DIY Investing

Solomons-financial-advisor-wimbledon-bloggerDIY Investing

To my mind, one of the great ironies of financial planning is that a litigious culture, historic mis-selling, poor regulation, fearful professional indemnity insurers, better qualified advisers and RDR has meant that the cost of advising anyone has increased. Already this year our regulatory costs have increased by more than 10% (yet inflation is 0%). This will result in the continued rise of DIY investing (do-it-yourself).

I have tended to take the view that most people need to have a budget, a target, a savings habit and only when they have £50,000+ do decisions get complicated enough for me to get involved. Its not always the case, but largely. So it is alarming how poor most people are at investing – and by poor I mean really bad.

Just Unlucky?lucky sleven

An academic study from 2012 “Just Unlucky?” by Meyer, Stammsschulte, Kaesler, Loos and Hackethal at Goethe University in Frankfurt, into the success or otherwise of online investors (who generally think of themselves as well-informed) concluded that 89% of them lost an average of 7.5% a year. Let me repeat that 89% achieved -7.5% a year! Those that performed better were basically no better, exhibiting the same performance metric as luck. The research is based on German investors.. a nation that is historically characterised as shrewed, efficient, conservative and risk averse.

91% of DIY investors fail – big time.

Why? It would seem a significant element is holding the wrong asset classes and not well diversified globally. There is also a high degree of fear and greed at play, selling at the bottom and buying at the top. I can only imagine that some were following the tips from journalists and media commentators “best buys”. If dealing costs are factored in (and this was DIY investors using online dealing accounts, which presumably they thought were low cost) returns were 1% worse at -8.5% and achieved by 91% of investors.

Part of my job is helping people reduce their mistakes. We cannot be perfect, but we do apply sensible disciplines to remove a lot of errors. We call this advisers alpha – adding returns by good advice. Other research (of American investors) by Dalbar suggests that most investors underperform the market by 4-6% a year. But this latest research suggests it is far worse than that. Yet from next week, the new pension freedoms will mean that more people will take it upon themselves to go DIY with their pension. I don’t imagine that it will be a favourable outcome. This does not bode well for those using “discount” online investments, who eventually become so disenchanted with markets that they try less mainstream investments – which invariably blow up in their face and due to a peculiar twist, advisers such as myself pick up the bill… which to makes the cost of advice higher… and so the cycle repeats.

Dominic Thomas

DIY Investing2023-12-01T12:40:02+00:00

Is It All About Money?

Solomons-financial-advisor-wimbledon-blogger

Is It All About Money?

I came across this short video which I’d like to share. It isn’t very complimentary to those within the financial services industry (which includes me). So why share it? well…. because I agree with a lot of what is being said. I have met hundreds, perhaps thousands of people all with different financial concerns. Twenty years ago I wouldn’t have trusted most people that held themselves out as financial advisers, today in 2015 there are still quite a few bad apples, but most of the people I meet are genuinely trying to help their clients… sure, like me they are also trying to run a profitable business and it seems to me that profit is a word that needs reclaiming here in the UK – without it, you dont get to play again next year.Cinderella

The American dream suggests that you can have it all, you simply need the discipline to get there. This is true for some, but certainly not for all – and yes I am aware that there will always be exceptions… the classic Cinderella story of rags to riches. However most people aren’t interested in making a fortune, what they tend to want is the ablity to maintain their lifestyle, have options to travel and to bring up their children (if they have any) in a healthy, safe and encouraging environment. Only this weekend I had an email from someone saying that they don’t care about money… most people don’t. What they care about is their life. Money simply provides choices, it doesn’t provide guarantees and can offer some security but most of this is illusion. Don’t believe me? imagine an invading alien army (I know -daft  right!) landing in London… the value of your home, size of your bank balance or ISA is suddenly rather irrelevant. Yes, I know its unlikely… I’m merely making a point.

Financial planning is not really about money. Thats why I don’t have tabs on the website telling you about all the products we “sell”. However I will admit that sometimes I think it would be a better marketing strategy, as that is what people actually look for, not financial plans. Financial planning is about you. Your life plan. As the financial planner, my job is to ask decent questions and explore the answers (or range of answers) together. I am meant to represent your interests, helping you to make better decisions and trying to ensure that your money doesn’t run out before you do.

