A Beginner’s Guide To Investing

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Why invest?

In theory, investment means you could earn more from your money than if you just kept it in a savings account. If you pick the right shares, funds or other type of investment, the returns can be very high.

However, investment means introducing risk to your money and there is the possibility you could lose some – or even all – of your money.

What should I invest in?

There are all kinds of schemes or “assets” you can invest in, ranging from shares, equities, bonds through to property and art. You can diversify through investing in a portfolio of investments, including different markets, countries, companies and asset type.

Having a mix of different asset types will spread any risk and means you won’t have all your eggs in one basket.

Risk and reward

When you invest you will need to consider risk and reward. Generally, the greater the risk you take with your money, the greater the potential for growth.

Before investing you need to think about how comfortable you are with the potential loss. Ideally you should have cash for emergencies before you begin investing in anything else.

Monitoring and managing your investments

If you invest in a fund, the fund manager will send you an annual report on the fund’s performance. You’ll also be sent written statements at regular intervals.

There are various online services that allow you to take an active role in selecting funds and let you view, manage and monitor all your investments in once place.

An independent financial adviser can help you choose, monitor and review your investments

Dealing with problems

If you invest using a firm authorised by the Financial Conduct Authority (FCA – previously the Financial Services Authority), you get protection if you’re not happy with the service you’ve received.

FSA Authorised firms must have formal complaints procedures and belong to the Financial Ombudsman Service (FOS), which resolves disputes between a firm and its customers.

It will also mean that if the firm goes bust you could be entitled to compensation from the Financial Services Compensation Scheme (FSCS).

Contact us

For assistance in all the stages of investing contact the team at Platinum

How to protect yourself from unauthorised firms

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It’s a good sign that the new financial services regulator (the FCA) intends to stick to its ‘consumer first’ promise with the flurry of warnings in the past week about unauthorised financial services firms

Sadly there are plenty of unauthorised firms that are running scams, with many from overseas companies specifically targeting UK consumers.

The important thing to remember is that if you deal with an unauthorised firm – whether they are running a scam or not – you will not be covered by the Financial Ombudsman Service (FOS) or Financial Services Compensation Scheme (FSCS) if things go wrong.

However, there are plenty of steps you can take to protect yourself from fraud and unauthorised activity. The FCA offers the following tips:

Step 1: Check the Register

It strongly advises you to only deal with financial services firms that are authorised or registered. You can check the FCA Register to ensure they are, and it also has further information about firms and individuals regulated by them. Our authorisation number is 401283.

If a firm does not appear on the Register but claims it does, contact the Consumer Helpline on 0800 111 6768.

Step 2: Ring them back

To confirm the identity of an authorised firm on the Register, ask for their ‘firm reference number’ (FRN) and contact details, but always call them back on the switchboard number given on the Register rather than a direct line they might give you.

Step 3: Use the right website

You should access the Register from- http://www.fca.org.uk/ – rather than through links in emails or on the website of a firm offering you an investment.

Also check the address of the website is correct and there are not subtle changes that mean it is a fake.

Step 4: Beware of cloned firms

You should also beware of fraudsters pretending to be from a firm authorised by the FCA, as it could be what is known as a ‘cloned firm’.

These scammers often claim to be from overseas firms that appear on the Register, as these firms do not always have their full contact and website details listed.

Step 5: Make additional checks

With fraudsters adapting their tactics you should make additional checks to confirm you are dealing with the financial services firm in question and have the correct contact details – especially if they made the first contact with you.
You might want to check the details on the firm’s website, with directory enquiries or Companies House.

Step 6: Check if a firm is authorised or registered

Almost all financial services firms and individuals must be authorised by the regulator.

But certain types of firms may instead be registered, including some payment services providers and electronic money (e-money) institutions, mutual societies like credit unions, friendly societies, cooperative societies, working men’s clubs and building societies.

You can check the Register to see whether a firm is authorised or registered.

Beware that registered firms do not have to provide the FCA with as much detail about their business or safeguard the money received from customers for payment services, and the regulator has less power to check on the firm.

