Current Economic Thoughts (Aug2010)

Investment Update

We are adding a new monthly installment to our Blog called Current Economic Thoughts. We will use it to show you the analysis of the markets and economy over the last month and finalise it with thoughts on the future. This is the August 2010 version.

As you know, last time we contacted you we recommended that you kept your money in cash due to the unstable markets. If you have been watching the markets then you will have seen that they have been very erratic.

When advising on investing we always take in to account your attitude to risk, your objectives and current market conditions. Obviously it will be natural for you to wonder why your money was not in the markets instead of cash when they started to perform above expectation. The simple answer is the markets could have easily gone the other way and this has been proven correct as the FTSE stands at a 7 week low and around the level that it was when we decided to pull out.


We are constantly reviewing and studying the markets as well as researching the “experts” opinions from a vast range of sources that we subscribe to. Although we still feel that a cash investment is right for some of our clients we are always looking to re-enter the market if we feel it is the RIGHT time for YOU.

To recap: Global markets have been extremely volatile of late and there have been instances of large gains and large losses. For many the time is still not right for investment. We have produced a longer write up of our thoughts on global markets which is available to all clients on request. Please email Patrick Leonard at: pat@reevesifa.com for a detailed market report.


The article above is intended to provide general information and does not represent a personal recommendation of any product or service. The value of investments can fall as well as rise and you may not get back the full amount invested. Past performance is not a guide to future returns. The sections within this article are opinion only and do not constitute advice. Charges may be applicable to any investments you make and are subject to change without prior notice. Please refer to our brochure for information on our other products and services.

Salary Sacrifice FAQs

Apologies for the lack of Blogs in recent weeks. It has been a hectic month at Reeves Independent, with various staff members taking their holiday's to warm climates, with the exception of the boss who had a week in Torquay (each to their own).

Recently we have done a number of salary sacrifice cases. Therefore we have done a Blog on some of the FAQ's we have been getting & provided answer to these.

What type of pension plan can salary exchange be used with?

It can be used with any type of UK registered pension plan – i.e. individual or group personal pension/stakeholder or occupational money purchase/final salary schemes. The main point to remember is that there must be an employer willing and able to make payments to the scheme after the exchange is made.

Can the self-employed use a salary exchange arrangement?

As there’s no employer to make a pension payment on their behalf, the self-employed cannot set up a salary exchange arrangement.

How can salary exchange be set up with a pension plan?

The employee exchanges an amount of salary that they would have otherwise paid to their pension plan. The employer then pays the amount exchanged to the pension plan as an employer payment. For example:

- Employee earns £20,000 gross yearly
- Employee currently pays 5% of salary to a pension plan – that’s £1,000 yearly
- Employee exchanges £1,000 of gross salary
- Employer pays this £1,000 (plus any employer payments) to the pension plan.

Can pension payments be increased just by using salary exchange?

Yes. Depending on how the NIC and tax savings generated are used, there are several options available. Our calculator can deal with the following four options:

 None of the tax and NIC savings generated are used:

- Employer saves as they pay less NICs on a reduced salary.
- If it’s the current employee pension payment that’s being exchanged their take home pay increases as they are paying less tax and NICs, albeit on a reduced gross salary.
- Pension payments remain the same.

Employee take home pay remains the same:

- Employer saves as they pay less NICs on a reduced salary.
- If it’s the current employee pension payment that’s being exchanged, they can exchange slightly more so that their take home pay remains the same.
- The pension payment increases by the extra amount the employee exchanges.

The employer reinvests their NIC savings into the pension plan:

- Employer reinvests their NIC saving into the pension plan.
- If it’s the current employee pension payment that’s being exchanged their take home pay increases as they are paying less tax and NICs, albeit on a reduced gross salary.
- The pension payment increases by the amount of the NICs savings that the employer makes.

Employee take home pay remains the same and the employer reinvests their NIC savings into the pension plan:

- Employer reinvests their NIC saving into the pension plan.
- If it’s the current employee pension payment that’s being exchanged, they can exchange slightly more so that their take home pay remains the same.
- The pension payment increases by the extra amount the employee exchanges plus the amount of the NICs savings that the employer makes.

Higher rate and additional rate taxpayers can claim additional tax relief. Does this affect the salary exchange calculation?

This depends on whether the exchange is being set up in a personal pension/stakeholder pension plan or an occupational pension scheme:

Personal pension/stakeholder pension (relief at source)

In the vast majority of these plans, pension payments are deducted from net pay – i.e. after tax has been deducted. These pension payments are then grossed up by the pension provider at basic rate only. The amount that can be claimed back depends on the individual’s tax position and their total taxable earnings.

