How much have your savings increased in the last 12 months?
By John Hayward
This article is published on: 26th November 2015
How much have your savings increased in the last 12 months?
Which of the following reflects where your money has been?
Savings account +0.5% to 2% (before tax)*
FTSE100 -3.17% (before charges and after dividends)*
Cautious fund +4.3% to 5.5% (after charges)*
With interest rates predicted to stay low for some time to come, many in Spain are finding it difficult to grow their savings, or increase their income, without having to take risks they would not normally do, risking their capital.
So what are the options?
Deposit account
There are Spanish savings accounts offering around 2% although in reality this could be the rate for the first few months which will then reduce to a much lower rate. There are often restrictions on how much you can invest in these accounts. Inflation is running at a higher rate than most savings accounts and so, in real terms, most people are losing money in what they see as a risk free account.
Stockmarket
Over the long term, through growth and dividends, it is possible to make significant gains. However, first-hand knowledge, or a lot of luck, is required to make the most of stocks and shares. Most people tend to have neither. In addition, most people are not prepared to take the rollercoaster ride that stocks and shares tend to produce.
Structured Notes
These are, generally, complicated and inflexible products which are really only suitable for experienced investors. The gains can be based on a variety of things but often requiring 5 to 6 years before seeing any return.
Property
Over time, property has proven itself to be a winner. However, it has also proven that it can suffer massive reductions. It is also probably the most illiquid asset you can hold as well as potentially, the most costly to hold in terms of upfront costs, taxes and maintenance. There can also be emotional risk.
Under the mattress
This is often mooted as a home for money in times of uncertainty but then there is the risk that it could go up in flames or end up in a burglar’s swag bag.
The solution?
As financial planning advisers, we are in a position to offer the best of all worlds; the potential for growth in a low risk environment. By Investing in a Spanish compliant insurance bond, with a company that is one of the strongest in Europe, holding a variety of assets, including shares, bonds, cash and property (but not the mattress), one can achieve steady growth. There is also the facility to take regular income. Your money can grow tax free within the bond until money is withdrawn. Even withdrawals are taxed favourably. Two potential advantages; higher growth and lower taxes. Perfect!
* Source: Financial Express (12 months to 23/11/15)
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 holds you back from investing?
By Charles Hutchinson
This article is published on: 14th July 2015
Investing for some can be a very difficult task and yet for others it is both easy and immensely satisfying. Those in the former group would just love to be in the latter. So what is the problem? Why are they so different?
The underlying problem is fear but there are ways to reduce these anxieties.
The most fearful are the beginners and yet it is surprising how many “mature” investors go through a similar experience. There is no doubt that that without that leap of faith, you will not achieve the return you so much seek. If your overriding desire is to obtain real growth on your capital, however big or small, you must rethink your approach. For “from small acorns, grow great trees”.
Probably the best antidote is to look back through history – look at what our forebears were faced with when they were poised to put their capital at risk. I should add at this point that without risking your capital to some degree or other you will never experience real wealth creation. “There is no gain without pain”. Here at The Spectrum IFA Group, we look to do this in a controlled and disciplined fashion to insulate the client as much as possible from the stress and concerns of investing.
But we should go back to the basic instincts which create these fears and are the barriers to wealth creation. Someone once said that “The brain is a massive sabotage machine” which interferes in a negative fashion with every important decision we make. I could go into all the reasons for not making an investment decision but I would like to zero in on just one of the many. If you look for reasons for not making the decision to invest then you need to remain in your “comfort zone”. The older we get, the more we want to be in that place because the alternative is too stressful.
Probably the greatest excuse we come up with is the current situation: the Greek debacle, the threat to the Euro, Putin’s bellicose posturing, the state of the EU and its future, whether the UK will stay in, the collapse of the Chinese stockmarket, increasing terrorism, our old favourite secure backstop the Bond Market in total disarray, bank interest rates at all time lows, global warming, global overcrowding, shortage of food and water – need I go on? In fact these are all the excuses for not investing. The fact of the matter is that the only way to beat inflation and actually create wealth is to invest in capital markets, whatever they are, whenever. There is no good or bad time to invest. In fact, if you are a contrarian like the all time most successful fund manager, Anthony Bolton, you invest when everyone else is selling. And to put it another way, fund managers wait with anticipated glee for markets to fall, so that they can get back in at a lower level. Using people like us is the least stressful way to invest as we have already done the research on your behalf as to who are the best managers and for which investment houses they work!
