Viewing posts categorised under: Investments

Buying property in the UK

By Peter Brooke
This article is published on: 21st July 2014

21.07.14

Many crew like the idea of investing in UK residential real estate, not just Brits. The strong legal system, common language, lending availability (although this has changed somewhat) and large population, make property ownership in the UK an attractive option for growth and income investors alike.

The obvious risks are currency, liquidity and “arms-length management.” If you don’t earn in sterling, then owning a large sterling asset can mean large swings in value due to exchange rate changes. Annual liabilities can change dramatically too, so consider this.

Like property everywhere, it’s a highly illiquid investment. If you want to sell quickly, you may lose a lot of value, and it may still take months to get your money out. Although it’s an excellent part of a portfolio, property needs to be just that and not the entire dossier.

Managing a property (or portfolio of them) in the UK when you are based on a yacht in the Med or Caribbean can be very difficult unless you employ a good agent to manage any works or changes in tenants. This cost needs to be built into the figures as to whether or not to buy.

Having said that, if the rental yield is good (and therefore someone else is going to pay off your mortgage or give you a good income), then UK property can be an excellent choice, especially if you know the market. Big student towns still seem to offer excellent yield opportunities, but management costs tend to be high. The UK market is steady in terms of growth potential, but the Southeast and London are described as a “bubble” risk.

Buying property in the UK:
Be aware of the different types of ownership (freehold and leasehold) when researching property; they can have far-reaching consequences and costs. There will be Stamp Duty Land Tax (SDLT) to pay on the purchase, which is on a sliding scale from zero to seven percent for properties more than £2 million. Be aware of the brackets, as a slightly lower offer could save you thousands in stamp duty. On top of this, you will pay some legal fees for conveyance advice and services.

Borrowing in the UK:
It’s still possible for yacht crew to borrow, but it’s getting a little harder as banks tighten their rules, and the UK government may further legislation to tighten this more. Banks prefer that the property be rented out, as the income can help secure the loan. Interest rates for non-residents, especially yacht crew, also tend to be higher than those for residents. Generally, crew can borrow around 75 percent of the purchase price, and will have to fund the SDLT and legal fees as well. Any rental profit is taxable in the UK, whether you are resident or not, as is capital gains tax and inheritance tax.

There are many considerations when buying property, so good, qualified advice should be sought, especially if it’s part of an overall plan; a mortgage broker should also be able to find the best terms for you.

An Inflationary Tale

By Spectrum IFA
This article is published on: 20th July 2014

An Inflationary Tale

Inflation is a complicated concept. It’s not easy to understand but if ignored, your money will slowly and stealthily reduce. As a teenager growing up in the 70’s I would hear the newscasters talk about inflation and price controls yet could never tell if it was a good or bad thing. Interest rates were going up as were house prices and income. This had to be a good thing I thought but little did I know!. What I learned later in life as I studied inflation is that, like most things, inflation is a double-edged sword. There are winners and there are losers. It is good for some and bad for others. As you read this tale focus on the two main concepts about inflation. Learn what it is and what it means to an investment portfolio.

What Does The Word Inflation Actually Mean?

Type the word “inflation” into a search engine on your computer and you will probably get information informing you that inflation is “A rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation reflects an erosion of the buying power of your money – a loss of real value. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.” If you are like me and read the above definition you are thinking blah, blah, blah, blah, blah. So since the objective of this Newsletter is to keep things simple, let’s just translate this to what it means to you as an investor.

I like to think of inflation in terms of what $100 can buy in the future if I don’t invest it today. Let’s say, for example, if I make 0% rate of return on my $100 bill because I either put it under my mattress or buried it in the ground or kept it in a safety deposit box and then a few years later I want to know what it can buy. This is what inflation means to the investor or consumer. What that $100 can buy is called purchasing power and purchasing power is directly proportional to the rate of inflation. The following table shows what $100 un-invested can buy at different inflation rates over different time periods. I call it my “Mattress Investing table” because it teaches us that you can’t put money under your mattress unless you want to guarantee that you will slowly erode the value of your money.

