Navigator Financial Planning - The Shipping Forecast

How to kill a goose

Wed, 09 May 2012 17:49:27 +0100

One of the unexpected proposals in the recent UK Budget was the proposal to limit all previously unlimited tax-deductible opportunities to the lesser of £50,000 or 25% of income.

Fair enough, on the face of it: given that there is evidence that some of the wealthiest people in the UK pay little or no tax, using perfectly legitimate arrangements, maybe we need to find some ways of getting some tax out of them.

But we need to be careful of the law of unintended consequences.

While we all, I am sure, put our hands in our pockets for good causes, it really is the very wealthy that contribute most, with 48% of all donations coming from just 7% of the population. And it's not just the money; they tend to get actively involved. So while your tenner or mine is certainly welcome, it is obvious that, without the wealthiest donors, the philanthropic sector in this country is in deep trouble.

The problem seems to be one of ideology. Governments think they can allocate resources better than anybody else, whereas some people believe that any organisation that spends 39%* of its revenue on administration shouldn't be in charge a municipal bazaar, much less a country. Such people prefer to allocate their funds where they feel it can help most, and where the dead hand of Government bureaucracy will have less of a drag on it.

Politics aside, let's look at the numbers.

Today, if someone** donates £800,000 to a registered charity, the charity can get another £200,000 in Gift Aid and the donor gets £300,000 tax relief. The gift has cost the donor £500,000, and the charity has received £1,000,000.

Next year, according to the proposals, our putative donor will only be able to afford £500,000, because there's no tax relief. Let's assume for a moment at Gift Aid still operates; the charity will get £125,000 from HMRC. Total cost to donor £500,000; total revenue to charity £625,000.

And that's at best. Under the present rules, Gift Aid can only be claimed if the donor can reclaim the tax. Unless that's changed, in the scenario above the charity will only get £500,000.

My point here is that, regardless of whether you think wealthy people will or should continue to make charitable gifts (and there is some evidence that, by and large, they will) the changes to the system mean that, even if the gifts continue at the same level, the revenue to the charities will fall by either 32.5% or 50%. Even if it only affects gifts from the most wealthy donors (say the 7% mentioned above, although that is almost certainly an underestimate) that will result in a minimum 16% reduction in revenue for charities.

Somebody needs to introduce Mr Osborne to Aesop's fable of the couple that killed the goose that laid the golden egg because they thought it had a lump of gold inside it.

David Crozier CFP

* Heritage Foundation 2012 - tax take as % of GDP

** The proposals will only affect top rate taxpayers, so I've done all the calculations assuming 50% Income Tax, and that they've already used up the £50,000 or 25% cap.

Pensions are complicated, Chapter 27

Wed, 18 Apr 2012 10:44:00 +0100

Back in heady days of Thatcherite privatisation, one of the things that was privatised was the ability to decide where part of one's state pension was invested. We could take the bit of our pension that was more than the basic old-age pension and invest it as we chose in a personal pension.

Given the way successive governments have changed the rules on state pensions, taking the money and building up a personal fund has proved to be a fairly good move for many people. The question really came down to, Do you trust the government more or less than you fear investing in the market?

Those days of contracting-out are fast drawing to a close, having passed the last year end for which rebates are due; these will trickle in over the coming months.

Given that those rebates could be fairly chunky - in many cases amounting to thousands of pounds a year - their absence will leave a hole in many people's pension planning. And the self-employed never got them anyway, so they were behind the pensions eight-ball to start with.

There is some good news. The funds built up by these rebates were subject to additional rules at retirement, which were really quite restrictive. These limitations have now gone, and contracted-out funds can be used in exactly the same way as any other personal pension fund.

If you have been in receipt of contracted-out rebates, now might be a good opportunity to have a look at your retirement planning. Either the loss of rebate will enforce a change of plan, or the removal of restrictions means you can now benefit from an income profile that suits you.

One thing is sure: a change to inputs will inevitably lead to a change to the outcome. Make sure you understand what that new outcome is for you, and if you like it.

David Crozier CFP

Buy! Buy! or Bye-bye (for now)?

Fri, 02 Mar 2012 11:29:45 +0000

Facebook has announced what will be the largest flotation of an internet company to date, as they seek to raise $5 billion in an initial public offering (IPO). The company is very profitable, with profits of $1 billion from turnover of $3.7 billion. This is a profit margin that would make most “real” business green with envy, and it’s been an increasing trend.

So it’s an easy decision – buy Facebook as soon as you can, because the price is going to go up and up?

Maybe not.

IPOs do not have a great track record of providing good returns for clients, and there’s a good reason for this. The media hype surrounding the bigger, more interesting, businesses inevitably stimulates interest. More people want to buy, and demand for the shares pushes the price up, probably beyond their real value. A chart of the average price following flotation of eight of the largest and most hyped IPOs of recent years makes for sobering study.

“The four most dangerous words in investing are, This time it’s different.” Sir John Templeton

This is absolutely not a recommendation not to buy Facebook, either now or in the future. But perhaps it might be better to wait for a while until the market decides what the true value of the share is, when all the razzmatazz settles down. I have no reason to doubt, by the way, that Facebook will find its way into our portfolios in a considered way over the coming months.

Buying today in the hope of making some money on the share price going up is speculation; true investing is buying a great company at a fair price and holding it for ever to enjoy the dividends that will inevitable arise from a profitable business.

David Crozier CFP

Give me strength! Who is telling people the truth about risk?

Fri, 24 Feb 2012 14:25:43 +0000

Apparently the latest research by the FSA shows that majority of people (61%) are unwilling to take risk with their investments.

Welcome to Realville: THERE IS NO SUCH THING AS A RISK-FREE INVESTMENT! Investors have to make a choice; even doing nothing is tantamount to making a choice. If they choose to “invest” in cash so as not to risk loss of capital, they will then be taking other risks; inflation, or currency, to name two.

The same research found that around 20% of people sought some form of financial advice. There may be some correlation here, because one of a financial planner’s jobs is to educate their clients about money.

But I have a question: what is the regulator doing to educate people? Not very much, I would submit, if this is the outcome they get.

Let me leave you with two quotations that I think, together, make my point about risk aptly.

"A ship is safe in harbour, but that's not what ships are for." William Shedd

“The use of money is all the advantage there is in having it.” Benjamin Franklin

Have a great, risk-appropriate weekend.

David Crozier CFP

Harrods is more expensive than Lidl, in shock sensation

Wed, 18 Jan 2012 16:51:38 +0000

Well-known consumer group Which? has published a report into the fees financial advisers charge, and has found huge variations in the cost of advice for “exactly the same service” and have called for much greater transparency in the fees charged.

