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philteale

Oct 04
0

How Do I Create Wealth For My Children?

By | Financial Planning

This content is for information purposes only and intends to inspire your thinking. It should not be taken as financial advice. To receive tailored, regulated financial advice please consult us here in Oxford.

It is very natural for parents to want to give their children a better chance in life. When it comes to building wealth for your children, we at WMM tend to come at this from two angles as financial planners:

  1. Building up wealth with your child gradually, especially through saving and investing.
  2. Passing on wealth to your children one day as an inheritance.

Every family is different with regards to its composition, financial situation and goals. So it’s always best to consider seeking professional financial advice to identify the best options for your particular needs. In this article, we’ll be sharing some ideas on the above two areas which you can discuss with them.

We hope you find these thoughts helpful, and if you would like to discuss your own financial plan with us, please get in touch to arrange a free, no-commitment consultation with a member of our team here at WMM.

 

Building up Child Wealth

Perhaps you want to give your child a set of financial savings for University one day. Or, maybe you want to start building up their pension, or help them prepare a strong house deposit. Whatever your goals, you are likely going to want to consider some options for efficient saving and investing to help achieve them.

Savings Accounts

One of the best ways to build wealth for your child is to help instil a sense of responsibility for saving for the future. When they are young, this might be as simple as encouraging them to keep a piggy bank which they can build up with pocket money; even if this is as small as 10p. Eventually, you can introduce them to a children’s savings account at a bank or building society, which they can take responsibility for after the age of 7.

ISA’s -including Junior ISA’s (JISA)

An individual savings account (ISA) can be a good step to consider with your child, especially because it helps to educate them about “tax efficient saving”. Remember, in 2019-20 all interest earned within an ISA is tax-free. They can only access the money in an ISA once they reach age 18, but the money still belongs to them. A Stocks & Shares JISA can be a particularly useful account type to consider, since it helps children to learn about the “ups and downs” of investing in the short term, whilst achieving growth in the long term. However, these are not allowed if your child has a child trust fund (CTF).

Child Pensions

In 2019-20 parents can open a pension for their child (such as a SIPP; or Self-invested Personal Pension), and contribute up to £2,880 per year. So, if you opened one shortly after your child’s birth and put in the maximum amount over 18 years, then they would likely have £51,840 in their pension before investment growth is even taken into account. This could give your child a much stronger financial foundation in retirement, but bear in mind that under current pension rules the money will be inaccessible until they reach the age of 55.

 

Passing on Wealth to Children

The above are just a handful of ways you might help your child financially, whilst you are around and whilst they are growing up. Once they are older and (hopefully) financially independent, how can you continue to support them? Also, what can you do to ensure that as much of your wealth as possible passes on to them when you are no longer around?

Here, it helps to have a strong grasp, ahead of time, of the foundational elements of inheritance tax. After all, the more you know about this early on, the more you can do to better-prepare your estate to pass on tax-efficiently to your children. Here are just some of the important areas you might want to discuss with one of our financial planners:

Thresholds

In 2019-20 you are entitled to pass on up to £325,000 of your “estate” to beneficiaries when you die, without facing inheritance tax (IHT). Your estate includes things like:

  • Property (including your family home).
  • Vehicles
  • Jewellery and other possessions
  • Investments and savings
  • Businesses you own

However, your estate does exclude certain things which are important to be aware of for IHT purposes. For instance, certain investments are exempt such as Enterprise Investment Scheme (EIS) shares which you have held for at least 2 years. Pensions are also excluded.

You can raise your own IHT threshold, however, if you pass on your family home to direct descendants such as children or grandchildren. This allows you to claim an Additional Nil Rate Band of £150,000 in 2019-20.

Allowances

The above would theoretically mean that a single person could potentially pass on at least £475,000 to one or more children without facing IHT (i.e. £325,000 + £150,000).

If you are married or in a civil partnership, however, then each of you are entitled to your own Nil Rate Band and Additional Nil Rate Band. So, in some cases a married/civil partnered couple could pass on up to £950,000 to their children in 2019-20, free of IHT.

Other Options

These are just two important areas to mention when it comes to passing on family wealth to children as an inheritance. There are many other important strategies available to you which you could discuss with a financial planner, such as leveraging your pension or taking advantage of Annual Exemptions for gifts.

The key point here is that growing wealth for your children involves thinking strategically, both over the short and long term. There is much you can do right now, practically, to help lay a foundation of wealth for your child whilst helping to teach them about the importance of saving, investing and planning for the long haul. You can also prepare you own estate appropriately with a financial adviser to help ensure your wealth goes into the right hands in the future.

