UK shares posted gains for a fourth successive day on Friday, as positive US jobs data combined with hopes of a resolution to the Greek debt crisis both improved investor sentiment.

The FTSE 100 finished the week at its highest level in over six months. This week saw £43.5bn added to the values of the largest 100 UK companies.

If the Bank of England announces a further round of quantitative easing on Thursday, as many economists expect to happen, we could see the FTSE 100 rise above the psychologically important 6,000 level.

Over a year the FTSE 100 has fallen from 5,983.30, a fall of 82.23 points or -1.37%.

£1 is currently worth $1.58170 US or €1.20300 Euros.

Brent Crude Oil Futures is currently priced at $114.44/barrel. Gold is $1,734.00/ounce and Silver is $33.93/ounce.

The UK Bank Rate is 0.5% and CPI inflation was 4.2% for the year to December 2011.

The National Institute of Economic and Social Research has warned that recession will occur as a result of the cut back in household spending.

They forecast an economic contraction of 0.1% in 2012, with growth of 2.3% next year, assuming the eurozone sovereign debt crisis can be resolved in time.

These predications are slightly more pessimistic than official government forecasts, which predict modest economic growth in 2012 followed by stronger growth in 2013 and 2014.

Regardless of which forecasts you believe, a brief period of recession is looking increasingly likely following the publication of ONS data for the final quarter of last year, showing negative GDP growth.

Two consecutive periods of a contracting economy are the technical definition of a recession.

Assuming we are once again about to be blessed with a recession, what steps can households take to position their finances?

Fear of redundancy and unemployment, and its resulting loss of earnings, is clearly one of the most frightening aspects of any recession.

We expect the impact of any recession to be unequally distributed in 2012. Some sectors will perform poorly and others will do better, taking advantage of opportunities as they arise.

Understanding the unique risks as they apply to your employer is a good first step as you plan for a recession. How can you make your unique skills and experiences invaluable to your employer in tough economic times?

From a personal financial planning perspective, two of the most important steps are to cut short-term debt and boost emergency savings.

Unsecured debt, including credit cards and personal loans, are often the most expensive forms of borrowing. When recession strikes and jobs are lost, keeping up with debt repayments can be very difficult.

Every household should have an emergency fund of cash savings which will cover three to six months of committed expenditure. With a recession looming, this is a good time to consider increasing the size of your emergency fund.

Heading into a recession is also a good time to review your household budget and consider where savings can be made.

Making cuts to your expenditure at an early stage may not help the wider economy; it will free up more of your income to direct towards debt repayment and savings.

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In their Green Budget, the IFS has concluded that the chancellor can temporarily cut taxes without risking an interest rate rise.

They also warned that a substantial tax cut could damage investor confidence.

Looking at predicted government borrowing this year, the IFS believes it will be around £2.9bn less than the official borrowing forecasts. However, the continuing eurozone sovereign debt crisis could see this level of borrowing increase.

Whilst the official economic growth forecast for 2012 is 0.7%, the Green Budget includes a much lower forecast of 0.3%. If the eurozone crisis comes to a head this year, it could result in a “deep recession” for the UK in 2012 and 2013, according to the IFS.

The IFS Green Budget is published each year ahead of the Budget, with suggestions of what the chancellor might include.

We will need to wait until the Budget on 21st March to see if any of the recommendations made by the IFS are included.

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£1m a year sounds like a lot of money. In fact, it is a lot of money.

I suspect that many of us would be happy to receive that level of remuneration for our work, even if that meant additional responsibilities and pressures to justify the wage.

In our experience as Financial Planners, there is no typical way in which large salaries like this are spent.

Expenditure will differ depending on chosen lifestyles; many higher earners are surprisingly frugal when it comes to their money.

The traditional image of an expensive car, massive property and expensive foreign holidays is usually a long way from the reality of how higher earners spend their income.

Of course a large part of a big salary like this will go on income tax and National Insurance contributions. In the 2011/12 tax year, someone earning £1m a year of salary will pay £478,000 of income tax and £23,381 of National Insurance contributions, leaving them with net earnings of £498,619.

