Tag: concept financial planning

Categories

what do ESG and impact investing mean for investors?

Sustainable investing has grown rapidly over the last couple of decades. Investors are increasingly committed to the social and environmental impact of where they put their hard- earned money. Getting good financial returns and having a positive impact on the world are not mutually exclusive. Impact investing and ESG investments allow investors to ‘kill two birds with one stone’, as they say

American financial association SIFMA estimates the market size of sustainable investments to be $8.72 trillion. That figure was calculated in 2016, so it’s likely to be substantially larger than this now.

ESG and impact investing are two terms frequently confused in the world of sustainable investing. They’re often used interchangeably, which is a shame because it risks obscuring what the different terms actually mean; they are quite different. ESG is a framework for determining the impact of an investment whereas impact investing is an approach.


ESG
ESG stands for environmental, social and governmental. It’s a framework that can be integrated in the risk-return analysis of different investment opportunities. By drawing from a variety of data, some gathered from company and government disclosures among other sources, it allows investors to examine how companies manage risk and opportunities in three key areas:

Environmental

This refers to a company’s impact on the environment. It looks at certain aspects of a company’s operations, such as how they dispose of their hazardous waste or how they manage carbon emissions.

Social

Does the company take measures to have a good social impact? This can include philanthropic and community focused activities or any measures the leadership takes to promote diversity in the workplace.

Governance

This deals with the leadership and strategy of a company. It addresses aspects such as staff pay and communication with shareholders.

An ESG framework is a valuable tool that may be used to evaluate how certain behaviours can affect a company’s performance. However, it’s not an investment strategy in and of itself. With ESG, the wider impacts of investments are considered but financial performance still takes precedence.


Impact Investing
Impact investing means using investments to cause positive social or environmental change. Examples include supporting access to clean energy or working to improve social mobility by investing in companies operating in underprivileged areas. In contrast to ESGs, in impact investing financial performance is secondary to the overall social or environmental impact.

The financial return of impact investments varies between cases. Some investors intentionally invest for below market rate returns in line with their strategic objectives. Others pursue competitive, market-rate returns. According to GIIN’s 2017 Annual Impact Investor Survey, these account for the majority, with 66% of impact investors aiming for market rate returns.

Because maximum returns are sacrificed in favour of investing for a particular social or environmental agenda, there’s the possibility that certain opportunities may underperform relative to other widely available options. When maximum profit isn’t the goal, sometimes the financial returns can suffer.

This said, impact investing shouldn’t be confused with charity. The objectives of impact investing are financial as well as social and environmental. There are many companies whose operations have a positive impact on the world and investing in these is an effective way of contributing towards long term social and environmental progress.

The shift towards impact investing and ESG highlights a growing desire among investors to do well by doing good. They are increasingly a core offering, rather than something that is ‘nice to have’. However, as with any investment decision, it’s a good idea to do plenty of your own research and seek financial advice to see how ESG and impact investing could fit with the rest of your portfolio.


Sources
https://www.investmentnews.com/article/20180220/BLOG09/180229985/esg-and-impact-investing-do-you-know-the-difference

the longevity challenge and how to tackle it

In the UK, we are faced with the challenge of an ageing population. Many of us will live longer than we might have expected. Already, 2.4% of the population is aged over 85. Because of improvements in healthcare and nutrition, this figure only looks set to rise.

The Office of National Statistics currently estimates that 10.1% of men and 14.8% of women born in 1981 will live to 100. A demographic shift to an older population brings unprecedented change to the way the country would operate, from the healthcare system to the world of work.

In addition, a long life and subsequently a long retirement, bring challenges of their own from a personal financial planning perspective.

Firstly, it means you have to sustain yourself from your retirement ‘nest egg’ of cash savings, investments and pensions. You need to ensure that you draw from this at a sustainable rate so you don’t run the risk of outliving your money.

Secondly, there’s the question of funding long term care. If we live longer, the chance that we will one day need to fund some sort of care increases. Alzheimer’s Research UK report that the risk of developing dementia rises from one in 14 over the age of 65 to one in six over the age of 80.

