As businesses have been hit by the coronavirus pandemic, some have decided to cut dividends and regulators are adding pressure for others to follow suit. This may leave a hole in your income if you rely on dividends.

According to reports from The Times, investors have suffered a dividend cut of at least £600 million as some of the UK’s biggest businesses aim to conserve cash during the coronavirus pandemic. A wide range of business sectors has been impacted by the virus and resulting lockdown, leading to profits tumbling. As a result, firms have taken steps to hold cash as a buffer and, in some cases, regulators have stepped in. The UK banking regulator, for example, wants banks to suspend dividends temporarily. Some businesses are also using the government’s scheme to furlough staff, therefore taking money off the taxpayer, leading to questions around whether these firms should continue to make payouts to shareholders.

Why does this affect investors?

If you’re investing in growth stocks with a long-term plan, the recent market volatility isn’t likely to have a significant impact on your goals overall. However, it’s a different story if you rely on dividends to top-up your income.

A dividend is the distribution of a portion of the company’s earnings paid to shareholders. Dividends are managed by the company’s board of directors and must be approved by shareholders through their voting rights. Dividends are typically paid in cash, but can also be issued as shares, and may be issued at regular intervals.

As a result, dividend-paying companies may be used as part of an income investment portfolio. These typically involve investing in well-established companies that no longer need to reinvest the majority of profits back into the business to reach goals. As a result, high growth businesses typically don’t pay out dividends.

For the most part, once a company has established dividends, investors expect this to continue, but that doesn’t mean they will. As even established firms face uncertainty in light of the pandemic and more are choosing to either freeze or suspend dividends in the short term.

Whilst historically dividends have tended to be less volatile than the stock market itself, this doesn’t mean they are a ‘safe’ investment. Investing for income, including dividend-paying companies, still comes with risks that need to be considered.

So, if dividends make up a portion of your income, what can you do?

1. Reduce outgoings

If your income has been affected, the first thing to do is understand what it means for your finances in the short term. If there is a shortfall in covering essential outgoings, there are currently government-backed schemes in place to support households, including mortgage holidays. Where possible, it may be necessary to reduce outgoings temporarily to match the reduction in income.

2. Use your emergency fund

Everyone should have a cash emergency fund they can fall back on should their income drop. Ideally, this should be easily accessible and have enough to pay for three to six months of outgoings. Often clients can feel reluctant to access this money they’ve put away for a rainy day, but it’s times like these that you’ve been saving for.

3. Create an income from other assets

If your income from dividend-paying stocks has fallen, you could build an income stream from other assets that you hold. What’s possible and whether or not it’s the right decision for you will depend on a variety of factors. If this is something you’d like to discuss, please get in touch with us.

4. Keep your investment plans in mind

If dividends have been reduced or halted altogether, you may be tempted to dump the stocks and look at alternatives. However, keep the bigger picture in mind.

Given the current situation, it’s likely many dividend-paying companies are in a similar position for the time being. A reduction in dividends can be a prudent move and ensure sustainability, therefore protecting your dividend income over the long term. If you’re worried about how secure a firm is, research why the changes to dividends have been made. A statement is often made available on the firm’s website. This may be able to provide you with some reassurance that the changes are temporary.

5. Speak to us

We’re here to help ease concerns you have about your financial situation and what it means for your plans. This includes a reduction in dividend income. Whether you want to understand what it means in the short term or are considering making investment changes due to this, please get in touch with us.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Global stock markets have suffered due to the impact of the coronavirus pandemic, and you may have heard suggestions that now is the ‘perfect time to buy’. After all, in an ideal world, you want to buy when stock prices are low and sell at a high. However, it’s not as straightforward as that and there’s no ‘perfect’ time that suits everyone.

No one knows what is around the corner. Even professional investors are unlikely to have considered the impact a pandemic would have when making decisions in 2019. So, it’s impossible to know what’s coming in the coming weeks and months. Whilst some commentators argue an economic crash is coming, others state the UK economy will begin to pick up once the lockdown measures are lifted.

Whilst it can be tempting to act on these comments when it comes to investing, market dips shouldn’t be at the centre of your decisions. The volatility and numerous factors that have an influence mean it can lead to decisions that may not be best for you.

So, when is the right time to invest? That depends on your personal circumstances and goals. These should always be at the centre of your investment plans and influence when to increase your portfolio.

5 factors influencing the ‘right’ time to invest for you

1. Investment goals

What do you hope to achieve when investing? We all want returns when we invest money but it’s important to think about what you intend to use those gains for. Your aspirations should be at the heart of all financial decisions, including investment ones. Investment goals will influence the risk profile and time frame of investments too.

2. Time frame

How long money will remain invested is crucial to set out investment plans. You may be certain that stock markets have hit a low and will rise over the coming months, but if your investment time frame is just a couple of years, you probably shouldn’t invest. This is because investment markets experience volatility and investing with a short-term perspective may not give you enough time for the peaks and troughs to smooth out. As a result, the time frame should dictate whether investing at all is right for your plans and how much risk to take if you do. Generally speaking, you shouldn’t invest with a time frame of fewer than five years in mind.