We agree with this principle. In fact, we agree with a lot of the conclusions this article draws, in particular the eight questions they suggest you should ask a financial adviser (down at the bottom of the article).

We completely support the call for transparency, both in this article and by the Financial Services Authority. We are, and have been, an advocate for the Retail Distribution Review, due to come into effect in January 2013, which, inter alia, insists that financial advisers must agree with their clients how much they pay for advice.

Where we don’t agree with Which? is their call for a “rate guide” to be published on advisers’ websites. This implies that financial planning can be reduced to a series of financial transactions, whereas we believe that the arranging of any products recommended is the least important part of the process.

Financial planning is the most important part: the creation of a strategy and a road-map that will direct you to your long-term financial goals, over many years, and the oversight and coaching to make sure that it all happens for you.

Financial products are commodities; financial planning is a service. Commodities are bought on price; a service is bought on value.

Only when the service is explained and the prospective client understands the value of financial planning to their situation can a judgement be made on price.

It is (usually) cheaper to fly Ryanair, but I (and almost everybody I know) will fly with another airline, if possible. Why? Because they value the service that other, less commoditised, airlines provide.

“A cynic is a man who knows the price of everything and the value of nothing.” Oscar Wilde

David Crozier CFP

It's official...

Mon, 16 Jan 2012 15:24:58 +0000

I am delighted to be able to use this first blog of 2012 to bring you some fantastic news about our company. At a conference last week in London, Navigator Financial Planning was awarded New Model Adviser of the Year 2012 for Scotland & Northern Ireland.

Given that this award is based on facts and figures and processes, and that some of the top financial planning firms in our region were shortlisted, this says a lot for the services we provide and the robustness of our processes. It's an achievement of which I think we can be proud, but I promise that we will continue to develop and improve what we do for our clients, so that, whether you use Navigator Financial Planning yourself, or refer others to us, you can be confident that our financial planning and wealth management service is up there with the best in the country.

It begins to sound a bit like the Oscars, but I really would like to thank the entire Navigator team and, in particular, Harriette and David for their efforts - without them, it would not be possible to do what we do, and we would not have received this award.

All the best for a successful and prosperous 2012.

David Crozier CFP

The Ghost of Christmas Yet to Come

Wed, 21 Dec 2011 17:15:47 +0000

I wanted to use this last blog of 2011 to reflect on what has happened during the year, and it seems to me that the major theme that sticks out for the year past, is Bad News. Whether it be unemployment or the euro; city riots, storms in the Philippines, or the tragic accident on the M5 - there seems to me to have been a steady drip, and sometimes a flood, of bad things that are happening in the world.

I have no problem with the reporting of bad news as such, as long as it's factual. But what really irritates me is the extrapolation of what has happened in the past, and what is happening now, for years into the future. For the purposes of this blog, I'm calling this the Jacob Marley* syndrome - the Ghost of Christmas Yet to Come shows Ebenezer Scrooge what will become of him, based on his past actions and attitudes.

Yet I urge you to be like old Scrooge, ignore the doom-saying of Robert the Pest and his ilk, and plan and act based on where you are now and where you want to go.

The fact is that market forecasters, investment gurus and, at least of all, journalists can do no more than guess at what might happen next year, never mind 10 or 20 years from now.

If you look back 20 years (and bear in mind that most of us have an investment horizon of at least 20 years, and usually much longer) you will be staggered at what's happened in that time. We were then in the middle of a rocky time economically, with lots of families in property negative equity and the first Gulf War was kicking off causing high oil prices and a spike in inflation. Since then we've had a technology bubble burst, the worldwide explosion of Islamic terrorism (including its most infamous manifestation in the destruction of the Twin Towers), the credit crunch, the creation (and now near implosion of the euro), major wars in the Middle East, a series of crises in the Balkans ... the list goes on.

And with all of that, the world's major stock markets have increased in value by 287%.**

Why? Because we've also seen in that same period unimaginable developments in science and technology. Not just the obvious advent of the internet, and all its attendant advantages, but in all sorts of widely diverse fields, such as medicine, renewable energy, digital cameras, to name three at random.

At the risk of sounding like a scratched CD (oh, there's another technological improvement I forgot about) we don’t know how things are going to come out right, but investors just know that they will.

On that (I trust cheery and positive) note, I leave you with Bob Cratchit's toast, "A Merry Christmas to us all, my dears." And Tiny Tim's response, "God bless us every one!"

See you in 2012.

Kind regards

David Crozier CFP

*If you don't what I'm on about, you might want to re-read Dickens' classic, A Christmas Carol.

**Data courtesy of Financial Express: increase in the value of the MSCI World Index from 20/12/1990 to 21/12/2011

We're getting there!

Thu, 24 Nov 2011 09:04:32 +0000

This week is Financial Planning Week, when financial planners and the Institute of

Financial Planning do all sorts of things to raise public awareness of what financial

planning is, and why people need it.

This is the fourth year of Financial Planning Week, and it seems as if the message might

be getting across.

Only 12% of people now agree or strongly Agree that financial planning is only for the very

wealthy, with a further 13% neither agreeing or disagreeing*. This means that fully three

quarters of the population believe, at some level, that financial planning is relevant to the

ordinary man or woman in the street. As well as the wealthy, of course!

And they are right: anybody that sets out to accomplish something in their life with a

financial implication - in short, pretty much anything - stands a much better chance of

achieving those ends with a structured and costed plan.

By failing to plan, one is planning to fail, is a cliche with a lot of truth in it!

David Crozier CFP

*Source: YouGov plc

This way up

Wed, 16 Nov 2011 22:19:37 +0000

Believe it or not, Planet Earth has two North Poles: one at the very top (the bit where the spindle comes out of the globe), known as True North; and Magnetic North, which is where magnetic compasses point.

True North is always at the top. No matter where you are on Earth, True North is always in the same place. In the Northern Hemisphere if you can see Polaris, the Pole Star, that’s where North is.

Magnetic North, on the other hand, is not so constant. For a start, it’s not located at geographic True North, which means that a compass will not point to True North. And it depends where you are on the planet how far away from True North it points.

To complicate matters even further, Magnetic North moves about. At present it appears to be moving from Northern Canada towards Russia at a rate of about 35 miles every year.

So you can imagine how careful small boats and other navigators that use magnetic compasses have to be. If they steered according to Magnetic North, they would, sooner or later, end up on the rocks.

I trust you can see the analogy with investing and financial planning. The economic and financial landscape changes, and the temptation is to steer where the current situation might take you. Yes, there will be rocks, sandbars and storms (and maybe even the occasional limpet mine!) but you still want to get to True North.

