ENGINEERING THE FIGURES

TODAY’S BLOG

ENGINEERING THE FIGURES

There are many good things about social media, but I do get fed up with some of the narratives thrown around that, in my opinion, casually have an agenda. One topic that often gathers some traction is that of the property market. Most of us discuss the ludicrous price of buying a home at some time, some make much of their skill to invest in property, which is often rather more to do with luck than skill. However I have become very tired of the media holding out examples of some young people who got onto the property ladder and in so doing imply that others only have themselves to blame for their inability to do so.

DISTILLING THE TRUTH

I came across a couple of examples in the last few days. One involved a 28-year old whose father bought him a bottle of 18-year old Macallan whisky on the day of his birth and then every birthday thereafter. The headline suggested that this enabled Matthew Robinson to buy his first home. The virtues of foresight by his father and personal resistance of temptation netting the result of £40,000 worth of whisky. It’s a lovely idea and nothing wrong with it at all as a gift. I have some questions though.

IN GOOD SPIRITS

Firstly, the whisky has not actually been sold yet and no home has been purchased. This deposit was not actually the hard work of Matthew but of his father. The only thing Matthew has done is follow his fathers instructions not to consume it. I wonder how it was stored, I suspect that the 28 bottles have not followed Matthew away to University or any other place he may have lived, they probably remained at his parents home (I am guessing). As a gift it’s a lovely one, as an investment…. Well, there are obvious risks – which no proper investment portfolio would have – concentrated risk and the past, current and future risk of total wipe out. I could literally destroy a portfolio of whisky in minutes. I could not do the same for any investment portfolio.

ROOM WITH A VIEW – TUNNEL VISION VIA BOX

Then there was the case of Jessica Leung who at 29 managed to buy a property worth £450,000 in Bristol, right opposite IBK Brunel’s the SS Great Britain. This, the headlines suggest was done by moving home to save rent and cancelling her gym membership. It turns out that Jessica was able to put down a £90,000 deposit, pay stamp duty and raise a mortgage of £360,000 on her own salary. It turns out that 30% of the deposit was from her father (£27,000) and “family savings” of £53,000 together with her own £10,000 make £90,000. In fact, Jessica had saved £10,000 not really £90,000. An engineering of “I saved the deposit” feat that Mr Brunel might marvel at. Given that she would likely require an income of £90,000 to borrow £360,000 then to be blunt she might have saved rather more.

Do not misunderstand me. I am not berating Matthew or Jessica or indeed their parents. To my mind these stories have rather more to do with making other young people feel inadequate and relieving the sense of guilt (we did absolutely nothing to benefit from property price rises) that the rest of us have from time to time, when we recognise how hard it is. The truth is that the parents were instrumental in raising the deposits in both instances. These sorts of mixed messages are rife – a few months ago young people were chastised for buying lunch at Pret, now they are being told to do so in order to keep it open. The messages are all to do with supporting those in power who clearly have a lot vested in maintaining the property-owning class precisely as it is.

Rather obviously I work with clients to help them become financially independent and many parents want to help their children as these did. However, pretending that because some can that it is just a matter of personal disciplined saving by the young adult is utter twaddle. I expect nothing to change.

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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ENGINEERING THE FIGURESDominic2023-12-01T12:13:14+00:00

BETTER CASH RATES

TODAY’S BLOG

BETTER CASH RATES

If you have money in the Bank (or Building Society) you will be all too aware that interest rates on deposits are incredibly low at the moment. You will only have something vaguely approaching a decent interest rate if you still have a fixed term account that you took out a while ago.

The Bank of England base rate is just 0.1% and this is of course what is used as the primary guide for banks and building societies setting their rates for savers.

HOLDING CASH

If you are a client, you will have heard me say that it is important to hold cash. This is to provide for emergencies that happen in your life and planned spending on projects – be that building, buying, giving or experiencing something. Holding cash means that those projects are not jeopardised by market events. You do not need to sell investments to get your plans done. Every £1 should have a purpose.

You will also know that holding cash for a long time, rather than investing it is not a clever move. If inflation is running at roughly 2-3% a year on average and interest rates are less than that, then the purchasing power of your money is going backwards.

CASH WISE

Of course, sometimes projects get delayed or deferred and you need to take a sensible approach. For what its worth, if you intend to withdraw a specific sum within 3 years (perhaps 5) then I would not encourage you to invest it but hold it as cash. That however presents the problem of where to put the money.

