How to simplify investing and achieve success - part two

Earlier this week when we shared part one of how to simplify investing we looked at the growth of £1 over the last 50 years relative to several asset classes, including cash, the FTSE all share, and inflation. 

Let's take a closer look at the FTSE all share returns. Viewing this chart, I ask you, “Where is the risk in owning equities?”. Surely the answer is, the risk is in not owning equities - assuming you have a long term investing horizon - right?

The trouble is that there's always an abundance of seemingly logical reasons to sell. For instance, this chart displaying a long bull run simultaneously demonstrates the folly of not investing due to the 257% gain/return, whilst highlighting how many lay investors find investing scary due to the abundance of news and press articles depicting reasons to sell. One morning during the Iraq war I recall a headline on Bloomberg that read something like, "Iraq Invaded, Oil Prices Fall". By the afternoon the headline was, "Iraq Invaded, Oil Prices Remain Stable". The key lesson here is that the stock market goes up and down! And if the price is moving up and down after the event, firstly it is hard to try and time that, and secondly, the event itself can't be that important. The difficulty that speculative investors have, such as hedge funds and day traders, is that they base their strategy and value (i.e. fees) on being active - there are probably a hundred logical reasons to trade/sell/not invest, every single day. In my opinion, this opens them up to confirmation bias as they look for reasons to buy and sell. As we have just seen, this is very difficult to get right consistently. And each time you trade you A) incur trade costs and invariably B) have to be right twice, every time to make it worthwhile. 

Ultimately, if you are always looking for reasons to trade (consciously and subconsciously) you will likely act, and certainly incur costs, more often than necessary. Speculation can yield high returns, but it is a dangerous game to play - you need to be right twice every time you trade to make it worthwhile. On the whole, a “do nothing” buy and hold strategy in the context of an investment portfolio that is built to deliver a return to meet your financial goals is a more sensible strategy. Yet it is often harder to do.

Perhaps worse than speculating, you might find reasons NOT to invest. Being out of the market and missing upside can spiral into a vicious cycle of negative emotions, which can easily result (and too often does result) in missing the long term returns the market offers. This can be catastrophic. These are returns most people need in order to meet their financial goals. If this sounds like you in the past, remember that old sage Sir Buffett: “The best time to plant a tree was twenty years ago. The second best time is today”.

To summarise, there are, of course, numerous risks in investing, be it owning equities or any other asset class like property. Although past performance is indeed no guarantee of future returns, equities over the long term have proven that all falls are temporary, the advance is permanent. So has property, and fixed interest.

I therefore personally prefer equities as they have proven on average to be the best asset class to invest in over the long term. And I invest over the long term, sticking to a plan. As do my clients.

I like to call crashes "fire sales" because "crashes" are in fact when you can pick up great companies cheaply. It’s a bit like going to the Ferrari garage and there is a big sale on classic Ferrari’s. If I have the money and like Ferrari’s, and I know that over the long term the asset is going to increase in value, why wouldn't I buy the Ferrari? If I’m worried about nuclear war and one day at the supermarket all canned food is 75% off, why wouldn't I stock up and buy lots of tinned food?

Why don't people buy more equities when they are cheap? Why do people, in fact, do the exact opposite of this and buy at highs and sell at lows? One word: Emotion. 

Market crashes are therefore simultaneously the best and worst time to be an investor. The best in the sense you can get a great deal if you can keep your emotions in check, and the worst, because it feels, well, the worst. Market crashes aren't a walk in the park. But the systems and processes (or advisers) you have in place at these times of market turmoil are precisely where the greatest part of your investment lifetime lies.

Sometimes, like in the Global Financial Crisis of 2008, you can buy companies extremely cheaply, because the market has been driven down by emotion. But as long as you invest over the long term and have sensible strategies in place, it is always a good time to save and invest for your future.

I thought for further reading you might like to read our investment philosophy document 'A more sensible way to invest', see here. Alternatively, please get in touch to discuss any queries or concerns you may have in relation to investing your portfolio. 

How to simplify investing and achieve success - part one

If you are not quite sure about how financial markets work, or more importantly, how to benefit from them yourself, I hope this blog series gives you some understanding and ideas. 

