2015 has been a bad year…. for investors too

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2015 has been a bad year… for investors too

It has not been a good year for investors, frankly it has not been a good year for lots of people – we are all aware of the disasters and atrocities that have occurred around the world. So as you review your investments which have not performed as anyone would have hoped, a sense of perspective is probably wise.

The problem with stock market or traditional investing is that we see good years a bad years. 2015 has been a bad year, with the FTSE100 opening the year at 6,556 rising to a high in April of 7,103 (up 8.3%) but currently lagging at around 6,050 (down 7.7% over the year to date).

It is natural to feel annoyed and fed up, particularly as it is easy to get the impression that somewhere, somehow others are doing better. The truth is perhaps rather different. A fall of 7.7% is what the market provided via the FTSE100 (the UKs 100 largest companies). To have a smaller fall (or even a gain) you would have had to take more investment risk (essentially attempting to beat the market return based on belief, information or frankly luck). The market return is literally the market average return. This assumes that you were invested at the start of the year. If you invested towards the end of April your “loss” would be worse.

Realisation about Loss

However what is a loss? In essence a loss is only realised when you sell your investment for less than the price you paid for it, which might happen due to changing circumstances, but should not happen within a financial plan.

Part of my role is to help clients minimise their mistakes. One would be to sell at the bottom – to panic and “get out” once markets have fallen (this would be called “realising a loss” – ie making it real). It is tempting to do so, but unwise unless your circumstances have genuinely changed.

Risk and Diversification

However all portfolios are diversified across a range of assets, so you aren’t purely in the FTSE100. Portfolios have a global nature and hold cash, commodities and Bonds. The mix (asset allocation) is the important tool we use to devise a suitable portfolio for you, given your ability to cope with investment risk and also have a context (your financial plan) for your money. This is what we call diversification of risk, but might be better understood as “not holding all your eggs in one basket”.

Yes, the year has been poor for investors, but do not be tempted to seek higher returns, and yes even cash with its dreadful returns was a better option in hindsight. The returns will “feel” and appear worse as statements at 5th April would have exposed the comparative high point in the year. However in the long-term investing rewards those that stick with the plan. There is ample and readily available evidence for this.

Noisy “genuises”

Be mindful that most people will never (or very rarely) talk about their investment losses, but invariably shout from the rooftops about their investment successes. The truth is rather different and much better hidden. This applies to private investors and professionals alike.

Tomorrow I will highlight another mistake that you can avoid and frankly, one that you need to encourage anyone you know to read the piece.

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

2015 has been a bad year…. for investors tooDominic2023-12-01T12:19:41+00:00

Chasing Gold – That Night in Rio

Chasing Gold

So Germany won the World Cup, deservedly so. A final game of 120 minutes chasing gold. However, as if to underline my previous post about the tournament, I came across a useful piece on the BBC website. This also suggests that it is not about one month in Brazil – that is merely the end of the competition. Of the German squad that picked up winners medals last night in Rio, six of them were members of the 2009 Under 21 European Championship – who beat England 4-0 in the final to win the tournament. They were Neuer, Ozil, Howedes, Boatend, Khedira and Hummels. By comparison only one Englishman from that same match made it to Rio – James Milner. Unfortunately Theo Walcott was injured, but the rest did not feature in the squad.

Success in football or indeed in any walk of life is not easy. Last night we saw one of the best players in the world walk away with a trophy that could have gone to a number of other players, who probably all had better tournaments. There is no doubt that Lionel Messi is one of the most talented players, but simply being so, does not guarantee success. Those that made the decision to give him the golden ball award, should have thought again, Messi from all accounts is a very decent man and looked uncomfortable collecting the award, and yes, whilst I don’t know that he was (who does?) one got the sense that it was more than simply being on the losing team, this smacked of marketing and nothing more.

The same is true with investing, you can simply look up the top performing funds, but this is historic data and any good portfolio is more than a collection of historically well performing funds. It’s about getting the right mix (asset allocation) and then the right level of risk (defence and growth) and then the best value for money that will do the job (so none of the “stars” that played for Brazil). Certainly there are moments when you are likely to need to hold you nerve, but that is all part of the long-term thinking rather than a constant chop/change trying to chase the gold.