Occupational pension scheme (net pay arrangement)

In these schemes, payments are normally deducted from gross pay i.e. - before tax - this has the effect of giving full tax relief on any pension payments paid. Our calculator will show this where the individual is a higher rate or additional rate tax payer by showing the payment before the exchange as being deducted from gross pay.

Will HMRC restrict or remove salary exchange arrangements in the future?

Whilst there’s no straight answer to this as it’ll depend on Government attitudes going forward, HMRC have published guidance together with questions and answers on salary exchange. So it seems likely that at least in the short term, salary exchange will continue to be available.

How can any employer NIC savings generated through salary exchange be used?

The NIC savings the employer makes can be used in many ways. For example they can be used to provide other employee benefits, increase pension payments, shore up deficits in a defined benefit schemes, or the employer may simply keep the savings. Remember however that the actual amount of salary that the employee exchanges MUST be used to provide a non-cash benefit to the employee, such as childcare vouchers, or pension plan payments.

Anything else you need answering? Interested in talking to one of our financial advisors about the possibility of introducing Salary Sacrifice for yourself, key employees or even your whole workforce. Please contact us on 0191 281 9862 or e-mail info@reevesifa.com for a FREE initial chat!

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Quote Of The Day 23/8/10

To be happy at home is the ultimate result of all ambition. (Samuel Johnson)

Improve Yourself Now = Brighter Future

“The time I spend improving myself now always pays bigger dividends later“.

Self-improvement is an investment of time and energy instead of an investment of money, but both pay excellent returns. It can improve your health, your emotions, your career, and your financial state. Here are four big areas anyone can work on in their spare time – and notes on exactly how to make it happen.



Improve your health - Just walking thirty minutes a day for twelve years adds, on average, 1.3 healthy years to your life. That’s 49 days of walking in exchange for 1.3 years of additional life – a brilliant trade. Doing more intensive exercise can add even more – 3.7 years of life on average.


Lets break this down, on average, a thirty minute walk will add almost five hours to your life. Go on a thirty minute walk each night after work and a single week’s worth, on average, will add a day to your life. That’s a profound argument for improving your health, even by taking simple steps.


Just because you are starting to get into exercise doesn’t mean that you have to neglect your usual hobbies. You can do sit-ups whilst watching Coronation Street and can listen to your favourite music on your ipod whilst you’re on the treadmill.


Improve your knowledge - “Knowledge is the base upon which creativity is built“. Exposure to new ideas and new angles in a mix with the unique set of ideas and life experiences you already have make it more and more likely that you’ll be able to produce unique ideas – and those unique ideas can be incredibly valuable.

One powerful way to do this is to read (you‘re obviously good at that as you‘re reading our blog :D). Take on a book that challenges you and pushes the way you think. This could be a sci-fi book, or it could be an autobiography that really inspires you and makes you want to achieve your goal.


Another effective way to get there is through conversation with a person willing to engage ideas. Share your thoughts, listen to what they share, and debate their relative merits. Accept that criticism of an idea that you presented is not criticism of you, but of the idea itself. This doesn’t have to be in person, the internet is huge, full of forums on every issue you could imagine. From Lindsay Lohan’s latest hair doo, to complex religious and scientific issues, if you want to discuss something then it’s very likely there will be someone out there that will put up a different point of view.





Improve your personal nature - Knowing who you are – your strengths, your weaknesses, your joys, your sorrows – makes it a lot easier to navigate the minefield of life. It’s well worth your time to figure out who you are and what you truly value.

Spend some time being introspective. Ask yourself how you honestly feel about the elements in your life. Are these things bringing you joy or sadness? Why? What elements, you ask? Look at everything: your health, your relationships, your activities, your possessions, and so on.

This type of introspection can be very difficult. Often, we want to feel certain ways about certain things and, on some level, we convince ourselves that we do. Digging through that, figuring out our true feelings, and acting on them results in nothing but life improvement.


Improve your relationships - Most relationships need some amount of care and feeding, but in the busy nature of modern life, it’s easy to overlook the care and feeding that some of our most important relationships require.

Take some time and simply talk to your spouse about how life is going. Give your mother a long phone call. Get in touch with your siblings. Look up some of your close friends that you’ve drifted away from over time. Listen to what they’re saying – appreciate their contribution to your life. Letting work take over your life only ends up in failure and depression. Remember you work hard for a happy and prosperous future, do you really want to spend that alone?

