In the past few months, it might appear – at least to some – that making money in markets is easy – just buy Tesla or Bitcoin and you are sure to double your money! That is to confuse gambling with investing, and these are certainly not recommendations by the way.

Bitcoin - boom, bubble or bust?

In October 2008, a mysterious white paper was published by an unknown author titled “Bitcoin: A Peer-to-Peer Electronic Cash System”[1] and the world had been introduced to its first ‘cryptocurrency’. Driven by blockchain technology, the main attraction compared to traditional currency was clear – Bitcoin provides a decentralised way for two parties to exchange value. In other words, Bitcoin has no need for a governing body, no central bank and is merely a digital ledger that facilitates and records transactions. Without getting too granular about how exactly this works, the complicated mathematical procedures in place make falsifying Bitcoin transactions unlikely with today’s technology[2] (although never say never!).

Twelve years down the line the cryptocurrency space has seen thousands of alternatives, or ‘altcoins’, come to market, all of which attempt to improve upon the blueprint pioneered by Bitcoin. One challenge is scalability – Bitcoin can handle a paltry 350,000 daily transactions[3] compared with VISA who executed ≈500m per day in 2019[4]. Furthermore, in a society that is ever more focused on sustainability, a currency that requires enormous warehouses full of energy-hungry computer equipment to keep it going, feels like a square peg in a round hole. A useful tool built by the University of Cambridge estimates that the Bitcoin network currently consumes around 110 TWh of energy per year, roughly the same as the Netherlands[5]!  

Despite the implementation issues, the value of Bitcoin – and many of the ‘altcoins’ mentioned previously - have skyrocketed of late leading to a lot of excitement for investors (or rather gamblers). The only thing we know for certain about investing in cryptocurrency is that it is highly speculative. The extraordinary volatility of most ‘coins’ makes them an unreliable store of value. Going to sleep and waking up 10% richer (or poorer) is commonplace. Furthermore, Bitcoin is not a capital asset - it does not pay dividends, nor does it have a positive expected return. Positive outcomes are simply the result of demand outstripping supply, although investors are quick to forget that the future expectation of demand is already factored into the current price. There are 18.6 million Bitcoins in existence, yet recently the sale of 150 Bitcoins resulted in a price drop of 10%[6] demonstrating no depth or liquidity to the Bitcoin market.

It is possible that we may one day transition to a world where cryptocurrency is adopted by the masses. Who knows if that is even remotely likely, and better yet who knows which cryptocurrency will be the one that ticks all the boxes? As an investment today, cryptocurrency plays no role in portfolios and any investor (gambler) should be willing to accept a maximum loss of 100%.

Here is another example of gambling masquerading as investing:

GameStop – reddit vs Wall Street

In what is a fast-moving situation, a group of amateur investors using discussion website reddit as a platform, have banded together to take on the professional hedge fund space in the US. The group has focused their conversation on a few stocks of late, the most recent of which is an American consumer electronics firm, GameStop. On the one side we have the hedge fund managers, who are engaged in a process known as ‘shorting’, essentially betting that the share price of GameStop will go down over time. A successful short involves borrowing stock from a third party, selling it on the marketplace and then buying it back later when the price has fallen. This allows the short seller to return the stock to the third party and cash in the difference in price. The danger of this is that if prices were to rise, purchasing the stock back becomes more and more expensive for the short seller and they cannot afford to return their borrowed stock. Professional investors are aware of these risks more than anyone.

The companies featured recently on the forum are heavily shorted and include GameStop, AMC Entertainment, Koss Corp and Blackberry (throwback). By purchasing shares in these firms, investors are bidding up prices creating huge losses for some of the hedge fund managers. These are not small market movements either. As of the 27th of January, the share price of GameStop closed nearly 2000% up since the start of the year[7]. Yet in the time it has taken to write this article, on 28th January the price fell by almost a half! A quick glance at the forum shows that the motivation for some is to ‘stick it to the man’, whereas others are perhaps looking to make a quick buck. As the situation progresses it has certainly caught the eye of the regulator on suspicion of market manipulation, as well as the newly appointed US Treasury Secretary, Janet Yellen, whose team are “monitoring the situation”[8].

Either way, it is difficult to see how this will have any sort of happy ending. Other than the handful of investors (gamblers) who might sell at the right time, the only guaranteed beneficiaries to all this are the market makers and middlemen. If you want excitement, just follow the stories, and enjoy the schadenfreude that follows. This is just gambling and best avoided.

[1] Bitcoin.org (2008) Bitcoin: A Peer-to-Peer Electronic Cash System. https://bitcoin.org/bitcoin.pdf

[2] Forbes (2020) Can All of Bitcoin Be Hacked? https://www.forbes.com/sites/baldwin/2020/02...

