WHAT SHALL I DO ABOUT MY SHARES?

TODAY’S BLOG

WHAT SHALL I DO WITH MY SHARES?

First, let me be clear – I am not a stockbroker, I am not licensed to provide advice on specific shares. So, I cannot and will not advise the purchase of one share over another. What I can do is provide you with some generic information.

All proper investing will invest in shares. Today I am simply discussing investing directly into shares (i.e. you hold a piece of paper – that shows you have shares in XYZ company). The other way to invest in shares is via an investment fund.

ADVANTAGES OF SHARES

You can be specific about what you invest in. There are no ongoing charges for your shares if you hold them unless you do so via a trading platform which typically has monthly fees and specific minimums. You do your research, buy the shares, sell them when you want. Some provide a dividend (which is a taxable income and out of profits), some do not.

Diversification

DISADVANTAGES OF SHARES

Your money does not go very far. Today at the end of June 2020. The share price of Morrisons is £1.90, Sainsbury’s £2.09 and Tesco £2.29 to name three well known companies in the supermarket world. So you have £10,000 to invest, excluding any stockbroker charges (which there will be – for each trade (a purchase or sale of a particular share) you want to create your portfolio which you call Supermarket Sweepstake. I will not go into how or why you select shares, there are many people offering “tips” for free or at a price for rationale and research, but let me say that after 3 decades I can assure you that over the remainder of your life neither I nor anyone else will be able to successfully predict the who and what, but will also fail to consistently, repeatedly outperform the market through their research, genius and luck. Not a soul.

Anyway, back to my daft Supermarket Sweepstake, you think Sainsbury’s will outperform (over what period and why??) the other two but are not so convinced that you put all your £10,000 in just Sainsbury’s so you buy £4,000 worth of shares in Sainsbury’s and £3,000 in each of the others. This results in the following portfolio (roughly).

  • 1913 shares in Sainsbury’s
  • 1310 shares in Tesco
  • 1578 shares in Morrison’s

The above could be achieved with three trades or could be more than that if shares were bought gradually across a day or any other period. Every trade has a cost (and a tax).

I HOLD LOTS OF SHARES, SO I MUST BE RICH…

You hold “a lot” of shares, but you only hold them in three companies and in my rather daft example you hold them all in the food retail sector. This is an example of extreme concentration risk – just 3 actual companies, all doing the same thing,  in the same sector, in the same country. If for any reason supermarkets cannot operate as normal, you will likely see a reduction in their value – or of course other competitors make their trading life rather harder.

Income from the dividends is taxed. If you sell the shares the gains are taxed (though the gain may be within your capital gains tax allowance).

WHY A FUND?

A fund, particularly a fund made up of the entire index, will hold all the shares in the index. If that is regional or specific (i.e. FTSE 100) then it will hold some of all those companies. A global index will hold the lot (pretty much). In the case of the FTSE 100, that is 100 companies, as for a global index – well thousands of companies.

The downside of a fund is that someone is managing it, ensuring that it sticks to its mandate. The cost of management can vary enormously, part of an adviser’s job is to select funds that are suitable for you and cost is an element of the criteria used. For example a good fund we use costs about 0.22% of £10,000 that’s £22 for the year most funds however charge much more and some charge a bit less. As the size of the fund grows the investment costs are more – because they are a percentage.

That said, a comparable stockbroker service is also managing the portfolio, they many be remunerated on trades (an incentive to  constantly change stuff) or performance [or both!] – in which case they may be rewarded for high returns from highly concentrated holdings, but not penalised for low or negative ones… which leads to the inevitable conclusion by the nice gent in the suit to take quite a punt with your hard earned loot, no reason not to is there old chap?

DIVERSIFICATION

The main purpose of the fund is that is provides diversification – holding hundreds or thousands of companies as shares. Some will also hold other types of assets too, depending on what the fund is attempting to achieve.

Both the funds or directly held shares are subject to taxes – on gains and on income. A sensible thing to do would be to put these into an ISA – which is really nothing more than a wrapper that makes the contents tax free.

These days most stockbrokers will need a minimum of £250,000 to build a diversified portfolio of shares, but even then, it is likely that they will use funds. That is because it is hard to get the benefits of diversification without a reasonably large amount of money.