If you would like to discuss your own financial plan or estate with a professional financial adviser here in Oxford, then we invite you to get in touch to arrange a no-commitment consultation with our team at WMM, at our expense. You can reach us on 01869 331469.

 

Sep 30
0

Can Investing Help Eradicate Inequality?

By | Investment Planning

This is a huge question and an important one. Many of us want to put our capital to good use whilst also reaping financial rewards along the way, and several voices in the financial world claim this is possible. Yet many people would argue that investing, by its nature, works against the cause of equality. Who is right?

At WMM, many of our clients have expressed a desire to know more about the relationship between investing and equality. As financial planners covering Oxford (a University city), we understand this subject is important to many people who live here; as well as across the UK. Here is our brief attempt to articulate our perspective.

Please note that this content is for information purposes only, and should not be taken as financial advice. To receive such advice please contact one of our independent financial planners here in Oxfordshire.

 

Defining Inequality

Of course, before we can judge whether investing broadly helps or hinders equality, we need to agree on what “equality” means. This is by no means an easy task; indeed, entire PhDs and academic careers have been built on answering this question!

For instance, does equality primarily refer to individual income equality, or equality of employee influence over strategic decisions in the workplace? Does it refer to gender equality in the company boardroom, or to ensuring that no single company can dominate a particular market and so prevent other companies from realistically getting a look-in (e.g. think of Google and the UK search engine market, where in 2019 no other business comes close)?

Moreover, does equality mainly refer to equality of outcome or equality of opportunity? The university debate is a classic example here. For instance, should everyone realistically have the same opportunity to go to university if they so choose, or should the decision be governed by academic ability or wealth?

Rather than try to answer all of this definitively, here we will be focusing primarily on investing regarding two main “equality of outcome” areas: income equality and gender equality.

 

Investing & Gender Equality

It’s worth noting at this point that some people will simply never see investing as compatible, or helpful, with regards to equality. For instance, Marxist thinking typically perceives investing as inherent to the capitalist system, which is fundamentally incapable of creating a fair society. We understand these views, but assume that if you are reading the thoughts of an Oxford financial adviser, then your political-economic views fall at least somewhere more towards the centre ground! Certainly, we at WMM believe that in many cases investing can be leveraged to achieve moral principles whilst providing a strong return for the individual investor.

Consider gender equality as an example. Broadly speaking, in 2019 company boards across the western world are still largely dominated by men. This is clearly an area where more progress needs to be made, at least in line with other spheres where women have climbed hierarchies to achieve top executive positions (e.g. media and entertainment). In fact, investment firms can be some of the worst performers here, with women comprising about 4% of the top jobs.

Yet there is strong evidence to show that gender diversity in the boardroom is strongly correlated with higher investment returns. This naturally puts internal pressure on such firms to bring more women into senior positions; after all, the more money investment firms can make for their clients, the more successful they’re likely to be! At the same time, clients of investment firms can apply moral pressure by demanding greater gender diversity from such companies.

 

Investing & Income Equality

This can be quite a complex and emotional topic, and on the surface it can seem like investing naturally creates large income disparities. After all, we’ve all seen the headlines about UK banker CEOs who earn as much as 120 times that of their average employee.

Of course, here we start to enter the classic debate: “Should such CEOs earn more than their employees due to their role and responsibilities, and if so, how much more is acceptable?” Most people we speak to seem to take a balanced view, which we would broadly agree with. People in higher positions who deliver more value should be paid more, but their employees should be paid a good living wage, and efforts should be made to close excessive, unnecessary income disparities between the “top and bottom” of the business (e.g. lavish, undeserved bonuses).

In this respect, investing can make a positive difference; moving companies towards income equality without achieving an unrealistic goal of complete income parity. Again, a big part of this change can come from clients of investment businesses, who can increasingly expect such companies to promote fair wages internally, to set an example regarding director bonuses, and bring employees more into the business as stakeholders (e.g. think of John Lewis’s “Employee Ownership” approach). Clients can also apply more pressure on these investment companies to prioritise investments into companies and funds which also take a similar approach to their internal structure, as well as to the businesses and individuals involved in their supply chains.

 

Final Thoughts

At this point you have likely noticed that this is a huge topic, and we’ve barely been able to scratch the surface here in this article! The good news is, individual investors can make a positive difference to address the numerous risks associated with inequality, and also benefit from the advantages of doing so.

