By Michael Doyle
This article is published on: 9th March 2023
I have been working with a few clients over the past couple of years who were very nervous about investing for the longer term as the markets had been volatile. Recently they decided to ‘push the button’ after we reviewed their situation together.
So, here are ten reasons why now could be a good time to invest:
1. Economic recovery: The global economy is recovering from the impact of the COVID-19 pandemic, and this presents opportunities for investors to take advantage of growth opportunities in various sectors.
2. Low-interest rates: Interest rates are currently low, which can make borrowing cheaper and provide investors with a chance to invest in assets that are likely to yield higher returns.
3. Inflation protection: Investing in stocks, bonds, and other assets can provide protection against inflation, which can erode the purchasing power of your money over time.
4. Increased savings: Many people have saved more money during the pandemic due to reduced spending on things like travel and entertainment. This has led to an increase in the amount of money available for investment.
5. Technological innovation: The pandemic has accelerated the adoption of new technologies in many industries, and investors can potentially benefit from investing in companies that are at the forefront of innovation.
6. Diversification: A well-diversified portfolio can help investors spread their risk and potentially minimize losses if one sector or asset class underperforms.
7. Long-term focus: Investing is a long-term strategy, and the current market volatility should not deter investors from thinking about the long-term potential of their investments.
8. Behavioural finance: Understanding how emotions and biases can impact investment decisions can help investors avoid making costly mistakes.
9. Education and access: There are many resources available to investors to help them learn about different investment opportunities and strategies, and technology has made it easier than ever to invest from the comfort of your own home.
10. Social responsibility: More investors are looking to make investments that align with their personal values and beliefs, and there are now many options for socially responsible investing that can potentially provide both financial returns and social impact.
Now would be a great time to review your own situation. Either speak with your financial consultant or feel free to contact me for a no obligation review.
By Michael Doyle
This article is published on: 21st February 2023
Russia’s invasion of Ukraine has had far-reaching consequences on the global investment market, with investors worldwide facing significant challenges in maintaining returns amidst the geopolitical turmoil. In this article, we will explore how the invasion has affected global investment returns.
On February 24, 2022, Russia launched a full-scale invasion of Ukraine, triggering a significant geopolitical crisis that has had a severe impact on global markets. The initial response was swift, with investors responding by selling off their assets, causing a drop in prices in equities and other asset classes.
Stock markets around the world experienced significant drops as investors scrambled to assess the situation’s severity, with some seeing declines of as much as 5% in a single day. The selloff was particularly severe in Europe, where the German DAX and the UK’s FTSE 100 both fell sharply. In the US, the S&P 500 and Dow Jones also fell significantly.
Safe-haven assets like gold, the Japanese yen, and the Swiss franc, saw significant inflows as investors sought to protect their portfolios from further losses. Bond yields also fell as investors sought refuge in safe-haven assets, with the yield on the 10-year US Treasury note dropping to 1.5%, its lowest level since November 2020.
Sector-wise, energy companies, particularly those with operations in Europe, were the hardest hit. Companies like Royal Dutch Shell and BP saw significant declines, as the invasion threatened to disrupt the flow of energy supplies from Russia to Europe.
Investors React to the Ongoing Crisis
Investors have been closely watching the situation in Ukraine, with market analysts suggesting that the ongoing crisis could have a significant impact on global investment returns. The potential for further escalation of the conflict, coupled with the possibility of economic sanctions on Russia, has left many investors concerned about the potential impact on their portfolios.
Several analysts have suggested that investors should remain cautious and avoid taking unnecessary risks. In particular, those with exposure to companies that could be adversely affected by the ongoing crisis should be prepared to re-evaluate their investment strategies.
At the same time, some investors have seen opportunities in the market downturn, with some taking advantage of the lower prices to buy into equities that have been undervalued as a result of the crisis. This approach, however, requires a significant degree of caution, as the situation in Ukraine remains highly volatile, and the market could continue to experience significant swings.
Conclusion
The ongoing conflict in Ukraine has had a significant impact on global investment returns, with markets worldwide experiencing significant declines in response to the invasion. While some investors have seen opportunities in the market downturn, most have adopted a cautious approach, wary of the potential risks posed by the ongoing crisis.