When you look at The Growth of Wealth Chart, it shows you the growth of £1 relative to the following aspects:

  1. Inflation

  2. Cash

  3. FTSE All Share

  4. Value Companies

  5. Small Companies.

Looking at the chart, as long as you have a long-term investing horizon, say a 30-40 year spending time frame (otherwise known as retirement), would you be happier if you had invested in the average of the UK all share or stayed in cash (treasury bills)?

Someone said to me over coffee today, “yes Rob, but the market is high!”.

My response was simple: “How do you know?”.

After both admitting the market could keep going up or indeed down, we agreed no one really knows.

I then asked, “more importantly, what does it matter if the market is near the top now (whatever the top is) when you're investing for the next 40 years? Can we agree it doesn't matter that much whether the FTSE drops down to 5,000 points or rises 10,000 points, as long as we both agree it will eventually get to 15,000 or even 20,000 in your lifetime?”.

We agreed.

If you have been a sensible investor in the past you should have already “beaten the market”, so to speak, by using the simple yet effective strategy of Pound Cost Averaging (PCA) your spare cash into the market over many years. In other words, drop your money in over time. If you are very good, you will have tried to "double down" as much as possible/affordable during the times when the market dipped temporarily, such as in 2007 and going back further; 2000-2003; 1987; and 1974 (when inflation was around 24%). By implementing this simple strategy, you would have beaten the overall return from the “the market”.

Going back to the chart I said, “Does it, in hindsight, seem like a sensible strategy to forget about the short term speculation on the 10 o’clock news and on the front pages of the papers, and instead focus on the long term plan”.  Again my guest was in agreement.

“I see what you mean now, Rob. What does it matter if the market falls significantly tomorrow or in 6 months, or over the next two or three years when my investing time frame is 40 years? In fact, it is actually more like 80 years as we are discussing some investments for my children and their children”.

If only most people had in place understanding, systems and most important of all, an actual plan in place. As Warren Buffett has said, “investing is simple, but not easy”. It is made a hell of a lot easier by having a plan and sticking to the plan.

I am not saying there are no risks when it comes to investing. But as Sir Buffett’s (I have knighted him at my own leisure using my equally frivolous, self-anointed title of Lord of Liverpool), mentor famously said, “to be an investor, you need to believe in a better tomorrow”.

The two biggest risks to long term wealth are as follows:

  1. Not saving enough for retirement.

  2. Spending too much in retirement.

We are back to having a plan. You need to work out your numbers and build a plan for your wealth (especially if you don’t have any yet!).

So invest sensibly, take a long term view, and stick to your plan. This includes dripping your money into the market over time, bit by bit, and try to invest more when the market "crashes" (temporarily). In retirement, be very careful about what you take out when there's a crash. Tightening your belts at this time can make your retirement pot last an extra decade or more.

If you would like to have a chat about your financial situation or have any queries, then please get in touch as we are here to help.


8 Qualities of Successful Business People

Successful people face a number of challenges every day, but also know how to overcome them. They possess certain qualities that make them truly exceptional.

#1 They only look forward

They have a positive attitude to failure and aren’t afraid to take risks. They don’t pass judgement or dwell on past mistakes that only cloud the present with a ‘should-have-done’. Instead, they take what they’ve learned from the failure, and apply it to new challenges. Henry Ford famously said, "failure is just a resting place. It is an opportunity to begin again more intelligently”.

#2 They are confident

Successful people are confident and can lead themselves as well as others. They believe in their vision and seek to bring it to life on a daily basis.

#3 They think “Anything is Possible”

They see opportunities and think “anything is possible”. Knowing that the only thing that will produce results and achievement in life is action, they find a way to take their idea to market and sell it. With their can-do spirits, they are always willing to push themselves out of their comfort zones.

#4 They have drive

"Why does nobody ever wash a rental car - they say it's not mine".  Successful people go above and beyond, and do more than what’s expected of them. They are dedicated, committed and persistent.

#5 They create a positive work culture

Great business leaders know that achievements are never accomplished by stand alone men but by great business teams. They develop a positive work culture that employees buy into. When employees believe in a company and are completely committed, they align their objectives to the company’s goals. This harnesses the power of an army of employees, driving the business forward and helps gain competitive advantage. Just like Sam Walton said “individuals don’t win in business; teams do”.

#6 They have high emotional intelligence and are self aware

Daniel Goleman popularised the term ‘Emotional Intelligence’ (E.Q.) which, amongst other things, describes an individual’s ability to observe and manage his or her own behaviours and emotions, and those of others. They are able to pass on their passion for whatever they want to achieve to others.

