“Any investment relies on a couple of things, effectively you are taking a bet on the future value of something or hoping that the income promised, plus the return of your capital is more than the money you handed over at the start” Richard Smith – Moneytrainers.
Investments vary in the level of risk of which there are many different types. Putting your money in a bank or building society account should be regarded as pretty low risk, backing the favourite in the 2.30 at Newbury races this Saturday could be regarded as high risk – but also with the potential for high reward.
Investing cash in a building society will provide a very low return at the moment.
Interest rates have been low for some years.
To you it’s regarded as a low to no risk investment.
It’s on the high street been there for years.
The Government will step in should it fail.
Your dad had an account there
None of these are a good reason to invest.
But note, banks and other ‘high street firms’ make money by borrowing from you and paying a return and then lending that same money to a third party. The interest charged to the third party is normally around 8 – 10 times more than the interest it pays you.
Of course it could be more.
Those offices and uniforms have to be paid for.
For the lender, it benefits from the margin it makes on your money and the fact that it can lend your more than once. Provided only a few of it’s many investors ask for their money back at any one time then every one is safe. When many people ask for their money back – we end up with a ‘run on the bank’ – Northern Rock springs to mind, that was the last one.
Now this over simplifies things massively but is exactly how the high street lenders manage their businesses or at least how they should. With that short explanation of why the interest rate on your cash is so low – lets look at the more exotic end.
Google
So there you are one happy Tuesday morning, sitting in the office, two cuppa’s in and you think to yourself ‘I wonder if I could get a higher return on my savings’ off you go to Google that and immediately an ad appears
11% PA Guaranteed
Short Term Low Risk Investment
1 to 5 Years – Satisfied Customers
Off you click, and you find a convincing page that covers all you need to know.
We invest in cars that people want to lease.
We do all the ground work and administration and you provide the working capital (they won’t be that honest – be called FSCS Protected Bonds or summat), or you can be ‘the bank’ low risk, no administration, no fees.
3 year fixed interest – paid monthly – 11.25%. Your capital returned at month 37.
Even – fully FSCS protected bonds. We are an FCA Approved Introducer, authorised by the appropriate authority under Great Britain Financial Regulations (or some other word salad)
You know nothing about this business and you don’t bother checking because, well it’s approved and well, we have regulators and the Police – and Google wouldn’t allow it if it was a fraud.
You of course have no idea that the company was only set up last week, has one or two shareholders – who also have thirty or forty other limited companies. But they do indeed provide car leasing services but haven’t actually leased any cars yet as the bank wouldn’t lend them the money. So they turned to the retail market – that’s you.
The documentation for your loans – your investment certificates were created from existing documents by a freelancer on Fiverr.com for $5 and their bank account was simple to open.
Car Lease Company is now in business.
One of the directors has a source of ‘Cat S’ salvage, these are high end cars damaged in major accidents and are practically valueless in a normal market. But they can be repaired at relatively low cost.
The director buys in a £50k (but damaged) car for around £15k, spends £3k getting it repaired and sells it to his own company for £30k (slightly inflated price) he pays no capital gains on the vehicle sale as there is none. An example of this a 2019 Merc C class. Go search for current prices. Roughly £30k top end dealer – £5 – £10k insurance write off.
Profit £12k to him personally.
No money has changed hands yet, because the company doesn’t have the money. But once it has sold the investment to you it will have.
This car is then leased to a local restaurant owner or other good cash business at a cost of £450 per month, new keeper is well pleased, gets to drive a £50k car for next to nothing. All the lease company needs to do is collect the money.
The 11% it pays to the investor, is £300 per month, so it keeps £150 per month profit for administration, and to cover the cost of further ads on Google.
The investor provides the upfront cost of the vehicle. In this case he invests in an asset with a book value of at least £30k with an income attached of £450 per month, well according to the papers. Fact is…
True value of the ‘book’ is nothing – high end Cat S cars are valueless – for all practical purposes – the quality of the lease is questionable as there would be little that could be done if the local restaurant owner decides not to pay or returns the car. Or maybe doesn’t even return the car – just trashes it or it is impounded by the Police for ‘dealing drugs from it’s boot’.
The £150 per month profit pays for the office, and administrator, and the Google Adwords, the profit on the sale of the car goes directly to the seller personally. Whilst the restaurant owner is paying, some money may well be returned – but for how long depends on how much money the scammer can make – could be months or years but often not for long. Once they’ve made their money – off they go.
The whole scam relies on the greed of the investor who wants a return of many times the current deposit rate, the desire for local business owners to own ‘flash cars’ on the cheap and the greed of some people with a source of dodgy cars.
Is this illegal, probably. But there are very few prosecutions for this kind of fraud, it’s layered with many things that can be used as defence. But consumers are sucked in like this all of the time. If it’s not cars, it’s consumer lending. Or holiday lets or buy to let fractional investments. There are hundreds of ways to extract money from consumers who don’t know any better.
The only thing you can do is check and verify everything you are told on a website and certainly don’t believe a single word of anything you are told – yup – the world of investment is that bad at the moment.
If an investment is offering 20 or 30 times the rate on deposits – it’s probably a scam or at least ultra high risk – 2.30 at Windsor style
If you’ve checked at companies house and the firm has only been trading for five minutes and the directors own more than a few limited companies – it’s a swerve
If the financial services register doesn’t show up positive
If it’s not a licensed deposit taker
If it looks to good to be true – it is – there is no magic solution to high rates of return
The financial services industry in the UK remains unchanged for many years, perhaps even 50. The last 30 years has seen lots of regulation and during that period of time nothing much has changed, save the access to financial advice has reduced dramatically. Those that are still working in the industry as advisers are carrying on in the same way as they did in the 1970s.
They are absolutely dinosaurs. When the models changed to force disclosure of commissions – they simply made a few changes and carried on as normal. Contingent charging encouraged mis-selling which is still rife.
More importantly, the products and options have changed dramatically with the advent of low-cost products and the internet.
Everything you want to know is available everywhere, all of the time. and the advice industry, just sits in its ivory towers and hope that you won’t do a Google search or all of this information is going to go away.
Moneytrainers is here to help you through this positive climate and to help those of you wanting to take control of your personal financial situation.