Dominic Thomas: Solomons IFA

Chasing Gold – That Night in RioDominic2023-12-01T12:39:24+00:00

Wimbledon 2014

For me, many of life’s milestone’s are based upon the sporting calendar. Its Wimbledon 2014 and its not so much that I watch every shot but that it signifies that the English summer is really here (despite the weather). It acts as a reminder of years gone by, stretching all the way back to childhood and watching coverage on the BBC or even listening to games on the radio. It isn’t even as though I’m particularly recalling all the great tennis players of the past, merely that it, like so many other events is another way of marking time and moments in my life.

As we are based in Wimbledon, well… next door. It seemed like a good idea to create a small campaign. So I have put together a free report that you can download for free. This explores the 5 most common mistakes that investor make. I have probably got a lot to learn in terms of making the report punchy or marketing friendly. Its a genuine attempt to provide something of use to anyone that has any intention of investing.

Do have a look at the report, I’d welcome any feedback, more importantly though, pass on the link to your friends that you believe could benefit. Here is the link

Dominic Thomas: Solomons IFA

Wimbledon 2014Dominic2023-12-01T12:39:20+00:00

Waiting for Certainty?

A frequent complaint from would-be investors is that “uncertainty” is what keeps them out of the financial markets. “I’ll stay in cash until the direction becomes clearer,” they will say. So when has there ever been total clarity? Alternatively, people who are already in the market after a strong rally, as we have seen in recent years, nervously eye media commentary about possible pullbacks and say “maybe now is a good time to move to the sidelines”. While these kneejerk, emotion-driven swings in asset allocation based on market and media commentary are understandable, they are also unnecessary. Strategic rebalancing provides a solution, which we will explain more of in a moment.

But first, think back to March, 2009. With equity markets deep into an 18-month bear phase, the Associated Press provided its readers with five signs the stock market had bottomed out and followed that up with five signs that it hadn’t.1 The case for a turn was convincing. Volumes were up, the slide in the US economy appeared to be slowing, banks were returning to profitability, commodity prices had bounced and many retail investors had capitulated and gone to cash.

But there also was a case for more pain. Toxic assets still weighed on banks’ balance sheets, economic signals were patchy, short-covering was driving rallies, the Madoff scandal had knocked confidence and fear was still widespread. Of course, with the benefit of hindsight, that month did mark the bottom of the bear market. In the intervening period of just over five years, major equity indices have rebounded to all-time or multi-year highs.

This table below shows the cumulative performance of major indices in the 18 months or so of the bear market from November, 2007 and then the cumulative performance in the subsequent five-year recovery period. You can see there have been substantial gains across the board since the market bottom. And while annualised performance over the six-and-half years from November 2007 is not impressive, the pain has been a lot less for those who did not bail out in March, 2009.

So those who got out of the market at the peak of the crisis and waited for “certainty” have realised substantial losses. But keep in mind, also, that these past five years of recovery in equity markets have also been marked by periods of major uncertainty.

In 2011, Europe was gripped by a sovereign debt crisis. Across the Atlantic, Washington was hit by periodic brinksmanship over the US debt ceiling. In Asia, China grappled with the transition from export-led to domestic-driven growth. Around any of these events, there were a broad range of views about likely outcomes and how these possible scenarios might impact on financial markets. The big question for the rest of us is what to do with all this commentary.

The fact is even the professionals struggle to consistently add value using analysis of macro-economic events, as we see repeatedly in surveys of fund-versus-index returns. And history suggests that those looking for “certainty” around such events before investing could set themselves up for a long wait.

There is always something to fret about. Recently, the focus has been on low volatility, particularly when compared to the days of 2008-09. Sage articles muse over whether risk is being appropriately priced and whether volatility is being unnaturally suppressed by central banks’ explicit forward guidance about policy.2 Just as in March 2009, one does not have to look far to find well-reasoned discussion in support of why the market has topped out, alongside equally compelling reasons of why the rally might continue for some time.

