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Recovery, but at what cost?

Following the events of 2007 and 2008, the markets were due a turnaround at some point. 2009 will be viewed as a very successful year for investors with share prices on the FTSE 100 rebounding by more than 20%. Clients who have been prepared to sit tight have been rewarded for their patience.

It is difficult to view this year in isolation as many of our clients will have suffered severe drops in pension and investments over the two previous years. Even after the recovery they are still not quite back to where they were. At its recent peak in 2007, the FTSE climbed above 6700. In early 2010 the FTSE hovers around the 5500 mark. This is a clear pick up from the lows of March 2009, but many investors still have not recouped all of their losses.

So where do we go from here then? Clearly the world looks a less worrying place than it did in late 2008 and early 2009, but those that think the good times will return are not considering the bumps along the way.

To aid recovery, Governments around the world have had to pump money into their financial systems. The two inevitable results of this are increased taxation and greater unemployment.

We are expecting to see additional tax increases alongside National insurance, VAT and higher rate tax in the near future as both main political parties have committed to reducing defecits. As unemployment continues to rise, we are also expecting job losses in the Public Sector and feel that it may be some time before Private businesses feel secure enough to begin increasing their workforces. Although the worst may be behind us, there may still be significant headwinds which threaten the long term strength of recovery.

As always, we advocate regular reviews of your financial plans. To go alongside this we encourage people to make use of their tax breaks. In a world of rising tax, how long can we expect to receive high rate tax relief on personal contributions to pensions? Can we rely on further increases to ISA allowances? Is Inheritance tax likely to be reduced with public finances in such a critical state?

If you wish to discuss how any of these things affect you, how best to use your tax reliefs or wish to arrange a financial health check, please contact us at your earliest opportunity.

Here's to a prosperous 2010!

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*Please note, the value of your investments can go down as well as up and future returns cannot be guaranteed. The views expressed above are for information only and should not be treated as advice. If you wish to receive Independent Financial Advice, please contact us to arrange an appointment