Monthly Archives

February 2019

Diversification is Key

By | Investments

What makes gambling different from investing? If pushed for an answer, we would say that one of the key differences is “diversification.”

In other words, the former is primarily about rolling the dice on one hoped-for outcome, based mainly on chance. The latter, however, involves spreading your money out across many different asset types and classes which you reasonably expect to grow.

Images can sometimes present investing in a way which makes it look like gambling. Many of us are familiar with the hectic scenes of traders shouting and running around on the floors of the stock exchanges, buying and selling manically.

Prudent investing, however, is far removed from this image. Rather than putting all of your money into the fate of one company (such as Facebook or Amazon) and hoping it grows, you minimise your risk by putting your money into many different investments.

This way, if one or even several of your investments fail, your other investments should help carry you through and minimise your losses.

An example of diversification in action

When you look at different countries, you may notice that certain countries seem to be more vulnerable to economic shocks than others. This is partly because, like investors who do not spread out their investments, these countries are putting their “economic eggs” in one basket.

For instance, many countries hinge their economies on an important resource which they can produce and trade – such as oil, or coffee. When these commodities do well, their economies boom. When demand for the commodity falls, however, it can cause a huge deficit.

This is one reason why countries often seek to diversify their economies, so they are not reliant on one particular commodity, product or service in order to grow (e.g. manufacturing). Similarly, a wise investor will recognise that by diversifying their investments, they protect themselves from investment “shocks” whilst continuing to benefit from positive performance from other assets.

For instance, suppose you have two investors. Investor A has an investment portfolio (i.e. a set of investments) comprising 100% stocks (i.e. shares in various companies). Investor B, however, has a portfolio comprising 50% stocks and 50% bonds (we’ll come onto this later).

When the stock market experiences a dip or shock, which investor should fare better throughout the storm? Investor B should lose less money than investor A, because his/her bond investments should continue to deliver an investment return even as his/her stocks decline.

Different asset types

Another analogy sometimes used for diversification is the modern military.

Advanced military nations such as the USA, UK, France and Russia all have a range of defence assets at their disposal including infantry, mechanised vehicles (e.g. tanks), air power, naval units and cyber warfare technology.

These different military “assets” exist not just to counter different threats on the battlefield within a theatre of war. Each asset also exists in order to support the other. For instance, armoured vehicles and airpower assets are used to protect infantry during assaults.

Investing can also be conceived in a somewhat similar way. Just as military assets support one another, investment assets can “cover” and “carry through” other assets which might struggle on their own within particular market contexts. For instance, when your commodity investments are declining in value it might be your stocks which keep your investment portfolio moving forward.

Let’s take a quick look at some important asset classes you can include in your portfolio…


One of the most familiar types of investments, cash investments, are usually seen as lower risk but also tend to carry a lower investment return.

For instance, up to £85,000 of your cash in recognised UK Building Societies and Banks will be protected by the Financial Services Compensation Scheme.

However, many cash investments deliver a poor investment return due to low interest rates, which are largely eclipsed by inflation.


Sometimes these are called “equities”, and they refer to the stake(s) you have in one or more companies. For instance, you could invest directly in the shares of one company (which is very high risk). Or, you could put your money into an “investment fund” (e.g. a Unit Trust) together with a range of other investors. This fund would then invest this money into a collection of select companies. This is lower risk, because if one company in the fund declines or fails the others should help to keep the overall value of the fund growing.


Many of us are familiar with the idea of house “flipping” – which involves buying a house and later selling it at a profit (often after a period of household improvements).

However, other lower-risk investment opportunities exist when it comes to property. For instance, you might invest in property funds – which are similar to the “share” funds described above, except in this case the investment money is put into residential or commercial property.

Property can be a great investment, but it does carry risk and you also face the issue of your money not being easily accessible once it is invested into property. If you need the money quickly, you might need to wait a lot longer than you would have otherwise liked.


When you need money from the bank you can sometimes get a loan. This involves the bank giving you money provided you pay it back over time, with interest (so they make a profit).

In a similar way, you can “lend” your own money to companies and governments through bonds. So, if you buy a UK government bond you are effectively loaning money to them.

The idea is that, over time, you get the principle back as well as interest payments. These investments are generally seen as lower risk (particularly UK government bonds because they have a reputation for paying people back). However, the more reliable the bond-issuer the lower the investment return tends to be, because the risk is lower.