What is the average investor supposed to make of all this conjecture? One way is to debate the market implications of news and to try to anticipate what might happen next. But whom do you believe? We’ve seen there are always cogent-sounding arguments for multiple scenarios.

An alternative approach is much simpler. It begins by accepting the market price as a fair reflection of the collective opinions of millions of market participants. So rather than betting against the market, you work with the market.

That means building a diversified portfolio around the known dimensions of expected return according to your own needs and risk appetite, not according to the opinions of media and market pundits about what happens next month or next week.

It also means staying disciplined within that chosen asset allocation and regularly rebalancing your portfolio. Under this approach, you sell shares after a solid run-up in the market. But the trigger for this rebalancing is not media speculation, but the need to retain your desired asset allocation.

Say you have chosen an allocation of 60% of your portfolio in equities and 40% in fixed income. A year goes by and your equity allocation has rallied strongly so that the balance between the two has shifted to 70-30. In this case, it makes absolute sense to take some money out of shares and move it to bonds or cash.

It works the other way, too, so that if shares have fallen in relation to bonds, you can take some money out of fixed income cash and buy shares. Essentially this means buying low and selling high. But you are doing so based on your own needs rather than on what the armies of pundits say will happen in the market next. Of course, this doesn’t mean you can’t take an interest in global events. But it does spare you from basing your long-term investment strategy on the illusion that somewhere, at some time, “certainty” will return.

Jim Parker: Dimensional

________________________________________
1. ‘Five Signs the Stock Market Has Bottomed Out and Five Signs It Hasn’t’, Associated Press, March 15, 2009
2. ‘When Moderation is No Virtue’, The Economist, May 22, 2009

Waiting for Certainty?Dominic2023-12-01T12:39:17+00:00

What Doctors can teach investors

Today’s guest blog is from Andrew Webb, who is a writer, marketing and communications expert. He currently works for Dimensional and used to work for Fidelity. Here he highlights why at Solomons we use evidence based investing, not the latest fad. You may know that I advise quite a lot of medical consultants and I imagine you will find his topic title amusing.

What Doctors can teach investors

Newspaper reporters who interview centenarians on their landmark birthday cannot seem to avoid the temptation to ask how they have lived so long. Because most people haven’t the faintest idea how they have reached 100, they tend to attribute their good health to something like a weekly tea dance.

Medical professionals will say that the most likely reason for a long life is a combination of favourable genetic and environmental factors, access to reliable medical care and a healthy dose of good luck. It follows, therefore, that anyone serious about improving their chances of a long life is better off seeking the credible advice of a doctor, not taking speculative tips from a pensioner.

But these facts rarely get in the way of a good story.

The treatments doctors use to keep us healthy are tested by a process of empirical research and clinical trials. Considering health and wealth are both high on the list of priorities for many people, it is a shame that the investment industry is typically less rigorous than the healthcare industry.

Most people turn to the investment industry to help them research their investments. This is the same as asking a pensioner how they have lived so long. The industry’s self-analysis can range from outlandish to plausible, but it will almost never be based on scientific study.

We take a different approach; one that is based on scientific rigour and hard evidence. This approach identifies the sources of investment return and we aim to deliver them to you. This gives us confidence that we understand why your investments behave the way they do and why we are more able to design investment portfolios that suit your needs.

Andrew Webb

What Doctors can teach investorsDominic2023-12-01T12:39:04+00:00

Fear and Greed – The Greener Grass

Fear and Greed

I suspect at some level everyone has “issues” with money and these tend to play into some fundamental concerns that we all have the capacity to display – fear and greed. I may be rather naïve but I like to think that the “proper” newspapers (those that make an attempt at investigative journalism) are there to expose deception by informing and educating, equipping us all to make better informed decisions. So it was disappointing to read an article in the Guardian this weekend, which seemed to play into the two dynamics that are fuel to anxiety.

Lord of the ISA?

