Don’t put all your eggs in one basket!

JULY 1ST, 2010 By DOMINIC
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News of law firm Halliwells going into administration has sent shock waves through the Manchester business scene, though if you’re to read the various online postings speculation has been rife for some time.

It’s monolithic office in Spinningfields is a statement of indestructible corporate power completely at odds with its shaky foundations and it really serves as a reminder that not one organisation is immune to the economic tidal wave.

Whether you’re managing a business or your own finances, diversification is key or to put it quite simply – ‘don’t put all your eggs in one basket’. I’ve encountered several potential clients who have lost considerable chunks of their wealth by insisting they don’t diversify their share portfolio. Whether it’s been shares in RBS or Marks & Spencer sums as much as two million have been lost through loyalty to the brand and reluctance to change.

By creating a varied portfolio made up of cash, equities, gilts, property with a balance of high and low risk
you’re not totally reliant on one aspect ‘coming good’ – if one component falls the whole thing won’t collapse. The same principle applies to business.

Today’s Private Client Discussion Group presentation was popular for that very reason. Christopher Taylor from Blue Sky Asset Management gave an enlightened presentation on structured products. Investors and wealth managers alike are getting excited by some of the products out there as they give attractive returns but with an element of protection.

Just one last word to drive the message hard on diversification – who would have thought oil giant BP’s shares would have plummeted to a 14 year low to below £3 and that the international business would be in freefall? The Gulf of Mexico disaster wasn’t on anybody’s radar and the financial repercussions for millions is extremely unpalatable.

If you haven’t already done so, start thinking about the worse case scenario in terms of your investments it could be the most priceless thing you’ve done all day.

There’s a more detailed piece on structured products in the news section. Feel free to call us with any questions.

Parents urged to be studious with investments

JUNE 1ST, 2010 By DOMINIC
1 RESPONSE

It has been over 20 years since I have had to burn the midnight oil to cram in last minute exam revision and experience the anxiety of knowing you’re not fully prepared for the onslaught of exams. For anyone remotely studious – and even if you weren’t, they were stomach knotting days. I don’t envy teenagers who are in the midst of their exams and I certainly don’t envy parents who are feeling more than a little queasy at the thought of the eye watering higher education costs which lie ahead.

Last week alone the Russell Group who represents 20 leading universities submitted proposals to scrap the £3,225 cap on tuition fees in favour of a system of unregulated charges which suggested annual fees could soon reach as high as £9,000. One proposal said that wealthier students would be exempt from student loans and would have to take out more expensive bank loans – secured against their parent’s homes.

I did a quick straw poll in the office and asked colleagues with primary school age and teenage children if they’d made any kind of financial provision for their children’s higher education costs. All said they were hopeful that their off spring would go to university but admitted they’d set aside no investments specifically to cover further education costs. When I questioned why, it was simply a case of having more pressing financial priorities and they were hopeful policies taken out by grandparents when their children were born would ‘come good’. Though they admitted it would probably only cover the first year’s fees (as they currently stand) and in reality this sum of money would probably go towards their child’s first car.

Regardless of financial status times are tough; with unprecedented volatility in the market and a budget looming which I am sure will squeeze us all one way or another and not just for the short term. I can’t stress enough that it’s never too late to start planning – even if it’s a relatively small amount you set aside during lean times, you’ll see the fiscal benefit in the long run.

Here are some investment options which would serve the purpose well:

• Utilise tax free Child Trust Funds (CTF) – the investment as opposed to cash saving. The maximum
annual investment is £1,200 per child.
• For children born before the date of the CTF launch – set up a tax free ISA and designate it for your
child’s education.
• Ask your financial planner about trust funds.
• A good long term strategy is to take advantage of the low stock market and invest in shares.
• Property investment in a university town/city

Please do your homework and mention it to your financial adviser at your next meeting.

Envestors

MARCH 30TH, 2010 By ADAM
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Last week I attended a very interesting event aimed at investors placing their hard earned cash in early stage companies. The first thing that suddenly comes to mind when talking about this kind of investment is “Dragons Den.” The organisation arranging the night was Envestors and one of the entrepreneurs introducing the companies looking for capital was Imran Hakim, the founder and managing director of iteddy and a real Dragons Den success story.