[3] Research Affiliates (2021) Bitcoin: Magic Internet Money.

[4] Statista (2019) Number of purchase transactions on payment cards worldwide in 2019.

[5] University of Cambridge (2021) Bitcoin Electricity Consumption Index https://www.cbeci.org/

[6] Jemma Kelly (07 Jan 2021), No, bitcoin is not “the ninth-most-valuable asset in the world” Time for some realism. FT.com 

[7] Google Finance (2021) GameStop Corp. Share price.

[8] BBC News (2021) GameStop: Amateur investors continue to outwit Wall Street. https://www.bbc.co.uk/...

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

RMail is an encrypted email service that we have been using to send emails that contains personal details within the body of the email or any attachments (regular review documents, reports, valuations, etc.). This is the only service we will use going forward, unless we notify you otherwise. We are no longer using SharePoint so please do not open anything with links to Onedrive or SharePoint that appear to be from a member of the team. If you are ever unsure of any document you receive, please do get in touch to check. We take cybersecurity very seriously and would welcome your call/email even if there was only the smallest of doubt!

We have dedicated a lot of time into improving our online security, as we believe it is paramount to take action in preventing cybercrime proactively. By encrypting the email, it significantly reduces the chances of information being intercepted in a cyberattack, whilst still ensuring the email is easily accessible.  

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So what does RMail look like?

When we send an email encrypted it will appear in your inbox, like the test example below. Please note that these encrypted emails sometimes end up in junk/spam folders, so if you are expecting a document from us and have not received it please check your junk folder. You will be able to view the body of text from the sender and there will be notification of the file name sent.

If you click to download the attachment we have sent, the following screen will appear for you to input the password shown in the original email. In this case EA6QIubAvA

You will also be able to reply to provide personal details using the same encrypted service (labelled in the picture above). When you reply it will look like the below. Just type your message and/or add any attachments and click ‘send encrypted’.

I hope this helps demonstrate how to use RMail and why we use it. We have had a number of our clients report that emails sent via RMail are sometimes received in their junk folder. We would recommend that you mark our emails as ‘not spam/ junk’ to prevent this regularly occurring. If you have any questions or problems using this encrypted service, please just get in touch and one of the team will be happy to help.

A final word of warning to stay vigilant, not just with what Ifamax is sending, but any email that lands in your inbox. In the last week alone we have heard of the following and I have attached print screens to show what a phishing scam can look like:

• A Text message, requesting bank details that appear to be from the NHS in relation to the vaccine.

• An email asking us to download a statement on SharePoint.

• A Zoom meeting link, asking to click to ‘Review meeting’.

• A notification to delete emails to make room for storage, from our own email address.

It is really important that you never click on a link in an email like the below examples.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

Capital Gains Tax (CGT) is paid by an individual when they have either sold or ‘disposed’ of an asset and made a gain on the original price they paid for it. The potential tax is only paid on the gain and not on the total sale value.

For example, if you bought some shares in Company X for £10,000, and then later sold these for £25,000, your total gain on which you would potentially pay capital gains tax would be £15,000.

However, each individual is entitled to an annual capital gains tax allowance, of £12,300 for the 2020/21 tax year, on which all gains within this amount are free of tax. So, on our above example of £15,000 gain, only £2,700 of this would be taxed (£15,000 minus £12,300).

One important rule that is often overlooked and could potentially be a powerful tax planning tool, is that you do not normally pay Capital Gains Tax on assets you transfer to your husband, wife or civil partner. ​This can be really useful where one party has utilised their full allowance and the other has not, as you can potentially double your annual allowance.

​You can also use losses to reduce any gain. When you report a loss, the amount is deducted from the gains you made in the same tax year.​ If your total taxable gain is still above the tax-free allowance, you can deduct unused losses from previous tax years. If they reduce your gain to the tax-free allowance, you can carry forward the remaining losses to a future tax year.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

Limits

There are limits to the amount of gift aid that can be claimed by the charity and you could face a tax charge if the Gift Aid relief exceeds the UK tax you have paid during the tax year. You will need to have paid sufficient income or capital gains tax in the UK for a charity to claim the additional 25% of the donation. ​A simple rule to confirm your donations will qualify is to ensure they are not more than 4 times what you have paid in tax in that tax year (income or capital gains).​

Example: Dave will pay income tax of £2,500 for the 2020/21 tax year. He can, therefore, be comfortable that following a gift of £10,000 to Cancer Research UK the charity can claim full gift aid on his contribution. Anything over this gift amount can not be claimed as gift aid.

Benefits for higher and additional rate tax payers

​An additional benefit to individuals who pay tax at the higher and additional rate, is that you can claim further tax relief against your own income tax liabilities through your self assessment return. This is the difference between the respective rate of tax at 40% or 45% and the basic rate at 20%.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

The ability to support  charity  is one that is extremely important for  many of our clients and indeed for people all around the UK. 

