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Why MAP use investment funds?

Some people over the years have asked us why we don’t use shares when we invest money for clients, and only stick to funds.

Basically, we think funds represent a safer way of doing things. If you were to invest in a company’s shares, you need to do a lot of homework on that one company, whereas if you invest in funds it is very different. Now each fund manager has their own ideas of course of how many companies they wish to invest in but, I would estimate an average of about 60 per fund; this is just to give you an overall idea.

When MAP places your investments, we usually use about 10 funds, so it doesn’t take too much to work out that you will be invested in about 600 companies, although there may be the odd duplication. This gives you a far better spread of investments than just one or two.

Working on the law of averages, you should anticipate some of those companies will do very well, some average, and some not so well; everyone cannot perform brilliantly (unfortunately). The simple fact that you have a good spread to start with will reduce your overall risk, unless of course you have started off with high risk funds only. It’s very much a case of not putting all your eggs into the one basket.

What MAP attempts to do for all clients is what we call in financial services as a good allocation. What this means is that we don’t put all your funds into the UK, America, Japan, etc. A good allocation will reflect the risk category that you have chosen. For example:

  • Low Risk will be interest-based investments and then low volatile equities that tends to be UK based, although it can be some other countries or indeed global.
  • Middle Risk will be mainly equities and could be from UK or Europe, or some global funds as well. In this category you can get financial investments and also UK Smaller Companies, to give a specific example.
  • High Risk tends to be areas deemed to be high risk and this could be Asia, Japan, or indeed America. It would also include high-risk investment types like Global new companies (what they call Alpha) or specialised investment areas like Healthcare.

In summary therefore, when MAP allocates your money to 10 funds, it is actually to hundreds of different areas. What we are hoping to achieve is a good spread of investments in countries, in investment types and in risk such that we can reduce your individual exposure as best we can.

Bear in mind of course that we only ever use funds that have been researched and are in our Recommended Fund List (RFL). There are of course no guarantees that these will always work the way we think they should, but regular research and analysis will help to reduce risks over time.

If you would like to find out more information or would like to start investing today, please contact Money Advice & Planning Ltd on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

October 2018 Budget

I know that when it comes to Budget time, I sit very close to the radio and try to gather as much information on changes as I can. The last one on Monday 29th October 2018 was no different.

What you should not do however is merely listen to it to see how it affects you today, and nothing else. You need to sit back after the event and decide what planning you need to do as a result.

What I will be looking at for clients is:

  • Where clients are withdrawing money from their pension and merely using up their allowances, then from April 2019, the basic allowance we all get changes from £11,850 to £12,500. This is a change from £987.50 per month to £1,041.67 per month, so why not take advantage of this. After all, it’s tax-free money.
  • The other big change in income tax is that the basic rate band which started at £46,350 is now pushed up to £50,000, and for those liable, this is a saving of £730 per year. So, before this change you would get £3,862.50 per month taxed at 20% before you were moved onto 40%, and now this is changing to £4,166.67 a month. That allows you another £304.17 taxed at 20% that previously was taxed at 40%.
  • National Insurance thresholds, which wasn’t really covered in the budget, will also rise as well.

We need to remember these rates will apply to the bulk of the UK but not to those who live in Scotland, as the Scottish Government have still to declare how much they intend to deviate from the UK Government. Once we have the rates from the Scottish Government, then we all need to sit down and see how much more we can get out of the system without tax, or before we get to 40%. Thereafter, it’s time to sit back and see what tweaks you can make to your own situation, to squeeze the maximum benefit out of the system.

One thing mentioned in the Budget was that pension cold calling will be made illegal from this Autumn, so if you are contacted by anyone asking you to move your pension, take down their details and we can inform the regulator about this, as this should not be happening.

Finally, the annual ISA allowance is staying at £20,000 per year, so no change. If you can afford a wee bit more into your ISA, as long as you don’t go over the £20,000 limit, this is worthwhile doing. Maybe even divert some of the tax savings above?

If you would like any advice or assistance in planning out how the budget has affected you, for good or for wose, contact Money Advice & Planning Ltd today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

How long will your pension last?

