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The danger of waiting for Brexit

By John Hayward - Topics: BREXIT, Interest rates, Investment Risk, Investments, spain
This article is published on: 16th October 2018

16.10.18

There are many things that we don´t know the answers to regarding Brexit. There are even questions that we don´t yet know. However, some facts are known. One of these is concerning investing, or not, since 20th February 2016. This was the day that David Cameron, the then Prime Minister, announced that there would be a referendum on the UK´s membership of the EU. People have been fearful due to the uncertainty as to what will happen post-Brexit.

In the last two and a half years, life has continued and investment markets have risen significantly. At the same time, inflation hasn´t disappeared just because Brexit is on the menu. Figure 1 below shows how the FTSE100 has performed since 20th February 2016 along with the UK Retail Price Index. With dividends reinvested, £100,000 would now be worth £131,000.

If we adjust for inflation, this would be more like £119,000, but still a 19% increase. If the £100,000 had been left in a bank account, with no interest which is commonplace these days, the inflation adjusted value would now be more like £91,000. Waiting for Brexit has cost the wait and see person £9,000.

Figure 1. Performance of the FTSE100 since the referendum announcement in February 2016 along with the UK Retail Price Index.

There are people who are not happy taking on investments which carry risk. If we ignore the risk of inflation for the time-being, we have solutions which can cater for those who are happy taking some investment risk but without the volatility of stocks and shares. Figure 2 shows that an investment with approximately an eighth* of the risk of the FTSE100 has still managed to perform well, certainly when compared to inflation.

One must bear in mind costs, but even allowing for these, people who were invested through us on 20th February 2016 would have seen an increase of around 15%. Taking inflation into consideration, this would produce a figure of around 5%. However, comparing this with not being invested would have left the “wait and see” person some £14,000 down.

Figure 2. Performance of a low risk investment along with the UK Retail Price Index

With the exchange rate between GBP and Euros down about 12% over the same period, the need to receive more income from investments has become even more important, especially for those with income in GBP and costs in Euros. Losing 20% in real spending power has proven to be a tough pill to swallow. Get in contact so that the possible “Never Ending Story” called Brexit doesn´t lose you even more over the coming years.

* Source: Financial Express

Cash Is Not King….

By Chris Webb - Topics: Interest rates, Madrid, spain, wealth management
This article is published on: 23rd February 2018

23.02.18

I think that it is fair to say that the global economy has been ill for some time! Central banks throughout the developed world have tried to cure the illness in the form of ultra-low interest rates and other extraordinary measures, aimed at stimulating economic growth.

The outcome is that it has ‘dethroned cash from its former place as king’
For all of us today, wealth preservation is key to the decisions that we make regarding the investment of our financial assets. This is even more important if you are approaching retirement and no longer have the possibility of increasing your wealth by saving from disposable income.

For risk-averse investors, the traditional way of saving has usually been bank deposits, feeling this is the safest and most secure way. Understandably, when you could get a decent rate of interest – especially if index-linked – then this was often sufficient for their needs. However, today, this is no longer a viable solution, particularly if the investor needs to supplement their pension income from their investment income. Even for those who do not need to take the income from their capital, the real value of their capital is not being protected in the low-interest rate environment that we are experiencing.

I am not saying that cash is entirely bad, only that the role of cash has changed and it can no longer be depended on to provide income or protect the real value of capital
I am finding more and more that negative investor sentiment, during the last year or so, has led to a situation whereby many investors are holding too much cash, i.e. in excess of what can be considered as prudent, given the very low level of interest rates. Keeping too much cash – beyond what someone may need to meet short-term capital and emergency needs – can be disastrous for savers. The decline in income generated by deposit accounts and some other ‘perceived safe-haven’ fixed interest investments have all but completely dried up. The decline is not imaginary or hypothetical and the lost income means less money to meet the household needs. Combined with a stronger Euro, which we are also currently experiencing, this can make it more difficult for the expatriate to meet their income needs.

So how do we avoid the ‘cash trap’?
The simple answer is to invest part of your financial assets in investments that are delivering a real rate of return (i.e. after allowing for inflation).Naturally, this means taking some risk, but there are different types of risk. What is clear is that investing in cash for the long-term is not a risk-free strategy.