Let us now look back in history and see all the reasons why we shouldn’t have invested at that time. And yet, those who ignored these doomsday factors went on to achieve amazing growth on their capital – not through some rocket science wizard scheme but by just investing in the top stocks in their respective stock markets. An internationally renowned global investment house has produced figures over decades to show that if you had ignored the gloom merchants and just invested * when you had the capability, you would be a wealthy person now. For example, if you had invested just £1,000 in 1934, it would today be worth today over £4,000,000; just £4,000 invested in 1960, would have grown to £1,000,000. If you had invested £10,000 in 1989, it would have grown to over £90,000 today. How could this have happened with all the appalling crisis’s which have occurred in the meantime? Simple, global capital does not just disappear in times of crisis, it has to have a home, it cannot evaporate and like seasons and the rise and setting of the sun every day, capital markets just continue on, regardless of war and pestilence.
(*invested in a portfolio of investment funds or top stocks actively managed by a competent regulated investment house with good past performance.)
Ah, but that was then, there is too much going on the world to de-stabilise the markets. Oh yes? What has changed in the last 80 years? NOTHING!
Let me show you:
1934 Depression
1935 Spanish Civil War
1936 Economies still Struggling
1937 Recession
1938 War Clouds Gather
1939 War in Europe
1940 France Falls & Britain is blitzed
1941 Pearl Harbour & Global War
1942 British Defeat in North Africa
1943 Heavy defeats continue in the Far East
1944 Consumer Goods Shortages in the U.S.
1945 Post-War Recession Predicted
1946 Dow Tops 20 and London market too high
1947 Cold War begins
1948 Berlin Blockade
1949 Russia Explodes A-Bomb
1950 Korean War begins
1951 U.S.Excess Profits Tax
1952 U.S. Seizes Steel Mills
1953 Russia Explodes H-Bomb
1954 Dow tops 300 – Market Too High
1955 Eisenhower illness
1956 Suez Crisis
1957 Russia Launches Sputnik
1958 Recession
1959 Castro seizes power in Cuba
1960 Russia downs U-2 Spy Plane
1961 Berlin Wall Erected
1962 Cuban Missile Crisis
1963 Kennedy Assassinated
1964 Gulf of Tonkin incident
1965 Civil Rights marches
1966 Vietnam War Escalates
1967 Newark Race Riots
1968 USS Pueblo seized by North Korea – fear of renewed war.
1969 Money Tightens – Markets Fall
1970 Cambodia invaded – Vietnam War Spreads
1971 Clouded Economic Prospects
1972 Economic Recovery Slows
1973 Energy crisis & Market Slumps
1974 lnterest Rates Rise & steepest markets falls in 4 decades
1975 Oil Prices Skyrocket
1976 lnterest Rates at All-Time High
1977 Steep Recession Begins.
1978 Worst recession in 40 Years
1979 Oil prices sky rocket
1980 Record Federal Deficits & Interest rates at all time highs
1981 Economic Growth Slows
1982 Worst recession in 40 years
1983 Largest U.S. Trade Deficit Ever
1984 Energy Crisis
1985 Economic growth slows
1986 Dow Nears 2000
1987 Record-Setting Market Decline. Black Monday and UK Hurricane
1988 U.S. Election Year
1989 October “Mini Crash”
1990 Persian Gulf Crisis &1st Gulf War
1991 Communism Tumbles with the Berlin Wall
1992 Global Recession
1993 U.S.Health Care Reform
1994 Fed Raises lnterest Rates Six Times
1995 Dow Tops 5,000
1996 Dow Tops 6,400
1997 Hong Kong Reverts to China
1998 Asian Flu sweeps the Globe
1999 Y2K Millennium Bug Scare
2000 Tech Bubble Burst
2001 9/11 Terrorist Attacks
2002 Recession
2003 War in lraq
2004 Rising lnterest Rates
2005 Hurricane Katrina & destruction of New Orleans. London bombings.
2006 U.S. Real Estate Peaks
2007 Liquidity Crisis & Subprime Lending crisis spreads to Europe
2008 Credit crisis /Financial Institution failures globally
2009 U.S. Double Digit Unemployment Numbers
2010 European Sovereign Debt Crisis
2011 U.S. Credit Downgrade
2012 Fiscal Cliff Issues-/European Recession
2013 U.S. Government Shutdown/Sequester
2014 Oil Prices plunge 50% & Malaysian Airliner shot down in Ukraine
2015 Greece, Terrorist attacks, ISIS rampaging all over Middle East, etc.,etc.
So against this seemingly grim litany of disasters and cyclical market falls, the global financial wealth continued to increase at a remarkable pace over the last 80 years and before that. It will continue to do so into the future. The only thing to stop it would the total annihilation of the Human Race where wealth & money would be useless anyway!
