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MULTI ASSET FUNDS – INVESTING MADE SIMPLER

By Emeka Ajogbe - Topics: Belgium, Branch 23 investments, Investment Risk, Investments, multi assets
This article is published on: 16th October 2019

16.10.19

I have spoken about asset allocation* and rebalancing* and their affect on your investments. An-other strategy that is available to you is multi asset fund management.

You may have heard (read) that I have mentioned that here at The Spectrum IFA Group, we favour the ‘multi asset fund’ route of investing. But, what is that?

MULTI ASSET FUNDS

Multi asset funds provide you with access to multiple funds and asset classes through a single fund, managed and monitored by dedicated experts on your behalf. This type of fund can increase the potential for diversification and help reduce the overall level of risk.

Choosing the right funds and building a diversified portfolio can be extremely difficult. The options available to you are almost limitless, with tens of thousands available to investors in Europe alone.

Generally speaking, it is highly unlikely that a single fund manager is capable of delivering consis-tent outperformance, year on year. Making the right choice for a portfolio and then refining it and rebalancing it over the years takes time, information and skill. Therefore, fund managers need to be monitored to ensure they remain at the top of their game – and replaced when they are not. The resources and/or expertise to do this properly can be time consuming and expensive. There-fore, multi asset funds can play a valuable role in part or all of your investments.

All multi asset funds offer a convenient way to access a wide range of fund managers and asset classes. Spreading investments across a wide range of managers and assets reduces the proba-bility of a fall in value across the whole portfolio.

At the same time, multi asset funds that are designed to target different risk levels make it simple to adapt a portfolio to suit your changing circumstances. For example, if you have no need to ac-cess your savings any time soon, then you are likely to be able to take more risk than clients who are nearing the time when they do need to access their money.

REBALANCE YOUR INVESTMENTS

By Emeka Ajogbe - Topics: Belgium, Branch 23 investments, Investment Risk, Investments, Netherlands
This article is published on: 9th October 2019

09.10.19

I previously discussed how asset allocation is an investment strategy that can limit your exposure to risk. As you get further along your journey of being an investor, you need to understand how to rebalance your portfolio to keep it in line with your investment objectives.

Rebalancing is bringing your portfolio back to your original asset allocation mix. This may be necessary because over time, some of your investments may become out of alignment with your investment objectives. By rebalancing, you will ensure that your portfolio has not become overexposed to one asset class and you will return your portfolio to a comfortable and more acceptable level of risk.

For example, let’s say that your risk tolerance determined that equities should represent 60% of your portfolio. However, after recent market fluctuations, equities now represent 75% of your portfolio. To re-establish your original asset allocation mix, you will either need to sell some of your funds or invest in other asset classes.

There are three ways you can rebalance your portfolio:

1. You can sell investments where your holdings are overexposed and use the proceeds to buy investments for other asset classes. With this strategy, you are essentially taking the profits that you have made and reinvesting it into a more cautious fund.

2. You can buy new investments for other asset categories.

3. If you are continuing to add to your investments, you can alter your contributions so that more goes to the other asset classes until your portfolio is back into balance.

Before we rebalance your portfolio, we would consider whether the method of rebalancing we agree to use would entail transaction fees or tax consequences for you.

Depending on who you speak to, some financial experts advise rebalancing at regular intervals, such as every six or 12 months. Others would recommend rebalancing when your holdings of an asset class increase or decrease more than a certain preset percentage. In either case, rebalancing tends to work best when done on a relatively infrequent basis.

Shifting money away from an asset class when it is doing well in favour of an asset category that is doing poorly may not be easy. But it can be a wise move. By cutting back on current strong performers and adding more under performers, rebalancing forces you to buy low and sell high.

To discuss further how rebalancing can help your existing investments, please contact me either by email emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72.

BRANCH 23 – Tax Efficient Investment In Belgium

By Emeka Ajogbe - Topics: Belgium, Branch 23 investments, Investments, wealth management
This article is published on: 11th February 2019

11.02.19

While you are living in Belgium, you have a number of valuable investment options available to you. If you wish to maximise tax efficiency, Branch 21 or Branch 23 products are very attractive. These are life insurance products widely used in Belgium for saving and investment. While Branch 21 can provide security through guaranteed returns, Branch 23 offers access to a wide range of assets which can provide you with excellent long-term capital growth.

Branch 21 vs Branch 23
Branch 21 products provide the investor with a guaranteed return (at the time of writing, between 0.1% and 1%), with a possible bonus. However, the bonus is not guaranteed and is dependent on the insurer’s terms and conditions. This solution is popular as a pension strategy, but crucially the effect of inflation should always be taken into account when calculating the real rate of return.

By taking out a Branch 21 policy, you qualify for tax relief, which can mean a tax saving of up to 30% on the amounts invested. Currently you can invest up to €980 per year and receive tax relief on it. You can invest more, up to €2,350 per year, in the long-term savings system.

A Branch 21 policy can have a fixed term of, say, ten years, or it can be open-ended. An open-ended policy ends when the policy is surrendered, or on the death of the life assured. You are also able to take out additional guarantees, such as death or disability cover. Note that as this is a life insurance policy, there is a 2% tax on premiums unless it is a pension savings insurance policy.

If Branch 21 is the no-frills option, then its sibling, Branch 23, is the all singing, all dancing alternative that offers broader investment scope and the prospect of higher returns (with of course the increased risk that comes with foregoing a guaranteed yield). A Branch 23 policy can invest in a wide range of assets including:

1. International, multi-asset mutual funds
2. Discretionarily managed portfolios
3. Active or passive investments

Importantly, there is no maximum investment in a Branch 23 product, and for larger amounts you can also access personalised, discretionary investment management.

Returns will vary, depending on market conditions, your attitude to risk and the length of time you remain invested. With the help of a financial professional, you have the opportunity to design a portfolio to suit your personal circumstances, maximising potential returns whilst managing and understanding the principles of investment risk and reward.

The time horizon is key here ie. how long before you envisage needing access to your money. You should not be investing in a portfolio like this unless you have a time horizon of at least 5 years.

Tax efficient investment
As mentioned previously, these solutions are very tax efficient. A 2% tax is payable on premiums if it is not a pension savings insurance policy, but in addition to up to 30% tax relief enjoyed by Branch 21 investors, you will not have to pay withholding tax (based on a notional return of 4.75%) if you leave your funds invested for at least eight years. If you did not received a tax benefit on the premiums, then there is no tax to pay on the money that has accumulated.

With Branch 23, you still pay 2% on your premiums (like Branch 21), but you do not pay a withholding tax on your investments unless it has additional performance guarantees (for example, from structured products). In that case, the withholding tax will then be calculated on the actual return and not a notional 4.75%.

Other than that, there is no tax to pay on the final amount, or on any withdrawals.

Furthermore, these products can also be very useful when it comes to estate planning, since the beneficiary and the life assured do not necessarily have to be the same person. Let’s walk through an example: a parent wishes to gift a substantial amount of money to their child. The child can be designated as the beneficiary of the policy and the parent as the life assured. At the time of the parent’s death, no inheritance tax is due if the parent passes away at least three years after gifting the sum of money to the child (the beneficiary). This is a straightforward and reliable way of ensuring that your wealth is passed on to the people you care most about, without them having to pay inheritance tax on the bequest.

Additional benefits
On top of tax efficiency, estate planning opportunities and the freedom to invest in a wide range of international, multi-asset funds, if you have existing investments these can also be transferred into your Branch 23 policy, with flexible access when you need it.