| Record PEP sales in
the run up to the end of the tax year have just
been reported by AUTIF the Association of Unit
Trusts and Investment Funds. Sales have been
buoyant ever since the Chancellor, Gordon Brown
announced that PEP investors can keep their tax
benefits for another 10 years even though PEPs
are to be replaced next year by Individual
Savings Accounts (ISAs). This is great news for
savers and investors because in the past there
has always been the risk that the tax breaks
might be taken away without notice. For the
Chancellor to state clearly that tax exemption
will apply to PEPs and ISAs until 2009 is a real
bonus and helps everyone to plan their long-term
savings arrangements with greater certainty.
The question is "Should you take out your
last PEP now or leave the decision until the last
moment at the end of March next year?"
The sooner you invest the sooner the income
tax benefits start to accrue. Wait until next
year and you lose the tax rebate on a year’s
income. So if you have money invested in the
stockmarket outside a PEP, now is the time to
start transferring it into a PEP.
If, on the other hand, your money is in a
Building Society or other type of deposit account
the current level of the stockmarket should be
taken into account. You don’t want to invest
at a time when the market is about to take a
tumble.
Stable Interest Rates
The market as measured by the FTSE 100 Index
is now hovering around the 6000 mark after rising
strongly since last October when Asian economic
turmoil caused some to think that the bull market
in the UK might be running out of steam. Recent
concern has been centred on the possibility of
higher interest rates in order to choke off
inflationary pressures. Manufacturers have been
complaining about the strength of the pound for
some time so they will be relieved that inflation
appears to be under control and so the prospect
of higher interest rates is receding.
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Stable interest
rates should mean a less severe economic cycle
than in the past, leading to more stable and
predictable corporate profits. Corporate
Efficiency
The improvements in corporate efficiency have
focused attention by Boards on giving
shareholders a better deal. One of the results of
this is an increase in the amount of money which
is being paid back to shareholders either in the
form of buy-backs or cash take-overs. With more
money in the system there has been plenty of
demand for shares and their diminishing supply
has to some extent exacerbated share price rises.
This has come at a time when foreign investment
has been increasing because of the positive view
foreigners take on the economic prospects for
Britain. Unsurprisingly the focus of attention
has been centred on Britain’s largest stocks
because they are more readily recognisable,
company research and analysis is more available
and the shares offer greater marketability.
Take-over Activity
Additionally mega-mergers and take-overs
amongst the world’s leading companies is
taking place in an effort to meet the challenge
of competition in the future where it is believed
that only the largest and fittest companies will
survive. This explains why the main indices such
as the FTSE 100 Index has performed so well, much
to the pleasure and satisfaction of netPEP
investors.
Long Term Investment
Time after time professional investors are
proving that it is impossible to predict
consistently the bottom and top of market cycles.
If professionals have so much difficulty, what
chance do small private investors have in calling
the market? The best they can do is take a medium
to long term view which has stood everyone in
good stead.
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