Viewing posts categorised under: Spain

Are you paying too much on your investments?

By Jeremy Ferguson
This article is published on: 19th July 2022

19.07.22

Paying too much for something is never a good idea!

Unless you have been spending all your time either on the beach or playing golf, it would be almost impossible not to have seen what´s been happening in the financial world at the moment.

Stock markets have had their worst start to a year in 50 years. Almost every day all you see and hear is doom and gloom about rising inflation, rising food prices, rising fuel prices, rising interest rates, supply chain issues, falling consumer confidence. And on and on it goes.

As usual with such issues, it can affect retirees who live here the most, as their Pensions and Investments are normally exposed to the stock markets and various other investment instruments, pretty much all of which are falling at the moment. How much worse can it get? Who knows.. When will it recover? Who Knows.. How long will it take to make up for all of my losses this year? Who knows…!

Nobody does, and looking at history can give a good indication as to the likely answers, but as I keep saying, this could well be history in the making, as opposed to history repeating itself.

Looking at history can help calm the nerves and add perspective. Over the last 150 years there have been 13 major stock market crashes. In 1877 markets fell by 33%, in 1970 they fell by 25% and again in 1974 by 39%. The latest memorable events were the financial crisis of 2008 which resulted in losses of 49% and the Covid lockdown period, which again resulted in heavy losses.

Taking the median of all of these 15 events, an average fall of 33% has taken on average of around 2 years to recover. So, although I have said this may well be history in the making, what we can all be sure of is that things will eventually get better. It’s just a question of how quickly, and that again is an unknown. The speed of recoveries is always quite impressive. Many people miss the fact that if you lose 50% on something, that something has to double in value to return to where you were.

Paying too much for something is never a good idea!

One thing I do know though, is that if you have Pensions and Investments which are expensive, trying to reduce the costs incurred is one thing that will have an immediate positive effect on your returns, and can have an incredibly positive effect on the long-term returns.

Something else that is also relevant to costs, is the type of investments retirees are in. One of the first things to assess when I meet a client is what risk they are prepared to take with their investments. Typically, (as most are retired), I think being driven by caution (or fear) rather than greed is paramount, meaning a client should typically be very concerned about protecting their capital, and therefore their investments should be at the lower end of the risk scale.

Therefore, it makes perfect sense if you are looking to achieve a certain annual return that reducing the annual costs as best you can will mean you can take less risk to achieve your objectives, and therefore see better capital protection.

Many people are coming to me asking if we can take a look at their existing arrangements, and very often we are able to offer a solution to reduce the costs and achieve a more suitable strategy in view of where we find ourselves.

In these times of rising costs, every penny helps, and very often just talking through situations like this and having someone to listen to your worries can be a great help, so if you would like a quick chat in confidence about your financial situation, please get in touch.

Inheritance Tax in Catalunya

By Barry Davys
This article is published on: 11th July 2022

11.07.22

Inheritance Tax in Catalunya – A Guide

Inheritance tax in Catalunya is calculated using the same basic principles as the national system in Spain. As in the national system, the taxable entity is the person RECEIVING the bequest, not the person who has passed away.

However, the allowances (deductions) and rates of tax are different in the Automonous Community Catalunya from the national rate. The law that sets these rates and allowances is Catalunya Ley19/2010 which was amended in February 2014.

Who’s this article for?

People living in Catalonia
People who have recently inherited or are about to inherit
People whose parents are doing inheritance tax planning

Overview
Inheritance tax in Catalonia is calculated in a different way than in many other countries and even in other autonomous communities in Spain. The tax to be paid is not necessarily bad. The tax can be less than in the UK for example.

What you get?
This guide gives a reasonable understanding of how Catalan inheritance tax works and the possible amount to pay. You get access to an adviser who specialises in this area and an introduction to an English speaking lawyer who specialises in helping International people living here.

Your Investment
The time taken to read the guide, and perhaps a second read as Catalan IHT tax takes some getting used to. You will also need to book an initial telephone call if you want advice specific to your situation.

