Known Unknowns
By Derek Winsland
This article is published on: 16th June 2016
Individual investors may face many “known unknowns”—that is to say, things that they know they don’t know. The UK’s referendum on EU membership is one of them, confronting people with a large degree of uncertainty. But as we’re witnessing, it’s not just the investor that’s afflicted by this Known Unknown condition – the markets are really uncomfortable as evidenced by the fall in the value of the pound.
We have though been here before; perhaps not having to make decisions that could affect our financial stability for years to come, but as the chart below shows, major global events that have impacted on our lives to a greater or lesser effect. Through all of them, the markets have shown a remarkable resilience over the longer term and that is one of the most important lessons the individual investor can learn.
You see, it’s not necessary to “make the right call” on the referendum or its consequences to be a successful investor. Our approach is to trust the market to price securities fairly; to take account of broad expectations of future returns.
In arguing for the status quo, the “remain” campaign is able to point out familiar characteristics of membership.
The “out” campaign, however, is based on intangibles that can only be resolved after the result of the referendum is known. It is impossible for any individual to predict the implications of these unknowns with certainty.
But this is no cause for concern. While the referendum is imminent and its implications are potentially vast and unpredictable, it is not necessary for individual investors to make any judgement calls on the outcome. We have faced many uncertainties in the past—general elections, market crises, recessions, wars—and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.
And while these events have caused uncertainty, volatility and short-term losses and gains, none of them has altered the expectation that stocks provide a good long-term return in real terms.
We have a global view of investing, and we know that the market is very good at processing information that is relevant to future returns. Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to target the expected long-term return.
These events are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Past performance is no guarantee of future results. MSCI data © MSCI 2016, all rights reserved.
Research has demonstrated time and again that the best returns are achieved through ‘Time in the Market’ and not by trying to ‘Time the Market’; in other words, stay invested rather than guess the best time to invest and disinvest.
If you would like more information on our investment philosophy, please ring for an appointment or take advantage of our Friday Morning Drop-in Clinic here at our office in Limoux. And don’t forget, there is no charge for these meetings.
Tax-Efficient Savings & Investments in France
By Spectrum IFA
This article is published on: 24th May 2016
Some of you reading this article have just completed your first French income tax return. Well done if you achieved this without difficulty – ce n’est pas facile!
Whether you are new to France or not, the annual tax return is an opportunity to take stock of your financial situation. In particular, if you had to declare interest from bank deposits (including ISAs), dividends from shares (even if these were reinvested), and perhaps also gains from financial assets, then your tax and social charges bill will be higher than necessary. No-one likes paying taxes and so now is a good time to consider alternative tax-efficient savings and investments, if you want to avoid reduce your future tax bills.
For short-term savings, France has a range of tax-free accounts. The Livret A for deposits up to €22,950 and the Livret Développment Durable (LDD) for deposits up to €12,000, both paying interest of 0.75% per annum. For households with taxable income below certain limits, there is also the Livret d’Épargne Populaire (LEP) for deposits up to €7,700, which pays 1.25% per annum. You have full access to your capital in these accounts at any time.
The interest rates for the tax-free accounts are set by the French government, taking into account average short-term interest rates and inflation – both of which are very low at present. Realistically, the current tax-free interest rates could be lower, however, even the French say that it would be political suicide for the government to reduce these rates now! Whatever the tax-free rates are, however, these are better than comparable standard deposit rates for other accounts with instant access. Hence, the tax-free accounts are very useful for depositing cash that you need for an emergency fund, or to meet other short-term capital needs. The accounts do not create any tax issues and earning some interest is better than none at all.
For medium to long-term savings, the most popular type of investment in France is the Assurance Vie (AV). This type of investment is very tax-efficient as there is no income tax or capital gains tax on any income or growth, whilst the monies remain within the AV. Annual deduction of social charges is also avoided, except when investing in fonds en euros, which are offered by French banks and insurance companies.
When you do take a withdrawal from the investment, part of this is considered to be a withdrawal of capital and this part is therefore free from any tax. For the taxable element, you can opt for a fixed withholding tax rate, in which case the insurance company will take care of the necessary deduction, declaration and payment of the tax and social charges. Alternatively, you can opt to declare the gain through your annual income tax return, in which case the company will not make any tax or social charges deductions and will provide you with notification of the amount that you need to declare. The taxable gain will then be added to your other sources of taxable income and taxed at marginal rates.
