The pressures of the pandemic forced people to focus on their finances in 2020 like never before. As the new year dawns, perhaps you are resolving to keep up that focus in a new and more positive way.
FT podcast: Financial new year resolutions
More advice and suggestions for making your money go further in 2021. Listen here
If you’re eager to hear some fresh ideas, financial podcasts increasingly provide the “fin-spiration” we need to get our money moving in the right direction. Under lockdown, the number of people listening to podcasts has soared — and there are plenty of new shows to subscribe to that could help keep your financial momentum going in 2021 and beyond.
The FT has assembled the new year’s financial resolutions of podcast hosts in the UK and US, covering investment, saving, financial planning or even starting a side hustle or new businesses.
Many have featured on the FT’s new personal finance podcast, Money Clinic with Claer Barrett, and others will be making a guest appearance in the new year.
So sit back, put your headphones on, and see how these podcasters’ suggestions and shows could shape your own financial goals for the year ahead.
Merryn Somerset Webb
Time to rebalance your portfolio
I’m a great one for running my winners. Quite right, you might say — momentum investing has a great history of outperformance. The problem is that I’m not so much momentum investing as not-quite-getting-around-to-it investing. I fully intend to rebalance my holdings, trimming those that have performed very well and rolling the proceeds into those that have not but which I still have faith in for the long term.
Not doing so works in theory. The analysts at Baillie Gifford will tell you that you that almost all long term equity market returns come from around 4 per cent of stocks: hold those and there isn’t much point in rebalancing from them into the workaday rubbish that makes up the rest of the market.
The problem? Everyone has a different idea about which stocks make up the 4 per cent. I have one investment trust in my portfolio that is up 124 per cent in a year and another that is up 2 per cent. Both still look good to me — but why then would I hold twice as much of one as the other? This year’s resolution is to act on that thought.
Everybody needs a budget
This new year, set yourself an annual budget. I’ve built the most amazing Excel spreadsheet to manage mine, make sure I hit my savings and investment goals and be more efficient.
I see a budget like a dream — this is how my income and expenses should be looking across the year. If everything goes right, we’re going to be good. And then there’s the “actuals” tab, because sometimes you hit your budget, and sometimes you don’t. But the budget is the overall target of what you want your income and expenses and savings to look like. I complete the actuals on a monthly or even weekly basis to make sure I’m hitting my targets. If I’m not, I can make tweaks here and there. You can increase your income, and you can decrease your expenses, but it’s very hard to do if you’re not keeping track of it.
Plan a regular ‘money day’
Choose a specific date each month as your “Money Day” and diarise it as a recurring appointment. The goal here is to have conversations with your partner about your money life in the past 30 days. Discuss these three questions: What were our income sources last month? Where did all our money go? What is our current financial net worth? (This is the value of your assets less the value of your liabilities.) Doing this will improve your relationship with money over time and make talking about money an important part of your life each month.
Less is more
My resolution is to practice “masterly inactivity” — a wonderful phrase with a grim history. As I reveal in my Cautionary Tales podcast, the concept of “masterly inactivity” can apply to medicine and to parenting, but was coined during a 19th century debate about British imperial adventures in Afghanistan.
There’s a time to act, and a time not to. Every sensible investor understands the wisdom of being passive, favouring cheap index funds and regularly scheduled investments. Every trade costs money — and, worse, is an invitation to buy into bubbles and sell into panics (my own investment timing during a turbulent 2020 could have been better). But “masterly inactivity” is a more subtle concept: a willingness to bide your time, then leap into action when the moment is right. Whether making an investment or doing something more pedestrian such as switching insurance provider, I will try to act less — but more masterfully when I do.
Hang up on your landline
Fast fibre? Good 4G signal? Then get rid of your landline! BT would like you to pay an extra £15 a month for unlimited calls or £7 a month for 700 minutes. But if you do not use a landline, then do not pay for those bundles. Get pure fast broadband only — £31.99 a month (it can be less) — and ignore warnings that each call will cost you 20p a minute. They won’t because you will never make one. You will only make calls on your mobile, and over the internet where possible. Landlines are history — it’s 2021.
Use apps to change your mindset
Plenty of people will be looking to start a new career in 2021 — and not all of them by choice. If that’s you, my top tips would be to start something small on the side. I find the “quit your job” narrative quite unrealistic, but all of my career pivots have been through side projects, allowing me to transition or sidestep into a new venture.
This year has seen a rise in digital learning, with apps such as Skillshare, Knowable and Blinkist (and of course podcasts) allowing us to upskill, invest in ourselves and broaden our ideas at home or on the move. I use the Pomodoro technique of putting 25 minutes on the clock with no distraction. It’s amazing what you can do in that small amount of time.
