|So inflation could touch 7.25%pa and the Bank of England is signalling its concern by doubling Base Rate to 0.5%.|
The Chancellor’s aid with the ‘cost of living’ is good but why not be more helpful?
He could use the fuel duty and the extra VAT he is receiving on high fuel costs to remove Green taxes and VAT from basic energy bills altogether – saving everyone 20%. He could even cap the benefit so big payers still pay some, incentivising cutting your own bills and insulating.
Why good guidance is important
Without trying to be judgemental of some of the ‘case studies’ in the Media and without being patronising but it shows one thing sadly lacking in our Country is basic financial guidance for people to help them budget better and understand and plan their financial life priorities, whether they have lots or little (though it would help the poorest the most).
This isn’t about being Scrooge but prioritising the necessities and then spending on the discretionaries after you have put something aside for rainy days as well. Just because it is ‘there’ doesn’t mean you can or should have it, if really you cannot afford it.
It might sound boring but is a constant life struggle of expensive debt on cards, hire purchase and loans to buy the latest advertised product and a hand-to-mouth existence that creates really better than knowing you are making sensible financial provision to help weather the inevitable storms?
We do offer a small number of free financial guidance slots to those brave enough to ask for help… if we can assist someone who otherwise may be in financial misery and to help put them on the straight-and-narrow, then we are pleased to be able to do so.
We also reflect upon the World’s largest ever one-day drop in the value of any quoted company. Yes, Facebook (Meta) fell by 26% wiping $230billion from the Company’s value (yes, $0.25trillion). Ouch. We have not one share in it, nor any funds which have any either. The last biggest was Apple in 2020 believe it or not. It could happen again!
What’s curious is that at the same time as such ‘tech’ is faltering, oils, banks, miners and tobacco stocks have been recovering fast. This will add to the woes of investors seeking ‘ESG’ solutions as many of these chunky tech companies are erroneously deemed to be ethically friendly… and companies specialising in green energy have also been hit very hard these last several months (over-priced by all the short-term hype and too much money chasing too few stocks).
Again, we’re okay on that front with our negligible ‘tech’ exposure, thank you! This reminds me with investing – it’s not only where you gain but where you don’t lose that makes all the difference.
Clients know we are always on the look-out for technical trading opportunities and frankly the sorts of value about which most investors ‘out there’ wouldn’t have the earthliest.
We’ve done very nicely from several quoted higher-security loan funds which are closing-down and by buying from impatient investors and well, just waiting. Of course it is not always linear and sometimes we have to wait longer, but as long as we have a good understanding of what we are doing, then if we can extract safe, extra value for investors from this tiny element of their overall portfolios, then excellent!
It’s all adding ‘value’ above simply ‘being in the markets’. For us, not only is this wise, but we set ourselves an informal target. This means that if by these types of opportunities we can extract more return for investors than an otherwise apathetic stance will, (which most other investors out there suffer by simply being ‘sold’ or buying someone’s ‘products’ and then sitting there without review), so all the fees and costs invertors must pay us are covered, with more beside, then excellent! Thank you very much for these special, technical opportunities Mr Market!
We really do diversify and our strategies are unrivalled in this regard and for two core reasons – the first is that more diversity reduces the risks of a single or systemic problem (that could be a Woodford event let alone a direct stock having its Enron moment) but also the extra opportunities of having things which otherwise clients are very unlikely to hold.
Some might say ‘what’s the point of having say 2% in ‘x’ whereas my retort is also, ‘if it costs no more, spreads the risk and that holding could double in a year or two as it is of special value’, then it can really add to the overall returns.
On top of this, diversity allows the inclusion of more uncorrelated assets. What this means is things which don’t all go the same way if say there is a market rout, or interest rates go up or down and so it goes on.
I came across a new quoted Private Equity Fund recently (which invests in other private equity offerings, in simple terms). I have to say I did not know of its existence and the float in October last year when it floated at £3.52 a share. It’s now £2.13!
Frankly there has not been any negative news and the Fund has been spending its cash but a discount of 39% in just four months is compelling. Yes, it could drift more as these things can but at some point, it will stabilise and if/when it even simply returns to the levels at which investors were happy committing at £3.52 a share as they did on October 1, that is a gain of a mere 65%!
Most private investors can’t buy this through their brokers/platforms as patronisingly it is deemed ‘too sophisticated’ for them, but we can. So, yip, after an extended while, we could end-up with say 2% of our total funds (£5million) in this beast (as just one of many in that specific sub-sector of components) with a market value of £2.5billion, so no minnow!