It was an article about John Lee, a Liberal Peer, who it reports has made £1m from ISAs. Set aside the facts are scant and not verified; he poses a particular investing theory. His approach is essentially a buy and hold strategy, though rather than use funds, he purchases individual shares, rarely trading. “He says he always goes for genuine quality smaller-company UK shares”. This is an investment strategy – there are probably almost as many investment strategies as there are investors. The pros and cons of it are not explored, other than to imply that this is what got his ISA portfolio to £1m.

ISAs, PEPs and some real numbers

So how about some hard facts? PEPs were introduced in 1987 at the time with an allowance of £2,400. By 1999 the PEP allowance (£9000 at the time) was replaced with a lower ISA allowance of £7,000. This only began to rise in 2009 and is now linked to inflation. Aside from possible TESSA allowances and windfall shares from various sell-offs including Building Societies, since 1987 it has been possible to invest £212,080. If these investments had grown at 7% a year (no investments grow in a straight-line) they would be worth approximately £546,388. 7% isn’t an unreasonable annualised return since 1987. The inflation adjusted return (“real return”) for the FTSE All Share from 1987 to the end of 2012 was 5.3% a year with UK RPI at 3.6% (so a gross annualised return of 8.9%).

Risk isn’t simply a game

So a couple of points. We don’t know from the article, if Lee has achieved a return of virtually double this (from his strategy) or if he has simply used his wife’s allowance as well. If it’s the latter, then I guess there isn’t much of a story, if he has doubled the return then we can all marvel at his genius right? Well no. Lee has taken some investment decisions that are considerably outside of the range of the typical, ordinary investor, which may be all well and good for him as I assume that he can afford to lose the money, most cannot and as a result have a more diversified portfolio of holdings to suit their ability to cope with risk, or more accurately loss. Those with large resources can, in theory cope far better with the volatile nature of stockmarkets. Yes it is true that anyone can do it (provided they have the money to invest and can leave it alone for 26 years) but in practice his strategy is not appropriate for probably 98% of people that I meet. He has also been investing for 50+ years, and invests a lot of time in following the markets and various companies.

Success proves skill right?

Lee appears to have no time for Fund Managers, yet it is very hard to believe that most people have either the time or knowledge to research small UK companies. This knowledge can be learned, but it requires time and effort and most people are simply not interested, it’s not as easy as is being suggested – otherwise all investment managers would be achieving similar results right? Professionals with this as their full-time job. To be blunt, I’m not really bothered if he is a genius investor or not, the concern is simply that the article makes investors question why their ISA portfolio isn’t worth £1m and the inference is that this is due to buying funds instead of individual shares. There is no suggestion that this might be a high risk strategy, it’s simply playing the envy card that for Lord Lee this has worked out rather nicely so far. This is simply another tale of “the grass is greener”. Even if higher returns have been achieved, there is a high degree of luck in the result – not needing to touch the money for 26 years for starters. Call me a cynic, but the fact that he has a book out may be nothing more than a red herring and anyone with a particular investment strategy, whether it’s buying small companies, art or property has a vested interest in getting others to do the same, the increased demand pushes their “portfolios” higher as others seek to copy this “winning strategy”. If investing is so easy, why are so few able to even outperform the market over the long-term? Questions for another day.

Dominic Thomas: Solomons IFA

Fear and Greed – The Greener GrassDominic2023-12-01T12:39:02+00:00

The Devil Wears Nada

Another guest blog from Jim Parker, vice president of Dimensional, with a particularly witty and pertinent take on the way the financial services industry attempts to mimic the fashion industry, but leads investors astray. Over to you Jim…

The global fashion industry is fickle by nature, pushing and then pulling trends to keep hapless consumers forever turning over their wardrobes. Much of the financial services industry works the same way. Fashion designers, manufacturers and media operate by telling consumers what’s in vogue this year, thus artificially creating demand where none previously existed. What turns up in the boutiques is hyped as hip by the glossy magazines. So you “have” to buy it.

Likewise, much of the media and financial services industries depend on fleeting trends and built-in obsolescence to keep investors buying new “stuff”. Driving this industry aren’t so much the real needs of individuals but manufactured wants with short shelf-lives.