… People like you who tend to avoid any form of financial education because…
… You think it’s all too complicated – you’ll never get it, never understand it, never make it work. When the truth about that is – with some simple knowledge and a little learning you can get good at money, can become as independent as you want to be. All you need to do is decide.
… You are happy that doing the same thing that most people do with money means you end up with a pension that pays out when you are three-quarters dead, meanwhile, you’ve worked your arse off for forty years in the hope that it will make sense, you will live long enough to do all of the pre-Zimmer stuff you want to do. Yeah, that’s how bad your plan probably is and that’s how most of the people on the planet do it. You’ll spot the ones that don’t and they are all richer than god.
… You are embarrassed about how crappy they are with their second most powerful resource (time is the first) how much you actually fritter away and waste.
… You don’t want to be made to feel stupid, to be patronised. To feel like you are back at school again, with that bullying teacher – who always targets you, is always there when you fuck things up, when you mess up so bad you want the ground to just open up and swallow you whole.
… You are not interested in making decisions about investing, other people do that, it’s not something you really want to do – after all the markets are boring and full of scammers who just want to rip you off.
… You do want your money to be fun, to change things for you and possibly for others you know and love, you want to know the truth about it, what really works, what really makes the difference.
… You want to feel in control, in charge, on top of – to be able to manage money or ignore it, I like the term Schroedinger’s Money – bothered by it not bothered by it. Knowing it’s there and working but not having to work on it or at like some maniacal Scrooge type character.
… You could be up to your neck in debt, in a crappy job with no cash reserves wondering how the fuck things are going to change, cue here – nothing changes until you do, until you learn how money actually works and how to make the most of yours, how to make it, how to invest it and how to hold on to it.
“I work with people who want to become financially independent, who want to have a different relationship with money and want to understand and learn how this money stuff really works. I especially work with those who so far in their lives have been pretty shit with money and understand things need to change.”
When you’re ready to start on improving your financial lot, when you want to get your head straight around finances, when you realise that what you’ve been told, work hard, keep your nose clean and you’ll be alright – is actually bollocks. Get in touch, I’ll give you my best shot for free – once that’s working for you. We can work on the rest.
As the investment markets are way down the tubes this week it is worthwhile you and I reflecting on what’s happened, what it means and what you should do about it (cue nothing it’s too late) but…
For obvious reasons, there is an issue of me being so boring and anal on this subject that you’d sooner fall asleep or worse still just stop listening but stay in the room.
There is some good stuff coming.
To put things in perspective we have been in the middle of a “Bull Run” a rising market since 2009 or so, in fact, since then there has been no recession in the UK or worldwide – well at least not in any advanced economy. Germany has come close.
This is unprecedented in modern history. So, a correction is due or overdue. We used to have recessions every four or five years – seemingly not any more. During a recession investment markets go down, uncertainty drives down prices.
The image below shows the FTSE250 index chart. I’ve chosen this because it represents UK firms, primarily with income from the UK. These are the mid-band firms traded on the UK stock market – and form this index.
The indexes represent the total price of all the shares in the index added together.
A bit about the indexes – the FTSE 100 index is the total value of the share price, added together of the largest companies listed on the stock market registers in the UK – not always UK firms. The FTSE 250 – the next smallest firms listed in the UK. And, the FTSE 350 – smaller firms again, 350 of them.
To Explain Further
With something like the FTSE 250 index, there are 250 individual company shares that make up the index, 250 firms making widgets, selling services. Some will go up in value every day, and some will go down – that’s the way an index works.
It also means that your investment will go up and down, some days one share goes up and another goes down. If you are invested in an index like the FTSE 250 all you need is the ups to be more than the downs and the value of your slice is…. Going up in value, like magic.
The FTSE 100 index is made up of firms that get income (sell stuff) all over the world.
As you’ll notice it has been up and down quite a lot.
But the list of recessions (from Wikipedia shown below) provides the dates and the chart clearly shows the effect on the index – a clear dip and then a bounce back. The following run, on a clear path, shows growth since then. A bull market.
One thing that is always out of our control is the economy. You and I have no way of knowing what is going to happen. We are clueless about the right time to invest or not.
In fact most Governments and Central Banks seem to have few ideas about what drives the investment markets. But, all you and I need to know is that the markets go up and down, in the same way the price of oranges goes up and down – they are market-driven.
We can’t help that. This is how the system works. It’s what the experts, the fund managers are always trying to do, to call the market correctly, to invest in the right company at the right time.
And they get it wrong most of the time. It’s very complicated to work out and the market is always moving – the expert fund manager might think they know – however the evidence is that they don’t. With that in mind.
Investment Markets
You and I have no control over them, we don’t know what’s going to happen.
We literally have no clue, the markets are the markets. They go up or down, seemingly with a mind of their own. Of course, there are patterns, and we can spot them, these are of course historic – backwards-looking – which makes guessing the direction really hard.
It’s easy to know what happened in hindsight because it’s happened, it’s a fact. How that may impact on the future – we have no idea it is simply an unknown. But we do know that markets do tend to trend up and then down on a regular basis.
We have knowledge that all markets go up and down, vegetables, cars, interest rates all move up and down. Assuming we are looking to get income and growth on our investments we just need to be aware of one thing.
Has the market just fallen? If so, is now a good time to invest? The answer is nearly always yes, of course, it would be – why buy something at today’s price when it may well be lower tomorrow, and if not tomorrow then maybe the day after. Provided you are looking to invest, then being able to buy that investment at a lower price than it is today makes sense.
It’s a fact that markets go up and down, by following asset allocation principles you will always be in a position to buy something at the right price, instead of the price offered today.
You can take advantage of the market movement.
It is only you and your reactions that can be controlled, the market and it’s response is something you can have no control over. Like a drunk teenager – the market’s response is always volatile – and like the drunken teenager, it always falls down or at least sleeps for a few hours. The markets are more like a lairy schoolkid who’s done more Pinot Grigio than he should have done. You have little control over them. Only your reaction to them.
Type of Investments You Should Consider
Never invest in managed type funds – the charges are just too high and you can’t really make a good income with charges much over 1% – many ‘managed’ type funds have higher charges than this.
You are also making an assumption that the manager of the fund knows more than the market, has some secret information, some secret sauce.
Income – always invest for income. Or take the income option. It can be rolled up within the investment and forgotten, but best not. Have it paid to you, it is yours after all. You then have control over it – you can reinvest in the same thing or something different.