Of course, there are many different types of care, ranging from full time care to occasional care at home, with a variety of cost levels. All require some level of personal funding.

The amount you pay depends on the level of need and the amount of assets you have, with your local council funding the rest. This means that it’s definitely something that you need to take into account in your financial planning.

Having the income in later life to sustain long term care really does require detailed planning. Because of the widespread shift from annuities to drawdown, working out a sustainable rate at which to withdraw from your ‘nest egg’ is essential.

There is no ‘one-size-fits-all’ sustainable rate at which to draw from your pensions and savings. Every person has their own requirements, savings, liabilities and views on what risks are acceptable.

There are some things which you will be able to more accurately plan when working out the sustainable rate to draw from your pension. These include your portfolio asset allocation, the impact of fees and charges and the risk level of your investments. Speaking with your financial adviser will help you on your way to working out the right withdrawal rate for you.

There are, however, some unknowns. These include the chance of developing a health condition later in life and exactly how long you’ll live. It is best to withdraw leaving plenty of room for these to change unexpectedly, improving your chances of having a financial cushion to cope with what life throws at you.

Sources

Prevalence by age in the UK


https://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/populationestimates/articles/overviewoftheukpopulation/july2017

Defining and evidencing Sustainable Withdrawal rates

the top 4 places to buy a home abroad in 2018

It’s not difficult to see why Briton’s find buying a property abroad so attractive. High house prices, a temperamental climate and long working hours in the UK can make buying a property abroad seem like a highly desirable option.

Whether for a holiday property or somewhere to live long term, here are our top places to buy a home abroad in 2018.

Spain
Although buyers have fallen over the last few years, Spain remains Britain’s favourite place to buy property abroad. Spain has a well-established expat community and a warmer, drier climate than the UK (although central Spain is surprisingly cold in the winter), making it an attractive destination.

Affordability is a big driver for Britons going to Spain. In 2008, Spain’s property market crashed and the market only began to recover in 2014. Even though the pound is down on its pre Brexit referendum highs, Spain is still remarkably cheap.

What’s more, prices in Spain are on the rise. Spanish bank BBVA forecasts house prices to rise by 5% in 2018.

Buying in Spain is relatively simple. There is no requirement to be a Spanish resident to buy property – the only requirement is a Spanish NIE tax identification number.

One thing to be cautious of is that, in recent years, many homes have been built across the country without proper planning permission. Using a reputable property agency familiar with the area gives you your best chance of avoiding these.

Portugal
Our next country, lying on the Western edge of the Iberian peninsula, is a similarly ‘hot’ option for foreign buyers. Since 11%, on average, was wiped off the value of Portuguese property between 2011 and 2012, prices have recovered well.

From the Algarve and the Costa Da Prata to Porto and Lisbon, the country has a wide range of attractive options for foreign buyers. Lisbon and the Algarve are substantially more expensive than the rest of the country – bear this in mind when looking for options in Portugal.

France
Although more expensive than Spain and Portugal, France is an incredible place to buy a property. If you look in the right place, the country is still temptingly affordable. And, as the largest country in Western Europe, France has no shortage of variety.

Sunny Mediterranean beaches, chic cities, rolling hills, thick forest, dramatic mountains… you name it, France has got it. The Dordogne, the Charente and the Haute-Vienne in the south-west remain the most popular places for Brits.

However, north France is incredibly accessible. If you live in the south of England, it’s just a short ferry across the Channel. This means you can experience that alluring Gallic lifestyle, without straying too far from your life in the UK.

Croatia
Spain, Portugal and France are old favourites for Brits looking for a home abroad. Now it’s time for something a little less predictable.

This former Yugoslavian country is on the rise as a popular place for Brits to buy abroad. Its Dalmatian coast is among the most stunning in the world and the country is home to many quaint towns, as well as its lively capital Zagreb and beautiful Dubrovnik. The Dalmatian coast is a well-established centre for yachting.

The best time to look for properties is at the end of the main tourist season in the Autumn, when prices are lower than they are at peak times.