If you are interested in finding out more about sustainable, ethical or environmental investing or would like to develop your portfolio, then we invite you to get in touch. At WMM, we can offer a free, no-obligation consultation to get to know each other, and bring some clarity to your financial situation and goals. You can reach us on 01869 331469

 

Sep 23
0

A Short Guide to Passive Investing

By | Investment Planning

If you’re new to investing then you might be confused about how it exactly works. Perhaps you’re vaguely aware that it involves setting money aside regularly over a long period (e.g. 10+ years) into companies, funds and other assets which causes your net worth to grow. You’d be right, but how does investing lead to wealth growth?

Broadly speaking, there are two main approaches to investing, often referred to as ‘active’ and ‘passive’. In this short guide, we will be explaining the difference between the two, and outlining WMM’s reasons for primarily advocating the latter approach when it comes to constructing an investment portfolio for our clients.

We hope you find this guide helpful, and if you have any questions about your investments then we invite you to get in touch to arrange a free, no-commitment consultation with one of our financial advisers here at WMM.

 

Active & Passive: An Overview

When you put your money into a UK deposit account, it wasn’t too long ago when you used to be able to expect a reasonable return earned via interest; in some cases as high as 6%. Today in 2019, however, you’re lucky if you can find anything close to a 2% interest return. When you factor in the fact that inflation, at the time of writing, sits at around 1.7%, making any money at all on cash investments is difficult. Most people are losing money in real terms.

This situation has encouraged many people to consider investing, to increase their prospects of growing their wealth and retirement savings over the long term. However, most people do not have the confidence, experience, risk appetite or resources to invest “Dragon’s-Den-style” into individual companies. So what are your options?

For most people, the primary route available to you is to consider investing in “funds”. This essentially involves pooling your money together with other investors, which is then invested into multiple companies or assets. The investment returns are then distributed amongst the investors according to the amount committed as well as the performance of the investments.

For instance, suppose you invest some of your money in a FTSE 100 tracker fund (along with other investors). This fund follows the performance of the UK’s biggest 100 companies, and averages the shares of all of these companies to produce an index. If the index goes up, then your investment produces a higher return. If it goes down, then so does your investment.

This is the essence of “passive investing”, since it involves committing your money and “holding” it there to follow the index(es) you have chosen. It’s worth noting that a portfolio containing passive investments should really involve multiple tracker funds to spread out the investment risk (i.e. “diversification”), and the investor is in essence seeking to capture the ‘Market Return less costs’.

The passive approach to investing is quite different to the image many people have in their minds, when they think about investments. Quite often, the popular image is of a fund manager who spends every day investing in certain companies and pulling money out of others, to try to “beat the market” for clients. This is known as active investing.

 

Pros & Cons of the Approaches

Depending on your experiences, beliefs and background you might be more inclined towards active or passive investing. At WMM, we want to be fair in outlining the advantages and disadvantages of both approaches, but also put our cards on the table and state that, in general, passive investing tends to offer a higher likelihood of increasing a client’s net worth over the long term.

Here are some of the points in favour and against active investing:

Pros

  • Active investing is often considered to be quite flexible, as you are not limited to a predetermined set of investments (as you tend to be when picking tracker funds).
  • Active investing has shown some prominent cases of generating strong success stories for their clients. For instance, in 2013 Apple dropped to less than $60 per share. Many active fund managers anticipated the dip and invested clients’ money into Apple whilst it was low. By 2017, Apple has risen to $150 per share.

Cons

  • Investment management fees tend to be higher with active fund managers. These fees can significantly eat into an investor’s returns over the long term.
  • Even the best fund managers struggle to consistently beat the market over many years. In fact one study by the Pensions Institute showed that between 1998-2008, only 1% of active fund managers produced returns which overtook their costs.

Let’s now consider some of the pros and cons of passive investing:

Pros

  • As mentioned, passive investing tends to carry lower expenses than active fund management, which tend to lead to more money in investors’ pockets. The lower cost is generally because a tracker fund does not need to employ an active fund manager to buy and sell stocks each day.
  • Passive investing mainly follows index trackers, which represents the aggregate wisdom of millions of investors regarding the share value of the companies concerned. By and large, this means that the true value of most companies’ shares is already priced in. This makes financial markets in the developed world quite robust, meaning it is harder for active fund managers to get an edge. This allows the passive investor to potentially benefit from long-term growth without needing to constantly monitor their portfolio.