Bonds are usually a vital part of an investment portfolio, because they provide a solid investment foundation and “buffer” in the event that your other investments fall in value.

The Value of Global Equity Investing

By | Investments

There are many different funds available to the mindful investor, each offering their own respective pros and cons. Some are better than others.

The difficulty is, it can all get a bit confusing if you aren’t familiar with the terrain. One example is global equity investing. What is it, and how does it help your portfolio?

In this article, we’ll be defining what global equity investing is and why we feel it’s important to consider this when constructing investment portfolios.

Global equity investing: an overview

To get one part of the definition out of the way, “equities” is a term often used for “stocks” which are shares in a company that are typically traded on the stock market.

You can invest in equities (or stocks) individually, by picking a specific company and buying one or more of its shares. This might be a UK-based company, in which case you would be buying a domestic equity.

The other common, less-risky route is to invest in equity funds. This is where you pool your money with other investors into a collection of companies. If the companies are based in the UK, then the fund can fairly be described as a domestic / UK equity fund.

If the fund comprises of businesses which are based abroad, however, then the fund is no longer domestic and might take on another name. For instance, if the companies are based in Western Europe then the fund’s name might be “Western Europe Equity fund”.

Accordingly, a fund comprising businesses from developing countries might be termed a “developing world equities fund”. It might even pick other companies to join the fund, provided they are companies which are based in what is commonly-accepted as “the developing world.”

This is where global equity investing starts to come to the fore. Global equity investing is where you include investments in businesses from outside the UK into your portfolio. As such, a global equity investment fund therefore can pick businesses from across the world.

What’s the value of global equity investing?

The main benefit of a global equity investment fund is that it is not limited to the domestic or regional market when it comes to asset selection. Instead, it can pick the most attractive markets – and stocks – from across the world and include them.

As many people know, certain regions or parts of the world excel in particular sectors of the market. Switzerland, for instance, has a strong reputation for banking and drugs manufacturing. Australia is renowned for its mining businesses. The UK, USA and Israel are making a name for themselves in cyber security, and parts of Asia are excellent for technology.

The manager of a global equity investment fund can survey the world’s markets and pick the strongest companies from the strongest sectors. In addition, fund managers can identify the sectors of the global economy which historically perform better at certain times of year, and tailor their fund planning/strategy accordingly.

The downsides

As always when it comes to investing, it is important to consider the risks as well as the positives when looking at global equity investing.

One risk to factor is currency fluctuations. For instance, a strong pound against foreign currencies (e.g. the dollar or yen) will result in lower international stock values when these are converting into pounds.

Another risk is the potentially higher volatility (i.e. swings up and down) experienced by certain international stock markets. China and Venezuela, for instance, have often shown themselves to be more volatile markets than Germany or France.

Balancing global equity investments

Many people can get nervous about global equity investing, particularly due to “home bias”. This refers to investors’ natural tendency to invest in stocks from their home country, even when faced with strong evidence that diversifying abroad would bring great benefit.

An important balance needs to be achieved by the wise investor. On the one hand, you do not want to take needless, excessive risk when investing in overseas markets and businesses. On the other hand, you do not want to miss out on some great potential returns that are often hard to achieve elsewhere.

When it comes to discerning how to integrate global equities into your investment portfolio, this is where we come in. As experienced Financial Planners we can identify the risks and opportunities, as well as having the resources and means available to construct a solid investment strategy for you.

In 2014, Vanguard delivered some fascinating research. It showed that in 2013, nearly 50% of the global equity market resided in the United States. Yet at the same time, mutual fund managers in the U.S. held only 27% of their equity allocation in funds not domiciled in the U.S.

Certainly this illustrates the subject of “home bias” quite nicely. Yet it also brings an important issue to the fore. Investors who concentrate their investments in their domestic market (e.g. the U.S. or UK) are arguably taking a big risk, because they are subjecting all of their equities to domestic economic and market forces.

If that domestic economy declines or even crashes, then all of the equities in that investment portfolio are exposed. If, however, an appropriate amount of global equities are incorporated into the mix, then these equities will likely not be as affected.

Indeed, the Vanguard research cited earlier even suggests that adding a prudent amount of global equities can reduce the volatility of an investment portfolio. That said, this is not an objective fact and all investment portfolios are different. Indeed, two investment portfolios will likely perform differently within the same time period, even with a similar percentage of global equities comprising the mix.