Overoccupation with what’s happening in the short term will pull you off course. Remember that you’re not planning (or investing) for today, tomorrow, or next week; you’re planning for the next five, ten, twenty years and for the rest of your life.

Look through the clouds for the Pole Star. Stick to your plan!

David Crozier CFP

Who chased whom how many times around what?

Thu, 10 Nov 2011 14:34:05 +0000

The classical scholars among you will no doubt recognise the barbarian allusion to heroic Greek poetry* in the title. For the rest of us, how much do we actually know about Greece? While on holiday last week with a group of friends, we had a discussion abut the Greek crisis, during which the following exchange took place. "I don't even like haloumi." "Is he the Greek president?" I think that sums up the general lack of knowledge of the country; so how can we be expected to know the details of its financial troubles and how it might affect us?

The Greeks have a different way of looking at things. After all, this is the nation that in 480BC, sent an army of only 300 men (ok, technically they were battle-hardened Spartans) to hold off an invading force of Persians estimated to be up to 300,000 strong. They succeeded in doing so for three days, and their brave action in the face of calamity at Thermopylae, ultimately led to a crushing defeat for the Persians!

So maybe it’s not surprising that at a time when Greece’s sovereign debt crisis is worrying many investors and increasing the volatility of stock markets across the world, the Greeks themselves seem to be taking a more resilient attitude. In contrast to most of their European counterparts, they have some considerable experience in defaulting on their debt. History records that the first default in Greek history occurred in the fourth century B.C., when 13 Greek city states borrowed funds from the Temple of Delos. Most never repaid their loans and the temple took an 80% loss on its principal. And in more recent times, Greece has defaulted on its external sovereign debt obligations at least five occasions - 1826, 1843, 1860, 1894 and 1932. The country has been in default for 90 years since it came into existence in its modern form in 1821.

So maybe we have to accept that debt, and defaulting thereon, is an ingrained part of the Greek psyche. It certainly doesn’t seem to have curbed their spending habits, as this recent article in The Athens News reveals. Do you know which city tops the global list of per capita ownership of 100,000 euro Porsche Cayennes? Why, it’s Larisa, of course. Never heard of it? Then you’ll be interested to learn that this town of about 250,000 inhabitants is the capital of the agricultural region of Thessaly in central Greece. And surprised to learn that there were more Porsche Cayennes in Greece than people declaring an income of more than €50,000. So how were they paying for them?

It strikes me that the Greeks seem to be remarkably free of the navel-gazing, self-recrimination which plagues other nations. Not for them the calm acceptance of personal responsibility! The anti-austerity riots of recent weeks, while doubtless appalling, speak to me of a people who are saying to an overwhelming European horde which they deem to be bearing down on them “Up with this we will not put”. In fact, it brings to mind their brazen response to another threat, some two and a half thousand years ago. One questions remains though – will there be a similarly catastrophic result for their modern day adversaries?

I don't think so. Western civilisation is still standing despite the long history of Greek financial improbity listed above. Maybe that's at least partly because its economy is only equivalent to the US state of Maryland, and is somewhat less than such economic powerhouses as Iran.*

Will Greece default? Possibly, even probably. Does it matter? Long term, almost certainly not.

David Crozier CFP

* For the non-classical scholars, Achilles chased Hector three times around the walls of Troy. Apparently.

* Sources: Wikipedia and the CIA

Sometimes, standing still is the best strategy

Tue, 11 Oct 2011 19:12:36 +0100

Imagine it’s the world cup final in Brazil. England is playing against Northern Ireland (look, I know it’s unlikely, but bear with me here....). The score is nil all. There are 45 seconds of play remaining. England has just been awarded a penalty. And you are the Northern Ireland goalkeeper.

Rooney places the ball on the spot. He steps back a few paces, grins menacingly at you, then makes his approach to the ball. What do you do? The hopes and expectations of the whole of Northern Ireland rest on your shoulders. Should you fling yourself impressively to the right? He might kick it that way and at least you’ll stand a chance of making a save. Or at the very least you’ll look cool. Perhaps Rooney will deliberately kick to the left instead? In which case, should you dive there? Decisions, decisions!

What’s the rational thing to do!

A recent study found that the chances of saving a kick when the goalkeeper stays in the centre is almost 50% higher than diving to either side. But most goalkeepers do not behave rationally when attempting to save penalty kicks. They dive far too often and would be better served by staying in the centre more.

It occurs to me that investors would do well to adopt a similar, rational approach in our response to the fluctuations in the market and stop trying too hard in a difficult situation. Instead of floundering around trying to exert control over outside circumstances, we should perhaps stay calm and centred. More often than not, "masterly inactivity" is the best thing (after all, it was good enough for Prime Minister Jim Hacker).*

A more traditional word for it might be “discipline”!

David Crozier CFP

*Here's the long version - 15 very funny minutes. The relevant bit is just under 5 minutes in.

Azar, Ofer H and Bar-Eli, Michael Bar-Eli ‘Biased Decisions of Professional Football Players: Do Goalkeepers Dive Too Often For Penalty Kicks?’ (What will these academics think of next to spend their money on?!)

Man, Monkey, or Monitor Lizard?

Wed, 28 Sep 2011 08:44:20 +0100

Another month, another round of financial crises and wild market swings.

There is no denying the hard numbers underlying some of the stories, but it's how we react to the stories and, more importantly, to the movements in investment markets that matter. Our reactions will determine nothing less than our financial future, so it's important that we react correctly.

Our brains are very complex organs, but there are three areas I would like you to understand.

First of all, there's the reptilian brain, which is concerned with survival. It wants to know where the next meal is coming from, and whether it has to run away from danger. Our brains were designed (created, evolved: choose your own word, the principle is the same) at a time when the biggest danger came from real bears, and the correct reaction was indeed to run away. Running away from a stockmarket bear, a period when the market has fallen, is, on the other hand, not a good move. It locks in any losses made, without any chance of recovery and guarantees that we lose twice: once on the way down, and again when the market goes back up, as it surely will, leaving us behind.

Then there's the monkey brain. Among other things, this part of the brain is motivated by emotions and, dare I say it, sex. The roller-coaster of emotion we all feel (yes, me too!) when markets go up and down is rooted in this part of our brain. If we make decisions based on these emotions, we will buy when investments are doing well (which is when they are relatively expensive) and sell when they go down (when, obviously, they are relatively cheap).

If you think about it, the point when an investment is about to go down in value is the highest value it's been for a while and is therefore the point at which investors feel best about it. But it's also the point of maximum risk. Conversely, the bottom of the market is when investors feel the worst, but is also the point of greatest opportunity.

If you understand this concept, you will never again invest based on emotions or feelings.