Mattress Investing
(The Loss of Purchasing Power Associated with Not Investing $100.00)

Inflation Rate	5 years	10 years	15 years	20 years	25 years	30 years
0%	$100	$100	$100	$100	$100	$100
1%	$95.10	$90.44	$86.01	$81.79	$77.78	$73.97
2%	$90.39	$81.71	$73.86	$66.76	$60.35	$54.55
3%	$85.87	$73.74	$63.33	$54.38	$46.70	$40.10
4%	$81.54	$66.48	$54.21	$44.20	$36.04	$29.39
5%	$77.38	$59.87	$46.33	$35.85	$27.74	$21.46
6%	$73.39	$53.86	$39.53	$29.01	$21.29	$15.63
7%	$69.57	$48.40	$33.67	$23.42	$16.30	$11.34
8%	$65.91	$43.44	$28.63	$18.87	$12.44	$8.20
9%	$62.40	$38.94	$24.30	$15.16	$9.46	$5.91
10%	$59.05	$34.87	$20.59	$12.16	$7.18	$4.24

How should an investor read this table?

Investors should understand that if they keep money in a mattress for 15 years and the inflation rate over 15 years is 5% per year their $100 can only buy $46.33 worth of “Stuff” 15 years later. If inflation were to average 7% for 30 years their $100 could only buy $11.34 worth of “Stuff.” I know it’s silly to think that anyone would keep their money in a mattress but the reason I use the table above is because it illustrates the important concept about inflation which is loss of purchasing power. Inflation in and of itself is meaningless. What matters to people is what inflation causes which is the loss of purchasing power. As an example, when I get in my car to drive I have a rudimentary notion of how the engine functions. People that know me know I’m not mechanically inclined. I do however know how the steering wheel works. To an investor, inflation is the engine while purchasing power is the steering wheel. You can be completely oblivious to how an engine works and still be an excellent driver. So, if you are so inclined you can spend a disproportionate amount of time studying how the engine works or the nuances of inflation or you can learn how to drive and invest your money to combat the loss of purchasing power. How to invest your money to combat inflation is discussed in A Preservation Tale. I’ll give you a little hint—I am not a Gold Bug but if you put a $100 gold coin under your mattress instead of a $100 bill you have a much better chance of preserving purchasing power during inflationary times.

So once again, how should an investor read the Mattress Investing table?

Let’s focus on the 3% inflation rate since that has been a good approximation for so many decades. What this table shows is that if the inflation rate is 3% and you keep your $100 under your mattress, in 5 years it will only buy $85.87 worth of “Stuff.” I like to use the technical term “Stuff” to describe purchasing power!. To investors, the intended use of a $100 bill is to be able to buy “Stuff.” In and of itself the $100 bill is worthless. Its only value is the amount of “Stuff” it can buy. In this case it can only buy $85.87 worth of “Stuff” so the Mattress Investor has lost $14.13 of “Stuff” by keeping it in his mattress or not investing it. When you hear the term Loss of Purchasing Power it means “Stuff” you can’t buy!.

This leads directly to what I consider the minimum objective for investors and one of my maxims.

The purpose of investing should be to at a minimum maintain your purchasing power. I believe you should invest so that you don’t lose your “Stuff.”

Learn

So what can we learn from this tale that puts money in our pocket? Who wins and who loses from inflation? By now it should be clear that at any inflation rate greater than 0% you must make more than 0% on your money in order to maintain purchasing power. Yet when guaranteed interest rates are not accommodative, like they are today and have often been in the past, the investor must invest in non-guaranteed investments to maintain purchasing power. For investors that have read tales such as this one this presents a quandary. They can intelligently ask themselves, if I want a guarantee and guaranteed rates are so low that I can’t preserve purchasing power then I must accept a loss of purchasing power. However, if I want an opportunity to maintain purchasing power I must assume risk. This is the never-ending portfolio management question that is forever on every investor’s mind and will be at every stage of their life. While most investors answer this question by forgoing guaranteed returns in order to not just maintain purchasing power but to potentially increase purchasing power, others do not. There are investors that choose to avoid risk at all cost and are knowingly watching their purchasing power slowly erode.