Just as in fashion, consumers jump onto an investment trend just as it’s peaking and when the market has moved onto something else. So their portfolios are full of mismatched, costly and impractical creations such as hybrids, capital protected products and hedge funds. These products tend to be created because they can sell. So in early 2005, Reuters wrote of how banks were manufacturing exotic credit derivatives for investors looking for ways to boost yield at a time of narrowing premiums over risk free assets.¹

Four years later, in the midst of the crisis caused partly by those same derivatives, the shiny new things were “guaranteed” or “capital protected” products as financial institutions rolled out a new line of merchandise they thought they could sell to a ready market.²

Some investors made the mistake of swinging from one trend to the other, ending up with overly concentrated portfolios – like a fashion buyer with a wardrobe full of puffy blue shirts. Now while some of these investments may well have found a viable market, it’s worth asking whether the specific and long-term needs of individuals are best served by the design and mass marketing of products built around short-term trends.

Luckily, there is an alternative. Rather than investing according to what’s trendy at any one moment, some people might prefer an approach based on long-term evidence and built upon principles that have been tried and tested in many market environments. Instead of second guessing where the market might go next, this alternative approach involves working with the market, taking only those risks worth taking, holding a number of asset classes, keeping costs low and managing one’s own emotions.

Instead of chasing returns like an anxious fashion victim, this approach involves investors trusting the market to offer the compensation owed to them for taking “systematic” risk or those risks in the market that can’t be diversified away. Instead of juggling investment styles according to the fashion of the moment, this approach is based on dimensions of return in the market that have been shown by rigorous research and evidence as sensible, persistent and pervasive.

Instead of blowing the wardrobe budget on the portfolio equivalent of leg warmers, this approach spreads risk across and within many different asset classes, sectors and countries. That’s a tried and true technique called diversification.

And instead of paying top dollar for the popular brands at the expensive department stores, this approach focuses on securing good long-term investments at prices low relative to fundamental measures. Buying high just means your expected return is low.

Most of all, instead of focusing on off-the-rack investments created by the industry based on what it thinks it can sell this week, this approach delivers long-term, made-to-measure results based on each individual’s own needs, goals and life circumstances.

To paraphrase the legendary designer Coco Chanel, investment fashion changes but style never goes out of fashion.

1. ‘Demand for Exotic Derivatives Seen Growing – Bankers’, Reuters, Jan 18, 2005

2. ‘Investing: Storm Shelters’ – Money magazine, Oct 1, 2009

Thanks Jim, for those that don’t get the title reference, here’s the trailer for an amusing and allegedly accurate portrayal of life in the fashion industry.

The Devil Wears NadaDominic2023-12-01T12:39:00+00:00

Can the Money Box Producer invest £5,000?

Earlier this month Money Box, the BBC Radio 4 programme decided to find out how easy it was for a complete novice to do their own investing. He has a sum of £5,000 representing his life savings, which is otherwise held on deposit in his bank earning less than 1% interest.

Financial Planning Basics

It is true to say that basic financial planning is straight-forward, yet most people fail to do the most basic tasks. Financial advisers may therefore spend considerable time, helping clients to get the basics in place. This was touched on in the programme, but very briefly. In essence, ensuring that your finances are under control, knowing what you spend and what you earn, having suitable reserves (3-6 months of spending). Having a Will, adequate financial protection and clearing debt etc.

Too small-fry?

As a result the starting premise of the show is how to invest £5,000. In truth the vast majority of financial advisers are not really interested in this level of work. Its not financially worthwhile and its not satisfying work. A good planner will take investors through a risk assessment, invariably a questionnaire which helps start the process of explaining and understanding investment “risk”. In truth this ought to be a straight-forward process, but it often isn’t. DIY investing is fine for low levels of funds, but when the sums get bigger, so does the complexity.

How much is a pint of milk?

Sadly Wesley didn’t really do DIY investing. He asked for advice and then went to the investment company to find that they required £100,000 as a minimum to invest directly through them. Alternatively he could access the fund through a platform. He then asked a very good chap Mark Polson, who assesses platforms for people like me, about which platform to use. This is an art and science. However, Mark rightly points out that using a platform will cost typically 0.25%-0.35% for using their administration. That’s £12.50 – £17.50 for a £5,000 investment. I’d call that peanuts, though I’m sure Money Box would disagree.