Diversification is really shorthand for “spreading risk” – adhering to the adage – “don’t keep all your eggs in one basket”. This helps dramatically reduce the likelihood of total loss. Holding shares in just three companies that all went out of business would be a total loss, the chance of every company going out of business across global stock markets – well that’s the apocalypse and you will not be worrying about your portfolio.

FINAL NOTE

I am not against you having a small amount of money to play with, an amount that you can afford to see disappear. You can sign up for any trading platform you like, do your research. My only tip is to stick to the industry or sector you know about (your own). Muck around to your hearts content, but do not show me your numbers or genius, it will fade. Everything reverts to mean (average).

I have never watched Supermarket Sweep but I did find this rather old clip from the US show. To my strange mind it is full of metaphors about investing and the mania some display about markets. At the end of this, you need to satisfy your own goals, not those of your peers, friends, markets, media or anyone else, its your life, it needs to be your plan.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

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WHAT SHALL I DO ABOUT MY SHARES?2020-06-30T18:20:18+01:00

THE TROUBLE WITH CASH ISAs

TODAY’S BLOG

THE TROUBLE WITH ISAS

HMRC have published their data about ISAs to the end of the 2018/19 tax year. Their data is reliable or should be because you will recall that each ISA requires your unique National Insurance number. As a result, it is possible to provide accurate data about income, age, gender, and employment.

The deeply disturbing news is that the vast bulk of ISAs are cash ISAs. Cash ISAs are glorified deposit accounts, cash is not a sensible long-term investment strategy, it is a perfect short-term spending strategy. As cash rates have declined from not very much to virtually nothing over the last 20 years, Cash ISAs have basically failed to keep pace with inflation.

“BUT CASH ISAs ARE LOW RISK”

“But Cash ISAs are low risk” you cry, well… what you really mean is that the value doesn’t go up and down (volatility) your assertion would be right, but when you factor inflation into the actual real world, then Cash ISAs are pretty much basically always guaranteed to go down. The risk you run is one of running out of money and the power of your pound shrinks.

There may of course be good reasons for holding Cash ISAs, but based on income range, people over £30,000 generally have more stocks and shares ISAs than Cash ISAs – though its still a fairly close-run thing.

HMRC ISA SUBSCRIPTIONS

“BUT AT LEAST CASH ISAs ARE TAX FREE”

Cash ISAs are tax free, that is certainly true. What that means is that the interest paid to you on your deposit is tax free. All good… well, it was. Since 6 April 2016 there has been a personal savings allowance. Basic Rate (20%) taxpayers are able to earn interest of £1,000 without it being taxed. Higher Rate taxpayers have a £500 allowance and Additional Rate – well, of course we know that it is politically expedient to be seen to punish anyone earning £150,000 or more, so no tax-free savings for you!

WHY LOCK INTO A DEPRECIATING ASSET?

Taking a basic rate taxpayer with interest rates at something like 1.5% at best, then you would need more than £66,000 in your cash ISA before any tax would be applied to the interest. At 1% it would require £100,000. Higher rate taxpayers simply halve the numbers. As for the tax that would be applied on interest above that – well no more than a round of drinks for most people.

A quick trawl of Cash ISA rates today (30/06/2020) and the very best rate I can find is 1.25% if you want to lock your cash up for 7 years… why anyone would do this is beyond me. Then there is the aggravation of regularly looking for a better rate and the hassle of moving your really rather duff Cash ISA into a different one. Life is too short for this nonsense isn’t it?

Similarly, junior ISAs – why bother holding cash for a child for 18 years and missing out on investment growth over nearly 2 decades. It is madness. Investors and savers really must understand what risk really means.

The value of ISAs to the end of the data was £584billion, of which cash ISAs account for 46% yet make up 76% of all ISAs. The chart below (from the HMRC bulletin – so labelled Chart 4) shows the fluctuating but growing value of shares in ISAs. Remember all are being added to each tax year, but the vast majority of the money each year goes into Cash ISAs.

CONFESSIONS OF A CASH ADDICT

OK – so you have some cash ISAs. I am not saying you shouldn’t have them, but only do so if you intend to spend the money fairly soon (within 3-5 years tops). Otherwise you are missing out on a lot of growth and the ability to keep the power of your £ working for you. If you would like a review, do some of the legwork, compile a list of your Cash ISAs, the balances, the Banks or Building Societies that they are with and the current rate of interest you earn. If there is a fixed rate, confirm when that ends. Then send me the information.

