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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.

GUIDE TO GROWING YOUR INCOME

By Robin Beven
This article is published on: 10th March 2019

10.03.19

A NEW ERA FOR INCOME STRATEGIES

Income investing has moved into a new dimension. In the past, income-generating strategies were largely restricted to cash and fixed income so that, to a large extent, investors had to accept the need to sacrifice the opportunity for capital growth in order to obtain a higher yield.

Times have changed and now, an income strategy does not necessarily mean you have to accept a hit to your portfolio’s value – especially if you are in a position to take on a bit more risk with your capital.

There are plenty of choices of all persuasions available to income-seeking investors and this guide sets out a number of the available options.

FLEXIBILITY AND VERSATILITY
For many investors, an income-generating strategy forms the core of their approach. Some want a portfolio that will provide a regular income stream for them to spend. For others, an income-based approach is a consequence of their attitude to risk, rather than an instigator of their strategy, and these investors might choose to reinvest their income to boost their portfolio’s total return over the long term.

Still others might have a core investment strategy that focuses on capital growth, complemented and diversified by an income-generating segment.

Every investor will have their own unique needs – for instance, they might choose to draw the income or to reinvest it for the long term. However, an income strategy can easily be adapted to meet each investor’s changing circumstances as time moves on.

A WORLD OF CHOICE
Whatever your investment risk profile, there are a wide range of asset classes from which to formulate a diversified income strategy – from government and corporate bonds, through UK and global equities to property.

Please click on the headings below to read more:

FIXED INCOME (BONDS)

Fixed income investments provide a stable and predictable level of income many investors find reassuring. They pay a set rate of interest that does not change, regardless of the prevailing economic environment, and also have a fixed repayment date. Bond prices are influenced by fluctuations in interest rates and the rate of inflation. In addition, corporate bond prices are also affected by individual company or industry newsflow.

Changes to UK base rates, which are set by the Bank of England’s Monetary Policy Committee, will affect the level of interest paid on cash in a UK bank deposit account, but base rates will not affect the level of income paid on a bond. In an environment of rising interest rates, bonds become less attractive, because investors can more easily achieve a competitive rate of interest from their cash deposits.

Similarly, low interest rates increase the appeal of bonds, as it becomes harder for savers to generate an attractive level of income from their cash deposits. Funds investing in such bonds are freely available, of course, care should be taken in choosing the best-suited one that fits-the-bill. See, “Collective Bond Funds, below.

CASH: NOT NECESSARILY KING

A cash deposit account might be the first port of call for many investors who want to generate an income. In an environment of low interest rates, however, it is difficult for savers to generate a meaningful return from their cash deposits. How times have changed! Furthermore, the impact of inflation will erode the purchasing power of their capital over the longer term.

GOVERNMENT BONDS

As the name suggests, government bonds are issued and underwritten by a government. UK government bonds – also known as ‘gilts’ – may be regarded as lower risk investments as, to date, the UK has never defaulted on its debts.

However, because they are a low-risk investment, the level of return available on gilts tends to be relatively low and they offer little protection against inflation. Index-linked bonds are the only exception – they pay a rate of income that is partly influenced by the rate of inflation. If the rate of inflation rises, the level of income they offer is adjusted upwards while, in an environment of falling inflation, the level of income paid will fall.

CORPORATE BONDS

Corporate bonds are issued by individual companies as a way of raising capital for their businesses. As with gilts, a corporate bond is redeemed at a predetermined date for a fixed sum and, during the life of the bond, the investor receives a fixed amount of interest.

Corporate bonds carry a higher level of risk than UK government bonds but that level will vary from one company to the next. High-quality companies are regarded as relatively low-risk, whereas lower-quality companies are believed to have a higher risk of defaulting on their obligations to bondholders.

The level of income paid to bondholders tends to reflect the level of risk involved. Investors who take on a riskier investment are compensated for that risk with a higher level of income. If a company should go bust, bondholders rank higher than shareholders as the company has to meet all its obligation to its creditors – including bondholders – before it considers its shareholders.

It is important to understand the risks of investing in corporate bonds. There can be a substantial difference in quality between one corporate bond and the next. Many of the large fund management houses undertake research to evaluate the potential risk of each bond, but they also often rely on research produced by credit-rating agencies such as Standard & Poor’s, Moody’s and Fitch. These companies assign a rating to companies that offer bonds. A high credit rating indicates the company is believed to have a low risk of default while a lower credit rating suggests the company presents a higher risk of default.