The  Charities Aid Foundation calculate that around £10 billion is gifted to  charity in the UK each year.​ With the events of 2020 and effects of Covid-19, the need for charitable  gifting is one that has been highlighted even more so, both with  individuals wanting to make donations, and also  the necessity for  donations for charities to survive and continue with their respective  works. 

Gift Aid​ 

The most popular, and often easiest, way to gift to charity in the UK is  through cash donations though the government’s Gift Aid scheme. Gift  Aid is a tax relief allowing UK charities to reclaim an extra 25% in tax on  every eligible donation made by a UK taxpayer.  ​Or put simply for every £1 you  donate , the charity can claim back an  extra 25p from the government.​ 

The basic premise for this is that as you are donating utilising money  you have already paid tax on the government agree to forward this tax paid (up to the basic rate of 20%) onto the charity. 

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

In the current environment of historically low rates, efficient cash management can be an effective planning tool that is often overlooked.

Personal Savings Allowance

Savings interest is paid tax-free and most will not pay any tax on it at all. Basic-rate taxpayers can earn £1,000 per annum tax-free and higher-rate tax payers £500, so it is only those with much larger amounts of savings who would need to worry about this.

Financial Services Compensation Scheme (FSCS) protection​

As long as the bank institution you use is fully regulated in the UK, you get up to £85,000 of your money protected in the event of the bank going bust. It is important that you look to manage this effectively so you are not putting your cash at unnecessary risk.

Emergency Cash

We always recommend that individuals hold at least six months worth of expenditure in cash in an instant access account. This avoids being caught short in the event of a sudden need for cash; this could be for unforeseen expenditure or income shock.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

In most industrial settings, health-and-safety rules demand that appropriate protective gear be worn, including the donning of ear defenders in high decibel environments. Yet, when it comes to our investing health and safety, we have little by the way of regulatory guidance except the obligatory phrase ‘Past performance is no guide to future performance’ to protect ourselves from the noise of market outcomes, particularly when investing without the guidance of an advisor.

Investing in markets is a very noisy business and some form of ear defenders are required. Given that markets do a pretty good job incorporating information into prices, they tend to move randomly on the release of new information. Many investors are probably wondering today what returns will be like from equities in the final months of 2020 and perhaps next year too. Nobody knows (and do not believe anyone who claims to know). The chart below illustrates the monthly returns every year, from January 1970 to August 2020. As you can see, there is a lot of noise in the data.

Figure 1: Monthly returns of global developed market equities are very noisy

Data source: Morningstar Direct © All rights reserved (see endnote). MSCI World Index (gross) in GBP terms.

The only ear defenders that we have are behavioural. We must keep our true investment horizons – 20 to 30 years or more, in many cases - at the forefront of our minds, accept that investing is a two steps forward and one step back process and not look at our investment portfolios too frequently. The chart below shows that even on a yearly basis, returns from equities are noisy. The blue dots represent the calendar year returns and the red triangles represent the annualised return for the decade. Even the returns of decades are a bit noisy. Patience and fortitude are prerequisites for success.

Figure 2: Annual returns of global developed market equities are noisy too

Data source: Morningstar Direct © All rights reserved (see endnote). MSCI World Index (gross) in GBB terms.

Yet, over this period, global developed equity markets have delivered a return of 10.9% on an annualised basis before inflation and 6.5% after inflation (but before costs). Put another way, investors who stayed the course doubled their purchasing power every 12 years. With those sorts of longer-term returns, try not to let the noise of the markets keep you awake.

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Whilst most are familiar with the relatively well-known cash or stocks and shares ISAs, the ‘newer ISAs on the block’; Innovative and Lifetime, may need a bit more of an introduction.

Innovative ISA

This allows you to invest in peer to peer (P2P) lending within an ISA wrapper. P2P is the process of lending your money to other individuals for a set period of time for a set rate of return. By removing the middle man of the bank, lenders can get better rates of return on their cash and borrowers can pay a lower rate of interest. ​In theory, the process should lead to a better outcome for both lenders and borrowers. However, they clearly come with their own risks in that the borrower may default and you could be left with nothing.

Lifetime ISA

The LISA was introduced in the 2017/18 tax year and designed to be used by either first-time house buyers or saved for later life income. ​You can put in up to £4,000 each year until you are 50 and can be opened from age 18-39. The government will add a 25% bonus to your savings, up to a maximum of £1,000 per year. ​You can withdraw funds from a LISA any time, but if you do this before the age of 60 and it does not relate to a qualifying house purchase, you could be hit with a penalty.