I hope I have illustrated that fear of exposing capital to a perceived risk has no foundation! For those who are still not convinced, they should leave their money in the bank where it will continue to earn nothing, its real value will erode with inflation and possibly disappear with the collapse of the bank they have so carefully chosen to safeguard it!
Reflecting on Gains
By Gareth Horsfall
This article is published on: 12th July 2015
I was recently struck by the ‘musings’ of a fund manager based in London and his take on the world of global economics.
The funny thing is that what we read in the papers, online and listen to from so called experts can literally be taken with a piece of salt. It really doesn’t have a lot of value for the man in the street and it all just goes to prove that no one really knows what is going on. That includes Janet Yellen of the FED and Mario Draghi of the ECB. They seem to be playing a game of ‘trial and error’ to achieve the best short term outcome in the race to make consumers consume again and for economic growth to start apace once again. The indiscriminate use of quantitative easing has only served to push up the cost of asset prices (property, shares, Bonds). In fact it has taken all these 3 asset prices to new highs in recent months and so now might be time to look at reviewing your investments once again.
We, at The Spectrum IFA Group, have been, for some time, looking at the investment fund space, given that stock markets have been moving upwards for the last couple of years. This often signifies that volatile times are ahead.
We are now starting to look at the markets with a more negative stance and believe that it might be the right time to start taking profits from your funds that have made good capital gains during this time and secure those in a less volatile investment.
(For our clients who are using Rathbones Investment Managers and Tilney Best Invest Discretionary fund management services, profit taking and reinvestment will be being taken care of at a micro managed level on a day to day basis).
We, The Spectrum Group, have identified a range of Absolute return funds which are designed to protect capital in volatile markets. And in addition, we believe that cash and Gold will have great value in the next market meltdown.
Absolute return funds, whilst not perfect, aim to protect against market falls and can allow for reinvestment back into undervalued assets at the right time, such as equities, which may be valued considerably less in a crisis. We have to accept that despite Greece and other world worries, the markets could keep on advancing for some time to come (at least while quantitative easing continues from the ECB) and therefore to remain largely un-invested due to fear, could be to lose out on further capital protection opportunities. Absolute return funds offer the option to stay invested with reduced risk.
(A word of warning. Not all are made equal, and absolute return funds need to be carefully assessed to their exposure to underlying assets which may not serve to protect capital so well in volatile markets)
If you would like to know more about these funds, protected capital investments or other low volatility investments then you can contact me on gareth.horsfall@spectrum-ifa.com or on my cell 0039 3336492356.
And so onto the musings of a London based Fund Manager. This makes for interesting reading.
- There is approximately $3.6 TRILLION of government debt, in other words nearly a fifth of all global government debt that is now trading with a negative yield (basically you pay the Bond holder for the right to hold the Bond as an investment, rather than them paying you an interest payment to hold it) and yet money is still being invested in Bonds to the tune of roughly $16 BILLION – the highest investment in Bond funds on record going back to at least 2008.
- €1.5trn of euro area government bonds over one-year maturity have negative yields, and yet Mario Draghi thinks if he can just get interest rates down a bit further, he can turn the European economy around.
- The fact that the American stock market closed on highs recently would tell you the US economy is firing on all cylinders, and yet the Federal Reserve seems frightened to raise interest rates seven years in to the recovery.
- In 2007, global debt of $142 TRILLION was enough to nearly blow the financial system to smithereens but, seven years later, global debt stands at $199 TRILLION, and nobody seems to believe this is such an issue.
- This year British Telecom issued shares to buy EE for £12.5bn, a firm it previously owned before it spun it off in 2002 (a year in which it also issued shares).
- You can now see another coffee shop from the window of nearly every coffee shop in London, and yet Costa Coffee owner Whitbread is valued at 25x earnings.
- In 2009, General Motors emerged from government backed Chapter 11 with a final cost of the GM bailout to the US taxpayers of $12bn. A group of hedge funds have recently taken a stake in the company and have come up with the brilliant idea of GM gearing itself up again.
- If there is any value left in the UK stock market it is certainly in the large-company part of the index and yet many fund managers have little exposure to this area.