One of the things that I have learned over the years is that low interest rates generally annoy people more than most aspects of money. There has been a growing problem of scams – aimed at cash savers offering rates that are not plausible for cash. Many are scams, last week the FCA (our regulator) moved to ban the marketing of “mini-bonds” which, whilst about 5 years too late, is better late than never. Its worth noting the webpage of the FCA ScamSmart site (here).

LIMITED PROTECTION

You will remember the credit crunch and Icelandic Banking crisis. Perhaps you had savings at Northern Rock and witness the queues to withdraw money. Many will be concerned about the financial viability of a Bank that holds their savings. Your cash is generally protected up to £85,000 should your Banks fail. The FSCS limit is £85,000 per bank (per person). One of the problems with this is that some banks share the same banking license because they merged. Sometimes this catches savers off guard.

So searching for a good rate and being mindful of the FSCS protection limits takes some time, the process of opening an account is often tedious, the prospect of doing this with a different Bank every few months is not a welcome one.

CASH MANAGEMENT SOLUTIONS

There is a solution. There are various cash management services that are now available. We can assess which is the most appropriate for you. To generalise, these offer a single application and access to somewhere between 10 and 50 Banks. All paying better rates. You can structure the service so that some money is instant access, some at say 35 days and some 6 months, a year or longer. Achieving better rates whilst diversifying your deposits across different Banks.

These services were once only really available to those with significant cash reserves, now they are available to our clients. Whilst there may be a Bank or Building Society somewhere that provides a tiny bit more interest at some point, the purpose of these services is to make life easier and provide assurance of not holding more than £85,000 with any single bank (though you can if you want to).

ITS TIME TO GET THINGS DONE

I recently sent out a 10 minute challenge, Day 4 or task 4 was to list your bank accounts. There is a short video of me and a pdf to print off to complete. May I suggest/ask/advise/urge you to do this – that way I can check to see if you can get a bit more interest and take advantage of the full FSCS protections.

You may be interested to know that the service isn’t simply for your personal accounts, but can be for a business, a Trust or a Charity.

If you would like to know more, complete the pdf from the 10-minute challenge and send it to me via our portal. Alternatively email me.

Dominic Thomas
Solomons IFA

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Solomon’s Independent Financial Advisers
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BETTER CASH RATESDominic2023-12-01T12:13:16+00:00

970 BOTTLES OF BEER ON THE WALL

TODAY’S BLOG

970 BOTTLES OF BEER ON THE WALL…

I’ve been trying to think of ways to explain the benefit of long-term investing. I’m not a big beer drinker, but given that when I do go to a pub, I’m always shocked at how much a pint of beer is. According to the ONS, the average pint of beer in the UK was £3.67 in January this year. Clearly a national average, because that wouldn’t buy much in London.

30 Years Ago… 1989

Anyway, let’s suppose I am someone that likes to buy the occasional pint of beer. As I get older, like most people I tend to remember elements of the past fondly. Particularly this time of year as students return to University. 30 years ago, perhaps you were at University or had long since left. 1989 – the time when Nigel Lawson was replaced as Chancellor by John Major. Simply Red had a hit album “A New Flame”; Challenge Anneka had aired for the first time and Nick Faldo won the Open. A pint of beer back then was £1.03.

YOUR ANXIETY

Let’s suppose you had £1000 you wanted to do something with. The memory of Michael Fish and the great storm closely followed by Black Monday was fairly fresh in your memory. You didn’t fancy the stock market. So you found a decent deposit account, rates were high causing problems for borrowers but great for savers at 14%.

Thirty years later that £1000 had risen to £2,080 by January this year. You had forgotten about it except for when you sighed with relief as economic recessions came, Y2K, Dotcom bubble, Korean crisis, 9/11, credit crunch – you had avoided them all.

Yet there is a problem. In 1989 your £1000 would have bought a 30-year younger you 970 pints of beer. Today your £2,080 would only stretch to 566 pints.

Your Uni Friend John had a PEP

Your good friend John from University had put his money into the UK stock market, he put £1,000 into a Personal Equity Plan, some quirky idea brought in by Nigel Lawson. He bought a FTSE100 tracker fund (ok, maybe not, but stay with me). He had to live with the same economic stresses and saw the topsy turvy workings of the stock market. However, at the end of 30 years his £1000 was worth £11,494. He hadn’t touched it (neither had his adviser) and so all dividends were reinvested. This sort of money enables John to buy 3,131 pints of beer. That’s 5 times more than your 556 pints.