For the record, we are further ahead in this regard than those in the US – and I for one am grateful for our NHS and not having US healthcare costs. If you follow me, then you’ll know that since formation in 1999 we have charged fees for advice rather than commissions. Our clients know what they pay us. Fiduciary is absolutely the right term. Anyway, here is the video:

Any questions? please share. If the video doesn’t work try this link: https://youtu.be/b-Ad4JIfao4

Dominic Thomas

Is It All About Money?2023-12-01T12:40:02+00:00

Weekend Papers Impressions of Persistence

Weekend Papers Impressions of Persistence

It has been another busy week, quite a bit of last minute end of tax year planning and some horrific stories. The markets have had another set of wobbles.. perhaps a sell-off in response to high valuations, or problems in

[fill in the gap!] or of course people doing their end of year capital gains tax planning. If you are invested, then it probably doesn’t really matter, unless you planned to withdraw from markets this week, last would have been better… such is life. The truth is that most people are long-term (life-long) investors, so current trouble (which is ever present) is simply something that we live with and plan for. My job is to keep you focused on what is actually important and not get distracted by the noise that fills our daily experiences.

Persistence is a key aspect of a good investment experience. Something that I was reminded of by the art dealer Paul Durand-Ruel, who was a long-term advocate or champion of impressionist artists like Monet, Pissarro, Degas, Manet and Renoir. The National Gallery put forward the argument that we wouldn’t have the impressionist art that we now know without Durand-Ruel, who was a very persistent advocate, his quotes are a great compliement to the works. Its a really good, well curated show, tucked away off Trafalgar Square in the National Gallery – called “Inventing Impressionism – The Man Who Sold A Thousand Monets” and lasts until the end of May – well worth a trip.

So I will persist, much like Mr Durand-Ruel and keep pushing the idea that markets rise and fall, attempting to time the market is a loosers game and a long term plan that is reviewed regularly is vital. We, like Mr Durand-Ruel, curate the content of a portfolio and the things that are of true value. If this is something you think someone else may need to hear or experience, then do pass on my details or perhaps point them to this weekend’s Sunday Telegraph where we will apparently feature as one of the UK’s top advisers… hopefully it will be good coverage, but if not, my belief in our approach isn’t about to change. So do look out for the 8-page supplement from VouchedFor in the Sunday Telegraph.

sunday-telegraph-logoTop-Rated

 

 

Dominic Thomas

Weekend Papers Impressions of Persistence2023-12-01T12:40:01+00:00

Pension Freedoms and a Lamborghini

Solomons-financial-advisor-wimbledon-blogger

Pension Freedoms and  a Lamborghini

I’m sure you will have come across newspaper reports that some people are concerned that the new pension freedoms, (which come into effect from 6th April 2015) are likely to mean that some people make some daft decisions about their pension pot. You have probably heard that some may go a little mad and buy a Lamborghini.

This is an issue that I have talked about with clients recently, not because they were thinking of buying a Lamborghini, but I simply wanted to explain what the nw pension rules really mean. Admittedly as I don’t own a Lamborghini I’m not that familar with their prices. I’m not an avid Top Gear fan, though I do like Grand Prix. So just by way of a guide, perhaps you may like to know the reality of using a pension to buy a Lamborghini.

Dream Car? Aventador LP 700-4lamborghini

Making the wild assumption that you would want  a brand new car, the cheapest model I can find available in the UK is the Aventador LP 700-4 which starts at £260,040 (I love the £40!). I’m sure the reduction in petrol prices will help, but I imagine that this is a car that with a top speed of 217mph  and a combined urban/extra urban fuel consumption of 16 miles per gallon is also going to be expensive to run, let alone service.

On the Road Price

Assuming that this is an “on-the-road” price you need to write a cheque for £260,040 to the dealer from your pension. As of today a pension isn’t a bank account and does not come with a cheque book. But from April 6th you will be able take all of the money out (if you are 55 or older). The new rules allow you to take all your money out should you wish to – you don’t have to buy an annuity. However the original rules still apply, in that you can take 25% of the fund as tax free cash, the balance is deemed as income and taxed at your marginal rate of income tax (as it would be if it were an annuity). So, to buy the Aventador LP700-4 you need to pay £260,040, there are two ways that you could now achieve this.

1. Use the tax free cash – you could have a pension pot worth £1,040,160 and be able to take out 25% as tax free cash (£260,040).

2. Use the entire pension pot.You need a pension of tax free or have a pension pot worth at least £393,000. This would mean that you could take £98,250 as tax free cash and £294,750 as income (but suffer 45% income tax) leaving a net income of £162,112.50 and so have £260,362.50 to hand over the the Lamborghini dealer. Ok not all your income will be taxed at 45% – just the income over £150,000.. but most will be taxed at at least 40%, some at 20%, you would forfeit your personal allowance and in so doing pay an effective rate of tax of 60% on part of the income.