From April 2015 when the then Chancellor George Osborne changed the rules and brought in pension freedoms, people have suddenly switched from buying an annuity to flexible drawdowns, where they can take out what they want when they want.

Now the FCA doesn’t have a problem with this, but they do have a problem with education more than anything else. They reckon that people are just walking into a nightmare, as there could very well be a problem at some time in the future when they will run out of pension money.

What on earth do these people do then, apart from telling a tale of woe? Pensions, as the FCA see it, are for when you retire, and if you take out a lot of money before you retire, then you won’t have it later. You can only spend it once after all!

If you run out of pension money in retirement – what are you going to live off? The State pension is certainly not enough for a comfortable life-style. How long are you going to live? Have you taken into account housing costs? What about care costs?

What we attempt to do at MAP is create a simple spreadsheet that shows your pension fund through the years to come, taking into account modest growth and withdrawals. Based on this information, we give a best effort at telling you how many years it might last. We only ever use low rates of growth to be pessimistic – 3% for cautious investors, 5% for middle risk investors and 7% for high risk investors – and we tend to work on an average of 6% withdrawals per year. So if you are a cautious investor, you can expect your fund to go down by about 3% per year, and therefore we need to look at longevity.

What we do in these spreadsheets is put in an estimate based on the information we have of how many years we think you have left to make your pension last. Having this kind of information is priceless to our clients and helps them to plan things out a bit better than they were before.

So, if you need some help in planning your retirement, please ask us for a forecast tailored for you. If you would like to discuss any aspect of retirement planning with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Global Fund Markets

At the beginning of October, the tariffs Mr Trump hit China with finally had their effect on fund prices and values. To be honest, these tariffs had been in existence for a wee bit of time, so it wasn’t a surprise that they now hit home. What was a surprise was that the Dow Jones fell as well.

Admittedly. the Dow Jones fell because of people’s fears about interest rate rises, but there must have been an element of worry about global trade, which the USA plays a big part in. Personally, we think what Mr Trump is doing is wrong, and we reckon this will come back and bite him at some stage.

All of this however merely reinforces what we have said a few times now; that we reckon for the next few years, the world markets will be more unsettled and therefore more volatile. At the time of writing this article, we haven’t got a deal on Brexit agreed and through Parliament, Mr Trump is fighting with the Chinese, and we know we are in for a hard time when the current bull run finishes. The current run has gone for about 3–4 years more than it should have done; an end is inevitable, but we don’t know when.

These factors are over and above all ‘normal’ trading challenges, so as you can imagine, there is a lot going on at the moment to unsettle investments.

At MAP we will watch the markets carefully on our clients behalf, but there is no need at all for knee-jerk reactions. Everything will be planned and organised. The funds we put in our Recommended Fund Lists (RFL) are those with a reasonable amount of consistency, which is by far the best way to go.

There are no guarantees that this consistency will be maintained, but in using such funds and monitoring their ongoing performance, to ensure the consistency remains, there is in our eyes, no better approach to investing in the current climate.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

IHT Planning Case Study

We always talk about IHT planning and what we can do for clients, but sometimes it is difficult to see the substance behind our words. So, what better way to explain things than by taking an example case:

Mr & Mrs Smith are both retired and aged 64 and 67 respectively. They have a house valued at £450k with no mortgage and have no children. Mr Smith has pension funds valued at £950k and Mrs Smith at £458k. They have £43k in the bank, approx. £26k in premium bonds and £450k in investments.

Scenario if they do nothing: Total assets for IHT is £450k + £43k + £26k + £450k = £969k.

IHT exemptions are £650k (£325k each), and of course pensions are excluded, meaning they are potentially liable to IHT for £319k, which at 40% = £127.6k.

This one is straightforward; if the clients invest £319k (minimum) into a bond and write it in trust, after seven years that money will be out with their estate and not chargeable to tax. If the clients wanted some income, they could take 5% of this £319k from said bond each year, which is also not taxable.

Seven years should be OK for this couple as they are ‘young enough’ (in relative terms), but if you have clients who are that bit older and may not have that seven years, they can invest in an AIM ISA which only takes two years to wash out the system. That may be better for your clients although it has more risk to it. You cannot take any 5% withdrawals from the ISA, so if your clients needed an income, then they shouldn’t go for this option.