Bonds may be divided into two classes – ‘investment-grade’ for the highest credit ratings and ‘sub-investment-grade’ (also known as ‘high yield’ or sometimes ‘junk’) for the lower grades. A lower credit rating means a higher level of income paid, in order to compensate for the extra risk involved. Generally, investment-grade bonds are seen as a relatively lower-risk asset class, while higher-yielding sub-investment-grade bonds are regarded as higher risk.

COLLECTIVE BOND FUNDS

Collective funds that focus on government and/or corporate bonds will invest in a managed portfolio that can help you to reduce your risk by diversifying across a range of investments, rather than owning just one or two. Some funds will focus on a specific area of the market while ‘strategic’ bond funds are ‘go-anywhere’ portfolios, whose managers take a view on the bond market and focus on the areas they believe offer most value. If you are interested in adding an element of additional risk to your overall portfolio, therefore, strategic bond funds can offer an introduction to the sub-investment-grade arena or to overseas opportunities.

EQUITY INCOME

Over the long term, equities offer the potential for superior returns compared with many other major asset classes. An equity income strategy focuses on shares in companies that pay consistently high and rising dividends and typically aims to generate a consistent, above-average income stream, accompanied by the potential for capital growth over the long term.

Dividends are paid – usually in cash – by companies to investors and are taxable. By law, dividend payments must be paid out of the company’s profits or from profits generated in previous years. Companies are not obliged to pay a dividend, but a high dividend payout can provide an incentive for investors to take a stake in the company.

A company does not have to pay a dividend, and many, particularly small- and medium -sized ones, prefer to reinvest surplus cash into the business. The profits of a relatively young company, for example, can be unpredictable as it seeks to establish itself – and any profit it does make will probably be used either to repay start-up costs or as a reinvestment to help growth. Even as a company grows older, its management might decide to retain profits to finance debt, expansion or product development.

Longer-established companies tend to pay higher dividends – hence an equity income strategy tends to focus on large, high-quality companies, rather than smaller, younger firms. Nevertheless, a small but rising proportion of dividend payouts are coming from medium-sized and smaller companies.

Even large, well-established companies can fall on hard times, however, and the management might decide to shore up their firm’s finances by reducing its dividend payout or cancelling it completely. Furthermore, a diminished or cancelled dividend will undermine confidence in the company and its share price is likely to be negatively affected, cutting the value of your capital investment.

OVERSEAS OPPORTUNITES

While there is a longstanding culture of dividend payments among UK companies, a growing number of companies in overseas markets are returning value to their shareholders in the form of dividend payouts. The US has, for example, traditionally been home to a core of large companies that pay high dividends. More recently, Asian companies have sought to attract and meet the needs of international investors by focusing on dividend payouts, with countries such as Hong Kong and Taiwan establishing solid dividend regimes in this exiting region of the world.

A global equity income approach has become increasingly achievable, and many investment houses have launched funds to tap into this trend. Equity income investors now have much greater scope to diversify across a broadening range of countries by investing in collective funds.

EQUITY INCOME FUNDS

An equity income fund invests in the shares of companies that pay consistent and attractive dividends and then combines the dividend payouts in order to pay a regular income to investors. Diversification across a broad range of companies reduces the danger a single company’s decision to cut or cancel its dividend might drag down the overall yield of the portfolio.

PROPERTY

As an asset class, property can polarise opinion. It is often viewed as a relatively illiquid asset in that it can be time-consuming and expensive to trade. Some experts also believe investors are already overexposed to the property sector if they own their own home or a buy-to-let property, or if they are invested in commercial property through their business. However, property can play a part in an income portfolio for those investors who are not overexposed or who are attracted to its potential benefits.

RESIDENTIAL PROPERTY

‘Buy-to-let’ is a popular means by which investors gain exposure to residential property. Traditionally, buy-to-let has enabled investors to generate income through rents negotiated on short-term tenancy agreements. More recently, many buy-to-let investors have chosen to use their rental income to finance their own mortgage payments and to wait for the bigger profit in the form of a capital gain when the property is sold. Of course, as some investors have found to their cost, there is no guarantee a property’s market value will rise over the long term as we’ve seen along the Costas.

