Tel: +34 93 665 8596 | info@spectrum-ifa.com

Linkedin

The Spectrum IFA Group: A corporate partner, a generous friend

By Spectrum IFA
This article is published on: 16th May 2019

16.05.19

As a small NGO, Street Child EU is always on the lookout to build relationships with corporate partners as a means of strengthening our long-term fundraising ambitions. We are always grateful when, after approaching an organisation, they take the time to contemplate our vision and give consideration for the potential benefits of our projects. Yet, even with our proven track-record, this is a competitive industry, and securing regular funding is a painstaking and uncertain process. Thankfully, every so often, we encounter a corporate organisation that immediately identifies with our philosophy and subsequently demonstrates an admirable commitment to transforming our ambitions into reality – The Spectrum IFA Group is one such case.

Over the years, this Financial Services Organisation, has shown an unwavering dedication to providing hope to some of the world’s most marginalised groups and disadvantaged children, their donations to Street Child thus far reached 14,000 € . Street Child’s relationship with The Spectrum IFA Group stretches back to 2016, when they provided us with a generous donation for our Girls Speak Out programme. This project was set in the difficult context of post-ebola Sierra Leone and Liberia. Our mission aimed to support at least 20,000 girls to access and sustainably remain in quality education. When The Spectrum IFA Group provided us with 3,750 € we could immediately family business grants for the Street Child team in the capital of Sierra Leone, central Freetown. This meant that 65 individual caregivers were given the means to protect and nurture the vulnerable children in their care. The grant also enabled an extra 65 girls and 65 of their siblings to attend school – totalling 130 children for whom education had previously been out of reach. Moreover, the donation has had a wider impact of providing an additional 195 family members with access to an increased income. Overall, this has been a great source of optimism in the community, wedging open a door of opportunity for future generations of children in Freetown.

In 2017, The Spectrum IFA Group once again willingly answered Street Child’s call to action by providing support for our Breaking the Bonds Project in Nepal. Street Child was implementing an ambitious plan to reverse the effects that decades of discrimination have inflicted upon the Musahar community. With a donation of 5,000 € we made great strides in our efforts to free Musahars from bonded labour and disrupt this cycle of poverty. The donation has enabled 27 Musahar girls to complete our livelihoods support program which, through a careful combination of business skills training and life skills workshops, has given these Musuhars the resources and skills needed to propel them towards economic independence. In 2018, The Spectrum IFA Group reiterated their support for the Musahar community by donating an extra 3,000 € to the cause.

This organisation has always been interested in receiving project updates from the field, and we have always happy to oblige with photographs and case studies. They have kindly used these materials to show off during presentations at company events, encouraging even more donations by The Spectrum IFA Group’s staff. It is important for us that our corporate partners show off the projects they have funded with this kind of pride. It is important that corporate organisations engage with NGOs out of a genuine interest in social progress and The Spectrum IFA Group clearly does so.

All to often corporate partnerships cannot stand the test of time, but the relationship between The Spectrum IFA Group and Street Child is strong and looks set to stay. We have already shared positive initial conversations in relation to our new project in Afghanistan and furthermore, an extra 2000 € donation already indicated for a new Musahar project. We are tremendously grateful for the trust and support The Spectrum IFA Group has continuously offered us. Our experience with The Spectrum IFA Group is a testament to the fact that the NGOs and Corporate organisations can positively bridge the gap between these differing industries in order to pursue a common goal.

Soti, a Musahar in Nepal has benefitted from business skills training to establish a steady income for herself and her children.

In Central Freetown, Sierra Leone, Aminata been supported through the Girls Speak Out programme. She can now attend School regularly and has aspirations to one day become a teacher

*Note: The names of individuals have been changed to protect their privacy and identity

Do you know if you are overpaying Spanish tax?

By John Hayward
This article is published on: 9th May 2019

09.05.19

Thousands of Spanish residents could be overpaying tax due to their lack of knowledge of the most tax efficient way to hold savings. People overpay income tax, savings tax, capital gains tax, and even inheritance tax, because they are holding their money in inappropriate savings and investment accounts. However, there are often simple solutions to what seem like complex problems. With the correct professional advice from people experienced in Spanish financial matters, savers could see more income and pay less tax.

Often, residents of Spain will turn to their bank to give them advice on what accounts and investment vehicles are best suited to them. The choice in Spanish banks is limited and the risks are often not explained. Many people are stuck in what they thought were deposit accounts, when in fact they are investments, the performance of which could be based on stockmarkets.

There are also those who hold “tax free” savings in the UK, such as ISAs, National Savings Certificates and Premium Bonds. All of these are NOT TAX FREE IN SPAIN. For Premium Bonds especially, there appears to be better returns, when compared to most other options which are paying close to zero interest. However, any interest or gain is taxable in Spain and needs to be declared.