Julia also had a PEP

John is fairly happy, but his girlfriend Julia at the time also put £1,000 into a PEP, but she put it all into the FTSE250 tracker. She figured that slightly smaller companies might do a bit better than bigger ones. Lo and behold, Julia’s £1,000 has turned into £20,818. Julia can buy 5,672 pints of beer, that’s ten times (10x) TEN TIMES as much as your 556 pints.

OK – Smallprint (or not) Caveat Emptor…

Admittedly I have taken some liberties with costs, charges and the available funds in 1989. The biggest liberty I really took was suggesting that people leave their money alone. They/we don’t. We all tend to fiddle around, attempting to find a slightly or perhaps considerably “better” option.

Long story short, when considering investment for decades, what on earth does “risk” really mean? The risk of the power of the money in your pocket being worth less (or worthless) due to rising prices? The risk of seeing your money stagnate in cash? The risk of seeing the value of investments rise then fall?

Monsters grow

What ought to be blindingly clear…. don’t let your anxiety dictate your financial planning and investment strategy. It is a dreadful guide to future performance. The monster at your door is inflation, however small it seems today, feed it for 30 years and it’s still hungry and likely to eat you alive.

Dominic Thomas
Solomons IFA

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The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

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Call – 020 8542 8084

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GET IN TOUCH

Solomon’s Independent Financial Advisers
The Old Mill Cobham Park Road, COBHAM Surrey, KT11 3NE

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

7 QUESTIONS, NO WAFFLE

Are we a good fit for you?

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970 BOTTLES OF BEER ON THE WALLDominic2023-12-01T12:17:12+00:00

Cash Deposits – in defence of Premium Bonds

We all know that interest rates are depressingly low for savers (though good news for borrowers). There has been some coverage of National Savings Premium Bonds which has been rather unfavourable, so I thought that I would provide my thoughts on this.

As with all cash deposits, cash as a long-term investment strategy is not a good idea. Why? simply because of inflation. If interest rates are 2% and inflation is 3% then in real terms you are losing money each year, by losing I mean your £1 has less purchase power. So can we agree that cash holdings are for emergency funds, for people that are very anxious about other forms of investing and for planned major expenses. There are no rules or rights or wrongs, but holding cash is sensible for anyone, as it provides liquidity (rather than having to borrow or sell assets).

Turning to Premium Bonds. These are very basic, you buy each bond for £1. You can hold up to 30,000 so £30,000. You are not guaranteed any interest – indeed there is no interest at all. However, your £1 bond with its unique number is automatically entered into a draw. Each month someone wins £1m. Most don’t win at all, but in general those with the full £30,000 allowance tend to win small prizes, which over the year amount to about £450 (1.50% of £30,000). This money is tax free. So for a 20% taxpayer is equivalent to 1.875% gross and a 40% taxpayer equivalent to 2.50% gross. These rates are best compared against monthly interest paying accounts with 30 day notice. You will find very few accounts paying these sorts of rates. Sure a little bit more in a few instances, but not much. Given that we are talking about £30,000 an extra 0.5% is worth £150 over a year… not a significant sum when you consider that it would be taxable, involve the hassle of opening a new account and removes you from the possibility of winning £1m. I might add, that it is also a bit of fun, opening an envelope to discover your winnings. More fun than opening a bank statement, or indeed one of our portfolio valuations (unless you find particular joy in this exercise). Last month someone won £1m, 5 people won £100,000, 9 won £50,000, 18 won £25,000, 48 won £10,000 and 93 won £5,000. The smallest prize (£25) was paid out to nearly1.8m people in June alone.

The news is that the chances of “winning” (from £25) will reduce from 24,000:1 to 26,000:1 on August 1st 2013. As a result the current appropriate 1.5% rate is now more like 1.30%. So on £30,000 you might expect £390 of tax free winnings over a year. To a basic rate (20%) taxpayer this is equivalent to 1.625% and a 40% taxpayer equivalent to 2.16%. These are still decent rates. Sure nothing to write home about, but pretty competitive never-the-less.