COMMERCIAL PROPERTY

In contrast, commercial property investment focuses principally on the generation of a high and consistent income that is generated through rents. Whereas residential leases typically operate on a series of short-term agreements, however, commercial leases tend to be much longer – perhaps 10 or 20 years.

Income from commercial property can derive from a variety of different sectors – ranging from City real estate, through shopping centres, to industrial parks and warehouses. Each sector commands a different level of rental yield and will react differently to the prevailing economic climate.

COLLECTIVE PROPERTY FUNDS

Direct investment in commercial property is very expensive but smaller private investors can access the asset class through diversified collective funds. Diversification helps to reduce the extent to which the loss of a tenant from one particular property might negatively affect the overall performance of the fund.

REAL ESTATE INVESTMENT TRUSTS

A real estate investment trust or ‘REIT’ is a company that manages a property portfolio on behalf of its shareholders. A REIT can contain residential and commercial property. Its profits are exempt from corporation tax, but it must pay out at least 90% of its taxable income to shareholders.

KEY FACTORS TO CONSIDER BEFORE YOU INVEST

Before deciding on the right blend of assets to generate an income stream, you should consider the following factors, which might affect the decisions you make:

INFLATION
The rate of inflation measures how the price of a basket of goods has changed over time. So, for example, if the cost of running your home increases by 5% in a year, you will need to earn 5% a year more to pay for the same level of comfort.

If you are aiming to maximise the income from your investments in order to pay for everyday expenses, you should consider the impact of inflation and – particularly over the longer term – whether you require a specific form of protection against inflation.

However, if you decide to invest in a fixed-rate investment – for example, a gilt or a corporate bond – be aware inflation will definitely have an impact. As an example, a fixed rate of 4% is attractive when the rate of inflation is 2%. However, if inflation rises to 5%, that return of 4% becomes less appealing.

RISK
Investment risk is a very personal thing as it can mean different things to different people. Some investors are not prepared to tolerate financial loss in any form while, at the other end of the spectrum, some investors most fear missing out on an opportunity. For still other investors, risk means not being able to meet future financial commitments.

Before formulating an investment strategy, every investor needs to be clear about their investment goals and their tolerance for risk. No investment is risk-free – the lowest-risk investments might guarantee the preservation of capital and/or regular income payments, but they cannot necessarily protect your money against the erosive effects of inflation.

Ultimately, in order to enjoy an absence or reduction of risk, a cautious investor has to accept the prospect of lower returns. Equally, an investor who is willing to pursue higher returns will also have to accept the possibility of increased potential for risk to their capital.

DIVERSIFICATION
Since every source of income carries some form of risk, it pays to diversify your portfolio across a range of different asset classes. Diversification helps to reduce the possibility that especially weak (or even strong) returns from a particular investment or asset class might have a disproportionate effect on the overall performance of the portfolio.

There is a world of choice out there for income investors. Whether you are a more cautious person or someone willing to take on higher levels of risk in the hope of achieving, ultimately, higher returns, please do get in touch so we can help you find a solution that meets your individual needs.

BEWARE: FADS AND FASHIONS

By Robin Beven
This article is published on: 5th March 2019

The best way to start diversifying your portfolio and to blend together the myriad options in a way that best suits your personal circumstances is to speak to a professional adviser. Not only are they able to offer vast experience of the investment market, but they can also advise on the most suitable structures and products for your investments to match your individual needs.

Nowadays there are many more esoteric investment choices than ever before to capture the attention of potential investors – but they can create unpalatable risks if bought alone.

A GUIDE TO DIVERSIFICATION
This guide is designed to help start you on the road to building an investment portfolio. With a little groundwork, a balanced, well-diversified portfolio ought to be able to weather short-term storms and fluctuations. It should smooth out the various peaks and troughs and help you meet your financial objectives over the longer term, without causing too many shocks along the way.

Diversification is a much-used term in the financial world and one that can be employed at many levels. Most fund managers claim their aim is to diversify risk by buying a range of different investments, even when the area they specialise in is quite small. A smaller-companies fund manager, for example, with perhaps only 500 potential investments from which to choose, would suggest their hand-picked selection of 70 holdings offers diversification.

At the same time, it is my job as a financial adviser to help you diversify your portfolio by guiding you through the range of different assets, allocating your portfolio across the different options and, ultimately, helping you meet your objectives while staying within a level of risk that is acceptable to you.