This is before the additional of taxable benefits in kind, with things like a company car or private medical insurance quickly increasing the total tax bill each year.

Tax can also be saved through the payment of pension contributions or investments in tax efficient investment schemes, although this also reduces the available net income.

With what is left over, the net income is often spent on property and running the household. Money is also often spent on private education, with much of the Financial Planning work we do used to determine whether a private education is affordable.

Any feeling of wealth tends to be relative to not what you earn but what you get to keep.

Someone on a salary of £1m may feel no more or less wealthy than someone earning £100,000 or £25,000 a year, if their net income disappears each month on committed expenditure.

Working towards a defined set of goals which are documented within a regularly reviewed Financial Plan is essential regardless of earnings level.

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All financial advisers will need to meet a new, tougher set of regulations in time for this deadline.

There are three main changes taking place at the end of this year.

Firstly, all advisers will need to hold a minimum of a Level 4 qualification and also a Statement of Professional Standing (SPS) from a professional body.

Level 4 is equivalent to the first year of an undergraduate degree course. It is a more testing qualification level than the current mandatory minimum of a Certificate, and better reflects the technically complex world of financial services.

Advisers can only apply for a Statement of Professional Standing once they have obtained this Level 4 qualification and also completed a series of continuing professional development activities in order to fill any ‘gaps’ in their knowledge.

Here at Informed Choice, all nine of our Financial Planners hold a Level 4 qualification already (in fact, six of our Financial Planners hold one or more Level 6 qualifications) and all either hold or have applied for a Statement of Professional Standing.

Secondly, all advisers will need to work on the basis of ‘adviser charging’.

From the end of this year, the payment of commission from product providers to financial advisers is being abolished, with only a few exceptions for existing contracts and payments.

Here at Informed Choice, we have worked on this system of adviser charging since 2004, charging our clients an explicit fee for the advice, implementation and review services we provide.

Finally, from 31st December 2012 the services provided by financial advisers will need to be either ‘independent’ or ‘restricted’.

The threshold for providing independent financial advice will be slightly higher than it is currently, with any adviser who is not meeting this threshold only able to provide ‘restricted’ advice to their clients. This advice will be restricted in terms of the products they can recommend or the advice areas they are able to consider.

Here at Informed Choice, we continue to believe that independent financial advice represents the gold standard; it is what our clients deserve because it can result in the best outcomes, without undue commercial influences or restrictions.

With only eleven months to go until the implementation of these new regulations, we are pleased to report that we are ready and have been ready for some time.

Is your IFA ready yet for the Retail Distribution Review?

Those that have left it this late are potentially doing a disservice to their clients, as their focus for the remainder of this year will be on preparation for the new rules rather than delivering excellent service.

Both M&G and Thames River bond fund managers have taken short positions on gilts in recent weeks.

Going short on an asset allows an investor or fund manager to profit from a fall in its value.

Should the price of gilts go down, the fund managers will receive a positive return for their short positions. Of course they will also lose money should gilts rise further in value.

What has prompted this position is a belief that gilt yields have reached ‘extreme’ lows.

In recent weeks we have seen the yield on a 10-year government bond reach the historical lows of a shade under 2%.

At that level, there is very little further that gilt yields can fall.

If gilt yields do experience a sharp correction, with yields rising say 20 or 30 basis points in a short period of time, then fund managers will be rewarded for taking these short positions.

Shorting is not an investment tool generally available to retail investors. Instead, they must rely on their asset allocation decisions and the decisions taken by fund managers to position funds accordingly.

Given these recent fund manager decisions and the very low level of gilt yields, is now the time to get out of gilts?

We would argue that investment portfolios need to be well diversified and this includes an allocation to gilts.

At the start of the year, our Investment Committee made the tactical decision to cut our exposure to this asset class, retaining our underweight position in gilts but making further cuts to allocations in the model portfolios we manage.