- As two thirds of the world might be close to deflation, oil demand has naturally dropped causing a fall in the price. However, most investment bank economists seem to think this fall in the oil price will lead to an increase in demand.
- While bond yields, commodity prices, the Baltic Dry Index, and inflation expectations are all collapsing and suggest deflation could be an issue, equities continue to rise, suggesting it is not. Inflation on the way?
- As the yield on corporate bonds of companies such as Nestlé and Royal Dutch Shell goes negative, money continues to flow in to corporate bond funds.
It is always good to have a contrarian opinion about markets. I hate reading the usual financial press which leads you to believe that which is probably in the interests of some large corporation/person and not our own (the conspiracy theorist in me).
Whilst we are on this topic, my own personal experience (and which could be of no merit whatsoever) is that when I first started out in this business I attended many seminars which were frequently attended by big fund managers, one of which was the then respected HSBC Bank. I have to admit that there were 3 occasions when they were marketing very specific investment funds in specific sectors which, very shortly afterwards, seemed to be the assets which were in crisis. Whether it was HSBC pushing something they wanted to dump at the top of a market or whether it was purely them following the crowd we will never know. What this has taught me is to never never follow the crowd!
All this is why at The Spectrum IFA group we have a fund selection committee who are constantly in touch with fund managers from the big investment houses that we work with (including HSBC). If you would like to read more about our selection criteria for our clients then you can do so Here.
The Effect of a Greek Default
By Spectrum IFA
This article is published on: 23rd June 2015
It is difficult to say exactly what the outcome will be if Greece defaults on its debt. Many people believe that this would lead to Greece exiting from the Eurozone and possibly also from the EU. However, there is still some opinion that there will not be a ‘grexit’.
The fact that Greece has missed a repayment to the IMF earlier this month is not actually considered to be a default. This is because the IMF agreed to bundle all its loans to Greece together, so that the various payments that were due during this month are now due at the end of the month. This has provided Greece with some much needed time, during which it can try to reach an agreement with its creditors.
If Greece does not make the payment due to the IMF by end of June, it will then be classified as being in arrears and could be locked out of further IMF funding. This potential default scenario would present a number of challenges – not least the fact that it seems likely that Greece will anyway need a third bailout package, but this could be difficult with IMF involvement.
Should we be worried about our investments in Euros (or any other currency for that matter)? What about our Euro bank deposits – are these safe?
The uncertainty with the Greek situation has created some short-term volatility in stock markets, but this is not the only factor causing this. Whilst important, the Greek situation is probably less of a long-term investment issue than the prospect of increases in interest rates (and the effect on bond yields), as well as issues surrounding the oil price and the still existing possibility of a continuing slowdown in Chinese growth.
If there is a Greek exit, there may be some immediate selling-off of risk assets but longer-term, the economic impact to the rest of Europe should be limited. In the main, this is because most of the Greek debt is now held by ‘official creditors’ (for example, the ECB, the IMF and the EU). We have a different situation now compared to 2011 and the exposure of banks to any Greek debt should be cushioned by the stronger capital requirements that are now in place under international banking regulations.
There is some concern about possible contagion into the peripheral Eurozone countries, which could result in some pressure on those countries’ bond yields. However, it is important to know that public finances in these countries have improved compared to a few years ago and a number of reforms have been implemented that have improved the underlying economies. So any adverse effect on the countries’ bond yields is likely to be short-term. In reality, a bigger potential effect on bond yields is the prospect of increases in interest rates.
During the last month, there has been large amount of deposit withdrawals from Greek banks and again, there is some concern that this could spill over into the peripheral Eurozone countries. The question has also been raised that if there is a Greek exit from the Eurozone, could this lead the way for other countries to do the same?
You may recall the famous Mario Draghi speech back in July 2012, when he said ……
“Within our mandate, the ECB is ready to do whatever it takes to preserve the euro. And believe me, it will be enough”.
“To the extent that the size of the sovereign premia (borrowing costs) hamper the functioning of the monetary policy transmission channels, they come within our mandate.”
There is great belief in Mario Draghi’s ability to ‘pull the rabbit out of the hat’ when it seems that all is lost, despite the fact that he often has to battle against some other members of the ECB Governing Council to put in place a solution to a problem. However, it is his final point above that is actually key to what might be needed now for Greece.