Cash no longer delivers a ‘risk free rate’ but instead creates a ‘rate free risk’
Hence, finding the appropriate risk strategy will depend entirely upon the investor’s individual circumstances. If you need to take income from your capital, since bank deposit returns no longer meet your requirements, you need to cast a wider net than was historically needed. This will result in a move up, not down, the risk spectrum.

For the year to the end of December 2012, Headline CPI (Consumer Price Index) in the Eurozone was 2.2%, despite the fact that the European Central Bank target is to be below 2%.With cash only earning say 0.5%, this is a negative real rate of return of -1.70%. By comparison, the FTSE 100 dividend yield was 3.7% in 2012; emerging market debt and high yield debt yielded 4.5% and 6.7%, respectively, compared to UK gilts yielding 1.8%.

Looking over a longer period, the annualised change in the dividend yield of companies included in the ‘MSCI Europe ex UK Index’, over the period from December 1999 to 2012, was 4.1%. Dividends have generated constant income over decades for investors, as well as long-term capital growth.

This can be seen in the table below, which shows the proportion of the average annualised return made on the S&P 500 Index since the 1920’s that has come from dividends and capital appreciation.

 Period Dividends % Capital Appreciation % Total %
 1926-29 4.7  13.9  18.6
 1930’s 5.4 -5.3 0.1
 1940’s 6.0 3.0 9.0
 1950’s 5.1 13.6 18.7
 1960’s 3.3 4.4 7.7
 1970’s 4.2 1.6 5.8
1980’s 4.4 12.6 17.0
1990’s 2.5 15.3 17.8
2000’s 1.8 -2.7 -1.9
2010 – 2012 2.1 8.5 10.6
1926 – 2012 4.1 5.6 9.7

So despite any short-term volatility in stock markets, which may result in a short-term reduction in the value of the capital, income can still be delivered in the form of dividends.If income is not needed and instead the dividends are re-invested, the compounding effect will increase the amount of capital growth.

For example, the FTSE 100 actually resulted in a negative return of -15% during the period from December 1999 to 2012, based on the index prices. However, where the dividends were re-invested, this resulted in a positive return of 32% over the same period. Clearly, it is not a good idea to ‘put all eggs in one basket’. Therefore, it is very important to have a diversified portfolio of investments that is structured to meet the objectives of the individual investor. Avoiding the ‘cash trap’ is an essential part of that process.

If you would like more information about investing or saving on a tax-efficient basis for Spain (whether for investing an amount of capital and/or saving on a regular basis), or any other aspect of retirement and inheritance planning, please contact me by telephone on + 34 639 118185 or by e-mail at chris.webb@spectrum-ifa.com to discuss your situation, in confidence.

The above outline is provided for information purposes only and does not constitute advice or a recommendation from The Spectrum IFA Group to take any particular action on the subject of investment of financial assets or to mitigate the effects of Spanish taxes.The Spectrum IFA Group advisers do not charge any fees for their time or for advice given, as can be seen from our Client Charter

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
This article is published on: 19th September 2017

19.09.17

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 cases

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.

Brexit: the effect on your money

By John Hayward - Topics: BREXIT, Interest rates, spain
This article is published on: 2nd September 2017

02.09.17

What’s going to happen when the UK leaves the EU on 29th March 2019?

This is a question which is as easy to answer as predicting what the weather will be like on that day. The one thing which is certain is that the next day will be 30th March and it will be a Saturday.

How do we cope with the stream of commentary telling us pretty much nothing other than the EU’s frustration at the UK’s “cake and eat it” stance as well as its “magical thinking”? This rhetoric has made me think more of Alice in Wonderland. It is clear that people are getting a little tired of the lack of information that is being supplied. We know that there are serious financial considerations to be addressed. The problem is that we don’t know what they are right now.

What we can do is try, as best as possible, to cover whatever position we are placed in post-Brexit. For those of us living in Spain, positioning our money in a tax compliant and favourable way was imperative even before Brexit came along. Now it is even more important. There are certain investments such as ISAs, National Savings, and Premium Bonds, which are taxed favourably in the UK, for UK residents. They are treated differently for Spanish residents and it is likely that many holding these investments are not declaring these investments correctly. This may not be a huge problem right now as the UK is part of the EU and accountants and gestors are possibly treating non-compliant investments as if they are compliant. Things may be very different after Brexit and so it is vital to review what investments are held and where they are based.