Envestors introduced six companies on the night, each with 7-8 minutes to present to a room of about 70 and put their case forward to why they think that you should invest in their company. On the night there was a vast array of different proposals including a company who specialised in posture improving car seats, a telecommunications company that allows user to route their mobile phone calls through a landline and even a feature movie. After the presentation, there would be a few minutes for questions from the audience. More questions could be asked in person at the end and investors were invited to setup personal meetings to delve into the companies in more detail.

From mine and Xentum’s perspective, it was interesting to see a different type of investment to those that we usually recommend and some of the companies also qualify for the Enterprise Investment Scheme (EIS), which offers significant tax breaks. There is no way in getting around the fact that these companies are off the scale when it comes to risk but with the high risk comes a potential for considerable returns if the company becomes a success.

The most interesting part of the proposals is that the companies were not only looking for capital, but some of the companies were also looking for input and knowledge of running a successful company, a fact that I am sure would appeal to any successful entrepreneurs.

As a concluding note it was also nice to see some entrepreneurial spirit in what has been a tough few years. It is companies like the ones I saw last week that will help to lead the recovery. If you think that this is a type of investment that you would be interested in or would like to attend a similar event then you can find more information at http://www.envestors.co.uk.

Discovering fine wines as an asset class

MARCH 16TH, 2010 By DOMINIC
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Those of you who are avid readers of the money sections within the weekend papers will have recently come across a number of investment gurus who mention fine wine as a serious investment.  Up until recently it was an asset class that I am sad to say, Xentum didn’t take seriously.  However our view has now changed and fine wine is not to be ignored as a long term investment, particularly as an alternative to traditional asset classes such as equities, property, fixed interest and cash.

In light of this emerging story, I am proud to say that we have a guest blogger today who is an expert in fine wine and particularly the Bordeaux region.  I would therefore like to introduce Nick Stephens, managing director of the well respected company “interest in wine”.  Nick will talk you through why he thinks fine wine is an investment proposition to be taken seriously. 

Nick:  Thanks Dominic.

Why Invest in Wine?

What would you say if you were asked what the best investment of the decade was?  Would be surprised to know that it was fine wine?  If you have checked the press recently you will have noted the headlines that a case of 1982 Lafite Rothschild was the best performing asset of the last decade, beating equities, houses, oil, stamps and fine art.  A 12-bottle case of 1982 Lafite has increased in price by 857% over the last ten years, from £2,613 to £25,000. Wine has also outperformed gold since reliable monthly records began in 1993 with fine wine prices rising more than ten fold compared to the price of gold which has only doubled in price over the same period.

Changing Times

Until recently fine wine has only been seen as an alternative investment.  Times are changing.  To quote Peter Drucker “In turbulent times it’s not the turbulence we should worry about it’s using yesterday’s logic”. 

Time to Invest in Wine?

The economic case for investing in fine wine is compelling: supply is static; fine wine cannot be replenished.   Demand far outstrips supply.  The châteaux can not expand their vineyards to increase production as land is scarce, yields at harvest are kept low to ensure quality, weather impacts on production and every bottle opened is a bottle lost to bidders.  Add to this rising demand from new markets, such as Asia, and the case for rising prices is a powerful one. Wine has also been a useful tool for portfolio diversification with a history of high returns, low volatility and negligible correlation to mainstream assets.

It is often said that the market for wines is the last to feel the impact of any economic upheaval and the first to show recovery. In the wake of the financial meltdown wine has started to figure more prominently in investment portfolios and is no longer regarded a niche market today as it was a few years ago. Over the past 2 decades wine has shown consistent returns and is continuing to out perform the FTSE 100. According to Liv-ex (the Fine Wine Index) in the past 5 years the index has increased 133%, a performance bettered by none of the major share indices or gold.

Expanding Markets

Asia

So what is keeping the fine wine market buoyant? In short, Asia - particularly Hong Kong and China. Hong Kong has established itself as the world’s second largest market (behind New York) for the sales of fine wines since all wine duties were abolished early in 2008.   Hong Kong is increasingly the place to buy (and sell) expensive wine.

Last year, Hong Kong sold £41 million worth of wine in 14 auctions. The city’s 2009 imports of the beverage rose 41% to £331 million.