As the situation in Ukraine continues to unfold, it is clear that investors will need to remain vigilant and prepared to reevaluate their investment strategies at short notice. The geopolitical turmoil has highlighted the importance of diversification, risk management, and a long-term investment approach that can weather short-term market volatility
If you would like to review your current investments or wish to consider taking advantage of today’s markets then it is advisable to speak with your financial adviser.
By Spectrum IFA
This article is published on: 7th April 2021
This is the third and final in a series of articles where I have talked about holding stock options, vesting those options and holding them in a tax efficient manner. In this article, I will discuss the importance of de-risking and diversifying your portfolio, and finally how useful a Branch 23 solution is in mitigating against US Estate Tax on shares if you hold them.
WHY WOULD I WANT TO DE-RISK MY HOLDING?
I wrote in more detail about the effect of risk on your portfolio here. However, to explain briefly, it is considered risky, in investment terms, if you hold too much of one particular share or asset or if it makes up 100% of your investment strategy. Some people are perfectly comfortable with being exposed to this level of risk. Other people are less so. If you have 180,000€ in one particular share or equity, and that was all you had, then it might be a good idea to de-risk yourself and reduce the possibility of losing some, if not all of your investment due to market volatility.
WHAT IS THE ALTERNATIVE?
There are some alternatives available and they all centre on diversifying your holdings. If you have shares in a company, whether it be a start-up or a multinational organisation, you could benefit from diversification to insure against significant loss.
At Spectrum, we favour the multi-asset approach to investing for our clients. These investment vehicles allow our clients access to multiple funds, asset classes and locations through a single fund that is managed and monitored by dedicated specialists and experts on the investor’s behalf. This type of fund can increase the potential for diversification and reduce the level of risk.
CAN I BE LIABLE TO US ESTATE TAX HOLDING SHARES?
Yes, you can. If you are a non-US person (neither a US citizen, US green card holder, or a long-term US resident) with US situs assets (including, but not limited to, real
property located in the US, shares of US publicly traded companies, shares of US private companies) you will be liable to US estate tax where the value of said assets is greater than $60,000. The tax rate ranges from 18% to 40%.
A Branch 23 solution could reduce or eliminate any US estate tax for non-US persons which would ordinarily be required upon your death if your US situs assets are worth more than $60,000. Whilst within the solution, there are generally no US income tax or capital gains tax implications for a non-US person. This means that you can hold the shares (should you wish to) for as long as you want, safe in the knowledge that when you pass away, your beneficiaries will not have to pay potentially significant tax liabilities.
Please note that US tax can be extremely complicated and it is advised that you also speak to a US tax specialist to ensure that you are in line with US tax rules.
Contact me to discuss this in more detail at emeka.ajogbe@spectrum-ifa.com or +32 494 90 71 72.
By Spectrum IFA
This article is published on: 24th March 2021
In my previous article, I described what stock options are and how they can be utilised by both companies and individuals to create wealth. Now, I will look at some of the tax liabilities that you may be subject to and how you may be able to mitigate them when you decide to take up your option to purchase the stock. I will be focussing on the Belgian market, but we are also able to help if you are based in other countries, so do not hesitate to contact us with a specific enquiry.
HOW DO I ENSURE I AM NOT TAXED ON MY STOCK OPTIONS?
Short answer? You cannot. If the option is quoted on a stock exchange, the amount to be taxed is calculated on the basis of its closing price on the day immediately prior to the offer date. If the option is not quoted, then the amount to be taxed is 18% of the underlying share multiplied by the number of option rights held. As with all tax due in Belgium, these need to be reported to the tax authority.
WHAT WILL I BE TAXED AFTER I DECIDE TO TAKE UP MY OPTION?
At the time of writing, the Belgian rate of tax on stocks, shares and equities is 30% on the dividend income received; this tax is known as Withholding Tax. Companies that are established in Belgium are obligated to withhold this tax from investment income received.
If the dividends received into a Belgian bank account are coming from a foreign company, then the bank is obligated to apply the withholding tax. In addition, a withholding tax set at the rate set by the country the dividends are coming from must also be applied. This can be reduced if Belgium has a double taxation treaty with said country.