Financial Planning for 2019: What to Expect & Do

By | Financial Planning

With 2018 now over and January ushering in a season of New Year’s resolutions, now is a great time to become aware of some important financial announcements for the months ahead.

We recommend that you factor these into your financial planning. In light of this, here are some of the key highlights you should know about for 2019:

Help to Buy ISA

Set up by the government to help people get onto the property ladder, 2019 is the final year that it will be available. From the 30th November, the scheme will be shut down to new entrants.

To quickly recap what this ISA offers, it allows you to put aside £200 per month (tax-free) – with the government putting an additional 25% towards your property purchase when it is finalised.

With the imminent conclusion of this scheme, you may wish to consider discussing this with us soon, if you think the Help to Buy ISA might be for you. Of course, once it is gone then you might want to consider the Lifetime ISA as an alternative.

A Lifetime ISA allows you to save more towards a property (up to £4,000 per year) but there are fewer accounts on offer compared to the market for Help to Buy ISAs.

Help to Save

This little-known initiative was launched by the government in September 2018, and is certainly worth a look if you meet the eligibility criteria (e.g. Crown Servants and members of the Armed Forces). Essentially, this scheme allows you to put £1-£50 per month into a Help to Save account over four years. For each £1 you put in, the government will put in an extra 50p.

If you put aside £50 each month into this account for four years then not only would you have £2,400 saved. You would also have an extra £1,200 from the government.

Income Tax & Pay

The Personal Allowance is the threshold where after you start to pay the Basic Rate of Income Tax (20%). In 2018-19 this is currently £11,850, but from April 2019 this will rise to £12,500.

Moreover, at this time Higher Rate taxpayers will also soon be taxed at 40% on earnings over £50,000 (instead of £46,350). The minimum wage is also set to rise from £7.83 to £8.21.

Be aware that National Insurance contributions will also be rising to 12% on earnings between £46,350 to £50,000. Many Higher Rate taxpayers might find their Personal Allowance increase wiped out by this.

Pension contributions

Whilst many people are set to pay less Income Tax, those who are part of an Auto Enrolment Scheme might not see this reflected very much in their take-home pay from 6th April 2019.

From this date, the minimum employees must contribute towards their pension will be 5% instead of the current 3%. You can choose to opt out, of course. However, we urge you to think carefully before doing so as this money might be very useful for your retirement financial plan.

On the subject of pensions, recipients of the State Pension should also note that this will rise by 2.6% from April. This means the basic State Pension will go up to £129.20 and the flat-rate State Pension (i.e. for those who retired after April 2016) will go up to £168.20.

The Lifetime Allowance will also be rising from £1,030,000 to £1,055,000, in line with CPI inflation.

Rising railway fares

One unfortunate development for commuters in 2019 is the rise in rail fares by 3.1% from 2018. If you have an annual season ticket from Manchester to Liverpool, for instance, then this means you’ll likely be paying an extra £100.

Confronted with this situation, for young adults it’s worth keeping an eye out for developments on the proposed 26-30 Railcard. Similar to the 16-25 Railcard, the current proposal is that members would pay £30 in order to receive a third off certain rail fares for a 12-month period.

For people outside of these age brackets, you might consider the 60+ Senior Railcard if you have not already done so. There is also the Two Together Railcard if you travel as a couple, or the Family and Friends Railcard for those travelling with children aged 5-15.

Buy-to-let changes

If you are a landlord, then from 6th April 2019 you should be aware of a key change to the rules which might affect you (Higher Rate taxpayers should take special note).

In 2018-19, you can claim tax relief on 50% of your mortgage interest payments. However, in the upcoming financial year this will go down to 25%. By 2020-21 this will reduce completely to zero. For some people, this might push you up into the Higher Rate tax bracket.

Inheritance tax

From 6th April, although the standard Nil Rate Band (i.e. the threshold where afterwards your Estate faces a 40% inheritance tax bill) will not be going up, the overall threshold for your Estate may be higher if you own a residential property.

You will still be eligible to pass on up to £325,000, tax-free, yet you will also be able to pass on an extra £150,000, if your share of a property goes to your spouse or direct descendants. (An increase of £25,000).

Be aware, however, that if your Estate is worth over £2 million then this additional Residence Nil Rate Band allowance will go down by £1 for each £2 you are over the threshold.