However, there are some restrictions for foreigners buying property in Croatia. If you hold only Swiss or Italian citizenship you are prohibited from buying a house in the country unless you intend to live there permanently. In addition, foreign buyers are required to seek approval from the Croatian Ministry of Foreign Affairs to attain the necessary documentation to buy a house.

Sources
https://www.telegraph.co.uk/money/transferwise/buying-property-in-spain-guide/
https://transferwise.com/au/blog/buy-property-in-portugal
https://www.aplaceinthesun.com/articles/2018/08/top-10-best-places-to-buy-a-home-abroad-in-2018

Buying Property in Croatia

Kids off to Uni? Congratulations – but have you been saving enough?

The Institute of Fiscal Studies suggests that the average total debt incurred by today’s university students over the duration of their studies will amount to £51,000. This figure comes as those in higher education saw the interest rate on student loans rise to 6.3% in September. Total student debt in the UK has now risen to £105 billion as of March 2018, a figure £30 billion higher than the nation’s total credit card debt.

The rising cost of higher education perhaps makes it unsurprising that 40% of parents are now beginning to save towards future university costs before their children have even been born, with one in five hoping to have saved £2,000 by the time the baby arrives. Frustratingly, however, around two thirds of those who are saving are doing so by simply placing the funds in an ordinary savings account, meaning their money is earning them very little in interest.

An alternative option to consider is a Junior ISA (JISA) in the child’s name, which they can then access when they turn 18. The account currently allows £4,128 to be saved every year, and the best rate market rate for a cash JISA offers 3.25%. Saving the maximum amount at that rate for ten years would result in a nest egg of £49,427 tax free to cover university fees with plenty left over for other expenses.

Whilst a cash JISA offers dependability, a stocks and shares JISA is also worth considering as the potential reward on your investment can be higher. Both types of JISA can be opened at the same time with the allowance shared between them, so spreading your savings between the two can pay off in the long run.

Using your pension to save towards your child’s university education is also an option, thanks to the pension freedoms of recent years. With the ability to take a lump sum to put towards fees and other costs when you turn 55, pensions offer a tax-efficient way of putting away for both your child’s future and your own. This is an option which needs careful planning, however, as you’ll need to make sure you have enough for your retirement before paying for your child’s education.

For those able to do so, it may also be worth speaking to your own parents about helping towards their grandchildren’s university costs. Rather than leaving money to a grandchild in their will, a grandparent might consider gifting towards fees and other expenses or placing the money in a trust, reducing their inheritance tax liability and allowing their grandchild to benefit from their legacy when they really need it.

http://www.independent.co.uk/money/spend-save/parents-university-fees-saving-children-born-student-loans-college-fund-tuition-51000-a7895951.htmlhttps://www.moneysavingexpert.com/news/2018/04/student-loan-interest-rates-expected-to-rise-in-september—but-dont-panic/researchbriefings.files.parliament.uk/documents/SN01079/SN01079.pdfhttps://www.moneyexpert.com/debt/uk-personal-debt-levels-continue-rise/

 

what might be in the autumn budget?

In normal years, the Autumn Budget (formerly the Autumn Statement) is announced in November. However, with less than 6 months left on the countdown to Brexit, this year is far from a normal year.

At the end of September, Chancellor Philip Hammond revealed that the Autumn Budget would be released on 29 October which is also, unusually, a Monday – traditionally budgets are announced on a Wednesday. Since the Wednesday would’ve been Halloween, perhaps the Chancellor moved the budget forward by two days to avoid a potential Budget horror show.

Hammond’s Twitter feed indicates that we can expect the Chancellor to balance the books. Aside from this there has been little concrete information about what the Budget might contain. However, Hammond has given us a few hints:

The end of the freeze on fuel duty
It’s likely that the eight year freeze on fuel duty will come to an end this year. Last month, Hammond said that the freeze on fuel duty has meant the Government has “foregone” £46 billion in revenue and, if the freeze continues, will miss out on £38 billion more.

NHS spending
One of the Chancellor’s main concerns will be finding the money to fulfil Theresa May’s pledge to pump an extra £20 billion into the NHS by 2023. The prime minister herself admitted that this would require tax hikes, but was unclear as to which taxes would be raised.