Emma Gannon is an author and presenter of the careers podcast Ctrl Alt Delete
Talk property with your parents
Most millennial homebuyers in Britain are supported financially by parents and family members. If Bomad (the Bank of Mum and Dad) was an actual bank, it would be in the top 10 of UK’s mortgage lenders. So how best to ask for a loan appointment?
Be prepared to sit down with relatives and present a plan. Show them you’ve put serious thought into the savings and sacrifices you need to make, and be prepared to answer questions.
Do your homework first with property websites and an online mortgage calculator. With or without help, what kind of homes are realistically within your reach? How much could you save towards a 10 or 15 per cent deposit, and over what timeframe? Could you use the Lifetime Isa for the under-40s to boost your savings by 25 per cent? How affordable would the mortgage repayments be — and how do they compare with your rent? Do you need to work on your credit score?
Having a property plan makes it much easier for your relatives to see how giving you some extra help could change these parameters.
Invest time in yourself
This year has shown us that nothing is guaranteed. None of us knows what the future holds, so it’s essential to value the present. My advice is to invest your time with intention. Spend it on things that create value for you and others. That can be business or charity. Spend it on relationships that are important to you. Adjust your calendar in a way that encourages you to make time for health, relationships, business and education. Prioritising your wellbeing will only help shape you for success.
Understand your debt
Resolve to understand your debt in 2021. Whether it’s a student loan, credit card or an auto loan, we often don’t take the time to understand the terms of the debt we take on. Who do you owe money to? How much total debt do you have? How long do you have to pay it back? What is the interest rate for each piece of debt? Are you being charged additional fees? Once you understand your debt it is much easier to make a plan and start to become debt free.
Chris Browning presents the Popcorn Finance podcast — discussing finance in about the time it takes to make a bag of popcorn
Set up a ‘guilt free spending account’
Because of the uncertainty of the pandemic, many people plan to be much more intentional about their spending and saving habits in 2021 — and this is a resolution I’m making myself.
Avoid “lifestyle creep” by having clear goals about what you want to accomplish with your finances. Be mindful of how you’re spending your money and how it’s impacting those financial goals.
I’m a huge fan of setting aside a separate guilt-free spending account that can be built into my budget and does not affect those goals. If you manage to get a pay rise, bonus or a tax refund in 2021, don’t just let it make its way into your bank account — if you’re not intentional about it, there’s always a reason for money to leave you.
Get started as an investor
I used to work in finance, but I wasn’t managing my own finances very actively. I started looking for a financial adviser and met one in the City — he asked me where my husband was!
This inspired me to start my business, Vestpod, a digital platform that brings women together to talk about money. If you aren’t already investing, 2021 is the year for you to begin. The best way to learn is by getting started and accepting that mistakes may happen. Be prepared to ride out the ups and downs, and eventually, you and your wallet will reap the rewards of your long-term commitment. Contributing small amounts day after day will compound over time and so will your investment knowledge.
Start a side hustle
If you’re looking to start your own side hustle in 2021, here are my three top tips. First, pick something you’re passionate about — a problem that keeps you up at night that you feel uniquely positioned to solve in a novel way. Second, make your identity and personality a big part of your brand. It will help you build trust with your customers and give integrity to your brand. Finally, don’t shy away from putting a fair price on your goods or services. Perception is reality and folks respond positively to things that don’t appear suspiciously cheap.
My ‘PG Tips’ for investors
Here are my “pretty good tips” for investors — a few dos and don’ts for the post-Covid world. Don’t believe the myth that value investing has run its course. Neil Woodford failed due to hubris and an unhealthy reliance on illiquid stocks. There is still room for the savvy stockpicker. Don’t assume blue-chip companies are an insurance against disaster. Do reward companies which have sound cash flow, do what they say on the tin and avoid words such as “synergies”.
Don’t assume interest rates will stay “low for long” forever. Investors in equities, especially US stocks, have been partying hard for a decade. Savvy asset managers tell me that on a three-to-five year horizon they expect much lower returns from equities. Where will the returns come from? Most likely, alternative asset classes such as private equity and venture capital, but that requires expertise.
Finally, Covid-19 has turbocharged the internet. Those companies (and boards) that adjust their business models accordingly will thrive; others will go to the wall. Look at every sector through the tech prism. As one Silicon Valley investor told me: 2030 has just come a lot closer, faster.