When looking to invest, it is important to acknowledge that, no matter what the type of asset, there will be risks involved. These risks are made up of two principal aspects: market risk (the impact of economic factors, say, or government changes) and investment risk (the uncertainty and volatility of returns). Diversification can help to reduce both of these.

Market risk cannot be eliminated but it can be reduced by spreading a portfolio over a range of different asset ‘classes’ that should behave differently in different market environments. By broadening a portfolio’s exposure across a range of asset classes, you raise your chances that, at any one time, some assets will be rising while others may be falling – and the two movements should, to an extent, offset each other.

The same holds true for investment risk. While, for example, all shares are similarly exposed to investor sentiment towards the stockmarket on which they are listed, the investment-specific risk will vary from company to company. This means the share prices of each company will not move in the same direction, by the same amount and at the same time. Each share plots its own path, resulting in a smoothing of returns.

Investing across different asset classes sounds like a good move but you should also be aware of the other side of the coin. By diversifying your portfolio, you will also lower the level of return you would have received if you were fortunate enough to be invested only in the best-performing asset class. The skill comes in balancing your asset allocation so the relative payoff matches your own attitude to risk and reward.

This might lead you to ask how diversified your portfolio should be and the answer will depend greatly on your attitude to risk. Given the lessons of history, we can with some confidence assume nobody can accurately predict the performance of markets to the degree they will know exactly where to be invested at any point in time.

If this were possible, we would of course all be millionaires. Therefore, in effect, we use diversification to hedge our bets. The extent to which we need to diversify depends on how much volatility we feel able deal with – put simply, how much we tend to worry or panic when the value of our portfolio starts to fall.

SPREAD YOUR EGGS ACROSS MANY BASKETS
Any portfolio can be diversified. Do remember, however, when you diversify your portfolio, risk is not the only thing you will reduce. You will also lower the level of return you would have received if you had been fully invested in just the best asset class. The skill comes in balancing your asset allocation so the relative payoff matches your individual attitude to risk and reward.

So that is the theory. In practice, once you know what risk you can deal with, the effectiveness of your diversification strategy will depend on the degree of ‘correlation’ between various elements in a portfolio – that is to say, the extent to which different investments move in relation to each other – and combining them appropriately so the overall movement is in line with your expectations.

Government bonds, for example, are perceived as being a safer haven when markets are rough and equities are volatile. Property, on the other hand, has tended to protect against inflation over the long term, while also not moving in line with equities. Then there is cash, which depends entirely on interest rates for the level of income generated. To a greater or lesser extent, each asset class responds differently to external influences such as interest rates and inflation.

DIVERSIFY WITHIN ASSET CLASSES
Within each asset class, there are further opportunities for diversification. Within equities, for example, the returns of some companies versus others are not related in any way. Generally speaking, there is little correlation between the performance of, say, biotechnology stocks and utilities – such as water and electricity companies – as the market forces driving these two sectors can be completely different. However, as both types of company are listed on the stockmarket, they are both exposed to factors that affect the overall equity market, such as the impact of a government’s monetary policy, or general investor sentiment.

DIVERSIFY BY GEOGRAPHY
Geography also allows some of the impact of stockmarket movements to be dissipated, as your portfolio is not only exposed to the economics and government decisions of one country. Different markets are affected by different economic and financial factors and are therefore not perfectly correlated with one another. If the Far East performs badly, for example, it does not necessarily mean European stockmarkets will have fallen. And within Europe, there is the possibility of further geographical diversification, as the performance of each underlying European stockmarket will not necessarily be aligned with that of its peers.

Even so, all equities are capable of being affected by global influences and particularly when investor sentiment is involved – just consider the boom in telecom, media and technology stocks in the late 1990s and their subsequent collapse in 2000. The effects were global – although markets such as the US, which had greater exposure to these sectors, were more heavily affected, almost all countries suffered from the somewhat depressed equity environment during the bear market that prevailed through to early 2003.

DIVERSIFICATION WITHIN BONDS AND PROPERTY
The same sort of thinking can go for fixed interest investments and property. Government bonds, for example – and particularly those of more highly-rated countries such as the US or the UK – do not tend to behave in the same fashion as the so-called ‘sub-investment-grade’ corporate bonds that are issued by less financially secure companies. Within property, meanwhile, even commercial and residential property are not always correlated in the returns they offer but both can be illiquid.