What rate of tax is paid on savings in Spain?
There are currently three rates. 19% (First 6,000 euros), 21% (6,000 to 50,000 Euros), and 23% (Over 50,000 Euros). These rates apply not only to savings but also to gains on other assets such as investments, dividends, and property. For residents, these assets do not need to be in Spain to be subject to this tax. There are no capital gains allowances for the majority of people and so great care is required when selling assets and a review of assets and ownership is of major importance before the possibility that Brexit will also mean the loss of all EU tax breaks.

Fun financial fact
Consumer prices in the United Kingdom rose by 2.6 percent in the year to July 2017. In Spain it was 1.55%. We have to be aware that investments must perform at least at the rate of inflation to retain the same real spending power. In November 2008, Zimbabwe had an inflation rate of an estimated 6.5 sextillion%* (That’s 6,500 followed by 18 zeros). You would have needed one mean investment to match this rate.

*Source: Forbes

Smoothing out the bumps of market volatility

By Sue Regan - Topics: Assurance Vie, France, Interest rates, Investment Risk, Investments, wealth management
This article is published on: 9th June 2017

09.06.17

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.

A look at tax rates across Europe

By Chris Burke - Topics: Barcelona, BREXIT, Income Tax, Interest rates, spain, Tax
This article is published on: 31st May 2017

31.05.17

In a recent article in the Guardian newspaper, Patrick Collinson examines how the average burden on British people earning £25,000, £40,000 and £100,000 compares with taxes paid by similar earners in Europe, Australia and the US.

Chris Burke from The SpectrumIFA Group in Barcelona calculated the figures for Spain and explains “homeowners also pay an annual tax on the value of their property, currently around €900 on a home valued at €300,000, so slightly less than typical council tax rates in the UK. However, he says that inheritance tax has shifted enormously in recent years, having been raised to 19% during the financial crisis but now starting at just 1%”.

Labour’s plan to tax incomes over £80,000 more heavily is a “massive tax hike for the middle classes” that will “take Britain back to the misery of the 1970s”, according to rightwing newspapers. But are British households that heavily taxed?

A comparison of personal tax rates across Europe, Australia and the US by Guardian Money reveals how average earners in Britain on salaries of £25,000, or “middle-class” individuals on £40,000, enjoy among the lowest personal tax rates of the advanced countries, while high earners on £100,000 see less of their income taken in tax than almost anywhere else in Europe.

The survey found that someone earning £100,000 in the UK in effect loses about 34.3% of their pay to HM Revenue & Customs once personal allowances, income tax and national insurance are taken into account. The one-third reduction is roughly the same as the US, Australia and Spain, but a long way behind the 38% in Germany, 41% in Ireland, 45% in Sweden and up to 59% in France (though the French figures include very large pension contributions).
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Note that these figures are a rough guide only. International tax comparisons are bedevilled by large numbers of factors. We compared rates for a single person with no children and with no special allowances. Most countries tax individuals rather than households, but France taxes couples, which has the impact of reducing the burden on a high earner with an at-home partner. Autonomous regions within countries impose their own varying taxes. We converted euros, dollars and krona into sterling at a time when the pound had fallen rapidly; some earnings might have translated into higher tax bands abroad before sterling plunged.

Some countries, such as the US, raise relatively large revenues from property taxes. Others squeeze revenue from sales taxes – 25% in Sweden, 19% in Germany. While there is some harmonisation of income tax rates, social security varies dramatically. Australia imposes a small medical levy of 2%. France’s charges can be as high as 30%.

One of the most striking facts to emerge is church taxes. In Germany, individuals are expected to give 8% of their income to the church.

EU officials may look forward to the day when the single currency is teamed up with a single tax policy. But what emerges from our survey is how elaborate each country’s tax and social security systems are. Britain’s actually looks relatively simple compared with France’s. The Brexit negotiations will be a walk in the park compared with any attempt to harmonise the EU’s 27 national tax and social security systems.