RISING VALUE OF ISAS

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

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THE TROUBLE WITH CASH ISAs2020-06-30T11:50:15+01:00

AVOID MINI BOND SCAMS

TODAY’S BLOG

AVOID MINI BOND SCAMS

Following on from my piece about cash management services I mentioned the problem of a growing number of scams. Cash savers looking for better rates of interest are regularly duped into believing that rates of 4% or more are currently achieved for cash. THIS IS NOT POSSIBLE for deposit accounts UK Banks or Building Societies when the Bank of England rate is 0.1%. Of course a few years ago such rates were common, but not since the credit crunch. So be warned that something that says it is the equivalent of cash when it is nothing of the sort. Genuine interest rates will not be much better than the Bank of England rate – perhaps 2% more, but very little else.

Accounts offering “interest” of more than this are not genuine cash. They could be legitimate, but not cash. The rise of peer-to-peer lending is often a touted as an alternative to a regular bank. There might be some good ones (they may be) but on the whole this is a new business taking your deposit and lending it out to other businesses or individuals at a higher rate than they pay back to you. No different from a traditional Bank, except that a traditional Bank has been doing this for years and has learned the hard way that lending needs to be done carefully… and whilst I am no fan of Banks, just think about who might borrow from such a lender… someone that cannot, for whatever reason borrow from a high street bank. Hey presto, higher risk of default.

MINI BOND SCAM

Mini Bonds are yet another layer of this, except they dont have to relend the money to legitimate borrowers (people trying to fund their business or enterprise where a mainstream bank won’t play ball). They can lend the money to anyone, sadly often to the Directors of the company running the mini-Bond. Thousands of savers have got into problems with these mini-bonds. Tempted by higher rates of “interest” which was then passed on to some pretty despicable humans. These were banned in January, but this month made permanent after mini-bond firm London Capital & Finance collapsed with £237m of savers’ money.

WHITE CAT

WHAT IS A MINI BOND?

There is no legal definition of what a mini-bond is in the UK. Most companies that have offered them, including London Capital & Finance, borrow money from ordinary savers, promising them a fixed return well above the rate available on most standard saving products. The mini-bond firm is then largely free to do what it wants with the money. Many have lent investors’ cash to third party companies (which sometimes has the same directors), bought other risky investments such as race horses or wine, or funded property construction. A number of companies that raised money in this way have collapsed with millions of pounds of savers’ money unaccounted for. The FCA claims that mini-bonds are not within its remit, while criminal investigations for fraud are rare and prosecutions even rarer. As a result, investors generally have no protection if things go wrong, and fraudsters can operate with little fear that they will be punished.

ONLINE ACCOUNTABILITY

One of the many problems with google and facebook is that they carry advertising and seem unwilling or unable to vet adverts for authenticity, though I find this very hard to believe as whenever I have attempted to run even the tiniest marketing initiative on Facebook, my “advert” has to get “approved” before it can run. So… no I don’t believe that more cannot be done. Anyway, savers who are not as sophisticated as the scammers invariably google interest rates and are faced with adverts offering higher rates… what’s not to like? Well just the fact that risk isn’t really explained and its all framed to look, smell, sound and taste like any other Bank. You need to know the real risks that you are taking. A mini-bond is a great way to part with your cash on a permanent basis, something that the stock market does not do until Armageddon (as you will not get to a £zero value if you have invested in an index unless everything is worth nothing – and I can only imagine one scenario where that could occur… the sort of scenario where a Blofeld Bond-like villain (hence the cat picture…) is holding the world to ransom, or the actual obliteration of everything we know. If this ever happens, you won’t be worried about your ISA or pension.

In the meantime, please beware of scams, watch out for the villains, they are rarely as easy to spot as Mr Blofeld. This reminds me of an element of my work which is to act as a type of bouncer to your finances. Some have asked me about my photo, suggesting I look a little “mean” (perhaps they meant grumpy). It is deliberate – anyone that has engaged with me knows that I am having a little joke. As a bouncer, or gate-keeper part of my role is to ward off those trying to part you from your money. Its meant to be a little amusing, (ok not hilarious) whilst holding a very valid truth – that I am on your team as a defence against the rubbish that inevitably comes in your direction, its not if, but when…

As for the calibre of the villains, well the fictional ones are best left to the likes of 007, those that are actual criminals, well… I have to leave them to the authorities whilst doing what I can to prevent them coming anywhere near you.

