NFT – NEW FAIRYTALE

TODAY’S BLOG

NFT – NEW FAIRYTALE

Perhaps you haven’t heard about NFTs, if not give yourself a pat on the back. However, it’s possible that you have seen something online or had a younger person mention it to you and perhaps it left you a little perplexed. I am not a fan. To me this is yet another of “The Emperors’ New Clothes”. I am concerned that a lot of people will say goodbye to their hard earned savings for fear of missing out and not understanding investing, in a culture that appears to tell us not to invest in the stock markets. Give me a moment and I will try to explain why.

One of the main reasons for people being scammed is due to a fear and lack of understanding about the stock markets. The market volatility is regularly reported by what passes as news, keeping you informed about the latest FTSE100 movement. “Billions were wiped off the markets today” is a phrase that regularly rolls off news presenters’ tongues, yet rare is the day (have I ever?) when we hear the “billions wiped on”. We are all kept in a state of anxiety about impending doom and it is quite deliberate. It gets your attention.

SO WHAT… HOW DOES THIS ENCOURAGE SCAMS?

Well, fearing the investment of your money in the most regulated, scrutinised exchange, where data is published and reviewed every day of the year and has been for decades, it seems that the volatility and the anecdotal “I lost money” or “my dad lost money” triggers the big red panic button that most of us have. So many turn to alternative forms of investing in the mistaken belief that they are less ‘risky’ (in fact some seem to be a ‘sure thing’). Oh, and for good measure, we humans are impatient, we love a happy ending and have a tendency to ignore the hard work that went into creating one (if it even is an ending). Or to put it another way, to approve of and want successful investments once they have happened.

INVESTING IN REAL COMPANIES

When you invest money into the stock market or funds of equities (as is more likely) you buy shares in companies that trade internationally. They do so by making or providing goods and services that we want, need or require. As markets are generally competitive, they strive to improve what they do to ensure their own sustainability. Where companies often go wrong is cutting corners to reduce costs and increase profit rather than improving what they do and communicating this properly. On occasion, you may have an objection to the company, or its sector or the people that lead it. So you can (we can) screen out some of these based on ethical, environmental, social or governance standards. At the same time, you know that ‘cheap’ is unlikely to be high quality, but you also know that we don’t all need our weekly shopping from Harrods. There is a range; a spectrum. Sometimes we pay more for things because of the feelings that it evokes, sometimes we do so because we instinctively know it to be better.

Your investment appreciates in time as the company you invest in grows. You also receive a share of the profits made (dividends). Quite how much and how well these companies ‘perform’ is largely down to how well they run and… luck. By luck I mean – the right place at the right time, for example being a PPE manufacturer and a pandemic arrives.

You get your money back when you sell your investment. In the interim, you’ve hopefully had some dividends and an improvement in the value of the share. If you hold a handful of companies and one or two fail (such as the Kodaks of the world) then you have a proper loss. If you hold thousands, perhaps an entire market, then the impact of any failure is significantly reduced.

INVESTING IS NOT GAMBLING

Placing a sporting bet or a stake in a casino, you are hoping for a win, or something close to that to get your money back, plus the incentive to make the bet in the first instance. You may get back nothing – which is far more likely. That’s gambling – the risk of complete loss. For some people this is a small bit of fun (I can think of many better things, but I won’t judge), for others it becomes an addictive habit that can destroy families.

When you consider investment in proper companies (shares in them) over time, going back to the start of your lifetime, there is only one direction of travel for the combined value of your investments. Upwards. Yes there are bumps along the way (volatility) but you own real assets (companies) making and providing real products and services.

THE NEW CLOTHES

The digital world and our obsession with it, has given some people the idea that a digital image is worth something. These NFTs (Non-Fungible Tokens) are in my opinion the equivalent of the Emperor’s new clothes. The value is talked up by nefarious online forums and chatrooms and ‘traded’. I would not touch them with the proverbial barge pole. If in the event I am wrong about this in say three decades time, that’s fine with me as I will be holding assets that provide regular income from actual profits from making real products and services. I can and will happily live with that and until proven otherwise, I will not aid anyone into deliberate folly.

