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How to invest – 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.

How to invest – What Is Asset Allocation?

By Emeka Ajogbe - Topics: Belgium, Netherlands
This article is published on: 30th September 2019

30.09.19

If you read my previous article, I discussed the importance of diversification in your portfolio and how it is a strategy that can limit your exposure to risk. Another strategy is through asset allocation.

Asset allocation involves dividing an investment portfolio among different asset categories, such as equities, bonds, property, commodities and cash. The process of determining which mix of assets to hold in your portfolio is a very personal one. The asset allocation that works best for you at any given point in your life will depend largely on your time horizon and your ability to tolerate risk.

asset classes

TIME HORIZON
Your time horizon is the expected number of months, years, or decades you will be investing to achieve a particular financial goal. If you have a longer time horizon, you may feel more comfortable taking on a riskier or more volatile investment, because you can wait out slow economic cycles and the inevitable ups and downs of the markets. However, if you are saving for a property or a car, you are less likely to want to take on risk as you have a shorter time horizon.

TOLERATE RISK
I have spoken in more detail about risk, here. However, to summarise, risk tolerance is your ability and willingness to lose some (or all) of your original investment for greater potential returns. More adventurous clients, or those with a high tolerance for risk, are more likely to risk losing money in order to get better returns. My more cautious clients, or those with a low-risk tolerance for risk, are more likely to prefer investments that will preserve the value of their original investment.

THE IMPORTANCE OF ASSET ALLOCATION
By including asset categories with investment returns that move up and down under different market conditions within a portfolio, you can protect against significant losses. Historically, the returns of the three major asset classes (cash, equities and bonds) have not moved up and down at the same time. Market conditions that cause one asset class to do well often cause another asset class to have average or poor returns. By investing in more than one class, you will reduce the risk that you will lose money and your portfolio’s overall investment will have a smoother gradient. If the return in one asset class falls, you could be in a position to counteract your losses with better performance in another asset class.

If you are looking to start investing or review the asset allocation in your existing investments, please contact me either by email emeka.ajogbe@spectrum-ifa.com or phone: +32 494 90 71 72

New QROPS tax charge for 2017 – Will this change after BREXIT?

By Spectrum IFA - Topics: Belgium, BREXIT, France, Italy, Luxembourg, Netherlands, pension transfer, Pensions, Portugal, QROPS, Retirement, Spain, Switzerland, United Kingdom
This article is published on: 20th April 2018

20.04.18

In the Spring 2017 Budget, the UK government announced its intention to introduce a new 25% Overseas Transfer Charge (OTC) on QROPS transfers taking place on or after 9th March 2017. The HMRC Guidance indicates that the OTC will not be applied in the following situations:

  • the QROPS is in the European Union (EU) or EEA and the member is also resident in an EU or EEA country (not necessarily the same EU or EEA country);
  • the QROPS and the member is in the same country; or
  • the QROPS is an employer sponsored occupational pension scheme, overseas public service pension scheme or a pension scheme established by an International Organisation (for example, the United Nations, the EU, i.e. not just a multinational company), and the member is an employee of the entity to which the benefits are transferred to its pension scheme.

It is also intended that the above provisions will apply to transfers from one QROPS (or former QROPS) to another, if this is within five full tax years from the date of the original transfer of benefits from the UK pension scheme to the first QROPS arrangement.

Nevertheless, it is clear that taking professional regulated advice is essential. This includes if you have already transferred benefits to a QROPS and you are planning to move to another country of residence.

It is important to explore your options now while you still have the chance as who knows what changes will come with BREXIT. Contact you’re local adviser for a FREE consultation and to discuss your personal options

Time to Review Your Final Salary Pension

By Craig Welsh - Topics: Belgium, BREXIT, Netherlands, Pensions, Uncategorised
This article is published on: 27th October 2016

27.10.16

Final Salary pension schemes, also known as Defined Benefit schemes, have long been viewed as a gold-plated route to a comfortable retirement. In the past, many advisers, including ourselves, would have been sceptical about people transferring out of such a scheme. However, there have been huge changes in UK pensions legislation and there are likely to be further changes ahead. The key question here is; will these schemes be able to provide the benefits they have promised over the next 20+ years?

Why Review Now?

In many cases, it may still be best advice to leave the pension where it is. And a transfer out requires highly specialised and regulated advice. However, there are many compelling reasons why a review makes sense.

Record high transfer values
UK gilt yields are at an all-time low and this has pushed up transfer values to be an all-time high; some transfer values have increased by over 30% in the last 12 months. Many clients are quite surprised to learn their scheme which projects an income of GBP 10,000 per annum in retirement offers a transfer value of over GBP 330,000!