​Broadly speaking, for the majority of people saving, a LISA is most efficient for first-time house buyers, so this could be an option for yourself or those seeking to help children/grandchildren onto the property ladder.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

All asset classes are important to us, and cash is just one of them. To enhance our service model, Ifamax has partnered with Insignis. ​Insignis Cash Solutions is an innovative cash management solution that complements your asset portfolio by looking after your cash.

​Cash is different to your other assets due to its liquidity and return potential. This service allows you to get a better return than you would at a traditional high street bank, while still allowing you to determine what liquidity requirements suit you. ​The great benefit of using this service is that it is done with a single sign in procedure, making it as easy for you as possible. ​Insignis use a number of secure UK-based financial banks to invest your cash.

All the banks used have FSCS protection, which is currently £85,000 per bank, per individual. This gives our clients a variety of options, depending on the capital amount and term requirements. ​The service is aimed towards those that typically hold high cash balances as the minimum account size is £50,000.

How could you benefit:​

-Client remains the beneficial owner at all times​

-A single sign-up procedure, giving you access to multiple bank accounts​

-Interest rate monitoring and cash account management​

-The ability for Ifamax to manage the service on your behalf (if required)​

-View your live cash portfolio online​

-Their assets being safe and secure ​

-Individuals, Companies, Trusts or Charities​​

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

Good things come to those who wait. This was the strapline once used by Guinness to refer to the 119.5 seconds it takes to pour a ‘perfect’ pint of their iconic stout. In investing, the time periods we are concerned about are measured in years, rather than seconds. Looking at your investment portfolio too often only increases the chance that you will be disappointed. This of course can be challenging at times, particularly during tumultuous markets.

We can see from the figure below that monitoring markets on a monthly basis looks rather stressful, as they yoyo through time. Green areas represent times during which the market is growing its purchasing power (i.e. beating inflation) and red areas when it is contracting.

Figure 1: Monthly real growth/contraction of global equities, Jan-88 to Jun-20

Data source: MorningstDar Direct © All rights reserved. MSCI World (net div.) net of UK CPI, before charges. Dividends reinvested.

The evident month-on-month noise captured by the figure above is a consequence of new information being factored into prices on an ongoing basis. Investors around the world digest this information, decide whether it will cause a change in a company’s cashflows (or the risks to them occurring), and hold or trade the stock accordingly. These are the concerns of active investors casting judgements on individual stocks’ prospects.

Over longer holding periods, the day-to-day worries of more actively managed portfolios are erased, as equity markets generate wealth over the longer term. The figure below illustrates that monthly rolling 20-year holding periods has never resulted in a destruction of purchasing power. A longer-term view to investing enables individuals to spend more time focusing on what matters most to them and to avoid the anxiety of watching one’s portfolio movements.

Figure 2: Monthly rolling 20-year real growth/contraction of global equities, Jan-88 to Jun-20

Data source: Morningstar Direct © All rights reserved. MSCI World (net div.) net of UK CPI, before charges. Dividends reinvested.

This is not to say that investing is a set-and-forget process, however. The Investment Committee meets regularly on your behalf to kick the tyres of the portfolio, after reviewing any new evidence. Over time there may be incremental changes to your investments (there may not!) as a result, but the Committee shares the outlook illustrated in the figure above – we have structured your portfolio for the long term, and it is built to weather all storms.

Delving deeper

The figure below provides longer term market data in the US back to 1927. The result is the same. The cherry-picked 20-year example provided towards the bottom of the figure shows a time fresh in many investors’ minds: the bottom of the Credit Crisis. In this (extreme) 20-year period, to Feb-09, equity markets had barely recovered from the crash of technology stocks in the early 00s, before falling over 50% in 2008/9, in real terms. These were scary times.

Despite the headwinds, investors had been rewarded substantially for participating in the growth of capital markets over the longer term. An equity investor viewing their portfolio for the first time in 20 years would have seen their wealth more than double, whilst at the same time the media was reporting headlines such as ‘Worst Crisis Since ‘30s, with No End Yet in Sight’(1)

Have faith in wealth-creation through capitalism and try not to look at your portfolio too often. As the adage goes: ‘look at your cash daily if you need to, your bonds once per year, and stocks every ten’.

(1) Wall Street Journal, September 18, 2008

Figure 3: Long term US stock market growth in purchasing power

Data source: Morningstar Direct © IA SBBI US Large Stock Infl Adj TR Ext in USD. Market events: https://eu.usatoday.com/

The ISA allowance is something that can strangely be both under and over appreciated by people, dependent on their perception of it. Understanding the rules and advantages of the various ISAs available inline with your own personal situation is something that can be a powerful planning tool.​ The ISA allowance for the 2020/21 tax year has remained the same as last year at £20,000 and this can be spread across each of the four types of ISA available to you.