Asset allocation tip – the spreading of investment risk is a great thing to do/have and by using your income to spread the risk makes perfect sense. By buying an investment in an index you automatically get a spread of investment risk, buy investing in different types of investment you create a further spread. Effectively, the chances of every single investment of yours plummeting to nil value is reduced dramatically when you have a range of investment types.
When considering types of investment in shares or bonds (stock market type investments) the only one’s I now suggest and you should be interested in are either ‘tracker type funds’ or exchange-traded funds.
This type of fund requires no human opinion and therefore is the lowest charging of them all. It also means there are no opinions that can be wrong.
Of course, there has been a debate about what are the best types of funds to invest in, those managed by humans or those managed by a computer or a process. So far there is little evidence that those managed by humans do better – which is why a fund that invests in ‘ the highest income-producing shares in x or y index’ can be managed very cheaply.
Performance-wise you only want your low-cost investment to be better than average, any more than that means paying someone to take a view as to what shares to hold or sell. Human involvement is flawed as it always is and expensive.
It’s also helpful to note that there are more fund managers in the Uk than there are shares to invest in. More opinions about what sort of orange to buy than there are types of orange.
The One Thing You Can Control – there are two but this one is important.
Charges – when comparing investments, the one thing that will have the biggest impact on your financial future – the one that compounds up to outweigh more than anything is charges. It is the only thing that you can control and it will rob you of a secure financial future if you don’t pay attention to it.
At a 1% charge, ten percent 10% of your investment goes every ten years) at a 1.5% charge fifteen percent of your investment goes every ten years, at a 2% charge then twenty percent of your fund goes every ten years.
More maths on that, at a 1% charge that thirty percent of your fund every thirty years and it compounds against you, with ten percent less to invest – that means your future growth is based on 90% of your investment and not on 100% – the ongoing effect of charges is horrendous. I thought long and hard about using that word.
Ideally, you should be looking to achieve a total charge of .5% to .75% plus a token platform charge, ideally a fixed fee.
With most of the online platforms, you end up having to pay a percentage of fund charged – which is fine until your portfolio gets to the point where you will be better off paying a flat dealing fee – or an annual fee for the holding service.
Don’t Put All Your Eggs in One Basket – Asset Allocation How?
Some twenty years ago I was part of the team that first started to roll out an asset allocation tool for consumers. It was probably the first that the financial advice industry had seen.
Our team had proven that the most important things to be concerned about when investing was…
Asset allocation – spreading your investments across a range of geographic and market locations – in fact, this was more important than the choice of funds you should invest in.
Which also meant you could reduce charges to a very low figure – simply by using tracker type funds and ETFs. This was important for consumers and important for the way we worked with our own clients.
A sample portfolio might look something like this.
Cash
£10%
Fixed Interest
£20%
UK Stock Market Income Funds
£30%
US Stock Market Income Funds
£15%
Far East Stock Market Income Funds
£15%
Gold/High Risk
£10%
You and I have no idea which market is going to go up/down/sideways. To some extent, there is no way of ever knowing, not until the event has happened.
But we do know that each one is progressively higher in risk especially as there is a currency risk. Because of this increased risk – an investment could double in value or half. If it doubles in value good news all round, if it halves in value, no train smash. This is the beauty of this kind of plan.
The real key to all of this is for you to understand, to learn. To get this right for yourself. To know, to make sure you can do this for yourself because the advice industry or the lack of one at the moment means you can’t look for help there. Asset allocation is as important as investing initially.
Advisers
Really just salesman in disguise – as per my article in Financial Adviser some weeks back.
If advisers had had the answers, the perfect solution – do you think they’d be advisers? Of course not, they’d be off doing it for themselves, they would be making sure their own pockets were lined perfectly first – then they’d go off and play golf or ride horses. If you had the answers to making money work for you – perfectly, you wouldn’t need to work. Not even out of boredom. Therefore, anyone working for a living does not understand – so why would you accept advice from them?
But if you are going to be insistent, and if you are thinking about taking financial advice you should ensure that there is a fee payable for that work on invoice with VAT added.
There will be no ongoing charges automatically deducted from your investments – everything will have an invoice and you will be notified in advance.
You won’t find many advisers that operate like that, but plenty of solicitors, accountants, plumbers and local builders. Just about every other trade or profession works on a fee basis and will produce invoices for work done. Very few financial advisers do.
Go Have an Average Life/Day/Investment Portfolio
My parting words on this.
If you could just go and have an average day, you’d have a better day than half the population, if your investments are only doing better than half of the population you will be enjoying a lot more than the bottom 25% and much more than those in the bottom 49%.
Going for just over average is not a bad place to be, if you can do that on low charges and add an income from the investments into the mix there is a good chance you will be doing better than half of the investors but hopefully in the top 80% of people that invest on the stock market.
Given that the average of all pension funds, over the last ten years have returned less than 6% per year after charges and the yield on my favourite ETF – IUKD the ongoing yield from income alone is 6.76% with the opportunity for capital growth.
At least half of all pension funds have returned less than .60% per year. Of course, this is a disaster for you if you own a non-performing pension.
Just being in the bottom half wastes time that you will never wake up, wastes your money because you are being charged for this disaster and it’s your pension, it should be working hard for your future. Not for someone else’s now.
With That In Mind – here this is a fund that has been around for a while and meets a lot of expectations for a good number of investors. It’s an ETF or ‘exchange-traded fund’ see appendix for a full description. Basically means that you buy a single share (the ETF share) at low cost from a stockbroker or providers. The single share is actually invested in a basket of other shares – like a fund – but not a fund.
They were developed by the fund industry to access a broad range of investments easily and subject to low dealing costs and fund charges.
Of course I can’t make a specific recommendation of this investment as being suitable for your requirements, but if you are a paying subscriber to the Moneytrainers Financial Education package you’ll get access to the entire fund list and be able to make up your own minds as to when and how you should invest.
Using this kind of investment is the thing that will make all of the difference to your life and your investments.
It has low charges
No fund manager to decide in what or how to invest
Income paid to you directly or through your investment account
The ability to buy and sell when you want
Just about everything you could want from an investment.