France

Gross salary £25,000
After tax £17,050
Tax rate 31.8%

Gross salary £40,000
After tax £23,520
Tax rate 41.2%

Gross salary £100,000
After tax £40,600
Tax rate 59.4%

Spain (Catalonia)

Gross salary £25,000
After tax £20,812
Tax rate 16.7%

Gross salary £40,000
After tax £31,000
Tax rate 22.1%

Gross salary £100,000
After tax £65,700
Tax rate 34.3%

Germany

Gross salary £25,000
After tax £18,923
Tax rate 24.3%

Gross salary £40,000
After tax £27,256
Tax rate 31.8%

Gross salary £100,000
After tax £61,740
Tax rate 38.3%

Sweden

Gross salary £25,000
After tax £19,500
Tax rate 22%

Gross salary £40,000
After tax £30,000
Tax rate 25%

Gross salary £100,000
After tax £55,000
Tax rate 45%

Ireland

Gross salary £25,000
After tax £21,183
Tax rate 15.3%

Gross salary £40,000
After tax £29,624
Tax rate 26%

Gross salary £100,000
After tax £59,000
Tax rate 41%

United Kingdom

Gross salary £25,000
After tax £20,279
Tax rate 18.9%

Gross salary £40,000
After tax £30,480
Tax rate 24.8%

Gross salary £100,000
After tax £65,780
Tax rate 34.3%

To read the full article please click here
First published Saturday 27 May 2017, author Patrick Collinson

Compound interest – The Eighth Wonder of the World

By Emeka Ajogbe - Topics: Belgium, Interest rates, Investments
This article is published on: 2nd May 2017

02.05.17

Albert Einstein reportedly said it. “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.

Regardless of whether Einstein uttered these exact words, the essence of his statement is still immensely powerful and cannot be disputed. For anyone who wants to build lasting wealth, understanding and harnessing the power of compound interest is essential. So, what is compound interest? Well, it is the exponential increase in the value of an investment. Or, more simply put, it is the interest that you earn on your interest.

For the more visual of you, imagine, if you will, building the bottom part of a snowman. It starts with a snowball (or initial investment). You roll it around in the snow and it slowly gets bigger (interest on the investment). A slow and monotonous process until something wonderful becomes apparent – the snowball not only gets bigger and bigger, but at a faster and faster rate (interest on the interest).

Compound interest - The Eighth Wonder of the World

Put another way, let’s say that you invest €100,000 at (just to keep the maths simple) 10% interest per year. After the first year, you would have earned €10,000 of interest, with your total investment now worth €110,000. After the second year, your 10% annual return would have earned you another €11,000, giving you a total of €121,000. Year three would see your investment rise to €133,100. Over time this growth accelerates, meaning that you would double your initial investment in approximately seven years, simply by harnessing the power of compound interest. Sounds pretty easy, yes? So, why don’t more people do it? Well, for two main reasons, in my experience:

The key requirement for generating compound interest is time – the longer you leave your money to grow, the more pronounced and positive the outcome. Modern times have encouraged us to expect immediate rewards. For many, being told that it will take a good few years to see significant returns on their investments can be demotivating.

Another common reason is “it’s a bad time right now.” In the 1970s we experienced record breaking levels of inflation, in the 1980s Black Monday brought the biggest stock market crash since the 1920s. The 1990s saw a period of sustained recession. Currently, there are many economies around the world that are still recovering from the financial crisis of 2008, almost ten years on. Yet the stock market performs over time and continues to do so. The timing of an investment is far less important than the time that is allowed for it to deliver.

Essentially, having a long term investment strategy – allowing growth to be achieved over time – provides the best possible opportunity to achieve financial security for you and your loved ones in later years. With compound interest, the old Chinese proverb holds true. “The best time to plant a tree was twenty years ago, the second best time is now.”

How can I make my money grow when interest rates are so low?

By Pauline Bowden - Topics: Interest rates, Investments, Saving, spain
This article is published on: 26th April 2017

26.04.17

“Devastating, that is the effect that low interest rates have had on our income.” This quote shows that the impact of low interest rates is real, not some arbitrary number that may or may not be higher from another bank. Another recent quote from a client is “I am trying to build a pot for my retirement but interest rates will be low for the rest of my working life”.