The four types of ISAs are:

The basic premise of any ISA is that you do not pay tax on ​ interest on cash in an ISA ​ income or capital gains from investments in an ISA. ​This can be especially useful for those who have large investment or cash holdings outside of any tax-advantaged wrappers. By ‘sheltering’ as many of these assets as possible in ISAs, you are potentially reducing ongoing tax bills.​ However, with the respective allowances we all have for both interest and dividend income and capital gains, striving to get everything into ISA where possible isn’t always required.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

Junior ISAs are long term tax free savings accounts for children. In order to open a JISA, a child must be under the age of 18 and be living in the UK. The current limit for JISAs is £9,000 a year. Like the standard adult ISA, children can have either a cash or stocks and shares JISA. ​Parents or guardians can open and manage a JISA on behalf of a child, however, the money belongs to the child. It is important to remember that whilst children can take control of their own JISA at age 16, they will not be able to access any of the proceeds until they are at least 18. Equally important to remember, is that children are entitled to their JISAs at 18 and can do as they wish with the funds.

Whilst some providers may offer what look like attractive interest rates on cash JISAs, you must be careful to remember that if the child has a number of years before they can access the fund, it may be better off being invested into stocks and shares. Given time, this would be expected to give returns beyond any cash JISAs.​ Anyone can add money to a JISA for a child, so parents and grandparents could see this as a good opportunity to build savings for a child in a protected ‘environment’.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

One of the most common questions that is currently asked by clients is what the prospects are for commercial property in the future. We have all by now – in our new normal world - got used to meeting our dearest friends, family, and work colleagues on Zoom or Skype, working from home, and shopping online.  High streets and shopping malls were struggling even before the events of 2020 with Debenhams and several middle-market food chains in trouble.

That has led some investors to beg the question as to what the future holds for commercial property. Will everyone work from home? Will companies reduce their office space needs, providing workers with a hot desk each morning, if they are in? Will retail companies go into administration to put pressure on landlords to reduce rents?  Will more people shop online? The answer to all of these questions is probably ‘yes’. Does that mean that we should abandon a well-diversified, liquid exposure to global commercial property accessed via real estate investment trusts (REITs), which are listed property companies, focused almost exclusively on generating rental income? We think not.

First, let us look at the flipside of the changes that are occurring. To be sure, some sectors may struggle.  But for every Debenhams, there will be a company moving into, or even starting up, online, which will require logistics centers and warehousing. In our digital age, there is increasing demand for secure and up-to-date data centers, improved and more numerous healthcare facilities for example. You can see from the chart below that the global commercial property REITs cover many things.

In a globally diversified REIT index fund, there are over 350 individual REITs (listed property companies) each of which is comparable to a property fund in its own right. It is estimated that such a fund contains around 90,000 properties[1] spread across property types, global markets, and strategies.

Second, let us spend a moment thinking about markets. These worries about the retail sector, for example, have been around for some time and you will not be the only person thinking about these issues. In fact, thousands - or even millions – of people will already have done so and acted on their view of the future of property, by buying and selling these REITs in the market. The aggregate view will be reflected in today’s REIT prices: all the doom, gloom and uncertainty is priced into the process of REITs already;  all the likelihood that the way we work changes is priced in already; and all the good news about data centers and warehousing is priced in already. So, the future prospects for commercial property will depend on what happens relative to this expectation.  It may be better or worse, depending on information we do not yet know. The release of that information is random. What we do know is that commercial property will continue to be needed and that companies will have to pay rent. We would not abandon owning a diversified equity portfolio because some sectors are struggling (airlines and energy) or concentrate our portfolio in sectors that are booming (technology). It is already in the price. Companies and sectors wax and wane.

Third, let us think about why we hold it in portfolios in the first place. Property tends to have a different return experience to equities (even though property companies are listed on stock markets). At specific times, and across time, this can provide diversification to a portfolio. In addition, over time property has provided protection from inflation; after all, a property is a property and many rental agreements are linked to some measure of inflation. With the rapid increase in the money supply, on account of all the government support packages around the world, higher inflation - not something most feel the need to worry about currently – is one future scenario. Cover the bases - but all things in moderation - is a sensible approach. An allocation to global commercial property still makes sense for long-term investors, as part of their diversified growth assets.

[1] Source: Prologis is the largest REIT at 5% of the index and owns ~4,500 properties.  Scaling this up implies around 90,000 properties across the index, as a rough proxy.

Risk warnings

This article is distributed for educational purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy, or investment product.  Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. 

Past performance is not indicative of future results and no representation is made that the stated results will be replicated.

