Transact Cash Balances - Explanation!

A number of clients have asked us recently about Cash balances within their Transact accounts, so here is a quick explantaion.

Firstly, there will be times when a client prefers to hold a cash position with all or some of their investments. This may be due to the planning of taking an income or, as is the case at the moment, wish to remain safe with their investments for a time. Secondly, it is to ensure that there are funds to pay the charges.

When our portfolios are set up they always include a minimum of 2% as a cash balance. This is to ensure that there is cash available to pay to fees associated with the plan and service.

As charges are taken from the cash balance the level of ‘cash’ within the portfolio drops. This can then be pushed back up to the required level, through either receipt of income payments from investments and or, a regular automatic rebalance.

Any clients who would like some further information please contact us. Anyone interested in Transact please call us on 081 271 1280 or e-mail info@reevesifa.com

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What would happen if Greece defaulted?

With the Greek debt issue all over the media we thought we would share this article from the BBC website which gives a short outline.

Europe's banks are big holders of Greek debt, with perhaps $50bn-$60bn outstanding. An "orderly" default could mean a substantial part of this debt being rescheduled so that repayments are pushed back decades. A "disorderly" default could mean much of this debt not being repaid - ever.

Either way, it would be extremely painful for banks and bondholders.

What's more, Greek banks are exposed to the sovereign debts of their country. They would need new capital, and it is likely some would need nationalising. A crisis of confidence could spark a run on the banks as people withdrew their money, making the problem worse.

A Greek exit from the euro is seen by some as inevitable if the country defaulted. The big question would then be, what about other heavily-indebted nations in the eurozone?

 

It might be a repeat of the collapse of Lehman Brothers, which sparked the credit crunch that pushed Europe and the US into recession.

What does all this mean to the UK?

According to figures from the Bank for International Settlements, UK banks hold a relatively small $3.4bn worth of Greek sovereign debt, compared with banks in Germany, which hold $22.6bn, and France, which hold $15bn.

When you add in other forms of Greek debt, such as lending to private banks, those figures rise to $14.6bn for the UK, $34bn for Germany and $56.7bn for France.

However, any knock-on from Greece's troubles would exacerbate the UK's exposure to Irish debt, which is larger.

The UK's direct contribution to any Greek bailout is limited to its participation as an IMF member. But the indirect effect of a Greek default on the UK would be incalculable.

Source of article: BBC iPad application 04/11/11

Contact the office for a FREE no obligation appointment to discuss any of the above issues raised or who these may affect your investments on 0871 271 1280 or e-mail info@reevesifa.com NOW!



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Case Study - Wealth Matters: Joint holdings will help your husband

I saw this question asked in the Sunday Times & I thought I would Blog about it & give you my thoughts on the response.

I have shares, bonds, Isas and cancer. Is there anything I can do now to make my husband’s life a little bit easier when I die? I am 61, he is 69 and we are both retired.
I have £1,000 in shares, £41,000 in a bond due to mature in November and Isas worth £8,000. I have a full state pension plus a £960-a-year private pension.
My husband has a £50,000 two-year bond and Isas worth £24,000. He has a full state pension plus a £30,000-a-year private pension.
We have £16,000 in two current bank accounts in both our names.


If you are not concerned about maximising your legacy to your wider family, the simplest plan is not to have much money in your sole name.

Ensure your will is up to date and put all your holdings into one savings account in joint names with your husband. Jointly held accounts and investments revert to the survivor as you would legally be joint tenants.
Since the survivor owns the holding in his or her own right, there should be no problem dealing with banks and the like before or after the death of one of you. Your current accounts are held like this already, but you should add your husband’s name to your sole accounts.

Jason Butler at Bloomsbury Financial Planning said: “You could cash your holdings and give all the money to your husband. As long as his total taxable income remains below £35,000 (after deducting the basic personal allowance of £7,475 as his income is already above the income threshold of £24,000 for age allowance), he will not pay higher-rate tax.”

However, in giving your husband your capital now, you may be exposing him to so-called “hostile creditors”, such as the local authority if your husband eventually needs means-tested long-term care.

And if your combined estates are worth more than £650,000, inheritance tax would be payable when he dies. But this is not a problem unless you wish to leave assets to others.

The same applies if you own your home. As joint tenants, your husband automatically inherits your share.
But if you become tenants in common you can dispose of your share as you like. You could create a trust to put your share beyond the reach of hostile creditors.