MAKING YOUR DECISIONS
Most investors should in general start by making a detailed assessment of their attitude to risk. If you could not live with the fluctuations of the stockmarket and would be very worried by the sight of prices going down, then you are a lower-risk investor and your portfolio should be biased towards correspondingly lower-risk assets, such as cash and perhaps some fixed interest.

If on the other hand you are comfortable with some volatility and are investing for the longer term – at least five years, say – you might decide to include a small element of equity exposure. Then again, if you are at the opposite end of the scale – a high-risk investor, who is perfectly happy with the ups and downs of markets – then you would most likely have the majority of your portfolio in equities.

USING COLLECTIVE INVESTMENT FUNDS
Collective investment funds are inherently diversified to some degree as they hold a number of different investments, generally in a particular market, industry sector or asset class. You could, to pick just a handful of examples, choose an emerging market equity, global technology, government fixed-interest, UK corporate bond or North American smaller companies fund.

As collective funds tend to hold 50 or more stocks, they automatically offer more diversity than just one or two stocks from these markets. By selecting funds, you hand over the job of stock diversification to expert fund managers, leaving you and your adviser to concentrate on the other main decision elements – asset class and geography.

If you are making your first steps into investment, or have only a small amount to invest, you can hand over even more of the decision process by targeting the broader portfolios of global equity or managed funds. Within these, the fund manager will diversify not only by type of company and level of exposure, but also by geography – and these portfolios usually involve some element of asset allocation as well.

Please note: The value of any equity, bond or property investment can go down as well as up and you may not get back the amount originally invested. Property is a specialist asset class and expert advice should be sought before making a decision to invest.

“the effectiveness of your strategy will depend on the extent to which different investments move in relation to each other.”

BRINGING IT ALL TOGETHER
When considering a portfolio’s proportions, many investors pursue simple strategies such as, for example, a ‘core & satellite’ approach. Typically, the ‘core’ portion would make up the larger part of your portfolio since it should be relatively less volatile and provide a solid base on which to build. The satellite investments would then add ‘spice’ to your portfolio by taking smaller positions in higher-risk regions, asset classes or industry sectors.

A lower or medium-risk investor might concentrate their core portfolio in cash, bond and property funds, or perhaps in an equity fund linked to larger, more highly regulated stockmarkets such as the US or the UK.

However, “multi-asset” funds are becoming the first choice for investors, be they lower, medium or higher risk investors, because the fund manager runs the fund for you without the distraction market noise.

Creating THE Folder – your financial snapshot

By Robin Beven
This article is published on: 27th February 2019

27.02.19

It was ten years ago that my wife, son and I (and our golden retriever) had to evacuate our house along with 15,000 other residents of La Nucia, Alicante, due to fire risk.

With forty mile-an-hour winds, the fire was fast approaching; we grabbed two suitcases of necessities, computer and personal documents case – that was about all we could fit into the car.

Fortunately, we returned 12 hours later and our house was still intact!

This reminded me to update my personal records because had they been lost, or worse still had I demised in the fire, my inheritors, loved ones, would have had undue strain at the most stressful time trying to deal with things. So, within a week I had updated everything in my fire-proof case and also recorded things digitally and let my executors know where all could be found.

Are you confident that all of the papers and documents you hold are not only all in order, but in equal measure, somewhere where they can be found and easily understood in the event of your demise? I know some individuals and couples who don’t know where all of the important documents relevant to their lives are.

We all spend time every year making sure the ITV for the car is sorted, house insurance and car insurance policies are up to date, tax returns are filed etc. How about putting some time aside to create a folder (let’s call it “THE Folder”) or fire-proof case where documents can be found?

So what is THE Folder?
It is a single file (physical or digital) where all important personal and financial information is kept? This allows access to these documents in the event that you are no longer around. If it is only one family member that takes the lead on the finances, it is imperative that other family members or executors know where to locate things.

So what should be in THE Folder?
Financial documents such as:
• Birth, marriage and divorce certificates, as applicable!
• Bank account details, including online login details
• E-mail and social media account details and logins
• Life assurance policies
• Funeral plan policy
• Pension documentation and statements
• Investment documentation and statements
• Wills (Spanish, UK, etc)
• House ownership deeds

THE Folder can be very simple, and I always suggest contact details for each of the relevant assets should be marked up as well. Also, make sure that when THE Folder is complete, you sit down together and explain all of the information it contains.