You may think the media and financial services companies deal in facts, and so they do, up to a point. But what do you think is happening when a headline reports "X billion wiped off pensions"? Or if a particular company or fund is advertised using a picture of a pretty girl? It's an appeal to the emotions.

Finally, there is the human brain, the part where we do our higher thinking. This part knows that the logical action is to buy things when they're cheap and sell when they're expensive. It knows that, even if Greek debt is out of hand or the UK economy isn't very strong, people still have to eat, they will still buy cars, they will still use their mobile phones; that the seven billion people (and counting) on Earth will still strive for a better life. And that companies will continue to fulfil those needs and wants, and make a profit in doing so.

Listening to the media and looking at advertising appeals to a very deep part of our natures. We quite enjoy having our emotions stimulated, even negatively; it's part of the human condition.

But please don't allow these parts of your brain to make decisions - it will cost you money.

David Crozier CFP

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Good news is no news

Sat, 10 Sep 2011 15:57:56 +0100

All the main news agencies make much of their impartiality and delivery of fair and balanced reporting. In terms of general news coverage this is all fine and dandy....but when it comes to reporting on the markets, I’ve noticed an interesting trend of late.

Messrs Peston et al are quick to jump on the bandwagon of gloom and doom when the markets go down with a bang...which they have been doing with some frequency of late. Then the talk is all of ‘convulsions in the market’...and ‘fears that the world economy is sliding back towards recession...’, with ‘millions wiped off shares’ and ‘panic in the pensions market’.

We're all doomed! To the barricades!

This may or may not be the case, but surely it is just as important to highlight when the markets jump back, as they have also done. Indeed as I write today (8th September 2011) the market went up 2.78%, back over 5,300, and there hasn’t been a squeak about it from our economic soothsayers. So it really does seem that no news from the pundits, means good news on the markets!

I believe there’s an important point to be made here. I am not denying the very real national and global economic forces that have driven our economy into its present state. However, confidence plays an integral part in market performance and confidence comes from having a balanced view. Surely it is imperative that our economic correspondents play their part in this by maintaining fair and equitable balance in their coverage of market events.

David Crozier CFP

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This, too, shall pass

Fri, 19 Aug 2011 09:30:16 +0100

Congratulations!

If you survived the month or so we've just "enjoyed" in world markets, I believe that you can weather anything the market will throw at you.

I have had precisely two clients contact me about the markets. Neither of them were panicking: one was simply reaffirming that he understood investing is for the long haul, and the other actually wanted to invest some more cash. All of this is an indication that you understand what investing is all about and that you are happy that your investment portfolio is aligned with your objectives.

As I keep saying, your investment WILL go down at some point during the time we work together - I just don't know when, or by how much. But it's worth it, and here's why.

The FTSE All-Share Index has been around since 1955. Since February 1955, there have been 678 months. (Let's cheat a little and say 679, so that we can include the recent turmoil, even though August isn't over yet.)

Of those, 420 months have been positive, roughly 62%, and the rest, 38% have been negative (no months have been absolutely flat). So if past history is anything to by, just under two thirds of the time you should expect any share-based investment portfolio to go up, and a third or so of months, it will be going down.

And in return for this?

If you had invested £100 in the FTSE-All Share Index at the end of July 2001, and kept the dividends, you would now have £147.54. Bear in mind that this ten year period includes not only this year's correction, but also the market crashes following 9/11 and the technology bubble, and the credit crunch in 2008.

The further we look back, the better the figures; twenty years from July 1991 would have turned £100 into £451, all the way back to the launch of the index in February 1955 - £100 invested then would now be worth £54,737.

Remember that these figures are for purely FTSE-All Share investments - nobody in their right mind would invest all their money in one asset class, and so, by spreading your investment among a range of assets, of different types and from different regions, you would expect to be sheltered from the worst effects of market turmoil.

Investing is for the long term. The longer you hold onto a well-structured investment portfolio that is designed to achieve your objectives and that matches your risk profile, the less you will be concerned about short-term market fluctuations, because:

a) You will have seen it all before and know that, "This, too, shall pass";

b) Even with the recent correction, you will be able to look back to the start and know that you have made money and are progressing towards your objectives.

David Crozier CFP

Data supplied by Financial Express. Figures are for month end, except for August 2011, where the end date is 17th August. You cannot invest directly in an index; charges and taxes may reduce the figures quoted, and inflation will reduce its real value. Past performance is not necessarily a guide to the future. The value of any investment in real assets, including shares, can fall as well as rise, and you might end up with less than you invested.

Performance in perspective

Fri, 05 Aug 2011 10:06:12 +0100

As you may have noticed, global markets have been in sharp decline this week. US debt? Fears over the euro? The reason is irrelevant, but the effect is all too obvious.

Let’s put it in context. The headline figures everybody sees in the media is for the FTSE 100, because that’s the main index of our top companies and it’s an easy benchmark for the media to track. But none of my clients are invested solely in the FTSE 100, so let’s have a look at how our most common portfolio has been affected.

	FTSE 100	Navigator Balanced
1 week	-7.83%	-3.04%
1 month	-9.97%	-5.25%
3 years	15.33%	20.99%
5 years	12.63%	24.21%

So, like King Cnut, I can’t hold back the tide, but hopefully your feet will get a little less wet.

I stuck in the 3 and 5 year figures to remind us all that, although there may well be some short-term pain, in the long run, it usually comes out fine.

In the words of Winnie-the-Pooh, “Courage, friends, there’s always hope!”

As ever, please get in touch with any queries or comments that you may have.

David Crozier CFP

All data to 4th August 2011. Source: Financial Express Analytics. Past performance is not a guide to the future. By investing in real assets, such as shares, you can end up with less money than you invest.

Will they, won\'t they...

Mon, 01 Aug 2011 14:00:44 +0100

There's a lot of chat about the possibility of the USA defaulting on its sovereign debt, or of it's current credit rating of AAA being downgraded. So, what's going to happen? and does it matter?

I suggest you ask yourself two questions:

1/ are you confident that you know what is going to happen?

2/ are you confident that you know anyone else who knows what is going to happen?

If the answers to 1 and 2 are, No, then the right thing to do is - guess what? - diversify. That is, spread your money around a variety of different investment types, countries, and individual securities. Your gran would have said, don't put all your eggs in one basket.

What will it means for US shares if the debt is downgraded?

Let's look at what happened to a very different country.

In 2001, Indonesia's sovereign debt rating was very definitely non-investment grade "junk": B3 from Moody's and single-B from Standard & Poor's. There have been a couple of upgrades, but at no time over the past decade was Indonesia deemed to merit an investment grade rating.