3. Existing assets

What other investment products and assets do you hold? If a large portion of your assets is already held in stocks and shares, it may not be prudent to invest further. An investment portfolio should be well-balanced and diversified across a wide range of products, this can help reduce short-term volatility experienced and manage risk. Your asset allocation needs to be carefully considered when asking if now is the right time to invest, pouring more money into the stock markets can significantly change your exposure to risk and volatility.

4. Risk profile

There’s no one-size-fits-all solution when it comes to investing. One of the areas that should be tailored to you is the amount of risk you take. All investments involve some level of risk, but this varies significantly between investment options. There are numerous factors to consider when choosing a risk profile that matches you, from the investment time frame and overall financial situation to your attitude to risk. Investing in stocks simply because some sources claim it’s the ‘perfect’ time could mean making decisions that don’t consider your risk profile.

5. Wider financial plans

Investing isn’t something that should be looked at alone either, your overall plans and aspirations need to be factored in too. Would it make more sense for you to pay off your mortgage or invest? Do you need to build up a financial safety net before increasing investments? Or would it make sense to contribute further to your pension if investment goals are tied to retirement? Looking at the bigger picture can help you create a financial plan that provides a blueprint for your aspirations.

Amid the market uncertainty, it’s natural to have questions about your investments. Please don’t hesitate to contact us if you’d like to discuss any aspect of your investment portfolio and plans.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

For most of us, pensions are invested with the hopes of delivering returns over the long term and it’s something we plan to pay into over our working lives. But the current pandemic may have impacted on your plans and the current value of your pension.

If you’re worried about the impact of coronavirus on your pension, you’re not alone. Research from Aegon found that many pension savers are anxious about their retirement savings. Perhaps unsurprisingly, older generations that will have more saved into a pension and maybe nearer to retirement are the most concerned. The survey found:

• A third (33%) of 18 to 34-year-olds checked the performance of their investments in March, amid significant market volatility
• This compared to 53% of pension savers aged between 55 and 64

This divide was also reflected in who was paying attention to market movements. Some 72% of the older group were doing so, compared to 44% of younger savers. This is despite younger generations being more likely to take this time to make one-off investments, which 28% have done compared to just 10% of those approaching retirement.

For all generations, there is a risk that rash decisions will have a long-term impact. For those still building up their pension savings, this could include halting contributions as worries about job and financial security become a concern. For those accessing their pension, failing to factor in market downturns if taking withdrawals could also have an impact on long-term value.

So, what can you do to keep your pension on track?

1. Maintain contributions

Given the current economic uncertainty, workers still paying into their pension may consider reducing or pausing their pension contributions. However, due to the effects of compounding even a relatively short break from making pension contributions can have a long-term impact. Keep in mind your own contributions will benefit from tax relief and, if you’re employed, contributions from your employer too. As a result, by halting your own contributions, you’re effectively giving up this ‘free money’.

If you find you can’t continue to make contributions, be sure that you understand the long-term impact and what it could mean for your retirement.

2. Don’t make rash financial decisions

With bold headlines and falling values, you may be tempted to make adjustments to your investments or make larger withdrawals from your pension to keep it ‘safe’. However, it’s important to keep in mind that a pension is a long-term investment that should have considered the impact short-term volatility would have. Keep this in mind if you’re thinking about making a knee-jerk reaction to the current market movements.

Making rash decisions is something the Association of British Insurers (ABI) has warned about. Yvonne Braun, Director of Policy, Long-Term Savings and Protection at ABI, said: “Rushed financial decisions are rarely the right ones, even at this worrying and uncertain time. Lockdown will not last forever but the decisions you make today about your pension could impact on your standard of living for years to come.

“Now, more than ever, it is important to think longer term, consider your options and seek advice and guidance before making any decisions.”

3. Review your portfolio

Whilst the media has focussed on the fall stocks have experienced, for many pension savers, this isn’t all your portfolio is made up of. Your portfolio is likely to contain a mix of assets, which can help cushion the fall seen on global markets. You may have seen that the FTSE fell 30% due to coronavirus, but it’s unlikely the fall your pension has experienced is this high. In addition, markets have started to recover, they haven’t reached the levels they were at earlier in the year, but the fall isn’t as significant as it was.

If you’re worried about reading headline figures, looking at your own portfolio is likely to show the impact of volatility isn’t as bad as you first imagined. It can help put worries into perspective.

4. Assess withdrawals if you’re accessing your pension

A dip in the value of pension investments isn’t usually something to worry about if retirement is some way off. If, however, your pension is in drawdown and you’re already making withdrawals, it’s worth assessing the impact these will have. As you’ll need to sell off more assets to receive the same income as you’d have done at the beginning of the year, this can deplete your retirement savings quicker. Where possible, temporarily stopping or reducing withdrawals can help your pension go further. Please contact us if you’re accessing your pension flexibly and want to discuss the rate of withdrawal.

5. Speak to your financial planner

As your financial planner, we’re here to offer you reassurance and advice when you need it. Speaking to us about pension concerns you may have can help you understand the long-term impact of the current situation and create a solution where one is needed. If you’re worried about your pension, or any other aspect of your finances, please get in touch.

Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.