Timing when to invest for long term needs is trickier than solving a Rubik’s Cube wearing boxing gloves

As we enter a new year, we face another year of known and, so far, unknown global problems which could impact our finances. Many “experts” will guess and then advise us what will happen but, as so often in the past, be wrong, or lucky if the guess works out to be true. The world is governed by a handful of people. Therefore, there are very few who really know what is happening.

The person who sold from the two funds at the end of 2022 was 9.10% down for the year and only recouped 2.50% (6 months at 5% p.a.) by the end of 2023 instead of 11.45%.

In a similar way, the potential investor, who was holding off until things improved, missed that particular bus. Again 2.50% versus 11.45%. I appreciate that there are underlying charges with our products but nowhere near 9% a year and there are also tax considerations with the deposit account being taxed annually whereas the Spanish compliant bonds that we promote have tax deferred, if not completely negated.

Very few are smart enough or knowledgeable enough or lucky enough to time markets correctly. In the last year we have seen this proven once again.

When I tell people that they should be prepared to leave their money invested for at least 5 years, I often get the response that they are not young and that they may not survive 5 years. In a region such as the Costa Blanca where I live, with 300 plus days of sunshine a year and plenty of olive oil, the risk people face is living too long! In the “good old days” when the life expectancy was 65 or less, long term care and dementia were not a consideration. Making money work over the long term is not only a good idea but possibly essential.

We have products that can work with you and your family throughout your life, and beyond. Following the scaremongering headlines is not a great idea and can be very harmful to your wealth, and your health.

I know that it is possible to solve a Rubik’s Cube wearing boxing gloves but try it.

«Vous voulez faire fructifier votre épargne de manière sécurisée et sans payer d’impôt ? Vous pouvez ouvrir un livret A». source site officiel de l’administration française.

Avec pas moins de 56 millions de livrets A comptabilisés à fin 2022, cette publicité semble avoir séduit les Français, mais qu’en est-il réellement de ce placement dont le taux d’intérêt est fixé par l’État ?

Le livret A est le placement préféré des Français. Huit Français sur dix le détiennent et ils ont déposé près de 26 milliards sur ce produit d’épargne sur les six premiers mois de l’année 2023. Du jamais vu…

Le Livret A est un placement sûr et liquide, ce qui signifie que vous pouvez retirer votre argent à tout moment sans pénalité. Le ministre de l’Économie et des Finances, Bruno Le Maire, a récemment fait le choix de maintenir son taux de rémunération à 3% soit l’assurance de bénéficier d’un taux fixe jusqu’en 2025.

Malgré son succès, ce produit d’épargne est souvent critiqué pour sa faible rémunération.

Ci-dessous un comparatif des 5 dernières années face à l’inflation :

Sources: Banque de France, Insee

Récemment, le gouvernement a dérogé à la formule de calcul fixant son rendement, calcul qui aurait potentiellement amené le taux à plus de 4%.

Le Livret A ne protège donc pas les Français d’une perte de pouvoir d’achat, et ne constitue pas un “rempart” contre l’inflation. Le taux réel étant négatif, l’argent placé perd de sa valeur au fil du temps.

Le livret A reste pertinent pour certaines situations
Par nature, le Livret A étant garanti, son rendement est faible. Mais malgré sa faible rémunération, il peut toutefois convenir à certains épargnants.

Il est simple, accessible à tous et garantit un capital entièrement disponible à tout moment.

Il permet de limiter le phénomène d’érosion monétaire pour ces sommes épargnées à court terme, afin de faire face à des besoins exceptionnels.

Le livret A est conçu pour constituer un matelas de sécurité. Il est recommandé de laisser sur son Livret A une épargne de précaution correspondant à 3 à 6 mois de dépenses courantes, de manière à faire face aux imprévus.

Quelles alternatives ?
La réponse dépend principalement des objectifs d’épargne, de la disponibilité recherchée et du profil de risque de chacun.

Pour les épargnants prêts à accepter un peu plus de risque et limiter la disponibilité quelques années, il existe des placements offrant de meilleures perspectives de rendement.