Pension carry forward is a useful tool for pension planning. Once an individual has fully utilised their current tax year’s allowance, one can go back and utilise the unused pension allowance from the previous three tax years, starting with the oldest first. ​Potentially, this enables one to make quite a large pension contribution in a given year. Care needs to be taken on various issues, especially having sufficient ‘earned income’ for the large pension contribution. ​

Here is an example of carry forward at work (assuming an individual  has the standard annual allowance): 

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

According to the Association of British Insurers, every year 1 million people in the UK find themselves unable to work due to a serious injury or illness. Although many of us would like to think “that will never  happen to me” or “it is not something I am worried about at the moment”, it is of course often only seriously considered in a moment of hindsight when it is too late. A large amount of employed individuals tend to benefit in some way from their employer in times of need, but for those who are self-employed it is left to you to personally organise any cover that you may need. 

Income Protection​ 

Income protection, (sometimes known as permanent health insurance), insures part of your earnings against illness or accidental injury. It ensures you continue to receive a regular income until you retire or are able to  return to work. ​It is not possible to insure yourself for your entire gross income; insurers feel that you need some incentive to get back to work! Income protection is usually based on a percentage of your earnings; up to 60% is the norm. 

Life Cover​ 

The most basic type of life insurance is called term insurance. With term insurance, you choose the amount you want to be insured for and the period for which you want cover. ​If you die within the term, the policy pays out to your beneficiaries. If you do not die during the term, the policy does not pay out and the premiums you have paid are not returned to you. ​Family income benefit is similar to the above, with the slight difference that the insured amount would be paid monthly/annually for the term of the policy rather than one big lump pay out. 

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

Investors love good stories. In recent years, many of these stories have centred around innovations that have fundamentally changed the way we live our lives. Some examples might include the release of the original Apple iPhone in 2007, the delivery of Tesla’s first electric cars in 2012 and the launch of Amazon Prime’s same-day delivery service in 2015 . No doubt, many of you will have had conversations with friends and family around the successes, failures, and prospects of some of the world’s largest firms and the goods and services they offer. In this note, we take a deeper look at the ‘Big Five’ tech companies – Amazon, Apple, Alphabet (Google), Facebook and Microsoft – through the lens of the long-term investor.

In what has been a turbulent year thus far, some larger firms have come through the first - and hopefully last - wave of the ongoing pandemic relatively unscathed. Those investors putting their nest eggs entirely in any combination of the ‘Big Five’ would appear to have done astonishingly well relative to something sensible like the MSCI All-Country World Index, which constitutes 3,000 of the world’s largest firms . At time of writing, Amazon’s share price has fared best, increasing 75% since the beginning of the year.

 Figure 1: The 'Big Five' have held up well so far this year

Data source: Morningstar Direct © All rights reserved. Returns in GBP from 01/01/2020 to 22/07/2020.

These types of firms tend to struggle to stay out of the headlines for one reason or another. Perhaps as a result, many of the investment funds found in ‘top buy’ lists - such as the one on AJ Bell’s Youinvest platform - have overweight positions in one or more of these stocks. The final column in the table below shows the weight of each ‘Big Five’ stock as it stands in the MSCI All-Country World Index.

If an investor were to adopt a purely passive investment strategy that owned each company as its proportional share of the world market, the final column would be that investor’s top 5 portfolio holdings at time of writing. Many of today’s most popular funds are making big bets on one or more of these companies, anticipating that the past will repeat itself moving forwards.

Table 1: AJ Bell's top traded funds in the past week

Data source: Morningstar Direct © All rights reserved. AJ Bell for top traded funds between 15/07/20 – 22/07/20.

Sticking to the long-term view

The challenge for these managers, and others making similarly large bets, is that these are portfolios that will be needed to meet the needs of individuals over lifelong investment horizons, which for the vast majority of people means decades, not years. With the benefit of hindsight, managers who have placed their faith in these firms have stellar track records since Facebook’s IPO in 2012, as the table below highlights.

Table 2: ‘Big Five’ performance since Facebook’s IPO

Data source: Morningstar Direct © All rights reserved. Returns from Jun-12 to Jun-20.

An interesting exercise would be to investigate the outcomes of these firms over a longer period of time, for example 30-years seems more prudent. This is somewhat difficult given that 30-years ago, 3 of these firms did not exist, Mark Zuckerberg was 6-years old, Apple came in at 96th on Fortune’s 500 list of America’s largest firms and Microsoft had just launched Microsoft Office .

A partial solution to this problem is to perform the exercise from the perspective of an investor in 1996, which is the start of Financial Times’ public market capitalisation record . The ‘Class of 96 Big Five’ consisted of General Electric, Royal Dutch Shell, Coca-Cola, Nippon Telegraph and Telephone and Exxon Mobil. The chart below shows the outcomes of each firm over the past 26-years. A hypothetical investor with their assets invested in either Coca-Cola or Exxon would have just about beaten the market over this period, those in Royal Dutch Shell, Nippon Telegraph and Telephone and General Electric were not so lucky.