Unfortunately, the sad circumstance for most risk-averse investors is that they behave as they do out of ignorance or fear and not based on knowledge. Many are willing to invest their money in bank CDs, money market funds and government bonds at below required levels just to keep it guaranteed. The only guarantee they’re getting during most periods is the guarantee of a loss in purchasing power. When and if there is increased inflation these are the people that will also suffer the most.

Warren Buffet

Lastly, I have included a paragraph from a 1977 article written by Warren Buffett for Fortune Magazine on inflation. Inflation was a big deal back then though we tend to dismiss it today since it’s been so low for so long. But I thought the paragraph would be appropriate since it is easy-to-understand writing and he has a unique way of thinking about inflation as a tax. If you think of it the same way you will quickly understand that inflation is a consumer of your capital. We as a society take to the streets if there is so much as a hint of our elected officials raising our taxes. Yet we have no problem when we willingly or out of ignorance tax ourselves by investing in below inflation rate guaranteed investments. The following is taken straight from the article.

“What widows don’t notice”

By Warren Buffet

The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5 percent passbook account whether she pays 100 percent income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5 percent inflation. Either way, she is “taxed” in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120 percent income tax, but doesn’t seem to notice that 6 percent inflation is the economic equivalent.

If you are concerned that your money is not achieving returns equal to or higher than the inflation rate or wish to review your portfolio so as to make sure it is geared to do so, then please do not hesitate to give me a call.

How to Invest – Basic Investing Strategies

By Spectrum IFA
This article is published on: 19th July 2014

Have you applied these when making an investment?

Recently, while talking to an expat who has been living in Barga in Tuscany for many years, he confided in me that he thought he could invest without advice from other professional quarters. However, after seeing some of his investments post no real returns (ie the net return after inflation is factored in), he was in a quandary as he felt he would “lose face” by speaking to a qualified independent financial adviser. And he also added that he had friends living close by who had shared the same experience.

Learning how to invest your money is one of the most important lessons in life. You don’t need to be college educated to start investing. In fact, you don’t even need to be a high school graduate. You just need to have a basic understanding of business and have the confidence to make a plan — consider it a business plan for your life. You can do it.

Why investing can be scary

For many of us, money and investments weren’t discussed at home. These subjects may even be taboo within certain households — quite possibly, in households that don’t have much money or investments.

If your parents or loved-ones were not financially independent, they probably did not give you good financial advice (despite their best intentions). And even if your family is/was well-off, there’s no guarantee that their financial advice makes or made sense to you. Plenty of parents encouraged their kids to buy a house during the peak of the housing bubble, because in their lifetimes, housing prices only ever went up.

The goal of investing

Of course, everyone has different financial goals — and the more you learn, the more confident you’ll be in determining your own path. But here’s a basic financial goal to strive toward:

Over decades of hard work, most people who are about to retire or those who have already retired, would like to make more money than they spend and then invest the difference. By the time they retire, they would like their investments to throw off enough cash — through dividends or interest – so that they can live on this income without having to sell any investments.

Notice the first part of this goal is about hard work. If you’re hoping to take a little bit of money and gamble it into a fortune in the stock market, you can stop reading now, this article isn’t written for you. But if you have worked for a few decades, and want to make sure that you don’t have to work until life’s end, you’ll need to spend less than you make and invest the difference.

Also, you’ll notice that this goal doesn’t recommend selling your investments. Rich people don’t sell-off their assets for spending money — if they did they wouldn’t be rich for long. They stay rich because their assets provide enough cash flow to support their lifestyle. And these cash-producing assets, through careful estate planning, can be passed down from generation to generation.

Enjoying your twilight years by living off your investment income and having something left over for your loved ones or for a charitable organization is something that all investors should aspire to. It may not be possible for everyone, but it’s the right attitude.

What to invest in?