Digital tax
At the recent Tory conference, Hammond said that Britain will impose a new “digital service tax”, even if other countries fail to follow suit. However, what this tax might look like is currently unclear.

He called for a reform of the international tax system for an era where digital companies account for much of global business, with Britain leading the way. Business leaders have mentioned that such a tax could compromise the UK’s reputation as a good place for digital companies to do business.

Of course, what will have the largest bearing on the eventual success of any changes to the budget is any Brexit deal. A good Brexit deal will boost growth and balance public finances without the need for major tax hikes.

We eagerly await the Chancellor’s Budget at the end of the month.

Sources
https://www.independent.co.uk/news/uk/politics/philip-hammond-tax-cut-self-employed-scrap-conservatives-national-insurance-contributions-nic-class-a8526236.html
https://www.telegraph.co.uk/politics/2018/09/11/chancellor-hints-fuel-duty-rise-fund-nhs-campaigners-warn-struggling/

Agent Million visits London and Dorset this October

Summer travels may be over, however NS&I’s Agents Million continue their tours, spreading
news of £1 million jackpot wins to two lucky Premium Bond holders in London and Dorset.

October’s first jackpot winner, a man from Inner London, becomes the 51st jackpot winner in
the whole of London. His winning Bond was purchased in February 2016 when he
purchased the maximum investment of £50,000 (Bond number: 267FW537456).

Another man, this time from Dorset, has also hit the jackpot, winning the £1 million from a
£25 prize that was won in October 2010’s draw and reinvested into his total Premium Bonds
holding (Bond number: 173HT264915). He has £19,725 invested and becomes the ninth
jackpot winner in the county since the jackpot was introduced in 1994.  Agent Million last
visited the region in April 2018.

The pair become the 395th and 396th winners of the £1 million jackpot prize.

Jill Waters, Retail Director at NS&I, said:
“Re-investing Premium Bond prizes can be a great way of saving and it has paid off this
month for Dorset’s jackpot winner, scooping the £1 million jackpot from a £25 reinvested
prize. While the London winners’ savings habit has proved particularly fruitful, winning the
top prize just over two and a half years after investing.”

Customers can opt to have their prizes paid directly into their bank account, or to have their
prizes automatically reinvested into their Premium Bonds account, as long as the total
holding is below the maximum threshold of £50,000. More information about these options is
available on nsandi.com.

Do you have an unclaimed prize?
There are over 1.5 million unclaimed prizes worth just over £60 million.
In Inner London, there are over 119,000 unclaimed prizes worth nearly £4.8 million. These
prizes date back to June 1960, with a prize of £100. The highest unclaimed prize in the
region is £50,000, having been won in May 2016. The customer has £9,175 invested in
Premium Bonds and the winning Bond number is 33XT435809. There is also one £25,000
prize and four prizes of £10,000 waiting to be claimed.

In Dorset, there are over 18,000 unclaimed prizes worth £672,000. These prizes date back
to February 1964 with a prize of £25. There are also 17 prizes worth £1,000 each in the
region, with seven of these being won by customers with less than £10 invested in Premium
Bonds.

October 2018 prize draw breakdown

Value of prize & number of prizes

£1,00,000  – 2
£100,000 – 5
£50,000 – 10
£25,000 – 20
£10,000 – 49
£5,000 – 99
£1,000 – 1,795
£500 – 5,385
£100 – 24,622
£50 – 24,622
£25 – 3,083,096

Total prize fund value
£89,743,200
Total number of prizes
3,139,705

In the October 2018 draw, a total of 3,139,705 prizes worth £89,743,200 will be paid out.
There were 76,922,736,910 eligible Bonds for the draw.

Since the first draw in June 1957, ERNIE has drawn 416 million winning prizes, to the value of around
£18.7 billion.

Customers can find out if they have been successful in this month’s draw by downloading
the prize checker app for free from the App Store or Google Play, or visit the prize checker
at nsandi.com. The results are published in full on Tuesday 2 October.

