Should Risk be Contextualized?

Should risk be contextualized?

The media is full of stories telling us how much risk there is “out there”.  Whether its oil prices, fracking, stock markets, war in Syria, crowded cities, religious nutcases… its a wonder any of us make it through the week. Risk is real, but of course it needs a context.

Crossing the road is a risk, but looking each way, listening and crossing when its safe to do so makes it less risky. In such circumstances, we assume that we will make it to the other side – we don’t expect to collapse half way across or be struck by something falling from the sky…. or indeed someone driving something at 250mph.

So risk needs a context, we dismiss risk that is likely to be irrelevant, based upon our experience. We apply sensible practices (green cross code) and then make a judgement. We might be wrong, our “experience” may be under or over stating the actual risk.

For example, not swimming in the ocean for fear of being attacked and killed by a shark – yet the greater risk is drowning. You are more likely to be killed a mile from your home in an accident than being killed by a terrorist…. though I will of course quickly contextualize that to where your home is!

I don’t think its just me, but given all that has happened to investment markets in recent memory, I am always a little “alarmed” at how some businesses simply keep peddling the same myth… that becoming rich is easy.

 

Risk Warnings

So in a climate of anxiety about the state of the world, recent experiences of a credit crunch, a general concern and growing desire to state all risk warnings clearly. I was surprised and disappointed to see an advert on the home page of the London Stock Exchange website which is for a trading account, suggesting that you can become a trader in a matter of just 10 minutes. In all fairness, it doesn’t say become a good trader, a rich one – simply become one. I imagine that 10 minutes of investment experience of CFDs is likely to make you a very poor trader.

As it happens, this is trading CFDs… one of the more exotic forms of investing. I am not suggesting that Trade.com are a bad company, I have no way of telling if they are. What they offer ought to be aimed solely at wealthy investment experts who can afford to make enormous losses. I imagine that this would probably be who they also believe should be their target audience. However an advert on the LSE homepage, in fact two of them, rather implies something else… or is that just me? as for the risk warning… well “CFD trading is risky” (no kidding!).

Depending on who I listen to, even showing you the trade.com advert as I have above, might constitute a financial promotion… which may land me in trouble. Clearly I do not believe it is. I have made it very clear that there is a context for showing the advert, doing so and unless you fall into the category of the target audience that I have identified in the paragraph above, you would be mad to consider this an endorsement or worse still “advice”. Yet this plays into the current mindset of the day – blame someone else when something goes wrong.

If you ever switch on a commercial radio station, you will be aware of some adverts that end with someone talking very quickly about the terms and conditions of credit being made available, typically for car adverts. I might suggest that this is rather unnecessary, as anyone with half a brain that wants to take up such an offer has ample time to do some research to check the terms carefully, nobody is picking up a phone or firing an email off ordering a car (or whatever) as soon as the advert ends.

Somewhere there is a sensible amount of warning (about the potential for loss) for any type of investment or financial transaction. Clearly, we seem far from this (from my point of view). Why even bring this to your attention? Simply – just because the stock market is “risky” does not mean that other forms of investing are less risky, some are, most aren’t. Buying property abroad or a tree farm, ethanol plant, storage pod  or whatever via your pension, is almost certainly a bad decision.

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

Should Risk be Contextualized?2025-01-27T16:38:37+00:00

Investing: ETF Statistics from LSE

ETF statistics from the LSE

Further to my recent post “What are ETFs” it is perhaps worth outlining the size and growing popularity of ETFs. The LSE (London Stock Exchange) publishes monthly data about various investments that it provides a trading function for.

The latest data (in the July 2015 LSE report) to the end of May 2015 shows that the UK is now the largest market for ETFs in Europe, with 32.7% market share. This beats the Germany (25.5%), France (13.4%), Italy (11.4%), Switzerland (8.5%) and Holland at 4.9% with the other European markets making up the rest. £22billion of trades were placed in June, representing around 302,000 individual trades (buy/sell). These sums are not insignificant and increasing each year, increasing 61% over the last 12 months.

We can explain the pro’s and con’s of ETFs for your portfolio and arrange your investments to suit your requirements and ability to cope with investment risk

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

Investing: ETF Statistics from LSE2025-01-21T15:54:47+00:00

Those shares you have…

Tax may be due on those shares that you have

As you know, shares are an asset (well they should be) and many provide income in the form of a dividend. This is taxable. Dividends are generally taxed at source at 10% but sadly the tax does not stop there. You have to declare the income so that any additional tax, based upon your other UK income is paid across to HMRC which could be 32.5% or 42.5% depending whether you are a higher rate taxpayer or additional rate (50%) taxpayer. You submit this information via your self assessment return. Anyhow, you may have a few shares that you bought or were “given” many years ago. It is entirely possible that the share is in a company that no longer has the same name. You may have found some old certificates in a dusty old box and assumed that they were worthless.

Checking if “old shares” still exist

It is entirely possible that they are worthless. However it is definitely worth checking first. Despite the advent of technology, tracing shares is a little tricky. Shares listed on the London Stock Exchange are invariably held by one of three registrars. These are Equiniti, Capita and Computershare. If you click on their name it will take you to their website. You can then find out if they look after the company you hold shares in. Alternatively do a search for the original company or check with the LSE, who may be able to provide some assistance (depending on the age of the shares).

Think carefully – CGT may apply

If you decide that the few shares you hold are more hassle than they are worth, please remember that as an asset, they are subject to capital gains tax. In essence you need to know the price you paid for them and the price you sell them for, the difference (the gain or loss) may be taxable. You have a personal capital gains allowance (CGT) which in 2012/13 is £10,600 and would need to be used by 5th April 2013.  This allowance means that you can realise gains of £10,600 and pay no tax. The vast majority of people in Britain rarely use their CGT allowance, yet it is highly valuable. The maths is complicated if you have used dividend income to buy more shares automatically, as you will have a series of purchase prices and different “chunks” of shares. You are now in Accountancy dreamland.

There are other options for your shares besides simply selling them, but you should seek personal advice about this as it will depend on the sums involved, your appetite for risk and your requirements for income and capital.

Those shares you have…2025-02-04T10:56:55+00:00
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