Let’s look at a quick example. A popular country of origin for stocks, shares or equities is the US. The US can charge a withholding tax of 30% on top of the Belgian withholding tax. Belgium retains a double taxation treaty with the US. This subsequently reduces the US withholding tax by up to half, whilst the Belgian withholding tax remains. On top of this, on January 1, 2018 the Belgian government introduced a withholding tax exemption threshold of up to €800 on dividends to encourage people to invest.
HOW DO I HOLD MY VESTED STOCK IN A TAX EFFICIENT MANNER?
I wrote an article on Branch 23, an investment bond solution available in Belgium for investors who wish to invest in a tax compliant way and also plan for inheritance and estate tax planning. Your stock, shares and equities can be held within this solution and you would not be liable to withholding tax on your investments for as long as you hold the bond. You will pay 2% Insurance Premium Tax when you initially invest and that covers your taxation liability (including Withholding Tax and Social Insurance Contribution that can add up to 59.58%) for however long you hold the bond.
To understand more how I can help you manage your stocks and shares/equities that you have accumulated in a more tax efficient manner, please contact me at emeka.ajogbe@spectrum-ifa.com or +32 494 90 71 72.
By Michael Doyle
This article is published on: 22nd March 2021
For citizens living in France, assurance vie is known to be one of the safest ways to invest money and organise your inheritance. It is an insurance instrument that serves as a tax-efficient investment vehicle containing one or more underlying investments.
Why It’s Considered Better Than the Bank?
In November 2020, the Banque de France told us that the average interest rate on bank deposits is 0.46%, unchanged since August 2020.
Any gain on your deposit would be subject (in general) to a 30% charge between tax and social charges, leaving a return on investment of just 0.32%.
Couple that with the fact that inflation in France in 2020 was 0.46% (www.statista.com) and you are effectively losing money by leaving it in your bank account.
A well-managed cautious portfolio held within an assurance vie returned about 4% in 2020.
Benefits of Inheritance
When you set up this form of investment before you turn 70, each beneficiary is entitled to a tax-free deduction of €152,500 for money invested before you turn 70, with taxes limited to 20% for everything beyond that (although sums exceeding €700,000 per beneficiary are subject to a higher tax rate of 31.25%).
Why Should You Invest in Assurance Vie?
Investments held within an assurance vie grow income tax and capital gains tax free, so you have a gross roll up of any gains within the investment.
Tax and social charges are paid only on withdrawal, however as part of the return is capital much of these gains are offset.
Advantages for Foreigners
If you are a foreign national living in France, assurance vie should be a key investment, particularly if you expect to live there for the long term. As a British expatriate living in France, you have a host of international assurance vie policies at your disposal, most of which are Brexit-proof. Not only are these policies consistent with the European Union rules, but they also operate across borders in the United Kingdom, meaning you can take them with you if you change your home again or go back to the UK.
By Michael Doyle
This article is published on: 16th March 2021
With today’s economic environment of record low interest rates and high inflation, it’s crucial to understand your investing options. This article will clarify what you need to know about investing as an expat living in France and how we are here to help you.
First, what are your investment objectives? Do you want to preserve your wealth and continue its growth trajectory? Then we recommend reviewing tax efficient savings and investment insurance policies. These can be linked to a whole range of investment assets, from fixed interest securities and bonds, to developed or emerging market equities, specialist funds investing in soft commodities like agriculture or hard commodities like gold and silver, and lastly, alternative investments.
Which investments fit your portfolio best depends on the amount of risk you are willing to take and what kind of returns you are seeking. So, let’s break down the specifics you need to know when thinking about your portfolio.
• Fixed Interest Securities and Bonds are a form of lending that governments and companies may use as an alternative way to raise funds. When you buy a share in a company you own a small part of that company, when you buy fixed interest securities, you become a lender to the issuer. The benefits may include protection during market volatility, consistent returns and potential tax benefits. Some downsides include potentially lower returns, interest rate risk, and issues with cash access.
• Developed Market Equities are international investments in more advanced economies. The benefits include investing in a mature economy that has greater access to capital markets. Drawbacks include more expensive market valuations and potentially less upside.
• Emerging Market Equities are international investments in the world’s fastest growing economies. Some benefits include the potential for high growth and diversification. The potential downsides include exposing yourself to political, economic, and currency risk depending on which countries you choose to invest in.