#7 They are life-long learners

Business leaders constantly ask “what can we do better” and they understand that to make progression, they must always continue to learn. They are brilliant listeners and observers and look at the successes and mistakes of others, and learn from them.

#8 They only do what they do best

A highly successful entrepreneur called Gary Vaynerchuk once said, “whether you’re 9 or 90, stop trying to fix the things you’re bad at, and focus on the things you’re good at”. Trying to shoulder everything is risky and is a surefire path to burnout.

Great business leaders and companies are a constant source of inspiration for others in business. However, often these leaders just can’t find the time to manage all of their financial affairs as they are so busy with the day to day running of their business. As a consequence, we see a lot of ‘bad plan, wrong plan, no plan’.

We help business owners plan ahead, and manage their assets and investments using our 7 step wealth management programme CLEARER, so our clients can live a better life, both now and in retirement.

If you would like to see what your financial future looks like and alleviate financial stress, preserve and grow your wealth, then get in touch today.


If I Had My Time Again I Would...

The following piece was written by an eighty-five-year old man who learnt that he had but just a few days to live. 

“If I had my life to live over again, I’d try to make more mistakes next time.

I wouldn’t be so perfect. I would relax more. I’d limber up.

I’d be sillier than I’ve been on this trip.

In fact, I know very few things that I would take seriously.

I’d be crazier. I’d be less hygienic.

I’d take more chances.

I’d take more trips, I’d climb more mountains, I'd sail more seas.

I’d swim more rivers, I’d go to more places I’ve never been to.

I’d eat more ice cream and fewer beans.

I’d have more actual troubles and fewer imaginary ones!

You see, I was one of those people who lived sanely and sensibly hour after hour, day after day, year after year.

Oh, I’ve had my moments, and if I had it to do over again, I’d have more of those moments – moment by moment by moment.

I’ve been one of those people who never went anywhere without a thermometer, a hot water bottle, a raincoat and a parachute.

If I had it to do all over again, I’d travel lighter next time.

If I had it to do all over again, I’d start out earlier in the spring and stay away later in the fall.

I’d ride more merry-go-rounds,

I’d watch more sunrises,

I’d play with more children,

If I had my life to live all over again…

But you see...

I don’t.”

Jorge Luis Borges.

That's the great thing about Lifestyle Financial Planning delivered at Wilcocks & Wilcocks.

No matter what stage of life you’re at, or what fears or daunting challenges you may have, we can develop a well structured financial plan and investment strategy that could make a real difference when it comes to living the lifestyle you want. We can establish your present financial position and draw up a plan that will help you build wealth and achieve financial security.

We exist because we have helped people change their lives for the better, and it is what we love to do. Life is not a rehearsal and we can’t go back and make a brand new start. But you can always do something today that your future self will thank you for. So don’t put things off any longer. Have a sense of urgency and act today, as excuses are nothing but time thieves. As Winston Churchill said, “I never worry about action, only inaction”.

Call us today on 0845 200 4041 to take control of your financial future.

Save £140,000 With New Inheritance Tax Legislation

Inheritance Tax, or IHT, is frequently in the headlines, although, a staggering seven out of ten people in the UK know nothing about the new tax rules. Yes, that's right, another piece of complicated legislation has just been introduced. The sort of thing that makes one want to flee the country.

However, the new legislation actually means your family could save up to £140,000 in inheritance tax by 2021. This is clearly good news! Especially for working and middle class families whose main residence makes up the bulk of their net worth.

So, it pays to think about inheritance tax, and work out whether your estate can claim the new allowance. If you are eligible, this could be the easiest £140,000 your family will ever make. Register for our Briefing Webinars HERE; in order to learn more and establish if your estate is eligible so you don't lose out. 

Inheritance Tax Explained

Every individual in the UK is entitled to leave an estate worth up to £325,000 upon which there is no IHT. This is known as Nil Rate Band (NRB). So, assets under the NRB limit of £325,000 are “tax free” on death. Anything you own above that amount is taxed at a rate of 40% - which your beneficiaries, typically your children, will have to pay.

The inheritance tax rules changed on 6th April with the introduction of an additional family home allowance, called Residential Nil Rate Band (RNRB).

The new threshold is set at £100,000 for each person and can be claimed on top of the existing NRB.