Yes the rates are poor, but then that’s true of all similar types of accounts. As I have said cash is not a long-term investment strategy, it is a helpful emergency reserve and buffer. Whatever the economic climate, holding some cash would be entirely sensible. The question is really about having a properly thought through investment strategy that enables you to achieve your goals.

So please remember, this is not advice to rush out and buy premium bonds. This is my opinion in response to some negative coverage about them.Unlike the lottery you get your money back, the same money is re-entered into the draw each month. For the record, none of our clients have yet won the £1m jackpot and I would not advise anyone to rely on winning a jackpot as an appropriate form of providing for your future…that’s just wishful thinking.

Dominic Thomas: Solomons IFA

Cash Deposits – in defence of Premium BondsDominic2023-12-01T12:23:47+00:00

Best Cash ISA Rates – 15 November 2011

Solomons-financial-advisor-wimbledon-blogger

Cash Rates

As ever, this is not a list for advice, but a list to give guidance about some of the best or top paying rates currently available. You should always check the details of any deposit account in the terms and conditions. Also be aware of protection in the event of the Bank or Building Society going bust – this informaiton can generally be found at the FSCS wesbite. If you would like to do your own search on deposit account rates, then have a look at Moneyfacts. As inflation is currently 5.00% the vast majority of deposit accounts in all forms pay below this level, therefore the purchasing power of your savings is reducing. Locking in to a rate that is below inflation for a long period is generally not a wise idea.

One Year Deposit
Online: Yorkshire Bank 3.60%
Bank: Santander 4.20%
Building Society: Barnsley 5.00%

Two Year Deposit
Online: Yorkshire Bank 4.01%
Bank: Clydesdale 4.01%
Building Society: National Counties 3.76%

Instant Access
Online: Nationwide 3.12%
Bank: Santander: 2.50%
Building Society: Nottingham 3.25%

Cash ISA Fixed Rate
Online: Skipton 4.00%
Bank: Halifax 4.40%
Building Society: Barnsley 5.00%

Cash ISA Variable Rate
Online: AA Savings 3.05%
Bank: Santander 4.00%
Building Society: Newcastle 3.05%

Don’t forget that the FSCS limits apply per Banking Institution, not per Bank. If you find yourself looking at the Yorkshire Bank and Clydesdale Bank wesbites and find yourself thinking that they look very similar, that is because they are (a certified copy) – and both owned by National Australia Bank.

Dominic Thomas
Solomons IFA

Best Cash ISA Rates – 15 November 2011Dominic2023-12-01T12:48:43+00:00

Best Cash ISA rates

As ever, this is not advice – you should always check the detail of any account that you consider using. Personally if you have not heard of the bank, I suggest you do not use it, if you are still tempted by the rate make sure you do some proper research… don’t forget the lessons from the recent past…Iceland.. not the frozen food retailer.

One Year Deposit Account

Online: Derbyshire 3.55%

Bank: Santander 4.20%

Building Society: Barnsley 5.00%

Two Year Deposit

Online: The Post Office 3.96% (yes Postman Pat finally delivers!)

Bank: Yorkshire 3.82%

Building Society: National Counties 3.76%

Instant Access Account

Online: Nationwide 3.12%

Bank: Santander 2.50%

Building Society: Nottingham 3.25%

Cash ISA – Fixed Rate

Online: Governor Money Progessive 4.50%

Bank: Halifax 4.40%

Building Society: Barnsley 5.00%

Cash ISA – Variable Rate

Online: AA Internet 3.05%

Bank: Santander 4.00%

Building Society: Newcastle 3.05%

Remember, look below the surface of the account, some Banks are marketing accounts as deposit accounts, when they are not really deposit accounts at all but investment linked products. Remember that deposits up to £85,000 are covered by the FSCS. So there’s some protection if a Bank fails. None of the rates are terribly attractive, and these days I do have sympathy with those that suggest the Banks have turned the tables and are now the robbers. Somewhat harsh, but the sentiment is fairly widespread, hence the picture of “Public Enemies” a Johnny Depp film about American gangster/bank robber John Dillinger from the 1930s.

We are a boutique firm of financial planners. We create financial plans designed to achieve a desired lifestyle. We will craft and implement your plan that will provide you with the greatest chance of accomplishing your unique goals based upon the values that you hold. Financial products are little more than the tools to achieve your required results
Call us today or visit our website for more information and to arrange a meeting

Best Cash ISA ratesDominic2023-12-01T12:48:57+00:00