Over time, AVs become even more tax-efficient and after eight years, the gain in amounts withdrawn can be offset against an annual tax-free allowance of €9,200 for a couple who are subject to joint taxation, or for ‘one-person households’, the allowance is €4,600.
Millions of French people use AV as their standard form of savings and investment and many billions of Euros are invested in this way via French banks and insurance companies, which offer their own branded product. In addition, there is a much smaller group of companies that are not French, but have designed French compliant AV products, aimed specifically at the expatriate market in France. These companies are typically situated in highly regulated financial centres, such as Dublin and Luxembourg. However, before choosing such a company, it is important to establish that the company has complied with all the formal French tax registration procedures, so as to ensure that you will receive the same tax and inheritance advantages as the equivalent French product.
Some of the advantages of the international product, compared to the French product, are:
- It is possible to invest in currencies other than Euro, including Sterling and USD.
- There is a larger range of investment possibilities available, providing both access to leading investment managers, as well as capital guaranteed products and funds.
- Documentation is in English, thus helping you better understand the terms and conditions of the policy.
- The AV policy is usually portable, which is particular benefit if moving around the EU, since in many cases, the policy can be endorsed for tax-efficiency in other EU countries.
AV is also highly beneficial for inheritance planning, both as concerns freedom to leave your financial assets to whoever you wish, as well as providing valuable additional inheritance allowances for your beneficiaries and I will cover this in a later article.
Everyone’s situation is different and any decision to invest in assurance vie should only be considered as part of a wider review of your overall financial situation, as well as your plans and objectives for the future. Hence, if you would like to have a confidential discussion with one of our financial advisers, you can contact us by e-mail at limoux@spectrum-ifa.com or by telephone on 04 68 31 14 10. Alternatively, drop-by to our Friday morning clinic at our office at 2 Place du Général Leclerc, 11300 Limoux, for an initial discussion.
The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of the investment of financial assets or on the mitigation of taxes.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter.
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Stay invested and don’t try to second guess the market – Discipline is rewarded
By Derek Winsland
This article is published on: 6th May 2016
Individual investors may face many “known unknowns”—that is to say, things that they know they don’t know. The UK’s referendum on EU membership is one of them, confronting people with a large degree of uncertainty. But as we’re witnessing, it’s not just the investor that’s afflicted by this Known Unknown condition – the markets are really uncomfortable as evidenced by the fall in the value of the pound.
We have though been here before; perhaps not having to make decisions that could affect our financial stability for years to come, but as the chart below shows, major global events that have impacted on our lives to a greater or lesser effect. Through all of them, the markets have shown a remarkable resilience over the longer term and that is one of the most important lessons the individual investor can learn.
You see, it’s not necessary to “make the right call” on the referendum or its consequences to be a successful investor. Our approach is to trust the market to price securities fairly; to take account of broad expectations of future returns.
In arguing for the status quo, the “remain” campaign is able to point out familiar characteristics of membership.
The “out” campaign, however, is based on intangibles that can only be resolved after the result of the referendum is known. It is impossible for any individual to predict the implications of these unknowns with certainty.
But this is no cause for concern. While the referendum is imminent and its implications are potentially vast and unpredictable, it is not necessary for individual investors to make any judgement calls on the outcome. We have faced many uncertainties in the past—general elections, market crises, recessions, wars—and throughout all of them, the market has done its job of aggregating participants’ views about expected returns and priced assets accordingly.
And while these events have caused uncertainty, volatility and short-term losses and gains, none of them has altered the expectation that stocks provide a good long-term return in real terms.
We have a global view of investing, and we know that the market is very good at processing information that is relevant to future returns. Because of this view, we don’t attempt to second-guess the market. We manage well-diversified portfolios that do not rely on the outcome of individual events or decisions to target the expected long-term return.
These events are not offered to explain market returns. Instead, they serve as a reminder that investors should view daily events from a long-term perspective and avoid making investment decisions based solely on the news. Past performance is no guarantee of future results. MSCI data © MSCI 2016, all rights reserved.
Research has demonstrated time and again that the best returns are achieved through ‘Time in the Market’ and not by trying to ‘Time the Market’; in other words, stay invested rather than guess the best time to invest and disinvest.
If you would like more information on our investment philosophy, please ring for an appointment or take advantage of our Friday Morning Drop-in Clinic here at our office in Limoux. And don’t forget, there is no charge for these meetings.
So What’s Your Strategy ?
By Chris Webb
This article is published on: 30th April 2016
Investing is not a sure thing in most cases, it is much like a game – you don’t know the outcome until the game has been played and a winner has been declared.
