News

Over the past week I have had three separate conversations with individuals who want to buy a property or a home with their partner, so I will write a little bit about that today.

Buying a property or home is one of the biggest purchases that most of us will make, and there’s plenty of insurance is around that, such as home insurance and mortgage protection, which will pay a lump sum to the bank, which should cover most of the mortgage if one person passes or one of the homeowners passed.

For partners or for cohabiting couples, in that scenario, if one person passes, their surviving partner goes from being the joint owner of the property to the seller of the property and that can trigger a capital acquisitions tax liability.

Depending on circumstances, that can be a significant sum.

So it’s just something to be mindful of when buying a property with a partner.

There are life insurance policies called life for another, which can provide a payment to provide some protection for surviving partner in that instance.

For three weeks starting two weeks ago, I’ve spoken about how company directors can gain more financial security and benefit from company profits and tax efficient way.

The first week I spoke about financial security and last week and this week will be about benefiting from company profits in a tax efficient way, and I’ll leave both links in the comments box below.

A lot of companies have built up significant cash reserves over the years, from retained profits. Company directors will always have to manage cash flow as a key part of the business, but some companies will have a surplus of cash over and above what they need to manage the company on a day to day basis or a year to year basis.

So with inflation at 6.5% and deposit rates at 0%, it’s difficult to justify keeping all money all money on deposit. What companies can do is that they can invest in a managed fund or an investment fund through the company.

The investment fund can set it up to full access just in case it might needed it in case of an emergency.

The taxation on the gains through a company is more efficient than on an individual basis, so it makes sense from that point of view as well.

For three weeks from last week, I’d like to write about how company directors can get more financial security and can benefit from company profits in a tax efficient way.

Last week I wrote about financial security and this week I’ll talk about benefiting from company profits. 

I’ve had many conversations over the years with company directors and business owners, and most would like to or would intend to sell the business at retirement to generate a cash lump sum. 

One of the most tax efficient ways to generate a cash lump sum from business is through a pension. 

As a company director, if you have 20 years’ service in the in the company, you can take 1.5 times your final salary as a tax free lump sum from the pension (that’s limited to €200,000). 

But it’s a substantial cash lump sum that you can generate from the business, and that can be in conjunction with the sale of a business so you can have the two.

In some instances a business isn’t sellable, and that’s usually because the Co. director or business owner is the business through their contacts, their capabilities, the relationships or whatever might be. 

So in that instance, it might be that the pension is the only way to generate the cash lump sum from the business. 

I read an article during the week about a fund manager who had sold out one of the company holdings in it’s funds as they felt they weren’t doing enough to reduce carbon emissions.

And that’s becoming quite prevalent, and has become quite prevalent, over the past several years where companies and investors are increasingly looking at the ethical considerations when they’re making investment decisions.

So for anybody who is wondering about ethical investment and what it means:

Investment fund managers will go through their normal investment criteria in terms of considering the financials, economic aspect of things, and then they’ll apply what’s called ESG, when looking at companies.

ESG stands for environmental, social and governance aspects of the company.

So from an Environmental point of view and they (pension/investment fund managers) look at the company, they look at their carbon emissions. They look at their pollution levels and how they’re trying to curtail those or reduce those.

They look at the Social aspect, which is how they deal with their workers. It’s the workers, rights, their conditions, the health and safety track records. Also data protection, which relates to worker and customers.

The last part then is Governance. Fund Managers look at the Board of directors. They look at the diversity of the Board of Directors, any sort of track record in terms of bribery or corruption. And they also look at the level of pay of the Board of directors.

So they’re just extra criteria that are applied to investment decisions.

It’s something I think it’s going to gather a lot of momentum for future investors. Aviva life and Pensions did a survey recently and they found that 70% of pension investors thought ethical considerations were important part of the investment process.

As we finish quarter one, I just want to write a little bit today about what happened in quarter one and what we might see in quarter two and into quarter three.  

As we started quarter one at the start of the year, global stock markets moved into negative territory pretty quickly and that was on the back of inflation concerns, which were supply chain issues from lockdown and lack of consumer goods and parts for consumer goods and we would have seen that a lot in materials for housing and for cars.  

That forced central banks to have a look at how would they would curb inflation and the US and their central bank, the Federal Reserve, started to increase interest rates and were due to finish their bond buying by the end of March.  

What that means is that it’s going to increase the cost of borrowing for businesses and consumers, which typically will slow an economy down.  

In the EU, there isn’t any sign at the moment of increasing interest rates, but they will reduce bond buying.  

The ECB have been buying the bonds of countries, which means it’ll make it more expensive for government to borrow and so and they will have to borrow less.  

