Investments
- Investment Management are you Receiving Satisfactory Performance and Value For Money?
- What Return Is Your Company Getting On Its Deposit Monies?
- Where do proverbs come from?
Investment Management are you Receiving Satisfactory Performance and Value For Money?
In these uncertain investment markets of the last 18 months, most people’s investment portfolios will have fallen in value. This in part will be dependent upon the style of portfolio, the types of investments held (equities, corporate bonds, fixed interest, property and cash) and the risk profile that has been adopted.
Whether your investments are managed by a discretionary portfolio manager, an insurance company, who may manage your pension fund, or a unit trust house who looks after your PEPs and ISAs, communication and service in these uncertain times is paramount.
It is very easy for a fund manager to provide you with valuations, investment commentary and one to one meetings when markets are rising, however, it is probably more important in a falling market. The value of a good fund manager and fund management service is one that is seen in these uncertain market conditions.
It is also vital, that as both personal and company circumstances change that your fund manager and financial adviser is incorporating these within the investment decisions that are being taken. If you decide to retire 5 years early, receive an inheritance, change jobs or your personal tax position changes, it is important that these issues are incorporated into your investment decisions. Too often investments are established and are then not reviewed on a regular basis. It is only when in the last 18 months, valuations you have been receiving from discretionary fund managers, insurance companies and unit trust houses are showing falls, that it may be time to review your circumstances.
It is also important within portfolios that you have agreed the benchmark that your fund managers performance is to be compared against, whether this be deposit accounts, the FTSE All Share or APCIMs (Association of Private Client Investment Managers and Stockbrokers), this is vital. Unless you have agreed this criteria, what basis do you compare the performance of your fund manager against?
Unfortunately, we have seen with a number of clients that have now appointed ourselves to review and monitor their investments and discretionary portfolios that the contact and service has been diminishing during these uncertain stock market times.
Depending upon the structure of how your existing fund manager is remunerated either by commission and/or fees, it may be possible to change your investment and discretionary fund manager without penalties being involved. To establish this, the terms and conditions of your investment would need to be reviewed.
For further details regarding the services we can provide, please contact Simon Gibson of Atkinson Bolton Consulting Limited on 0845 458 1223.
What Return Is Your Company Getting On Its Deposit Monies?
Few Financial Directors give this a second thought. Cash is king; the asset that cannot go down. The trouble is it won’t go up much either. “Too much hard won capital is left to soft pedal, earning poor returns and treating your tax inspector year after year” said Simon Gibson investment specialist at Atkinson Bolton Consulting Ltd.
Like any investment, deposit money should meet a specific need. Yet more than any asset it is used instead of a coherent investment strategy. Mr Gibson asks “A company must consider what this money is intended for: as an asset of the company, could it be working harder? Or more tax efficiently?”
Investing elsewhere can seem risky, but there are sensible alternatives. Inflation and interest rates are at a forty-year low. Beating cash by even one percentage point a year will mean significant gains in the medium to long term.
Government and corporate debt (“gilts” and “bonds”) provide a yield generally higher than the prevailing interest rate. There will be fluctuations in their value but in comparison to the stock market these are small. Funds investing in a range of these assets lessen the risk further. They aim to beat cash returns in the medium term.
Mr Gibson said, “We often forget that deposit interest is taxed. Interest on corporate deposits is taxed at the company’s marginal corporation tax rate.
By using an appropriate “wrapper”, tax can be deferred or avoided altogether. An insurance bond can defer all tax until the bond is encashed. “Gross roll up” provides greater returns in the long term and, should the bond be encashed in a year of loss, there may be no tax liability.”
For a young company, the insurance bond can be used to put aside capital intended for future pension funding in a tax-deferred environment without losing immediate access.
Up to five percent of the sum invested can be drawn each year with all tax deferred until encashment. This is an opportunity to have ring-fenced capital fund a pension or, equally, to meet loan repayments for which the bond itself can provide security.
In this way the benefits of tax deferral continue.
For a mature company the investment bond can be used to defer corporation tax on a proportion of cash reserves. Access need not be compromised, as many modern bonds allow money to be withdrawn without penalty.
For further information please contact Simon Gibson at Atkinson Bolton Consulting Ltd on 0845 4581223 or email simon@atkinsonbolton.co.uk . Atkinson Bolton Consulting is regulated by the Financial Services Authority.
There is often a lot of truth in proverbs but it can be confusing when many are apparently at odds with each other.
Where do proverbs come from? Many have evolved through the centuries and may have changed their meaning from what was originally intended. Many are seemingly at odds with each other. Does absence really make the heart grow fonder? Or is it out of sight and out of mind? Do too many cooks spoil the broth or do many hands make light work?
We all have our favourite proverbs or quotations that we like to trot out from time to time. In the realms of personal finance, surely one of the most appropriate is ‘don’t keep all your eggs in one basket’.
Most of us recognise that if we invest all our life’s savings in the shares of one company, we are taking a big risk. Any company can go bankrupt and its shares rendered practically worthless. Whilst this might be obvious if we are investing in technology firms which could be here today, gone tomorrow (or, just possibly, here today, Microsoft tomorrow), it is also true for many apparently solid companies - look at Railtrack, who many assumed was ultimately backed by the government and as safe an investment as any.
And, of course, closer to home, there is Marconi. I’m not suggesting that Marconi is on the verge of bankruptcy but any investor who placed much of their savings in an apparently rock solid British company 12 months ago would have lost over 95% of their money.
If we want to invest in shares, most of us recognise that we should spread our risk across a range of companies and ensure that not too much of our hard earned capital is invested in one company. We will not do as well as we would have if we had picked one top performing company, but then the chances of picking one top performing company is slim and the stakes high.
Exactly the same is true of pooled investments such as insurance bonds, ISAs and pensions. By piling everything into one fund, run by one company, you are taking a greater risk. If your pension is with one company, invest with another for your ISA (or at least in different funds). Let’s face it, there are enough companies and funds to choose from. If you’ve maximised your ISA contribution this year in one fund, look at a different fund for next year. If you take out an endowment policy, look at using a different company again.
The likelihood anyway is that the company offering the ‘best’ endowment will be different to the company offering the ‘best’ bond and so on, there will certainly be a number of very good products to choose from. There has been a great deal of consolidation in the insurance industry in the past few years but there is still a tremendous amount of choice for the investor. Make the most of that choice and ensure you spread your risk – you lose nothing by doing this and will gain much greater security.
This need to spread your investments has been highlighted only too clearly by events at the troubled insurer, Equitable Life. I have come across many people recently who have a number of pensions, all with Equitable Life and a number of other investments, typically bonds and endowments, all with Equitable Life. Whilst few could have forecast accurately what has befallen Equitable, this demonstrates the risks in putting all your eggs in the same basket. The chances of anything going seriously wrong may be slim, but why take that chance at all when you really don’t need to.