A solution is to have money outside Spain but recognised by Spain for preferential tax treatment.

A COMPLIANT ACCOUNT AND NO WITHDRAWALS MEANS NO TAX DUE
In this example, €200,000 was invested in 2016 and the accountholder had no other savings income.

With a non-compliant account, tax must be paid each year on the growth of the account, totalling €6,260 over the 3 years. With the Spanish compliant account, if no withdrawals are taken, no tax is immediately due on the annual growth of the account.

*Click the image above to enlarge

AND IF WITHDRAWALS ARE MADE?
Again €200,000 is invested and the accountholder has no other savings income. This time the policy grows by €10,000 each year, and the accountholder withdraws this amount. With a non-compliant account tax payable is based on the full growth of the account, whatever amount is withdrawn. For a compliant account, tax is only due on the gain attached to the withdrawal.

*Click the image above to enlarge

That´s a 91% tax saving over 3 years!

To find out more about how you could benefit from quality financial planning advice and years of experience both in Spain and the UK, contact me today on +34 618 204 731 or at john.hayward@spectrum-ifa.com

Inheritance Tax in Catalunya

By Barry Davys
This article is published on: 28th April 2019

28.04.19

Inheritance Tax in Catalunya

So, we have now managed to control the amount of wealth tax due (Wealth Tax in Catalunya). However, when we receive an inheritance or leave something to our family, we are taxed again. Inheritance tax or ‘impuestos de successiones’ feels even worse than Wealth Tax. At this point we have now paid savings tax, income tax AND wealth tax. Now there is IHT on top! Like Wealth Tax, though, it is possible to manage your liability.

Inheritance Tax in Catalunya – How it works
Perhaps the most important aspect is that tax is charged to the recipient of a bequest or property physically located in Spain. For UK nationals living in Catalunya, this is a surprise, as in the UK it is on the estate of the person who has passed away.

Tax is due on the value of the bequest but the rate of tax is dependent on your relationship with the person who has passed away. A spouse, child, sister, uncle or non-related all have different methods of calculating the tax due. Once the tax has been calculated, there may be discounts to be applied to reduce the amount. Indeed, it takes at least four different steps when working out the tax due to end up with the final figure. Fortunately, help is at hand in calculating the amount.

It is also very important to understand that the tax return has to be submitted within 6 months of the death and the tax has to be paid by the same day. A common situation we see is where a person is due to inherit a share of a property but the property has not been sold within 6 months. The forms still have to be submitted to the Hacienda and tax paid based on an estimated value. Failure to do so results in a fine and interest.

How to Manage Your IHT
There are numerous strategies, but for British people, careful planning is required. In the UK it is the estate of the person who has passed away that is taxed, but in Catalunya it is the recipient; so we have two different systems with two sets of rules. Care is needed to ensure that planning in one system does not increase the liability in the other. Fortunately our qualifications and experience in the UK and in Catalunya mean we understand this issue.

Another issue specific to British people living in Catalunya is that they do not plan for RECEIVING a bequest. When asked to assist with planning for inheritance tax it is nearly always from a view of “what can I leave to my children?”. Yet before then people often receive bequests from their parents and family which triggers a tax charge. Planning for receiving a bequest can be as important as planning for leaving a bequest.

Certain assets are exempt from Inheritance Tax. Careful choice of where investments are kept can also help. Finally, dovetailing UK and Catalan Inheritance planning can also make a difference.

If you would like to discuss how to manage your Wealth Tax liability, please email me at barry.davys@spectrum-ifa.com, call me on 00 34 645 257 525, or use the contact form below.

Are You British, And Have You Recently Become An Official Resident Of Spain?

By Jeremy Ferguson
This article is published on: 9th April 2019

09.04.19

If The Answer is Yes,
What’s Going to Change For You?

Last night I attended a presentation hosted by the British Consulate covering the issues of living here post Brexit. Well, I am not sure how informative it was, as there seemed to be lots of ifs, buts and maybes. One thing I did conclude from it all however, and something I have always maintained, is if you live here, why not just get in to the system properly rather than constantly ‘wondering’ about it, or simply avoiding the issue.

Many people have been here in Spain for years without ever becoming officially resident. Differing circumstances cause this, varying between lots of time spent travelling, working away in another country or just being told not to worry. These tend to have all created a ‘meaning to get round to it tomorrow’ situation for many people.

This has quite often been the case when I have met with people during the 20 plus years I have been here, until along came this Brexit situation. It has resulted in more and more talk about what to do in the press, on the TV and radio, in bars, at family gatherings; basically everywhere.