We then saw the Russian invasion of the Ukraine and the horrendous hardship and destruction that put on the Ukrainian people.Global stock markets dropped further on the basis that the conflict might broaden out and involve more countries, and it didn’t in the end, but that’s not say that it won’t.  

At this point in time the stock markets have recovered most of the losses that they incurred at the start of the invasion.  

But it (the invasion) also created further inflationary pressures as Russia and Ukraine are exporters of a lot of foods and fuels, and a lack of supply of these will push up the prices and of foods and  fuels as we’re seeing in our shopping bills and in our fuel bills.  

On the local side, we saw a timeline for Auto Enrolment, which is the automatic enrollment of individuals who aren’t involved in company pension schemes into company pension schemes. The timeline given was January 2024 but they’ve (the Government) given themselves the option defer it, but that’s the timeline given.  

As we move into quarter two, I’d expect inflationary pressures to continue, as there hasn’t been a lot of resolution in terms of supply chain issues.  

We’re going to see a longer period of time with less foods and fuels available, and I think governments and businesses will be able to source other foods and fuels as a replacement.  

But if you have got a reduction in supply, unfortunately that’s just going to keep prices up.  

And stock markets, I think will continue to be quite volatile, and I think a lot of what’s there (Inflation, Invasion, Interest Rate Increases) has been factored in by investors as it is.  

So unless the conflict does broaden out or inflation gets worse, I think we should hopefully not see anything further to the downside.  

Depositors will be under pressure this year because inflation is so high and there’s no sign of deposit rates coming up anytime soon.  

The Department of Finance have said they still expect economic growth of 2 to 2 1/4 percent this year, which I think is pretty good all things considered.   

Unfortunately the Russia Ukraine conflict looks like that’s going to continue for quite a while yet. 

I read an article during the week in the Irish Times and it was forecasting inflation to increase 8.5%, which means the cost of living will increase by 8.5%, on top of that was a pretty high cost to start with.

I want to write today about how we can be as smart and efficient with our money as possible.

There’s a number of different ways that you could do that.

The first is tax relief on various financial products.

And the next is cash flow modeling, which is similar to budgeting.

And the last then is simple as shopping around to get better value on your health insurance and utilities.

So I’ll start with the first one, which is getting tax relief on financial products. If you’re someone who has taken on life cover on a personal basis for dependents or our families, and you’re paying €100 a month, there is a policy available which is pension term insurance.

It sounds like a pension, but it’s actually life over and you can avail of tax relief on the premiums. So if you’re paying €100 for life cover on this product and you’re paying the higher rate of income, you can claim 40% after tax back (€40). So instead of paying €100 you actually pay €60

Similarly, similar for illness covering you Income Protection.

So if you pay €100 a month and you’re paying the higher rate of income tax, you claim the 40%, which is €40 back.

Those two options are also available for company directors to pay from the company account and corporation tax is also available on monthly premiums.

So just a couple of smaller items to help be a bit more efficient and maybe save some money on financial products.

I started work in the Financial Planning industry in October 2007, right before the financial crash and learned, like many others in the industry working in the industry at the time, huge amount about investment risk and investment volatility. 

I’ve had lots of conversations with clients whereby you have had a good chat about their priorities, their budget and so on, and move forward with the decision to invest a pension or investment or regular saver. 

And then a conversation would come up about how much risk am I taking or how much could I lose, and I think it’s one of the best questions that you can ask when investing. 

Identify and Quantify Risk

So in terms of identifying the risk, that’s a good place to start. 

The industry has come on a huge amount in terms of measuring risk since 2007.  

When you’re investing, we do a quick risk profile questionnaire at the outset. That establishes the risk bracket that you are in.

The first thing to do is when you identify the risk bracket, to identify how much volatility or fluctuation in the price of the investments that you might see during a 10 year time period, and what the returns can be over that time period factoring in and the price volatility – so how much risk and return can you expect over the 10 year time period.  

 At least then you know if markets deteriorate, as we’ve seen this year, what can be expected.

Diversification

The next thing then, is to diversify so – across different regions, we’ve seen this conflict in one region, so to make sure you’re spread out across the world. 

 I put up a post on LinkedIn recently and it showed that certain companies had seen a big jump in the share price during locked in and they had seen a big drop this year. 

Diversification across different industries is also important you’re not getting total exposure to just one. 

Lastly, investing across different assets such as stocks, cash, bonds, property and alternatives like gold and commodities. 

Limit Exposure to Single Investments

In keeping with diversification, I think the next thing is that if you are going to invest in a particular sector or region or asset, it’s to keep that to about 20 percent of the overall portfolio and to make sure all your eggs aren’t in the one basket. 

Reputable Fund Managers

I think investing with a reputable fund manager is crucial. A company with a track record of delivering good performance and customer service for clients. 