Anytime you play almost any type of game, you have a strategy. Investing isn’t any different – you need an investment strategy.
An investment strategy is basically a plan for investing your money in various types of investments that will help you meet your financial goals, depending on your time horizon.
Each type of investment contains individual investments that you must choose from. A clothing store sells clothes – but those clothes consist of shirts, trousers, dresses, skirts etc. The stock market is no different, it’s a type of investment, it contains different types of stocks and different companies that you can invest in.
If you haven’t done your research, it can quickly become very confusing – simply because there are so many different types of investments and products to choose from. This is where your strategy, combined with your risk tolerance and investment style, all come into play.
If you are new to investments, we will work closely together to ensure you have a full understanding before making any investments. I will help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style, but will also help you achieve your financial goals.
Never invest money without having a goal and a strategy for reaching that goal! This is essential.
Nobody hands their money over to anyone without knowing what that money is being used for and when they will get it back! If you don’t have a goal, a plan, or a strategy, then you are essentially handing your money over without any idea of what it can do for you!
How Much To Invest?
By Chris Webb
This article is published on: 28th April 2016
Many first time investors think that they should invest all of their savings. This isn’t necessarily true. To determine how much money you should invest, you must first determine how much you actually can afford to invest and, just as importantly, what your financial goals are.
So, how much money can you currently afford to invest? Do you have savings that you can use? If so, great! However, you don’t want to cut yourself short when you tie your money up in an investment. What were your savings originally for?
It is important to keep three to six months of living expenses in a readily accessible savings account – don’t invest that money! Don’t invest any money that you may need to lay your hands on in a hurry in the future.
So, begin by determining how much of your savings should remain in your savings account, and how much you feel you are comfortable to use for investments.
Next, determine how much you can add to your investments in the future. If you are employed, you will continue to receive an income, and you can utilise your surplus income to build your investment portfolio over time.
Together we can work at setting a budget and determine how much of your future income you will be able to invest.
With my help, you can be sure that you are not investing more than you should or less than you should in order to reach your investment goals.
For many types of investments, a certain initial investment amount will be required. This at first glance, may look out of your reach. However I may be able to reduce these entry levels.
If the money that you have available for investments does not meet any required initial investment, you may have to look at others. Never borrow money to invest, and never use money that you have not set aside for investing!
Reasons To Invest
By Chris Webb
This article is published on: 8th April 2016
Have a think about how different our lives are compared to our parents or grandparents….. How often do we travel? How used to our luxuries in life are we? Well guess what ……. this all costs money and as we are all going to retire at some point it might be a good idea to start thinking about that cost now!
This is why investing has become increasingly important over the years. Gone are the days of relying on the state to look after you in your golden years, and I’m pretty sure leaving your cash in the bank isn’t going to get the results you need either.
Times are changing and more and more people want to insure their futures, and they already know that if they are depending on state benefits, and in some instances company pension schemes, that they may be in for a rude awakening when they no longer have the ability to earn a steady income.
Investing is the answer to the unknowns of the future.
You may have been saving money in a low interest savings account over the years. Now, you want to see that money grow at a faster pace. Perhaps you’ve inherited money or realised some other type of windfall, and you need a way to make that money grow. Again, investing is the answer.
Investing is also a way of attaining the things that you want, such as a new home, a university education for your children, or the longest holiday of your life………… retirement.
Of course, your financial goals will determine what type of investing you do.
If you want or need to make a lot of money fast, you will be more interested in higher risk investing, which will hopefully give you a larger return in a shorter amount of time. If you are saving for something in the far off future, such as retirement, you would want to make safer investments that grow over a longer period of time.
The overall purpose in investing is to create wealth and security, over a period of time. It is important to remember that you will not always be able to earn an income… you will eventually want to retire.
You cannot rely on the state system to finance what you want to do, and as we have seen with Enron, you cannot necessarily depend on your company’s pension scheme either. So, again, investing is the key to insuring your own financial future, but you must make smart investments.
Dealing with volatility
By Chris Webb
This article is published on: 11th March 2016
Market volatility has become a common discussion with all of my clients. Whether they are seasoned investors or new to the investment game, volatility is an area that is now at the forefront of their minds when looking to invest their hard earned savings. To a large percentage of people their only understanding or awareness of a volatile market comes through the media, who we all know love to sensationalise every story at every opportunity.