• Specialist Fund Investing is ideal for investors seeking exposure to specific areas of the market without purchasing individual stocks. One popular area is natural resources, with the three major classifications of agriculture, energy, and metals. A benefit to investing in commodities is that they’re completely separate from market fluctuations so it diversifies your portfolio and offsets stock risks while providing inflation protection. However, commodities can be exposed to uncertain government policies.
• Alternative Investments are financial assets that do not fall into one of the conventional equity, income, or cash categories. Examples include: private equity, hedge funds, direct real estate, commodities, and tangible assets. Alternative investments typically don’t correlate to the stock market so they offer your portfolio diversification but can be prone to volatility.
Overall, it’s important to have a diversified and balanced investment portfolio so understanding each category is key. Keep in mind that when it comes to investing, advice is not one-size-fits-all. That’s why we are here to help personalise your investment portfolio to match your specific needs.
In today’s financial climate it is vital to understand your investing options. Many experts have a positive outlook as vaccine distribution increases and fiscal stimulus boosts economies. Intelligent investing is essential when building and maintaining wealth so consult with your Spectrum IFA financial adviser and start planning today!
By Michael Doyle
This article is published on: 15th March 2021
Many people are looking for an alternative to setting up a regulated pension for their retirement savings. Whilst there is tax relief on pension contributions in the savings phase, they are happy to give this up for more flexible and tax-effective income during retirement. In France, the most popular vehicle used for long-term savings is a contrat d’assurance vie, in which investors have the opportunity to invest regular premium savings or a temporary amount.
What Is an Assurance Vie?
An assurance vie is an insurance-based investment that can be as straightforward or as nuanced as you like. The following are the benefits of assurance vie for French residents:
Assurance vie is the traditional form of saving for millions of French citizens. Several billions of euros are invested by French banks and insurance firms that sell their own branded products.
Additionally, a much smaller group of non-French companies have designed French-compliant policies for the expatriate market in France. These businesses are generally located in heavily regulated financial hubs like Dublin and Luxembourg.
However, before selecting such a firm, make sure that it is a product completely compatible with French law to get the same tax and inheritance benefits as the French equivalent product.
Below are some of the benefits of a foreign assurance vie policy over a French assurance vie policy:
When it comes to EU countries, the taxes can be confusing. In these jurisdictions, the plan is often accepted for its beneficial tax performance.
How Does Assurance Vie Work?
Your one-time or regular investment or premiums are paid to an insurance firm, which then invests the funds with the investment managers of your choosing. These are typically unit-linked investments, such as equity or bond funds, but they may also be deposits or unique products sold by different financial institutions.
You may invest in a range of funds which the insurance provider can pool together to create a mutual bond, which is your assurance vie policy. The value of the units you keep in managed funds is likely to increase over time if you have selected your investment wisely.
As a consequence, the value of your assurance vie policy will grow accordingly. You must, however, be fully conscious of and comfortable with the level of risk you are taking. As with any unit-linked investment, your fund’s value will go up or down depending on what is happening in the investment markets. Short-term market instability, on the other hand, typically has a lower impact over time
How Do I Choose What to Invest Inside My Assurance Vie?
You may hold strong opinions on the subject or have no opinions at all. In any case, having an excellent financial planner on hand is helpful. His or her job is to help you comprehend the full definition of investment and decide your attitude toward investment risk.
Without acknowledging any risk, there is little reasonable chance of making a significant return on your savings. Even leaving your savings in a bank these days carries the risk of not receiving a ‘real’ rate of return, i.e., one that keeps up with inflation.
An adviser can show you various types of investment options, clarify how they operate, their track record, and the nature and level of risk that the investment entails. Although you make the ultimate decision, his or her support may be helpful.
Following the initial investment, there should be regular follow-up meetings to assess your investment’s success and make any appropriate adjustments. This may be because your circumstances have changed or because certain funds aren’t performing as well as anticipated, and you’d like to replace them with funds that are.
Can Capital Be Guaranteed Via a French Assurance Vie?
The willingness to invest in a fonds en euros is a common feature of the French assurance vie (though this is also available, in limited circumstances, from insurance companies outside France).
Since your money, as well as any interest and year-end bonus applied to it, is guaranteed, this unique type of fund is structured to shape a very conservative base for your overall investment.
