Has your bank in Spain paid you over 3% p.a. interest on your savings recently?
By John Hayward - Topics: Costa Blanca, Interest rates, Investment Risk, Investments, Saving, spain, Uncategorised
The probability is that it hasn´t. However, you could have made more than 3% a year in a low risk savings plan with one of the biggest insurance companies in the world. We have many happy savers who have seen steady growth of over 3% a year for the last few years. How? Read on…
Saving money in a low interest world
Losing spending power to inflation
With special offers currently being offered by banks of 0.10% APR interest and inflation in Spain running at 1.6%, there is a guaranteed loss of the real value of money at the rate of 1.5% a year. There are some who would be disappointed, if not angry, if their money in an investment had lost 7.5% over 5 years yet this is exactly what has been happening to people over the last few years without them really appreciating it. 3% a year is not only an attractive rate of return but it is necessary to cope with inflation and provide real growth.
Spanish compliant insurance bonds
ISAs, Premium Bonds, and some other investments in the UK are tax free for UK residents. They are not tax free for Spanish residents. We are licensed to promote insurance bonds in Spain which are provided by insurance companies outside Spain but still in the EU. In fact, even after Brexit, these companies will still be EU based and so Brexit will not have the impact on these plans that it could have on UK investments. As the bonds are with EU companies, and the companies themselves disclose information to Spain on the amount invested, as well as any tax detail, the bonds are Spanish compliant which makes them extremely tax efficient. We do not deal with companies based outside the EU as we are satisfied that the regulation within the EU is for the benefit of the investor. We do not have the same confidence in some other financial jurisdictions and neither do Spain.
What investment decisions do you have to make?
Although we have the facility to personalise an investment portfolio within the parameters laid down by the EU regulators, offering discretionary fund management with some of the largest and best known investment management companies, we can also use a more simple approach for those who do not require any input into the day to day investment decisions.
So what has happened over the last 5 years?
The chart below illustrates the performance of one of fund’s available to you compared to the FTSE100 and the UK Consumer Price index. The argument to stay invested when markets fall is valid when one looks at the FTSE100 roller coaster line with the increase we have seen over the last year or so since the Brexit vote. However, anyone accessing their money around the time of the vote could have seen a 25% drop in the investment values. Not so with the fund in the insurance bond.
Real case 1 – £40,000 invested 24/07/12. £50,770 as at 14/09/17. Up 26.92% in 5 years
Real case 2 – £356,669 invested 10/09/14. £431,177 as at 14/09/17. Up 20.88% in 3 years
Real case 3 – £316,000 invested 05/04/16. £334,422 as at 14/09/17. Up 5.82% in 18 months
Real case 4 – £80,000 invested 13/07/16. £86,160 as at 14/09/17. Up 7.70% in 15 months
Real case 5 – £20,000 invested 27/01/17. £20,712 as at 14/09/17. Up 3.56% in 8 months
These growth rates are not guaranteed but are published to illustrate what has actually happened and that the percentage returns on the fund are irrespective of the amount invested.
How can they produce such consistency?
Each quarter, the insurance company estimates what the growth rate will be for the following 12 months. This rate is reviewed based on the views of the underlying management company with people situated in all parts of the globe specialising in their own particular area. In good times, the company will hold back money that it has made so that, when things are not so good, they are still able to pay a steady rate of growth to their savers.
I don´t want to take any risk
It is difficult to avoid risk. In fact it´s practically impossible. A risky investment is seen by many as something which has a good chance of failure, either in part or completely. Stocks and shares are seen as risky whilst putting money into a bank deposit account is not. It is generally known that stocks and shares can go down as well as up but some people are unaware, or simply ignore, the risk of keeping money in a perceived “safe” bank deposit. Bank accounts have limited protection against the bank going bust. Then, if it came to the situation where a bank had to be bailed out by the government, it could take months, if not years, to access your money. As already mentioned, if the account is making less than inflation, you are losing money in real terms. So a bank account is far from risk free. The fund illustrated above is rated by Financial Express as having a risk rating of 22% of that applicable to FTSE100, much further down the risk scale and in an area that many people feel comfortable with.
What are the charges?
We explain in detail the underlying costs. In my experience, far too many people commit to a contract without understanding what they have, having received little explanation of the terms and conditions. This is where we differ to most. Different companies have different ways of charging and we run through all of the charges so that you are happy with what you have. The real examples above have had charges deducted and so these are the real values. Your bank may not charge you for the 0.10% interest (less tax) they are paying you but they are making money through investment but not passing anything on to you even though you supplied the money they invest.