With these few simple tips you will save money in reduced charges, you will be able to invest at the right time and when it suits you. And, you will end up with investments that work for you, produce income and you will see each dip in the market as an opportunity to invest more. Just remember that when you make an investment from your hard-earned, you will make that first to your cash pile.
The next thing you’ll need to do is manage your cash pile. And that is coming up in the next instalment.
Appendix
What are ETFs?
Exchange-traded funds are baskets of different types of investments that are pooled together into a single entity, which then offers shares to investors that are subsequently traded on major stock exchanges. Each share of an ETF gives its owner a proportional stake in the total assets of the exchange-traded fund.
ETFs generally track various benchmarks, with each fund investing with the objective of matching the returns of the benchmark that the fund has chosen. There are a few ETFs that have portfolio managers that actively select their own investments, but because of the disclosure rules that require such funds to tell investors about their holdings on a daily basis, most managers who want to manage money using active management strategies choose vehicles other than ETFs.
F
Get Closer To Average – One Thing You Can Control
As the investment markets are way down the tubes this week it is worthwhile you and I reflecting on what’s happened, what it means and what you should do about it (cue nothing it’s too late) but…
For obvious reasons, there is an issue of me being so boring and anal on this subject that you’d sooner fall asleep or worse still just stop listening but stay in the room.
There is some good stuff coming.
To put things in perspective we have been in the middle of a “Bull Run” a rising market since 2009 or so, in fact, since then there has been no recession in the UK or worldwide – well at least not in any advanced economy. Germany has come close.
This is unprecedented in modern history. So, a correction is due or overdue. We used to have recessions every four or five years – seemingly not any more. During a recession investment markets go down, uncertainty drives down prices.
The image below shows the FTSE250 index chart. I’ve chosen this because it represents UK firms, primarily with income from the UK. These are the mid-band firms traded on the UK stock market – and form this index.
The indexes represent the total price of all the shares in the index added together.
A bit about the indexes – the FTSE 100 index is the total value of the share price, added together of the largest companies listed on the stock market registers in the UK – not always UK firms. The FTSE 250 – the next smallest firms listed in the UK. And, the FTSE 350 – smaller firms again, 350 of them.
To Explain Further
With something like the FTSE 250 index, there are 250 individual company shares that make up the index, 250 firms making widgets, selling services. Some will go up in value every day, and some will go down – that’s the way an index works.
It also means that your investment will go up and down, some days one share goes up and another goes down. If you are invested in an index like the FTSE 250 all you need is the ups to be more than the downs and the value of your slice is…. Going up in value, like magic.
The FTSE 100 index is made up of firms that get income (sell stuff) all over the world.
As you’ll notice it has been up and down quite a lot.
But the list of recessions (from Wikipedia shown below) provides the dates and the chart clearly shows the effect on the index – a clear dip and then a bounce back. The following run, on a clear path, shows growth since then. A bull market.
One thing that is always out of our control is the economy. You and I have no way of knowing what is going to happen. We are clueless about the right time to invest or not.
In fact most Governments and Central Banks seem to have few ideas about what drives the investment markets. But, all you and I need to know is that the markets go up and down, in the same way the price of oranges goes up and down – they are market-driven.
We can’t help that. This is how the system works. It’s what the experts, the fund managers are always trying to do, to call the market correctly, to invest in the right company at the right time.
And they get it wrong most of the time. It’s very complicated to work out and the market is always moving – the expert fund manager might think they know – however the evidence is that they don’t. With that in mind.
Investment Markets
You and I have no control over them, we don’t know what’s going to happen.
We literally have no clue, the markets are the markets. They go up or down, seemingly with a mind of their own. Of course, there are patterns, and we can spot them, these are of course historic – backwards-looking – which makes guessing the direction really hard.
It’s easy to know what happened in hindsight because it’s happened, it’s a fact. How that may impact on the future – we have no idea it is simply an unknown. But we do know that markets do tend to trend up and then down on a regular basis.
We have knowledge that all markets go up and down, vegetables, cars, interest rates all move up and down. Assuming we are looking to get income and growth on our investments we just need to be aware of one thing.
Has the market just fallen? If so, is now a good time to invest? The answer is nearly always yes, of course, it would be – why buy something at today’s price when it may well be lower tomorrow, and if not tomorrow then maybe the day after. Provided you are looking to invest, then being able to buy that investment at a lower price than it is today makes sense.
It’s a fact that markets go up and down, by following asset allocation principles you will always be in a position to buy something at the right price, instead of the price offered today.
You can take advantage of the market movement.
It is only you and your reactions that can be controlled, the market and it’s response is something you can have no control over. Like a drunk teenager – the market’s response is always volatile – and like the drunken teenager, it always falls down or at least sleeps for a few hours. The markets are more like a lairy schoolkid who’s done more Pinot Grigio than he should have done. You have little control over them. Only your reaction to them.
Type of Investments You Should Consider
Never invest in managed type funds – the charges are just too high and you can’t really make a good income with charges much over 1% – many ‘managed’ type funds have higher charges than this.
You are also making an assumption that the manager of the fund knows more than the market, has some secret information, some secret sauce.
Income – always invest for income. Or take the income option. It can be rolled up within the investment and forgotten, but best not. Have it paid to you, it is yours after all. You then have control over it – you can reinvest in the same thing or something different.
Asset allocation tip – the spreading of investment risk is a great thing to do/have and by using your income to spread the risk makes perfect sense. By buying an investment in an index you automatically get a spread of investment risk, buy investing in different types of investment you create a further spread. Effectively, the chances of every single investment of yours plummeting to nil value is reduced dramatically when you have a range of investment types.
When considering types of investment in shares or bonds (stock market type investments) the only one’s I now suggest and you should be interested in are either ‘tracker type funds’ or exchange-traded funds.
This type of fund requires no human opinion and therefore is the lowest charging of them all. It also means there are no opinions that can be wrong.
Of course, there has been a debate about what are the best types of funds to invest in, those managed by humans or those managed by a computer or a process. So far there is little evidence that those managed by humans do better – which is why a fund that invests in ‘ the highest income-producing shares in x or y index’ can be managed very cheaply.
Performance-wise you only want your low-cost investment to be better than average, any more than that means paying someone to take a view as to what shares to hold or sell. Human involvement is flawed as it always is and expensive.
It’s also helpful to note that there are more fund managers in the Uk than there are shares to invest in. More opinions about what sort of orange to buy than there are types of orange.