Between 2004 and 2008, Chinese wine consumption grew by nearly 80%, according to the International Wine and Spirits Record survey conducted for Vinexpo, the world’s leading wine fair. The survey projected that over a 10-year period from 2004-2013, the volume of wine consumed in China will have soared by 250%.

China has an estimated 34m upper-middle class consumers – a figure that should rise to 82m by 2025.  Given that the Chinese tend to drink their bottles of Lafite Rothschild rather than cellar them supply is further constricted.

Hong Kong and China are not the only emerging markets for fine wines in the East - there is a growing level of interest by Japanese, Korean and Filipino investors in a market that has historically been reserved for European and US knowledgeable investors.   The Philippines – the third largest wine drinking nation in Asia – has launched the world’s second largest multi-million dollar wine storage warehouse, and the wine investment market has taken off.

India

India has emerged as one of the fastest growing markets for wine. Despite the country’s vast population of over 1.1 billion, the consumption of wine remains extremely low, indicating huge potential for growth in the coming years.

Various factors such as favourable government policies, increasing disposable income, amplified wine marketing and influence of western culture are helping to drive India’s wine consumption. The Indian Wine Industry Forecast projects that wine consumption in India is expected to grow by 25-30% annually between 2009 and 2012.

Traditional

Closer to home Liv-ex (the Fine Wine Exchange) has been named one of the UK’s fastest growing companies. It is the UK’s 59th fastest-growing private company in the 2009 edition of the Sunday Times Fast Track 100. The survey, now in its 13th year, ranks non-listed UK companies by their compound annual sales growth over a three year period (in most cases up to Dec 2008). Liv-ex achieved its ranking by recording per annum growth of 76%.

This is the second time in three years that Liv-ex has appeared in the top 100, with this year’s position 40 places higher than in 2007. With some 260 merchants in 22 countries, sales have grown from £5m in 2005 to £27.1m in 2008. 

Time for a change?

There are the 3 traditional ways of investing in wine:

a)  Use a wine merchant and buy it yourself
b)  Buy through a Wine Merchant with a Managed Cellar Plan
c)  Invest in a Wine Fund

 These 3 ways of investing in wine all have advantages but the main disadvantage is one of cost.

A Private Individual buying via a Wine Merchant has to pay margins between 8-35%.  Managed Cellar Plans margins of 30% plus 10% fee for selling the wines plus storage charges.

Wine Funds normally have a 5% initial charge  plus a 1.5% annual management charge based on valuation 20% term end bonus plus all out of pocket expenses (in some cases without limitation) and  Introductory fees (IFAs).

“If we keep making the same decision over and over again we should not expect any different results.”  Peter Drucker

The 1855 Club

The 1855 Club offers wine lovers across the globe the opportunity to have a shareholding(s) in a wine company which trades exclusively in Bordeaux Grand Cru Classés. The ethos of The 1855 Club is not only to obtain returns but also to deliver knowledge and enjoyment to those who wish to gain a wider education of the wines of Bordeaux and great cuisine through experiences gained by visiting and staying in the best Châteaux in Bordeaux, attending exquisite dinners, tastings with wine makers, quarterly insider newsletters, limited edition books and even grape picking if that’s what you would like to do!

Tax advantages

There is now a new route into Fine Wine investment which offers qualifying UK tax payers an advantageous and tax efficient opportunity – invest in an EIS company (Enterprise Investment Scheme). An EIS has considerable tax benefits for investors.  I have listed some of these below, just in case you are not familiar with them:

• 20% income tax relief – if held for 3 years. 
• Disposals free of CGT after 3 years
• Qualifies for Business Property Relief after 2 years therefore becoming IHT exempt.

Summary

Although biased towards the UK tax payer, the 1855 club will also suit wine lovers around the world offering a marvellous opportunity to indulge in a favourite hobby, gain more knowledge, have experiences that you can regale to your grand children and be involved in an investment that is quite unique as you can influence the returns you can achieve.

Dominic:  Thank you Nick, that was very interesting.  If you are reading this and you are interested in learning more about how to invest in wine or would simply like more information on what is becoming a very impelling investment story then please contact us.  You can also see Nick’s website at www.interestinwine.co.uk

Child Trust Fund - investing for the future

FEBRUARY 3RD, 2010 By DAVID
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We are often asked by clients to recommend investments for children and grandchildren.  The starting point when considering investments for children is the Child Trust Fund (CTF), which is a tax efficient long term savings plan.