What do I need to do next?
Contact me and I can review your savings, investments, and pension funds. I can then explain how you could arrange these in a tax efficient way whilst giving you the opportunity to access the growth that is available, for an improved lifestyle and to cope with rising costs.
Is lending money to a government still low risk?
By Peter Brooke - Topics: Bonds, France, Investment Risk, Investments, wealth management
If you buy a government bond, sometimes called GILTS (UK), BUNDS (Germany) or T-Bills (US), as an investment, then you are effectively lending that government money. Most portfolio managers say investors should have some bond exposure in their investment portfolios as they diversify away from other assets like shares.
How do Bonds work?
You start by buying a bond on ‘issue’ for a set issue price with a ‘promise’ to pay you back the same amount in a date in the future. In the meantime, the bond pays you a ‘coupon’ or interest in payment for you lending your money. The bonds are also traded on a ‘secondary bond market’ where the price fluctuates according to supply and demand but the coupon remains the same… this means that your interest rate changes depending on what price you pay for the bond.
You can also invest in ‘funds’ of government bonds which are managed by professional managers using new issue and secondary market bonds around the world to build a diversified portfolio… but are they as low risk as they are made out to be?
Traditionally these forms of investment have always been viewed as low risk, as governments, unlike companies or individuals can always ‘print money’ and so can always pay you back. This also means that the interest rate you receive (the coupon) will be lower than company bonds.
If we consider that RISK is the chance of loss then I would argue that these investments are no longer low risk. Right now, we are in an environment where interest rates are at all-time lows around the world, inflation is starting to bite and so the chance of an interest rate increase by central banks is high; even though the rate increases may be low.
If you are holding any bond and interest rates go up, then bond values will drop, therefore I would argue that at some point you are risking a capital loss by holding government bonds. Some analysts believe that a 1% increase in interest rates could lead to a 10% capital loss on most bonds. If this is the case are you now being compensated for this risk of loss? Well, no… interest rates on government bonds are around 1% now and so with inflation higher than 1% in most countries you are losing money on an annual basis too.
So, what can you do about it? The first option is to take a little more risk and swap your government bonds for high quality corporate bonds… the coupon will be greater and as long as the companies are in good health then they should be able to repay you at the end of the term… there are also funds of corporate bonds which diversify risk.
The corporate bond market is segmented by credit rating so be aware of the level of risk this can bring to your savings… “high yield” (Europe) or “junk bonds” (US) tend to behave more like shares.
Another option would be to diversify away from western government bonds into emerging market government bond funds… there is some extra currency risk, though this can help performance too. Finally, you can outsource the choice of the bonds you buy by using a Strategic Bond fund… this will invest in corporate, government and emerging markets bonds on a strategic basis and would be very diversified.
This article is for information only and should not be considered as advice.
THE MILLIONAIRES CLUB
By Pauline Bowden - Topics: Costa del Sol, Investment Risk, Investments, spain, wealth management
Most of us can’t join the Millionaires Club…..or can we?
So what do Millionaires do with their money? They mostly use private banking and private investment companies to manage their wealth. These institutions are usually a closed shop for the majority of investors. The private banks often want a minimum of £500,000 just to open an account!
Most of the top 100 US investment managers would expect $5,000,000 from a private investor! This same manager’s expertise can be accessed via a life assurance bond for as little as £20,000!
The Private Investment Companies are set up by very wealthy families who are willing to pay experts to manage their fortunes.
These wealthy families are guided by a philosophy of continuity. Successive generations of the family have invented investment structures to preserve and grow their wealth.
So why should we mere mortals be interested?
A few of these Private Investment Companies have opened their doors to the public, via financial institutional structures such as portfolio bonds or Life Assurance investment bonds.
This specialist investment expertise, previously denied to the likes of you and I are now allowing investments from as little as £50,000.
That may still sound like a lot of money, yet long term savings or endowment plans, the sale of a property or your tax free lump sum payable on retirement can easily exceed this amount and needs to be “preserved and grow” just like the millionaires money.
There are, of course, many tax efficient, financial instruments and structures available to suit all levels of wealth. Designed and suited to each person’s individual requirements and future financial needs.
To take advantage of this unique opportunity or to discuss this or any other financial matters, contact me for a confidential review of your personal situation.