Some Premium Bond Facts

1. All Premium Bonds prizes are free of UK Income Tax and Capital Gains Tax.
2. NS&I is one of the largest savings organisations in the UK, offering a range of
savings and investments to 25 million customers. All products offer 100% capital
security, because NS&I is backed by HM Treasury.
3. The annual Premium Bonds prize fund rate is currently 1.40% and the odds of each
individual Bond number winning any prize are 24,500 to 1.
4. Customers can buy Premium Bonds online at nsandi.com and over the phone by
calling 08085 007 007. This is a freephone number and calls to it from the UK are
free from both landlines and mobiles. Calls may be recorded. Customers can also
buy by post. Existing customers can also buy by bank transfer and standing order
and each investment must be at least £50 for bank transfers and standing orders.
5. Further information on NS&I, including press releases and product information, is
available on the website at nsandi.com. Follow us on Twitter: @nsandi or join the
conversation on Facebook: Premium Bonds made by ERNIE

are children’s pensions as good as they seem?

Pensions for children? Surely that’s taking planning ahead to a whole new level?

Nonetheless, if you can afford it, putting money aside in to a pension for your children or grandchildren can be a sensible option.

Under the current rules, you can put £2,880 a year into a junior self-invested personal pension (SIPP) or stakeholder pension, on their behalf. Even though the child won’t be a taxpayer, 20% is added to the amount in tax relief, up to £3,600 per annum. If you think about it, that can result in quite a significant amount over the years, taking compound growth into consideration.

The idea of contributing to a pension may tie in well with your sense of responsibility towards the next generation. You may feel sorry for the youngsters of today with their university fees to pay back and a seemingly impossible property ladder to climb.

However, on the downside a children’s pension can be quite frustrating for the recipient. The money is tied up until their mid fifties. This means that although the amount is steadily growing with no temptation to dip into it, it may not be much consolation for a twenty-five year old desperately trying to find the deposit for a house. Instead of making their financial future easier, you may have, in fact, impeded it.

There are other alternatives which will also give you the benefit of compound growth and help you to maximise tax relief, such as using our own ISA allowances and then gifting the money later. These may have more direct impact if the money is to help pay for a wedding, repay a student loan or enable them to buy a house or start a business.

Pension contributions are often referred to as ‘free money’ because of the the tax relief. In addition, 25% of the lump sum when the recipient comes to take their pension is tax free but it is equally important to remember that 75% of any withdrawals will be taxable. Another consideration is that children’s pensions have the lowest rate of tax relief but once in employment, your children may be higher rate taxpayers so would have benefited from higher rate relief.

One thing is for sure and that is that the rules around pensions and withdrawal rates are frequently changing. Given the extended timeframe involved, it’s likely that the regulations around accessing a pension pot will have altered considerably by the time a child of today reaches pension age. Their fund will have had time to grow handsomely, though. As with most things, it all comes down to a question of personal preference for you and your family.

Sources
https://www.ftadviser.com/pensions/2018/05/09/danger-of-children-s-pensions-laid-bare/
https://www.bestinvest.co.uk/news/are-pensions-for-children-bonkers-or-brilliant
https://www.moneywise.co.uk/pensions/managing-your-pension/start-pension-your-child

explaining fund charges and investment fees

If you hold any investments or already work with a financial adviser then it’s likely that you are familiar with the fees you pay to invest or receive advice.

But what are these fees and why are they so important to keep a handle on?  This video gives you information on what fees you might be charged and why  you should keep track of them.

where to holiday with a weak pound?

 

If you are heading abroad in the near future, chances are you will be travelling to an E.U. country. 63% of us hope to travel to Europe in the next 12 months, making it by far the most popular destination for British holidaymakers.

However, in the run up to ‘Brexit day’ next March, the affordability of holidaying in Europe remains uncertain… Those of us who’ve visited the continent since the referendum will have already noticed that they are getting a lot less bang for their buck than previously.

As of yet we have very little information on how Brexit will look. With a ‘no-deal’ Brexit looking increasingly likely, it is possible that the pound will remain turbulent until it becomes clear how Brexit is going to pan out.