Before you even start to look at this area, it is absolutely imperative that a “proper” financial risk analysis of yourself is carried out. And this does not take the form of much-used generalised risk questionnaires (that would be like you or your wife doing a compatibility quiz in a woman’s magazine!!) No, the emphasis is on the words “proper risk analysis”

Once this has been done you move on to the most important factor in investment planning.

Diversification (or, Spreading the Risk)

Many, many investors are under the impression that if they have, say, a term deposit at bank/institution A, another at B, and a third at C, they are diversifying. They could not be more wrong.

When investing one looks at doing so across what is commonly referred to as Asset Classes. These comprise Cash (very Conservative Risk ie term deposit), Bonds (Moderate Risk), Equities (high risk) and Commercial Property (Moderately Aggressive Risk). Then, taking one’s appetite for risk (from the Risk Profiler), one invests across the Asset Classes accordingly.

The most common investments are mutual funds (unit trusts), insurance investments, bonds and the stock market. This article is not aimed at those with the time, experience, acumen and who can afford losses by direct share purchases.

Unit trusts/Mutual funds can own shares or bonds and with some commercial property exposure on your behalf.

Know the difference between saving and investing

Your investments and your savings are very different things. What if the stock market crashes? If you do not have a cash savings account to cover for emergencies (usually about six months’ income), you would probably have to sell your investments at the worst possible time. Don’t fall into this trap.

Being a successful investor requires money, patience and, just as importantly, confidence. Having confidence to make and stand-by your financial decisions requires education. Never stop learning.

When last did you do a “proper risk” analyser?

What applied five years ago is not going to necessarily be the same today. We are getting older and as the years go by, more often than not we tend to become more conservative. Hence the need to do a refresher where risk is concerned and then use this to analyse your investments in order to ensure the two correspond accordingly. If not, you actually run the danger of investing by default/error which could have a material impact on your life in the not-too-distant future.

If you realise from the above the importance of risk classification and correct diversification, just as you visit your doctor (or should) for an annual check-up, why not give me a call in order to facilitate a meeting where we can ascertain things. As the saying goes “you owe it to yourself!!

‘Risk’ (with an Italian flavour)

“If no one ever took risks, Michelangelo would have painted the Sistine floor”

Neil Simon, Playwright

Risk Tolerance

By Chris Webb
This article is published on: 18th July 2014

18.07.14

Each and every one of us has our own risk tolerance which should not be ignored when considering making any type of investment. Any good financial planner knows this and they should make the effort to help you determine what your risk tolerance is.

Then, based on this information, they should help you to build a portfolio that is aligned to your level of risk.

Determining one’s risk tolerance is based on several different criteria and there are different ways to look at how you should assess the risk you need to take. Firstly, 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.

Due to the emotional aspect of investing, there are various ways to look at it.

Let’s say you plan to retire in ten years and you’ve not saved a single penny/cent towards it. You could view this in two ways:

You need a higher risk tolerance because you will need to do some aggressive investing in order to reach your financial goal.
You may consider that as retirement is looming, you do not want to take unnecessary risks. If the markets were to crash it would affect your situation, therefore a more balanced portfolio (lower risk tolerance) would be better suited.

On the other side of the coin, if you are in your early twenties and want to start investing for your retirement now, you could share the same views.

You should have a higher risk tolerance because you are young enough to ride out any market turmoil, maybe restructuring to a more cautious profile nearer the end goal.
You should take a lower risk level and be happy with lower gains (potentially) but the end result will achieve what you require. You can afford to watch your money grow slowly over time.

There are more factors to consider in determining your tolerance.

For instance, 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?

Would you sell out or would you 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. This tolerance is based on how you feel about your money!

Again, a good Financial Planner should help you determine the level of risk that you are comfortable with and help you choose your investments accordingly.

Your risk tolerance should 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.

Prior to working with any clients I insist on completing a detailed risk tolerance questionnaire. This will tell me 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 then 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 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 suited to your circumstances.

This article is for information only and should not be considered as advice.
This article is written by Chris Webb The Spectrum IFA Group

How are you at managing your Finances ?