Step 7: Search the list of unauthorised firms

You can look through the list of unauthorised firms to avoid doing business with, although their names are likely to change regularly.

This is a list of firms and individuals that are currently targeting UK investors and the FCA has received complaints about.

The regulator adds new names to this list as soon as possible, but if the firm which has approached you does not appear on the list, do not assume it is legitimate – it may not have been reported yet.

Step 8: See warnings from abroad

If you are dealing with an overseas firm or scheme you should check how it is regulated and follow similar steps to these.

The FCA has some warnings from foreign regulators about firms conducting unauthorised business.

Step 9: Avoid unwanted sales calls

Keep in mind that authorised firms that you have no relationship with are highly unlikely to contact you out of the blue.

You can reduce the number of unsolicited mailings and cold calls you receive by registering with the Telephone Preference Service and Mailing Preference Service.

Step 10: Report an unauthorised firm

If you think you have been approached by an unauthorised firm you should contact the Consumer Helpline on 0800 111 6768.

Cold Weather Hasn’t Frozen The Financial Markets!

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The last quarter has seen stock markets around the world rise and – more importantly – hold on to the gains.

At the start of the year there was a concern that the short-term fixes by policy makers in the US were likely to unravel and see stock markets slip back to the same levels of mid-2011.  However the global economies have shown more resilience and so fund managers have been able to select stocks based upon their fundamentals which show good earnings in many cases.

In plain English, this means the current stock market highs are based upon common sense rather than pure sentiment.

As always there are a number of reservations:

  • The US still has a number of legislative and fiscal hurdles to overcome.
  • The UK is still battling to generate growth whilst attempting to reduce our debt burden.
  • Europe is still moving from one crisis to another.

 

The effects of the Eurozone’s latest ‘solution’ to the Cypriot banking crisis have yet to be fully felt.  For the bank deposit holders who could lose up to 60% of their savings there is obviously turmoil and dismay but on a wider scale it is worrying for other countries with mounting debt problems, such as Spain and Italy.

Whilst the Cyprus banking sector is less than 1% of the Eurozone and is unlikely to derail the rest of the Eurozone, the cuts in bank deposits sets a dangerous precedence and could cause a loss of confidence as investors move monies away from those Euro countries which are perceived to have a weakened or imbalanced economy.

For UK bank deposit holders there is a large amount of security in terms of our separate, standalone currency plus our regulation by the FSA and also the FSCS protection given to savers and bank deposits.   It is worthwhile ensuring that any investment or bank deposit held is covered by these schemes.

Returning to investment markets – equities continue to show the greatest potential for growth.  Gilts and sovereign debt is an asset class which continues to look overvalued so should be largely avoided.  Corporate bonds and commercial property are still offering steady yields but do need constant review.

Overall our outlook is optimistic for investors and although there could be a few ups and downs ahead due to the global economies the long term is looking positive.

Higher Rate Tax Payers – You Need To Act Quickly!

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Deadlines continue to approach – with a major one being the application for higher rate tax relief.

Many higher rate tax payers saving for retirement are unaware that the additional tax relief for being a 40% tax payer is only given when requested from HMRC.  If you are or were a higher rate tax payer and didn’t include your pension contributions on a tax return (or you may not have completed a tax return) then you need to review your situation.

 

Higher rate pension tax relief (and claims in respect of any other tax overpayments) for 2008/09 must be claimed by 5 April 2013 or it will be lost.

 

Those affected need to write to HMRC with full details, who will send the repayment in the post or by bank transfer.

 

The time limits for claiming tax refunds are shown in the table below. If claims aren’t made within the time limit any refund due will be missed.

 

Tax year Tax year ended on Claim must be made by:
2008-09 5 April 2009 5 April 2013
2009-10 5 April 2010 5 April 2014
2010-11 5 April 2011 5 April 2015
2011-12 5 April 2012 5 April 2016

 

As always we’re happy to answer questions and help with any issues.  If you’re unsure whether you’ve been given the correct tax relief then simply get in touch.