L’assurance-vie (produit le plus diversifié), le placement en actions (le plus dynamique) ou les SCPI (le plus stable) seront les options les plus cohérentes.

Le pouvoir d’achat est au centre des préoccupations des français et l’investissement est un moyen qui permet réellement de se prémunir de l’inflation et de construire ses projets d’avenir. L’épargne et l’investissement ne répondent pas aux mêmes enjeux.

Lorsque l’on dispose a minima de trois ans devant soi, il est inutile de laisser dormir cet argent, que ce soit sur un compte courant ou sur un livret.

N’oublions pas ce principe phare de la finance : il n’y a pas de rendement sans risque.

Le groupe Spectrum à Barcelone se propose d’étudier gratuitement votre situation afin de vous aider, de vous conseiller, de vous orienter ou de vous guider dans vos démarches patrimoniales.

N’hésitez pas à nous contacter afin d’obtenir les réponses d’un professionnel aux questions que vous vous posez.

Making gifts to spouses is no longer a tax worry.

In September, the Valencian government approved the draft bill reducing succession tax (Inheritance tax) and gift tax for certain beneficiaries

The reasons were that the taxes formed a very small part of the region’s revenue and many people were refusing inheritances as the tax worked out to be more than the overall benefit. Does the son or daughter in the UK really want to inherit the casita in the campo housing pigs and chickens?

We have had to wait for the bill to become law and this occurred on 24th November 2023 taking effect from 28th May 2023, the date that Carlos Mazón was elected president of the regional government of Valencia as leader of the Partido Popular. The backdating of this law is significant for beneficiaries who are dealing with deaths and inheritances since 28th May.

It is important to understand that the taxes for certain beneficiaries have been reduced but not abolished. The reduction in the tax has increased from 50% to 99% of the tax bill. This reduction applies to Class 1 and Class 2 beneficiaries and includes the proceeds of life insurance. These classes cover children, grandchildren, adoptees, parents, grandparents, adopters, and spouses. The €100,000 allowance per qualifying individual beneficiary (up to €156,000 for children under 21) will remain.

Suggesting that it is a better time to die now may sound a little crass but it would appear to be a very good time to make gifts, taking advantage of the gift tax reduction and mitigate future succession tax. Another important aspect to gifts is that they need to be formally documented.

Over the last 10 years, Valencia has changed the basis of succession and gift tax on a number of occasions. There was a 99% reduction before. This fell to 75%, then 50%, and is now back up to 99%. Therefore, it is reasonable to suggest that there could be changes to the law again.

Strangely, before these revisions, spouses in the Valencian Community did not receive an allowance on gifts and this caused a problem when planning financial structures. Spouses in the Valencian Community are now eligible for the allowance of €100,000 on gifts along with the 99% reduction on the tax on any excess. In my case, the “What’s hers is hers and what’s mine is hers” principle still applies.

Contact me to discuss ways of reducing the tax liability for those you care about no matter what the law is at the time.

The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera lecture on the 15^thNovember at the impressive 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 our co-sponsors Currencies Direct represented by Ignacio Ortega and Carol Schleisman. 

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 excellent event, over 80 attendees were given a talk on The Real Richard III by Tobias Capwell. Tobias is the curator of Arms and Armour at the Wallace Collection in London and an internationally acknowledged authority on Medieval and Renaissance armour and weapons. He is the author of numerous books on the subject and has been involved in many television programmes on BBC4 and Channel 4. In 2015, Toby had the unusual honour of serving as one of the two fully armoured mounted knights escorting the remains of King Richard III from the battlefield of Bosworth Field to their final resting place in Leicester Cathedral.. It would be no exaggeration to say that his lecture was incredibly gripping and interesting and at times very amusing. His knowledge of his subject was responsible for him being closely involved in the recent feature film “The Lost King” together with all the TV programmes of how they found and identified the king’s remains.

The talk was followed by a drinks reception which included a free raffle for prizes including CH supplied book The Search for Richard III and a large decorative candle. Currency Direct also supplied a Cava presentation case and 2024 diaries.