What is a volatile market? By definition a volatile market is where unpredictable and vigorous changes occur in the price within the stock markets. It is necessary for some movement within the market in order to sell commodities, however a volatile market can represent the most risk to investors.
If you’re not in the “daily trading” game, and are investing for the medium to long term then it’s not always wise to listen to all the hype and speculation in the media. It may be a wiser decision to focus on the fundamentals behind why you invested in the first place, and stick to those fundamentals. Two key areas to focus on are your personal emotions and your attitude to risk.
In volatile times emotions play a significant role in investing decisions. Many investors feel the short term variances in the returns of their investments much more than the average return over the medium term of their investments, even though the decision to invest was a medium term one. Rationally, investors know that markets cannot keep going up indefinitely. Irrationally, we are surprised when markets decline.
It is a challenge to look beyond the short-term variances and focus on the long-term averages. The greatest challenge may be in deciding to stay invested during a volatile market. History has shown us that it is important to stay invested in good and bad market environments. During periods of high consumer confidence stock prices peak and during periods of low consumer confidence stock prices can come under pressure. Historically, returns trended in the opposite direction of past consumer confidence data. When confidence is low it has been the time to buy or hold. Of course, no one can predict the bottom or guarantee future returns. But as history has shown, the best decision may be to stay invested even during volatile markets.
During these emotional and challenging times it is easy to be fearful and/or negative so let’s turn to the wise advice of one of the world’s best investors, the late Sir John Templeton:
“Don’t be fearful or negative too often. For 100 years optimists have carried the day in U.S. stocks. Even in the dark ’70s, many professional money managers—and many individual investors too—made money in stocks, especially those of smaller companies…There will, of course, be corrections, perhaps even crashes. But, over time, our studies indicate stocks do go up…and up…and up”
So do you invest or watch from the sidelines? When markets become volatile, a lot of people try to guess when stocks will bottom out. In the meantime, they often park their investments in cash. But just as many investors are slow to recognize a retreating stock market, many also fail to see an upward trend in the market until after they have missed opportunities for gains. Missing out on these opportunities can take a big bite out of your returns.
Whilst dealing with the emotional side of investing it would be worth evaluating your risk tolerance. Many clients attitude to risk will change over time, this may be due to age, personal circumstances or just added awareness to how the markets move. Each and every one of us has their own individual risk tolerance that should not be ignored when considering making any type of investment. Your investments should always be aligned to your level of risk even if that means making drastic / strategic changes to your portfolio as times change.
Determining one’s risk tolerance involves several different things, and there are different ways to look at how you should look at the risk you need to take. First, you need to know how much money you have to invest, what your investment and financial goals are and what time horizon is involved. Then you need to consider the actual risk you are prepared to take. One simple question can help determine your attitude to risk, however a more detailed discussion should take place to really ascertain your tolerance level and to compile a suitable portfolio.
The one question….. If you invested in the stock market and you watched the movement of that stock daily and saw that it was dropping slightly, what would you do, sell out or let your money ride?
If you have a low tolerance for risk, you would want to sell out… if you have a high tolerance, you would let your money ride and see what happens. This is not based on what your financial goals are, it is based on how you feel about your money! Your risk tolerance should always be based on what your financial goals are and how you feel about the possibility of losing your money. It’s all tied in together, it’s emotional.
So a few pointers to help you through the volatility.
Review your portfolio. Is it as diversified as you think it is? Is it still a suitable match with your goals and risk tolerance?
Tune out the noise and gain a longer term perspective. Numerous media sources are dedicated to reporting investment news 24 hours a day, seven days a week. Do you really need to be glued to it? While the media provide a valuable service, they typically offer a very short-term outlook. To put your own investment plan in a longer term perspective, and bolster your confidence, you may want to look at how different types of portfolios have performed over time. Interestingly, while stocks may be more volatile, they’ve still outperformed income oriented investments (such as bonds) over longer time periods.
Believe Your Beliefs and Doubt Your Doubts. There are no real secrets to managing volatility. Most investors already know that the best way to navigate a choppy market is to have a good long-term plan and a well-diversified portfolio but sticking to these fundamental beliefs is sometimes easier said than done. When put to the test, you sometimes begin doubting your beliefs and believing your doubts, which can lead to short-term moves that divert you from your long term goals.
Prior to working with any clients I insist on completing a personal detailed risk tolerance questionnaire. This will tell us exactly what your attitude to risk is and a suitable portfolio can be devised to suit you individually. If you are interested in investing or saving for the future, get in touch to discuss the opportunities available and just as importantly the risks associated. If you already have an investment portfolio and feel that it was never risk rated against your own risk tolerance then let me know, I am happy to discuss further and go through the questionnaire to ensure that what you have already done is suitable for your circumstances.