If you are resident in Catalunya these are the rules that will apply. Here we have produced a guide to Catalan Inheritance Tax. The most important deductions available are as follows:

Personal Deductions
The starting point in making the calculation is to work out which Group the person receiving the inheritance belongs to as follows:

Group I Children, including adopted children, under the age of 21
Group II Children over 21, spouses, parents and grandchildren
Group III Close relatives such as brothers and sisters, aunts and uncles
Group IV More distant relatives or unrelated

Allowances/deductions available in Catalunya are:

Group I
Deduction of €100,000 plus €12,000 for each year under 21 years of age up to €196,000

Group II
Spouse: €100,000; Child: €100,000; Other Descendants: €50,000; Parents: €30,000

Group III
€8,000

Group IV
No deductions available

Disabled Heir
In addition to any personal deductions applicable a beneficiary who is disabled may add an additional €275,000 deduction if the disability is determined to be greater than 33% or €650,000 where it is greater than 65% disability

Heir over 75 years old
A deduction of €275,000 may be applied where the heir is over 75 years of age who is a beneficiary within Group II though this deduction is applied instead of the other allowances.

Inheritance of the Family Home
Where a property inherited is the main family home then a reduction amounting to 95% of the value of the property up to €500,000 may be made where the beneficiaries are the spouse, child or parent of the deceased as well as collateral relatives, older than 65, that lived with the deceased during the 2 years previous to the decease . The property may not be sold for a period of 5 years if the reduction is claimed.

Allowances available for the Inheritance of the Family Business
A tax deduction of 95% of the value of the interest held by the deceased in the business This applies to all beneficiaries who were related to the deceased to the third level of blood relative and persons in the employ of the business for at least 10 years.

Allowances available for income from Life Insurance Policies
A deduction of 100% is applicable on any income from a life insurance policy held by the deceased up to a maximum of €25,000 where the beneficiary is the spouse, descendant or parent of the deceased.

Inheritance Tax Rates in Catalunya:
Once all deductions have been applied the final amount of tax payable is determined then it is necessary to apply the relevant rate:

Taxable Sum	Tax Payable on this Sum	Any Reminder up to	Applicable Rate on Remainder %
0	0	50,000	7%
50,000	3,500	150,000	11%
150,000	14,500	400,000	17%
400,000	57,000	800,000	24%
800,000	153,000	Above 800,000	32%

Existing Wealth:
Once the relevant tax has been calculated the result is multiplied by a coefficient determined by the existing wealth of the beneficiary as well as the group to which they belong:

Existing Wealth Multiplier Coefficien

Existing Wealth in Euros	Group 1 & 2	Group 3	Group 4
From 0 a 500.000	1,0000	1,5882	2,0000
From 500.000, 01 to 2.000.000	1,1000	1,5882	2,0000
From 2.000.000, 01 to 4.000.000	1,1500	1,5882	2,0000
More than 4.000.000, 00	1,2000	1,5882	2,0000

As a reminder the Groups referred to consist of the following beneficiaries:
Group I Children, including adopted children, under the age of 21
Group II All other descendants, spouses, parents and grandchildren
Group III Close relatives such as brothers and sisters, aunts and uncles
Group IV Distant relatives and unrelated

Special Deductions – Spouse
After applying the tax rates and coefficients above a discount of 99% shall be applied to any tax payable.

Special Deductions – Other Relatives Groups I & II
For Group I & II beneficiaries, apart from the spouse, the following discounts may be applied to the calculated amount of tax due, depending on the amount inherited:

Group 1

Bottom of Taxable Band Euros	Total discount to this level %	Top of Taxable Band Euros	Discount for this band %
0,00	0,00	100.000,00	99,00
100,000	99,00	100.000,00	97,00
200,000	98	100.000,00	95,00
300,000	97	200.000,00	90,00
500,000	94.20	250.000,00	80,00
750,000	89.47	250.000,00	70,00
1,000,000	84.60	500.000,00	60,00
1,500,000	76.40	500.000,00	50,00
2,000,000	69.80	500.000,00	40,00
2,500,000	63.84	500.000,00	25,00
3,000,000	57.37	upwards	20,00

Group II:

Bottom of Taxable Band Euros	Total discount to this level %	Top of Taxable Band Euros	Discount for this band %
0,00	0,00	100.000,00	60,00
100,000	60,00	100.000,00	55,00
200,000	57,50	100.000,00	50,00
300,000	55,00	200.000,00	45,00
500,000	51,00	250.000,00	40,00
750,000	47,33	250.000,00	35,00
1,000,000	44,25	500.000,00	30,00
1,500,000	39,50	500.000,00	25,00
2,000,000	35,88	500.000,00	20,00
2,500,000	32,70	500.000,00	10,00
3,000,000	28,92	upwards	00,00

Special Deductions – Other Relatives Groups I & II
The discount shall be reduced by 50% should the beneficiary apply any of the following deductions:

Family Business
Any other deduction to the amount of tax payable except the deduction applicable to the family home.