EU membership has led to the feeling of it being very easy to live here in oblivion to all things official. But that looks like it is now changing. Or is it? One thing we do know is that the Spanish have seized the opportunity to entice people to become official residents of Spain, and if you want to avoid any doubt going forward, it is by far the most sensible option.

Golden Visa Spain

In the build up to the 29th of March deadline, the British Consulate and local Spanish town halls have actively encouraged people here to take up official residency in a series of talks like the one I attended last night. It’s amazing how quickly this has all become reality in what seems such a short time since the original referendum in June 2016. Now we are looking down the barrel of a possible no deal Brexit on the 12th of April.

Or are we? Who knows as I write this.

All of this aside, the sensible thing, without doubt, is for people to become officially resident here in Spain. For many, since the Brexit situation it has felt like a fait accompli and therefore something they simply have to do. Whatever the reason, if you have made the decision, then what does it actually mean for you going forward? Things seemed to be absolutely fine before, so surely not a lot will change?
Well, that is not exactly true.

The first thing to stress is how nice it is to know that now you won’t need to worry about ‘sort of knowing’ you probably should be resident and in the system. Things can certainly now be 100% clear. I call it ‘the sleep easy factor’, and it’s amazing the amount of people who say how good they feel when it’s all done.

There are a number of things that you should now consider, not necessarily in this order.

Do you have Spanish will?
You should already have a Spanish will if you own a property here, so that’s not changed. If you haven’t done that, you must, and it is very easy to do. It can be in both English and Spanish so you will understand everything.

And it’s not expensive. A lot of lawyers I know will do it for a couple of hundred euros if things are all quite straightforward. That will be another box ticked!

Expat Wills

Once resident, currently some say you have up to two years to change your driving license to a Spanish license. There are others who say you have three months, others who say 9 months. The UK Government advice site says two years.

Regardless of who says what, and to avoid any embarrassing confusion, once you have residency why not just get on with changing your license? Again, there are many people around who will help you do this. You will get a temporary license while it is being dealt with and then a nice new Spanish license. A medical test will be needed, but again these aren’t that difficult to arrange. As long as you are in reasonably good health this shouldn’t be an issue.

On a positive note I have certainly found Trafico much easier to deal with showing a Spanish license when pulled over for a roadside check. The rules here are different to what you may be used to. You start with 13 points and they are deducted when you are caught being naughty. When you get to zero, then a suspension will occur!

Importantly, there will be taxes and tax returns to consider.

If this is your first time becoming a tax resident, then you will have to file a tax return for this year. The tax year here is the same as the calendar year (unlike the UK with their silly April date!). Your first return will therefore have to to be filed no later than the 30th June 2020.

tax in spain
  • Income tax will be due on income received during the year at varying rates depending on the amounts involved. This is similar to the UK with the rate increasing the greater your income level.
  • If you were previously a non resident, then you would pay capital gains tax when you sold your house (assuming there was a profit!). Now, as a resident, this will not apply on your main residence when it is sold, subject to certain criteria being met.
  • Wealth tax is due every year on your assets. This, as the words say, is effectively for people considered wealthy, and increases the wealthier you are. For most people this is not too much of an issue, but can be painful for people with a lot of assets.
  • Inheritance tax can be a complex area, and tax is paid by the person who receives the inheritance. The rules here in Andalucia have changed recently, meaning this should really not be so much of an issue anymore as there are now large exemptions granted which almost eradicate any amounts due, depending on the size of the estate.
  • At the end of each year, you will now also have to file a separate tax return from the one mentioned above, on a form known as Modelo 720. This is simply a declaration of everything you own in excess of 50k € outside of Spain (bank accounts, property, investment policies, share portfolios etc), and needs to be filed by the 31st March 2020.

Investments & Pensions
Regarding your investments and pensions, take a good look at where your income is coming from and what type of investments you hold. A simple example of the different treatment after taking residency would be holding UK ISAs. Although these are tax exempt in the UK, as a tax resident here these will now be taxable.

Also, how will your pension be taxed now? Previously, you were entitled to a Pension Commencement Lump Sum (PCLS, previously referred to a tax free lump sum). This will now be taxable here in Spain. The rate applicable will vary depending on how old the scheme is, and any benefits you are receiving will be taxed differently depending on the amount. If you haven’t started drawing from your pension yet, it may be worth looking at moving the scheme away from the UK, for a multitude of reasons. On the other hand it may not, so if you do look into this, make sure you are furnished with all of the information you need to make a well informed decision.

Having taken residency will mean you have adequate medical insurance in place, and although this can be seen as expensive, the treatment you will receive will be second to none.
Of course, as with all of these things there are the exceptions and everyone’s circumstances differ slightly. But the overriding message is that things should be fine here, even after Brexit, and as we know, the Spanish are very keen to keep us all here for many years to come.