The majority of foreign companies that supply these forms of funds also provide sterling and US dollar equivalents. Intending to increase returns, the funds invest mainly in government and corporate bonds, with some exposure to equities and assets (real estate). Your money will earn interest over the year.
The insurance firm is allowed by statute to refund the bulk of the funds to your account in the form of a year-end bonus. The remaining portion of the fund’s return is kept in the insurance company’s reserves to smooth out potential investment gains, such as in periods of weak market results. However, the rate of return on the fonds en euros is ordinarily low due to the quality of the guarantees. Still, it is generally better than the interest received on a bank deposit account with immediate access.
However, the French tax authorities consider this form of a fund to be so without risk that annual social charges are imposed on the gain, potentially lowering the return rate over time.
It is also possible to invest in structured bank deposit offerings through some foreign assurance vie policies. The investment return is related to the stock market, but the capital invested is guaranteed.
How Is an Assurance Vie Taxed?
Only the benefits portion of every amount you withdraw is taxable, and after January 1, 2018, the tax treatment differs depending on whether premiums were charged before September 27, 2017, or after that date.
Premiums paid before September 27, 2017
You may either be taxed at the set prelevement rate or file an annual income tax return, depending on your tax situation. The following is how the prelevement scale works:
Furthermore, social charges are imposed on the benefits portion of the amount withdrawn, at a rate of 17.2 percent. People prefer the progressive rate tax if it is lower than their marginal rate of income tax.
In France, the highest income tax rate is officially 45 percent. As a result, even though 35 percent appears to be a high rate, it is still the best choice for higher-rate taxpayers. After four years, you’ll have to reconsider which form to use. If your marginal tax rate is at least 30 percent, a prevelement rate of 15 percent is a better choice.
If you are a non-taxpayer (as more people are now since the 5.5 percent tax bracket was eliminated), you can opt to report the withdrawal on your annual income tax return.
After eight years, there is an extra income tax incentive to encourage people to save more for the long term. A single taxpayer is entitled to a €4,600 income tax credit against the benefits portion of any withdrawals made during the tax year. This is raised to €9,200 for married couples who are subject to joint taxation. There will be no income tax to pay if the benefits portion of total withdrawals made during the year does not surpass the allowances.
This might not seem like much, but it’s a valuable allowance, as shown by this example of Peter and Pam’s assurance vie policy, which they began nine years ago with a €100,000 investment. They have not taken any withdrawals, and the account is now worth €160,000. They want to buy a new car and need €15,000 to help pay for it, so they withdraw this amount. They receive a tax certification from the insurance firm when they make this withdrawal, showing how much gain is included in the amount withdrawn. The guaranteed value has risen by 60%, but the taxable benefit factor is only 37.5 percent (or €5,625) in this case. Since they have a tax-free allowance of €9,200 and they are subject to joint taxes, there is no income tax to pay.
Premiums paid from September 27, 2017
The tax rate varies based on the contract’s duration, plus whether capital remaining in the contract as of December 31 of the year before the withdrawal was above a threshold sum for contracts longer than eight years. The threshold amount is €150,000 per person (across all assurance vie policies), measured by the amount of premiums invested minus any money already withdrawn, rather than the contract’s value. Couples taxed as a household cannot share each other’s threshold because the threshold is not cumulative between individuals. As a consequence, one spouse can meet the threshold while the other does not.
On January 1, 2018, France adopted a 30 percent flat tax,’ consisting of 12.8 percent income tax and 17.2 percent social charges. As a result, for contracts that are less than eight years old, a flat tax is levied on gains in withdrawals which are deducted automatically by the insurance provider. The flat tax replaces the pre-September 27, 2017 rate of 52.2 percent (35 percent tax plus 17.2 percent social charges) for contracts of up to four years and 32.2 percent (15 percent tax plus 17.2 percent social charges) for contracts of four to eight years.
After eight years, the tax rate is 7.5 percent. In addition, there is 17.2 percent social charges to pay. The tax free allowance of €4,600 for a single taxpayer or €9,200 for a couple is still in place after eight years. When filing their French tax return, taxpayers can also choose to pay tax at their marginal rate in the ordinary income tax brackets (rates varying from 0-45%) plus social charges. Any excess tax already charged would be refunded after processing the tax declaration made in the year after payment of the withdrawal since the insurance provider will have already deducted 12.8 percent or 7.5 percent.