Lionel Barber is the former editor of the Financial Times, and presents LBC’s What’s Next? podcast
Invest in staycations
My big project for 2021 involves rolling up my sleeves and converting a Suffolk farm into holiday lets. I often remind Investors’ Chronicle readers and listeners to be wary of big claims about how much Covid-19 will permanently change the world.
It may have accelerated some trends that were already there, but I agree with Bill Gates when he said that we overestimate the change that will happen in the next two years but underestimate what will happen in 10. In the short term, I believe we will enthusiastically return to many of our old ways, but over a decade I suspect we will have seen extraordinary progress in technology, healthcare and sustainability — particularly in Asia. And I am confident the staycation trend is going to continue, too.
John Hughman is the editor of the Investors’ Chronicle, and presents the Investors’ Chronicle podcast
Start a money journal
Often, the relationship we have with money is really a reflection of the relationship that we have with ourselves. Money is emotional. If I could suggest one resolution, it would be to use “journaling” to explore the patterns and emotions you feel in your own relationship with money. I find Sunday morning is a great time to sit quietly and write down my thoughts — and it’s amazing what flows out.
Ask yourself questions such as: what impact did my parents’ relationship with money have on me? What do I tell myself about money? What is this protecting me from? How do I measure the value of money?
Lean into any areas of resistance. Your beliefs, like loyal soldiers, may have protected you from exploring these emotions, but 2021 is the time to change your future financial journey by working through them.
Catherine Morgan is a financial coach and presents the podcast In Her Financial Shoes
Appreciate the wonder of compound interest
With my Maths Appeal podcast, I’ve resolved to reinforce the power of compound interest. Savings rates are at all-time lows, which is tempting more people to try investing. Don’t just focus on performance — it pays to interrogate the fees you are charged on your investments.
Fees often look like small percentages, but they have a big impact over time. Say you have a £10,000 pot. Over a 10-year period, if you’re making a 5 per cent return every year, the power of compound interest will swell this gain to nearly £6,300. But if fees and charges erode that annual return to 3 per cent, your gain is reduced to around £3,400 — so you’re giving away nearly half of your performance.
Bobby Seagull is a TV presenter and maths teacher, and presents the podcast Maths Appeal
Focus on the next generation
My first grandchild, Leonie, was born in 2020. Not all grandparents may know the annual savings limit on Junior Isas has risen to £9,000. The money is locked up until the child turns 18, meaning shares are a better bet than cash. But I also want my grandchild to have financial fun.
I have resolved to buy her some Premium Bonds. The notional interest is currently only 1 per cent, but the money will be accessible and safe, as it is government-backed. She will also be in with a chance of winning £1m every month. Since 1994, 10 children under 16 have won the top prize.
I’m giving more to charity
Despite the pandemic, British people gave £800m more to charities between January and June 2020 than they did the year before, the Charities Aid Foundation found.
But many charities found fundraising difficult, if not impossible, in 2020, while the demands on their services have increased. One estimate is that UK charities will see over £6bn of income lost in the second half of 2020.
My financial priority, therefore, is to increase the amount I give to charity. This will give me an even greater sense of fulfilment and joy while making a real difference to others. That is a brilliant return in my book.
I’m making my pension my priority
The idea of a pension remains foreign to millennials, as we are still settling into the notion of having a stable, full-time job. But, urged on by my colleague Claer Barrett, I have taken back control of my pension at the age of 31, discovering the generous matched contributions from my employer. Seizing the pre-Christmas window of change, my retirement — due somewhere around 2060 — is already looking in much better shape. Now, there’s just the other small challenge of buying a property.
Sebastian Payne is the FT’s Whitehall correspondent and presents the podcast Payne’s Politics
Get in touch
What financial issue are you resolving to tackle in 2021? Share your comments below, or email us email@example.com and we will mention the best ones on an episode of Money Clinic podcast in the new year
Bond spreads collapse as investors rush into corporate debt
The premium above super-safe US Treasuries that investors are demanding to buy corporate debt has dropped to its lowest level in more than a decade.
The collapse in the difference between yields — or spread — is a sign that investors are growing increasingly confident that recent rises in inflation will not hinder the booming economic recovery.
The spreads between US Treasury and corporate bond yields have tightened markedly this year, as investors gained confidence and clamoured to own even marginally higher yielding assets in a low return world.
That spread compression, which indicates the level of risk investors see in lending to companies compared to the US government, had come under pressure from the spectre of higher inflation from mid-April to May.
However, an increasing number of investors are coming around to the Fed’s mantra that price rises will prove transitory as the economy reopens after the pandemic, pushing measures of expected inflation lower.