Investing is not gambling. Gambling is gambling.

I was also disappointed to hear the description of investing as a “gamble” from someone in the know (Candid Money). It carries risk but it is not gambling. Thankfully ludicrous questions were kicked into touch and Mark also pointed out that “best” and “cheapest” are two different things. Paul Lewis also seems to think that charges are a loss. They are a cost of investing, not a loss (and free banking isn’t free, its cross subsidized by loans etc).

The DIY Investor

I have lots of sympathy with people that find financial planning expensive and also have had bad experiences. I recently met with a potential client who is a DIY investor, but really wanted to know how to minimise capital gains tax. He was a bright guy, but fairly unusual, holding shares in just two companies worth a good six-figure sum. Whilst he seemed to appreciate the risk he was taking, I had serious doubts. He had no clear idea of the returns achieved and not kept any good records. For all I know he may be a genius investor (unlikely) but my suspicion is that his approach was born out of an understandable mistrust and fear of being ripped off, yet in practice he was (and is) in serious problems should his two shares take a turn for the worse. The main winners will be HMRC as he has not used any capital gains tax or ISA allowances over the last 20 years (use it or lose it).

DIY is spending time to save money, yours.

DIY investing is not something to be undertaken lightly. I am learning new stuff almost each day and I’ve been doing this for over 20 years. Frankly, any professional skill can be learned by most people. Yes I could even learn to be a brain surgeon… but do I want to? am I actually playing to my natural interests and skills? if time is short, why would I waste it learning about stuff an expert can do for me? (and with whom I have a professional relationship). I tend to find people tend to fall in one of two camps – spend time to save money, or spend money to save time. DIY investors are the former (by doing it themselves) but beware it takes a lot of time, whereas you could focus on the things that actually improve your employed skills and therefore your income, or simply spending time on doing the things you love. Oh and Money Box – “ad valorem” is a fee based on the value of a portfolio, in short a percentage. There is definitely a need and place for DIY investing, but check where you are really coming from before you embark on this rather lonely and arduous venture. You don’t want to find that all is lost…

Dominic Thomas: Solomons IFA

Can the Money Box Producer invest £5,000?Dominic2023-12-01T12:38:59+00:00

What is the best way to save for retirement?

As pretty much everyone is now being told to open a pension under the new auto enrolment rules, perhaps it is appropriate to cover the basics of what pensions are what some of the alternatives (or additions) that are also available. I’m going to provide a basic course on pensions, annuities and the alternatives. Bite size chunks that we can all manage.

Pension Plan Basics

Let’s start with some basics. A pension is not a pension. A pension is little more than a savings plan or pot with tax relief (a Government sweetener). The income that you ultimately take is really your pension, however to confuse matters this is invariably called an annuity. Yes, if it wasn’t true, you’d think that the financial services industry simply made it up to keep you in the dark.

Cut to the chase

In the hope of not boring you to death, I’m going to start at the end. Let’s say you have now decided to retire. If you have a pension (and there are lots of types based on history) they tend to fall into one of two camps, firstly a final salary (sometimes call defined benefit) pension and secondly a “Money Purchase” pension (or in plain English an investment based pension). In this post I’m only going to refer to the latter (an investment based pension).

A pension fund is a pot of money

So you are now at retirement and have a pot of money. You have loads of choices. You can take 25% of the fund as tax free cash and put it straight into your bank account and go spending. The balance (or all of it) is normally used to buy an annuity. This is simply an income for life. The income will stop when you die unless you have a spouse and you have included an option to have the income continue to him/her after your death for the remainder of their life. Simple enough right? Well yes and no. Simple idea, tough decisions. Why? Because you have to take a gamble on what you think the rate of inflation will be for the remainder of your life – do you buy an annuity that rises each year at RPI or an agreed amount (say 3% each year) or do you have a higher initial income but that stays constant. As a guide it will take about 12 years for a rising annuity to catch up with a level one and another 12 years to have paid out more in total. So as well as having to predict inflation (which by the way economists, Bank of England, Chancellor, professional investors) all fail to get right) you also have to guesstimate how long you will live.