All in all, it was a very good turnout and a successful event at a wonderful venue. The Spectrum IFA Group was very proud to be involved with such a fantastic organisation and we hope to have the opportunity again at the February 2024 lecture.

This is something I am being asked a lot at the moment, as so many of my clients have money on deposit in UK banks.

Many of them are offering healthy fixed term deposit rates at the moment to clients, but very often my experience is the bank will only allow customers who live in the UK to place cash into these term deposits. This only tends to come to light after speaking with them for ages on the phone to try and move your cash, after which they will very often ‘reject’ your request due to the fact you live here in Spain. Some banks are OK with that, but the majority are not.

There are also a few ‘downsides’ to these term deposits when you are a Spanish tax resident. To explain;  if you were to invest in a 1 year term deposit offering 5%, then this will of course be taxed here in Spain at maturity. The complication comes with the fact that you have to file your tax returns in Euros. Imagine if you placed that one year deposit today, maturing in a year’s time in November 2025, and then assume a scenario where the exchange rate recovered from the 1.14 ‘ish’ we are seeing at the moment to 1.18 by the end of next year, (which is entirely feasible).  You would have to declare the 5% yield in euros, which would end up at approximately 8.5% in this example. Tax will then be due on this amount, having the effect of significantly reducing your actual ‘profit’.

Of course it could go the other way but this is an issue, as each year the fluctuations can ‘disturb’  the actual amount you receive. This has only really come to light this year, as people have just not experienced yields on cash deposits for such a long time.

There is also of course the risk of placing your funds with the bank you chose, or institutional risk. The compensation scheme in the UK most people are familiar with will cover a deposit loss up to £85,000 per individual account. To utilize this as best you can it can get messy trying to hold money in many different banks. The reality for most people I deal with here is they tend to have a UK bank account from when they lived there. To try and open a new UK account when you live here is nigh on impossible, so spreading your risk by having a number of different accounts isn’t achievable.

However, a solution which deals with most of these issues is available. Without getting into too much detail, you can invest in a cash ‘fund’ run by one of the World’s biggest Investment Companies. Your money ends up being invested with nearly 200 underlying banks within the fund, so the risk of a bank failure is massively reduced.

Using the right structure to access this fund means you don’t have to pay tax on an annual basis as this will only be due when you cash in your investment, and therefore each year there is no need to consider the complications of the exchange rate issue touched upon earlier.

 If rates were to rise further the fund will automatically take benefit from that, and so your ‘cash’ is being actively managed with no need for you to be doing anything.

The suitability of this solution of course depends on each person’s individual circumstances, but if you would like some more information, please do not hesitate to get in touch on the form below.

The clocks go back in a few weeks, so enjoy the last of the summer evenings before its time to get the winter wardrobe out and get cosy!

This month’s Top Tips are as follows:

• Wills – Why almost everyone should have one
• How to build a pension in Spain, quick example
• Why have your investment in a tax ‘Wrapper’ rather than an investment platform?

Wills – why almost everyone should have one
If you die whilst living in Spain or owning property/assets here, the expression is known as dying ‘intestate’. To quote why you should not want this to happen (apart from the obvious!) the Law societies words are as follows:

“Dying intestate not only means your final wishes will probably go unheeded, but the financial and emotional mess is left for your loved ones to sort out. This need not be your final legacy.”

So, if are not bothered about the administration you leave behind, the only circumstances under which I would suggest you might not want a Will (I still think you should, but it’s your choice) are if you are single or married with no children.

If you have children under the age of adulthood, in my professional opinion there are no excuses for not having a Will for the following reason: God forbid something should happen to both parents, how would the law know who you would want them to be raised by and how? Those left behind (grandparents for example) may not agree with your wishes but they should respect them. Imagine if you didn’t stipulate and the state decided against your families wishes………………….

Building a pension in Spain, quick example
“Chris, I want to save for retirement but I note the annual amount you can save into a private pension in Spain is €1,500, what options do I have?”

Well, some people tell me they could overpay into the state pension to obtain more, I say good luck with that. One of the ways they now calculate this is the average of the last 25 years of your salary/income, so the days of a great Spanish state pension for most are over.