However, taxpayers should be mindful that if ordinary band taxation is selected for assurance vie dividends, this will extend to all other sources of investment profits, such as interest and persons, as well as capital gains from the selling of shares.
Does Assurance Vie Have Other Advantages?
Without question, assurance vie is also a powerful tool for estate planning, both in reducing French inheritance taxes and giving you leverage over who inherits your properties after you die. This form of investment is considered outside of your estate for
When you set up this form of investment before you turn 70, each beneficiary is entitled to a tax-free deduction of €152,500 for money invested before you turn 70, with taxes limited to 20% for everything beyond that (although sums exceeding €700,000 per beneficiary are subject to a higher tax rate of 31.25 percent).
The inheritance benefits are limited for sums invested after the age of 70. There is a €30,500 tax-free exemption in this situation (plus the investment return on the total invested) for all of the people who profit from it. Any portion of the premium that reaches €30,500 is subject to regular French inheritance allowances, which differ based on the beneficiaries’ connections to the policyholder. Any gain in the scheme paid out as a death benefit is also subject to social taxes at the current rate of 17.2 percent.
Assurance vie can be a valuable tool for estate planning and providing a tax-efficient source of income for the policyholder over his or her lifetime.
By Spectrum IFA
This article is published on: 11th March 2021
More and more people are accumulating new wealth through gaining stock options as part of their remuneration package. Whether you are fortunate to work for one of the 40% of start-ups that become profitable or work for a large established corporation, the potential financial gain can be life changing. Today, I want to talk to you about stock options and why you should understand what they mean to you.
WHAT ARE STOCK OPTIONS?
For any organisation you work for, you are likely to get a salary (unless you are volunteering) and, if you are lucky, stock options. Stock options make up a designated number of shares in a company and are designed to give you some measure of ownership in the organisation. They are the right, not obligation, to buy or sell a share at an agreed upon date and price (also known as the strike price). The idea being, if you own some of the company you are working for, then you are more committed to see the company grow, be profitable and stay with the company for a long time.
WHERE DO THEY COME FROM?
Stock options come from what is known as a stock option pool. These tend to be up to 20% of an organisation’s shares and these options are granted to employees and non-employees (typically investors). The initial owners start out with a certain number of shares in the company and effectively create new shares in the company by setting up a stock option pool.
HOW DOES THIS WORK?
This can be confusing, so for illustration purposes, I am going to use an example of a start-up called LIO that is today valued at 2,000,000€, has an initial share total of 5,000,000 and wants to create a stock option pool of 5% for its employees.
With the creation of a stock option pool, LIO now has 5,250,000 shares. Given that the value of the company is 2,000,000€, that means that each share is worth 0.3809€. Now, let’s say that LIO wishes to give an employee, Avery, 1% of the company’s shares as part of their remuneration package. This means that today, Avery’s 52,500 shares would be worth approximately 20,000€.
A few years into the future, LIO is bought and is valued at 20,000,000€. At this point, Avery decides to exercise his right to buy the shares. He would not have to pay the 3.809€ per share that they are now worth, but at the strike price of 0.3809€. Avery’s gain would be the difference between the two numbers multiplied by their shareholding, meaning that they would have made approximately 180,000€ thanks to the buyout.
I have oversimplified things for the sake of illustration. However, this is what happens in essence, even in large, publicly traded companies.
WHAT DO I DO IF I HAVE BOUGHT SHARES?
The technical term is vested. So, if you have done this and hold shares, then you may be liable to tax on those shares and we will see if we can work towards a solution for you. If you live in Belgium or Luxembourg, we can definitely help.
This article is intended for general guidance only and is based on our understanding of Belgian tax law. It does not constitute advice or a recommendation from The Spectrum IFA Group.
By Michael Doyle
This article is published on: 8th March 2021
We often get asked the question, “When is the best time to invest my money?” Our answer is never based around when you should invest, but rather how long you can invest for.
• No one can predict the top or bottom of any market.
• The market has always exceeded its previous high when it has recovered.
So the question is not when you should invest your money in the market, but how long can you stay in the market to achieve your financial goals? Or to put it more simply, time is more important than timing.