I have covered many different aspects in this article, but please make sure you take good advice from people in the know. There are many legal, tax and financial advisers here who will be able to help you with most of the subjects covered; but as always, make sure you shop around, as prices and service levels do vary greatly, and always see if you can get a recommendation from someone who has firsthand experience of using that person before.

So, with all things considered, maybe Brexit pushing you to become a fully fledged Resident of Spain wasn’t such a bad thing after all.

The Many Benefits of a Financial Adviser

By Chris Burke
This article is published on: 3rd April 2019

03.04.19

by Jannah Britt-Green

It might seem obvious to some, but when it comes to the genuine benefits of having a financial adviser, many people are still in the dark. Some people hold certain ideas or common misconceptions, which hinder them from receiving valuable advice and help with managing their financial life. Namely, people struggle to trust someone else with their money and they believe they will have to pay the financial adviser for their services.

When it comes to trusting someone else with our money and investments, yes – it is a chance we’re each taking. But if you find a good financial adviser, you can trust that they sincerely have your best interests at heart, because they will only gain if you gain. They are educated and experienced at helping clients to come up with an effective plan – a financial philosophy if you like – for choosing wisely and preparing for tomorrow. They also have the objectivity we lack when trying to make financial decisions. They aren’t bound by the emotional ties we have with our money and they understand the complexities of mortgages, investments taxes and laws, so they can help us make better informed decisions without so much stress.

Then comes the assumption that we will have to pay a financial adviser. This is most likely due to the fact that no one believes any good service – especially one wherein you could make money – could possibly come without a price tag. Not only is this untrue, but having a financial adviser can actually SAVE money. This is because financial advisers don’t make money from their clients directly. Instead, they get a cut from the insurance / investment / mortgage companies for bringing your business to them. Even better is that, due to the relationship the financial advisors build with these financial institutions, they by and large get a better deal than clients would receive if they were to try to get the same service on their own. I have tried and tested this out myself by looking into getting the same insurance through the same company on my own and found that I could not find the same deal that my financial adviser was getting me. From this point on, I was convinced.

Recently I interviewed IFA Chris Burke, an experienced financial adviser who has been living in Spain over the past decade, to ask him what he believes are the main ways he has helped and continues to benefit his clients.

The Truth
Like any profession, we as Financial Advisers know what works and what doesn’t, and how well it works. To be a good financial adviser, you have to ask yourself, ‘Is this what I would do?’ or maybe even more telling, ‘Is this what I would recommend my mum to do?’

Honesty
Always tell the truth, even if that means telling them we can’t benefit them at that time. I will always use my experience to help people make the best decisions for them and help them do it, if they desire my services. What we do isn’t for everyone and their circumstances, but it might be one day.
Good Tips/Hints/Advice

People usually come to me for a meeting to see how I might be able to help them, but if occasionally someone isn’t sure whether it’s worth the visit, I will always confirm ‘You will take something beneficial from the meeting; knowledge, advice or a good contact; like a recommended Tax Adviser, or how to top up your UK National Insurance contributions at a discount, there is always something’. And you can continue to receive my advice, free of charge, by subscribing to my newsletter: Chris Burkes Newsletter

Grow Clients Monies/Pensions
If it’s not working, most clients won’t stay with you for long, especially if other solutions/the stock markets are indicating it should be working. Therefore, we continually keep up/outperform these as much as we can. We as advisers invest our monies/pensions where we recommend clients to, which for me is the biggest testimony.

Ongoing Advice/Knowledge
There is no point in having a ‘leaky bucket’, that is to say making client’s money grow but not optimising their tax situation. We are always informing, giving our clients knowledge on the best way to mitigate this and who can help them do it.

Due Diligence
We don’t always get it right, but listening to the experts whom we hold in high regard helps us to get it ‘more right than most’. And we are continually reviewing solutions to find new ways to help clients more.

Investing – Where do I start?

By Spectrum IFA
This article is published on: 22nd March 2019

22.03.19

Receiving a lump sum payment can be exciting, as it is not often that we have the opportunity to spend or invest a large amount of money at one time. However, if you are investing for the first time, it can be an intimidating step to take. After all, not everyone knows the difference between a share, a bond or a fund and the financial markets can seem like running a gauntlet if you do not know what you are doing.

Investing sensibly in stock-markets, rather than saving at the bank (particularly nowadays when you would be lucky to find interest rates above 1%), is an important means of achieving financial security, and, particularly over the long-term, returns are typically far higher than is achievable from holding cash.