This experiment is illustrative only, one look at the chart below is enough to see that almost no investor would want to stomach the roller coaster ride they would have been on in any one of these single-stock portfolios.

Figure 2: The winners do not necessarily keep winning

Data source: Morningstar Direct © All rights reserved

Summary

The beauty of the approach you have adopted is that judgemental calls such as these are left to the aggregate view of all investors in the marketplace. No firm is immune to the risks and rewards of capitalism; be it competition from Costco or Walmart taking some of Amazon’s market share, publishing laws causing Facebook to apply heavy restrictions on its users or some breakthrough smartphone entering the marketplace that is years ahead of Apple – remember Nokia?

Rather than supposing that firms who have done well recently will continue to do well, systematic investors can rest easy knowing that they will participate in the upside of the next ‘Big Five’, the ‘Big Five’ after that and each subsequent ‘Big Five’. Those who can block out the noise of good stories and jumping on bandwagons are usually rewarded in this game.

Figure 3: Your eggs are in many baskets

Source: Albion Strategic Consulting. For demonstrative purposes only.

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

The tapered annual allowance can be quite complicated to get your head around. We've put together a simple example to show how it works.

The table below aims to illustrate an individual affected by the  tapered rules: 

The tapered annual allowance rules kicked in on 6th April 2016, when those with taxable earnings over £210,000 per annum were limited to pension contributions of £10,000 gross each tax year. ​This was a controversial piece of legislation and also  quite complicated.  The rules were altered from 6th  April 2020, whereby those earning in excess of £312,000 are now limited to an annual allowance of £4,000. ​This has made planning for self-employed individuals quite tricky, especially for those that have a tax year end of 31st March each year. ​Some good news, the carry forward rules still apply to those affected by the taper. 

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.

One of the hardest concepts to grasp in investing is that a ‘good’ company is not always a better investment opportunity than a ‘bad’ company. If we believe that markets work pretty well – not unreasonable given that few investment professionals beat the market over time - and that they incorporate all public information into prices pretty quickly and efficiently, all of the ‘good’ and ‘bad’ news should already be reflected in these prices.  A ‘good’ company will have to do better than the aggregate expectation set by the market for its share price to rise and vice versa.  If a ‘bad’ company is in fact a less healthy company, it may have a higher expected long-term return, as risk and return are related.  

It is perhaps evident that if the market incorporates the aggregate forward-looking views of all investors, it becomes very difficult to choose which companies, sectors, and geographic markets are likely to do best, going forward.  In an uncertain world, where stock prices could move rapidly, and with magnitude, on the release of new information - which is itself a random process – then it makes good sense to ensure that an investment portfolio remains well diversified across companies, sectors and geographies.  Take a look at the chart below that illustrates how deeply diversified a globally equity portfolio can be.

 Figure 1: If you do not know which stocks are going to outperform well, own them all

Source: Albion Strategic Consulting. Data: Morningstar Direct © 2020. All rights reserved.

The concentration risk in the US’s S&P500, is quite different.  

Figure 2: The US’s S&P500 is increasingly concentrated in a few names. 

Source: Albion Strategic Consulting. Data: Morningstar Direct © 2020. All rights reserved.

Given that all the future promise of a company is already reflected in its price today, it is quite a risk betting a large part of your assets on just a few names, concentrated, for example, in the technology sector.  The top 8 technology stocks in the US now have a larger market capitalisation than every other non-US market except for Japan.  Dominance of companies, sectors and markets ebb and flow over time.  Who is the next Amazon?  What regulatory pressures could these dominant companies face?  Is Donald Trump’s recent rage against Twitter the start?  No-one knows.  By remaining diversified, you will own the next wave of market leaders as they emerge and dilute the impact of ebbing companies.  Whilst it is always tempting to look back with the benefit of our hindsight goggles and wish we had owned more (take your pick), US tech stocks, other growth stocks, gold etc., what matters is what is in front of us, not what is behind us.  

‘The safest port in a sea of uncertainty is diversification.’

Larry E. Swedroe, Investment Author

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

What is the impact of this pandemic on my investment portfolio? And what can you do to protect your future wealth?

As always, I will remind you we cannot predict the future. That is not our job. But what we can do is try and find similar issues in the past and see what strategy we can adopt today.

I have just finished reading ‘Dying of Money’ which was written by Jens Parsson. It tells the history of the German inflation after World War I and the US inflation after World War II. How they happened and what you can do to protect your wealth from events like this. The interesting one for me was the German inflation.

The Germans lost the war, as we know, but based their finances leading into the war and during the war on the basis that they would win. War was followed by reparations and then the Spanish Flu pandemic. The Germans broke with the gold standard and entered a period of money printing. Initially this led to a boom in the economy and very little inflation to speak of, but suddenly inflation got a grip and in a very short period the German Reichsmark became worthless. You could order a cup of tea and by the time it was served to you it was 20% more expensive.