Time is running out….

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The tax year ends on 5th April 2013, so it’s worthwhile taking a couple of minutes to ensure you have maximised any allowances or tax breaks.  The most common are:

  • ISAs.  Every tax year millions of pounds of tax is paid unnecessarily by people not using the most appropriate tax wrappers.  If you haven’t maximised your ISA allowances then now is the time to consider doing so.
  • Pension Contributions.  Similar to the above, pension plans give unrivalled tax advantages.  Changing legislation has made it imperative to top up any pensions each tax year.  It is no longer an option to pay large lump sums into pension plans immediately before retirement so forward thinking is needed.
  • Avoid losing any Child Benefit.  One of the most emotive topics of recent legislation is the removal of Child Benefits for those whose taxable yearly income exceeds £50k.  The savings can be huge if you are able to reduce your net relevant earnings by a little forward planning.  Ask us for more information.
  • Maximising any Capital Gains Tax allowances.  Each person can make £10600 tax free profit in terms of capital gains this tax year.  If it isn’t used, this allowance disappears on 5th April.
  • Taking advantage of specialist tax vehicles.  These plans are mostly suited to more speculative investors whose assets and income is geared to taking advantage of such plans, but if you want to know more we can help.
  • Deferring or advancing income.  Something to consider for those who are in control of their income, bonuses, pension income or dividends.  It is worth consulting both us and your accountants.
  • Claiming higher rate tax relief on previous years pension contributions.  We will cover this in more detail in a subsequent blog, but if you were a higher rate tax payer in the tax year 2008/2009 it is important to check you received 40% tax relief on all your pension contributions.  As this will not be repaid to you after 5th April 2013.

Each of the above are valuable allowances which will all be lost on 5th April so now is the opportunity to consider how any of these areas could apply to you.  We can certainly help with this so get in touch.

Long Term Care Reform

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Have you heard about the Government’s proposals for implementing reform of long term care funding? Last year Andrew Dilnot’s report was published which highlighted the need for an urgent review and a cap on costs.

The latest proposals implement some of the well-publicised recommendations but essentially have stopped short of bringing in changes which would give people greater confidence to plan for nursing home care in old age.

The idea is essentially to bring in a cap on funding costs so that we can each make provision and financial industry could devise insurance products designed to cover care costs.

Although this has been introduced, it is far in excess of the recommended level contained in Dilnot’s report.  The Governments proposed limit of £75,000 only relates to nursing costs – given that the nursing costs are often less than a third of the total typical care costs for someone in long term care, the final bill being in care could still amount to in excess of £200,000.  This is obviously far beyond most peoples’ capability to plan or save for when in retirement.

That said, it’s not all doom and gloom.  For years there has been a total failure by all political parties and government to introduce any reform for long term care.  Whilst the proposed cap is too high for most people, it’s a start and something which can hopefully be reduced in the coming years if there is the political and financial impetus.

At Platinum we want to help you plan for all eventualities – talk to us to make sure your retirement plans are on track for the enjoyable years ahead.

Reclaim Your Lost Money

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Within the UK alone there are hundreds of millions of pounds sat quietly in ‘lost’ bank accounts.

Over the years many people hold different bank accounts or savings accounts, which are rarely fully closed and can often have funds still in them.

In 2008  a website was launched to help everyone find any lost bank or building accounts (including National Savings accounts) and products such as premium bonds.  The ‘My Lost Account’ website offers a FREE search facility to connect people to their lost savings.

Despite more than 300,000 people using the service it still remains unknown.  If you, or anyone you know, may have an old lost account follow the link to the website and use the FREE facility to reclaim your money and savings.

Ultimately the government will use any unclaimed funds as they try to tap into the billions of these ‘orphaned’ assets, so it is important that everyone reclaims their savings.

Then contact Platinum and we’ll advise you what to do with your windfall!