The main Indonesian stockmarket index, the Jakarta Composite Index closed at 415.09 on January 16, 2001, while the FTSE-all share closed at 2,931. On Wednesday last (27th July), the Jakarta Composite closed at 4,087.09 and the FTSE at 3,047; if it had kept up with Indonesia, it would be over 28,000 today! And the UK has a AAA rating, the highest available.

Granted, there was fair bit of pain along the way for Indonesian shares: for example, markets fell even more sharply than the UK during the financial crisis, with a peak-to-trough loss of nearly 60%. But the recovery was sharper as well, with the index recouping all its losses by April 2010, and the all-time high on 22nd July this year was 45% above its high point in early 2008.

I am not suggesting that you should dismiss the effects of a US or UK government debt downgrade. US Treasury securities are so widely held around the world that any potentially destabilizing event is worrisome. Nor are we suggesting that investors focus

solely on countries with low credit ratings. Just as a broadly diversified portfolio includes companies with high and low credit

quality, investing in countries with both high and low ratings is equally sensible.

The point is that a low credit rating in and of itself is not an automatic death sentence for equity investors. Citizens of AAA countries behave much like those living in single-B territory — they eat, drink, buy clothes, drive their cars to restaurants, chatter on mobile phones, and check the Twitter feeds. Companies doing business in either location generate cash flows, and investors do their best to evaluate what those cash flows are worth. A triple-A sovereign debt rating is no guarantee of good equity market returns, and a "junk" rating is no assurance of failure. A diversified strategy will have exposure to both.

In hindsight there will have been lots of different strategies to mine that will have provided massively superior or inferior results. Of course those who called it right (I would say "guessed") will look like geniuses after the event. I’m pretty much guaranteeing not to be one of those - but what you will get from a diversified strategy is, as always, the return from the market commensurate with the risk you are prepared to take.

It might be a rough ride, but close your eyes and stick with the disciplined process - we've been through it all before, and it's pretty much certain that we will be again.

As ever, please get in touch with any queries or comments that you may have.

David Crozier CFP

What should we do about the market?

Mon, 25 Jul 2011 13:58:44 +0100

One of our clients, who travels a bit in the Far East, contacted me following a recent visit there. I have his kind permission to post an edited version of our correspondence, as I feel it asks and answers questions many people have at the present time.

Question

Dear David

I can cannot help but feel a distinct slowdown in the Asian economy. In fact I feel that a major adjustment is long overdue in this region. All you read from the press is negativity about the world economy … rising inflation, sovereign debt issues, double-dip recession, etc. It is difficult to know where to hold money currently. Bank deposits are paying peanuts in interest and are definitely not an option. The property market in Asia has enjoyed two years of solid growth but this sector is now overheated as well. What is our exposure to Greek, Ireland, Portuguese and Spanish markets? I feel that the inevitable default will happen in Greece and don't wish to be there whenever this happen. In fact the whole European market will be affected as well. Should we be doing something about the current market situation? Any thoughts? Thanks.

Answer

Dear …

You have asked a lot of questions in your email, and I will try to answer them.

Slow down/adjustment in Asia - I have no doubt that this will happen, at some stage, but who knows when? My consolation to you is the regular rebalancing we do, which takes out the profits in each region and allocates them to other areas. Part of the reason for this is that it doesn't allow the portfolio to get overheated in any one area.

Negativity of the world economy - again, I would not dispute that the press have been talking this up. All I can say is that the market has largely ignored it, and the market tends to be a predictor, rather than a follower, of what happens in economies.

Where to put the money - if I knew that for a certainty, I would be a very rich man, as would you, and all my other clients. You will have seen my article of a couple of weeks ago, explaining that there is no such thing as a risk-free asset. It may sound boring and reactive, but the answer is, Discipline. Here's a link to an article I wrote in September 2008, when things were looking positively hopeless. It may put things in some sort of perspective if I tell you that in June 2008 (ie before the worst effects of the credit crunch hit markets) your portfolio was worth £245,106; at the end of that October it had gone down to £205k; today it is worth £281k. That's an increase of 14.6% in three years, in a time of great economic uncertainty (and low inflation and low interest rates). The portfolios are managed within your risk profile and therefore should deliver what we need them to over time, even though the ride might not be particularly comfortable from time to time.

Cash is not an option - no, it is not, I quite agree. You could sell everything to cash, but then you are faced with another decision about when to go back in. Consider what your feelings might be if you were to sell out of equities today and the market was to continue upwards, as it may very well do? Do you go back in when the market has gone up another 1%? 5%? 10%? And if you do go back in, what if it immediately falls? The fact of the matter is that the best days to be invested in the stock market are clustered with the worst days. You can't (other than by being very, very lucky) dodge one without missing out on the other.

Market corrections are a fact of investment life. They will happen: there is nothing we can do to stop them; our job (my job) is to make sure that you hang on through any downturns and get the return you deserve for the risk you are taking.

Greece, Ireland, Spain - you shouldn't be worried about markets (good companies will weather the storm and continue to deliver profits) but you should indeed be concerned about debt default. If a country defaults on its debts, there is no way back.

Here's a recent quote from Dimensional, with whom a large chunk of your non-sovereign fixed interest is invested. "Dimensional restricts the eligibility of countries of issuers its fixed income strategies can be exposed to and reviews this list regularly. For instance, none of Greece, Portugal or Italy — three sovereign states at the centre of recent market concerns — is currently an eligible country of risk."

It doesn't fully answer the question, but Dimensional's Global Short-Dated bond fund only invests in investment grade bonds. They also limit the exposure to any one country or currency.

I hope this is of some assistance. I'm afraid that the short answer to your last question, should we do anything about markets, is that you can't - you simply must set up your risk profile in a way that gets you through it to your best advantage.

I hope that your experience over the past few years has demonstrated sufficiently that this approach, while certainly not perfect, works well enough to get you where you want to go.

Response

Thanks for your reply and answering all the issues raised in my e-mail. This is very reassuring and we agreed that we should ride out the market volatilities as we did the last time. Thanks, and have a good summer break.

My thanks to _______ & _______ (you know who you are) for their question and allowing me to publish the correspondence. I think it illustrates a number of important points and I hope you find it useful.

David Crozier CFP

Good as gold

Mon, 18 Jul 2011 13:43:40 +0100

Why is it that people have such a thing about gold?

It's a malleable, ductile, conductive metal, albeit one that's also lustrous and chemically not very reactive, which means it doesn't corrode and therefore lasts a long time. But let's face it - it's not all that special: there are plenty of other metals that also have these properties.

People talk about gold having "intrinsic value", which according to my dictionary means that it has this quality of itself, because of its very nature. Well, I have news for you - gold does not have any value of itself, any more than, say, coal, or seagull poo. All of these commodities have a value because - and only because - that is what people are prepared to pay for them. And that changes over time: as a matter of fact seagull poo at one time was worth a lot more by weight than either gold or coal - it was called guano, and was used as a fertiliser; economies of entire countries have been based on it!