Please note that if this couple had had children, they probably wouldn’t have needed to do anything, since they would each get £125k exemption on top of their £325k for Residence Nil Rate Band.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Divorce and Pensions

We all know that when a couple divorce, any pension funds need to be included in the final settlement. But at what value?

Whether you look at pension sharing, earmarking or indeed offsetting, you still must work to a value, and that’s where the difficulties might come in. If you are talking about a money purchase scheme or defined contribution (DC) scheme, the value is based on the underlying value of the assets it is invested in. That part is straightforward.

The difficulties come from a defined benefit (DB) scheme; sometimes known as an occupational or final salary scheme. Values given for a DB scheme are based on a whole series of assumptions that the scheme actuaries will make. You need to remember they make these assumptions based on the whole scheme and all of its members. It may be necessary therefore to ask if the actuary could provide a specific valuation based on current information, as opposed to historical data.

Once this has been done and you have more up-to-date information on the scheme as well as a value, it may be worthwhile considering moving a DB scheme into a DC one. That could make the whole separation proceedings a lot easier. This would also clarify values in the process, so may be beneficial.

When you are looking at a DB to DC transfer, you need to involve what is called a Pension Transfer Specialist (PTS), which is someone who has passed the PETR examinations and knows exactly what the FCA are looking for in terms of quality of advice. We are pleased to say MAP has advisers who are PTS’ and so can help you and your clients decide on the best route to go.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Interest Rates and Changes

Earlier this month, the Bank of England raised interest rates from 0.5% to 0.75%. This is not a big increase admittedly but bearing in mind the 0.5% was in existence in March 2009, and hasn’t changed at all since then, I suppose this is a big change, in a kind of a way. There are two sides to look at this from however.

From a savers point of view, the additional 0.25% won’t make any kind of serious difference unless you have millions of pounds stashed away, and even then, if you had this all in interest-bearing stock, you would be losing out anyway. When you take into account the fact that the current inflation rate is 2.5%, savers will still be losing out if they have money in a bank or building society getting only 0.75%. In real terms though, savers will still be worse off as they are not getting more than the inflation rate, but the rate increase has very slightly helped them, and we use that word loosely.

Borrowers on the other hand though will find that very shortly, lenders will increase their borrowing rates, because they in turn will have to pay more for the money that they borrow. This increase  of course will be passed on. Mortgages will be dearer, and we have started to see some lenders withdrawing previous deals and re-arranging them and offering ‘new’ ones. Needless to say, they are a bit more expensive.

The reason that the Bank of England has raised interest rates is to take some heat out of the economy. We saw the effect of this, as inflation (which had been pretty steady) at 2.4% p/annum has just increased to 2.5% p/annum. Interest rates are used to albeit slowly reduce the amount of money available in the market today, and it is hoped that this reduces inflation going forward.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Tax Planning and The Markets

When we invest client money at MAP, we always take the markets and the current situation into account…you have to!

First of all, when we put money away for a client, we always use accumulating funds, as opposed to income funds, where possible. But why?

If you invest in a company or fund on an income basis, you are looking to receive dividends from them. Everyone gets £5,000 a year with no tax but after that, it is taxable and can amount to a fair bit. If on the other hand you invest in accumulating funds, you are working on increasing the value and getting growth. Growth isn’t taxable to income tax, but any gains are subject to Capital Gains Tax which is a bit more lenient than income tax. Every year a person can make gains of £11,700 and pay no tax at all. If you had made this in income funds, you would get the first £5,000 free and the balance would be taxable.

What we do for the bulk of our clients is invest in accumulation units to maximise growth. Then, if someone needs money and withdraws it, the withdrawal is subject to Capital Gains Tax which is slightly more generous to the individual. From experience, we probably only deal with about two or three capital gains tax assessments a year. That will give you some indication of the scope of this, and shows you can legally avoid paying tax here.

When saving or investing, always bear in mind that if you have income, it will be subject to income tax, whereas if you have capital gains, it is not always liable to Capital Gains Tax.