Remain Invested

The last part is remaining invested, because when things do deteriorate in the markets, as they are at the moment, the first instinct is to exit the markets and then reinvest when they recover or settle down. But what can often happen is that you can exit the market on the way down and then you miss the recovery and so that that is a risk. 

If you apply the above principles to your investments, you will go a long way to managing your investment risk

Just wanted to share a blog on the Russian invasion of the Ukraine, from an investment point of view.

This comes a very distant second to what the Ukrainian people are enduring with remarkable courage.

When the invasion started last week, there was a pretty sharp drop in the stock markets across Europe. They were down up to 5% during the day, and there was a small recovery the following day, but I’d expect that sort of volatility over the the near term until investors get an idea of how long the conflict might last, or whether it’s going to broaden out.

Historically after conflict gets resolved, there is a a pretty quick recovery in the investment markets over a number of months, on occasion that has stretched out further.

From an economic point of view, the Russian and Ukraine economies combined to about 2% of the global economy, so the conflicts and the impact on their economy shouldn’t be enough to impact the global economy. They are resource rich countries so they export a lot of fuels and commodities.

So any sort of disruption to that (exports) will likely cause inflation. As an example, Russia pipes 40% of the EU’s gas into the EU, so if they were going to limit supply, that’s going to push up the price of gas in EU or may lead to a shortage. If there’s any sort of issue with supply will see an increase in the cost which will push fuel/commodity up into an inflationary situation.

What that means for consumers is higher fuel prices pump, higher shopping bills or heating bills, and certainly for the short term.

The invasion will also create uncertainty and instability in the EU and Western world.

I think that’ll feed into business and consumer confidence and will just mean that businesses and consumers hold off on making big investment decisions until they get an idea of whether it’s going to be stability anytime soon.

And that’s something that’s going to likely slow down the global economy.

And post COVID and lock down, a lot of the money that’s built on the sideline, particularly from a consumer point of view.

Consumer savings were expected to help drive the recovery, but that money is probably going to sit on the sidelines and for a little while longer.

For long term investors, I think it’s going to be very difficult to try and time this, with no sight of how long this could go one or what the intentions are of the Russian military. So to try to figure that out and try to time in and time out it’s going to be hard to do for investors.

For long term investors it’s a matter of riding out the storm.

Looking historically the stock market has recovered quickly.

Given the percentage of the overall global economy, the conflict isn’t going to take a major effect on that side of things.

So I think it’s a matter of remaining invested for long term investors.

A quick blog to share some thoughts on the new about the State pension age.

At the moment at 66 you can access the state pension. The full contributory pension is approx €13,000 a year.

For lots of people, that’s going to be all or maybe a lot of their retirement income, so it’s pretty material.

The news is about a recent Oireachtas Committee recommended keeping it to 66 going against a previous recommendation by the Pension Commission who recommended to start to move access to the State Pension to age 68.

The problem with keeping access at age 66 is that it’s not financially feasible for the Government.

At the moment, for every one person retired, there are four and a half people working, so four and a half workers taxes can support one person’s annual state pension.

Whereas on current projections in 2050, that’ll be two people working for one person retired so two workers taxes can cover one person and state pension. So it’s not sustainable from a government finance point of view.

Unfortunately I think changes would have to be made and it’s going to be a reduction in accessibility or a lower annual pension.

If this is the case we need to put a far greater emphasis on private pension funding, to counteract any reduction in the state pension.

Autoenrollment would be a solution to increase Private Pension Funding and has been spoken about for quite some time.

Autoenrolment has been rolled out  in the UK successfully. It means that  employers have to set up and contribute to a pension for an employee, and the employees have to match the percentage of their salary.

Initially it starts at a low level, so maybe the employer would contribute 2% of employee salary and the employee would match that.

At the moment, in the current economy with inflation, I think it’s going to be a difficult thing to do, so there will have to be the right supports in place for a tax point of view of a government point of view.

But I do think any reduction in the state pension will have to be offset by a broader plan on increasing private pension funding.

Some thoughts on COP26. Lots of issues discussed:

Phased reduction in coal
End of Deforestation by 2030
30% Reduction in Methane

$100bn per annum from 2021 – 2025 pledged by Developed Countries

Net Zero Emmissions by cars by 2040 for all countries

And much more…

Interesting investment information. A group of companies led by Mark Carney (former Governor of the Bank Of England) have pledged up to $130 TRILLION funding for technology and infrastructure for a move to renewables. Asset Managers and Pension Funds are included in this so likely we will see investments proposed to Private Clients.

Publicly quoted companies in the UK will have to disclose Climate Related Financial Info which will could help investors and fund managers when making ESG investments #investments #renewables