Many expats pay more tax on their inheritance than they should because they fail to follow some simple rules.
To discuss how to pay only the appropriate amount, please click the button below to get in touch with us.

This information is intended as a guide only. It is based on the current legislation for Inheritance tax in Catalunya as at August 2017. A suitable qualified tax lawyer should always be used to calculate a specific liability. If you require the assistance of a tax lawyer please contact barry.davys@spectrum-ifa.com who will introduce you to an appropriate lawyer. Please also note that this guide does not apply to Gifts (donaciónes) which have their own rules.

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Are you thinking of moving to Spain

By Jeremy Ferguson
This article is published on: 23rd June 2022

23.06.22

“Its so nice holidaying here, I’d love to live here all year round…’’

If you are a UK resident and here on holiday, it is very often these times that get people thinking about retiring to Spain. The attractions of the slower pace of life, a completely different climate, all those extra hours of daylight and sunshine, a lower cost of living, ( depending on lifestyle!), eating out often – on and on the list normally goes.

When the UK was part of the European Union, taking the plunge and moving to Spain was relatively straightforward, aside from the obvious challenges of the actual move. You could sell up, jump on a plane and then when you were here, apply for residency, register at the town hall etc, and that was pretty much it.

Now however, that simply isn’t the case. There is the fact that as a UK citizen, you no longer have the freedom of movement within the EU, something many people still haven’t come to terms with. You can of course still come here to live, but you will need to make an application for a Visa. If you are looking to retire, then this needs to be a non lucrative Visa.

I work closely with experts who can assist with these applications, who know the process inside out and make this part all very straightforward for you.

The financial planning side of the whole process is also essential, and that of course is where I get involved. It is important you dispose of or organize your assets in the most tax efficient way you can before you leave the UK. For example, making sure your pensions are correctly dealt with and selling your main residence at the right time to name just a couple, and of course understanding the tax system and rates applicable once you are here.

One of the most important aspects of making your Visa application, (which has to be done at one of three Spanish embassies in the UK – London, Manchester or Edinburgh), is understanding what your finances need to look like to satisfy the Spanish requirements. These are mostly focused on the fact that they want to ensure you have enough money or income to live here self sufficiently.

Download our Guide - Moving to Spain, the money part

So you need to satisfy what is known as IPREM, literally translated this means “The Public Multiple Effects Income Indicator”. As a non EU member applicant ( Third country National ), you need to demonstrate you have 4 times the IPREM requirement, plus 100% extra per beneficiary. So in simple terms, if a married couple are retiring here you will need to prove income of €2,895.10 per month, or a lump sum of €34,741.20 for each year. It is also worth noting, your Non Lucrative Visa needs renewing after a year (for the next two years) and again after three years, again for the next two years. After the end of year five you will then obtain permanent residency. This all has an effect on what money they will want to see you have, be it in the form of Pension income, savings, cash in the bank etc. This not only applies when you make your initial application, but also for the following four years.

So if you are thinking about moving to Spain? You will need to make an application for a Visa. If you are looking to retire, then this needs to be a non lucrative Visa, it is really important to have a good handle on the financial requirements, not just for the initial application but also for the subsequent few years. Most of my work has changed significantly now when working with people who are planning their move here, as it is so much more complicated than it used to be.

As we are dealing with similar situations on a regular basis, it enables us to make the process as easy as it can possibly be for individuals.

If you would like to find out more about what planning would be needed to make living in Spain a reality, then please feel free to get in touch.

Spanish Tax on Personal Pensions

By John Hayward
This article is published on: 1st June 2022

01.06.22

Further to the recent article written by my colleague Charles Hutchinson regarding temporary annuities and their taxation of annuities in Spain, I am expanding on the tax treatment of personal pensions generally.