If Greece defaults on its debts technically, the ECB could classify Greece as insolvent and this should really prohibit Greek banks from receiving further support from the Emergency Liquidity Assistance (ELA) programme, since it is government bonds that are used as collateral. However, the ECB has the power to keep the ELA lifeline open, especially if it considers this to be in the best interests of the Eurozone.
If necessary, the ECB can also increase liquidity in the banking system by increasing the amount that is injected via the Quantitative Easing (QE) program. Of course, it will need to ensure that this does not drive inflation too quickly (since this is its primary mandate), but coming from a base of such low inflation, there is a lot of room.
I am writing this article over the weekend between the Eurozone Finance Ministers’ meeting of 19th June and the emergency EU Summit that on Greece is taking place on 22nd June. By the time that you read this article, maybe a deal will have been reached. In the meantime, the ECB has already increased ELA funding to Greece, following a further increase in deposit withdrawals from Greek banks. What seems clear to me is that this is to avoid a collapse in the Greek banking system and the risk of this spreading – perhaps even beyond the Eurozone.
My personal opinion on this is that a deal will be reached – maybe not at the emergency summit, but by the end of the month. What choice does Greece have but to give some way on the issues that are proving to be the barrier – pensions and VAT. After all, if the funding lifeline to Greece is cut off, where is Greece going to get the money from to pay its pensions at all? Other countries have already had to swallow the bitter pill that the Troika gave out, but they have suffered the pain and come out the other side on the road to recovery.
However, it may be that the Troika must also give a little for the sake of reducing the risks for the broader international financial markets and banking community. If a deal can be reached, there will be a third bailout package for Greece, but whether or not the same discussions will be taking place in another six months’ time remains to be seen.
As for our own investments, having a multi-asset approach with broad geographical diversification can protect against some of the movements that we may see in the period ahead. Choosing the right investment manager, particularly one who considers risk management to be a key part of the process, is also very important. Part of our role at Spectrum is to help our clients achieve both of these objectives.
The Greek situation is putting pressure on the Euro and if a deal is reached, this should help the Euro to recover a bit in the short-term. Beyond this, the effect of the QE program should depreciate the value of the Euro. On the other hand, there is also a potentially growing issue around Sterling to consider, and that is that the media is hyping up the possibility of the UK exiting the EU (‘brexit’ as well as ‘grexit’?)’. As this gathers momentum, we can expect it to put pressure on Sterling.
A final point is that markets generally only react to uncertainty, which is what we are seeing now. However, we should remember that the investment decisions we make are usually being made for the long-term and so whilst there may be short-term issues that we have to navigate around, we should try not to lose sight of our long-term goals.
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 the mitigation of taxes.
It is never too early to start planning your financial future
By Chris Webb
This article is published on: 17th June 2015
During conversations with many of my clients, I hear the expression “I wish I had done something sooner” so often, that I thought I should put pen to paper.
All too often in our younger years we race through the nitty-gritty details of our finances and neglect to focus on crucial “future proofing” in the process. During our 20’s we tend to spend, spend, spend. In our 30’s we try to save, but this is the decade when most of us purchase property and start a family so that makes saving for the future difficult. In our 40’s we’re still paying the mortgage and raising our children so inevitably it is difficult to put money aside to provide for your financial future.
But if you adopt a marathon approach to money (as opposed to a sprint – see my article on this topic), it can allow you to take a more holistic look at your overall financial picture and see how decisions that you make in your 20s and 30s can impact your 40s, 50s and into your retirement years.
It doesn’t matter how old you are, being financially healthy boils down to two things. The level of debt you have and the level of savings/investments you have. The only real difference is how you approach both subjects, as this will change with age.
Tips for during your 20’s
This is the best time to lay the foundations for a bright financial future. Try creating a budget and track your expenses. Keep evaluating over a few months to ensure it’s realistic. This may seem pretty basic but you’ll be surprised how many people don’t track their expenses. This is the best time to do it, your finances are likely to be a lot simpler now than they will ever be!
- Debt – Loans and Cards
It’s easy to think that making the minimal payments and delaying paying them off, to save more, is a good idea, but this strategy rarely works. The more you make the more you tend to spend, so getting round to clearing off these debts never comes any closer.
But now is the time to break the cycle of credit card debt or loans for good!
- Start an Emergency Fund
While you’re busy paying off your debt, don’t forget that you should always try to have a “savings buffer” in the bank. To help accomplish this goal you should transfer funds straight from your “day to day” account into a deposit account. One where you aren’t likely to get access through an ATM which reduces the temptation to spend it on a whim. Ideally, you should aim to have three times your monthly take-home pay saved up in your emergency fund.