That’s not to say that it comes without risks. Indeed, every fund or investment comes with a disclaimer that past performance is no guarantee of future returns, and this statement is indeed true. However, past results can be useful when reviewing how the fund or investment performed during a financial crisis or when the markets were buoyant.

MY CURRENT FINANCIAL SITUATION
Before you invest, it is imperative to first assess your overall financial stability. It is not usually appropriate to invest if you are in debt, for instance. It is recommended that you undertake a review of your current financial situation with a financial professional. This should include looking at your household’s current net income, expenditure and any debt (it is advisable to pay off debts such a credit card balances before investing as the interest rates for borrowing are likely to be higher than the returns you could achieve by investing). As investing should be a medium to long-term strategy, it is also advisable that you have an emergency or ‘rainy day’ fund that you can use should you need it. As a general rule of thumb, you should have at least six months’ expenditure set aside for immediate access.

HOW AND WHERE SHOULD I INVEST?
Once we have reviewed your financial situation, the next step is to consider how and where to invest.

There are two schools of thought when it comes to how to invest. Either take the plunge and invest the entire sum at once or drip the lump sum in on a phased basis until it is all invested. Investing the money all at once will give you the best chance of benefitting from compound returns. However, if the markets drop significantly soon after you have invested, you may regret it, at least for a while. Drip feeding a lump sum by splitting it into smaller amounts is called unit cost averaging, so-called because you are trickling in the money over time and averaging the ‘price’ at which you buy your chosen investment(s). Depending on who you speak to, you will be advised to proceed one way or the other, or perhaps a combination of both. It also depends on how much you are investing. It is unlikely that any amount under €100,000 would be invested on a phased basis.

ADVANTAGES OF INVESTING THE ENTIRE LUMP SUM
Despite the risk that accompanies investing the whole lump sum in one go, research has demonstrated that the majority of the time, ‘going all in’ will outperform unit cost averaging. This is because it exposes you to the markets sooner, giving you more time to take advantage of compound returns. Research by a global leader in fund management, Vanguard, showed using historical returns, and a hypothetical portfolio that consisted of 60% stocks and 40% bonds, that in the UK, US and Australia, going all in usually outperformed the unit cost averaging strategy. There were only a few short-term periods during the deepest 12 month downturns where this was not the case.

Historically, markets have increased in value over time (which is great for growing wealth and making money) and Vanguard’s research showed that the lump sum strategy generated returns on average 2.39% higher than with drip feeding an investment in over twelve months. That does not sound like much, but when you take compounding into account, after just ten years the difference is quite staggering.

The table below illustrates how global markets have performed historically. As you can see, the positive periods far outweigh the negative both in performance and duration.

SOURCE: GFD, BLOOMBERG, GOLDMAN SACHS GLOBAL INVESTMENT RESEARCH

Markets typically trend upwards, so in most cases, if you were to wait and contribute using a unit cost averaging strategy, the markets will rise before you can invest everything. This means that you will be buying at a higher cost and attaining lower returns.

DRIP FEEDING MAY BE APPROPRIATE FOR SOME INVESTORS
Behavioural psychologists have long known that, for most people, the pain of losing money hurts more than the pleasure of making money when it comes to investing. This is clearly seen when markets are down and people tend to panic into selling, instead of waiting out the downturn.

Let’s say that you invested €100,000 and the next day, or week, your valuation dropped by 10%. What would your reaction be? Would you remain invested or take it all out as soon as possible? Someone who is risk averse or anxious about investing might prefer to invest via the drip in strategy to reduce any emotional discomfort that may arise from market volatility.

BRANCH 23
In Belgium, you have the opportunity to invest via what are known as Branch 21 and Branch 23 products. With Branch 21, you benefit from capital protection but usually a low return. With Branch 23, your capital can fluctuate in value but the prospects for growth are far greater than with Branch 21. Branch 23 is particularly tax efficient as you will not pay withholding tax on your returns, whereas there is withholding tax payable on interest from bank deposits, Branch 21 returns and on most directly-held mutual funds.

For more information on Branch 23 and its benefits, please click here

Arts Society Event – San Roque, Costa del Sol

By Charles Hutchinson
This article is published on: 22nd March 2019

22.03.19

The Spectrum IFA Group again co-sponsored an excellent Arts Society de La Frontera lecture on 20th March at the 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 Rathbone Brothers represented by Chris Wanless. Also present was the society’s European Chairman Jo Ward and Peter Kirrage, who is on the Arts Society Global Board of Trustees.

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 140 attendees were entertained by a talk on Tamara de Lempicka: Art Deco and the Roaring Twenties by Harry Fletcher, who is one of the UK’s top experts in this field. He gave an excellent lecture, revealing to us the artist and notorious personality behind the individual style one has seen everywhere but most of us never knew who it was!