I could go into great depth here but for ease’s sake, the following saving / investing example could give you an income of approximately €25,000 per year, so along with a full UK state pension that would give you a total income of approximately €38,000 per year and hardly any tax to pay:

• Initial investment of €50,000
• €2,000 per month contribution for 20 years
• Total investment value at the end: €926,247.78

I did say it was quick! This is of course is in tomorrows money (inflation roughly doubles every 24 years). With my clients we go into much more depth and analysis, but it gives you an idea.

However, with a ‘tax wrapper’ you pay a different tax, Spanish Proportional tax, which is calculated by the following formula:

Initial investment amount, divided by current investment value, multiplied by the amount you are withdrawing.

So, to copy the above example, you start/invest €100,000, it grows to €120,000, you withdraw €10,000, tax is payable on the gain proportionally which is calculated the following way:

€100,000 divided by 120,000 multiplied by €10,000 = €8,333.

This €8,333 is the amount tax exempt, so you are ONLY taxable for €1,666 as opposed to €10,000 for an investment platform gain.

You can also add Children over the age of 14 to Tax Wrappers who benefit from this in the future, as well as partners/spouses. So, the additional cost of the Tax Wrapper can more than outweigh the tax savings over time.

Some of today’s Tips can be quite complex, if you are not sure don’t hesitate to get in touch.

1980’s advert
For those of you who don’t know me that well, I am a bit of an 1980’s fan. I was brought up on prawn cocktail, roast beef with all the trimmings and trifle for pudding. I still even now listen to 1980’s music channels………anyway, I am going to share each month some of my favourite TV commercials from back then until you tell me to stop OR I get inspired with something else!

Looks like we’ve overdone it on the…………

Click here to read independent reviews on Chris and his advice.

If you would like any more information regarding any of the above, or to talk through your situation initially and receive expert, factual based advice, don’t hesitate to get in touch with Chris.

Over the summer I read a fascinating book called ‘Checklist Manifesto’ by Atul Gawande. It’s a book about how the systematic use of checklists can help improve outcomes in a wide range of activities.

Gawande, a surgeon, explored the use of checklists in medical procedures and found that developing and complying with detailed checklists has an extraordinarily positive effect on medical outcomes. His book is well worth a read – some of the sections that describe how problems arise and are dealt with when things go wrong in an operating theatre or a cockpit on a passenger flight are truly incredible.

It is an unlikely page-turner, with a lot of practical examples of how adopting good working practices can have a hugely positive effect on outcomes. Here is one example;

In 2001, Peter Pronovost, an intensive care specialist at John Hopkins Hospital, was frustrated with the incidence of central line infection in intensive care. He created a simple checklist of the steps that needed to be taken to prevent infection.

As simple as the steps look, the ICU nurses noted that doctors were often in such a hurry that they ignored a step or two. With this information, Pronovost persuaded the hospital administration to allow nurses to prevent doctors from putting in central lines if they ignored a checklist step.

The nurses were also encouraged to ask doctors every day if they could remove the patients’ lines so they would not stay longer than necessary.

This step reduced the likelihood of untreated pain from 41% to 3%. Pronovost was described as a “genius” by his colleagues because he had the idea of integrating a task list or a checklist into the daily routine of everyone working in the ICU.

It has been interesting to reflect on the power of checklists and very reassuring to note that at Spectrum we have our own set of checklists that ensure we are disciplined and methodical about how we work. This approach, which we apply as part of our standard business practice, helps to secure positive financial outcomes for our clients.

Let me explain how this works with a couple of simple examples;

All potential clients do a fact-find with us as a first step in our financial planning process. The fact find is our checklist of questions that allow us to see where the person is, financially of course, but also in terms of life-stage, planning priorities, tax situation, etc. We build up a comprehensive picture of individual circumstances, what assets they have and what they are looking to do, well BEFORE we offer any advice.