- Contemplate Your Future – Retirement
At this point in your life, retirement is far off, but it is important to start saving as early as you can. Even small amounts can make a big difference over time, thanks to the effect of compound interest. Start saving a small percentage of your salary now to reap the rewards later in life. See my articles on compound interest and retirement planning to see the difference it can make.
Tips for during your 30’s
During this decade, your financial goals are likely to get a bit more complicated. Some people will still be paying off credit card debt and loans, whilst still working on the “emergency account”. So what’s the secret to juggling it all?
Rather than focusing on one goal you should be looking at the biggest of your goals, even if there are three or four.
- Continue Reducing Debt
If you’re still paying off your credit card balances then considering consolidating onto one card with an attractive interest free period should be your first task. Failing that you need to concentrate on the card with the highest interest rate and reduce the balance ASAP. The most important thing to consider with debt is the interest rate. If you have low interest rates (I’d be surprised) then there’s no major rush to pay them off, as you could manage the repayments and contribute to other financial goals at the same time. If your interest rates are quite high then the priority is to clear these debts down.
- Planning For Kids
Little ones may also be entering the picture, or becoming a frequent conversation. Once this is a part of your life you’ll start thinking about the cost implications as well. Setting aside a small amount of funds now to cater for the ever increasing costs of bringing up a child will reduce the financial stress later down the line. If you have grand plans for them to attend university, potentially in another country, then knowing these costs and planning for these costs should be part of your overall financial planning.
- Assess Your Insurance
The thing that most people forget. Big life events such as getting married, having kids and/or buying a house are all trigger points for reassessing what insurance you have in place and more crucially what insurance you should have in place. If you have dependents, having sufficient Life cover is paramount. Other considerations should be disability, critical illness and even income protection
- Start that Retirement Plan.
It’s time to stop just thinking about setting up what you call a Pension Pot, it’s time to take action! Starting now makes it an achievable goal, leaving it on the back burner because you’re still too young to think about retiring is going to come back and haunt you later in life.
Tips for during your 40’s
This is the decade where you need to make sure you’re on top of your money. At this point in your life, the ideal scenario would be to have cleared any debts and to have a nice healthy emergency fund sitting in a deposit account.
- Retirement Savings – Priority
During your 40s it’s critical to understand how much you should be saving for retirement and to analyse what you may already have in place to cater for this. In my opinion it’s now that you need to start putting your financial future/retirement ahead of any other financial goals or “needs”.
- Focus Your Investments
Although you may not have paid much attention to “wealth management” in your 30s, you’ve probably started accumulating some wealth by your 40s. Evaluate this wealth and ensure that there is a purpose or goal behind the investments you have made. Each goal will have a different time horizon and potentially you will have a different risk tolerance on each goal. The further away the goal is, the more you can afford to take a “riskier” option.
- Enjoy Your Wealth
It’s about getting the balance right. Hopefully you’ve worked hard and things are stable from a financial point of view. You need to remember to enjoy life today as well as planning for the future. As long as important financial goals are being met there is no harm is splashing out on that dream holiday, and enjoying it whilst you can.
Tips for during your 50’s.
You may find yourself being pulled in different directions from a financial point of view. Maybe the children still require financial support, maybe your parents require more support than before? The key thing to remember is to put your financial security first, and yes I know that sounds a bit tough…….. You still have your retirement to consider and probably a mortgage that you’d like to pay off before retirement age.
- Revisit Your Savings and Investing Goals
Your 50’s are prime time to fully prepare for retirement, whether it’s five years away or fifteen. At this point you should be working as hard as possible to ensure you reach your required amount. This means that careful management of your assets is even more critical now. It’s time to focus on changing from a growth portfolio to a combined growth, income and more importantly a preservation portfolio. What I’m saying here is it’s time to really analyse the level of risk within your asset basket.
- Prioritise – Your Future vs Your Children’s Future (It’s a tough one….)
During their 50’s a lot of clients struggle with figuring out how much they can afford to keep supporting a grown child, especially when they’re out there earning themselves. The bottom line is that although it can be tough you have to continue to put yourself first. The day of retirement is only ever getting closer and unless your planning has been disciplined there’s a possibility you may need to work longer than anticipated, or accept less in your pocket than you hoped for. You are number 1…….
- Retirement Decisions and considerations
You should begin to revisit your estate planning, your last will and testament, power of attorney if you feel necessary and confirm that your beneficiaries on any insurance policies or investment accounts are all valid.