Depending on the type of retirement income that you are receiving, it will either be taxed as regular income, “work” income as the Spanish call it, or savings (passive) income with a different set of tax rates being applying to each type. It is generally understood that the income from pension plans that received tax relief (effectively where the contributions were deducted from income before tax was calculated) will be treated as work income.

The word “annuity” is used in a general sense in the UK as the regular payment which comes from a pension scheme. It is possible to convert a personal pension fund to an annuity, with a view to guaranteeing a fixed income for life albeit waiving the right to the capital value of the pension pot. Whether or not it is advisable to purchase an annuity is another matter. This will depend on personal circumstances.

As far as Spain is concerned, an annuity is a form of income that attracts favourable tax treatment. An annuity in Spain is either temporary or for the whole of life. The annuity is purchased. It is not income drawn from an existing pension fund unless that fund is encashed to buy the annuity. At that point though there is the possibility of a large tax bill on the encashment.

Yes, I want to book an initial call to discuss my penions in Spain

The key points here are that:

Not all pension income is treated the same way for tax
Declaring work income as an annuity is not correct and, if reported intentionally in this manner, it is possible that it will be treated as fraud. The Spanish tax office is making a special effort right now to check on this. They can go back at least 4 years with their investigations
Care should be taken when accessing retirement income to make certain that, not only is it being declared in a lawful way, but also that you do not leave yourself open to a nasty and unexpected tax bill

Contact me today for more information on how we can help you to protect your assets from unnecessary taxation and make more from your money, protecting your income streams against inflation and low interest rates, to talk about Spanish Tax on Personal Pensions or for any other financial and tax planning information contact me at:

john.hayward@spectrum-ifa.com or call (+34) 618 204 731 (WhatsApp).

Spanish Tax Guide 2022

By John Hayward
This article is published on: 24th May 2022

24.05.22

Over the past year or so, with Covid-19 restrictions being lifted and impact of Brexit becoming clearer, we have received many enquiries regarding taxation in Spain, not only from people who are looking to move to Spain but also from those who already live in Spain, in some cases for many years. There are areas of tax that are complex, not helped by the fact that you might receive different opinions on the same tax subject.

In countries such as England, Wales, and the United States of America, there is a Common Law code. Established in England in medieval times, it is based mainly on case law. A decision made many years ago could still apply today. This is a system which has allowed us to get used procedures which have been in place for a long time. This is not necessarily the case in Spain.

Spain, like other countries in Europe, have a Civil Law code. Within this system, rules can be updated regularly. As flexible as this system is, unless you are completely up to date with the latest rules, which may only have been recently altered, it makes it extremely difficult to know how exactly you should be declaring your income and gains in Spain.

Please click on the link below to download our latest Spanish tax guide which is designed to give you a better understanding of the different Spanish taxes, to whom they apply, and when they need to be paid. Spain is made up of autonomous regions and so there can be different rules and tax rates that apply.

Download your tax guide here

However, the general principles are the same or similar throughout the Spain. You will be subject to at least one of these.

Income Tax
Inheritance Tax
Gift Tax
Wealth Tax
Capital Gains Tax

If you have any questions, please get in contact. If we do not know the answer to your tax questions, we know someone that does.

Book a zoom or call with me now

Arts Society de La Frontera

By Charles Hutchinson
This article is published on: 24th May 2022

24.05.22

The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera lecture on the 18th May at the newly renovated San Roque Golf & Country Club on the Costa del Sol. We were represented by one of our local and long-serving advisers, Charles Hutchinson, who attended along with another Costa del Sol based partner Jeremy Ferguson and his wife Michelle in her role as his personal assistant.

The Arts Society is a leading global arts charity which opens up the world of the arts through a network of local societies and national events throughout the world.

With inspiring monthly lectures given by some of the UK’s top experts, together with days of special interest, educational visits and cultural holidays, the Arts Society is a great way to learn, have fun and make new and lasting friendships.

At this event, over 180 attendees were entertained by a talk on the fabulous Spanish painter Joaquin Sorolla “Master of Light” by Arantxa Sardina from the Tate Gallery in London. She gave an impressive lecture, revealing what a true master he is amongst the other well known impressionists of the early 20th century.