Too Fast, Too Furious… for mosttoo fast

It would take someone with either considerable additional resources, or perhaps a very short life expectancy to decide to buy the car with their pension… essentially costing £393,000 rather than £260,040. It may surprise you and probably alarm you to learn that the average pension pot “at retirement” is about £30,000, so for most people, they are more likely to be able to buy a model Lamborghini car which will cost between £6 and £3,654 (according to the site) or perhaps you fancy a T-shirt starting at £43.

Given that your pension, in combination with your other resources is meant to last for the rest of your life, the key is to ensure that it doesn’t run out before you do. This is precisely what we do for our clients, figure out what income you need to support your lifestyle, how much is needed, what returns required and making some assumptions (which we review together) about inflation (currently 0% here in the UK) and life expectancy. When it comes to avoiding living on the street, you really dont want a pension withdrawal strategy that is too fast and too furious.

Dominic Thomas

Pension Freedoms and a Lamborghini2023-12-01T12:40:00+00:00

The Budget 2015 – A New Mad Max

Solomons-financial-advisor-wimbledon-blogger

The Budget 2015 – A New Mad Max

So, the Budget is already ancient history, the political hoo-hah has been left to fester, tweak and develop into an election manifesto campaign. So what, if anything grabbed my attention?

Jilted Bribe

Firstly, I have to admit that I was expecting there to be a little more of an electoral bribe. Whilst the Chancellor certainly made much of the fact that he wasn’t going to (and thus seek to be understood as prudent or sensible) the truth is that, well… he didn’t really offer a bribe (unless its one I missed). Frankly with the national purse in the shape its in, I was rather glad, (though I remain open to the possibility of  solving the problems differently).

ISA with tax relief? – future implied?Mad-Max-5

That said, the first time buyer ISA does sound like a good idea. The detail needs further examination, but in essence there is 20% tax relief on the annual ISA allowance for people that are 18 or over and don’t (and have never) own a home. £3,000 of the £15,000 ISA allowance will be paid by the Government. Whilst everyone that qualifies will benefit, in practice, this will be a very good way of saving if you qualify… if not you, perhaps your children… opening up further options for more wealthy parents.

Pensions and Politicians… taking the …point?

As for pensions, I have to admit that the utter folly of politicians in relation to pensions has shifted gear over the last 10 years. Whilst knowing that we all need to save more so that there is less reliance on the State system… perhaps even the prospect of a means-tested State pension (who knows?) they are determined to punish successful investing and saving.

Here in the UK we are now restricted on how much can be paid into a pension and how much the pension fund can be worth. Utter madness. Yes £1m is a lot of money, but are we also going to cap how much can be held in a bank account or the value of property? what about the value of a business? These are measures to appear a poorly informed crowd by a poorly informed media. I would immediately abolish the Lifetime Allowance and simply restrict how much tax relief is provided on payments to pensions. It doesn’t have to be more complex than that. However we have a new maximum pot size for your pension. To say that this complicates life further for anyone in a Defined Benefit (DB) pension such as the NHS, would be a masterful understatement. Just so that we are clear… the Lifetime Allowance has reduced from £1.8m to £1.25m already and the Budget has reduced this to £1m in 12 months time. Ok, there will be some form of protection, but if recent experience is to go by, this is about as useful as pushing someone out of an aeroplane with an umbrella instead of a parachute. As for those that put a commercial property in their pension pot… good luck with that! The Annual allowance is now £40,000 a year as the maximum value of contributions to pensions, which may as well be written in algebra when attempting to calculate this for DB members.

Final note: our free APP is updated with all the changes announced for personal allowances, savings rates and so on.

Dominic Thomas

The Budget 2015 – A New Mad Max2023-12-01T12:40:00+00:00

What About Common Sense? Budget 2015

Solomons-financial-advisor-wimbledon-blogger

What About Common Sense?

There is another Budget tomorrow (Budget 2015). Sadly, the older I get the more cynical I become about whether these achieve anything. I shall be keeping clients posted in due course, but if the last Budget is to act as an indication, expect the unexpected… and as we have an election looming, expect a bribe.

I am concerned about pensions and the constant meddling by Governments of all persuasions. The point of pensions is to encourage people to save for their retirement, so that they are not dependent upon the State, something that would seem in stark contrast to “reforms” over the years. Pensions are meant to be simple, and frankly they could be. The fact that they are not is entirely due to politicians, not the pensions industry. Complicated doesn’t begin to touch the surface of rules that are designed by  short-term thinking…. so I shall reserve judgement until tomorrow, once I can actually digest the information rather than rely on newspaper stories.

Dominic Thomas

What About Common Sense? Budget 20152023-12-01T12:39:59+00:00
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