Is it worth the effort?
At a time of loss it can be stressful enough, without having to try to piece together the deceased’s financial affairs. This can be a really difficult time for family members, even more so if your support network, typically children, is back home in the UK.

However, preparing THE Folder is much more than just avoiding stress; if you leave behind an administrative nightmare, you could delay access to inheritors’ funds and potentially cost a small fortune in legal fees.

Which is best physical or digital?
This comes down to personal preference but I’d suggest both if possible. A digital file listing all your assets can be accessed by inheritors but, of course, there are original documents like wills, birth & marriage certificates to consider, hence, a fire-proof case.

An electronic file can be stored on your main computer, in the cloud or on an external hard drive. Make sure everyone knows how to access the computer, cloud or hard drive though!

A physical folder keeps all of the important information together, but make sure it is large enough to keep everything together. I’ve known one client 20 years, now elderly, and throughout have been unable to persuade her to use anything other than plastic bags! I even bought her two shiny new folders and volunteered to help her organise things. At least, when she declared her Modelo 720 (Overseas Assets Declaration) in 2013 this was half the job done!

How often should THE Folder be reviewed?
Firstly, note when it was created and last reviewed so that anyone using it knows. Then reviewing the THE Folder on an annual basis should be sufficient or, of course, whenever a significant change occurs which you consider materially important. Again, be sure to tell someone about it! There is little point going to the effort of creating such a folder if no one knows of its existence or where to find it.

Incidentally, along with my sister, I’m power of attorney (POA) holder to our mother that includes financial and health & welfare. It actually took months to record everything because of the added burden of having to write to all – as in the financial documents list above – with certified copy POA’s.

Please let me know if you would like a digital version of THE Folder that is printable as well.

10 Rules of Successful Investments

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

15.02.19

Successful long-term investment is not just about buying low and selling high – although that is always a good principle to bear in mind.

Share prices can be susceptible to unpredictable external factors ranging from political newsflow to the weather, which can lead to investing – particularly during times of high volatility and uncertainty – feeling a bit like negotiating a minefield.

One way to make sense of such a potentially confusing world is to go back to basics – markets may rise and fall but the rules of sensible investment remain constant.

Buy what is right for you
Just because an investment works well for somebody else does not mean it is necessarily right for you. Consider your own situation – your future liabilities, your investment goals,
timeframes and, most importantly, your appetite for investment risk be it lower, medium or higher – and then make your decision.

Diversify
Spread your risk by diversifying your portfolio across a mixture of asset classes, industry sectors and areas of the world. If you put all your money into a single asset class,
sector or company, your portfolio becomes vulnerable and performance is likely to be volatile. However, mixing it up means that, when the value of one asset is falling, another
might be rising and so could help to compensate towards your expected returns.

Never buy what you do not understand
History is littered with funds that promised a great deal but when faced with pressure from the market, collapsed with all those promises broken. Some shares or funds might sound
very exciting – and perhaps straightforward – but if you do not really understand exactly what the company does or how the fund works, steer clear.

Do not become emotionally attached
It is wonderful if a holding has worked for you, but you do not have to feel too attached – the share or fund does not know you own it. You should look at every existing investment with the same clear-headed objectivity as you did before you bought it – and, when it is time to sell, do so with a clear conscience.

Be your own person – do not follow the herd
Many investors became caught up by the euphoria that surrounded the ‘dotcom’ boom of the late 1990s, simply because everyone else was excited and they did not want to miss out. Consequently, they bought into companies that promised much and delivered little or nothing. It is hard to swim against the current but always take a step back and consider not only what you are buying but why. There are a number of “multi-asset” funds in which to invest and are a good starting place for most. These offer a blend of equities, bonds and cash that are managed for you by very large institutions and cover most investment risk parameters.

Review your portfolio regularly
Your portfolio should have been constructed to meet objectives based on your existing needs and your goals for the future. However, over time, your needs and circumstances can change – as indeed can the markets – and your portfolio may require the odd tweak to make sure it keeps up. Review it regularly – perhaps every one to three years – and make sure
it stays on track.

Do not believe everything you read or hear
Headlines on television and in the newspapers can initially be just as misleading with regard to finance and investment as they are to, for example, sport or celebrity gossip. Try not to
be distracted by day-to-day ‘noise’. Instead, make sure you keep a clear head, remain focused on your objectives and take advice from a qualified professional to ensure you are making the most of your investment portfolio.