far, but they cannot be continued indefinitely and a timetable has already been published for their withdrawal (see our bulletin dated 8th of June courtesy of M J Goldman for more details). The ripple effect will now begin to make itself apparent over the months to come as we enter our first real recession since 2008. Many businesses are facing an uphill struggle after an extreme disruption event. The housing market is likely to take a knock. Markets are likely to remain volatile, with the potential need to patiently await their recovery.
However, whilst we have yet to feel the full financial aftershock of Corona, we are also yet to feel the full benefit of government stimulus too. With a significant number of businesses in hibernation, many have been unable to actually put their bounce-back loans and grants to use yet, whilst there is a huge amount of pent up demand from consumers eager to return the high street, replace cars and go on holiday (be it vacations or ‘staycations’). We are about to witness a battle of opposing forces that will determine the shape of the downturn and subsequent recovery. A sharp ‘V’ shaped recovery in full seems unlikely now, but hopefully a ‘U’ shaped recovery with a sharp inflection remains a possibility.
It is important to remember that recessions and downturns are an inevitable part of life. Gordon Brown demonstrated this in spectacular fashion, with his infamous King Canute-esque declaration that he had ‘banished boom and bust’. Shortly before one of the worst recessions the world had ever seen. Awkward…
Whatever the cause of a downturn – external shock or the more natural end of a cycle. Economies ‘breathe’ in and out over time, though growing in real terms over longer time periods as populations increase. The credit crunch of 2008 and resulting recession was a double whammy of an overheating economy and a shock event as the global banking system nearly collapsed. At least in our current situation we can be grateful that although the global economy was continuing on one the longest bull runs in history, there weren’t too many dark clouds gathering on the horizon and governments and businesses were mostly in pretty good shape when the Corona asteroid arrived.
Despite the portents of doom coming from some media commentators, we just need to keep cool heads and wait for things to unfold naturally. We are here to help guide your finances through the turbulence, ensure your financial plans remain on track and provide a safe pair of hands for your investments.
Live For Today, Plan For Tomorrow, Do What You Love
A key philosophy and set of values that underpins how we run our business and advise our clients is ‘Live for today. Plan for tomorrow. Do what you love.’. We believe that great financial planning hinges on balancing this fundamental concept. It is also a simple set of rules by which I manage my own finances and live my life. In these strange times that we find ourselves in it seems as relevant as ever.
Living for today is important and some of life’s greatest adventures and emotive experiences spring from being spontaneous and taking the odd risk here or there. It often leads to the kinds of adventures that we remember for our whole lives. We don’t know how long we have on this earth. Youth and good health are gifts that should not be taken for granted, as some opportunities become closed to as we get older or fall ill. Carpe diem!
However, too much time spent living for today without thinking about the future, can lead to vulnerability, insecurity and indebtedness. This can result in high levels of stress, financial hardship and feelings of a lack of control. If left unchecked the longer-term implications can be a requirement to work into later life due to being unable to afford to retire, with an increased risk of mental and physical health issues longer term caused by stress and if working in an industry that requires manual labour.
Planning for tomorrow then, is clearly vital for our long term prosperity and security. Keeping a healthy rainy day fund, paying down mortgage debt and saving into pensions can help us deal with an unforeseen emergency and take control of our financial future, whilst ensuring that we have the resources to capitalise on the occasional once-only opportunities that life presents us with. Wetherall’s wouldn’t be here without it, as it was savings and investments carefully nurtured during my twenties that enabled me to set the company up at 31 when opportunity knocked.
Conversely however, too much planning for tomorrow can see people become so fixated on accumulating wealth and saving for the future, that they fail to enjoy the benefit of their money in the present. When meeting prospective new clients, we sometimes come across people who have become trapped in a cycle of working, saving and investing, unable to recognise that they already have more than ‘enough’. Sometimes much more. Rather than continuing to work and save - sometimes in high pressure jobs or running demanding businesses - they could have used their time doing things that fulfil them, spending time with family and significantly reducing their stress levels. Also as people get older, they naturally become more reluctant to spend, or are no longer young and fit enough to do the things they want, so a tendency to hoard capital combined with long-term compounding can result in large estates forming, a substantial portion of which may end up going to the taxman before it passes on to the next generation.
Life is for living and you only get one go. Money in isolation is worthless. It is what we do with it and how we spend it that gives it worth. Doing the things we love brings feelings of well-being and fulfilment and also be positive for our mental health. Some hobbies and passions are simple to enjoy, others may be expensive or require more free time. Some are intangible and may seem unobtainable due to a real - or perceived - inability to afford the cost, or the lack of free time to do so. By helping people achieve a healthy balance between living for today and planning for tomorrow, they can gain more control over their time and their finances, doing more of the things they love and sometimes even unlocking long-held aspirations that they did not think were possible.
In these testing times we find ourselves in, getting the balance between living for today, planning for tomorrow and doing the things we love is as important as ever. If you’d like to review your financial plans to make sure everything remains on track, or if you are considering a change of direction, please just let us know. We can happily arrange an ad-hoc financial review via Zoom to discuss things in detail.
Adios For Now
On that note I will close for now, with what will be the last blog for a few weeks. With travel restrictions lifting and Britanny Ferries back in operation, I am planning to spend some time doing the thing I love; catching the boat from Portsmouth to Santander on a driving tour of Spain with a group of friends. Covering 3,000 km in 9 days by car probably sounds like hell to most people, but it’s bliss for me, especially when the roads are as winding and deserted as they are in rural Spain. Spending most of the trip in the car with long range radios, means that we can easily adhere to social distancing, whilst copious supplies of gloves and hand sanitiser should keep us safe at the fuel stops. I’ve also acquired some rather snazzy face coverings, which have the effect of making me look like a distinctly unintimidating Spanish bandido. We haven’t quite figured out how things will work at breakfast or the hotel bar yet, but I’m sure we’ll work something out…