Cons

  • Passive investing is, by nature, more of a “buy and hold” approach to investing, which can sometimes lead to missed opportunities which might be open to the active investor (think of the Apple example above, between 2013-2017).
  • Sometimes passive investors can become complacent, adopting a “set and forget” approach to their portfolio. This is dangerous, as even a predominantly passive investment portfolio will need to be reviewed at least once a year to ensure everything is still on course towards its investor’s financial goals.

This article is for education, inspiration and information purposes only. It was intended to explain common Investment approaches in a very simple light. In fact, the term ‘passive’ is an often misused term covering certain investment funds which are to an extent actually ‘active’ but for specific reasons. Therefore this basic content should not be taken as investment or financial advice. To receive regulated, tailored financial advice regarding your situation, or to find out more about WMM’s investment philosophy then please contact one of our financial planners.

 

Sep 02
0

A Short Guide to Environmental Investing

By | Investment Planning

In previous posts here at WMM, we have discussed (in broad terms) what environmental investing is, how it has developed in recent years and how people can get started with social impact investing or “ESG investing” (Environment, Society & Governance).

As clients and readers of our blog have expressed more interest in this subject, we thought it would be helpful to go into a bit more detail. Here, we’ll be sharing five broad strategies when it comes to ESG investing, which you may want to consider with your financial adviser.

Please note that this content is for information and inspiration purposes only. It should not be taken as financial advice or investment advice. To receive such advice, please consult an independent financial planner here at WMM (in Oxford) or closer to your location.

 

Five ESG Investment Strategies

#1 Non-ESG Exclusion

This approach can probably be described as the “purist” approach to ethical and environmental investing. Under this strategy, you work with your investment manager to “rule out” specific industries or sectors (e.g. oil extraction), countries or businesses (e.g. those producing high levels of CO2 emissions) from your investment portfolio, using ESG principles are your guide.

The advantage of this approach is that it allows many investors to align their ESG values firmly with their investment strategy. The potential drawback, however, is that this approach can limit your options when it comes to building a balanced portfolio which not only appropriately diversifies (in order to mitigate risk) but also holds the potential for strong returns.

#2 Leader Screening

Some investors might be comfortable committing their money towards companies in industries which the former strategy would exclude, on the basis that these businesses are showing a high ESG performance in relation to others in their sector. For instance, under this approach, an investor might be happy to invest in car manufacturers which are leading the marketing in electric car manufacturing, relative to others in the automobile industry.

The advantage of this strategy is that is can help incentivise companies in a wider range of industries to pursue ESG principles. The drawback, however, is that this approach might not fit as neatly with an investor’s ESG values compared to the first approach.

#3 Integration

Under this strategy, ESG investments are gradually incorporated into an investor’s portfolio alongside more traditional, non-ESG investments. The exact balance between the two types of investment might vary from person to person, depending on their distinct investment goals and their personal tolerance to investment risk.

This approach can be attractive to investors who wish to start exploring the world of ESG investing, without necessarily going “all in” (which might feel too risky or uncomfortable). It also gives the opportunity to learn more about ESG investing via direct experience, in an investor’ portfolio. On the other hand, this approach to ESG can feel too “watered down” to some people.

#4 Impact Investing

There are certain companies in the world which exist specifically to address certain issues pertaining to the environment or society. Examples include firms which offer storage for renewable energy sources, such as wind or solar power. Through an impact investing approach, an investor can focus their money on these types of companies to generate a positive return, whilst making a positive difference.

The attraction of this approach to ESG investing is that it is not simply about “damage limitation” regarding the environment. Rather than just investing in companies which are trying to reduce their carbon footprint, this strategy involves focusing investments on businesses which are actively trying to reverse the problem. This can feel tremendously exciting.

However, this type of investing needs to be navigated carefully with your investment adviser or financial adviser. This is particularly because many companies which qualify as impact investments are also innovative startups, which tends to carry higher investment risk.

#5 Ownership / Direct Engagement

Another way to influence different companies towards adopting an ESG approach is to directly engage with them. This doesn’t necessarily mean standing outside of their offices with a placard, by the way! Rather, it involves using tools such as shareholder power to bring ESG principles more onto the board’s agenda, and influence positive change.

If you are a company shareholder yourself, then you might consider doing this in consultation with a professional adviser. On a wider scale, however, you could adopt this approach by investing in funds and financial products which apply this influence to companies, on your behalf, at the executive and board levels. This approach can be attractive to many investors. Its drawbacks include limits to the range of products and funds which currently do this, although it would be fair to say that the direction of travel is towards growth in these opportunities.