The talk was followed by a drinks reception which included a free raffle for prizes including CH supplied lovely coffee table book on the artist, champagne and an elegant glass jug. Rathbones also supplied stylish personal notebooks, a 12 year old whisky and a magnum of Rioja.

All in all, a great turnout and 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 to do so again.

Tips in investing in tough times

By Robin Beven
This article is published on: 18th March 2019

18.03.19

When the economy slows down, it is inevitable share prices will take a hit. Such times are never comfortable, but there should be no need for investors to panic. Instead, they can offer an opportunity to review your portfolio and ensure it is positioned to weather any storms that might lie ahead.

This does not mean you need to make sweeping changes – after all, weatherproofing your house against the winter doesn’t mean you tear it down and rebuild it from scratch. Instead, you make sensible, incremental changes that provide some additional strength. With that in mind, here are 10 practical tips to help you fight off the worst effects of difficult times.

DIVERSIFY
It is the basic number-one rule of investing but it can need reaffirming. Different asset classes perform well or poorly at different times. If your portfolio is exposed to a single asset class – for example, equities – its performance will follow the fortunes of the equity market and returns are likely to be volatile. However, if your portfolio contains a selection of different asset classes and is spread across different countries and regions of the world, the various elements can perform differently at different times – so if one is doing badly, another may well be performing better and so could help to compensate.

LOOK BEYOND YOUR HOME MARKET
With diversification in mind, perhaps you could start looking overseas for opportunities. A UK-focused portfolio might seem a sensible and conservative option for a UK-based investor. However, this strategy leaves you and your portfolio at the mercy of domestic sentiment. Other areas of the world may offer a more positive outlook or could simply be better placed to help you through any domestic downturn. You need to be aware of the different risks involved with different international markets but even a small step into, say, other developed western economies could help to diversify some of your risk.

BE PREPARED TO ROLL WITH THE PUNCHES
Your attitude during negative periods is as important as your portfolio’s structure. Economies simply cannot keep growing indefinitely and recessions are likely to happen every few years. Successful investors tend to be pragmatic and realistic – they invest for the long term and expect that, while there will be good times, there will also be some bad ones. A short-term downturn such as the 4th quarter 2018 should not be seen as a reason to panic.

LOOK BEYOND THE ECONOMIC DATA
Remember that economic data releases are backward-looking. At the start of a slowdown, figures will continue to appear positive, perhaps contradicting our everyday experiences, as old numbers remain in the calculation. Similarly, once economic growth begins to recover, it will take a while to be fully reflected in the new data. Headlines that scream “worst figures for 30 years” may confirm what we have just been through but do not necessarily reflect the prospects for tomorrow. What they often do, however, is fan the flames of investor uncertainty – not to mention sell newspapers.

CASH IS NOT NECESSARILY KING
During a recession, it may be very tempting to get out of the stockmarket and opt instead for the perceived safety of cash. However, this strategy can be risky. Stockmarkets are volatile, which means that, just as they can fall quickly, they can also recover quickly – perhaps with little or no warning. If you have decided that equities are the right asset class for you, then moving out of them when you have already suffered a loss could mean missing out when they finally begin to recover. Moreover, inflation can erode the purchasing power of cash over time so, while you can be assured you will not lose the face value of money when invested in cash, it is not actually a “risk-free” option.

GO FOR QUALITY
During recessions and stockmarket downturns, established, high-quality and financially strong companies tend to bear up better than their newer or more debt-laden peers. A tough environment helps to separate the wheat from the chaff and struggling companies may be forced to cut their dividends or release negative trading statements. Holding quality stocks, therefore, could help you ride out some of the storm. It is also worth noting that, if the equity market is falling across the board, this provides a great opportunity to pick up quality stocks at relatively cheap prices.

ASSESS YOUR EXPOSURE TO SMALLER COMPANIES
Historically, as an asset class, smaller companies have been worse affected during a recession. You therefore need to be sure of your attitude to risk before you decide to take any significant positions in them. When things are going well, smaller companies can offer the possibility of greater gains than their larger peers – but when things are going badly, the losses can also be much greater. If volatility makes you nervous or if your portfolio is relatively small, you could consider reducing your exposure to smaller companies and perhaps reinvest into some less adventurous choices.

CHECK IF YOU ARE OVEREXPOSED
Different industry sectors tend to perform well at different stages of the investment cycle. During an economic slowdown, some companies are less sensitive to the effects of that slowdown because demand remains largely unaffected – for example, companies in sectors such as food retailing, pharmaceuticals and utilities. Consequently, these tend to hold up better than, say, leisure companies and housebuilders, which depend on households having money to spare. It is usually worth holding onto high-quality companies, regardless of short-term hitches, but this might be a good time to ensure you are not overexposed to any one sector or region.