By Chris Webb
This article is published on: 17th July 2014

17.07.14

As the old saying “Practice Makes Perfect” seems to suggest, we are bound to improve at everything over time. However, there is something about “money” that just appears to get the better of us. Nowadays, we only need to look at the level of debt defaults to see that this is an area where most of us just don’t seem to be making much progress or improvement.

Here are just a few reasons why people, in general, do not successfully manage their finances:

They have never been able to predict what the market will do next. However, this doesn’t deter them from trying to predict the markets!.
They’re thrilled that the credit card they’re paying 22% interest on offers 1% cash back!
They think dollar-cost averaging is boring without realizing that the purpose of investing isn’t to minimize boredom.
They try to keep up with friends and family without realizing that friends and family are actually in debt.
They think €1 million is a glamorously large amount of money when, actually, it’s what most people will need as a minimum in retirement!.
They associate all of their financial successes with skill and all of their financial failures with bad luck.
Their perception of financial history extends back about five years. This leads them to believe that bonds, for example, are safe and that the average recession is as bad as the recession of 2008.
They don’t realise that the single most important skill in Finance is control over your emotions.
They say they’ll take risks when others are fearful but then they seek the foetal position when the market falls by 2%.
They think they’re too young to start saving for retirement when realistically every day that passes makes compound interest a little less effective.
Even if their investment is over a period of 20 years, they get stressed when the market has a bad day.
They size up the potential of investments based on past returns.
They use a doctor to manage their health, an accountant to manage their taxes, a plumber to fix their plumbing. Then, with no experience in the financial market, they go about their own investments all by themselves.
They don’t realize that the financial “expert” giving advice on TV doesn’t know their personal circumstances, goals or risk tolerance.
They think the stock market is too risky because it’s volatile, without realizing that the biggest risk they face isn’t volatility. The biggest risk is not growing their assets sufficiently over the next several decades.
When planning for retirement, they don’t realize that their life expectancy might be 90 years or more.
They work so hard trying to make money that they don’t have time to think about or plan their finances, especially for those days when work will no longer take up all their time.

You may read this, identify a few points that relate to your own position and now find yourself asking “What can I do about it though?”

Without doubt the answer to that question is to seek professional advice so speak to a qualified and regulated Financial Planner. They will be able to analyse your position from both an investment and an emotional perspective, ensuring that your plan of action is tailored to you as an individual.

You should expect a detailed consultation process and only after this process has been completed can the correct advice be presented, ensuring you avoid the pitfalls detailed above.

The steps to the consultation process are as follows:

A full and thorough financial health check on your current and future situation including the completion of a Financial Review questionnaire.
Identifying areas of strengths and weaknesses in your financial planning and understanding your specific goals.
Designing a strategy to help ensure your financial aspirations are met. Also reviewing any existing portfolio’s to ensure they are working effectively and efficiently.
Once your strategy has been finalised, a full financial report based on your Financial Review will be provided to you along with a concise recommendation.
Ongoing consultations consisting of regular monitoring of your selected strategy and face to face meetings to ensure that your financial goals are achieved.

To explore all of your options and to discuss how this consultation process can benefit you please contact your local Spectrum IFA Group consultant.

Discussing investment risk

By Spectrum IFA
This article is published on: 11th July 2014

11.07.14

When talking to clients, Financial Advisers are required to consider investment risk. There are many risk profiling tools available for advisers to help understand a client’s attitude to risk but what happens next?

When I joined the industry, understanding risk was much easier than today.

Cash in the bank was considered low risk or even no risk at all. Government Bonds were considered slightly higher up the risk scale and Equities (shares) were higher risk again. Property was not considered risky and gave its name to an English expression, “Safe as Houses”.

In 2008 everything changed. Banks failed, Governments were under financial stress, Stock Markets fell. Do these events mean advisers should tell clients everything is high risk?

Banks are being recapitalised and in the European Union, Governments guarantee the first €100,000 of a bank deposit.

Two caveats to this, the type of account;

not all accounts carry the guarantee and
the guarantee is by banking group, not individual bank. If a depositor has money in 2 banks but they are part of the same group, then only €100,000 is protected.