 

Final Thoughts

As you can see, there is a range of approaches to ESG investing. Each strategy holds out its own respective pros and cons, and will likely vary in appeal depending on each investor’s distinct goals, circumstances, values and attitude to risk.

Many people might be interested to have learned the difference between “ESG investing” and “social impact investing”, after reading the above. The former can be described as an “umbrella” term, which refers to investment approaches which factor ESG principles into their portfolio to varying degrees. The latter goes further than this by actively investing in companies which seek to not only reduce their own negative impact on society and the environment but also make a positive difference via their products, services or solutions.

If you are interested in learning more about how you could integrate an ESG approach into your own investment portfolio, then we’d be delighted to hear from you. Get in touch today to arrange a free, no-commitment financial consultation with a member of our team:

01869 331469
Castle Farm
The Stableblock,
Clifton Road, Deddington
OX15 0TP

 

Aug 19
0

The Pros & Cons of Joining Your Finances

By | Money Tips

If you are reading this article about joint finances and have just gotten married, then first of all – congratulations! Money is a hugely important topic in any relationship, and this article aims to help you approach this subject more clearly to find a solution which works for you.

As professional financial advisers here at WMM, we see many clients with a range of financial arrangements and ways of managing money with their spouse or partner. Here is just a brief snapshot of this diversity:

● In one couple, one person (i.e. the breadwinner) might hold the majority of the couple’s bank accounts (in their own name). There might not even be a shared bank account between the two people. The other person (i.e. the home-maker) might not even have their own account, but simply keep money in a purse/wallet, which they can spend and top up from the other person when they need to. This is arguably a more “traditional” model of managing a couple’s finances, and it works for some people.
● On the other side of the spectrum, there are couples where there is no joint bank account at all. Rather, each person has their own account (or set of accounts) in their own name. If this couple lives together, then quite often the bills will be “split” between them. Perhaps one person pays for the mortgage, for instance, whilst the other covers the food and other household bills. This is often labelled a more “millennial” or “modern” approach to couple’s finances, and again, it works for certain couples.

Other couples adopt a “hybrid” approach. Some choose to set up a joint account when they move in together and then shut down their individual accounts when all of their money is merged. Others open a joint account but keep separate bank accounts. In this case, the former could be used to cover the couple’s household bills, whilst the latter can be used for each person’s leisure spending.

So, which model is best? There isn’t a universal answer to this question, but there are certain advantages and disadvantages to merging your finances which you should be aware of. We’ll be covering some of those below. Please note that this content is for information and inspiration purposes only, and should not be taken as financial advice.

Pros of Merging Finances

● A sense of “togetherness”. Bringing yours and your spouse’s/partner’s money together into one account is arguably a good way to show commitment and trust towards one another. It also can create a stronger sense of “being a team” in life together, using your combined resources to solve joint financial problems.
● Even playing field. If there is a wide income disparity between both of you, then bringing your money together can allow both of you to live more comfortably – rather than one of you struggling to keep up with the other.
● Joint liability management. If you live together, then you will share various expenses to do with household costs (e.g. bills, utilities and mortgage). You might also be jointly responsible for children, which brings other expenses. Managing these costs from a joint bank account can simplify paying for these things.
● Easy access during a tragedy. It isn’t nice to think about, but if one person in the couple were to die then having money in a shared account makes it easier for the surviving partner/spouse to access funds which they might urgently need (e.g. to help cover funeral costs).

Cons of Merging Finances

● Separation. Again, this isn’t a nice scenario to think about – but it’s important. Should you and your partner/spouse one day split up, then having all of your money in one joint account can make things difficult. If you do not have your own bank account, then you will need to open one to eventually move money across into it. In some sad cases, one person has withdrawn all of the money out of spite – leaving the other person in a perilous financial position. These dangers can be mitigated somewhat if both people keep an individual bank account with some backup savings in them. In this case, however, it’s important to consider how you want to approach this topic with your spouse/partner due to its sensitivity.
● Financial vulnerability. If you share money with your spouse/partner, then their financial decisions can sometimes have a greater impact on you. For instance, if one person is a big “spender” and the other a “saver”, then this can create tension or arguments as both people watch the other person’s spending behaviour on the joint account.
● Lost independence. When you share an account, then both of you can see every purchase and withdrawal that each person makes. This can create a sense of “losing control” of your personal spending decisions since you might feel that you have to justify your spending more often to the other person.

Final thoughts

On balance, we would argue that for many people it is a good idea to consider opening a joint account once your relationship has reached a high degree of trust and commitment.