After WWI, the Reichsmark was worth 23 cents to the $1. By the end of 1923, the Reichsmark was 1,000,000,000,000 to a $1! If you were a German depositor or a lender, you lost it all.

The money supply was the main issue. There were many reasons why the supply of money changed, but if you print more money, creating more notes, you make what you have worth less. To give a simple example. Let us say that the entire spare cash in the world is £1 and it is owned by one person. Let us also say that the only thing you can buy is a field of grass from someone else. There is nothing else to buy, just that one field of grass. Then the field, theoretically could be worth £1. If I now print another nine notes and give £1 each to nine more people as spare cash, we now have £10 in total available, but there is still only one field to buy. What is the field worth now? So, what can we learn from this:

• The nine people who got £1 each for doing nothing probably felt very happy!

• The first person to have a £1 saw his purchasing power reduce by 90%.

• The owner of the field retained their purchasing value.

Okay, that is a simple example, but we know that borrowing and spending in the western world and the printing of money; quantitative easing (QE), has been going on for years now. This virus has pushed all this out even further. There is no deposit interest to speak of and a great way of clearing all this debt, which cannot possibly be paid back in any reasonable length of time, is probably a savage bout of inflation.

So, who came out okay from the German Inflation, US inflation and my example? It was the people who owned real assets; shares in companies, home owners, land owners. Holders of precious metals as well. People who owned stuff.

Who lost? Those people who owned the money; bank depositors, cash and lenders.

And the big winners; Government and borrowers. Debts gone – happy days!

I believe we are now in unchartered territory. But history has shown that while shares can go up and down in value (as we have seen in recent months), they can be a good store of future long-term wealth, offering some inflation protection. There has never been a stock market that has gone bust, but there are several currencies that have disappeared!

Max Tennant

Risk Warning This newsletter does not constitute financial advice. Remember that your circumstances could change and you may have to cash in your investment when the value is low. The value of your investment and any income from it can go down as well as up and you may not get back the original amount invested. Past performance is not necessarily a guide to the future. If you are in any doubt you should seek financial advice.

A Venture Capital Trust (VCT) is a listed company, run by a fund manager, that invests in smaller companies that are not typically quoted on stock exchanges.  Investments in Venture Capital Trusts carry tax reliefs to encourage you to invest in these smaller, higher risk companies. By pooling your investments with those of other customers, VCTs allow you to spread the risk over a number of small companies.

Enterprise Investment Schemes (EIS) and Seed Enterprise Investment Schemes (SEIS) both encourage investment in qualifying early-stage and seed-stage growth-focused companies by giving investors handsome tax and loss reliefs.

* This is increased to £2 million provided that anything above £1 million is invested in knowledge-intensive companies. There is no limit on CGT deferral.

^ Subscriptions into EIS can be used to defer capital gains (e.g. from selling a property). These gains can be from up to one year before and three years after the investment is made.  50% of a subscription into an SEIS can be taken off your realised capital gain. The SEIS subscription must be made in the same tax year that the gain is realised or the following tax year and then carried back.

VCT Example

See an illustration of a hypothetical VCT in the table below:

Total profit = Tax Relief of £3,000 + Dividends of £11,600 = £14,600 less original cost of £10,000 = £4,600 net profit

In reality, we recommend diversifying VCT investments as much as possible, within the constraints of minimum investments that providers set. We would generally advise to commit to the strategy for a few years so that a portfolio of VCT providers is built up, which helps to reduce the overall risk level through diversification.

High Earners

If you have used up an annual or lifetime pensions allowance and your annual ISA allowance, then you may already be familiar with tax efficient investments such as a VCT, EIS and SEIS.  Listed below are some other reasons why you might benefit from investing in one of these tax-efficient products:

• Offsetting tax on a capital gain

• Selling a buy to let property

• Sheltering investments from inheritance tax

• Selling shares with an IHT problem

• Extracting profits from a business

• Managing chargeable events for single premium investment bonds

If you would like to discuss any of these scenarios or would like to hear more about our due diligence process for selecting VCT, EIS & SEIS investments, then please contact us.

William Buckley

Financial Planner

will@ifamax.com

N.B. It should be noted that VCTs, EIS & SEIS are very high-risk investments and you may lose your capital. It is recommended that investors take independent tax and financial advice from a qualified professional adviser before considering an investment. Tax benefits depend on personal circumstances and so are not guaranteed.

Nothing contained in this article constitutes or should be construed to constitute investment, legal, tax or other advice. The information contained in this article shall in no way be construed to constitute a recommendation with respect to the purchase or sale of any investment.