As for Mr Bond, from the perspective of 2020 there are many aspects of 007 that hang heavily today. A friend of mine recently mentioned that he had rewatched the entire Bond collection with his children, he reappraised his favourite Bond and saw the films in a different light. When it comes to cash accounts, please appraise with care – make sure you know your Bonds from your Mini-Bonds. Here’s a trailer for 007 in “You Only Live Twice” (1967) who, let’s face it, has probably lived more than twice already.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

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AVOID MINI BOND SCAMS2020-06-30T09:11:48+01:00

PROPERTY FUNDS

TODAY’S BLOG

PROPERTY FUNDS

We all know the saying “as safe as houses” but I wonder how many consider how sensible this phrase is. Anyway, you may have read in the press that property funds, I think pretty much all of them are currently closed or suspended.

You do not need to panic. We do not invest our clients into property funds. One of the many lessons that I have learned over the years is not to hold anything that is not liquid. Whilst a property fund does not hold houses, it holds large scale commercial property. This is anything from a shopping centre to office blocks or even industrial sites. The main advantage is the rent that tenants pay to the owners, which is often rather predictable and long-lasting.

NOT EASY TO SELL A SHOPPING CENTRE

I’ve never been keen on property funds for the reason that there are other alternatives and frankly, history, literature and even religious texts are full of examples of tenancy gone wrong. When people want their money out, it isn’t easy to simply sell a shopping centre, so its paid from cash reserves until deals can come through, which often means that funds hold a fair bit of cash to cover normal exits. I have now experienced multiple occasions when property funds were suspended and never want to put clients at risk in this way.

Admittedly there are REITs (Real Estate Investment Trusts) which is really an investment into a single company which then invests in property. The main advantage being that you own shares in the company, which can be much more easily traded (in theory). However, as a company and “Investment Trust” it can borrow money to invest in more property – known as gearing. This can be great when things are going well, but disastrous when they are not, magnifying the returns of each.

As there are plenty of ways to skin a cat, I just don’t see why you need to take this additional risk, which is dressed up as diversification. So we don’t… and that’s another thing you don’t have to worry about.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

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info@solomonsifa.co.uk    Call – 020 8542 8084

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PROPERTY FUNDS2020-03-27T10:15:32+00:00

THE GLOBAL MARKETS

TODAY’S BLOG

THE GLOBAL MARKETS

There is little chance that you have escaped the news or the reality that the global stock markets have been very turbulent. The charts are either setting new records or getting pretty close to them. So, by way of an update I thought that I should remind you of some of the basic investment principles that we believe and are applied to your portfolio.

Firstly, we cannot control the markets. Let us simply acknowledge the reality that the prices of assets around the world are not things that any of us control. Neither can we control Government policy. In truth there is very little that we can control, but when it comes to investing, it may as well be a secret, or so it seems.

YOUR BEHAVIOUR

I am not going to suggest that your feelings are things you can control, they are real and need to be acknowledged. However, they are not the basis for a good investment experience. When it comes to your portfolio, none of us are naturally programmed for optimal performance. So, whilst we note our feelings, we do not base our plans around them. We base our plans on the goals you have set and the basic, easy to say, hard to do, investment principles.

ASSUMPTIONS

As every “crash” happens, investors invariably tell themselves the same thing… “this time its different”. The truth is that unless you genuinely believe that capitalism, globally is dead, then nothing is different. Yes, there are things wrong with capitalism, but if its basic premise is to raise money so that companies and organisations can create and meet the needs of real people in different markets, that creates jobs, wealth and share profits and therefore prosperity. If you don’t believe that, then you really should not be investing in anything at all.

I am not pretending that there is not, or will not be some significant difficulties and hardship around the world as a result of the pandemic and crisis of confidence in markets, but it will return, it is a question of when, not if.

BULL and BEAR

This in mind, Vanguard produced a rather helpful chart this morning which I wanted to share with you. This shows the Bull and Bear runs of the FTSE AllShare Index. Note the falls and the durations of the respective “runs”. I have put the pdf of this below. This shows total returns, so includes the income (dividends) from shares. This takes a long-term view, since 1900. So before all of us were alive, through two world wars and unspeakable things that man does to man. Will we ever learn? Here is another opportunity for you as an investor to do so. Do not panic, this will pass.

In the office we have a sculpture by Linda Hoyle of a bull and bear that I commissioned (sounds fancy, but it wasn’t). This is in our reception and is a reminder that both are ever present, battling for the upper hand. There is opportunity in both. You can find Linda’s work here.