Can you make decent profits without a degree of market risk?
By Spectrum IFA
This article is published on: 22nd October 2015
My article last month focussed on types of risk that that can present danger to the unwary investor. My top two risk types were Institutional Risk and Market Risk, but I concentrated mainly on my third risk factor – Foreign Exchange, largely because of my previous experience in this field. I was quite surprised by the interest the article produced, partly because the people who commented weren’t really ‘grabbed’ by F/X risk; but rather more interested in the other two categories. Can the modern investor really fall foul of institutional risk? Is anyone really daft enough to think that you can have decent profits or returns without taking on some degree of market risk? Unfortunately, the answer to both those last two questions is yes. I thought you might be entertained if I gave you some examples that hopefully won’t ring too many bells from your own experiences…
In 2009 I met a very interesting lady who was referred to me by a colleague in Spain, not that that is particularly relevant, but I did end up wondering if she’d had too much sun. All I knew before I met her was that she was due to receive a large sum shortly, and she wanted some investment advice. I spent ninety minutes with her, most of which was taken up with a battle of hope over reality. This unfortunate lady had been investing for a number of years with an organisation called The Liberty Wealth Club, and was 100% confident that she would be receiving a pay-out of $150,000 from the club in a matter of weeks. The more I listened, the more appalled I became, for this was truly a forerunner of a ‘Ponzi’ scam, labelled and outlawed in the UK as a Multi-Level Marketing scheme. Nothing I could say to her would make her listen. In the end, I told her that I would be delighted to help her invest her funds when they arrived, and we agreed to meet again on that basis. I never heard from her again.
A year or so later I took on a new client with a much more understandable problem. He had bought an apartment in Spain ‘off-plan’, with a view to selling it on before completion, at a healthy profit. As far as I’m aware, to this day he is still the legal owner of this apartment, although he returned the keys and stopped paying the mortgage years ago. It is a nightmare waiting to revisit him.
Another client with a similar problem bought a flat in Budapest, again unbuilt and ‘off plan’. The amount invested was sizeable, and it took four years for a brick to be laid. In desperation he eventually managed to sell it at a 60% loss.
Undeterred, this same client, before I met him I might add, then decided to invest in a forestry scheme designed to give him a regular income payment for the rest of his life. Unfortunately a drought seems to have interfered badly enough for the income to have dried up (sorry) completely.
Recently I have come across a mind-boggling concept called GCR – Global Currency Reset. Please, please, do not let anyone persuade you to invest any of your hard earned cash building up reserves in currencies such as the Iraqi Dinar or the Vietnamese Dong in the expectation that they will soon be revalued overnight and make your fortune. Believe me, this is not going to happen.
Sane people make these totally irrational investment decisions, albeit whilst temporality on the throes of some form of dangerous mental instability, as it is the only justification I can think of. Please do not be tempted to join this group of dramatic under-achievers. Sound financial advice may seem boring; much along the lines of ‘single digit gains’ and ‘realistic investment profiles’. Sound financial advice will however always save you from the nightmares that can result from your own flights of fancy, should you be that way inclined. And believe me, some of you are.
What are the main financial risks as an expat in France?
By Spectrum IFA
This article is published on: 29th September 2015
Age and wealth are often linked. One increases inexorably in a linear fashion, and the other tends also to increase over time, but always in a non-linear way. Following this traditional route, we tend to become more affluent as we get older, barring financial mishaps and accidents of course. This may have something to do with the notion that as we get older we become wiser. That may well also be true up to a point, but then it can occasionally go horribly wrong. Leaving that unfortunate possibility to one side, how can we expats best contribute to our own financial well-being?
All a bit deep that, but here is what I’m getting at. If I were to attempt to present a snapshot of my average client to you, it would be of a couple in their late 50’s to early 60’s who have retired early after successful careers and family building, based either on employment or their own business. Avid Francophiles, they are now ‘living the dream’ funded by the fruits of their former labours. All is well in their world; or at least that is how it appears on the surface. Underneath though, there are concerns, and these concerns are common to all of us. Age and money.
I think very few of us actually like getting older; I certainly don’t. It is becoming more and more difficult to ignore those ‘milestone’ anniversaries. I think of them more as millstones these days. As I suspect is the case with many of us, I tend these days to look my accumulated ‘wealth’ (cough), and wonder if it will last me out. I think it will, and I certainly hope it will, but I’m pragmatic enough to realise that it isn’t a ‘gimme’ (in Solheim cup parlance).