THINK LONG TERM
A recession is commonly defined as two consecutive quarters of negative growth (as measured by gross domestic product or GDP). Six months in the average life of a portfolio, however, is hardly a great deal of time. Even if we allow for the negative behaviour of markets before and after the publication of these sets of data, six months is not long compared with, say, the 20-plus years over which we plan for our retirements. Interestingly, the figures tell us that with a couple both aged 65, there’s a 0% chance that one will live until 92! If your portfolio continues to meet your personal criteria and is well diversified, a recession should not cause you to change plans. Sometimes doing nothing can be the best course of action.

THIS IS A FIRE DRILL – NOT A FIRE
Remember the saying ‘If you can keep your head when all about you are losing theirs…’ by Rudyard Kipling? Market downturns are a great practical example of this maxim. A fire drill is a good thing – the fire might never actually occur but, if the worst happens, at least you can be confident you have taken all the appropriate precautions. The real trick is to make sure you plan your portfolio properly at the outset, with the help of an expert. Then, when a downturn strikes, you can stay calm and review your situation sensibly and with confidence, rather than be panicked into any radical and potentially non-profitable reactions.

We hope you found the information in this guide useful and informative. If any of the points are of interest or you would like to discuss your own situation in more detail, please get in touch.

2019: Modelo 720 – Reporting time for overseas assets

By Robin Beven
This article is published on: 15th March 2019

15.03.19

Time is running out for submitting your Modelo 720 declaration for 2019, the “Overseas Assets Declaration”.

The deadline this year is the 31st March and is fast approaching.

All those tax resident in Spain – those living in Spain for more than 183 days a year or where Spain is the main residence base – should be aware that as a result of legislation passed on 29th October 2012, residents in Spain who have any assets outside of Spain with a value of €50 000 (or alternative currency equivalent) or more, are required to submit this declaration form to the Spanish authorities.

This declaration can be made online, through the Tax Office`s web page www.agenciatributaria.es where the Modelo 720 form can be located (type in Modelo 720 into the search block on the top right-hand side of the page). It must be filed between January 1st and March 31st of the first year of residence, although I would strongly advocate speaking with your tax professional, accountant or Gestoria to avoid mistakes.

What to Declare?
There are three main groups of assets that must be declared if the total joint value of the group exceeds €50 000: Property – Bank accounts – Investments

To warrant a declaration the total value of assets should exceed the currency equivalent of €50 000 in each or any one of the categories. For example, if you have three bank accounts totalling more than €50 000 you are subject to making the Modelo 720 Overseas Assets Declaration.

It is worth noting that once the limit of €50 000 is surpassed for a group then all assets in all groups need to be declared, regardless whether each asset does not surpass the limit. Additionally, the obligation to report exists where the specific assets are over €50 000 regardless of how many owners hold particular assets. Each owner should declare the total balance or value, and not the prorata value, indicating the percentage owned.

A declaration must be submitted individually, regardless of the percentage of ownership, i.e. joint accounts. For example, if you have a joint bank account with a value exceeding €50 000, although your particular share is below the threshold, say, €25 000, each owner would still be required to submit an individual declaration based on the total value of the account.

Although this declaration of assets is solely informative and no tax is charged, failure to file, late filing or false information could result in fines.

For this reason, we recommend that everybody arranges to declare their assets, to avoid the imposition of such fines. Once you have made your first declaration it is not necessary to present any further declarations in subsequent years, unless any of your assets in any category increases by more than €20 000 above the initial value declared.

Common Investment Mistakes

By Chris Webb
This article is published on: 15th March 2019

15.03.19

1. Failing to plan
I believe the most common mistake is not having any type of financial plan along with clear investment objectives. Research has shown that investors who plan for their financial future are more confident, relaxed and optimistic about the future. They tend to save more and have less financial anxiety.
Expert advice is essential to financial planning. Not discussing your investment needs with a professional can have a negative impact on your overall results. Financial advisers help you to identify your financial needs, analyse your level of risk, and recommend appropriate solutions. They are there for your financial journey, offering advice and guidance to smooth the path ahead.

2. Not understanding what your risk profile is
It is important to analyse and understand your tolerance for risk. As an investor, you will typically fall into one of the following categories:

Defensive / Conservative – you are very risk-averse, and not comfortable with watching markets fluctuate as they do. You do not want to risk your capital for a potential gain.

Balanced – you have some appetite for taking risk and appreciate how markets can fluctuate daily. You can tolerate moderate levels of volatility in order to get a better return but again you want security with your capital.