If gold had an intrinsic value, by definition its price wouldn't fluctuate.

All of this is not to say that money cannot be made by speculating in gold. In fact, quite spectacular gains can be made; likewise catastrophic losses. For example between 2001 and 2010, the price of gold increased by 352%. And everyone knows that Gordon Brown started to sell what remained of Britain's gold reserves in 1999, a decision that cost the country, in hindsight, billions of pounds by not hanging on for a couple of years.

Note that I used the word "speculating". I do not believe gold is an investment in the true sense of the word. The late Alan Clark MP, famous inter alia for his classic car collection, refused to consider his cars as an investment, because they did not produce a regular stream of income. Warren Buffet shares this view also. It doesn't matter how long you hold onto a gold bar or coin: it will not produce a penny of cash until you sell it. And in the meantime you have to insure it and possibly (depending on how much you own) pay for storage.

I grant that gold has historically been a great diversifier. In times of high inflation and market uncertainty the price of gold tends to rise. Therefore if one holds some gold in a portfolio, it has tended to offset some of the losses elsewhere. The problem is that as the cycle goes round, the other investments recover and gold settles back down. And through it all, debt instruments, property, shares, even cash, have all produced some income, in the form of dividends, interest and rent. Whereas gold just sits there, looking very pretty, but not actually doing anything.

And therein lies the rub: "not doing anything". Compare this with the shares of a company that mines the gold – it “does something”. Quite a lot actually: it finds the gold in the first place, it digs it out of the ground, it will be involved in the removal of impurities and probably in its export to where it is needed. In short, the company adds value, and is paid for doing so. Gold on the other hand just exists!

I repeat: am not suggesting that gold cannot provide a return. On the contrary, the dollar price of gold has increased by 286% in the last 25 years - but it produced not one penny of cashflow in the meantime. By comparison, in the 25 years from January 1986 to December 2010, £100 invested in the FTSE All-Share would have produced dividends of £683 and still increased in capital value to £448.

So while gold is certainly good (I'll take any spare you have off your hands) it is certainly not the panacea for all investing ills that some people seem to think it is.

David Crozier CFP

Source of data: FTSE-All Share data supplied by Financial Express Analytics; gold prices courtesy of www.measuringworth.com. It is not possible to invest directly in an index, and taxes and charges will apply.

If you can make one heap of all your winnings

Fri, 10 Jun 2011 16:28:53 +0100

Just in case you thought my trip to Switzerland last month was only for fun...

At one of the conference panel sessions, five of the most respected economists in Europe talked about their views of the future and what was exercising their minds at the present time. Set aside for a moment that, when you ask five economists for an opinion, you will get six answers. And that they will all be wrong. All that said, I thought their musings on risk were particularly enlightening. The famous Kipling poem quoted in the title came to me, because the context was families that had made a lot of money, usually through business, and essentially had made one heap of their winnings. Are they now risking it "on one turn of pitch-and-toss"?

Dr Martin Hess, of the Swiss Bankers Association said that he felt that there is no such thing as a risk-free asset. I tend to agree with him - there are only assets with different types of risks.

But, you say, if I keep my money in the bank, it's safe. Oh really? Right now, the Bank of England base rate is 0.5%, and has been for many months. OK, maybe some accounts are paying more than that, but I don't know any that are paying anything close to current inflation rate of 4.5% (and that's without deducting any tax). So the real value of most people's bank deposits is falling. It could be argued that holding cash is the one guaranteed way to lose money (after inflation).

Fair enough, you say, but at least the capital value isn't falling. Really? In what currency? The value of Sterling fell by 5% in the first five months of this year. That's TEN TIMES the Bank of England base rate, in just five months. OK, you spend your money in Sterling, but as the value of Sterling falls, the cost of imports tends to rise, driving up inflation.

Right, you say, you've convinced me - I'll buy gold. Gold has indeed rocketed in price in recent months and years, but it has a couple of problems. One: the only way to make money from it is to sell it (at a profit) as there is no stream of income. Two: it's price is at a 30-year high. Three: I don't know that Tesco's will be too happy about accepting a few flakes of gold at the checkout.

Maybe we will get someday a system where someone will store gold for us and shift it between us in return for goods and services without us having to actually handle it. Come to think of it, we used to have such a system: it was called banking!

We need to face facts: the only way to get an above-inflation return on investment is to hold a wide spread of different assets, all of which produce an income, and which generally behave differently to each other.

And, for the record we did have SOME fun in Switzerland...

David Crozier CFP

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Sell in May?

Fri, 03 Jun 2011 09:05:10 +0100

The investment world is awash with sayings and old saws, and I came across one again the other day in the FT.

"Sell in May and go away.

Don't come back until St Leger Day."

For all you non-fans (like me) the St Leger Stakes is one of the five Classic horse-races, run in early September at Doncaster since 1776.

The problem with strategies like this is that they are logically self-defeating. If it was generally known that shares would perform always poorly between May and September and investors sold the market en masse at the start of May, prices would fall. And if everyone piled back in September, prices would rise.

Now on the face of it, that seems like proof positive that the strategy works, but you have to remember that for every seller for whom a low and falling price is bad, there has to be a buyer for whom a low price is a good price, and therefore investors who buy in May are going to have a good investment experience.

I have no doubt that there are years when such a strategy would work; but equally, I am sure that any similar strategy – let’s say, Sell on the Twelfth and buy on Black Saturday – would work from time to time.

The fact is, Mr Market sorts out prices so that rigid strategies that appear to work for a while stop working.

So much for the theory: do the numbers that back it up? Since 1986, investing in the FTSE-All Share using a May-September strategy would have netted you a total return of 640.4%. Pretty good, eh?

Maybe not, because just sticking your money in the FTSE-All Share and leaving it there for the same period would have got you 849.6%!

Here's a couple of slides showing the negative consequences of trying to time the market and failing. Time in the market, not timing the market, is what protects and grows wealth.

Public Wealth Warning: listening to market timing mantras or Harold Camping can cost you money.

David Crozier CFP

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Source of data: Financial Express Analytics. Total returns, including dividends but excluding any fees, of the FTSE-All Share Index from 10/9/86 to 31/4/2011.

Are we all French now?

Tue, 26 Apr 2011 15:21:14 +0100

It isn't often that the workings of the Court of Appeal excite wrath enough to move me to write a comment for general publication, but you really do need to know about the recent case of Ilott v Mitson and others.