CTFs have been available since 6 April 2005 and apply to all children resident in the UK born from 1 September 2002.  The main features of CTFs are:

• Normally opened by a parent or guardian who will be responsible for managing the plan until the child is age 16

• The Government contributes £250 to each CTF at birth and a further £250 at age seven (children in low income families may receive a further £250)

• The maximum that can be contributed to a CFT each year (between a child’s birthday) is £1,200 from all contributors e.g. parents, grandparents etc 

• Unused allowances cannot be carried forward

• No UK tax on income and capitals gains

• Parental settlement rules do not apply

• Cannot be accessed until the child reaches age 18, although the child can make investment decisions from age 16 and the provider can be changed at anytime

• On the child’s 18th birthday, the CTF will cease and the child will be able to access the money.  If the money is not taken then it can be rolled over into an Individual Savings Account (ISA)

There are three types of CFT available:

• A savings account CTF which is essentially a deposit account

• A stakeholder CTF which invests in shares and must meet certain Government standards on charges, payment options and minimum contributions.  Once a child reaches age 13, a stakeholder CTF will gradually switch into less risky investments

• A non-stakeholder CTF which invests in shares.  Non-stakeholder CTFs generally have greater investment choice and are not subject to the Government standards on charges, payment options and minimum contributions.

As well as providing a lump sum at age 18, which can be used to pay for higher education costs, CTFs should hopefully introduce children to the concept of saving and the benefits associated with it.

Whilst CTFs should form the foundation of any investment planning, there will be some children who are not eligible for a CTF (because they were born prior to 1 September 2002) or whose parents already contribute the maximum each year to a CTF.  For these children, there are a number of alternative plans such as regular saver bank/building society savings accounts and lump sum/regular saver investment plans.

A day in the life of a financial planner

JANUARY 20TH, 2010 By ADAM
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As my role as financial planner within Xentum I thought it would be interesting to give you a brief insight into some of my current projects:

Researching existing investments

One of the first jobs we do for new clients is to analyse their existing investments (or pensions).  It has not been unknown to spend a day simply trawling through what we call ‘a box of tricks’, in other words, a box full of financial paperwork.  Now this may seem an unenviable task to most, but I actually quite enjoy it.  The investments that have been collected over the years often tell a story of their own. 

I am currently working on a ‘box of tricks’ for a married couple who hold a number of investment bonds and unit trusts with various investment companies. In the past week I have been contacting these companies (a laborious but necessary part of my job).  Once I have all the required information I will start to research these investments and then provide the clients with a concise analysis of their overall portfolio.  This document provides a good starting point for any advice we give and is the first step to taking on any new client with existing investments.

Arranging life cover

One client currently has a significant IHT (inheritance tax) liability and along with their solicitor, we have been instructed to look at potential options to cover this liability.  One of the simplest and most cost efficient ways of doing this is through life protection.  I am therefore currently researching the different types of life cover available and the best premiums on the market for these options.  Once I have collated all this research, we will then sit down with the client and advise on the most sensible option going forward.

Finding a solution for a client’s windfall

One of our longstanding clients recently received a windfall.  The shares that had been passed on by the client’s deceased husband had suddenly become worth a considerable amount.  This is because the company with which she held a large number of shares became subject to a management buy out (MBO).  David, our head of technical is currently working on the tax implications of this windfall.  Once we have these, we will then sit down as a team and talk about suitable strategies for the client before agreeing a course of action.  The solution that we decide on in this case will need to balance a number of factors including; income, security, tax implications (particularly IHT) and capital growth. For a complex issue such as this it’s important we work in collaboration with the client’s solicitor and accountant to create the best outcome.

Xentum website

Finally, I’m in the process of overseeing changes to the website making it more interactive and educational for everybody.  So please keep an eye out over the next couple of weeks for any changes and feel free to make any comments or suggestions as to how we can improve the website for you.

The importance of reviewing with-profits investments

DECEMBER 1ST, 2009 By DAVID
1 RESPONSE

What are with-profits investments?

