The Impact of Rising Interest Rates

July 11, 2022

We’ve seen inflation remain stubbornly highly at around 8%.

Central Banks have a mandate to keep, certainly the ECB, inflation at 2%.

When inflation remains stubbornly high they look to act and increasing interest rates is one of the ways they (Central Banks) will look to curb inflation they are looking to increase interest rates probably at every periodic meeting for the foreseeable future.

The inflationary pressure we’re seeing at the moment is a lack of consumer goods coming from China, it’s from manufacturing disruption from Covid lockdowns, it’s from sanctions on Russia, which is limiting oil and gas supply and it’s from lack of foods and grains from Ukraine because of the invasion.

Now, increasing interest rates isn’t going to increase the supply of consumer goods or foods or fuels, while it will obviously, curb other parts of inflation.

Another consideration for central banks is the level of debt.

The level of debt globally between governments, companies and individuals in 2021 was $300 trillion.

So an increase in interest rates is going to have an impact.

A lot of that debt will be fixed rate but taking a local example of individuals looking for mortgages the cost of mortgages will increase for new mortgages which means individuals will be able to borrow less and standard variable rates will go up and that will obviously put more financial pressure on people.

Other considerations then would also be that in the last maybe 10 or 15 years or so, we’ve seen low interest rates and bond-buying has had a big impact on stock markets and property markets, we’ve seen a big increase there (in stock markets and property markets).

Stopping bond-buying (by Central Banks) and increasing interest rates will put pressure on opening markets.

I think what to do is, for those with mortgages if you’re in the position to review or to change, I think it might be time to look into that while interest rates are low, it might save some money when other things are getting more expensive.

I think for investors and for pension investors who have funds based on the stock markets or direct stocks, I think it’s to look at your time horizon.

If you’re looking at a ten-year time horizon, long-term growth in the stock markets is positive, so I would be mindful of that and keep an eye on your time frame as opposed to short stock market volatility, which is unfortunately just part of investing.

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Are We (In Ireland) Heading For A Recession?

July 4, 2022

Currently, we are not in a recession and The Department of #Finance & The #Economic Social Research Institute are guiding us that we will not go into a recession.

Whereas a number of financial experts are expecting that it is likely that #Ireland will go into a recession.

💡With the rise in #inflation and the chance of #recession, I would expect consumers to continue spending less therefore the #SME sector will be challenged.

Internationally, I believe the #US will go into a recession and we will see #China‘s #economy slow down with the #EU expected to have a lower level of growth but not to go into a recession.

If you found this article helpful and would like to learn more, please comment below, share with your network or DM me – hlambert@hjlambert. Thanks for reading.

Tax Efficient Investment Options For Those In The Multinational Sector

June 15, 2022

✅ 𝐏𝐞𝐫𝐬𝐨𝐧𝐚𝐥 𝐏𝐞𝐧𝐬𝐢𝐨𝐧 𝐂𝐨𝐧𝐭𝐫𝐢𝐛𝐮𝐭𝐢𝐨𝐧
There should be a company pension scheme in place.

This will allow you to make an employee contribution or an additional voluntary contribution to your pension scheme and claim tax relief, and income tax relief on the money that you’re contributing.

✅ 𝐄𝐦𝐩𝐥𝐨𝐲𝐦𝐞𝐧𝐭 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 & 𝐈𝐧𝐜𝐞𝐧𝐭𝐢𝐯𝐞 𝐒𝐜𝐡𝐞𝐦𝐞
This is done on a personal basis, separate from your company.

You can invest in a basket of companies on a 4-7 year timeline and typically your investment serves as a type of funding for companies who are scaling their business.

✅ 𝐂𝐡𝐢𝐥𝐝𝐫𝐞𝐧 & 𝐃𝐞𝐩𝐞𝐧𝐝𝐞𝐧𝐭𝐬
If you take a simple equation by adding the value of your home or property, your pensions and your savings and take that as 𝐗 𝐢𝐧 𝐭𝐡𝐞 𝐞𝐪𝐮𝐚𝐭𝐢𝐨𝐧.

Then if you take the number of children you have and multiply that by 335,000 and that’s 𝐘 𝐢𝐧 𝐭𝐡𝐞 𝐞𝐪𝐮𝐚𝐭𝐢𝐨𝐧. – If X is greater than Y then your children and dependents will be liable for inheritance tax.

💡 From a tax planning point of view there are #insurance policies that will cover inheritance tax.

✅ 𝐒𝐦𝐚𝐥𝐥 𝐆𝐢𝐟𝐭 𝐀𝐥𝐥𝐨𝐰𝐚𝐧𝐜𝐞
You can gift anybody €3,000 a year tax-free – This will be tax-efficient inheritance.

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Investment Alternatives to Stock Options

June 8, 2022

For three weeks starting this week, I’d like to talk about some financial advice for those working in the multinational sector.

This week I’ll talk a little bit about some of the investment alternatives to those who have built up money through stock options.

Stock options are part of remuneration to multinational sectors through bonuses, pay or whatever it might be, and individuals can build up pretty significant sums over the years.

Stock options, by their nature are in one share in one industry, and when the markets turn or take a drop as they have this year you could face the full brunt of the drop.

There will be those who are happy to sit and wait for the price to recover.

And I certainly wouldn’t  advocate selling in a loss making situation.

But there will also be those who maybe aren’t as comfortable with the level of volatility that they’re experiencing, and they’ll be those who have that money earmarked for something in future may now be looking to try and protect it a bit more than it is now.

So for those individuals, there are lower risk and diversified options available and I’d be happy to discuss at any point.

I should also say that selling stock options does will likely incur a tax liability.

Potential Tax Bill For Co-Habiting Couples Buying A Home

May 30, 2022

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.

Company Investment Options

May 19, 2022

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.

Tax Efficiency For Company Directors

May 16, 2022

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. 

Ethical Investing and ESG

April 27, 2022

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.

Q1 Review and Outlook for Q2

April 21, 2022

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. 

Being Smart With Your Money During High Inflation

April 11, 2022

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.