Once you’ve covered off the administration part then I’d suggest you sit back and look forward to the biggest holiday of your life……..have a great time!!!
Self Managed Investment Solutions
By Peter Brooke
This article is published on: 21st May 2015
CIFA Forum – Monaco April 2015
Peter Brooke, one of our Investment Team Strategists and senior Financial Advisers attended the 13th International CIFA Forum in Monaco at the end of April 2015. The forum allows for presentations, discussion and debate about many aspects of financial regulation, advice and management all with far reaching opinion and outcomes for the future of financial advice across Europe and the world.
Peter was invited to sit on an expert panel in order to provide some of his own insight as an adviser to European based clients on how they choose between self-managed investment solutions as opposed to going through an IFA and secondly, how we, as an advisory industry, can best fulfil this role and what is the fairest way for clients to pay for it.
The main points were:
Should the payment for investment management services be separated from the costs for financial advice?
YES… Financial advisers, as opposed to ‘investment advisers’, should have a more fiduciary role and should look after all matters of client finances; how the investment part (which is really just one of the “tools in the box”) is then paid for is a separate discussion.
What is a reasonable cost for investment management services?
This answer wasn’t reached… some believed a flat fee should be appropriate as the same process is used if you are managing €1000 or €100 000; but this would then dissuade people without significant assets from accessing investment advice.
If we have a percentage basis approach then one could argue that the people with more assets under management would be paying significantly more for the same service… the debate ended with the idea that IFA firms need to decide what their core capabilities are and therefore who their core clients are and should focus on pricing their service to attract only those clients.
The amount of client involvement also needs to be considered when pricing the advised solution. This discussion will continue to run and run as different regulation affects how different jurisdictions provide investment management services.
What are other things that clients need to consider when buying investment services?
Peter very much banged the drum on client engagement and education. In his opinion trust between the client and the adviser is built through spending one-on-one time together and also being completely transparent with costs, legal structures and the processes being employed to select and advise upon investment solutions.
For example Peter pointed out that some retail clients in Europe are still being sold Sophisticated Investor Funds which are completely inappropriate; with better awareness of these sorts of issues problems like this will be avoided in the future.
A lot of this change can be lead by IFA firms helping clients self-educate to question, review, challenge and scrutinise the advice they are given and the firms who are giving it. Clients should be encouraged to do their own due diligence and self-educate wherever possible.
The more transparent this industry is with the people who are asking for our guidance and advice, the better the relationship between the finance industry and the general public will be; this in turn will help close savings gaps around the world, reduce poverty in later life and reduce reliance on states for retirement benefits. It all starts with our daily behaviour towards our clients and we can truly make a difference as an important industry.
A brief interview with Peter following his panel session can be found below:
http://www.southsouthnews.com/special-coverage/13th-international-cifa-forum-2015/player/234/4029
http://www.southsouthnews.com/special-coverage/13th-international-cifa-forum-2015/player/233/4002
Living in France with assets in Sterling
By Spectrum IFA
This article is published on: 19th March 2015
Last month I ended my article with the following paragraph: Clients who have Sterling assets do not need to convert them to Euro to make use of the products available to them outside the UK. Those clients who have transferred their assets in Sterling are most probably quite pleased that they did not convert, but what about now? What if we hit 1.40, or 1.45? For my money the only way is down from there, back to my preferred levels. If we do get to 1.40, I will certainly be looking long and hard at my Sterling funds, with my finger hovering over the deal button.
Well, it did indeed happen, and as I write this sterling is worth over 1.40 Euro. Did my finger hover over the ‘deal’ button? Yes it did. Did I press that button? No I didn’t. I need to make two things perfectly clear here. Firstly, what I’m about to type must not be regarded as advice. I’m just telling you what thought process I went through. Secondly, we’re not talking mega bucks (or pounds) here, certainly not for the meagre amount that is lurking in our one and only UK bank account anyway.
It’s quite difficult to express the reason for not changing that sterling into Euro, but I’ll give it a go, at the risk of sounding somewhat deranged. Every one of my pounds somehow feels to me to be worth more than €1.40. That is of course irrational. Anyone who thinks the true rate should be in the region of 1.25 should bite the hand off anyone who offers him 1.40 or better. Yet I didn’t want to do it; I just couldn’t bring myself to sell my shiny £1 coins in exchange for what looks like a bunch of supermarket trolley tokens. Immediate apologies to ‘le Tresorie’ at this point. I suspect that part of me is being a bit greedy looking for a Euro collapse, but would that necessarily persuade me? Potentially not. The weaker a currency becomes, the less inclined I might be to buy it. In essence, I think I’m more likely to buy Euros at 1.40 when the rate is on its way down than when it’s on the way up. I did tell you that I used to be a foreign exchange dealer; funny bunch they are.