It can particularly make sense for lots of couples when they move in together and have to manage shared expenses regularly. In many cases, it can be a good idea for such couples to have a joint account for these purposes, but keep individual accounts for personal and leisure spending.

However, each couple is different in their financial goals and circumstances and it’s important, therefore, to not be too prescriptive. There are indeed cases where it makes little sense for a joint account to be opened, and that’s fine (e.g. certain couples which do not live together).

Aug 19
0

5 Books to Read on Social Impact Investing

By | Investment Planning

Ethical investing has become more mainstream in recent years, particularly with the rise of millennial investors – many of whom are concerned about how their finances impact the planet.

Here at WMM, some of our own clients have approached us to ask if there are any good books, resources or articles which could help them educate themselves further on the topic of “Social Impact Investing”. In this post, we intend to offer some suggestions.

Please note that this content is for information and inspiration purposes only, and should not be taken as financial advice. To receive regulated, personalised financial advice into your own financial affairs and goals, please consult an independent financial adviser.

 

#1 Impact Investing: Transforming How We Make Money While Making a Difference (2011)

If you’re interested in knowing more about the history and evolution of social impact investing, then this book by Bugg-Levine and Emerson comes generally well-recommended. The language is not too laden with jargon, allowing it to be fairly accessible to readers who perhaps are not so confident with investment terminology.

Moreover, the book is broken up quite nicely into quite manageable chunks, which helps make it enjoyable to read (as you feel that you are progressing through it). There are also some fascinating topics within the book which are very much worth looking at, including “Impact Investing and International Development” and “How Will We Save The Forest And The Trees?”.

 

#2 Investing with Impact: Why Finance is a Force for Good (2015)

This work by Jeremy Balkin takes a slightly different line to the one above. Rather than focusing on the history of social impact investing, it rather addresses, head-on, the common popular perception of the financial sector as a primarily negative force when it comes to social, ethical and environmental change.

Standing at around 136 pages, this book is quite quick to read and is nicely broken up into 6 short chapters – each with a compelling title such as “The Blame Game” and “Reimagining Prosperity”. If you are interested in finding out more about how money can be used positively to impact the world, then this is a good resource to consider.

 

#3 The Impact Investor: Lessons in Leadership and Strategy for Collaborative Capitalism (2014)

If you’re looking for something much more “meaty” and academic on the subject of social impact investing, then this book by Clark, Emerson and Thornley might be worth a look. Be aware, however, that with 291 pages of fairly technical writing, this is not for the faint of heart!

This book puts more of its attention on the strategy and organisation of companies, funds and investment managers who work in the field of social impact investing – suggesting ways to make improvements to the overall system. It is split into three main sections: “Part I: Key Practices and Drivers Underlying Impact Investing”; “Part II: Four Key Elements to Social Impact Investing”; and “Part III: Looking Ahead: Trends and Challenges”.

 

#4 Invest for Good: A Healthier World and a Wealthier You (2019)

If you’re looking for a book about social impact investing which contain more stories, dialogue and experiences of investors actively working in this field, then this book by Mobius, Hardenberg and Konieczny is quite an entertaining read.

The book contains many anecdotes which can, at times, be amusing whilst also revealing some compelling points about ESG investing. One interesting theme throughout is the authors’ notion that the future of all investing, they argue, lies in socially-responsible investing. So if you’re on board with that idea, this book might be for you!

 

#5 Building Social Business: The New Kind of Capitalism that Serves Humanity’s Most Pressing Needs (2011)

Muhammad Yunus (the author of this book) is a fascinating person in his own right. A social entrepreneur from Bangladesh, he received the Nobel Peace Prize for his work in establishing the Grameen Bank – a microfinance initiative which issues small business loans to people in Bangladesh, without demanding collateral (e.g. securing against the borrower’s house).

This work is a fascinating and inspiring vision of what the world could be like if capitalism was reformed to focus on the idea of “social business”. This vision outlines a way to build enterprises which are profitable and which produce economic growth, on the one hand, whilst meeting essential human needs on the other.

Standing at just under 200 pages and written in quite an accessible style from a first-person narrative perspective, this offers a unique and interesting read. We’d love to hear your thoughts on it if you decide to read it!

 

Final thoughts

ESG and social impact investing are fascinating subjects, containing much to explore from a range of different angles. It’s worth stating that we do not necessarily endorse everything contained in the books we’ve suggested to you above, but believe they can help inform and inspire you as you develop your own thinking on these fascinating subjects.