With Client A, we had spoken at length about what he wanted to do and had agreed on a plan of action. When we got together some time later, I followed our Spectrum checklist and asked him if anything had changed with his situation since we had last spoken and the conversation that ensued filled me with concern. He had been contacted by a boiler room operation that had targeted him and who were in the process of getting him to transfer a high five figure sum into an offshore bank account. It was a scam. I was able to stop this before it went any further. He never made the transfer and he still has the money. I was so pleased that I’d followed the checklist and had done my job properly.

Client B is a young family member who is saving up to buy a house. He and his girlfriend have around 85000€ saved up. I asked him what return he was getting on that money. Answer – zilch. I was able to encourage him to explore the options at their bank on the basis that 2-3% was probably there for the taking, explaining that spending a few hours looking into it and taking some action will be the easiest couple of thousand euros they will earn this year.

These are two simple examples of the value that can be created in my business by following a reliable and clearly defined advice process. At Spectrum we are of course appropriately experienced and authorised for the financial planning services on offer. Beyond that, we care about doing a good job. We always offer a no fee, no obligation, face-to-face fact find meeting to anyone who is prepared to invest a couple of hours in finding out more about the planning opportunities available to them. If prospects go on to become clients, we also arrange at least annual review meetings (again at no cost), to revisit the fact finding exercise and to ensure that our original advice recommendations remain suitable, or where necessary to revise arrangements in response to changes in your circumstances.

As an aside, we know that banks generally don’t call their customer to suggest that surplus cash be placed in interest bearing deposit accounts. They just don’t do this sort of thing, because bank employees work for the bank. At Spectrum we work for our clients.

Please feel free to book an introductory appointment with a financial planner at Spectrum and see where it takes you.

Just recently I returned “home” to continue my work under the wing of The Spectrum IFA Group. Two years ago I moved away thinking I could expand the range of services to offer my clients, but sometimes the grass isn’t greener. However, leaving one base for another also creates time for reflection and, sometimes, realisation that where you were was rather good.

Change is always happening around us, but for some it can be unsettling. I am fortunate in that all my clients and contacts have been happy to stay with me on my journey.

It made me appreciate that a client’s commitment to one adviser for the duration of their financial arrangements is fundamental to developing a strong relationship and achieving successful outcomes. It’s what an adviser can help them with that matters, and supporting those requirements over the long-term creates a unique bond. Matching the actual advice and arrangements to a client’s needs should be the highest priority for any adviser.

So what can an adviser provide:
• Helps maintain perspective (and calm) during stock market turbulence. This is particularly relevant at the time of writing!
• Able to explain and problem solve when something goes wrong.
• They provide more accurate news and updates from the real experts, steering clear of the media hype and scaremongering that is everywhere.
• Recommend tax efficient arrangements geared to your lifetime and also very importantly, after it, for your family.
• Have access to investment fund experts who often fare better than self-selected choices.
• Keep you on track as your circumstances change. Nothing ever stays the same, part of life’s rich pattern, so having a hand to hold you through that change can be comforting and supportive.
• Liaise with your tax or legal advisers to ensure your overall interests are protected.
Not everyone chooses to work with a financial adviser. Some people can’t find one they can work with or trust or just simply prefer to manage their own affairs. Many don’t do anything at all.

It made me check some UK statistics. Did you know that:
• 39% of adults (20.3 million) don’t feel confident managing their own money.
• 11.5 million have less than £100 in savings.
• nearly nine million people are in serious debt, and only around a third receive help.
• Brits who took professional financial advice between 2001 and 2006 enjoyed an average increase in their assets of nearly £48,000 after 10 years, compared to those who took no advice.
• Most millionaires likely use some type of financial adviser to grow and protect their wealth.

According to a recent report from Prudential, more than half – 53% – of UK adults say that financial problems and changed circumstances over the last 12 months have caused them to seek financial advice. Of this figure, 33% have already sought financial advice, whilst the remaining 20% are planning to do so.

Most people will benefit from the knowledge and experience of a professional financial adviser, especially if they have a variety of assets. When deciding between working with a financial adviser or doing it yourself, you just need to weigh the benefits against what you could be missing out on. Just a thought…….!