The talk was followed by a drinks reception with a musician and youth art exhibition which included a free raffle for prizes including Charles´s gift of a book on the artist, champagne, orchids and Jeremy supplied liqueur.

It was the best turnout we have had for a few years, which was largely due to it being the last lecture of the season combined with the art exhibition and relaxation of Covid rules. A very successful event at a wonderful venue.

The Spectrum IFA Group was very proud to be involved with such a fantastic organization during its current global expansion and we hope to have the opportunity again in the next season.

Removing Confusion on Spain and UK Tax Situation Especially Pensions

By Barry Davys
This article is published on: 23rd May 2022

23.05.22

It is clear from calls and messages to me from people seeking advice there is much confusion regarding taxation when we live in Spain and have income or capital gains in the UK. Sometimes, these calls happen when people have received a letter from the Agencia Tributaria (Hacienda).

My wish is to clarify the situation so that there are no back taxes, fines nor interest to pay in Spain.

This framework will clarify the position and I include specifics regarding pensions. Tax can be, well taxing, so this framework is to help with understanding the overall situation, not to provide specific advice for your situation.

Who’s this for?
This article is for all British people who live in Spain.

Overview
A framework to help explain how do we pay tax on pensions from the UK when living in Spain?

Why to read this article?
This article is written in response to a very sad situation where a pensioner here has been hit by fines, back tax and interest from four years ago because of a mis-understanding on how to organise his tax on his UK pension. It is likely that further fines will follow for other years. The total amount of fines and interest could amount to €21,000

Your commitment
Taking the time to read the article and requesting an initial telephone or Zoom meeting below, if you want help for your specific situation.

Yes, I would like to arrange a conversation about my situation

Your Tax Framework

Top of the framework is to understand that when we have taxable events in more than one country, the country of our residency is the “controlling tax authority”. They have the final say on what tax must be paid.

If you live in Spain more than 183 days in a calendar year your controlling tax authority is Spain. It does not matter if you also pay tax in the UK.

How this works is as follows:

Declare your worldwide gross income and capital gains on our La Renta (M100) Remember it is a self assessment form and so it is our responsibility to do so
At the end of the La Renta form is a box for entering tax paid in a country with a double taxation agreement with Spain. Put the tax paid in this box or insist your gestor does so. Even post Brexit the double taxation agreement is still in force
UK pensions gross income all have to be reported in Spain

If you live outside the UK and provide a certificate of tax residency in Spain you can claim dividends, bank interest and even private pensions without paying UK tax (because you will pay tax in Spain).

Pensions, however, are a great source of confusion. The UK retains the right to tax state pensions, military pensions, civil service pensions and a number of others. Previously these did not have to be reported in Spain. They do now!

Tips on pension tax

On private pensions and most company pensions ask the provider to pay you gross
If you have a UK pension where it is automatically taxed or is a state pension, record all tax paid in the UK and get proof of payment from the pension provider
Report the gross figures in Spain
Your state pension is paid weekly, not 12 monthly so remember to include all payments in the calendar year
Ensure that any tax paid is listed in the La Renta box for countries with double taxation agreements. Result – no double taxation
If the tax paid is missed off this box, try to make a Refund of Tax using UK HMRC form R43 and or form R40. It may be possible depending on your circumstances
One word of warning. Do not use companies offering to reclaim your tax for you. They are expensive, some may be improper and you can easily send the form yourself

For an initial call to find out more, choose a time for a phone call or Zoom meeting that is convenient for you CLICK HERE

In my profession as a financial adviser for international people living in Spain I have a clear understanding of tax rules and recommend that you employ a good local tax adviser. This article is not tax advice as it may not reflect your personal circumstances. It is merely a framework to help with your understanding. I hope this article provides more clarity on the issue and helps when you do go to a tax adviser.

Temporary Annuities in Spain

By Charles Hutchinson
This article is published on: 19th May 2022

19.05.22

Over the last few years, there have been some well-known IFAs here in Spain advising their clients that they can save up to 88% on their income tax in Spain by stating that their pensions are temporary annuities. In some cases, this has caused serious problems for pensioners. There is no way the Hacienda would offer such benefits unless these annuities were such from outset. It would seem logical if this was to be set up as such from outset, the schemes would have to be domiciled here in Spain for the tax reasons I go on to explain. Similarly, the annuity status could not be applied to foreign pension schemes being exported by expatriates from their previous country of residence when they come to live here.