The One Thing You Can Control – there are two but this one is important.
Charges – when comparing investments, the one thing that will have the biggest impact on your financial future – the one that compounds up to outweigh more than anything is charges. It is the only thing that you can control and it will rob you of a secure financial future if you don’t pay attention to it.
At a 1% charge, ten percent 10% of your investment goes every ten years) at a 1.5% charge fifteen percent of your investment goes every ten years, at a 2% charge then twenty percent of your fund goes every ten years.
More maths on that, at a 1% charge that thirty percent of your fund every thirty years and it compounds against you, with ten percent less to invest – that means your future growth is based on 90% of your investment and not on 100% – the ongoing effect of charges is horrendous. I thought long and hard about using that word.
Ideally, you should be looking to achieve a total charge of .5% to .75% plus a token platform charge, ideally a fixed fee.
With most of the online platforms, you end up having to pay a percentage of fund charged – which is fine until your portfolio gets to the point where you will be better off paying a flat dealing fee – or an annual fee for the holding service.
Don’t Put All Your Eggs in One Basket – Asset Allocation How?
Some twenty years ago I was part of the team that first started to roll out an asset allocation tool for consumers. It was probably the first that the financial advice industry had seen.
Our team had proven that the most important things to be concerned about when investing was…
Asset allocation – spreading your investments across a range of geographic and market locations – in fact, this was more important than the choice of funds you should invest in.
Which also meant you could reduce charges to a very low figure – simply by using tracker type funds and ETFs. This was important for consumers and important for the way we worked with our own clients.
A sample portfolio might look something like this.
Cash
£10%
Fixed Interest
£20%
UK Stock Market Income Funds
£30%
US Stock Market Income Funds
£15%
Far East Stock Market Income Funds
£15%
Gold/High Risk
£10%
You and I have no idea which market is going to go up/down/sideways. To some extent, there is no way of ever knowing, not until the event has happened.
But we do know that each one is progressively higher in risk especially as there is a currency risk. Because of this increased risk – an investment could double in value or half. If it doubles in value good news all round, if it halves in value, no train smash. This is the beauty of this kind of plan.
The real key to all of this is for you to understand, to learn. To get this right for yourself. To know, to make sure you can do this for yourself because the advice industry or the lack of one at the moment means you can’t look for help there. Asset allocation is as important as investing initially.
Advisers
Really just salesman in disguise – as per my article in Financial Adviser some weeks back.
If advisers had had the answers, the perfect solution – do you think they’d be advisers? Of course not, they’d be off doing it for themselves, they would be making sure their own pockets were lined perfectly first – then they’d go off and play golf or ride horses. If you had the answers to making money work for you – perfectly, you wouldn’t need to work. Not even out of boredom. Therefore, anyone working for a living does not understand – so why would you accept advice from them?
But if you are going to be insistent, and if you are thinking about taking financial advice you should ensure that there is a fee payable for that work on invoice with VAT added.
There will be no ongoing charges automatically deducted from your investments – everything will have an invoice and you will be notified in advance.
You won’t find many advisers that operate like that, but plenty of solicitors, accountants, plumbers and local builders. Just about every other trade or profession works on a fee basis and will produce invoices for work done. Very few financial advisers do.
Go Have an Average Life/Day/Investment Portfolio
My parting words on this.
If you could just go and have an average day, you’d have a better day than half the population, if your investments are only doing better than half of the population you will be enjoying a lot more than the bottom 25% and much more than those in the bottom 49%.
Going for just over average is not a bad place to be, if you can do that on low charges and add an income from the investments into the mix there is a good chance you will be doing better than half of the investors but hopefully in the top 80% of people that invest on the stock market.
Given that the average of all pension funds, over the last ten years have returned less than 6% per year after charges and the yield on my favourite ETF – IUKD the ongoing yield from income alone is 6.76% with the opportunity for capital growth.
At least half of all pension funds have returned less than .60% per year. Of course, this is a disaster for you if you own a non-performing pension.
Just being in the bottom half wastes time that you will never wake up, wastes your money because you are being charged for this disaster and it’s your pension, it should be working hard for your future. Not for someone else’s now.
With That In Mind – here this is a fund that has been around for a while and meets a lot of expectations for a good number of investors. It’s an ETF or ‘exchange-traded fund’ see appendix for a full description. Basically means that you buy a single share (the ETF share) at low cost from a stockbroker or providers. The single share is actually invested in a basket of other shares – like a fund – but not a fund.
They were developed by the fund industry to access a broad range of investments easily and subject to low dealing costs and fund charges.
Of course I can’t make a specific recommendation of this investment as being suitable for your requirements, but if you are a paying subscriber to the Moneytrainers Financial Education package you’ll get access to the entire fund list and be able to make up your own minds as to when and how you should invest.
Using this kind of investment is the thing that will make all of the difference to your life and your investments.
It has low charges
No fund manager to decide in what or how to invest
Income paid to you directly or through your investment account
The ability to buy and sell when you want
Just about everything you could want from an investment.
With these few simple tips you will save money in reduced charges, you will be able to invest at the right time and when it suits you. And, you will end up with investments that work for you, produce income and you will see each dip in the market as an opportunity to invest more. Just remember that when you make an investment from your hard-earned, you will make that first to your cash pile.
The next thing you’ll need to do is manage your cash pile. And that is coming up in the next instalment.
Next thing, get a shimmy on with this – change your life – well your financial one. You can book a borrow my brain – an hour of pure gold for your finances.
What are ETFs?
Exchange-traded funds are baskets of different types of investments that are pooled together into a single entity, which then offers shares to investors that are subsequently traded on major stock exchanges. Each share of an ETF gives its owner a proportional stake in the total assets of the exchange-traded fund.
ETFs generally track various benchmarks, with each fund investing with the objective of matching the returns of the benchmark that the fund has chosen. There are a few ETFs that have portfolio managers that actively select their own investments, but because of the disclosure rules that require such funds to tell investors about their holdings on a daily basis, most managers who want to manage money using active management strategies choose vehicles other than ETFs.
From www.fool.com
On the day that the FTSE Index goes testicles first down a slope to hell, here is my good news.
The whole idea behind me creating the MoneyTrainers platform is to educate you in the areas of money, making it – hanging on to it – importantly making it work for you.