Aggressive – you are looking for high returns and you are not concerned about short-term volatility. You probably have a long time to invest, so any capital loss in the short term can be caught up in the future and you are fully aware that what happens one year shouldn’t affect your long-term goals.
Understanding your risk tolerance will help you choose investment goals that are appropriate for you. It will shape the investments you make in your portfolio as part of your financial plan.

3. Lack of understanding
It sounds obvious, but you should never invest in anything you don’t really understand. If it’s been explained and you still don’t “get it” then ask more questions and don’t move forward until you do. If you fail to understand it properly then you should look for an alternative. If you are going to invest in a specific stock, make sure you take time to learn about the company and do enough due diligence. If you’re looking at various types of funds, then make sure you understand the geographic and sector allocations within the funds. Make sure each choice is within your risk tolerance, this information is readily available to you.

4. Overlooking fees
Investors often focus on a fund’s performance, which is very important, but they overlook fees when considering how well their investment has done. It is important to be aware of and understand the fees on your investment. Fees are deducted from the performance figures to give you the net result. Some investment funds have entry and exit fees, performance fees, as well as standard management fees. Reducing these fees is a simple way to get more out of your investment.

You can measure the fees on a fund by referring to the fund’s Total Expense Ratio (TER), which is a measure of all the fees for that fund expressed as a percentage.

5. Getting diversification wrong
Diversification simply means selecting not putting all your eggs in one basket. It is a simple way of creating a portfolio that includes different types of investments to reduce your overall risk. Investments don’t perform in the same way during certain economic conditions. When one investment doesn’t perform well, other investments may outperform to give you overall good returns.
A typical portfolio will contain a blend of equities, property, bonds and cash based on your investment risk profile:

Equities – Often provide the highest growth levels over the longer term
Property – Protects against inflation and gives an alternative to stock market returns
Bonds – Usually lower risk than equities, and therefore usually a lower return over the long term
Cash – Provides security and stability within a portfolio. It has the lowest long-term return potential, effectively zero.

6. Having unrealistic expectations of investment returns
The most important expectation for any returns should be aligned to your own financial plan, which is unique to you. The investment return you are looking for will differ greatly from that of other investors, as their requirements, risk profile and time horizon will be different.
You also must look at what is happening in the wider economy. The investment returns you can expect will be different depending on market conditions.
The most important measure of an investment return is whether your investment is keeping up with inflation. Regardless of the risk profile, your investment should keep pace with inflation to protect the “real” value of your money. This won’t necessarily happen every year but over a certain time horizon, the average figures should do.

7. Withdrawing your investment at the wrong time
Investors tend to withdraw monies from the market for two main reasons: they need money, or they are reacting to market movements. Making a withdrawal because you need access to money comes back to the initial financial planning that was conducted. With a well-defined plan in place you will have ensured there was enough money readily available, meaning you don’t need to exit your investments when it may not be the best moment to do so. Reacting to market movements, maybe due to anxiety about the market performance is a common investment mistake. Many investors sell when the market is at a low point. They are only realising those losses, making it more difficult to recoup them, as they might if they had stayed invested. When markets are down and your investment is stagnating, it is difficult to stand your ground; that’s human nature. It is important to remain focused on the bigger picture. Markets generally move in cycles and will recover, given time. Remaining in contact with your financial adviser will help you understand the markets and what to expect in times of volatility. At no point should your adviser be recommending any investments that don’t fit within your risk profile.

8. Not monitoring your portfolio appropriately
Many people make an investment and then go one of two ways. They either decide not to look at the performance figures or worse monitor it too regularly and feel the need to make short-term reactive changes. These changes are rarely beneficial; it is “time in the markets and not timing the markets” that counts.

Your investment profile changes over time, which means how you feel about your investments in your 20’s or 30’s will be very different to how you feel in your 40’s and 50’s. Whilst it’s important to review the performance of your investment, it is also essential to review your risk profile as time goes by.

9. Waiting too long to invest
The younger you are when you start investing, the better off you will be. Waiting too long means that you miss out on the significant benefits of compound interest. Essentially, starting younger allows you to look for more opportunity and benefit from market cycles, possibly take on more risk and it build up discipline to continue to save in the future. See my alternative articles on compound interest and starting early for greater detail.

10. Not recognising that time affects the value of money
The main principle of investing is to make a positive return in order to increase the purchasing power of your investments in the future. Many savers make the mistake of keeping their money in traditional bank accounts that pay them rates well below the rate of inflation. Typically a high street bank will be offering anywhere from zero to 1% maximum on a savings account. In reality you are losing money if it is kept in the bank! It is best to invest your money while also making sure that your investment keeps up with inflation.