Investments for the Cautious
By Pauline Bowden - Topics: Costa del Sol, Investment Risk, spain, wealth management
One of the largest, most well respected, financially sound Insurance/Investment companies in the UK has an investment product compliant for residents of Spain and Gibraltar.
With 25 million customers worldwide and over 309 Billion Pounds under management, clients can feel more comfortable in the knowledge that thier assets are being well cared for by a long established, successful management team.
So what is different about this Investment Bond?
It has very low risk, with gradual steady growth, giving 3.4%+ annualised net return (after annual management charges) and up to 101.5% allocation of premium to larger investors.
For the long term cautious investor wishing to mitigate against the effects of inflation and wanting up to 5% per annum penalty free income, this could well be the perfect solution. This Life Assurance Investment Bond can be accessed from as little as €30,000, 20,000 Pounds or $30,000 and has a very competitive charging structure.
As part of an overall portfolio of assets – for the cautious part of that portfolio – it would be worth a look.
If you would like more information about this product or to make an appointment to discuss your personal needs and aspirations for your capital, please contact me for a free confidential review of your financial situation.
Investing in turbulent times – presentation, Costa del Sol
By Spectrum IFA - Topics: Costa del Sol, Events, Investment Risk, Investments, spain, Spectrum-IFA Group, wealth management
The Spectrum IFA Group and Tilney Investment Management co-sponsored an excellent presentation and lunch on 13th June at the exclusive Finca Cortesin Hotel & Spa on the Costa del Sol. The Spectrum IFA Group was represented by our local adviser, Charles Hutchinson, assisted by his wife Rhona and Jonathan Goodman who attended along with Richard Brown, Lewis Cohen and Harriette Collings from Tilney.
For this event, around 25 attendees were invited and selected for this exclusive venue. They were given a very interesting interactive talk by Richard and Lewis on investing in these turbulent times, followed by a mingling lunch and refreshments in the Moroccan Room where everyone was able to personally discuss their questions with staff from both companies in a glorious and relaxing setting with gardens and fountains close by. The feedback from the attendees has been most impressive.
Spectrum was very proud to be involved with Tilney in this superb event. It is hoped this will be repeated again in the future.
Smoothing out the bumps of market volatility
By Sue Regan - Topics: Assurance Vie, France, Interest rates, Investment Risk, Investments, wealth management
In today’s environment of very low interest rates, is it wise to leave more than “your rainy day fund” sitting in the bank, probably earning way less in interest than the current rate of inflation, particularly after the taxman has had his cut…..?
In the above scenario, the real value of your capital is reducing, due to the depreciating effect on your capital of inflation. So, if you are relying on your capital to grow sufficiently to help fund your retirement or meet a specific financial goal, then you should be looking for an alternative home for your cash that will, at the very least, keep pace with inflation and thus protect the real value of your capital.
In order to achieve a better return than a cash deposit, by necessity, there is a need to take some risk. The big question is – how much risk should be taken? In reality, this can only be decided as part of a detailed discussion with the investor, which takes into account their time horizon for investment, their requirement for income and/or capital growth, as well as how comfortable they feel about short-term volatility over the period of investment.
Although inevitable, and perhaps arguably a necessity for successful investment management, it is often the volatility of an investment portfolio that can cause some people the most discomfort. Volatility often creates anxiety particularly for investors who need a regular income from their portfolio, and for this reason some people would choose to leave capital in the bank, depreciating in value, rather than have the worry of market volatility. However, this is very unlikely to meet your needs.
There is an alternative, which is to have a well-diversified investment portfolio that provides a smoothed return by ironing out the peaks and troughs of the short-term market volatility. Many of our clients find that this is a very attractive proposition.
What is a smoothed fund?
A smoothed fund aims to grow your money over the medium to long term, whilst protecting you from the short-term ups and downs of investment markets.
There are a number of funds available with differing risk profiles, to suit all investors. The funds are invested in very diversified multi-asset portfolios made up of international shares, property, fixed interest and other investments.
The smoothed funds are available in different of currencies, including Sterling, Euro and USD. Thus, if exchanging from Sterling to Euros at this time is a concern for you, an investment can be made initially in Sterling and then exchanged to Euros when you are more comfortable with the exchange rate. All of this is done within the investment and so does not create any French tax issues for you.