“The Fed has been controlling the transitory narrative which has provided confidence to corporate bond investors,” said Adrian Miller, chief market strategist at Concise Capital Management. “After all, corporate bond investors are more focused on the expected strong growth path.”
Confidence in the economic recovery was further bolstered on Wednesday as Fed officials signalled a shift toward the eventual repeal of crisis policy measures, embracing a more optimistic outlook of America’s rebound. The more hawkish tone from Fed chair Jay Powell — including comments that “price stability is half of our mandate” at the Fed — has helped to mollify concerns that inflation could run out of control, forcing a more abrupt response from the central bank.
The spread between US Treasury yields and investment grade corporate bond yields fell 0.02 percentage points to 0.87 per cent on Wednesday, according to ICE BofA Indices, its lowest level since 2007, and was unchanged on Thursday. For lower rated — and therefore riskier — high-yield bonds, the spread fell 0.05 percentage points to 3.12 per cent, below a post-crisis low last set in October 2018. It widened modestly to 3.15 per cent on Thursday.
The slide in spreads has been buoyed by the central bank’s accommodative policies through the pandemic crisis as well as the federal government’s multitrillion-dollar pandemic aid package. Financial conditions in the US are close to their easiest on record, according to a popular index run by Goldman Sachs, which has spurred a wave of corporate borrowing by riskier junk-rated businesses.
Some 373 junk-rated companies have borrowed through the nearly $11tn US corporate debt market so far this year, including companies hard hit by the pandemic like American Airlines and cruise operator Carnival. Collectively the risky cohort has raised $277bn, a record pace and up 60 per cent from year ago levels, according to data provider Refinitiv.
However the fall in spreads and investors’ perception of risk has not been enough to outweigh an overall rise in yields, which have been jolted higher by the prospect of rising interest rates as investors adjusted to a quicker pace of policy tightening from the Fed.
Higher rated debt, which is safer but offers less of a spread to cushion investors against a jump in Treasury yields, tends to suffer more in high growth, rising interest rate environments. High-yield bonds on the other hand tend to benefit, with the booming economy making it less likely that companies will go bust.
“For the time being people are not at all fearing the price action of a move higher in yields,” said Andrzej Skiba, head of US credit at BlueBay Asset Management. “Companies are doing really well and we are seeing a meaningful recovery in earnings.”
Investment-grade bond yields have moved 0.3 percentage points higher to 2.08 per cent since the start of the year, compared with a decline of 0.27 percentage points to 3.97 per cent for high-yield bonds.
Bank of America analysts expect the two markets to keep coming closer together, projecting that investment-grade spreads will widen to 1.25 per cent and high-yield bond spreads will continue to decline to 3.00 per cent in the coming months.
However, while optimism about the US recovery abounds the continued zeal for lower-quality corporate debt has caused consternation in some quarters. Investors worry that precarious companies are being offered credit at interest rates that don’t account for the high levels of risk involved.
“It’s very important for us that the yield we receive on a high-yield bond offers an appropriate level of compensation for the credit risks of investing. When yields are as low as this, that naturally becomes harder to say,” said Rhys Davies, a high yield portfolio manager at Invesco. “It’s quite simple — the lower the yield on the high yield market, the more carefully investors need to navigate the market.”
Global stocks slip and bonds weaken after Fed signals tighter policy
Global stock markets dipped, European government bonds dropped and the dollar strengthened sharply after US central bank officials brought forward the anticipated timing of the Federal Reserve’s first post-pandemic interest rate rise.
The FTSE All-World index of developed and emerging market stocks, which hit a closing record on Monday, headed for its third session of losses on Thursday, falling 0.6 per cent.
The Federal Reserve said on Wednesday that most of its officials expected a rate rise in 2023, against earlier predictions of 2024, as the US economy recovered strongly from the pandemic and consumer price inflation hit an annual rate of 5 per cent in May.
Fed chair Jay Powell also said the world’s most influential central bank was “talking about talking about” reducing the Fed’s $120bn-a-month asset-buying programme that has boosted financial markets since March last year.
The announcement rattled the US Treasury market on Wednesday, as the prospect of higher interest rates on cash lowered expected returns from fixed interest securities such as bonds, with traders in Europe following those moves in the next session.
“It was a hawkish surprise,” said Keith Balmer, multi-asset portfolio manager at BMO Global Asset Management. “Markets now see the Fed as stepping in to control inflation earlier than expected,” he added, following previous comments from Powell that suggested price rises above the central bank’s long-term 2 per cent target would be temporary.