Scheme Deficits
Actuaries Hyman Robertson now calculate the total deficits on remaining final salary pension schemes as £1 trillion.

TATA Steel/BHS
Recent examples show that very large deficits cause several problems. No one wants to purchase these struggling companies as the pension deficits are too big a burden to take on. Could the Government be forced to change the laws to allow schemes to reduce benefits? A reduction in the benefits will reduce the deficits and make the companies more attractive to purchasers. There is a strong argument that saving thousands of jobs is in the national interest, if that just means trimming down some of these “gold plated benefits”.

Pension Protection Fund (PPF)
This fund has been set up to help pension schemes that do get into financial trouble. Two points are key. Firstly, it is not guaranteed by the Government and secondly, the remaining final salary schemes must pay large premiums (a levy) to the PPF to fund the liabilities of insolvent schemes. As more schemes fall into the PPF there would be fewer remaining schemes that must share the burden of this cost. Their premium costs will increase as there will be fewer remaining schemes to fund the PPF levy.

It is possible that the PPF will end up with the same problems as the final salary schemes; i.e. they won’t have the money to pay the “promises” for pensioners. Additionally, the PPF will most likely have to reduce the benefits they pay out.

Pension Changes Already in Place
Inflationary increases have already been permitted to change from Retail Prices Index (RPI) to Consumer Prices Index (CPI). This change looks reasonably small, but over a lifetime this could
reduce the benefits by between 25% and 30%.

In April 2015, unfunded Public Sector pension schemes have removed the ability to transfer out, so schemes for nurses, firemen, military personnel, civil service workers etc. are no longer transferable. Now these are blocked, it will be easier to make changes to reduce the benefits and no one can respond by transferring out.

When this rule change was being discussed the authorities also wanted to block the transfer of funded non-public sector schemes, i.e. most corporate final salary schemes. There is therefore a risk that transfers from all final salary schemes could be blocked or gated.

Autumn Statement (Budget)
This is expected on 23 November 2016. Could the Government make any further changes to Pension rules? When Public sector pensions were blocked, there was a small time window to transfer. People who review their pensions now may at least have time to consider options.

Could Brexit end the ability to transfer pensions away from the UK? This is still unknown, but pensions are often a soft target of government taxation ‘raids’.

Reasons Why Schemes Are In Difficulty

Ageing population. People now expect to live around 27 years in retirement. When these schemes commenced the average number of years in retirement was 13 years.

Lower Investment Returns. As schemes have become underfunded, they have invested more conservatively. Average exposure to equities (shares) is now around 33%, whereas in 2006 the average equity content was 61%.

Benefits were too generous. In simple terms, many of the final salary schemes were too good. In 2016, if you became a member of a 1/60th scheme then your company would need to add 50% of your salary to make sure the benefits can be paid. Clearly this is unrealistic.

What Could Change?

·       An end to the ability to transfer out of such schemes

·       An increase to the Pension Age, perhaps in line with the increase of the State Pension

·       Reduction of Inflation increases, (already started as many now increase by CPI instead of RPI)

·       Reduction of Spouse’s benefit

·       Increase of contributions from current members

·       Lower starting income

What Are The Alternatives?

QROPS schemes have proven very popular in recent years as they offer expats excellent flexibility. While a QROPS is not the only alternative, and each individual case needs properly reviewed by a suitably qualified adviser, the benefits are clear;

·       The ability to pass the pension fund on to heirs

·       The option to change currency

·       You can access the benefits flexibly via income drawdown (can vary the income you take)

·       Wide investment choice to suit your risk profile.

At The Spectrum IFA Group, your locally-based adviser will work together with our internal Pensions Review team and conduct a full analysis of your current arrangements.

The Spectrum IFA Group Expands in Holland and Belgium

By Spectrum-IFA - Topics: Belgium, Netherlands, Uncategorised
This article is published on: 26th March 2014

26.03.14

The Spectrum IFA Group are delighted to announce that David Elkan has joined the office in Holland.

David has worked in Financial Services for the past 26 years covering all aspects of financial planning and investment advice. Initially working within a large offshore brokerage in South East Asia, David then setup his own business in 2002 advising expat clients worldwide.

Commenting on this recent appointment, The Spectrum IFA Group’s CEO, Michael Lodhi commented “We are delighted to welcome David into the team to advice clients in Holland and Belgium. His appointment underpins The Spectrum IFA Group’s commitment to extend our range of services and advisers in Europe and to provide expatriates with a wide range of specialist financial advice”.

The group has been rapidly expanding within Europe over the past few years and this is the third new appointment for The Spectrum IFA Group within the month of March. Michael continues to say, “It is clear that our services are badly needed by the expatriate community in Europe and we are committed to providing this much needed professional advice”.