As well as this basic measure, there are plans which specifically cater for tax:

  • Pensions: these are long-term savings contracts which gives full tax-relief when paying into. Always remember however that you will inevitable pay tax when you take the money back out. You can take out 25% of a pension as a tax-free lump sum, but you pay tax on the rest.
  • ISAs: There are small income tax savings in ISAs but there is no Capital Gains Tax on selling ISAs. So if for example, you used it to pay off a mortgage such that when you cash it all in there are big gains, there will never be any capital gains tax. For those under the age of 18, don’t forget adults can pay into a Junior ISA (JISA) for them.
  • Trusts: We use trusts for Inheritance Tax (IHT) planning, as they can save significant amounts of IHT. Quite a complicated area which we won’t go in to detail here – we don’t want to bore you!

It goes without saying that if you can reduce the effects of taxation by as much as you legally can, you will keep more of your money. Therefore, you should always plan your money and spending out.

If you would like to discuss any investments or tax planning with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Brexit – How to approach it?

Quite a few of our clients are asking us what is going to happen with Brexit. The simple answer is, we haven’t a clue, but then again no-one does.

What we would add though is that where clients have money invested on a platform, the challenges presented by Brexit are no different than any other market changes, albeit this is on a larger scale.

What we all need to do is sit back and see where we want to invest our money – whether Europe, UK, Asia, America, Japan, Global, etc. Our view is that we believe trading arrangements will be made, and yes, they are taking their time getting there. However, European countries need the UK market just as much as the UK needs European markets. Just think how many German cars are sold in the UK!

We are not for one minute going to fall off a cliff edge at any time. That’s why we believe they will come to some agreement eventually, but this is all about politics, and the EU getting as much money from the UK as they can before the break.

If someone is very nervous about Brexit, the obvious thing is to reduce your levels of risk. If you have category four funds, you may wish to switch these for category three funds. Similarly with category three funds; switch for category two funds. We wouldn’t suggest any drastic changes though because you don’t know how all the companies you are invested in actually trade. A lot of blue chip companies for example get the bulk of their income from overseas, and you just do not get companies which only trade in the UK. So unless you know all the underlying agreements and areas of business, you could very well be jumping from the frying pan in to the fire.

In situations where we are dealing with the unknown – as is the case here – the best way to proceed is to do nothing or only small changes. Once you know what you are facing, then you can easily change things to adapt; that is the approach we would recommend.

This after all is why we use investment platforms – so your investment portfolio can be easily adapted to meet changing circumstances. You could do something now and repent at leisure, so we would advocate that you only do something when you are in full possession of the facts.

If you would like to discuss any investments with Money Advice & Planning Ltd, please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.

Bymapfinancesadmin

Why involve an IFA when dealing with probate or confirmation?

The majority of people use a solicitor to deal with probate or confirmation on a will, but fail to combine the assistance they are receiving from their solicitor with the advice they should be taking from an IFA to help save them money and reduce the potential tax bill on an estate.

For solicitors that work alongside a trusted IFA, this can be a real value-added service they can offer clients, and is also a real opportunity for both solicitor and IFA to secure new clients from the next generation of the family they have both helped.

There are many ways an IFA can help in probate cases, such as:

  • Posthumous applications to HMRC, to avoid tax charges on large pensions;
  • Highlighting any government benefits that the surviving spouse might be eligible for; or
  • Arranging for an additional ISA allowance where savings are involved.

Once probate has been carried out, the IFA will then be able to advise the family on the best way to maximise investment returns on any money inherited, and hopefully secure future business for both solicitor and IFA from the next generation of the family.

With more and more businesses looking at how they can keep in contact with the intergenerational transfer of wealth and future business when probate is carried out, this is a model of working together which can produce growth, profitability and sustainability for both IFA and solicitor.

If you would like to discuss how Money Advice & Planning Ltd can add value to your clients and enable you to offer an additional service to them then please contact us today on 0345 241 1808 or e-mail us at enquiries@mapfinances.co.uk.

The material is for general information only and does not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Links to external sites are for information only and do not constitute endorsement. Always obtain independent professional advice for your own particular situation. Money Advice & Planning Ltd is authorised and regulated by the Financial Conduct Authority.