So then I start to look at the variables. What can possibly go wrong? What can I do to defend myself against the risks? What are the risks? I am after all a financial adviser; all this should come naturally to me. To an extent it does, but knowing what is out there doesn’t mean that you necessarily know how to beat it. It does help though. Here is my top three on my list of risks to worry about:
Institutional Risk – Basically this means that you put all of your money under the floorboards in the attic, but next year your house burns down, floorboards and all.
Market Risk – How could putting all your money into VW shares possibly go wrong?
Exchange Rate Risk – This is where Murphy’s Law comes into play. Whatever the rate is; whatever you do will be wrong. Otherwise known as Sod’s Law.
Obviously, it is a good idea to work on avoiding these risks wherever possible. I thought long and hard before listing them in this order, but I do think that Institutional Risk stands out. After all, it can wipe you out completely. It can also be avoided completely. The other two cannot be eradicated, although some would argue about F/X risk.
Indeed there was a time when I would have argued that F/X risk can be avoided. In a former life (I’ve told you this before I know), I used to be a foreign exchange dealer in the world of international banking, before it became unfashionable. One of my jobs was to explain to corporate and private clients that F/X risk was the enemy, to be identified and eliminated at all costs; unless of course your job was to make money trading (gambling) in it.
Ten years ago I brought this dogma into my new career as an IFA in France. How long do you intend to stay in France? (forever). Where are your savings? (in the UK, in sterling)… Over the years, the subtleties started to emerge. The collapse of sterling against the Euro; the resulting exodus of thousands of UK ‘snow birds’ from Spain because their UK pensions wouldn’t support them anymore, and the growing realisation that our old enemy ‘age’ was always going to play its trump card; they all contributed to the much changed conversations that have with my clients these days. Strangely though, it is another banking term that now dominates my thinking, namely hedging. ‘Hedge your bets’. To be honest, I tend to question anyone these days who says that they will never return to the UK. Statistics show otherwise. We tend to base our current view on our current circumstances, preferring not to think about what will happen if we end up on our own. How many UK expats are there, I wonder, in French care homes?
Since the Euro came into existence the £/€ exchange rate has been as high as 1.7510 and as low as 1.0219. In anyone’s language that is an enormous range. Coincidentally we currently sit at almost exactly the half way point between those two extremes, but I don’t see that as any reason for complacency. We need to take this risk very seriously, especially if we accept the possibility that we will one day have no more use for Euros. I have a firm view on the best way to manage this risk, but I’ve run out of space in this edition. If you want to discuss it, you know where to find me.
Don´t slip up with over “Greece”ing
By John Hayward
This article is published on: 15th July 2015
The original cash machine?
With events in Greece taking prime news position, certainly the east side of the Atlantic, the main question that I am being asked is, “How will the Greek debt problem and referendum affect my investments?”.
It is said that, back in the BC years, Greece invented finance and all the baggage that it carries. It had the first financial crisis, with bad debt. Debt was subsequently written off and the currency devalued. Unfortunately this has not been an option for Greece now as they are part of the Euro.
Greece has defaulted on loans many times before, yet this never brought the rest of the world crashing to the floor. The word contagion is used an awful lot as the assumption by many is that the rest of the PIIGS (Portugal. Ireland, Italy, (Greece) and Spain) will follow suit. If this was to happen and Spanish banks, in our case, had problems, then there would be major concerns for those who had money with them. Bank risk in Spain has been around for a while and keeping a whole lot of money in a Spanish bank makes little sense. Here are some reasons:-
- Little or no interest paid.
- High charges for little or no gain.
- Inheritance tax liability for Spanish residents.
- Even greater inheritance tax liability for non-Spanish residents.
For those who are brave enough, a financial crisis is a brilliant opportunity to make money. Many are not prepared to be so brave with hard earned savings and, for these people, we have a proven solution with a household name. Very few people like volatility. In reality, volatility means that your money can go down in value, sometimes sharply. With the right approach, we can do away with volatility. Take a look at this graph illustrating the difference between the truly managed approach, the average cautious fund, and the FTSE100. See how consistent the managed fund has been compared to the roller-coaster ride of the others.
Greece is the word at the moment but this shouldn’t mean that all our lives should be dependent on what happens there. Living in Spain, being part of the Euro is the one that I want.