Source of this article (http://www.thesundaytimes.co.uk/sto/business/money/investments/article803727.ecee)

There are a number of things highlighted in the answer given by William Kay (Sunday Times journalist) - all of which should be taken into consideration. This is unfortunately a very common situation for lots of people these days and obviously it's a very stressful & worrying time for all concerned. The main reason for putting this Blog up was to really hit home our important it is to get plans in place.

In summary anyone that develops serious ill health should seek financial help. It could well be that there are important decisions that affect significantly the financial well being of their partner or even the family in the longer term.

Contact the office for a FREE no obligation appointment to discuss any of the above issues raised on 0871 271 1280 or e-mail info@reevesifa.com NOW!

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CASE STUDY - I WISH I HAD PRIVATE MEDICAL INSURANCE!

Our colleague Liam Naulls had his Anterior Cruciate Ligament Reconstruction operation last week so we thought we would re-post an old blog to really hit home the point.

In January this year Liam sustained a serious knee injury playing football. After a bad tackle he ruptured his cruciate ligaments in his right knee, which required a full reconstruction.

If Liam had, had Private Medical Insurance (PMI) he would have had the operation a lot earlier . He could also be now recieving regular physio if he had added a few benefits to a PMI package.

The NHS has huge pressure on it, with long waiting lists, which is why Liam had to wait 9 months for his operation. With this in mind the number of people trusting in PMI and actually taking the option of PMI is on the increase (http://www.hi-mag.com/health-insurance/product-area/pmi/article370903.ece).

"This whole scenerio has made me realise the importance of PMI, and in hindsight I wish I had had some in place as I would be on the mend now." Liam acknowledged, "At 28, I thought why would I need it? But this has highlighted to me it is very much necessary".

At present we are working in conjunction with a PMI organisation, and from as little as £4 a week you can a basic plan that would enable you to use private medical faclities! If you would like to talk about PMI contact us on 0871 271 1280 or e-mail info@reevesifa.com now to speak to one of our experienced team!

Decisions to make! – Ill health as you approach Retirement

Our experience shows that ill health is something that affects all sorts of people at all sorts of times. It is something that we can not always predict. As we grow older the greater the chance of developing serious ill health.

As people approach retirement the best of plans may be thrown off track and never to recover. Ill health forces business sale maybe house sale, which are two common areas that we would all like to avoid. All serious retirement plans must have provisions and options for ill health.

Unfortunately ill health is something that becomes more likely as we grow older. What should you do if serious health comes to you before retirement?

First of all you need to seriously assess the seriousness of the condition or illness that you have.

You need to address the needs of your family both in the long term and short term. What will their needs be, how will they cope.

Having looked at that you need to assess the options on your pensions and assess the rules and how it affects the numbers and benefits on your pensions. What are the implications of taking benefits immediately compared to waiting to take the benefits.

Again depending upon your state of health you may seriously need to consider how the benefits are for your family upon death. Both immediately and if you have started taking the benefits.

In Summary anyone approaching retirement that develops serious ill health should seek financial help. It could well be that there are important decisions that affect significantly the financial well being of the family in the longer term.

Contact the office for a FREE no obligation appointment to discuss any of the above issues raised on 0871 271 1280 or e-mail info@reevesifa.com NOW!


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Case Study – Taking Income During Poor Economic Times

This is a case study based on a true story. It demonstrates how a good, well thought out retirement plan, supported by a diversified portfolio of pensions and other investments can deliver maximum opportunity for clients in their retirement – even in times of depressed market values.

Right now the client is faced with a decision of where they get their retirement income from. Their portfolio has lost money in the last 6 months which is reflected in their pension fund.

5 years ago we produced a flexible retirement plan for ‘Dave’ on the basis that he would be stopping work between 2010 and 2013. The date was flexible due to his and his employers needs. Unfortunately, he had no secure final salary pensions and his retirement plan was based totally on how and where his investments were placed. He needed growth on his investment to achieve an adequate sustainable retirement income for him and his wife. To do this meant that his portfolio would need to be exposed to some element of risk to his capital value.

We now know his retirement day is due in February 2012. He has been through a series of reviews and amendments to his retirement plans over the years. His portfolio has been reviewed and changed as part of the Reeves Portfolio management service.

His position right now is that he has a portfolio of investments that is held within the Transact Platform / Wrap (See previous Blog for description). He also has a portfolio of ‘savings’ held outside Transact which is predominantly cash held within Cash ISA’s and other low risk products.