During periods of stockmarket volatility, investors often become uncertain and lose sight of their initial long-term investment view. They often find themselves postponing a new investment, or even selling their current holdings with a view to re-invest when the markets stabilise.
What often happens in times of trouble, however, is that investors sell at a lower price than that which they bought at.
A study by Dalbar in Boston USA, highlighted a key area for private investor’s underperformance:
• According to Dalbar, from 1985 to 2004 the average personal investor achieved an annualised return of just 3.7% while the S&P500 returned 11.9% and inflation averaged 3%
A further study showed that playing the waiting game could cost you dearly. Investors who remained fully invested in the UK market over the period March 2003 until March 2008 would have received returns in excess of 60%. However, those investors who tried to time the markets would have had their returns cut to 40% if they missed out on the best 10 days of the market and those who missed out on the best 40 days would have seen returns of 4%!
This applies across other major markets as the table below shows:
| MARKET | INDEX | FULLY INVESTED | MISSING BEST 10 DAYS | MISSING BEST 40 DAYS |
| UK | FTS All Share | 63.4% | 40.0% | 3.9% |
| US | S&P 500 | 56.4% | 11.6% | -39.2% |
| GLOBAL | MSCI World | 63.7% | 21.6% | -26.2% |
Sources: JP Morgan Asset Management/Bloomberg/Datastream
What we do know is that historically the markets have always recovered, as the table below shows.
| EVENT | DATE | RESPONSE | AFTER 4 MONTHS |
| Pearl Harbour* | December 1941 | -6.5% | -9.6% |
| Korean War | June 1950 | -12% | +19.2% |
| JFK Assassination | November 1963 | -2.9% | +15.1% |
| Arab Oil embargo | October 1973 | -17.9% | +7.2% |
| USSR in Afghanistan | December 1979 | -2.2% | +6.8% |
| 1987 Financial Panic | October 1987 | -34.2% | +15% |
| Gulf War | December 1990 | -4.3% | +18.7% |
| ERM Currency Crisis | September 1992 | -6% | +9.2% |
| Far East Contagion | October 1997 | -12.4% | +25% |
| Russia Devalues Rouble / Long Term Capital Management Crisis |
August 1998 |
-11.3% |
+33.7%
|
| World Trade Centre | September 2001 | Dow -14.3%
Nasdaq -11.6% |
+5.9%
+22.5% |
*(The markets rose 8% during the year following Pearl Harbour)
Essentially what we can conclude is that most investors do not buy and hold for extended periods of time. Thus getting in and out of the market at the wrong times or switching funds with a view to chasing the top performers, unfortunately at a time when these ‘top performers’ have reached their peak.
Almost without exception, successful investment strategies rely on discipline, patience and taking a long-term view. Successful investors typically neither react to short market events, nor try to pre-empt short term market direction.
For advice on an investment solution aligned with your personal objectives and risk profile, feel free to contact me for an initial discussion.
By Michael Doyle
This article is published on: 4th March 2021
Are you planning on retiring in France or Luxembourg but have a pension in the UK?
Look no further than this article as we guide you through your options. Pensions are a pinnacle part of your retirement plan but can be a complex topic for British expatriates with rules frequently changing, so always consult with your financial adviser when deciding which plan best suits your needs.
First off, you can leave your pension as is in your existing UK pension scheme if you want. However, with the Brexit decision, you should check with your UK financial adviser and make sure they can still support you. If you want to move your funds to an international pension plan, then your best options may be opening a QROPS or SIPP account.
QROPS (Qualified Recognized Overseas Pension Scheme) allows foreign nationals who have worked in Britain to transfer their UK pensions overseas.
SIPP (International Self-Invested Personal Pension) enables someone access to greater investment choices because it is a personal pension plan based on making your own decisions. However, the pension structure is based in the UK so it’s subject to any legislative changes made by the UK government.
Benefits include, but are not limited to:
You can also try a combination between both UK and international pension plans. The main objective is to arrange your retirement in a manner where you can access your finances when you want, where you want, and in the currency of your choice. Overall, there are many things to consider when choosing your pension plan, so be sure to do your research and understand your different options before making any decisions.
It is in your best interest to act now when planning your pension scheme, so touch base with your financial adviser today to discuss your options.