The dollar index, which measures the greenback against trading partners’ currencies, jumped 0.7 per cent after gaining a similar amount on Wednesday as traders anticipated higher returns from holding the world’s reserve currency. The euro lost 0.5 per cent against the dollar to $1.193.
The yield on the benchmark 10-year Treasury note, which jumped 0.09 per cent on Wednesday evening to 1.58 per cent following the decision from the US central bank, moderated slightly in European trading hours to 1.558 per cent.
European bond yields, which move inversely to prices, raced higher as traders bet on other central banks following the Fed to rein in their crisis-era stimulus spending. The UK’s 10-year gilt yield rose 0.09 percentage points to 0.828 per cent. Germany’s equivalent Bund yield added 0.04 percentage points to minus 0.164 per cent.
Stock markets were less affected by the rate increase forecast as investors focused on the strength of the post-pandemic economic recovery and bought up shares in businesses expected to benefit from higher borrowing costs.
The Stoxx Europe 600 index, which rallied to an all-time high on Wednesday, fell 0.3 per cent on Thursday. Shares in European banks, which benefit from higher interest rates that enable lenders to make wider profit margins, gained 1.2 per cent.
The next US rate rise “will be happening at a time when the [global] economy is able to stand on its feet”, said Zehrid Osmani, manager of Martin Currie’s global portfolio trust.
Futures markets signalled the S&P 500 index would slip just 0.2 per cent at the New York opening bell after declining 0.5 per cent on Wednesday, while the top 100 stocks on the technology-focused Nasdaq Composite would lose 0.3 per cent.
Elsewhere in markets, the Norwegian krona rose 0.1 per cent against the euro to €0.984 despite the Norges Bank saying it was likely to raise interest rates in September. Some traders had expected an increase on Thursday.
Brent crude, the international oil benchmark, rose 0.1 per cent to $74.48 a barrel.
Hawkish Federal Reserve forecasts jolt Treasury market
US equities slid and Treasury yields surged after policymakers at the Federal Reserve signalled that they expected to lift interest rates in 2023, a year earlier than previously thought.
The benchmark S&P 500 fell 0.6 per cent, led by a decline in the shares of technology companies including Oracle, Microsoft and Facebook. The Nasdaq Composite was also down 0.6 per cent.
The equity market decline accompanied a sell-off in the $21tn Treasury market, where the yield on the benchmark 10-year note rose 0.06 per cent to 1.56 per cent.
Among shorter-dated government bonds most sensitive to interest rate policy, there were even larger moves. The yield on the five-year note climbed 0.09 percentage points to 0.88 per cent, while the yield on the two-year note briefly hit its highest level in a year at 0.19 per cent.
“Just as the market was getting comfortable with a patient Fed and inflation considerably above target, the dot plot has shifted,” said Seema Shah, the chief strategist of Principal Global Investors, referring to the graph showing Fed officials’ interest rate predictions.
“Now it will be up to [Fed chair Jay] Powell and other Fed speakers to once again reassure markets that tightening in 2023 doesn’t need to be disruptive.”
The equity market rally over the past year has been in part predicated on rock-bottom interest rates, which the Fed has anchored near zero since the crisis began in March last year.
While policymakers at the US central bank showed that they could raise rates sooner than previously thought, they did not yet signal changes to the Fed’s $120bn-a-month asset buying programme, which investors are starting to expect will be tapered soon.
But markets have worried that signs of higher inflation, which Fed policymakers acknowledged in their economic projections published on Wednesday, could force the central bank’s hand.
“Given that the only takeaways from the Fed update involved higher rates, it follows intuitively that Treasuries are trading lower,” said Ian Lyngen, the head US interest rate strategist at BMO Capital Markets.
Ian Shepherdson, the chief economist at Pantheon Macroeconomics, added that the forecast for higher rates in 2023 meant that members of the Fed’s policy-setting committee “now are ready to talk tapering, so chair Powell is not going to be able to repeat his March/April stonewalling . . . We expect him just to acknowledge that the discussion is under way, but that a firm decision is a way off.”
The US dollar index climbed 0.4 per cent along with the uptick in Treasury yields. The pound fell 0.4 per cent against the dollar, while the euro slipped 0.7 per cent to $1.20.
European stocks finished at new records before the release of the Fed decision. The Stoxx Europe closed up 0.2 per cent for another all-time peak, the region-wide benchmark’s ninth session of back-to-back rises.
Frankfurt’s Xetra Dax rose 0.1 per cent, while both the CAC 40 in Paris and London’s FTSE 100 climbed 0.2 per cent.
Additional reporting by Siddharth Venkataramakrishnan in London
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