In order to do this, you will need to think and act differently to everyone around you – and be more like the people who have found wealth or true financial independence. Making your money work hard for you instead of working hard for everyone else is something you will need to do.
With that in mind here are a couple of things you should do.
Two things when considering investments. The first is always to make sure that any investment provides you with a potential return in two ways.
These are income and the potential for capital growth.
The second is to invest when you are ready and not when others tell you should or on the date, the direct debit is taken (what the industry calls pound cost averaging).
With that in mind, the investment markets have been a little bit mad of late (that means they are probably going down). Uncertainty on the planet means that fear creeps in, Brexit, Trump, Russia and now Coronavirus.
The markets, of course, get all ‘doom and gloom’ and the sell-off starts.
If you are fully invested, then that means your net worth is falling as we speak. One of the things you will learn working with me is that you should never be fully invested and certainly not in one place.
Quite simply because being fully invested means you can’t take advantage of the opportunity presented when the world and his dog are shitting themselves due to x or y. All things eventually pass, wars end, pandemics end up with a cure. Elections are held. The shit flow slows.
Problem is we just don’t know when, but we know they will. Eventually, markets bounce back, return to normality (whatever that is).
With this in mind, here is the graph from one of my fav funds. It’s an ETF – more on that elsewhere (like a share but it’s made up of shares in many other companies) it produces income – currently, around 5% (probably 6% with the current dip in the price) has stupidly low investments costs and is managed by a computer not a person. Nowt wrong with people but not a good fit for this.
Let’s have a look at how you could make this work for you.
I make the assumption that you have the cash to invest – you should never ever, be fully invested.
Income EFT – Black Rock.
At the moment 28/2/2020 this investment is down in value quite substantially. But the income yield has remained pretty consistent of course it would – there are different fundamentals in place.
The lower the price is, the more shares you can buy for your given investment amount and the better your income. By investing you effectively transfer pounds for shares, income is paid per share, the more shares you own the more income you’ll get. The lower the price you pay, the more shares and the more income.
We also know that investment markets will continue to go up and down and we have no control of that as investors. But we can control how much we pay in charges, how much we invest and when. With that in mind, please see the screenshot below where you can see for yourself the impact of buying at the right time.
Assumptions made, you Invested 2016/2017/2019 on the lower valuations. Remember you don’t need to invest when the markets are at the highest price so buying when low makes sense.
The markets always fall and bounce back – we don’t know when or how – but they always do. Sure, I get that you may think this is just hope. Hope that the markets go back up, there is evidence that they will, but sure I understand why you would think like, but…
The income is still being paid from this investment which is guaranteed to make up for some of the losses, you will never be fully invested based on my rule. So if the markets don’t bounce back today it’s not a train smash income is still being paid and you can still buy at a lower price.
And when they do recover back to historic prices and beyond the returns are fantastic.
In this case, a return to 2017 levels means a return of £1,293 plus £325 income making a total return of £1618 on a £6k investment. Of course, there is a charge on this investment of .40% per year which will reduce some of the returns.
I hope this makes sense to you and will get you to take some action on this. Get in touch, ask your boss if we can arrange a workshop (a modest charge) for groups of up to 20.
You and I often wake up with a feeling of desperation, thinking that nothing is going to go our way today – that voice in your head nagging and poking at you like it’s a sharp stick or a heated scaffold pole – telling you how bad it all is and how rubbish it’s going to be.
The truth is, that’s not the truth. Your luck or lack of it is about perceptions – and they are often wrong. Just because a bad day has appeared does mean it is really a bad day, it’s a bad moment, a bad few hours. And, like the sands of time, or the seconds on a watch they soon pass – provided you let them.
Holding on to that moment, those thoughts that distract you from the real purpose – that negative and nasty inner voice. You stop yourself from taking the action. From doing the thing, that thing that will make the difference, that will make it all better. The new client, the thing you were working toward before it all started to go sour – all of that is still there, only you can’t see it at the moment.
This is the key. You have to understand that nothing is permanent, nothing stays the same nothing – not anything – nothing lasts forever, nothing is perfect and nothing is permanent. Neither are you and I. We are always in a state of flux, always moving of movement – and at all times we are moving toward death – our cells are dying, as we speak changes are occurring inside of us, really unstoppable changes – that really is permanent. As Monty Python quoted in The Life of Brian – death is the final word.
So when the bad news hits. It really is our next move that makes the difference – the action we take next that determines the final outcome. Our response to the bad news is what really allows us to plough through it, to overcome it, to kill it off.
Professor Wiseman wrote a book about luck a while back, if you’ve not read it please do so, it’s a great read. I
Which is where my ‘think lucky, planning lucky be lucky’ saying comes into play, it’s the gist of Professor Wiseman’s book. It tells us this.
Thinking lucky means we have moved our perspective, instead of crumbling and accepting everything as it is we have to think that, this is not permanent, the setback is not forever, it will change because everything does. Thinking lucky is about keeping that positivity, knowing that your actions now your actions in the future will determine the final outcome. To channel the line in the Marigold Hotel (paraphrasing now) “if it has not turned out well in the end, then it is not the end”.
Planning lucky means taking the fact that it’s not the end to be just that. To make your next move given the circumstances. It does not mean you plough on regardless – to continue to play the game with a broken leg. It means you revise, adapt and change the rules to suit the new circumstances, it means taking a different route, it means doing something differently, or at least the same thing again with a different person in a different time. It means, you having a plan, a revised one – of knowing that eventually, everything changes all of the time.
So go on, think lucky, plan lucky, be lucky. You’ll be surprised to find out what actually changes.
Welcome to another in this series – 1000 words that will help you solve a financial matter, simply and without any fuss. For more information please pop over to www.thefinancezone.co.uk/contact
I am Richard Smith and I’ve spent more than thirty years providing hands on and personal advice to people like you.
I now own and manage a financial education business – that teaches you the truth about modern money. How it works and how to make it work for you.
Care Fees – Care Fees Planning
Since the 2014 Care Act most of you have either been worried about the implications of the new rules around funding for care or trying to do something about it.
The reality is much of what you think you can do won’t work, and it’s fairly certain that most of the ‘solutions’ you will be sold won’t work either.
The state has organised the system to ensure that there is an overriding responsibility on local Government to provide for those that need looking after.