With-profits investments have been central to the long term savings plans of millions of individuals and it is estimated that £39bn is currently held in with-profits mainly through pensions, endowments and bonds.

A with-profits investment is a long term investment which aims to provide a lump sum at a date in the future or in the case of a with-profits annuity, a yearly income with the possibility of investment growth over time.

The premiums paid by policyholders are pooled into a fund, which is used by an insurance company to invest in different types of assets e.g. equities, commercial property, corporate bonds, gilts and cash deposits. 

With-profits investments grow through the addition of bonuses to the policy, which take the form of regular (annual/daily) bonuses and a terminal (final) bonus.  The amount of bonus, and whether a bonus is added at all, depends on how the underlying investments in the fund perform and how the insurance company expects them to perform in the future.

Insurance companies use a process called smoothing to hold back profits in years of good investment growth to top up bonuses in years of poor investment growth.  With-profits investments have traditionally been marketed as a cautious investment to investors looking for higher returns than a bank or building society savings account but without the risks associated with investing in the stock market.

Why is there a need to review with-profits investments?

The recent performance of with-profits investments has been poor.  Many with-profits funds are suffering the effects of declaring bonuses in the 1990s which in hindsight could not be justified, and the fact that when stock markets fell between 2000 and 2003 many with-profits funds were too heavily invested in equities. 

The weaker life companies became during this period, the less able they were to hold equities, which in turn forced them to sell equities and to switch to less risky investments.

The adoption of more cautious investment strategies, partly as a response to regulatory concerns that some life companies did not have sufficient solvency capital, meant that many with-profits funds did not benefit from the stock market rally between 2003 and 2007.  The upshot of which has been that most with-profits funds are now offering very low regular/terminal bonuses or worse still no bonuses at all.

In addition to offering poor returns, many life companies have chosen to apply market value reduction penalties to ensure that policyholders do not leave the with-profits fund with more than their fair share of its assets.  This is to protect policyholders who remain in the fund, but it also means that policyholders who decide to surrender their investment or switch out of the fund will receive less than they had expected.

What can be done to improve the situation?

Depending on the type of policy you have, you may be able to switch to another fund, sell the policy, transfer to another provider or surrender the policy altogether.  Whether this is the right thing to do will depend on a number of factors and you should always seek independent financial advice before making a decision.  The main factors to consider, in addition to the current bonus rates, include:

• The financial strength of the life company managing the with-profits fund.

• The asset allocation and investment strategy of the with-profits fund.

• The remaining term to maturity.

• Are there any benefits or guarantees that will be lost if the investment is transferred, surrendered or switched into another fund?  Some pension policies have a guaranteed annuity rate, which means that the policy may provide a higher pension income at retirement than the annuity rates available in the market.

• Are there any charges or market value reduction penalties that will be levied if the investment is transferred, surrendered or switched into another fund? 

• What is the possible cost of replacing any life cover that will be lost by stopping a policy?

• Does the investment have spot guarantees?  Many with-profits investments have spot guarantees, which offer the opportunity to exit a policy early on certain dates without incurring a market value reduction penalty. Although they often apply on the tenth policy anniversary, they must be exercised within a limited time period, otherwise the opportunity is lost. 

Clearly the changing nature of with-profits funds means that with-profits investments should be regularly reviewed to ensure that they continue to meet expectations.  This is especially relevant, as huge volumes of with-profits bonds were sold between 1999 and 2001, and these policies are now approaching their spot guarantees. 

At Xentum we have been proactively reviewing the legacy with-profits investments that our clients hold, and recommending alternative investments where appropriate.

Be a step ahead with your savings

NOVEMBER 23RD, 2009 By ADAM
5 RESPONSES

You cannot pick up a weekend paper at the moment without a headline about the current dilemma for savers.  The Daily Telegraph recently stated that 9 out of 10 savers fail to make any money on their investments and many even lose money after inflation.  The primary reason for this shocking statistic is that the vast majority of savers are not making their cash work hard enough.

Banks are constantly attracting new customers with headline rates and special deals.  Once your term is up, however, it’s time to get a new special deal or get left behind in some bank default account often earning next to zero interest.  The difference between obtaining a rate of 4% in comparison to a rate of 0.2% can often run into the hundreds, if not thousands, making it vital to search for the best deals on offer.  Assuming that the bank will treat you fairly and place you on their best deal automatically will lose you money.  After all, banks make a margin on your savings so the less interest they can get away with paying you, the more money they make!!