The Transact portfolio is valued in 6 figures and administered and managed within the tax wrappers of personal pensions, ISA’s and a life insurance Bond. Across all wrappers he holds a mixed portfolio of investments ranging from cash, government and corporate bonds, property and equities. The equity portfolio also covers a mix range of markets including European and financial stocks. These latter investments have clearly been hit hard in recent months.

The issue as stated before is how and where the client now gets his income from. He is reluctant to cash in his pension with the fund value being lower than in was 6 months ago.

The flexible retirement plan that we put into place is now coming to fruition. Despite having significant amounts of cash in equities across all tax advantaged wrappers he still has options and opportunities of where he can draw his income from.

Since the client has no mortgage and owns his home the option of using equity release has always formed part of his retirement plan. At this time and as planned, the option is not one we wished to pursue. This may be accessed later in retirement.

Clearly spending a percentage of capital is an option to fund year ones income. Spending a percentage of the deposit money that currently attracts low rates of interest and is attracting no tax advantages would be a major option. This would avoid selling equity and other investments that were currently showing losses. Maintaining the pension funds in full would have added bonus of maintaining the maximum death benefits in his estate in case of the worse thing happening and avoid buying an annuity till he knows the best option to suit his family in the long term.

Upon closer inspection of the Transact Portfolio the benefit of a mixed investment portfolio was clear. Despite the whole portfolio going down in value over the past 6 months there are asset classes and funds that have showed gains. It will be possible to sell down these units which have gained ground to provide for the clients income. These were more cautious funds that were predominantly invested in corporate bonds and some of the portfolios also had cash elements too. These funds that showed gains / avoided losses were held within the pension and the bond accounts and provided an opportunity for providing tax free income as well as selling assets that had performed better than cash and an opportunity to sell at attractive rather than depressed prices.

The bond enables a client to draw a tax free income of up to 5% of the original investment each year. Hence the sale of the positively performing asset would be paid tax free. Since, this would not take up all the annual allowance for tax free income it would mean that there is provision for taking out tax free income in future years when the markets are generally in a better state.

Up to 25% of the pension fund is available as a tax free lump sum. With the balance the client can buy an annuity or take no income through the use of drawdown. To maximise the opportunity of selling the positive assets and avoid selling assets at a bad time the option would be to utilise a percentage of the tax free cash for an amount equal to the fund size of the positive assets. For example £5000 tax free cash would be taken and paid to the client; this would represent 25% of possible tax free cash available from a fund of £80k. £15000 would be switched to drawdown with no income being taken – leaving the badly performing assets untouched till there is change with the family health situation and or the assets start to show positive returns.

Having established how the client can achieve the required income for the next year we have minimised tax and retained flexibility for the future year’s income and eventual passing down the client’s wealth to his family. We have also maintained the portfolio in a position to continue to build value since the client may well have another 20 or 30 years to go.

The above may sound complicated to those that are not involved but the summary is that a well planned, flexible retirement plan can provide tax efficient, sustainable incomes that help keep wealth within ones family – even at times in depressed markets.

Due to the way Transact and the Reeves Independent portfolio management service work together the above can be done very easily, time efficiency and minimum costs to the client.

Please remember that all client circumstances are unique and advice should always be sought. Not all relevant information is shown and names and figures have been changed for illustrative purposes.

Key issues covered:

Broad Portfolio of assets

Working to a feasible plan

Transact Platform / Wrap

Mixed portfolio of pensions, isa,s , Bonds and Deposit accounts.

Phased use of pension Funds and tax free cash

Drawdown options

Annuity Purchase

Portfolio management

All of the above is what Reeves Independent use within their portfolio management service.

To find our more about Reeves Independent Portfolio Management Service contact us on 0871 271 1280 or e-mail info@reevesifa.com for a FREE no obligation appointment!


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*Please note this article is not provided for advice purposes but aimed at encouraging private investors to think and discuss their circumstances and how it is impacted by what’s happening in the world. Professional advice should always be sought before making any decisions.

Where should I invest right now?

There is no doubt that this is a worrying time for people with investments.

The markets have seen some huge daily losses and then gains. We have the possibility of the long talked about double dip recession which will have the impact of reduced sales, reduced dividend payments and reduced company valuations. This applies to the UK, Europe and the states.

Additionally we then have the European issues going on. Centred around the well recorded subject of the debts of certain countries (mainly Greece, but also including Spain, Italy and Portugal). There is now a growing voice from politicians that Greece will default – something that they have been in denial for months. Any defaults may have an impact on the banking sector and the wider economy.

