Dr Holly prepares the money epidural

My friends, I have a dirty little secret to share. I put the heating on last night for a 15-minute burst. Heating in September is, in 2024, what Dom Perignon mid-week was in 1984. Profligate.

As fierce debate rages about the winter fuel allowance, there was a small silver lining for some pensioners in the guise of the State Pension, which should go up by £460 next year. Of course, about half of this amount is gobbled up by inflation, so in real terms, it’s not as much as it sounds. Particularly for those who pay tax on it.

Why £460? The triple lock is a contentious promise to increase pensions every year by the largest of three numbers in September the previous year – 2.5%, inflation and average wage growth. This week, wage growth for the three months to July was confirmed to be 4%. It’s almost certain that this number will be used to set the increase for next year’s State Pension.

This will take the new State Pension to nearly £12,000 a year, a total increase of about 28% over the last 4 years.

It’s not only pensioners feeling the squeeze…

The unpalatable truth is that the next 6 weeks leading up to the Budget are the financial equivalent of being 6 weeks off your due date. You know you're in for some hardcore pain at the end of October and there’s not much which most of us can do about it!

Threats to ending the single person’s council tax allowance, rumours about cutting pensions tax relief or tax-free cash amounts, an inevitability that capital gains tax will increase, inheritance tax under the microscope… and more.

If this is the case, then investments and pensions are arguably our epidural, so allow me to grab my needle and share some ideas. If you have a financial adviser, make sure you have a chat and see if there’s anything prudent you might do.

Make sure cash is the right home for any long-term savings

Rates are coming down across the world, which makes cash less appealing as a long-term home. US inflation cooled last month which means the financial world is on the edge of its seat, anticipating the first US cut in rates for four years. The European Central Bank yesterday cut rates again to 3.5%, and the Bank of England next meet on the 19th September.

Markets are still a bit nervy. Cutting rates is generally good for shares, yes, but the economy in the States is also slower and the jobs market is weak. The threat of recession is a shadow on Wall Street. The big question is whether the economy has a so-called slow landing. Or a hefty bump. No-one knows the answer yet.

What can we do? Well. Be very cautious about having too much allocated to the US and the largest tech stocks. Apple, Microsoft and Nvidia make up 20% of the S&P 500. That’s not normal. It’s like having a 40-pound baby inside you! Diversification is the name of the game – as always – so I think it’s prudent to ignore the greedy gremlin in your brain, and make sure you're not too exposed to the big techs.

So what else are people looking at?

If interest rates fall, then so-called ‘defensive stocks’ may be worth a look. Defensive stocks are things we all need even if we only have £10 left in our purse. Unilever, Tesco, AstraZeneca (soap, grub and aspirin). If you want a simple way to access these sorts of shares, City of London investment trust is well-regarded and was in August’s top-selling trusts on investment platforms. If you look for an income from your investments, it currently pays out 4.7% a year, so not to be sneezed at.

Property is also getting investors’ attention and investment trust TR Property was a new entrant on some platforms’ best-selling lists for August. Or, looking to another sector, you can read why the folks at Polar Capital think the healthcare market could be on the brink of a bull run.

Small caps (smaller companies with lower market ‘capitalisations’ – a poncey way of saying they’re valued at less than the world’s largest companies) might do well with a soft landing and they have typically had a rocky few years so don’t have sky-high valuations today. There are lots of options out there, but if you want to keep it simple, there are passive funds such as the Vanguard Global Small Cap Index fund, or you can read the latest from BlackRock on UK small caps or alternatively abrdn Global Small Cap fund features on several favourite funds lists.

And if you just want it simples…

Best-selling fund lists in August confirm that Vanguard’s LifeStrategy 100% is still one of the most popular choices out there. It’s a mixed bag, with a relatively modest 51% allocation to the States, so it’s less exposed than many peers. Performance has been strong and returns over the last 10 years have been 166%. This is your ‘boring’ but tasty Charlie Bingham ready-meal option for the ISA or pension freezer!

F&C investment trust is still in the best-selling investment trust lists. It’s a bit like The Beatles still being number one in 1985 – they just keep on going and are still super relevant. F&C is the world’s oldest investment trust and has 400 global shares in it. It also has the global shiny tech superstars, but held in lower propositions than many. This is a decent all-rounder which I think is a good choice for long-term investments you don’t want to tweak and fiddle with all the time – a child’s Junior ISA or maybe a part of your pension?

And if you want to go for the hardcore birthing pool on top of Mount Everest option…

As for Exchange Traded Funds, there’s a really spicy inclusion in the Hargreaves Lansdown bestsellers. A 3x Nvidia ETP. I imagine this is what Quentin Tarantino would put in his ISA. Basically with these types of fund, you're three times more exposed to the good and the bad of any share price movements, because the fund buys a ton more shares with borrowed money and ups the stakes. Over the last 12 months, you would have made 580%, but over the last 3 months, £10,000 would have collapsed to £3,800. Yikes.

And pack the overnight bag

Any final month preparations must include a look at ISAs to shield money from capital gains tax. Or another look at pensions before any potential fiddling. This month is Pension Awareness month and our refreshed pension pages have loads of info on how to make the most of your pension – or even just get your head around what you might have today.

Over and out for now, my friends. Remember to do your breathing and for god’s sakes avoid hot curries!

Holly

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