When you are deciding on a new account, it is also important to read the small print.  Here are a couple of things to look out for which crop up all the time.  Is the headline rate offered on the full amount or is that rate tiered?  With a headline rate that sticks out from the competition, there is usually a catch, ie. must be balances over a certain amount or tiered rates on certain amounts.  These types of accounts are becoming more common within the marketplace so watch out - simple can sometimes be best.

Are you being offered a savings account or an investment?  This is very important.  We often come across clients that have been led to believe that they have a fixed term deposit account with a bank, when in fact they have invested in a structured product (which is a completely different beast altogether) and of course the banks will earn a commission from selling you one of these.

You have worked hard to save this money, therefore, don’t let the banks take this hard work away.  Take proactive responsibility for your savings and make sure that you get the rewards you deserve.

Written by Adam Carolan

Economic insight from a chief investment officer

NOVEMBER 3RD, 2009 By DOMINIC
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Well, it’s been another busy week of client meetings and I’m pleased to say I gave a well received presentation to the members of the Altrincham Rotary Club last night. I’m frequently asked questions about the state of our economy and how it will impact on investments.  I really felt you’d benefit from some informed comment from Peter Botham, chief investment officer for Brown Shipley. We’ve been using the services of Brown Shipley for a number of years and Peter’s extensive investment experience makes him best place to respond to these commonly asked questions.

Dominic: What kind of recovery do you think we are in for?

Peter: Over zealous enthusiasm of just a few weeks ago has largely disappeared, with economic data from governments as well as companies confirming that we are still in recession and the ‘v’ shaped recovery looks highly unlikely. 

For the UK, in particular, there will be a hard slog, with our own economy being one of the worst hit and slowest to recover anywhere in the world.  Fortunately, the sharp fall in the value of the Pound will assist the export trade but even an influx of tourists, who find that the UK is a cheap place to go shopping, will not be sufficient to off-set rising unemployment and reduced discretionary expenditure resulting from increased taxation.  As investors we should be grateful that over 50% of total earnings for UK companies are derived from outside these shores.

One can see a scenario for the UK where we have a gentle recovery but this then tails off as monetary conditions are tightened in the second half of 2010.  This might well entail the end of quantitative easing and a rise in Gilt yields.  In essence then, the outlook for UK equities is much better than for Gilts.

Dominic: There has currently been a lot of talk about either high inflation or maybe long term deflation.  What is your stance on this issue?

Peter: Whilst there is little inflationary pressure in evidence at the moment, there are several reasons for believing this is only temporary.  The mere fact that inflation is a rolling twelve month figure and we are currently at the low point for many input prices is likely to see the figure nudging upwards, particularly in the UK.  Also, with Sterling having fallen so sharply in the past year, there is a likelihood that the increased price of imported goods will add a little bit more to the under-current.  But, fears of higher inflation around the world are chiefly derived from the possible impact of the vast increase in global liquidity which has occurred in an effort to ensure the continuation of the global banking system.  Whilst the impact is minimal whilst banks hold on to this cash as part of their gradual return to solvency, one has to fear that once this recovery has occurred then banks will begin to release these funds in to the economy, and there have been few occasions in history when rising money supply has not led to rising inflation.  Index linked bonds in the UK and USA have out-performed conventional government bonds by a wide margin this year, and we see no reason why this should not repeat again in 2010.

Dominic: What advice would you give to any first time investors?

Peter: Arguably the biggest lesson that has been re-emphasised is the importance of diversifying one’s investments. 

Investors who relied on equities but believed that having a broad spread of stocks would act as some sort of prop merely discovered that all shares behaved in a similar fashion.  One pities the poor (actual!) investor who bought large holdings in all of the UK banks, thinking this would provide diversified security!  Taking too much risk without sufficient recognition of the downside possibilities is a recipe for disaster; remember that the investor who loses 50% in the market fall but gains 50% in the recovery is still losing 25%.  The risk aware investor who diversified his assets lost 20% in the fall and only gained 20% in the rally – but that means he has only lost 4% at the end of the period.