The trouble is, I need to raise some money to buy it and yes, we can take profits on similar brethren which have perhaps given us their best returns so far. The major holder of this stock is one of the world’s biggest investment banks and brokerages.
The benefit and problem with debt
It’s great to borrow to invest, when interest rates are really cheap. Yes, most of us do that with our homes in mortgages! The hope is that not only do you make more than you are paying in interest but the lower the rate, the easier to benefit from that extra investment.
However, you must remember that when things go against you, you don’t only lose on your investment (your ‘equity’) but the debt’s asset drops too and you still owe all the debt.
For example, if you buy a house to rent out for £400,000 and borrow £350,000 to add to your stake (so that is 87.5% gearing and the rent covers the interest if you are lucky!), if after a year the house is 12.5% higher, you have ‘made’ £50,000.
That means you have made 100% on your money – double and a pretty good return! However, if house prices drop by 12.5%, guess what, all of your stake has gone and you have lost 100% of your money. If the value drops more, then not only is all the house due back to the lender but it will come knocking on your door for the shortfall, the ‘negative equity’. You want all the profit; you have to pay all the losses!
I am a realist and an optimist in life but the former has to dominate! However, borrowing to invest sensibly when rates are really low and if you are ‘in charge’ (rather than the bank) is not a bad thing for certain individuals nor businesses. Even if you don’t ‘need’ the money, sometimes it is good to borrow so you can jump on an opportunity which comes your way and when conditions may mean otherwise you couldn’t then borrow as lenders have clammed-up.
For example, don’t repay long-dated mortgages where the interest you pay is paltry, when instead you could invest that money into a pension plan and secure Higher Rate Tax Relief so your £1 of debt reduction can more than double for your benefit instead.
Don’t be precious about mixing personal and business borrowing and assets too. Yes of course watch ‘limited liability’, but it is amazing how many people pay silly costs to borrow in their business when they could use their private money (which would all be up for grabs by creditors if anything went wrong anyway!). It’s all ‘your’ money – be more efficient with it and speak to us if you need guidance! Many Investment Trusts borrow a little and that enhances their returns for investors in normal times and over the long-term. Unitised funds (as most investors hold and are ‘sold’) don’t.
However, popular tech-dominated Scottish Mortgage investors (and Blue Planet investors where shares have been sold for a pitiful 13.1p this week) are finding that as the holdings fall in value, the debt multiplies the losses for shareholders.
This is because they not only lose on their money but on what they have borrowed too and additionally as the assets fall, unless they repay some debt (not good if they have to sell losing assets to do so) it means the Trust becomes more highly geared and more speculative as a proportion of its total assets. We are writing to the Board again and also the FCA but to no avail yet…
St James’s Place drops ‘wealth management’
St James’s Place is dropping the moniker ‘wealth management’ from its offering after a revamp. Does that mean that the Company no longer wants to be seen as a ‘wealth manager’? Curious.
We are ‘wealth managers’ and we are staunchly independent and believe that is an imperative need, versus the restricted model which is yes, not only ‘restricted’ in product range but also the fund managers’ funds which SJP’s salesmen sell. (They can’t buy that investment noted above for example!)
We believe that clients need a holistic adviser and manager with absolute independence and equitable charging structures too, I should add – not ’commission’ of up to 6% on each subscription investors make!
An adviser just forwarded me a synopsis of SJP’s charges – it is very complicated and seems designed, sadly, to confuse its customers, which it does. The layers of charges applied both annually and also initially (taken as accrued annual deferred debts for clients’ accounts) are ludicrously high – I cannot say I have seen as high as those anywhere else).
This deferred charge is the closest I have seen to ‘commission’ which is banned, but basically if you send them cash, they take a percentage amount from what is invested, of up to 6%, covered by these ‘deferred charges’.
This compares with our own ‘zero’ charge on subscription and no deferred charges. And yes, you also pay underlying managers’ charges as they don’t manage their own funds and usual market costs from brokerage fees to bid:offer spreads.
The model is very rewarding for SJP and its salesmen. I hope the FCA will, one day, ban these deferred charges so they will be revealed for what they truly are.
Remember previously I have mentioned another giant technical value investing opportunity? Well, quietly and to little fanfare, it reported its latest net asset value per share only to note an 11% or so increase on the December 31 figure.
So now, for 28p, you can buy £1’s worth of underlying assets – how ludicrous is that? On top of that, the present dividend to shareholders is over 4%pa so yes, we’ll keep buying.
It reminds me of what I heard last week – planned ‘patience’ is an action word (and far too many investors don’t have an ability to possess it!). It is perhaps the most important attribute of successful investing.