End of Year Tax Planning

By | Financial Planning

As 6th April approaches we inevitably face a transition into new rules within the UK’s tax regime. For those looking to optimise their tax position, what forward planning can you do?

New thresholds

In our previous article, we have already talked about how the Personal Allowance is set to rise from £11,850 in 2018-19 to £12,500 from 6th April 2019. This follows a general rise in the Personal Allowance over the past 5 years. In 2012-13, for instance, it stood at just over £8,000.

In practical terms, this means that Basic Rate taxpayers can expect to take home an extra £130 in 2019-20. Higher Rate taxpayers will also see the Higher Rate threshold rise to £50,000, which amounts to an additional £860 for 2019-20.

However, working age employees will also face a 12% National Insurance contribution on earnings between £46,350 and £50,000. For Higher Rate taxpayers, therefore, the rise in their threshold will be offset to some degree. From April 2020, both the Basic and Higher Rate thresholds will be frozen and then will rise with inflation from April 2021.

Please bear in mind that the above only applies in England, Wales and Northern Ireland. Residents in Scotland face different rules due to the devolution of tax policy.

Capital Gains

Another important change for the 2019-20 financial year is the planned rise in the Personal Allowance for Capital Gains Tax (CGT). From April 6th, the threshold will rise to £12,000 – allowing you generate £300 more in profits before you are liable to Capital Gains Tax.

Similarly to the Personal Allowance for Income Tax, this gradual rise in the Capital Gains Allowance follows a broad trend since 2014-15 when it stood at £11,000.

The important thing to remember with this aspect of taxation is that losses you make on sales can be offset against your capital gains for tax purposes.

Please remember also, that different CGT rates apply to different people, depending on the asset in question and your Income Tax bracket. For instance, Basic Rate taxpayers pay 18% on property capital gains whilst for Higher Rate taxpayers it is 28%.

Lettings Relief

The system governing Lettings Relief is also set to be changed. (This is the system which previously allowed you to let out and live in your home whilst avoiding CGT).

The new plans are not set fully in stone yet, and are expected to be implemented in 2020. However, the essential thrust of it seems to be that Lettings Relief will only be available if you are a landlord inhabiting your property with a lodger.

The final period relief will also be cut down from 18 months to 9 (unless you are in a care home or disabled, in which case the present period of 36 months should remain in place).

At the moment, the total Lettings Relief you can claim is the lowest of either:

• £40,000;
• The total you can claim for private residence relief;
• The amount you generate from letting out the relevant part of your home.

Bear all of this in mind if you are considering expanding your investment portfolio into property. We recommend consulting with us before making any important decisions in this area.

You should also consult if you previously lived in a property and then rented it out. It is possible that these new plans will present you with a higher CGT bill.

Personal savings

You have been allowed to grow your cash, tax-free, through interest on your savings since April 2016 when the Personal Savings Allowance was introduced.

Essentially, this means that you can earn up to £1,000 per year in interest without it being taxed on the Basic Rate (if you are a Basic Rate taxpayer). For Higher Rate earners you can earn up to £500 interest per year without tax, after which any interest will be taxed at 40%.

Be mindful that interest you earn on your savings can sometimes push you into a higher tax bracket. For instance, suppose in 2018-2019 your salary earned up to £46,350, therefore putting your income in the Basic Rate. Suppose also that the interest on your savings took you into the Higher Rate.

In this case, you would only be allowed a £500 personal savings allowance. This would mean that the rest of the interest would be taxed at 40%. If you think this might affect you, do also remember that the Higher Rate threshold will rise to £50,000 in 2019-2020.

This means that in an example like the above, you might not be tipped into the Higher Rate if the example were to occur in the 2019-20 tax year. If you are at all unsure about your own situation, please speak to us.


If you are married and at least one of you was born before 6 April 1935, then you are likely eligible for the Married Couple’s Allowance. This is set to increase to £8,915.

Another important area of allowances to highlight is that spouses and civil partners will be able to transfer £1,250 of their Personal Savings Allowance to their spouse or civil partner, provided that neither of you pay above the Basic Rate of Income Tax after the transfer is complete.

The key takeaway here is that, if you can legitimately shift income from a Higher Rate Tax paying spouse/civil partner to one on the Basic Rate (or none), then it would be sensible to explore this in more depth.