For example, I have come across clients who have transferred their pension abroad under QROPS rules, they then instruct their trustees to pay them a set income for, say, 5 years. In some cases, the trustees would give them a certificate confirming that this income is a temporary annuity. Ironically this not only potentially makes the trustees as culpable as the pensioner but so too the gestor or accountant drawing up that tax return.

An annuity is something you buy from a financial institution (usually a life assurance company) for a certain sum. In return, the company will pay you an income for life or a fixed period. Once purchased, that money is no longer yours and it is irreversible.

However, the money in a pension scheme (although legally owned by the trustees) is for your benefit in your lifetime and can be passed to your beneficiaries or spouse, depending on the scheme T & Cs. The income can be stopped, restarted, raised, lowered, or even taken in lump sums (again depending on the scheme particulars). The capital remains at your disposal. Therefore it cannot be regarded in any way as an annuity, let alone a temporary one.

Those who promote these “loopholes” are tapping into one’s natural desire to lower one’s taxes. They are exploiting genuine tax benefits offered to those who have already paid income tax on their savings with which they purchase an annuity for a fixed period. The special low tax rates which go with these annuities are by way of partial compensation for having your tax-paid capital repaid to you. Whereas pension income is always taxed at your marginal rate, mainly because there is tax relief on monies you put into your pension scheme, with both money purchase and occupational pensions. Furthermore, pension “pots” are invested and will attract, if properly invested, investment growth.

Those companies who advise people to do this and those who file a tax return claiming their pension is an annuity (when it clearly is not) are committing tax fraud. And there are very heavy fines for doing such a thing. A tax audit can go back up to 5 years and the tax shortfalls can involve sizeable sums especially when the fines are included. At pension age, this can be very distressing and a very nasty shock to an elderly person.

Spectrum can help you avoid this situation by reviewing any previous advice given and offering an unbiased opinion. We research our products and taxation thoroughly before advising our clients. If you have any doubts about your pension and the advice you have already received, then please contact me for an initial meeting which carries no fee. We want you to have peace of mind so that you can tell others about us. Spectrum is not in the risk business but very much here to protect your wealth.

Inflation in Spain

By Jeremy Ferguson
This article is published on: 26th April 2022

26.04.22

Life just seems to be getting so much more expensive nowadays.

Over the last few years we have seen a quite incredible chain of events unfold. Covid reared its ugly head, and caused a massive change in the way in which we live and travel. During this period of lockdowns and people working from home, spending habits took a massive turn. No one had the chance to go out and spend money in bars and restaurants, go to the cinema, or take weekend city breaks to name but a few.

When things started to go back to normal, we saw big supply chain issues coming to light. Microchips for cars meant new car deliveries became more and more delayed, pushing up the price of second hand cars. Demand for consumer goods for the home, having gone through the roof, also meant the cost of these items started to rise.

Many companies wound down production during the covid period, and then all of a sudden were caught short by the sudden surge in demand. You can argue this happened in the fuel industry, as we saw panic buying and massive queues in the UK at petrol stations.

Then, just as we started to look for a hint of normality, with people slipping back into their old spending habits, the war in Ukraine started, immediately hitting the price of fuel, and the one that surprised me, sunflower oil!

All of these factors have meant that the cost of living for all households is increasing at an alarming rate, inflation is with us again, having been dormant for quiet a while. The one that has really hit most people here in Spain is the increasing cost of Electricity. In December the cost rose from its lowest point by almost 500%, something I have no living memory of happening before. For many people, that is creating a huge dent in their disposable income each month.

Most people I deal with are retired or semi-retired, with their income generated by drawing down from their pensions, and then normally substituting it with drawdowns from Investment Portfolios and cash savings. At this stage of their lives, I believe in most circumstances fear tends to be the driving factor behind their Investment decisions, as protecting the money far outweighs trying to get too high a return each year. That makes perfect sense as income streams during retirement have typically ceased, so the ‘pot’ needs to be looked after carefully. Making plans for how long your funds will last is easy to a degree, when the cost of living simply increases a little each year, but now, with the way things are, the plans that previously seemed sensible will certainly need a bit of a shake up.