As a client of the Spectrum IFA Group, this type of fund can be invested within a French compliant international life assurance bond and thus is eligible for the same very attractive personal tax benefits associated with Assurance Vie, as well as French inheritance tax mitigation.
Stop Press!!! Since writing this article the UK Election has taken place resulting in a hung parliament that brings with it more political uncertainty, but also the possibility of a softer Brexit or even a second election. This makes for a testing time for investment managers and the option of a smoothed investment ever more attractive.
Why robots will never replace Investment Advice
By Chris Burke - Topics: Barcelona, Investment Risk, Investments, spain, wealth management
Particularly when markets are/have done well like recently, Stock picking (A situation in which an analyst or investor uses a systematic form of analysis to conclude that a particular stock will make a good investment and, therefore, should be added to his or her portfolio) is somewhat discredited these days, because low-cost passive fund managers argue that their tracker model delivers better value to savers by betting on an index, not individual companies.
And there is good argument to back it up
An article in The Wall Street Journal shows that between 1926 and 2015, just 30 different shares accounted for a remarkable one-third of the cumulative wealth generated by the whole market — from a total of 25,782 companies listed during that period. These statistics demonstrate that “superstocks” are what produce the true profits in the long run.
The research also calls into question the cult of equity, which has been followed by professional investors for more than 50 years. The experts argue that shares decisively outperform bonds and cash over time. But Bessembinder’s research shows that the returns from 96% of American shares would have been matched by fixed-interest instruments, which generally offer more security and liquidity, and suffer from lower volatility than stocks.
Spotting a business that can grow 10 or 20-fold over a period of years is a rare art
Of course, getting stock selection right is very difficult indeed when such a tiny proportion of shares contribute so much to total performance. It requires investors who are truly patient and at times extremely brave.
Amazon is one of the heavy hitters that delivered a quarter of all wealth creation in the stock market during the 90 years to 2015. Yet between 1999 and 2001, the online retailer’s shares fell by 95%. Many investors probably gave up then, and having been burnt once, shunned its 650-fold appreciation over the past 16 years.
While empirically that may appear to be correct, intuitively it feels questionable
Economies grow thanks to new technologies and entrepreneurs, who run a fairly small number of outstanding companies funded through private capital. Half the top 20 wealth creators referred to above are in sectors such as pharmaceuticals and computers. Identifying those sorts of promising industries is not too hard. But I do not believe there is a computer program — or robotic system — that can pinpoint the great achievers of the next 10 or 20 years.
Choosing the special businesses and executives that will create enormous value, and probably large numbers of jobs, is as much a creative undertaking as a scientific one.
Rigorous analysis must include a host of variables that artificial intelligence would struggle to understand — adaptability, trust, motivation, ruthlessness and so forth. I suspect all the best investors emphasise the importance of judging management when backing companies; I am not confident that computers can do that better than humans. In mature economies such as the UK, such sustained compound growth happens all too rarely.
To achieve it, a business should enjoy high returns on capital, strong cash generation, plentiful long-term expansion opportunities and a powerful franchise. And you need to buy the company at a sensible valuation. In a world awash with cash, such attractive businesses command very high prices. But if you believe the model can endure, they might be worth it.
Article written by Luke Johnson, who is chairman of Risk Capital Partners and the Institute of Cancer Research.
Sources: Bessembinder’s research and The Wall Street Journal
To read the article in full, click here:
Why a robot will never pick the superstocks of the tomorrow
Reasons to Wrap
By Sue Regan - Topics: Assurance Vie, France, Investment Risk, Investments, Saving
It’s no secret that the Assurance Vie (AV) is by far and away the most popular investment vehicle in France……….and for good reason! Most of you will already be familiar with these investments, or at the very least, have heard of them, but it doesn’t harm to be reminded now and again as to why they are so popular.
What are they? – An AV is simply a life assurance wrapper that holds financial assets, often with a wide choice of investments, and there is no limit on the amount that can be invested.
What’s so good about them?…..quite simply, their huge tax advantages, such as:
- Tax-free growth – funds remaining within an AV grow free of French Income and Capital Gains tax
- Simplified tax return reporting – considerable savings in terms of time and tax adviser fees
- Favourable tax treatment on withdrawals – only the gain element of any amount that you withdraw is liable to tax. There is an additional benefit after eight years in the form of an annual Income tax allowance of €4,600 for an individual and €9,200 for a married couple
- Succession tax benefits – AV policies fall outside of your estate for Succession tax and the proceeds can be left directly to any number of beneficiaries of your choice (not just the ones Napoleon thought you should leave them to!). There are very generous allowances available to beneficiaries of contracts taken out before the age of 70.