Arguably, the person above who is still working has the chance to do something about the interest rates. For the couple from the first quote, they had been used to an income of 11,000€ pa from the interest on their bank accounts. When interest rates fell, so did their income to just 2,000€ pa. The Interbank ie base rates are minimal. You would be lucky to get 0.25% interest on a normal deposit account.

How to improve your income and investment return.

Here is a strategy that will help overcome very low interest rates. Firstly, there is no alternative to a bank account for some of your money. If you have planned expenditure then leave this money in the bank. Typically, this would be for a car, cruise or even perhaps a wedding just as some examples. Add to this an amount for an emergency fund. The amount will vary depending on your circumstances but three months of your normal expenditure is a good guideline.

Why do you need to leave money in the bank for these purposes? It is because other forms of investment often need to be allocated for the medium term. And unless you are simply lucky, money put into other investments needs to be allowed time to grow.

Are there alternatives to bank accounts? Yes, there are many alternatives. Do they work in the same manner as a bank account? No, they do not. This is why they can provide a better return on your investment. For this type of investment, do not put all your eggs in one basket. You need different types of investments (different asset classes) to give you diversification. Stick to the basics such as top quality fund management names. You do NOT need to be investing in rainforest woods, bitcoins or oil exploration companies that are about to discover hidden reserves (examples we come across regularly).

The outcome of a diversified portfolio will make a big difference to you, whether you are seeking income or capital growth. A 200,000€ investment with a return of, say, 5% would produce 10,000€ per annum. Not quite the 11,000€ that you may have been used to but certainly better than leaving it in the bank!

Capital protection and growth in one investment ?

By Daniel Shillito - Topics: Inflation, Interest rates, Investment Risk, Investments, Italy, Milan, Uncategorised
This article is published on: 12th September 2016

12.09.16

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.

Every Cloud

By Derek Winsland - Topics: BREXIT, europe-news, France, Inflation, Interest rates, Pensions, QROPS, Uncategorised
This article is published on: 8th September 2016

08.09.16

With the exception of a weakening pound and falling interest rates, we are yet to see the full impact of Britain’s vote to leave the European Union. Perhaps we may not ever see it if Teresa May and/or others decide against triggering Article 50 to herald the start of the process. We currently sit in a ‘phony’ period where no-one knows quite what will happen, causing doubt and uncertainty to set in. We await with bated breath the latest results to come out of the Treasury and the Bank of England.

The latter recently reduced interest rates to an historic low of 0.25%, at the same time announcing a new round of Quantitative Easing. Falling interest rates are either a good thing or a bad thing depending on which side of the saver/borrower fence you occupy. Clearly borrowers are happy, but for savers, especially those who rely upon their capital to supplement their retirement income, it’s not such a happy picture. Indeed, I am seeing this most days I speak to people about their finances. Thankfully, we are able to make investment recommendations that will generate higher levels of returns to counter falling interest rates, but these don’t suit everybody. But like most things I find in financial services, there’s generally a positive that accompanies a negative, if one looks close enough.

One such area relates to the impact falling interest rates has upon pension transfer values. In my last article I touched upon the way transfer values from occupational (defined benefit) schemes are calculated. Without going into chapter and verse, a fundamental part of the calculation process uses gilt interest rates to determine the transfer amount. Although the schemes have a certain amount of leeway in interpreting the rules, the bottom line is that low interest rates result in much higher transfer values having to be quoted by scheme trustees. This makes the decision on whether it suits an individual’s purpose to transfer somewhat easier to determine.

The observant amongst you will recall I mentioned TVAS in my last article, and the (somewhat out-of-date) rules that the FCA still clings on to. Remember critical yields? Well, a higher transfer value will result in a more achievable critical yield becoming attainable, so making the decision to move to a personal pension such as a QROPS, easier to make. Sure there are variables and these are more or less important depending on who you are and what your circumstances are. Carrying out a full analysis of your own particular situation, Spectrum’s advisers can place you in an empowered position to make your choices, so, if you have a defined benefit scheme that you’ve either never reviewed, or one that hasn’t been looked at for a while, perhaps now is the perfect time to do so.

Every cloud……!