In Scotland and in many European countries certain beneficiaries (usually the children) cannot be wholly cut out of a person's will, however it is generally accepted that in England, Wales and Northern Ireland, people can decide how their assets can be distributed on death by writing a will.

Wills, however, can be challenged. In the case in point, a lady had left the bulk of her estate worth £486,000 to the Blue Cross, the RSPB and the RSPCA. She also left a letter stating explicitly that her daughter wasn't to receive anything from her estate and giving the reasons why. Her daughter had left home at the age of 17 and had still not been reconciled with her mother before her mother's death, 26 years later. Since age 17 the daughter had not received any financial support from her mother and she had no expectation of receiving anything under her Will. At the time of her mother's death she had 5 children and was living on benefits. She brought a claim against her mother's estate claiming that the Will failed to make reasonable financial provision for her.

To cut a long story short, the Court of Appeal has decided that the daughter should be given £50,000 from her mother's will and has given her leave to appeal for a higher amount.

Machiavelli wouldn't have a look in, if I might paraphrase: "A [daughter] can bear with equanimity the loss of [her mother], but the loss of [her] inheritance may drive [her] to despair." Or the courts in this case.

This is a very worrying development and underlines the point that people really ought to take specialist advice about their wills, especially if they are planning to do anything other than the very straightforward.

David Crozier CFP

PS If you want to find out what happens to your assets if you die without making a will, here's a handy chart.

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How to be a winner

Mon, 18 Apr 2011 16:56:35 +0100

We have added another short video to the website. In an interview, Charlie Ellis, author of Winning the Loser's Game shares some thoughts on the principles of investing, how to play a financial game that you can win, and the value to you of using a financial planner.

Last September I had the pleasure and great privilege of hearing Charlie speak at a conference about the principles underpinning his book, Winning the Loser's Game.

Investing is a bit like tennis - unless one is very good indeed, games are usually won (or lost) because of mistakes, rather than by brilliance. Yes, one can get lucky and make some winning strokes, but on balance, over the course of a game, the winner will be the player that made the fewest mistakes. The beauty about investing is that is actually easy to avoid the mistakes - and very difficult and expensive to consistently and robustly pick winners.

I hope you enjoy the video. If you do, please feel free to share it with friends or colleagues whom you think might benefit from it. And of course, please let us have any comments or questions you have.

David Crozier CFP

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Plus ca change...

Tue, 01 Feb 2011 16:39:58 +0000

King Solomon, the wisest man who ever lived, said, "There is nothing new under the sun." Ecclesiastes 1:9. Somewhat more recently, one of the most successful investors of our time, Sir John Templeton, said, "The four most dangerous words in investing are, This time it's different."

On the basis that I'm not smart enough to come up with anything original, I like to read what clever and successful people have written about investing. "A Random Walk Down Wall Street" by Burton G Malkiel has got to be one of the most useful books ever written on how investment markets really work. As well as being very illuminating in its portrayal of how investment markets work, it is an interesting and entertaining read, even for people who have a life.

We have added a short video to our website in which Professor Malkiel gives a simple reminder of some of the fundamental rules investors need to remember regardless of what is happening in the world on any given day. Many thanks to our investment partners Vanguard for allowing us use of this material. By the way, Vanguard have some pithy remarks of their own to make on the subjects of investing and financial planning.

It should come as no great surprise to you that our investment philosophy is consistent with the principles Professor Malkiel speaks about.

I hope you find the video interesting and informative. As ever, if you have any observations or queries, please feel free to get in touch, and please share with any friends or colleagues whom you think would enjoy it.

David Crozier CFP

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Water, water, everywhere! Well, actually...

Mon, 03 Jan 2011 16:48:51 +0000

It has been a tough Christmas, for all sorts of reasons. At one point, there were 13 people staying in our house, at a time when were without water for 36 hours, with no information about when it might be turned on. We managed to muddle through, with the help of water from a local spring and a lot of good humour, which would probably have worn thin after a while. The whole thing was a reminder of the effort required to provide drinking water and sanitation prior to large-scale provision of mains water.

The experience has raised a few musings with me, not necessarily connected to each other. Let's call them Resolutions for 2011.

Charging for services - there's a lot of muttering about Northern Ireland Water (NIW) lacking investment and how water rates will need to be introduced now to raise money. While I can see this from the company's point of view, I think they have two chances of getting away with this - slim and none! Any company providing a service has to demonstrate value for money before it can expect to charge fees. My resolution is that we will continue to invest in the services Navigator provides so that you, our valued clients, always feel that you are getting what you need and want from us.

Communication - NIW's biggest failure, in my opinion, was keeping people in the dark. The freeze wasn't their fault, nor was the speed of the thaw, but it was totally unforgiveable not to provide accurate and timely information. My resolution is that we will communicate with you more often, and especially so if things go wrong, so that you have the peace of mind of knowing something is being done.

Taking stuff for granted - this is a personal one; I will never take hot and cold running water, flushing toilets, showers, and everything else that accompanies it, for granted again. This crisis has given us all an insight into the effort needed to bring clean water to our homes and businesses. To waste water is to put pressure on physical and financial resources that are already stretched - let's not do it any more.

Exercise - another personal one. By having to lug 25kg water carriers around for a week, I found out, in practical terms, that I am really unfit. This has to be sorted out!

Happy New Year, everybody - have a great 2011!

David Crozier CFP

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A truly inspirational story

Wed, 15 Dec 2010 20:16:00 +0000

How's this for an inspirational story?

Not quite boy meets girl, but how about: "Former Wall Street bond trader contracts brain tumour, decides to use final months of life writing book on the futility of his former investment activity, and about investment process that really works".

It's a true story, and one you can read in the New York Times - I would encourage you to do so.

The book, by the way, encapsulates the Navigator Financial Planning investment process in 85 easy-to-read pages - I wish I had written it myself, and commend it to you as a very worthwhile read.

David Crozier CFPcm

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Lending a helping hand

Fri, 19 Nov 2010 12:09:01 +0000

There is mounting speculation that Ireland is going to have to be bailed out, either by the European Union (EU) or the International Monetary Fund (IMF). Tens of billions of euro are going to be required and it seems likely that UK taxpayers will be putting their hands deep in their pockets to help.

At at a time of economic stringency, when cuts are being made in budgets for hospitals, roads, etc, there is a lot of disquiet in our own country about funds going towards something that is none of our responsibility.

Here's a couple of thoughts on why we should be helping.

Charity begins at home - the UK donates millions in overseas aid to countries that are thousands of miles and culturally chalk to our cheese. Ireland is our nearest neighbour, the only country with which the UK has a land border - why should we not help them?