Download the pdf: Solomon’s Bull and Bear Markets

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

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THE GLOBAL MARKETS2020-03-26T15:47:34+00:00

SHOULD I INVEST NOW?

TODAY’S BLOG

SHOULD I INVEST NOW?

The global stock markets have fallen further and look likely to remain volatile for some time. Whilst there are lots of good reasons to be concerned, we also believe that markets will recover. Every time there is a “crash” we hear people say that this time it is different… but it never is different, it’s the same problems reframed in a different way, for a new crisis. The problem is essentially the same. Fear.

If you believe that over the long-term businesses listed on stock markets deliver jobs, security and wealth then there is no reason to believe anything will change when you have a long-term mindset. Remember that commercial innovation always happens, some companies go bust as they are unable to adapt, new ones step in, technology evolves, everyone moves forwards. If you are investing for days or weeks, then frankly that isn’t investing its speculation and I wouldn’t advise anyone to do that. Investing is designed for long term wealth creation.

TIMING THE BOUNCE BACK

Trying to time an investment for the exact bottom of the market is impossible (well it would be luck). The truth is that the markets may fall further, we don’t know. However, we expect them to recover – much like the overwhelming vast majority of people will recover from coronavirus. It may take weeks, months or even years, but it will recover. That it not to say that life may be more difficult in the short term and require patience and assistance.

So to my mind, this is a good time to invest due to low market valuations. However, as always I would remind you that I advise everyone (including businesses) to hold somewhere between 3-12 months of typical spending in reserve for an emergency. This is that time. If you have this and have reviewed your numbers, including perhaps making some minor reductions to spending, then if this still fits your plan for your life, then there are good reasons to invest.

The one concern I have is the practicalities of getting investments done in time for the tax year end, primarily due to a reduced workforce and lots of demand. So I would encourage anyone wanting to make tax year specific investments to do so as quickly as possible.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

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SHOULD I INVEST NOW?2020-03-16T10:49:17+00:00

A TRANSFORMED INVESTOR

TODAY’S BLOG

A TRANSFORMED INVESTOR

I came across this article which may be of some help to you. Dave Goetsch one of the executive producers of the hugely successful “Big Bang Theory”, who wrote a piece for Dimensional, one of our investment partners. This is his experience…

Seeing all the recent headlines about the sudden downturn in the stock market has transported me back to February of 2009, when I was close to despair. It’s striking how different I feel now.

In February 2009, the stock market was down around 50% from its high, and everyone seemed to feel like the sky was falling. I was familiar with this state of panic because my relationship to the financial markets was that I didn’t trust them.

They were always going up and down in ways no one could predict, and I couldn’t trust those folks who said that they could anticipate what was going to happen. So when the market went down, I went down with it—sinking into a depression, knowing there was nothing I could do. What a difference nine years make. I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing. I was right not to trust those people who thought they could predict what was going to happen in the markets, but I was wrong in thinking that there was nothing to do. I’ve learned that I can have a great investment experience if I just accept a few simple truths.

DAVE GOETSCH

I have to understand the uncertainty of the market. The stock market, as measured by the S&P 500 Index, has returned about 10% per year over the last 90 years, but there are very few individual years in which it has ever actually returned that amount. In fact, how many of those 90 years do you think the S&P 500 was up more than 20% or down more than 20% for that year? The answer is 40. Astounding, right? I wish somebody had explained that to me decades ago. Then I would have known to look at stock market returns in terms of decades—not years, months, days, or hours. I would understand that so many of those articles and cable news pieces are just noise, designed to keep an audience obsessed and unsettled.

I haven’t changed because the stock market rebounded. I changed because I learned that there was a different way to think about investing.

In order to be a long-term investor, you have to have a long time horizon. This can be hard to remember when you’re being assaulted by noise, but if you can stay strong, the results are stunning. By results, I don’t mean the investment returns, which hopefully are good. The return I’m talking about is how I feel every day. I worry less—not just about the future, but also about the present. Of course, I know that there are no guarantees when it comes to investing, but I feel like I’m going to be okay. I have a plan.

There’s no way I could’ve done this without a financial advisor. I needed someone who could not just talk me through what my asset allocation should be, but also help me work through how I felt about investing and what exactly I could do to change my perspective.

I was a mess nine years ago. Now, my outlook is totally different. The markets haven’t changed; they still go up and down. The difference is, I don’t anymore.