We pointed out at the start of the year that gilts look poor value at their current yields, offering a limited upside potential to investors.

As with any investment decision, you should position your pension or investment portfolio according to your wider financial objectives and the risks you are prepared to take with your money.

Now might be an appropriate time to cut back on high levels of exposure to gilts, in case they should suddenly fall in value.

Getting out of gilts altogether would be a very dramatic decision which is best left to full-time investment professionals who can attempt to time the market very quickly.

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That is the question currently posed as we expect to see Facebook launch their Initial Public Offering (IPO) later this week.

If those numbers prove to be accurate, the valuation will be supported by hype rather than reality.

It is bound to invoke memories of the dot-com bubble between 1995 and 2000, when markets expected profits to materialise from previously unproven business models.

Facebook is likely to argue that its value lies in the user base.

More than 800m people globally are reported to have active Facebook accounts. The personal data they share is valuable to advertisers, who can personalise their messages to individual users.

But are Facebook users really worth an estimated $125 each?

If the IPO goes ahead as expected, it is not going to be based on a conventional valuation model.

Investors will need to suspend reality for a while, and convince themselves that Facebook is worth more than (for example) Apple, with its ample profits and long history of success.

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UK company shares fell sharply during afternoon trading on Friday after disappointing US GDP data. The US economy grew by 2.8% rather than the expected 3% that had been priced in to markets.

Over a year the FTSE 100 has fallen from 5,965.10, a fall of 231.65 points or -3.88%.

£1 is currently worth $1.57300 US or €1.18980 Euros.

Brent Crude Oil Futures is currently priced at $111.53/barrel. Gold is $1,726.00/ounce and Silver is $33.48/ounce.

The UK Bank Rate is 0.5% and CPI inflation was 4.2% for the year to December 2011.

We take a neutral stance when it comes to the active and passive investment debate, with a belief that both approaches to fund management can add value to investors.

Some new analysis from the Investment Management Association (IMA) has found that transaction costs within actively managed funds are more than offset by investment returns, on average.

The research looked at the accounts of UK All Companies funds from 2009.

Actively managed funds had average transaction costs of 0.31%, compared to tracker funds at 0.06%.

For active funds, two-thirds of these transaction costs were the result of stamp duty.

Most interesting, the IMA analysis found that (again, on average) these transaction costs are more than offset by the returns delivered to investors from actively managed funds.

By looking at the annual difference between benchmark returns and fund returns after charges over a ten year period to December 2011, the IMA found that the difference between the net fund return and the benchmark return was on average significantly less than the Total Expense Ratio (TER).

For tracker funds, this analysis found that the TER was broadly the same on average as the difference between the benchmark return and the fund return.

Fund charges are important when constructing and managing an investment portfolio, but they are only one factor to consider.

There are situations where tracker funds are less suitable than actively managed funds, and vice versa.

An obsessive focus on the cost of investing can often ignore the importance of value, which in the case of fund selection is partially the net return received by the investor.

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This has fallen sharply from the over 50% of men who were contributing to pensions in 1999/2000. This is compared to only 39% today.

The current contribution levels represent the lowest level of pension participation in the last decade.

It is a worrying set of figures.

With life expectancy continually improving, saving for a financially secure retirement is becoming increasingly important.

The major decline in private sector defined benefit pension schemes suggests that more people should be making greater private provision for retirement.

Commenting today for Morningstar, Informed Choice chartered financial planner Martin Bamford said there could be several reasons for this declining popularity in pensions:

“With personal, private pensions, it takes a great deal of planning and motivation to open a pension plan,” he says.

“It’s difficult to know what to do, where to go, where to invest and how much to contribute. This prevents people from taking action.”

Making private pension contribution is unfortunately not as simple as it could be.

A good starting point is to understand where you are today and where you want to be in retirement. These are the two figures required before you can calculate how much you will need to contribute during your working life to create a large enough pension fund.

Seeking advice from an independent financial adviser can help you to answer these important questions.

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