As always, here at WMM we would love to speak with you if you are interested in social impact investing, whether that’s starting a new investment portfolio or developing an existing one which you already possess. If you’d like to get in touch, then contact us via phone or via this website to arrange a free, no-commitment financial consultation with a member of our team today.

 

Aug 19
0

How to Start Your Own Financial Education: A Short Guide

By | Financial Planning

There is a quote by Natasha Munson which goes: “Money, like emotions, is something you must control to keep your life on the right track”.

As financial advisers here in Oxford, we can attest that this is true. Your attitude and behaviour towards wealth – just like emotions – has a huge impact on your quality and course of life.

One of the keys to bringing more control to your financial future is to try and understand more about money, wealth and financial planning. Think about the comparison with emotions, again, and consider anger as an example. The more you understand about the nature and roots of your anger, the more you can control it. Similarly, the more you understand about financial planning, pensions, mortgages and investments, for instance, the more prepared you will be to leverage money and wealth positively towards your goals.

Although we, of course, exist to advise clients on financial matters, we do not believe you should solely rely on anyone else when it comes to managing your money. It’s important to have a good grasp of at least basic financial concepts (e.g. capital gains, dividends, investment management fees etc.) to ensure that you understand what your adviser is telling you!

This means committing to your own financial education, learning about some of these important financial planning topics for yourself to get the most out of your financial adviser. That does not mean enrolling on a professional financial planning course or taking the equivalent of an undergraduate degree in economics. It simply means using the resources at your disposal to increase your understanding of important financial matters which directly affect you.

In this short guide, we’re going to suggest a few areas where we recommend starting your own financial education – as well as offering some ideas about where you can find the resources you need to find out more on those topics. We hope you find this helpful, and invite you to contact our team here at WMM if you need any further information.

 

#1 Start at Home

One of the best ways to start understanding more about money and wealth is to look at your own situation, and ask: “What do I earn, and what do I spend?”

This naturally leads you to look at your banking transactions, payslips and perhaps other documents pertaining to your income/expenses (e.g. income you make from Airbnb). You’ll likely notice important information such as your tax code on your payslip, as well as your pension contributions and student loan deductions.

Ask yourself: “What do I know about these things?” For instance, are you aware of the various tax codes out there, and are you sure that you’re on the right one? Do you understand how your student loan payments are calculated, and how your monthly payments might change if your wage increased/decreased? Do you know where all these pension contributions are going, and where all the money is being stored?

Similar questions can be gleaned from your expenses. For instance, how much are your mortgage payments and how is this worked out? What would happen to this monthly figure if you perhaps moved to a better deal (i.e. remortgaging)? Similar questions could be asked of your utilities and other bills.

In other words, starting your financial education “at home” in this way can really be a great motivator to get you going. After all, the more you can understand these specific things, the more chance you have of being able to make improvements to your finances which could have an immediate, positive impact on your quality of life.

Some great resources to get you started on these sorts of topics include the Which? online resources, and the blogs, articles and guides by Martin Lewis on MoneySavingExpert.

 

#2 Move Out

In our experience, the above process typically leads people to engage in their own, personal process of educating themselves about their own finances (e.g. mortgages, income tax, ISAs etc.). However, at a certain point, the time comes to also look beyond the things which seem more “immediately relevant” to other subjects which might seem more distant – but which are nonetheless still crucially important.

Examples of these sorts of topics might include inheritance tax and estate planning. After all, it’s great knowing more about your current financial situation, but what happens to your money and wealth in perhaps 30 or 40 years, when it might be time to hand this over to either the tax man or your loved ones?

Another important topic is investing. For example, if you want to build up a sizeable pot of retirement money one day, then it’s important to understand how to make money “grow” through investments. This will involve understanding, say, the difference between “saving” and “investing”; what kinds of investments are available (e.g. stocks and bonds); what an investment “portfolio” is and how various factors can influence how your portfolio is put together (e.g. risk tolerance and personal investment goals).

For this stage, we recommend you follow our own blog here at WMM and other helpful resources such as dedicated investment columns in newspapers such as The Daily Telegraph.

 

Final Thoughts

Finances, money and wealth are vast and fascinating topics. As financial advisers, we have spent many years learning about these areas and serving clients, yet we admit that even financial advisers need to learn continually. This is especially the case since the financial world rarely sits still, and new developments arrive which need to be understood and then communicated to clients when these changes affect them.

We encourage you to not be discouraged as you engage in your own financial education. There is a lot of jargon and much of the language concerns intangible things which can be difficult to grasp (e.g. final salary pension transfers). However, the payoff you get from understanding these things can be considerable when you later can leverage your knowledge to get a better deal on your pension, for instance, or on your mortgage.