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

SOLOMON’S FINANCIAL PLANNING APP

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To get started download and use password – solomons

   

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info@solomonsifa.co.uk    Call – 020 8542 8084

SOLOMON’S FINANCIAL PLANNING APP

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To get started download and use password – solomons

   

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A TRANSFORMED INVESTOR2020-03-13T12:58:58+00:00

IN SEARCH OF ANSWERS

TODAY’S BLOG

IN SEARCH OF ANSWERS

I had the unwelcome task of writing to clients to advise that the value portfolios have fallen by over 10% since the start of 2020. The emails that I sent seemed to be well received. Today has been another very tough day for investors (and their advisers). The charts are rather frightening, this comes at a time when we are all (most of us anyway) rather anxious about the state of the world and a deep sense of unease.

So, without wishing to fudge any issues, I thought it best that I re-use the bulk of the content that I have been sending.

It is now a regulatory requirement to tell you when a portfolio falls by 10%. This is a new experience for me, despite being an adviser for several decades. I genuinely believe that this new requirement comes from well-meaning regulation, but is entirely counter-productive, because it is essentially alarmist. I will endeavour to add a little more flesh to the bones.

Focus on what is important

SHOULD YOU WORRY?

Should you worry?  No; but anxiety and concern are normal responses to ‘seeing’ the value of your portfolio fall.  Anxiety or fear are normal responses to ‘danger’ or bad news.  We are built that way and it is why we have survived as a species for as long as we have. However, the instinct of ‘flight’ is of no use to investors.  The stock markets of the world fall in value each year.  I would refer you to the various articles I have written about this over the years and remind you that 1 in 4 calendar years have negative returns.  This is part of ‘the norm’ and indeed we don’t get the positive returns without the negative. However yesterday’s headlines of the FTSE’s second largest fall in a single day does not really help calm nerves.

UNCERTAINTY IS NORMAL

The problem with investing is that markets are not predictable, despite appearing so.  What is predictable is irrational investor behaviour. This is precisely why we ask you to complete an attitude to risk questionnaire.  So that a suitable portfolio is constructed for you – one that provides the chance of delivering the returns you need whilst enabling you to sleep at night.  You will have experienced similar falls in value before, but either didn’t notice, or were reassured.

WHAT IS A LOSS?

When the value of anything falls, it only impacts those selling.  A crash in property prices, impacts those selling their home, most of us do not notice, although it may provide conversation around the dining table with friends or colleagues.  Unlike property, the value of equities and bonds are transparently priced throughout the day in a highly regulated market.  When you sell your home, frankly the price is a bit of a guess by the estate agent, surveyor and then haggled over by seller and buyer … in practice, a very small and biased market.

The key is not to panic; not to sell.  You know this, but we also know it is hard to do.  You know that you should sell at the top and buy at the bottom, however as humans we tend to do the exact opposite.  I’m not going to pretend that this doesn’t make us all wince and wonder, but equally I will remind you to stick to your plan – yours; not those of a media which seems only intent on making you miserable.

Your portfolio is globally diversified, it is well balanced, it is low cost and it is properly reviewed.  We have biases towards smaller and value equities which over time will demonstrate to be better value.  There is a  huge amount of research that should you wish it, I can point you to.  However, I tend to think of that as my job … to help you make better decisions with money and help reduce or avoid all the daft ones.

THE UNCOMFORTABLE TRUTH

If you are investing on a monthly basis, the fall in prices is a bit of a bonanza – because you buy more for the same money.  We expect values to rise.  They will; it’s just a question of when.  For those who add lump sums, similarly now is essentially a discount sale that will not last.

Those who are withdrawing money have a much tougher time.  The fall in prices means you sell more holdings to get the same figure out. Thereby not benefitting as much when prices rebound.  They will, and you will, but not as much.  In an ideal world, you will have discussed and outlined your plans for income or lump sum withdrawals and we have already factored this in.  If you need to review this, then please get in touch.

DO NOT OBSESS OVER THIS

Looking at your portfolio each day will never help anyone.  It will rarely provide comfort.  Worry will not help you to live your life well.  You have to trust that the fundamentals of investing will remain true today, next week and next year as they have done over the decades.  Yes – there are ‘bad times’, but remember that market returns are positive 3 in 4 years on average, we simply don’t know the order or reason.

You are investing for decades and I have no doubt that this too will pass.