HMRC’s NFT SEIZURE IS A WARNING TO ‘INVESTORS’ AND TAX CHEATS

The UK tax authorities have confirmed their first ever seizure of a non-fungible token (NFT) following a probe into an alleged £1.4million VAT fraud. Her Majesty’s Revenue & Customs (HMRC) said it had confiscated three NFTs, along with £5,000 in other crypto-assets, and arrested three people as part of a fraud investigation concerning around 250 sham companies. It claims the three suspects, who have not been publicly named, used a variety of ‘sophisticated methods’ to try and conceal their identities, such as false invoices, pre-paid unregistered mobile phones and virtual private networks.

NFTs are tokens representing the ownership of a digital asset, which could be an artwork, an image, music, or even a tweet that have their own unique signature and cannot be exchanged for another asset of the same type. But there has been increasing worries that these digital tokens, as well as cryptocurrencies, are being used by criminals to hide their illicit financial gains. Nick Sharp, the Deputy Director of Economic Crime at the HMRC, said: “Our first seizure of a Non-Fungible Token serves as a warning to anyone who thinks they can use crypto-assets to hide money from HMRC.”

Understand the real risk and buy real assets. You have been warned.

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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NFT – NEW FAIRYTALEDominic2023-12-01T12:12:53+00:00

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.

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

GET IN TOUCH

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

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

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PRIVACY POLICY | DATA PROTECTION

GET IN TOUCH

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

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

7 QUESTIONS, NO WAFFLE

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Take Survey

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WHAT SHALL I DO ABOUT MY SHARES?Dominic2023-12-01T12:13:15+00:00

Is HMRC watching you?

Solomons-financial-advisor-wimbledon-blogger

Is HMRC watching you?

In an ever connected world, it should come as no surprise that HMRC are using technology to catch those that do not properly declare their income. In essence they are watching you (and me). I am informed that a new “snooper computer” is being rolled out this month, in time for those that are submitting information about their income for 2015/16. Whilst Government departments have rarely bought or invested wisely in computers (I guess suppliers see them coming… in fact I know they do)… this represents a £100m project.

Why is this important? well…. failing to accurately report and pay your taxes is one of those crimes for which you can expect a custodial sentence. Indeed HMRC powers have increased so much over the last 10 years that they can take money from your bank account until you can demonstrate that you don’t owe it to them (I kid you not).

Declaring Your Income

Under self-assessment we are all responsible for reporting and declaring our income. As everyone has observed, the UK, like most countries, has rather a lot of debt and is currently living beyond its means. The basic reality of maths is that either more income (taxes) has to be generated or less has to be spent and debts renegotiated. So as 31st January 2017 looms as the deadline for declaring and paying income from the 2015/16 tax year (ended April 5th 2016) expect little sympathy from the Government, HMRC or indeed most voters.

The new computer system is a way for HMRC to focus attention on those that appear to declare modest income, whilst also having involvement with organisations where money is clearly involved. So if you’ve bought a house (as I did in 2016) then you had to pay stamp duty… where did this come from? (data triggered from the Land Registry) or you are fairly active on e-bay, do some Airbnb, or rent a property, perhaps sold some things at a car boot sale, or have a Paypal account, bought a car… and, and, and… in short they are looking proactively for various sources of income that you are not declaring.

So what income have you forgotten about?

Income is paid on dividends from shares, invariably these are taxed at 10% automatically, but higher rate taxpayers will need to pay more. Have you declared all the income from those privatisation shares you’ve had for years? how about from non-ISA accounts? Auto enrolment (or workplace pensions) has begun for most firms, so this is yet another opportunity to see data about income. Interest from savings (don’t laugh!) is also income and taxable – except for the first £1,000 – which means most people will not pay tax on it.

For what its worth, you are likely to be the sort of person that is worried about not paying your tax properly. The threat or fear of possibly going to prison is more than sufficient to keep most people “on the straight and narrow” yet there will be some, for whom prison is no real “threat” – frankly that’s probably the very rich, who can afford to live outside of the country and legally avoid UK laws… such as top sportstars, business people that you’ve actually heard of or those that are the beneficiaries of mega Trust Funds (so dont own the assets – the Trust does) such as the Duke of Westminster. Perhaps I’m being a little cynical, but doubt that my remark is far off the mark.

Of course our app (which is free to download) has a load of calculators and tools, loads of tax tables and useful information which is designed to help you to not forget to report your income properly. You can get it on either the Android or itunes platforms, just search for Solomons Financial Planning.

Dominic Thomas
Solomons IFA

Is HMRC watching you?Dominic2023-12-01T12:18:57+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…Dominic2023-12-01T12:23:27+00:00