25 January 2019

Reasons to be Cheerful in 2019

There has been plenty for investors to worry about in 2018. What about 2019? Here's five things not to fear - according to Seven Investment Management.

1. A US Recession
The US is a major driver of global growth and some commentators fear a recession in 2019 which would be bad for us all. It is currently growing at 2.5% and Seven Investment Management say it would take at least 2 years for that to turn around into recession.

2. Trade Wars
Trade tariffs are bad for global growth. Only around 2.5% of worldwide imports are subject to that at present. And the expectation is that the US and China will see sense and reach a compromise that will not harm their economies too much.

3. The UK
Seven IM are confident that the Brexit shambles will eventually resolve into a deal with a broadly sensible outcome, which is not too painful for the UK.

4. A Corbyn Government
If Mr Corbyn comes to power, his bark will be severely curtailed by the range of views in his Labour party, by business pressures and economic restraints. He would be able to do little that would affect UK financial markets.

5. Volatility
Recent volatility has triggered alarmist headlines. While volatility has certainly increased, that is from the low levels seen in 2017. 2018 was much more at normal levels even though it may have felt bad, and 2019 is likely to continue that.

16 January 2019

Investing - Our Process Works!

When investment values are heading nicely upwards there is less scrutiny of performance. But when they have been heading downwards the tendency is to look a bit harder.

But whatever investment markets are doing, the best results from investing come when you have a good process and stick to it. The last thing you want is to start worrying that you should have done something different when values are going down.

We have a well-defined process which we use for our clients, and it works.

It is a simple fact that markets fall from time to time. That is nothing unusual and is to be expected in the course of a long term investment. So our process includes an assessment of an investor's long term goals, and of their willingness and capability of coping with the ups and downs - their "attitude to risk".

That leads us to a spread of different types of investment which aim to provide the best returns for a given level of risk. We then review that with the investor every year and adjust accordingly. Simple.

I say it works because we continue to see good levels of growth for long term investors, albeit moderated by recent falls. Higher risk investors have seen bigger falls recently than lower risk investors, but that bumpier ride results in better long term growth - which is all as it should be.

The most difficult scenario, though, is a new investor investing just prior to market falls. It's easy to focus on - "I would have been better off keeping it under the mattress". That's true but unhelpful. There, too, the best thing is to rely on the security of a good process, being confident that it will come good in the end.

10 October 2018

Protecting Your Lifestyle - Insurance Options

We're all aware of the role that insurance can play in protecting our "stuff" - cars, house contents, pets, and so on. But insurance also provides wider opportunities to protect our lifestyle and those we leave behind when we die.

Term Assurance is fairly straightforward - and often inexpensive. It could, for example, provide a lump sum to pay off a mortgage if you were to die. That's essential protection where a family could be left behind. It is also possible to receive the payment in instalments - perhaps to cover ongoing family expenses for a while.

Whole of Life Cover might be relevant if you want to be sure to pass on a lump sum to someone on your death. That could provide your family with the means of paying an Inheritance Tax bill, for example.

Income Protection Insurance could be valuable if you don't have a big employer to carry on paying you while you are off sick. Many small business owners would struggle to survive financially if they were off work for any length of time. Income Protection Insurance could replace a proportion of your income.

Critical Illness Cover - If you have concerns about particular illnesses then this insurance pays out on the diagnosis of a range of ailments. It is not intended to exactly match any additional costs you may incur, but provides some compensation in a difficult time.

Private Medical Insurance will help pay for private health care, enabling you to receive treatment at a more convenient time and place than the NHS might have provided. Alternatively, if you have adequate invested assets, you might choose to "self-insure" and pay for the treatment directly.

Business Owners have particular requirements. It may be about mitigating the effect of losing a key person in the business if they die, or it may be about having a lump sum available to buy the shares of one of the owners if they die. That is likely to need a shareholder agreement alongside term assurance.

Overall the most important things are to know what event you are insuring against, and what you want to happen if it does.

25 September 2018

Financial Planning with Trusts

I have written about Trusts a number of times over the years (click on "Trusts" in the Labels index - on the right of the main blog page to see). Mostly I have started with the reason you might want a trust. Here's another way of looking at it, though - a list of different types of trust and where they might be useful.

Expertise is needed, though, not only to help select the appropriate trust, but also to advise on how the money put into trust should be invested. Note that Inheritance Tax-efficient trusts generally require 7 years to be outside your estate.

Absolute trust
A simple (but inflexible) solution where you do not require access to the capital held in trust and know who you want to leave the money to.

Discretionary trust
Keep control and have flexibility over how wealth is distributed. Effective for Inheritance Tax in most cases.

"Best start in life" trust
A discretionary trust that enables you to pass on wealth in an IHT-efficient way, and can provide for tax-efficient payments for the benefit of children.

Reversionary ("lifestyle") trust 
Has an option to take back a fixed proportion of the value each year. What remains is outside your estate after 7 years.

Excess income trust
Build a nest egg for beneficiaries, free of IHT.

Discounted gift trust
Receive regular fixed payments for life with the balance passed to beneficiaries.

Loan trust
Since it's a loan you still have access to the capital. But any investment growth is outside your estate for IHT purposes.

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