YOUR COMPLETE FINANCIAL LIFE

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

SOLOMON’S FINANCIAL PLANNING APP

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To get started download and use password – solomons

   

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

SOLOMON’S FINANCIAL PLANNING APP

Our free powerful new Finance & Tax app.
To get started download and use password – solomons

   

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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IN SEARCH OF ANSWERS2020-03-12T18:04:54+00:00

STAMPS TELL STORIES OF INFLATION

TODAY’S BLOG

THE PRICE OF A STAMP

Royal Mail announced yet another increase to the price of a first-class stamp. As of 23 March 2020, the price will rise from 70p to 76p. Second class rises 4p to 65p. This will possibly have you gasping at yet another increase and recollecting when stamps used to be much cheaper.

This neatly leads me to discuss the topic of inflation. Whatever anyone within the financial world tells you, this is arguably the most devastating element to your financial wellbeing. Imagine you have £100,000 and inflation runs at an average 3% a year. Over the course of 25 years £100,000 is effectively worth £50,000.

Most people should be investing for decades, not days, weeks or months – decades. Your finances need to outlast you. When you enter the adult workforce and ultimately leave it, you have to rely on your investments to provide an income.

First Class 1970,1980,1990,2000,2010

FIVE DECADES OF FIRST CLASS STAMPS

The price of a first-class stamp 10 years ago was 41p. In the millennium year 27p would have covered the cost of your standard first-class letter, which was not that much more than the 22p it cost in 1990. If you remember 1980, you will perhaps remember the 12p first class stamp and a decade before that – well, we hadn’t yet gone decimal, so 5d would have paid for your first-class letter which is around 2p. Over 50 years the price has risen from 2p to 76p for the same service.

The illustrations that you receive about investments (which are nothing like as beautiful as those of stamps) try to account for inflation, typically assuming 2.5%. CPI (yet another measure of inflation) is currently 1.8%.

IS YOUR MONEY GOING BACK IN TIME?

So, think on this. If your money in the bank is getting less than 1.8% interest, you are losing money. Your purchasing power is shrinking. Whilst this is great for those that owe money, it is terrible for those living off their savings. Yet I regularly come across people that lack into 3 or 5 years fixed rates of interest that are less than inflation. There are a variety of reasons, partly poor alternative cash deposit rates, but also a deep misunderstanding of how investments work and the dreaded “stock market” which news outlets seem to do their best to instils a sense of terror at the daily movements.

THERE IS NEVER A RIGHT TIME TO INVEST

Many of you worry about the right time to invest – the truth is, that it was 50 years ago, but otherwise it is today. Yes, we do not know what will happen to the UK economy, (we never do) we are facing all sorts of significant problems (again) but these will pass (again) being replaced by the next round of bad news and you will still have to live with the consequences of your decisions.

CHECK YOU ARE NOT DESIGNING TO FAIL

As the tax year is drawing to a close, check that you are not holding too much in cash. Certainly, having access to cash is vital – for planned expenses and the occasional mishap. You should have an emergency fund if your income is likely to stop. However, beyond that, you need to deploy your money to work for you over the coming decades so that it grows faster than inflation.

Do not make the mistakes you made a decade ago, holding onto cash and worrying about the financial crisis, or the decade before about Y2K or the one before that… inflation does not reward anxiety, it eats it for breakfast.

Pick up your phone or send me an email. It’s about time that this was mastered. Let’s get started…

Dominic Thomas
Solomons IFA

You can read more articles about Pensions, Wealth Management, Retirement, Investments, Financial Planning and Estate Planning on my blog which gets updated every week. If you would like to talk to me about your personal wealth planning and how we can make you stay wealthier for longer then please get in touch by calling 08000 736 273 or email info@solomonsifa.co.uk

GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

SOLOMON’S FINANCIAL PLANNING APP

Our free powerful new Finance & Tax app.
To get started download and use password – solomons

   

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Bakery, 2D Edna Road, Raynes Park, London, SW20 8BT

info@solomonsifa.co.uk    Call – 020 8542 8084

SOLOMON’S FINANCIAL PLANNING APP

Our free powerful new Finance & Tax app.
To get started download and use password – solomons

   

WHAT WE’RE ALL ABOUT

If you would like a no-nonsense one page document explaining what financial planning is all about please enter your email here.

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STAMPS TELL STORIES OF INFLATION2020-02-22T08:48:01+00:00