If you would like to discuss your financial planning situation with a member of our team, then we invite you to get in touch to arrange a free, no-commitment pension consultation today.

 

Aug 19
0

Investing & Inflation: A Short Guide

By | Investment Planning

This content is for information and inspiration purposes only. It should not be taken as financial advice. To receive tailored, regulated financial advice into your own financial affairs and goals, please consult an independent financial adviser.

Inflation is generally understood to refer to the overall rise in prices, over time, within a given economy. If something (e.g. a dress) costs you £100 in 2019 and inflation rises by 2% twelve months later, then it would cost you £102.

In other words, the same amount of money (e.g. £100) gradually loses its “spending power” over time, with rising inflation. This is important when it comes to investing, as inflation can potentially eat away at the returns you are getting on your savings or investments.

Indeed, this quite often happens without many people realising. For instance, at the time of writing, Which? did some research to show that you would be lucky to get a bank account (unlimited-withdrawals) with a 1.5% interest rate. Yet UK inflation in June 2019 stood at 2%.

What that means is, you might commit, say, £1,000 to an account like this believing it would eventually grow to £1,015 by next year (i.e. 1.5% growth). In real terms, however, your £1,000 would be losing its spending power since inflation (2%) is 0.5% higher than your interest rate.

This isn’t to say that you shouldn’t have an instant-access savings account, with unlimited withdrawals. This can be a useful way to store emergency or short-term savings, for instance, which you might need to access quickly.

However, it does highlight the hidden eroding power of inflation on our savings and investments. In particular, if you want the money in your investment portfolio to grow over time, then you need to ensure that your investment strategy factors inflation into the picture.

After all, if you can regularly generate investment returns which beat inflation, then your money is not only going to grow on paper – but also in real terms. If inflation is 2%, for instance, and your investments grow by 8%, then your money has ‘real’ growth of an impressive 6%.

 

Investing to Beat Inflation

Of course, your primary goal when investing should be to beat inflation – but it’s typically an important “pillar” within your overall plan. If your main goal is to grow your wealth, then naturally, regularly beating inflation will be crucial. On the other hand, if your main goal is to preserve the wealth you have accumulated, then you will likely still want your money to at least hold its value as much as possible over time, and not be eroded by inflation.

The challenge is, it’s not possible to accurately predict what the level of future inflation is going to be. When you look back over recent UK history, there has been quite a lot of variation:

  • 2% in June 2019
  • 5% towards the end of 2011
  • 2% at the beginning of 2008
  • 2.96% in 2000
  • 9.46% in 1990
  • 17.99% in 1980 (largely due to a recession)
  • 6.4% in 1970

It’s worth stating that the Bank of England was set up primarily to keep inflation low. So there is a strong reason to assume that we will not see inflation skyrocket to some of the figures seen above, any time soon. However, this is not guaranteed and certain events (e.g. a major change in the economy or government policy) could lead to a rise.

One of the main ways investors try to beat inflation with their investments is to incorporate some “Higher-Risk; Higher-Return” assets into their portfolio. These assets tend to pose a greater risk of generating a negative return on your original investment, but also possess the potential to generate a higher return which can beat the rate of inflation.

Investing in companies (either directly or via funds) is a good example of this approach. This is because many businesses (e.g. infrastructure and energy companies) can raise their prices in line with inflation to cover their costs. Theoretically, this can allow them to continue growing even as inflation rises.

This forms an important reason behind why even the most “defensive” or “conservative” investment portfolios (tailored to preserve wealth) often incorporate a degree of equities, rather than simply relying on fixed-interest assets such as bonds. This is because the interest you generate on a bond may not keep up with rising inflation, even though many bonds (i.e. “IOUs” issued by governments and companies) are generally seen as “lower risk” than equities.

 

Final Thoughts

There is no universally-agreed answer to the question of why inflation rises at different speeds over time. Yet it is generally accepted that a sound investment strategy should incorporate assets and tactics to mitigate inflation, and even attempt to beat it. It is very important to know the level of investment risk you feel comfortable with, but equally important to know as well is the level of investment return you need to meet your lifetime goals. People often overlook the risk of not reaching or having to compromise on their goals, because they avoided some level of investment risk.

If you are interested in discussing your own financial plan with us in light of the above discussion, then we’d be delighted to hear from you. Please get in touch to arrange a free, no-commitment financial consultation with a member of our team here at WMM.