There are two areas of importance.
Not being able to care for yourself due to illness
Not being to care for yourself because of age/infirmity
In the first instance (broadly) the NHS picks up the costs under the Continuing Care regime.
In the second, you the individual are expected to pick up your own costs in the same way as you have done over your working life.
.
Your own assets will be used to cover the costs of your care until these have been reduced to £23,250 (19/20 figures).
Overwhelmingly the thing that concerns most people is that all of your assets will be used up to fund care in later life and this is a real danger. Thing is, most people needing care really are the end of their lives – sorry, not meaning to sound harsh but that is the reality according to the statistics.
Because of this fear, there are many solutions in the marketplace that just don’t work. If you like the words care fees scams – then this is what they are.
If you are offered one of these as possible solutions read my note on each one.
Property/Probate Protection Trusts – they don’t work. Don’t waste your money.
Giving Away Assets – very unlikely to work
Transferring Ownership – No, not ever.
None of these are new things and the Government has quite rightly made sure none of them work – to protect the UK Taxpayer.
The facts around long term care needs (from Age UK) indicate that the average time spent in a care home is around two years and the average cost is around £50,000 per year, around 3% of the over 65 population ends up needing care and of these majority are women.
You need to remember that planning away a liability is hard but you do have some choices.
Here are my top tips.
If you or your parent looks likely to need care be prepared to spend time solving the problem, it will take hours to get it moving forward.
Getting an assessment from your Local Authority (LA) is pretty straightforward but could take a few hours for them to carry it out and a few weeks for an appointment. Make sure you get your personal financial situation in order before the meeting. At least three months bank statements, details of pensions, valuations of investments or homes.
Social services are always happy to let you do the work, they are often very busy so are normally pleased to do so. Make sure you ask them for help, allow them to get involved.
If you are trying to deal with this as a child of the person needing care – it’s a time-consuming paper chase. Really.
You should allocate specific time to dealing with it (put it in the diary) and treat it as work that needs doing or you will find you lunging from crisis to crisis with it.
Hospital staff, including social services within the NHS rarely take notes at the patient’s bedside. There is often a gap between a patient’s real needs and their notes.
Put a power of attorney in place sooner rather than later.
Review all Estate Planning and update yourself, especially if you are a widower/widow as the taxman relies on your having certain records in order to claim certain allowances.
Don’t give away assets/wrap up your main home in any kind of trust – it won’t work and you will end up spending thousands. It is likely that any giveaway will be tested by the LA, and if found against you, the potential beneficiaries of that asset will end up having to pay the costs of your care, and this is enforceable by the local County Court. 2014 Care Act.
If it looks likely you will need some form of care home, then make sure you are assessed for Continuing Care at the very first instance. Social services will wriggle and refuse – they always do – make sure you get the assessment done.
If you are ‘self funding’ paying for your own care costs then you will qualify for Attendance Allowance make sure you submit a claim.
The LA – Local Authority has an obligation to provide funding for your care under the 2014 Care Act. They may wriggle and a squirm and may even forget to mention it. But they do, make sure you ask the questions.
The LA also has the right to ask you to cover the costs of your care but you do not have to sell your home now. The costs of your can be recovered by the LA at a later don’t.
Moral here is don’t be panicked into selling a house.
Consider all the other options before a home, in-home care, with stair lifts and cleaners these can be a life saver.
In order to qualify for formal NHS funded Continuing Care there needs to be substantial health element – this means you are likely to be in a Nursing Home and less likely to be in a Care Home.
Pension income continues until death so this will help with fees overall. If a person can’t fund their own care – then the LA will put a charge on any pension income, deduct the costs of care and refund the rest.
981 words.
I hope you found this helpful. It is based on my thirty years of financial planning and ten years of dealing with my own parents situation.
“One of the most perilous illusions is that your real life has not yet begun, that your present existence is a mere prelude to some idyllic future. This idyll is a mirage that will fade as you approach, revealing the prelude you hurried through was, in fact, the one to your death.”
I think this is originally written by Steve Burch – if you know who originally wrote it please let me know.
It resonated with me so much I thought I’d break it down and see if I could get it to make more sense.
The illusion that your real life has not yet begun. This seems to be the default setting for most of us. Waiting for that one thing, the thing that changes everything. You and I always seem to be waiting to be there, just in the right place. Richard Wilkins (The Ministry of Inspiration) talks a whole lot about being there – he even has badges made that say “I’m there as a reminder that there is no there, we are already there and it’s here.
You can’t keep waiting for the moment, the right relationship, the right client. As hunter-gatherers long understood, if you want to eat today it will involve you being uncomfortable, you will have to get out there, take some action. Get on and do stuff if you really want to eat today.
You and I can’t keep waiting, ffs – none of us find our feet for the first twenty years, one-fifth of your total life if you are lucky. Waiting to be there is not an option. You’ll only end up waiting for death, until death.
Your present existence is a mere prelude to some idyllic future. This life is not a trial, we don’t get to come back here again, it’s a once-only chance to do something or nothing. This is your choice now. Your future has not been built yet. It’s less about setting goals and hoping. It is about setting your path and starting to walk.
This idyll is a mirage that will fade as you approach, whatever you think you were approaching it will fade into nothing, will never be seen again. Only it’s not even a mirage. If your horoscope in the Daily Mail tells you today – that it’s over, you’ve fucked it up, you’ve squandered time and you’ll never get it back – and the decisions you make now will determine your future. You’d read it and think – really. Is that what’s happened? Because that is what we do, we don’t want to think about it, it’s far too painful to think, to even consider what you’ve wasted.
That Coffee you have traded twenty minutes of your life for will be cold and undrinkable in a few minutes (cold coffee is devils spawn). Don’t trade your life for stuff that will not benefit you in the short, medium or long term. That bit of your life, you’ve just traded for stuff or spent arguing with a bureaucratic masturbator (think Local Government official, parking attendant – those that get off on enforcing petty rules – it’s also a Mark Fisher term) that time has gone, never to come back. Literally wasted.
Write your own horoscope, it’s not written in the stars – it’s a written in your head.
Revealing the prelude you hurried through was, in fact, the one to your death. Life is a terminal illness. No one leaves this place alive (Foo Fighters). There is no coming back, the rush to complete meaningless tasks ensure that only your legacy gets to survive, your stuff, your money just cannot be taken with you.