We are all feeling better about the strength and security of banks so that is the good news. What about the deposit rates we are being paid? Is there an inflation risk we should be concerned with? If inflation is running at a rate greater than the deposit interest we are being paid, we are losing money in real terms aren’t we?

We have also seen Countries in financial difficulty and even being bailed out. Is it therefore always sensible to hold Government Bonds? What hap¬pens to bond values if interest rates rise? Is there a risk the value of Bonds would fall.

We have seen volatility in Equity markets with some large companies having financial difficulties. At the same time some companies are doing very well, are cash rich and are paying good dividends. Regulators tell advisers we need to understand our client’s attitude to risk and provide solutions to our clients that match those attitudes. The regulators do not yet tell us which asset class¬es represent high risks or low risks. Is it therefore good advice to tell a cautious investor to leave their money on de¬posit at a bank? Almost certainly not. How do we advise a client who wants no risk and a return in excess of inflation? It’s not an easy job.

Our feeling is that the only advice we can offer is to spread the risk, diversify in terms of asset classes, pay attention to liquidity and fully understand any product or portfolio. Now is certainly not the time to have all one’s eggs in one basket!

This article is for information only and should not be considered as advice.

This article appeared in Trusting #6 and was written by Michael Lohdi, Chairman of The Spectrum IFA Group

Organize and simplify your financial portfolio

By Spectrum IFA
This article is published on: 9th July 2014

SIMPLICITY: freedom from complexity, intricacy, or division into parts: an organism of great simplicity.

In the course of my travels working alongside expat communities, one of the most frequent complaints raised by retirees is how complicated, tiresome and difficult it is to keep tabs on their financial affairs, primarily because they seem to have a host of different people advising them on a number of issues. So rather than enjoying their well-earned retirement, a lot of people seem to devote an excessive amount of time managing their financial affairs whilst trying to keep up to date with changes in the markets and changes in legislation etc.

This was confirmed by a recent survey of investors where 55 percent responded with the statement, “I am trying very hard to simplify my life”. This was up from 48 percent in the previous year. It seems that most people want simplicity in their lives but the truth is that many just don’t know how to go about it. We live in a world of i-phones, i-pads, e-statements and social media – we are constantly online and constantly contactable and so it is difficult to truly switch off.

One of my services is to help clients simplify their financial lives, eliminate clutter, organise accounts and streamline how they manage their money. This is where I can truly add value.

I help my clients to be as efficient as possible with their day-to-day money management by showing them how to make the best use of banking facilities in Italy (and save money in the process), showing them how to save money by paying bills online, using currency exchange services, looking at how to make the most of the tax credits in Italy, possibly moving UK pensions to other jurisdictions, wills, and managing investments more effectively.

By consolidating everything, you can reduce the levels of incoming mail and paperwork, avoid certain fees and also ensure that assets are properly diversified.

Example
In the course of a recent discussion with a prospective client I asked how their portfolio was being managed. He asked me to wait until he retrieved this information and, finally, some 10 minutes later produced approximately eight files each detailing different investments with a variety of companies.

On enquiring as to how each was performing and what their latest values were, he could not tell me, saying we’d have to obtain new statements and that he was “sick and tired of receiving so much investment correspondence, be it in the form of his own portfolio or marketing advice material that he seldom bothered to read through and normally threw them in the bin. At my suggestion we agreed to make another appointment and sit down, ring the various product providers and obtain up-to-date statements. Once this information was received we sat down and reviewed those elements that were performing well, those that were not so good and discussed what could be done to improve his overall situation. I recommended that rather than employing a financial planner, like myself, to manage the day to day investment management decisions, that based on the amount of money that he had invested, he should employ the services of a Private Client asset manager. In this way they could deal with the day to day investment matters and we could concentrate on how to minimise his cross border tax issues, reduce paperwork, and find ways to improve his overall financial position. This freed up time for him to concentrate on his other interests.

