Three Financial Planning Tips for the Current Market Environment with Davy

The impact of the Coronavirus on our lives has been enormous and continues to wreak havoc as we navigate this new unchartered territory. Financial asset values have fallen at a rate faster than most of us have ever seen, presenting challenges for investors as they come to grips with the impact on their portfolios.

At a personal level, we continue to experience stress and anxiety from this massive evolving change.

In a period of such unprecedented uncertainty, it may help to exert some level of influence on some aspects of our lives which we can alter. Social distancing has meant that many of us find ourselves with extra time on our hands. Having to spend so much unexpected time at home might be an opportunity to look at completing things we’ve put on the long finger.

One thing definitely worth considering at this time is your financial plan which can help keep you on track by allowing you to reposition in times of uncertainty or market volatility.

Defer Non-Essential Drawdowns

The worst time to draw money down from a portfolio is when assets have fallen significantly. For some, there won’t be any other choice, as lifestyle needs may dictate an immediate requirement for funds.

However, not all drawdowns are essential in the short term and any portfolio withdrawals or encashment from invested assets should be reviewed in the short term. Deferring for a period of time may allow for asset recovery and access at a more suitable time.

Retire Pensions That Are Close To The Tax Efficient Limit

The bull market that followed the global financial crisis provided plenty of growth to pension savers in the time period since. Many clients would have seen their pension grow over the €2m tax efficient limit, known as the Standard Fund Threshold (SFT).

There is an immediate 40% tax charge when drawing pension benefits on any chargeable excess amount above the tax efficient limit, although a credit available from tax paid on retirement lump sums can increase the efficient value to €2.15m before 40% tax arises.

A dip in pension values may present a good time for some clients to tax efficiently draw benefits as the market movements may have eliminated some or all of the amount subject to punitive tax.

Consider Lifetime Asset Transfers 

Before making provision for the next generation, it is critical that clients ensure their own financial requirements are met, both now and in retirement. Passing assets to the next generation should only be considered when they have that level of comfort. For clients for whom this course of action still makes sense, it may be timely to act sooner rather than later.   If you’re considering transferring assets to the next generation, this may still be appropriate.

A time of low asset values typically means that a transfer will give rise to less exposure to capital taxes i.e. capital gains tax (CGT), capital acquisitions tax (CAT) and stamp duty. The hope is that the growth in asset values will be in the hands of children when values recover, rather than being subject to tax at some point in the future. It is possible to tax efficiently transfer wealth to the next generation in such a way that control can be maintained by parents.

Of course, there is a possibility that the rates of tax will increase in the future, which may also accelerate action.

At Davy our strength lies in the close working relationships we have with our clients. In recent years, we have invested heavily in highly-skilled people to ensure that we are well positioned to plan for your future while mitigating risks. Our thinking is balanced and long term. We provide frequent accessible financial planning and wealth management advice which is able to weather the storm and adapt to market forces.

If you need any information, advice or reassurance during these challenging times, why not visit and get in touch.

Please note that this article is general in nature and does not take account of your financial situation or investment objectives.  It is not intended to constitute tax, financial or legal advice and is based on Davy’s understanding of current tax legislation in Ireland. Davy does not provide tax or legal advice. Prior to making any decision which may have tax, legal or other financial implications you should seek independent professional advice. There are risks associated with putting any financial plan or strategy in place. The value of investments may go down as well as up.

J&E Davy, trading as Davy and Davy Private Clients, is regulated by the Central Bank of Ireland. J&E Davy is a member of Euronext Dublin and the London Stock Exchange. In the UK, J&E Davy is authorised by the Central Bank of Ireland and authorised and subject to limited regulation by the Financial Conduct Authority. Details about the extent of our authorisation and regulation by the Financial Conduct Authority are available from us on request.

Article prepared by: Colm Power, Director, Financial Planning, Davy Private Clients and Barry Kennelly, Director, Tax and Wealth Planning, Davy Private Clients.

The content of this site is subject to copyright laws and may not be reproduced in any form without the prior consent of the publishers. The views expressed in articles do not necessarily represent those of the publishers. This article first appeared in Irish building magazine.