A new client enquiry came to us recently, recommended by her ex-colleague who herself became a client when we stepped in to help an orphaned portfolio of investors. The pension was via her bank employer and a shoe-horned arrangement with low charges but as she neared and hit retirement, it was all cash and an abysmal Long Gilt fund only.
She doesn’t need to touch it at all and it is more likely to become part of her Inheritance Tax alleviation plans and it needs to be properly managed as an investment pot to complement her other (limited) assets.
What angers me is that this useless, default option has deprived her of considerable returns from a balanced investment approach as the one she should have been following. After all, it is over £100,000 too.
I am certainly not blaming the client as she is the innocent party, but the ‘system’ which misleads people over costs, risks and what they really should be doing. The big companies then play default options to minimise what they might consider the risks are to them and the customer, at the end of the day, pays the significant price for that.
Another new client who was encouraged to transfer nigh £250,000 from a final salary scheme a few years ago was sold a simple Scottish Widows’ product and it is all sitting in one ‘safe’ account, of which 32% is in one rather banal fund and over 60% in assets overall which cannot generate much return (almost suggesting this client, if that’s really his risk profile (which it isn’t), should never have transferred in the first place).
Again, even if such short-term view was fine, the lost result from not being adequately ‘balanced’ is significant. Really I have to ask if that adviser and the firm (which took a chunky fee up front of probably £10,000) have the necessary expertise about the investment markets needed – not whether they can sell a fund and continue milking him for monthly fees whilst really doing ‘nothing’.
What about the issue of reliance upon a core fund manager for too much capital too? Unfortunately, far too many financial advisers are still just salesmen first and care and attention to clients’ ongoing and holistic needs are not of interest as they don’t generate the same big bucks as selling to another fresh target sadly.
That fund will have been under-performing nastily as interest rates have been rising too and not enjoying growth in other things.
A report by McKinsey Global Institute suggests the value of all the World’s assets (buildings, machinery and such and adding financial assets too), totals $1,540trillion, four times the figures in 2000 and net of liabilities, this is about six times bigger than the value of the World’s economic output. It was four-and-a-half times’ 20 years ago.
Now, the cries of ‘inequality’ will echo, of course but actually this will have lifted all ships even if present values are bubble-like in too many asset classes.
China and the US made three-quarters of this progress! China is slowing-down but assets count for eight times its economic output, the UK, four-and-a-half and the US, four times.
If in doubt, do read the Police’s helpful book and how to avoid being caught. Believe you me, we have seen some really ‘clever’ scams and scammers so don’t be duped!
Remember too, if you are vulnerable, then considering entrusting a reputable firm such as ourselves to actually hold and manage your money is a fantastic barrier for the scammer.
Remember too, it can be a cyber-scammer, a colleague, a romantic date, even a family member or friend… we really have seen the lot and all are out to grab your money illicitly.
This link to the Little Book of Big Scams is a handy guide to raise awareness of some of these shysters – CLICK HERE
Risk Warning Stock market investments can offer income through the payment of dividends and interest and good opportunities for capital appreciation over the longer term. By this, generally we mean periods in excess of five years, preferably much longer. However, we can never promise you particular returns, especially in the short-term. At any point in time but especially in the short term, your capital could be worth less than the original amount invested as some of the selected holdings may fall in value, regardless of expectations at the time of acquisition. We may also invest in funds that hold overseas securities. The value of these investments may increase or decrease as a result of changes in currency exchange rates. Returns achieved in the past cannot be relied upon to be repeated.
To remind you, why do I send out occasional emails? Because everyone can save money. We have no connection with any companies mentioned and you have to make your own contacts and satisfy your own enquiries. What is in it for us? If we can prove that we are knowledgeable and that our service and advice have good value, then you might contact us for professional financial planning and investment help. You don’t have to do that though and there’s no charge for emails. If simply they save you money, then accept them with our compliments! However, you’ll know where we are!
If you have any queries of any form or indeed any subjects you think I could include, please contact me. I also refer you to our website www.miltonpj.net. We celebrate our 35th anniversary in 2020 and have been publishing a well-respected independent column in the local Paper for most of that time and free client newsletters as well.
Do not forget however the usual caveats – this is not ‘advice’ and you are encouraged to seek that before embarking upon any financial route involving investments, etc.
My best wishes
Philip J Milton DipFS CFPCM Chartered MCSI FPFS FCIB
Chartered Wealth Manager
Fellow Of The Personal Finance Society, Fellow Of The Chartered Institute Of Bankers