The other hot topic at the moment is of course pensions. I know that there is a risk that you might be getting fed up of hearing this, but I am largely opposed to the ‘pension freedom’ that is just around the corner for the UK pension market. I am opposed to virtually all kinds of tax grabs, and I see this as just another example, albeit dressed up as a fabulous opportunity for the over 55’s Or maybe that opportunity is for anyone who can take advantage of the over 55’s, including conmen; salesmen, and taxmen.
For me, the writing is on the wall regarding UK based pensions. They are ‘in play’. Shedding all access restrictions is designed to provide a huge tax income boost for the UK coffers. If it doesn’t work, they will look for another way to get their hands on our savings. Even if it does work, there will come a time when more cash is needed to bale out the UK economy. Pensions will then come under more fire, and more ways will be found to raid the coffers.
I will not be a part of either process. My pension funds are safely housed away from the UK jurisdiction. They will be used as pension funds should be used; to provide an income when I retire, whenever that might be. Hopefully that won’t be any time too soon as I’m enjoying myself too much to stop, but when the time comes I won’t be relying on a UK state pension alone. That would not be an attractive proposition.
QROPS is an extremely welcome result of the European freedom of movement of capital. We should all grasp the concept and use it to ring-fence our future incomes.
Producing income from your investments
By Peter Brooke
This article is published on: 9th March 2015
Restructure your investments before you need the money. This gives you time to ride out any difficult market years before you retire or move ashore. Crises in stock markets always affect stocks in pre-retirement worse, so protect the value of your funds in the few years running up to taking an income, but keep one eye on inflation as this will reduce the buying power of the “pot” of money you’ve built up.
Consider the total value of your retirement assets — shares, pensions, funds, investment properties, cash and bonds — as one entity. Then ask yourself, “If I had all of this as cash today, what assets would I buy to give me the income I need?” This question helps you reassess all your assets and bypass any loyalty to a certain asset type, such as property. If Dave bought an apartment nine years ago for €180,000, rented it out and paid off the mortgage, and the apartment is now worth €280,000 with rent at €1,000 per month, after management
charges, this works out as a 3.8 percent yield. Dave may do better using the money from the property elsewhere, perhaps by reinvesting in bonds.
Once the income starts, look at each asset class in terms of income stream and cash flow rather than capital appreciation. It’s important to try and grow the “pot” to beat inflation, but
the income is paramount. Yields on equities today are outstripping most government bonds; the capital may fluctuate but the income will remain. To draw an income of €3,500 per month, you need an asset pot of approximately €900,000. With €42,000 per year, a proportion of the cash can be put in longer term assets (property, equities, etc.) to help grow and replace the funds you withdraw.
Many yacht crew have a large proportion of their assets inside insurance bonds, as they offer tax-advantageous growth and income. However, some don’t offer a way to take a “natural income,” as the funds are all accumulating-type funds. The income that you draw down by cashing in fund units affects the underlying balance and needs to be rebalanced with a steady internal income stream.
Can You Avoid Spanish Inheritance Tax?
By John Hayward
This article is published on: 27th February 2015
Savings with UK banks and investment companies could form part of a Spanish Inheritance Tax (IHT) calculation.
If you have money in a Spanish bank, the Spanish tax authorities know about it. If you have money in a UK bank, they probably know about this too due to information passed over by the UK tax authorities. Of course, if you have over €50,000 in a UK bank account you will have reported this to Spain within your Modelo 720 form.
For a Spanish tax resident inheritor, Spanish IHT is due on worldwide assets. Therefore, a Spanish resident wife, inheriting from her husband, could pay tax based on their Spanish property and other Spanish assets PLUS tax on the overseas assets.
The English Will does NOT stop the Spanish tax authorities claiming Spanish IHT (Succession Tax) on overseas assets. The Will governs the distribution of the estate, not its taxation directly.
We can help mitigate, delay and even sometimes completely avoid Spanish IHT by placing money in a Spanish compliant insurance bond based outside Spain. Suitably arranged, the bond could save many thousands of euros in inheritance tax.