Contact Reeves Independent on 0871 271 270 to speak to one of our financial advisors who will be more than happy to have a chat with you about retirement planning or pensions.

Quote Of The Day 20/8/10

In any moment of decision, the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing.  (Theodore Roosevelt)

Quote Of The Day 18/8/10

“Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude“. (Thomas Jefferson)

Fund Focus July 2010

Fund Focus - July 2010

Shorder Income Fund


Fund Aims:

The fund's investment objective is to provide a growing income, predominantly from investment in UK equities. In seeking a yield higher than that offered by the major UK equity indices, the fund will invest primarily in above-average yielding equities rather than fixed interest securities. Investment will be in directly held transferable securities. The fund may also invest in collective investment schemes, warrants and money market instruments.

About the fund:

Fund Size: £1,361.0m

Launch Date: 31 May 1987

Sector: UK Equity Income

About the sector - UK equity income

The UK Equity Income sector is limited to funds which invest at least 80 per cent of their assets in UK equities and which aim to achieve a historic yield on the distributable income in excess of 110 per cent of the yield on the FTSE All Share index. The equity income sector is one of the more popular sectors among investors, and is often the core income producing component, favoured ahead of fixed income alternatives.

The funds in the sector have a number of strategies they can follow to generate income, the most obvious being to invest in high yielding stocks. The number of quality companies with stable and growing earnings whose shares are attractively valued, are few and far between however, and there is a danger of concentration in a relatively low number of stocks. The strategy can be supplemented by looking for unfashionable companies that never the less remain sound and are trading at a yield above intrinsic value. This is one of the most common approaches by funds in the sector and is primarily a value strategy and is contrarian by nature, a fall in stock prices can be a good thing as it allows funds to capture attractive yields, thus while total return may fall, income remains solid.

Alternatively, funds have the option to invest in growth stocks that have large potential for capital appreciation, and synthetically manufacture dividends by selling shares and return the proceeds to investors in the form of income. This strategy allows for broader diversification away from the few high income stocks available, although it is very susceptible to market movements. In the event of a down turn, the fund would be forced to sell shares at unfavourable prices in order to generate income, which would severely impact on the value of the fund. Many funds now employ a combination of these two approaches in order to maximise their returns and the income available.

Source of information: Financial Express

About the manager - Schroders

Schroders runs a diversified asset management business managing about £167.9bn of assets across multiple geographies, asset classes and distribution channels, ranging from banking through intermediary channels to institutions in both pensions and insurance, and to official institutions.

 Schroders is primarily an equity manager, although it does offer fixed income and property. It also has a multi-asset business, and offers quant driven equity funds, and a range of alternatives including hedge fund of funds, its own structured products group, commodities and emerging market debt.

Source of information: Financial Express

Comments

The Schroder Income fund exceeded expectations in July and has been the leading fund in our portfolio in terms of return. According to Morningstar data the fund has returned 8.84%* over the period 30/06/2010 to 30/07/2010. This is extremely encouraging given the global economic climate and the difficulties facing many fund managers.

Having said this, the fund was still in the negative over the 3 month period (30/04/2010 to 30/07/2010), returning  minus 1.86%*, again, according to Morningstar data. It is still quite apparent that global markets are as uncertain and volatile as ever and we do not expect this to change in the short term, especially considering the fragility of the economic recovery across Europe and the US where growth has been affected by economic headwinds. Many of our client’s are still exercising caution with their portfolio’s and a number are still holding a significant proportion of cash. For those that wish to avoid any short term fluctuations in value, holding cash is the best method for achieving this. For those that wish to discuss their strategy for re-entering the market please call one of our advisers on 0871 271 1280.


*Source data morning star

Reeves Independent, 47 St. Georges Terrace, Jesmond, Newcastle upon-Tyne, NE2 2SX,

0871 271 1280

Authorised and Regulated by the Financial Services Authority

This document is intended to provide general information and does not represent a personal recommendation of any service or product. The value of investments can fall as well as rise and you may not get back the full amount invested. Past performance is not a guide to future returns. The sections within this document are opinion onlyand do not constitute advice. Other charges may be applicable and are subject to change without prior notice. Please refer to our brochure for information on our other products and services. We will always recommend that our clients seek advice before making a decision on whether to invest.