 

Keeping Finances Fighting Fit

Once a financial plan has been put in place, it’s tempting to just file the paperwork and forget. However, like your own health, a financial plan needs regular checks to make sure it’s still healthy – but how?

 

A financial plan should be regularly reviewed to check it’s still fit for purpose. The original plan will have been matched to an investor’s goals when it was first set up – to retire at 60 or to fund education for children. A review looks at whether these goals have changed, perhaps with the birth of another child or a change of job or a surprise inheritance. It should then consider whether they need to save more or switch to different types of investments.

 

A review will also look at the investment’s progress because maybe a portfolio has performed particularly well and it’s no longer necessary to take as much risk – or the opposite might be true and an investor needs to take on more risk.

 

Your financial health check will also examine whether the underlying investments are performing in line with market expectations. Fund managers will have good and bad periods, so a run of bad performance may mean their style is out of favour.  We will be able to judge whether this is expected or whether it is a sign of a deeper problem.

 

Finally, a portfolio will also need to be tweaked according to the wider economic environment; the importance of regular reviews and ensuring your financial plan continues to be the best for you means that no matter how difficult times are, your investments stay in great shape.

 

Call us if you want to discuss adding a few more pounds!

State Pensions Made Easy

Do you know about the proposed changes to the state pension? They will affect everyone who reaches state retirement age after 2017.

To understand the proposed changes and why they’re good news for many, you need to have some awareness of the existing system.  Under the current rules your state pension can comprise four different elements:

  • The basic state pension
  • SERPs
  • Graduated pension
  • Second State pension.

Each has its own complex calculation and over the years has used varying basis for the calculations, where you would have to work between 30, 39 and 44 years.  They’re also dependent upon your level of earnings.

On top of these benefits, pensioners may also be entitled to top-ups under the minimum income guarantee to ensure income is above a certain threshold.  Historically most people who need and are entitled to this (and other benefits) don’t claim because of the complexity involved.

As you will probably appreciate, by far the biggest losers of the existing and previous rules are women and low earners.  This is partly due to their earnings often being less than men’s, but also due to career breaks for bringing up families.

The new proposal is simpler and fairer for the majority.  If the legislation goes ahead you will need to work for 35 years between age 16 and age 66 (rising to age 68), at which point you will be entitled to an income of £144 per week (roughly £624 per month).

This new state pension will be the same for everyone and will remove the need for claiming top-up income benefits etc.  It also means that women will get a much fairer deal as they will gain a pension equal to men and in their own name too.

From a financial planning viewpoint, it is also welcome news as people will hopefully have a greater understanding of what their income will be in retirement.  With greater understanding comes a willingness to plan and save.  To be blunt – if you want an income of more than £624 per month, then you need to save and plan for retirement. Talk to us now!

Market Update – Bulls Or Bears?

The past 12 months have seen some very positive movements of global stock markets and these were extended into the New Year as the US narrowly avoided their ‘fiscal cliff’.

Almost all global indices have risen as hopes are kindled that politicians will come together and focus on the welfare of their respective economies.

But there are a number of reservations and caution should balance the optimism.

The issues which have caused so much turmoil in recent years remain and although economic leaders allow time to pass, the key points remain:

  • The US has not removed the ‘fiscal cliff’, rather they have deferred many of the tax rises just a couple of months down the road.
  • Europe has yet to demonstrate greater cohesion and show how the debt crisis can be handled long term.
  • The UK continues to struggle with its own debt burden and lack of economic growth.

So why are the markets so positive?  Even if they fall back slightly they believe the economic conditions are right for growth and/or profits in some form, especially when looking longer term.

There is a long way to go but there are reasons to be upbeat and bullish.  There are no quick solutions to global financial woes but there are signs of recovery and given time, these will filter through to individual investment portfolios.  As always, focusing long term will ensure the best returns.

In the meantime we continue to suggest clients probably lessen their exposure to government debt (Gilts) and maintain their focus on Corporate Bonds and Equities, both in the UK and globally.

As always get in touch if you are concerned with any financial matter or just want to chat about your pensions or investments.