One Final Point
In this man’s situation he was clearly eligible for more sophisticated financial management than he had previously been used to, but was not aware he could access these types of services. Our job is to ensure all elements of your financial affairs are well maintained and that you get the best, based on your situation. By consolidating and streamlining financial affairs you have a real opportunity to help yourself manage the difficulties of cross border tax and financial issues that face expats living in Italy.

If you are over awed by the complexities of the Italian tax system or are concerned that you are not making the best use of tax breaks in Italy, or if you merely want your financial life to be simpler then you can contact The Spectrum IFA Group

The Spectrum IFA Group attends the Fund Forum International in Monaco

By Spectrum IFA
This article is published on: 27th June 2014

Since its launch in 1989, FundForum International has grown in tandem with the fund management industry on its journey from small regional performers to dynamic global industry. FundForum International has built up a formidable reputation as the world’s leading asset management event for both cross-border and boutique players, bringing all the top performers, global leaders and industry trailblazers together every year to discuss the most pressing issues concerning their market. It offers delegates an unsurpassed level of networking with the most well-respected industry heavyweights from across the globe.

Michael Lodhi and Peter Brooke from The Spectrum IFA Group attended numerous key note speaker sessions. Commenting on this recent event, Peter Brooke says “Keeping a close eye on the global fund management market is vital for Spectrum and in turn our clients. This forum allows us to talk to a wide variety of funds managers and gain further insight into their strategies. This year the emerging markets, frontier investments and especially Africa got a lot of attention.”

This year’s conference also had a more positive slant to it than previous post crisis years The main issues are no longer the market crisis, but how the turbulence changed regulations for the industry. In his opening comments Tom Brown, Global Head of Investment Management at KPMG, said “The industry is in good shape. Investors are investing. The markets and the economies seem to be growing. And asset-management businesses are feeling optimistic and positive about the future.”

There was still very much a focus on how we as an industry (advisers and fund managers alike) need to engage with our customers to help them invest for their long term financial health. Demographics aren’t changing, we live longer but save little and won’t be able to rely on government. This is a major issue for many millions of us. Fortunately this is also a big opportunity for high quality companies to work closer with their clients to fill this enormous gap

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More pain and no gain from interest rates

By Spectrum IFA
This article is published on: 10th June 2014

The European Central Bank made headline news again at the beginning of June, as it reduced its main interest rate from 0.25% to 0.15% and lowered its deposit rate into negative territory from 0% to -0.1%.

The reduction in the interest rate makes it less expensive for other banks to borrow from the ECB and ‘in theory’ this should result in credit flowing out to the wider Eurozone community. At the same time, the negative deposit rate means that the ECB will charge banks for keeping their excess liquidity on deposit with it. The thinking is that this should discourage the banks from making the deposits and instead, make the money available for lending to households and business thus, encouraging growth.

These measures are part of a package that also aims to increase the rate of inflation in the Eurozone, which continues to fall, as demonstrated by the change in the Harmonised Index of Consumer Prices for May, when the annual rate of inflation fell from 0.7% to 0.5%. However, there are many who think that the current measures are insufficient to turn the trend from continuing towards deflation and feel that more aggressive action should have been taken by the ECB, including an expansion of Quantitative Easing.

What does this mean for savers? There is only one answer and that is “bad news”. Even if the banks do start to lend more money into the wider community, since they can borrow from the ECB at 0.15% to do this, why would they borrow from the public (i.e. the savers) at a higher rate?

We have been living in a very low interest environment for several years now, although this is the first time that the Eurozone has gone into negative territory in ‘nominal’ terms. In ‘real’ terms (i.e. taking into account inflation), we have already experienced negative returns from bank deposits and even the most cautious of investors are now prepared to look at alternatives.

One such alternative is a particular fund in which many of our clients have already invested. Despite the fact that the fund is conservatively managed, over the last four years to the end of May, the Sterling share class has still been able to grow by more than 36% and the Euro share class by 30%. After taking into account annual management charges on the fund, the three year annualised return is around 7% for Sterling and around 5.5% for Euro. A growth fund is also available for those investors who wish to take more risk and USD share classes are available for both the cautious and the growth funds.