Are we there yet?

Oh and if you think, “not long” remember that the average age of death for a man is now about 80 and about 84 for a woman… but then consider your own family’s longevity and perhaps add a bit for improved diet, lifestyle and medical care… unless of course you are wolfing down the processed food whilst spending no time outside getting any exercise. Alternatively like about 40% of people at retirement age, you may be taking regular medication for high blood pressure etc, in which case you probably qualify for an enhanced annuity. This is a polite way of saying “you have a reduced life expectancy”.

Back to the future..

So – a pension is not a pension, an annuity is a pension. You have to take a gamble on what inflation will do and how long you will live. You may want to build in a spouses pension, if not the annuity will die with you. To make the decision a little more pressured, once you have gone down this route, there is no U-Turn, no change of mind. You have to live with it. Sadly there is no time machine to see the future. Steve Webb, the pensions minister doesn’t like this either… but there are no easy solutions, unless you have a DeLorean with a Flux Capacitor.

Next up…what are your other options to buying an annuity? I will cover that tomorrow.

Dominic Thomas: Solomons IFA

What is the best way to save for retirement?Dominic2023-12-01T12:38:50+00:00

Moneybox and the Diamond Scam

This week BBC Radio 4 Moneybox featured a story about a diamond scam. This is sadly a rather familiar tale and one that prays on financial naivety. It’s the classic boiler room scam, a cold call from what sounds like a busy dealing floor (though why the sound of lots of people on the phone should suggest something good is rather beyond me). Anyway, the latest revision of this scam is in the form of diamonds… which of course is nothing to do with the stoc kmarket, which to some “investors” has appeal as a possible form of “alternative investment”.

Don’t miss out before its too late! (er… no)

The promise is… yes you had better sit down for the obvious statement “this will provide a guaranteed return of XX%”… which is never true for the investor, no matter who says it. The only guarantee is that there is no such thing as a guarantee. Everything carries risk. However it’s back to that same old phrase – if it’s too good to be true, then it isn’t true. Yet so many people forget this, when placed under pressure… pressure from another person at the end of the phone…which you can hang up… yet our nature is to be nice, friendly, amenable and rarely do people like to say “no”…. well a lot of people (it is alleged).

The carat carrot… what’s up doc?

Back to the scam – the diamonds may not even exist, you haven’t seen them, and so there is only a verbal suggestion of their value (even if this were a written valuation, it should be treated with caution). The price of the diamonds is naturally inflated, by an estimated 1500% and the broker/trader… oh lets call a spade a spade… criminal, takes a 25% commission cut… which is the only guarantee. Now of course, it’s wrong that anyone gets taken in by these criminals, but it is particularly concerning that they target the elderly, who are more vulnerable.

New tales, old tricks

How is this different from the penny shares sold by the Wolf of Wall Street? Well, it’s not much different, the process and tactics are very similar – selling much overpriced things to over optimistic “investors” who will never recoup their investment. This isn’t investment, its basically stealing… not to mention that there are serious issues about conflict diamonds, as highlighted in the 2006 movie “Blood Diamond”.

The question behind the action

Of course building a diversified portfolio is sensible, so that your wealth is not exposed entirely to the stock market. Hence why when we create a portfolio it has a variety of different “asset classes” within it, including cash, alternatives and potentially a wide range of different sorts of investments. So I have every sympathy with someone trying to diversify their portfolio – a good adviser will do this. Oh and by the way, it was a financial adviser that raised the alarm about the scam to the victim (not the media, not “the internet” , not the bank, not the best friend and not the regulator)… I’m feeling a little sanguine as the obligatory levies that advisers pay to regulators in their various forms (FCA, FOS, FSCS) have increased a staggering 300%… and frankly that feels like a very big scam.

Dominic Thomas: Solomons IFA

Moneybox and the Diamond ScamDominic2023-12-01T12:38:49+00:00

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