The key uncertainty is how this will end up? How will the Eurozone respond? What impacts will this have on the Euro zone? What impacts will this have on the economy within the Eurozone and further a field? What impact will it all have on your pensions, your savings and your investments? What impact will it have on your jobs and business?

Forecasting what is going to happen is pretty much impossible – Making any decisions very difficult. We are suggesting a number of issues need to be considered when making your decisions.

First of all what options do you have with your portfolio?

This is dictated by where your investments are held and managed. If your portfolio is ‘tied’ up with a life insurance company or bank you will be restricted by the possibly restricted investment options available through that contract. There may be switch costs involved if you do have investment options and of course you need to consider the practicality of how you actually make a switch of funds. At Reeves Independent we encourage the use of platforms / wraps for people wanting to make the best from their investments. This enables an open ended huge choice of legally permitted investments and options.

Your retirement Plan – How close are you?

A critical issue before assessing any investment decision is how this affects your retirement plan. If your funds drop in value over the next 3, 6 months etc how will this affect your plans? What happens if you lose value with your pensions and investments and it does not recover? How does this affect you? Are you on target for your retirement planning without having to take risks? At Reeves Independent we help clients put together very real retirement plans and we help clients work at keeping them on track through regular reviews. Ideally none of our clients that are planning retirement in the short term are wholly dependant upon investments for their retirement plans. They have time for things to recover providing they are able to cope with the roller coaster that we are on.

Play Safe?

A serious option for risk adverse client right now is to switch everything to cash. Maybe its time to cut ones losses before the inevitable. How would you feel if your investment fell a further 25% from now over the next few months? Within our preferred wrap / platform provider we have the option of switching into a cash account which is held within the pensions, bonds and stocks and shares ISA Portfolios. This would place your investments temporarily within 4 selected banks.

This would place your money within 4 deposit accounts spreading your risk in case of banking default. Do we know which banks are under threat?

Within our platforms we have a number of managed funds that predominantly invest in cash deposits which provide an alternative to bank accounts and provide a broader spread of bank accounts and deposit funds.

Of course switching to cash means that you would miss out on any positive reactions that prove to be sustainable and rewarding for investors that remained positive and confident. At the time of writing this the markets are up at 0.8% today after news of France and Germany having reached agreement on how to support and protect the banks.

Remain invested and ride out the storm?

There is no doubt that there exists undervalued business within the world markets. This reflects the lack of confidence in the world markets and expectation of recession combined with expectation of Greek default. If and when it happens and is formally confirmed then the markets will generally fall. However, many of these businesses will remain good and the brave investors should expect to see gains and rewards as the world recovers moving forward. Of course this is new ground which adds to the caution. There are stocks especially in the Eurozone and Financial sectors that may well prove to be at ‘bargain’ prices right now. Through the platform our clients have access to a number of specialist funds that have objectives to invest in financial sectors and parts of the European sectors to help those clients that are able and willing to participate in the risks associated with investing at this stage.

Alternative strategies

The right solution for many clients will form a mix of playing safe whilst trying to maintain some investment options. For those clients that have already shown losses on their investments and do not expect to need access to all their funds may well right now decide that they can’t afford to miss out on any recovery. The golden rule to avoid selling at times of loss is something that we should remember – especially if we believe and have time to wait for better times. Of course the phrase ‘time to cut our losses’ also springs to mind. Through an appropriate discussion about clients individual risk profile and their retirement plans the best decisions can be made for the individual.

Clients that want to remain invested with all or part of their portfolios may wish to consider switching to alternative areas. We currently feel that there is opportunity to be had by investing in The US Property markets. There has been significant losses over the past 3 or 4 years and at some point the bottom will be hit. Some people believe that is now – others think it’s too soon. Warren Buffet world investor has recently made significant investments in this area backed with a statement that this can’t go much lower (The US Property market).

Corporate Bonds – ‘Loans to companies’ provide an opportunity to outperform cash. There is an increased risk of capital loss compared to cash but less risk when compared to equity investments.

The US markets were doing well this year up till August. Since then things have slipped back after their own debt issues and the other factors mentioned above. For clients that are remaining with their investing strategies we feel that US equity markets provide greater opportunity for growth than the UK Equivalents.

To find our more about Reeves Independent Portfolio Management Service contact us on 0871 271 1280 or e-mail info@reevesifa.com for a FREE no obligation appointment!

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*Please note this article is not provided for advice purposes but aimed at encouraging private investors to think and discuss their circumstances and how it is impacted by what’s happening in the world. Professional advice should always be sought before making any decisions.