Ultimately, it is this which will determine whether or not the pound remains weak against the Euro – something that will have a large effect on how our future holidays feel.

In light of all this dreary information, looking outside of the eurozone for your future holidays may be your best bet for your wallet.

This is because the pound has not fallen equally against all currencies. In fact, it has actually gained against some. These countries are generally long haul destinations, although there are a few closer to home.

For instance, since Brexit, the notoriously flukey Argentine peso has fallen 72% against the pound. So, if you want a really good value holiday, your best bet is a 14 hour flight to Buenos Aires.

For those of you who prefer culture and history to warm seas and white sand, Russia should be on your agenda. E.U. and American sanctions have hit the Russian economy hard since part of their Army “accidentally” invaded Ukraine in 2014.

This has meant Sterling has gained 13% on the Ruble, excellent for those of you who don’t mind swapping St Petersburg for Santorini.

Closer to home – but equally lacking in quality sunbathing – Iceland is significantly cheaper than it was a year ago: The Icelandic krona has fallen by 11% on the pound.

Traditionally pricey Switzerland is also cheaper than usual. The Swiss franc is 7% weaker than it was a year ago. If skiing is your thing, the sliding franc makes Switzerland a viable option.

Unfortunately, landlocked Switzerland and freezing Russia and Iceland have very little to offer those of you who want a beach holiday.

Luckily, the pound has risen by 10% on the Indian rupee, so the sandy beaches of Goa and Kerala are an affordable option. What’s more, the Brazilian real is 18% weaker than it was last year. So, for those of you hankering for warmer climes, these may be your best bet.

Sources
https://www.telegraph.co.uk/travel/news/brexit-two-years-pound-holiday-money/

How Will Brexit Affect My Holidays?

interest rate rise: what does this mean?

goldfish jumping from small bowl to big bowlThe Bank of England has raised interest rates from 0.5% to 0.75%, only the second rise in a decade. Currently, interest rates stand at their highest since 2009 and reflect what the Bank of England perceive as a general pick-up in the economy.

The Bank said that a rise in household spending has strengthened the British economy. Economic growth for the year is predicted to be 1.4% this year and the unemployment rate is expected to fall further below 4.2%, where it currently stands.

How does the rise affect you?
If you are on a variable rate ‘tracker’ mortgage, your repayments will increase. For example, if you have a £100,000 mortgage, this will add £12 to your monthly repayments.

It’s important to highlight that if you are on a fixed rate mortgage, your payments will stay the same until your base rate comes up for renewal. The Bank of England’s announcement does not mean that your rates immediately rise.

For prospective borrowers, the interest rate rise signals a change in the Bank of England’s tone. Further rate rises are a definite possibility. However, the Bank’s governor took a rather cautious tone which indicates that there are unlikely to be any more rises until 2019.

For the time being, base rates on mortgages are unlikely to rise above 3%. That said, the demand for rate fixes will be higher than usual this year.

Unfortunately for those of you going on holiday, after the announcement the pound fell by 0.9% against the dollar. This is due to the extreme political uncertainty surrounding the sterling with Brexit taking an unchartable track.

Reactions from U.K. businesses have been a mixed bag. The Institute of Directors, which represents about 30,000 members in the U.K., has said, ‘the Bank has jumped the gun’, whilst the British Chamber of Commerce similarly described the decision as ‘ill-judged’ at an uncertain time.

This negative perspective wasn’t unanimous among all lobbying groups. The Confederation of British Industry, the country’s biggest business lobby, welcomed the rise saying the case for higher rates had been building.

A small rise of 0.25% is likely to have a minimal impact on your finances. However, larger hikes down the line could have a substantial effect on the British financial landscape.

Sources
https://www.bloomberg.com/news/articles/2018-08-02/pound-fails-to-shake-off-blues-despite-unanimous-boe-rate-hike
https://www.theguardian.com/business/2018/aug/02/how-will-interest-rate-rise-affect-mortgages-savings-and-property
https://www.bloomberg.com/news/articles/2018-08-02/-mark-carney-what-have-you-done-cry-u-k-business-bodies?utm_source=google&utm_medium=bd&cmpId=google