If interest rates rise as predicted, then maybe people will be able to look for their cash in the bank to increase in value by earning some interest, but that is something none of us can predict at the moment. If inflation continues at today’s current levels, many people will either have to change their lifestyle, or look to try and increase the annual return on their savings, but by doing that, it typically involves taking more risk, which is completely against where people normally want to be at this stage of their lives.

With the changes we are seeing with outgoings, Investment returns, interest rates and inflation, it has never been more important to spend time regularly looking at financial plans, and adjusting assumptions to make sure you have a realistic handle of how things will look going forward. It’s not rocket science, and I am here to help if you find it all a little daunting, so please free to get in touch via the form below or please email: jeremy.ferguson@spectrum-ifa.com

Sustainable & Ethical Investment funds in Spain

By Chris Burke
This article is published on: 25th April 2022

25.04.22

More and more people are contacting me regarding sustainable investments in order to understand the choices available, whether they offer a good return on your investment and would you get any more return if you didn’t invest sustainably/ethically? We all know the planet needs our help but we also want to know that our hard-earned monies are working for us – it can be a difficult emotional trade off.

Sustainable & Ethical investing has hit the world by storm over the last few years. By the end of 2019, professionally managed assets using sustainable strategies grew to $17.1 trillion, a 42% increase compared to two years prior, according to the U.S. SIF Foundation (2021). The organization also estimated that $1 out of every $3 under professional management is now invested under ´´sustainable practices´´.

Recent studies have also shown that Sustainable Investment funds, as well as providing ways to invest responsibly, provide both financial performance and lower levels of risk. For this reason, in part, many deem including sustainable investments in their portfolio is a ‘no brainer’.

Let’s say for example that you are in the market to buy a new dishwasher. You’ve analysed several products and have narrowed your choice down to the last two. Both products cost the same amount and wash dishes equally as effectively, yet one of them uses less electricity and is considered safer due to the addition of extra safety features. Which one would you pick?

When comparing the returns of sustainable funds and traditional funds, is there a financial trade off?
A common belief held by investors when comparing mutual funds that are performing to a similar standard is that the one with a sustainable investing model may not perform as well. However, a Morgan Stanley (2019) report has debunked this myth. The report analysed the performance of 10,723 mutual funds from 2004 to 2018 and found that the returns of sustainable funds were in line with comparable traditional funds, stating that ‘there was no consistent and statistically significant difference in total returns’.

When comparing the levels of risk of sustainable funds and traditional funds, is there a trade off?
The Morgan Stanley (2019) report found that sustainable funds experienced a 20% smaller downside deviation than traditional funds, a consistent and statistically significant finding. In years of higher market volatility (such as 2008, 2009, 2015 and 2018), sustainable funds downside deviation was significantly smaller than that of traditional funds. The study took an in-depth dive into in the last quarter of 2018 during which we saw extreme volatility in the US equity markets. Despite negative returns for almost every fund, the median US Equity sustainable fund outperformed the median US Equity traditional fund by 1.39%, and also had a narrower dispersion.

These findings may come as a surprise to many. There is a general consensus amongst investors that by investing in sustainable funds, you will also miss out on financial gains. The research based on concrete evidence of market performance over the past few years suggests that this is not the case, and that there is in fact no financial trade off when investing sustainably. Over the forthcoming years, I believe that the adoption of sustainable investments will continue and that we will continue to see the opportunity gap between investor interest and adoption narrow.

If you would like to speak with an expert on Sustainable and ESG Investments, Chris Burke is able to discuss with you the new investments in this area. Chris is also able to review your current pensions, investments and other assets, with the potential to make them more sustainable moving forward.

If you would like to find out more or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris via the form below, or click the button below make a direct virtual appointment.

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Sources:
“Sustainable Investing Basics, 2021,” US SIF Foundation: The Forum for Sustainable and Responsible Investment, https://www.ussif.org/sribasics. Accessed March 24, 2022
“Sustainable Reality – Analysing Risk and Return of Sustainable Funds, 2019,” Morgan Stanley, https://www.morganstanley.com/content/dam/msdotcom/ideas/sustainable-investing-offers-financial-performance-lowered-risk/Sustainable_Reality_Analyzing_Risk_and_Returns_of_Sustainable_Funds.pdf. Accessed March 24, 2022