Pure selfishness - the UK, including Northern Ireland, already has hundreds of thousands of economic migrants, most of whom have crossed one or, in the case of NI, two stretches of water to get here. If the Irish economy collapses, we will have 5 million potential economic migrants on our doorstep, who don't even have to cross a secure border.

The moral high ground - if I might quote from the Bible, 'It is well with the man that is gracious and lendeth; he will sustain his cause in judgement." (Psalm 112.5)

Clean up our own mess - the Irish government, banks and borrowers must, of course, shoulder a large part of the blame for their predicament. But UK banks were up to their necks in the banking crisis and, quite apart from any money they may have lent to Irish borrowers or secured against Irish property, because of their sheer size they have been jointly responsible for the systemic collapse of the global credit system, which has precipitated Ireland's collapse.

The Golden Rule - do as you would be done by. The UK accepted help from the IMF in the Seventies and we might need it again. It would be sheer hypocrisy to turn up our noses at the Irish getting themselves into trouble.

To paraphrase John Donne, no country, in this global age, is an island, entire of itself. Therefore never send to know for whom the bell tolls; it tolls for thee.

David Crozier CFP

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The perfect investment?

Thu, 11 Nov 2010 14:49:47 +0000

In my experience, what investors want in an ideal world is an investment that enjoys all the upside of investment markets, yet is protected against it going down. This is a perfectly understandable desire. Unfortunately, because risk is closely associated with return in the real world, this is just not possible.

The cold facts of life have never stopped some investment companies from cashing in on people's fears and desires and offering products that appear to break the link between risk and return and only go up. Do not be fooled - there is always more to it than meets the eye.

I have written an open letter to a manufacturer of structured products explaining why I won't be recommending these things. And my EBIS colleague Michael Barr has just written a blog post on so-called absolute return funds. I hope you find both of these interesting.

Don't buy investment products from salespeople - they have a vested interest in getting you to invest!

David Crozier CFP

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Calling all limited company owners

Fri, 22 Oct 2010 16:08:28 +0100

Just when you thought it was safe to go back in the water and split income between spouses, the Great White HMRC has pulled another unsuspecting swimmer down.

It was generally thought following the decision in the Arctic Systems case that it was now fairly safe to appoint shares to non-working spouses and to divide income up without major risk of challenge by HMRC.

The Patmore case has been upheld in favour of HMRC. It's quite a complicated case, involving different classes of share, paying different levels of dividend, and the shares being purchased by way of a loan on a jointly owned property.

You can read the decision in full if you want - and someone will have to, if this applies to you - but in essence the judge found that, regardless of the actual shareholdings of the relevant parties and the dividends actually paid, because the funds to purchase the company came equally from both parties, the income should have been reported equally on their tax returns.

This is only a First-Tier Tribunal case and may be challenged, but if upheld, it represents a significant and, in my view, retrograde development, removing as it would seem to, any flexibility in the allocation of income between the owners of a limited company.

To the lifeboats!

David Crozier CFP

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Two cautionary tales

Thu, 14 Oct 2010 12:47:42 +0100

Two recent news stories serve as a salutary reminder that, if it looks too good to be true, it probably is.

The first concerns former Manchester United and Northern Ireland star Keith Gillespie, who was declared bankrupt recently. It seems that he is blaming his downfall on a series of bad investments. We don't know the detail of these, but they do include a film investment. These were complicated structures, designed specifically to save Income Tax. The headline tax savings often looked very attractive, however, it was very important that each arrangement ticked all the necessary boxes in terms of structure before HMRC granted the relief that was expected, and was necessary to make the investment work.

I have no idea whether there was anything wrong with the individual investments Mr Gillespie was using, but what is clear that something has backfired very badly. We certainly wish him well in putting his financial life back together.

The second is the recent announcement that it looks like something (we don't yet know exactly what) is going to be done to help savers with the Presbyterian Mutual Society (PMS). A few years ago, it was possible to get interest rates with PMS that were far in excess of what could be achieved from most banks or building societies. Many people put a lot of money with PMS, perhaps without thinking too much about how they could offer this higher return.

The rest, as they say, is history - it turned out that PMS had been investing heavily in property. Once the property market collapsed, this could not sensibly be sold. This left hundreds of people, many of whom had put their entire life savings with PMS, unable to withdraw any funds.

It is good to see that something is finally going to be done to help, and again we would hope that PMS savers can now start to recover from this debacle.

The lessons I would draw from these two stories are:

If something looks better than usual, whether in terms of tax savings or investment returns, you need to ask, Why? It is an immutable law of the universe that higher returns means higher risks, even if you can't see them.
Understand what you are getting yourself into. If you don't understand the structure or the risks involved, don't get involved - walk away, at least until you get an explanation.
Are you comfortable with the higher risks? Can you afford to take them? What if the worst happens - is it possible that you could be wiped out, financially?
Don't put all your eggs in one basket - you know it makes sense.
Try to understand how all your financial arrangements fit together, as well as looking at them one at a time.

David Crozier CFP

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That was the (pensions) week that was

Fri, 08 Oct 2010 20:14:35 +0100

If you are one of those very sad people (not me, thankfully) who spend their lives watching what’s happening in the world of pensions, then this was a busy week for you.

First of all, Panorama had a real go at providers of personal pensions on Monday. Now, you know that we firmly subscribe to the view that the investment and pension industry, in general, in this country, practices what my good friend and EBIS colleague Michael Barr describes as “legalised theft” in his excellent book, How to Invest Better Than The Average Primate. It was disappointing, therefore, when there is so much truth to be told on this important subject, that the BBC chose to sensationalise it.

The message, however, was clear – and I completely agree with it – the UK fund management industry digs it shovel much too deeply into investors’ stores. If you think you are being ripped off by your pension (or indeed investment) fund provider, we just might be able to help you.

The other major pensions event was the publication by Lord Hutton of his review into public sector pensions. This can be summed up as follows: the country can’t afford to keep paying public sector pensions in their current form, for a number of reasons: we are living longer (on average) so it is not unreasonable to expect people to work longer; members of public sectors schemes will, in future, have to work longer, probably pay more in contributions, and have their pension based on career average rather than their final salary.

None of this should have come as any surprise. The unions can kick and scream as much as they want, but something simply has to give. The recommendations of this report will happen, in some form or other; make absolutely no mistake about it.

This means you if you are a (deep breath) civil servant, doctor, dentist, nurse, teacher, fire fighter, police officer, council worker, butcher, baker, candlestick maker… OK, I made the last three up, but you get the picture: if you work for the Government, central or local, in any capacity, this report will almost certainly affect you.

The message from this week, as it has consistently been for many years now, this country has a huge pension savings gap, and we will need to pay more to fill it. But for goodness’ sake let’s do so effectively, without it costing more than absolutely necessary.

David Crozier CFP

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