Your prelude, the madness is being good at shit stuff, the madness is thinking it will all be alright. It’s never alright you are gonna fucking die and you will not come back. We only have now, we only have today and the future, it needs to be managed, thought about, it needs a plan and then you need to take action to work that plan. None of this complicated.
No one cares about you, no one is coming to save you – the White Knight is not coming down the road to save you, to sweep you up. No lottery win, no loving partner, no friends or family – it’s all down to you and you are dying.
If you want to be epic then go do epic shit. You are gonna die soon and no one gives a fuck. Not now not ever.
Make the call, create the sales letter, create a product while your chance still exists.
Please.
Richard
PS A shit storm is coming, they always do. Both of mine have started with health and ended up as a right financial mess. I got good at this stuff by actually living it myself. Please don’t wait for your own shit storm – they are not nice – but your horoscope is saying the shit storm will happen unless you make a different plan.
“You can do it, you are much better than a frog and frogs are fucking brilliant – which makes you, fucking’ awesome. You are a complex and a very lucky collection of atoms – that will go on to do great things – if only you’d accept that change is coming whether you like it or not.”
For most of us, there is an endless chase for money. To get enough, to have enough invested, to provide ourselves with the financial security – so that we don’t have to work again, or don’t have to struggle again.
Your finances are no different from the rest of your life. Get your car serviced, so it holds its value and is as reliable as it can be. Don’t drink huge quantities of alcohol and eat shit food – eventually, something inside your body will break because of it and you’ll be left with health problems that will stay with your until death – which of course will arrive sooner because of your health.
Everything in your life is about responding to potential events that may or may not happen. You are either doing something to prevent an even happening – proactive action. Or you are not. The passive no action, zen like people will be forced into action at some point because that is how life is. You can only be in the moment inside your own head, outside of that a whole world of stuff is moving, and it’s rarely neutral. Stuff happens and we all need to react or accept the consequences.
Of course, I am not saying that we should be on the offensive all of the time, that we should be like the proverbial coiled spring – ready to react at a moments notice – but you will need to aware of change and preparation for what is coming.
With that in mind, there are two things you’ll will need to adhere to. A couple of fundamentals, cornerstones to this whole thing.
One I’ve said before – spend less than you earn and invest the rest. This simply means making sure that your income is greater than your spending. You will either need to earn more than you spend or spend less than you earn. Read that again, let it sink in.
The second fundamental is always invest in/work towards sources of income.
The more sources of income you have the more secure your financial future will be (might as well say financial and mental future – it’s not possible to have good mental health, living in poverty, really it’s not).
If you have a business, then investing in stock – provides a future income return, you’ll sell the stock at a profit, future income is assured. If you are investing conventionally, then investing in income funds or income-producing assets (low charge ones preferably) means that income is paid to you on a regular basis, once this income is paid, like once your stock is sold. Means you have something useable given back to you, you have hoovered real money from the market place.
In the case of a sale of stock – profit.nd the case of an investment product, income paid cannot be taken away. It’s yours, value has passed from one to another and now you have control of it. No matter what happens to the investment markets, the income paid is in your bank and can now be used to work hard once again for you and no one else. It should be working for you until you spend it.
The more money you have working for you – the sooner you will be able to claim independence from the work/pay/spend existence.
Provided you get these two things right then you make your money work for you and then you can start to move to becoming the independent person you need to be, you can start to live and work on your terms.
I am more than a little obsessed with my inner voice. Not sure when I was first aware of it or when I ever started to think that I could not control it. Realistically I would have been in my mid-thirties, perhaps when my son was born – life-changing event for me and his mother.
I had always thought that personal development, growing inside was something that others faffed around with – not for me, far to namby. Far too woo-woo. Like most things in life, there was a trigger, when something changed, a new way of looking at everything.
In my forties I wondered about the power of the mind, how could old ladies lift cars to release trapped children – feats of strength that were very unusual and of course beyond knowledge. How could hip operations be done without any form of pain relief on a wide-awake patient, and then Alma Kante, who in 2014 sang through surgery. There is something else going on here.
I then started to read and make up my own mind about stuff, who was that voice in my head, how can I hear it, why can’t I taste my own tongue, why do I hear that voice, why is it very softly spoken when it’s being positive and screaming when negative. This caused me to dig a bit deeper into the madness.
Now. I am not a scientist, just interested in what makes me tick. I arrived at a conclusion that my voice was very similar to the voice in my kids, my wife and friends. Actually everyone I met had this inner thing.
Those that respond to the voice end up depressed, as serial killers, perhaps uber-successful or just plain boring. Yet there are those that were boring murderers, but learned how to manage it – change their responses to it – that is what interests me more than anything.
I had arrived at the conclusion that my voice is there to protect me, to keep me alive. It’s childish, and often wrong. But it seems to serve some purpose.
Let me tell you what I now know about it.
It’s not me, it’s not even part of me. See, your tongue is the centre of your world up until you are able to interpret the world using other tools. That’s why children put everything in their mouths – it’s why we developed taste that means water is always neutral to our palate – we can immediately tell if something is wrong with water. It’s why you gag when you smell rotten meat, sick or sewage. It’s why poisons often taste bitter and nasty to us, and why Chilli seeds taste hot to us and not to birds – the Chilli has developed seeds that will be carried by birds – a lot further than they would by humans.
Now, there is a reason you can’t taste your own tongue, it’s neutral to you. But you can hear that inner voice, as though it’s something separate to you – something that’s there but not you. My thinking is – if it was you- you wouldn’t be able to hear it. Which means it’s not you and you can happily treat it as third party.
It is probably there to guide and assist, to provide some pointers, some things to be aware of, something that needs to be done. But that’s about it. Letting it make decisions, to stop you from doing stuff, to hold you back.
It’s not you, it doesn’t fully understand and should be ignored much of the time.
It’s the one thing that most of the people I’ve worked with over the years don’t get, don’t understand. They think becoming financially free is something for others, something that most will never achieve, they think that it’s complicated, that it’s just not possible.
Evidence is that all over the world we see millionaires and billionaires arriving all of the time – that’s the truth, not the voice in your head.
Ready to get a shift on with this money stuff. Get my Money Course it’s free