Dominic: Are emerging markets likely to show more growth than the developed nations over the long term?

Peter: With the balance of economic power set to shift from West to East over the 21st century, one can see that this trend will be reflected in the relative performance of the equity markets.  Current valuations between Emerging Markets and developed economies are broadly level but share prices are a function of earnings growth and cash flow (dividend paying) characteristics.  Therefore one has to conclude that over the next decade we will see the higher rate of economic growth reflected in above average equity returns.  Markets in the Far East, led by China, will continue to prosper but, given the scarcity and dwindling levels of most commodities investors will also see gains from the Latin American and East European nations rich in oil, metals and coal.

Dominic: Finally, the emotive issue of our properties.  Do you think we will see another era of house price booms in the near future?

Peter: With the small localised exception of a bonus driven bubble in west London, it is difficult to see how house prices in the UK can do much more than stay level over the next year or so.  Bulls point to a scarcity of supply but even for those who wish to jump on the housing ladder, a shortage of mortgage availability is an even more important issue.  Unemployment is unlikely to fall by much, if at all, over the next year, which has traditionally had a dampening effect on the housing market.  Not only do those without a job stay away from the estate agents but also the many thousands who fear that they could be the next victims of a P45 also do likewise.  Perhaps one of the biggest stimulants to housing markets in the UK has occurred when prices are rising strongly, since a bandwagon develops whereby residents become quasi investors and jump on to the wagon for fear of being left behind.  Without this price momentum, homeowners can afford to sit tight.  For investors, the options in commercial property appear to be much more attractive than in domestic housing.  But……..in 3-4 years time there WILL be another bubble.  We’ll have worked through the credit crisis, banks will be lending again ( not always wisely ) interest rates at 5% will still make a mortgage very affordable, and the world will once again be gripped by an asset price bubble.

Funding higher education the smart way

AUGUST 25TH, 2009 By DOMINIC
3 RESPONSES

Congratulations to all those who passed their A-levels in the past week and are heading off to the uni of their choice next month. It’s an exciting time for undergraduates as they embark on the next phase of their lives but at the same time it must be marred by the harsh realities of this generation’s student life; heavy debt and a lingering recession.

I read with interest the findings of the Push Student Debt Survey that said students starting university this autumn can expect to graduate owing £23,000. Ouch. It was a gloomy forecast highlighting an average annual debt of £5,000, with the type of degree course and university location influencing this already shocking figure.

In fact my god daughter has just found out she’s been accepted at Worcester to do a teaching degree (well done Katie) and has come to her own conclusion that she’ll stay at home and commute to the university daily. Her parents wouldn’t have denied her the ‘away from home’ experience but are quietly relieved she made this decision (for the sake of theirs and Katie’s future bank balance).

I’ve had a flurry of calls from clients asking about investment surrender and the best way to release funds periodically to help bank roll their kids education over the next few years. This is all fine and can be done but really the best advice is start planning as early as you can.

Take advantage of the Government’s Child Trust Fund initiative (for children born after 1 Sept 2002), the investment version as opposed to the cash saving plan. It’s a no brainer not to utilise it, as it’s a tax free savings plan which doesn’t involve a huge financial outlay. The maximum annual investment is £1,200. Based on an annual premium of £1,200 at a growth rate of 5% (factoring in charges) at the 18th year, if you’d started the year your child was born it would have a cumulative value of £35,446.80. Pretty impressive.  So, if you have a young family and haven’t already started, get your direct debits set up and get the ball rolling. For children born before this date look at tax free ISAs and mentally designate it for your child’s higher education.

 Ask your financial planner about trust funds, again, start early and you’ll reap the financial benefits later.

Taking the long term view, it’s a good time to invest in shares, particularly while the market is relatively low, it’s already climbing, so start now.

Some of my clients have taken advantage of the falling housing market by buying property in the town or city where

their child is studying. The rental income from house shares can cover the mortgage or go towards your child’s allowance if you’re able to buy outright. You can always keep hold of the property after your child has finished their studies and confidently continue to rent it to the student or young professional market.

Whatever your budget there are quite a few options for helping to support your children through higher education but I can’t stress enough the importance of starting in their early years. It’s not about being a pushy parent, it’s about sensible planning. Even if they don’t go to university it will never be a wasted investment.