Why invest in an International Assurance Vie?
There are a number of insurance companies that have designed French compliant international AV products, aimed specifically at the expatriate market in France. These companies are typically situated in highly regulated financial centres, such as Dublin and Luxembourg. Some of the advantages of the international AV contracts are:
- The possibility to invest in multiple currencies, including Sterling and Euros.
- A large range of investment possibilities available.
- The majority of international AV policies are portable, which means that should you return to the UK, it will not be necessary to surrender the bond.
- The documentation for international bonds is available in English.
At Spectrum, we only recommend products of financially strong institutions and domiciled in highly regulated jurisdictions. If you would like to know more about these extremely tax efficient investments, or would like to have a confidential review of your financial situation, please feel free to contact me.
The Spectrum IFA Group advisers do not charge any fees directly to clients for their time or for advice given, as can be seen from our Client Charter at www.spectrum-ifa.com/spectrum-ifa-client-charter
How safe is your bank?
By Pauline Bowden - Topics: Banking, Investment Risk, spain, Uncategorised, United Kingdom
Which bank? Which jurisdiction? As more amazing stories come out about the world’s banks, we have seen a shift from Deposit Accounts being a low risk investment, to a much higher rated risk. So what exactly does each jurisdiction offer as security against your bank going bust?
| Isle of Man
|| Personal / Company Account
|| 50,000GBP / NIL
(from 31st January 2017, proposal by
Government to increase to 85,000GBP)
Many people in this area of Andalucia have bank accounts in Gibraltar, the Isle of Man, Guernsey or Jersey. Of the above list, apart from Gibraltar, these jurisdictions have the least protection for the account holder.
I often write about spreading your risk, by investing in different asset classes. Perhaps now we should also spread our bank accounts and have smaller deposits in more banks, in more jurisdictions.
It can make life a little more complicated, but it makes financial sense not to put all your eggs in one basket. At least then, if one egg gets broken, you do not lose all of them!
Holding cash as an asset class is no longer a “safe bet”. With interest rates so low now, the real value of the capital is being eroded by inflation. People that relied on the income from deposit accounts have seen their disposable income fall drastically, especially if they are sterling investors in receipt of sterling pay or pensions. Many are having to eat into their capital to maintain their lifestyles.
Alternative investment strategies need to be considered in order to protect the wealth that you already have and maximise the returns from that wealth.
Capital protection and growth in one investment ?
By Daniel Shillito - Topics: Inflation, Interest rates, Investment Risk, Investments, Italy, Milan, Uncategorised
Investing with confidence is something many of us find difficult to accomplish.
Bad news sells, and the economic environment and uncertainty we hear around us and in the media, can combine to make us risk-averse, unwilling to invest and shy of putting our savings into a new investment.
However without investment, without some risk, your wealth cannot grow, and is in fact more likely to go backwards, as inflation or the average prices of goods and services all around us, continues to rise. Example, your bank may pay you 0.5% per annum interest and inflation may be running at 1% per annum. You are losing 0.5% per annum!
It’s why many of us stay invested in cash or one or two properties. It’s why many banks direct you to investing in government bonds or BTP’s (Italian government treasury bonds). There is a belief or expectation that the risk is low, but a regular income can be gained and that there is some protection or guarantee that we won’t lose our money. We need to be aware that the price or value of BTP’s on the market often fluctuates, and there is no capital guarantee. These investments rely on government liquidity, the balancing of the government’s budget, and their commitments to honor that debt to us, the debt-holders.
What if you could invest in the market (funds and shares) and yet still have some capital protection to know your money would be safe and would be returned to you later?
One such investment type is a structured product. They consist of a capital-protected portion (of up to 100% protection) plus the opportunity to share the growth earned along the way with the provider of the investment, usually over a fixed time period.
Some such products can be complex, but there are now more products in the European market that are relatively simple to understand and use, and which provide some level of capital protection. They might also provide a better result than the usual cash-like capital protected products you find in Italy provided by some local insurance companies.
For more information about capital protection and a specific opportunity in such an investment today, contact me by email or by phone on the number below.
*Please note the above is not specific financial advice but prepared for information purposes. We recommend you obtain tailored financial advice by consulting with your financial adviser about what is appropriate for you and your own situation.