Common Investment Mistakes

There is a difference between investor and investment performance. In 2008 the US stock market, as measured by the S&P 500, lost 37.7%. But investors did even worse by losing 41.6%. The US bond market, as measured by the Lehman Aggregate Bond Index gained 5.2%, but bond investors actually lost 11.7%. In other words, the stock market as an investment outperformed investors by 3.9% and the bond market beat investors by 16.09%.



This is not just a one year phenomenon. Every year the Dalbar company measures how investors performed compared to the capital markets themselves. For the 20-year period from 1988-2007, the US stock market, as measured by the S&P 500 returned 11.81%, but equity investors only earned 4.48%. For the same period, the US bond market, as measured by the Lehman Aggregate Bond Index, gained 7.56%, but fixed income investors earned only 1.55%. In other words, over the past 20 years the stock market outperformed investors by 7.33% and the bond market beat investors by 6.01%. If we’re not shocked, we should be.

At Reeves Independent we don’t like to rest on our laurels. We have studied WHY certain investors have failed previously and have looked at each aspect to make sure that we don’t make any mistakes.


So, what are investors doing wrong? How do they unintentionally sabotage themselves? These are ten broad categories of mistakes that we have seen investors make:

1. They have no strategy
2. Their strategy is to beat the market
3. They don’t hold themselves accountable
4. They listen to the media more than the math
5. They don’t count the impact of costs
6. They let emotions overrule numbers
7. They don’t understand or set a portfolio time horizon
8. They don’t define long term
9. They don’t understand all the risks
10. They measure risk tolerance instead of risk capacity

Follow us on www.twitter.com/reevesIFA and keep checking the Blog where we will be talking about how we have counteracted all of the above to make sure that we offer the best advice possible when you invest.

Personal Well Being

This is an introduction to a series we are going to do on personal well being, concentrating on happiness and relationships. We at Reeves Independent believe that a happy and healthy lifestyle added with hard work equals to a prosperous future.

In this series we will be talking about the following;

- Time management                                                  

- Improving your health

- Improving your knowledge

- Improving your personal nature

- Step by step way of improving and expanding friendships / relationships.

We will be concluding the series with an article on ambition, something that we are very passionate about. Ambition is the desire for personal achievement. It provides the motivation and determination necessary to help give direction to life. Ambitious people seek to be the best at what they choose to do for attainment, power, or superiority.

Nothing can stop the man with the right mental attitude from achieving his goal; nothing on earth can help the man with the wrong mental attitude. (Thomas Jefferson)

An Introduction To Salary Sacrifice

Some facts for you to think about before reading this article..

Facts-
-13.4m people DO NOT save sufficiently for their retirement
-Only 6% of people accept a lower standard of living in their retirement (This means 94% of people -want to continue or improve their standards of living once they have retired. The earlier you start saving the more money you are going to have when you retire thus letting you live a more comfortable life post work
- Men and women can expect to live to 82 and 85 years respectively

In the first of this 5 part series we will be talking about the benefits of Salary Sacrifice. Salary sacrifice is an agreement between the employee and the employer. The employee’s contract of employment is altered to reflect that they have agreed to exchange part of their future gross salary or bonus entitlement in return for a non-cash benefit such as an employer pension payment.

Still don’t understand? Here are some facts about Salary Sacrifice.

-Employees save on their income tax and NIC bill.

-Employers save on their NICs bill.

-Reinvesting these savings can help boost pension savings.

-Employees are no worse off in terms of net pay.

-Employers are no worse off as the cost of providing salary stays the same.
-Gains good working relationships between employers and employees.

Interested? Want to ensure you have a comfortable lifestyle once you retire without having to worry where the money is going to come from to pay the next heating bill? Join us on www.twitter.com/reevesifa  and be the first to hear about our new articles on how to save yourself money. Next week we will be talking about option A which will be telling you how to increase your pension fund without paying a penny!

First Post

We've been down the Blogging route before, but this time we promise to update it more regularly. Things are starting to expand for Reeves Independent. We have expanded our staff team allowing us to spend more time on finding the best investments for you. We have also decided to spend alot more time talking to our clients, so expect a call pretty soon!

For those of you that don't know who we are, we are Reeves Independent. We are based in Jesmond, Newcastle and we have been in financial services for the last 15 years. We offer a service called "the portfolio management service" to help old and new clients' alike, achieve their investment goals.

Coming up for you in the next few weeks/months, we will be putting up articles/blog posts detailed with information about how to save/make money. We also now have a twitter page and you can find us (follow us :D) on www.twitter.com/reevesifa

If you have a blog, link us and we'll return the favour, keep checking the blog page as we will be giving out some amazing freebies!

Reeves