RNRB will increase annually from 2018 onwards by £25,000 at the start of every tax year, until it reaches £175,000 per person in 2021.

Claiming Residence Nil Rate Band

The new allowance can be claimed in the same way as the existing NRB. On death, your executors will complete the inheritance tax forms as part of the probate process, and if you qualify, they can claim the RNRB in addition to the NRB.

Should you and your spouse pass away at the same time the value of your combined estate has to be valued at more than £850,000 this coming tax year before the estate would face inheritance tax. By 2021 the total NRB and RNRB will be £1 million for married couples.

Your house, or a share of it, will need to be passed down to direct descendants such as children or grandchildren in order to be eligible for the RNRB. This might mean giving up an element of control in how you wish your estate to be distributed after you’re gone. For example, if you have trusts in your existing will, the RNRB might not be claimable because a trust is clearly not a ‘direct descendent’. For some people then, there will be a trade off decision to make between controlling how and when assets are distributed, and your beneficiaries paying less tax.

Estates Worth More Than £2 Million

It is no longer possible to confidently predict the tax position of larger estates without knowledge of the actions of your existing wills and associated estate and planning

Generally speaking, for an estate valued at more than £2 million, the RNRB will be gradually withdrawn, or tapered away, even if the home is left to direct descendants. The RNRB will be reduced by £1 for every £2 that the value of the estate is more than the £2 million taper threshold. This means that by the time a couple's estate is worth more than £2.7m, then RNRB might not be claimable.

However, there are likely to be various planning opportunities for high net worth clients with assets between £2 and £5million to reduce the value of their estate in order to claim the RNRB and still save their estate £140,000 in tax..

Planning Opportunities For High Net Worth Clients

We advise that high net worth families look at the whole picture when it comes to planning your estate. The RNRB might be a distraction to already sound planning; or vice versa, your existing planning could result in the RNRB being lost.

Items to consider: How am I leaving my estate in my will? What life cover do I have? What corporate benefits exist? Do I have any qualifying assets for business property relief?

Consider putting death in service benefits in trust such that they don't go into the estate of the surviving spouse (who can then borrow out of the trust without that asset inflating their estate, thus reducing the estate on second death).

Consider doing the same with pensions, however, be warned that this could result in a loss in itself in inheritance tax savings. Advice should be sought.

Lifetime Cash Flow & A Financial Life Plan

If you are looking to reduce your estate’s value below £2million and claim the RNRB you should consider your own bigger picture first. You don't want to give assets away that could harm your own lifetime cash flow and balance sheet - which should be driven by a financial life plan designed around the cost of your personal goals now and throughout retirement. You have to breath your own oxygen first. The children shouldn’t mind you spending more money on yourself - potentially the best way to reduce the size of your estate!

Properties Already Sold

People who have downsized to a less valuable home below the maximum threshold, or sold out of the market all together, then there are still provisions in place that will allow your estate to claim. However, this does not apply to homes sold before 8 July 2015.

Review Your Estate Today

Since 2009, NRB has been frozen at £325,000 whilst property prices in the UK have been rising.

With much of the UK population’s wealth invested in property, a large number of families are being hit with huge inheritance tax bills.

In the 2015-2016 tax year, HM Revenue & Customs collected a total of £4.7 billion in inheritance tax receipts (2).

Would you rather your children write a cheque to HMRC for £140,000 after your death? Or would you rather write your children or grandchildren a cheque for £140,000 instead?

RNRB Webinars & Strategy Sessions

If you’re interested in finding out more, you can sign up to one of our Inheritance Tax Briefing Webinars.

You can also register for a Strategy Session at our office, which costs £197, but gives you the chance to get bespoke advice and see if your will is currently set up to save your children an extra £140,000, or not. The £197 can also come off any implementation work you may need to do, and wish to do through us.

Click HERE to register for the Briefing Webinars in June 2017.

1 Old Mutual Wealth

2 HM Revenue & Customs

Warren Buffett In Harmony With Evidence Based Investing.

Warren Buffett In Harmony With Evidence Based Investing.

We talk a lot about Evidence Based Investing. I have also heard other reputable advisers I respect call the same implementation as ours 'The Science of Investing'; 'Rational Investing' and 'Sensible-Investing'. I was once about to call our trademark "Intelli-Sense"(TM), but I was out-voted. I still think its better. I digress. Just listen to the main man himself on how he directed his estate to be managed after his death