The funds are part of those of a large insurance company, which has a history going back for more than 160 years. The company is well capitalised and so clients feel comforted by the safety of investing with such a solid company.

One of the unique features of the funds is the delivery of a smoothed investment return. On a daily basis, each of the funds grows in line with an expected growth rate, which is the rate of return that the company expects the assets in which the funds are invested to earn over the long-term. This approach aims to smooth out the usual peaks and troughs of investment markets and so is particularly beneficial to investors seeking an income from their capital.

It is a well-known regulatory requirement for product providers and investment managers to tell investors that “past investment performance is not a guarantee of future performance”. Whilst this is true, in reality it is only by looking at the past investment performance of a fund that one can really judge the skill of the fund manager. This is not just about how good the manager is at picking stocks – but more importantly – about how risk is managed, particularly through market downturns. Happily, when I am discussing the above funds with clients, I am able to demonstrate the skill of this insurance company by showing a sixty-year history of positive investment returns on an annualised basis over 8, 9 and 10 year periods. This is another reason why cautious investors – who would have previously only ever placed their capital on bank deposit – are very comfortable about switching to this alternative choice.

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 investment of financial assets or on the mitigation of taxes.

Residency & Tax Returns in France

By Spectrum IFA
This article is published on: 4th June 2014

During May, I always receive lots of questions from people about French income tax returns. The most common ones are – should I complete a French tax return, do I have to declare that tiny bit of bank interest on my savings outside of France, do I have to declare dividends even if these are re-invested? If you are French resident, the answer to all of these questions is “YES”. In addition, depending upon the value of your assets, you may need to complete a wealth tax return.

Whether or not French tax returns should be completed is always a popular subject at social gatherings of expatriates and I have heard many people say that they “choose” not to be French resident. Well French residency is a fact and you only have to satisfy one of the following conditions and you will be resident in France:

France is your ‘home’. If you have property in France and in another country, but the latter is not available for your personal use (for example, because it is rented to tenants), then France is your home.
France is your ‘centre of economic interest’. Generally, this means where your income arises. In addition to pension, salaries, etc., this can include bank interest and other investment income.
France is your place of ‘habitual abode’. Notably, no reference is made in the law to the number of days that you actually spend in France and this is where many people are caught out believing that if they do not spend at least 183 days in France, then they can decide that they are not resident. This is not the case and your place of ‘habitual abode’ is, quite simply, where you spend most time.
Nationality. If your residency has not been established by any of the above conditions, then it will be your nationality that determines your residency, however, this is very rare.

So with residency established, when completing a French income tax return, you must declare all your worldwide income and gains, even if some of this is ultimately taxable in another country. If there is a Double Taxation Treaty (DTT) between France and the country where the income arises and that other country has the right to tax certain income, your French tax bill will be reduced to reflect this. If there is no DTT and you pay tax in the jurisdiction where the income arises, then this will result in you being taxed twice. Although France has many DTTs, this is not so with the popular offshore jurisdictions of, for example, the Channel Islands and the Isle of Man.

For those of you who have completed the French tax returns this year, if you had to complete the pink 2047 form, this means that you had foreign income and/or gains to declare. If this is for any reason other than pension income, earnings or perhaps property rental income from outside of France, then you may benefit from a discussion to check that you are not paying unnecessary taxes on any investment income. For example, it may be better to invest your financial assets in an assurance vie, which is more tax-efficient for French residency, when compared to foreign bank interest and dividends.

Inheritance taxes should also not be overlooked. As a French resident, you are considered domiciled in France for inheritance purposes and your worldwide estate becomes taxable in France (except for anything that might be exempt as a result of a DTT), where the tax rates depend upon your relationship with your beneficiaries. However, by investing in assurance vie, in addition to the personal tax-efficiency for you, this type of investment also has the advantage that you can create valuable additional inheritance allowances for your beneficiaries.

If you would like to have a confidential discussion about your financial situation, please contact me by telephone on 04 68 20 30 17 or by e-mail at daphne.foulkes@spectrum-ifa.com.

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