But none of this news is NEW

The investment markets knew of all the problems and the share and bond prices reflected this. What has happened is that the sheep like reaction has sparked a run. This is what greed, fear & avarice does. This is the character of the investment market. Clearly we have some problems there is no denying it, but no new problems and the reality is that we do not know how this will play out. Sorry to be a bit blunt, but actually this is where the real wisdom lies. Anyone can utter platitudes, but that is all they are, although they do make us feel better in the short term.

The good news is that the investments you hold are robust and appropriate to your needs.

There is no need for change

The individual funds that comprise the portfolio are selected to complement each other. The football team analogy is appropriate here. We do not know what lies ahead, so we are prepared with our “defenders” and with our “strikers”. So please draw comfort from this as you read the press and listen to the “Today” programme, and remember that a fall of 100 points in the FTSE All Share index is always delivered with far more gravity than the elation given to a 100 point rise!

I felt slightly in awe. Here was a clear expert in his field, surrounded by the trappings of success and his profession, explaining all his investments and sounding very confident.

After a natural pause, I simply said “How is this all going to work?”

Then a long thoughtful silence, followed by a cheeky smile, as he looked me in the eye and said

“I haven’t a clue!”

We both saw that whilst considerable investments had been amassed over the years, there was no link to any form of objective.

The piece that was missing suddenly became obvious but actually it was a much harder piece to shape.

Working together, we eventually established what it was that this successful man wanted.

It was about life, not numbers

A Rolls Royce is a lovely car, so I’m told, but if all you want to do is to drive to Waitrose and back once a week, it may not be the most suitable. And so it is with investments.

There are many great and varied options out there, but the wisdom is to be clear about the task in hand before gravitating towards the solution.

So, how IS this all going to work?

We, at James Harvey Associates, follow a new model of investing, one built on the scientific study of capital markets and NOT on speculation and we currently use Dimensional fund advisers, Vanguard and Legal & General to deliver it for us.

*Capturing what markets have to offer * is built on four key truths:

• Markets work
• Investing versus speculation
• Take risks worth taking
• Structure is the strategy.

Truth 1 – markets work – tending to drive prices to fair value

Markets worldwide have a history of rewarding long-term investors for the capital they supply. Companies compete with one another for investment capital. Millions of investors compete to find the most attractive returns. This competition tends to drive prices to a ‘fair value’ making it difficult for investors to achieve greater returns without exposing themselves to greater risk.

*Traditional investment managers strive to beat the market by trying to take advantage of pricing “mistakes” and predicting futures. This can easily go wrong and returns are missed by holding the wrong stocks at the wrong time. Meanwhile, capital markets thrive, not because markets fail but because they succeed.

Truth 2 – investing versus speculation – long term reward

When you reject costly speculation and guesswork, investment becomes identifying the risks that are likely to be rewarded in the long term and choosing how much of these risks to take. Financial economists have identified the risk factors that seem to drive investment returns and experience to capture them.

Truth 3 – take risks worth taking – not all risks carry a reliable reward

Evidence from practising investors and academics tells us that gain is rarely accomplished without taking a chance, but not all risks carry a reliable reward.

Financial research over the last fifty years gives us a powerful understanding of the risks that are worth taking and those risks that are not. Stocks are riskier than bonds and have greater expected returns

1. Relative performance in stocks is driven by small versus large and value versus growth
2. Small cap and value stocks outperform because the market rationally discounts their prices to reflect underlying risk
3. The lower prices result in higher returns to investors as compensation for bearing this risk
4. Relative performance in fixed income is largely driven by bond maturity and credit quality
5. Extending bond maturities and reducing credit quality increases potential returns
6. With this understanding, investors can plan the total risk / return profile of their portfolios, considering how much exposure they need to target their performance goals.

Truth 4 – structure is the strategy – reducing risk through diversification

Avoidable risks include:

• Holding too few securities
• Betting on countries or industries
• Following market predictions, investment fads and flavour of the moment ideas
• Speculating on information from rating services.

Diversification is key. It stops a reliance on individual stock picking and its related costs and captures the returns of the whole market for one cost.

Each of the funds in use diversify not only the number of securities * but also the range of capital market strategies it explores and develops.

Our conclusion? A low cost well-diversified spread of investments is a more reliable method in delivering an investment return.

We, at James Harvey Associates, follow this model of investing, one built on the scientific study of capital markets and not on speculation. This is known to be the best risk adjusted return investors can receive.

The value of your investment can go down as well as up and you may not get back the full amount invested.

We all have a doctor and probably have had since we were born

We’ve grown into the relationship, often supported by our parents. Intuitively, we know how this works. Rather than whole physical and maybe mental health, a financial planner looks at your whole financial wealth.

A number of elements contribute to a successful Client / Financial Planner relationship:

• You First: you, the client, needs to feel understood. You need to be able to talk with ease about what you want or even fear in confidence and without being judged
• You need guidance from someone with sufficient skill and experience to lead you to financial independence, whatever this means and you may not be sure yet
• You need someone who can help you clarify your goals and then help match your finances to achieve these goals
• Qualifications and capability are a given
• But, the relationship needs to be clothed in trust.

There is a rather old fashioned word that accurately defines the role of a Financial Planner: a fiduciary

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence.

Lord Millett, 1998

As a Financial Planner, there is a key point that needs to be born in mind.

We can give advice and guidance, ask questions that help you clarify your aims, but we must remember that IT IS YOUR MONEY AND YOUR LIFE.

A Financial Planner needs to be skilled at creating and nurturing this relationship, but you retain the control and the responsibility.

Annual Allowance: the maximum that can be contributed to all pension schemes from any source in any one tax year

The Annual Allowance has been set at £50,000 or 100% of your earned income, whichever is the lower.

You can now carry forward any unused annual allowance for up to three tax years. This concession is backdated to tax years since 2008/09, but based on the new annual allowance of £50,000.

Full tax relief at your marginal rate can be claimed on your personal contribution up to a maximum of 100% of your earned income.

Lifetime Allowance: the maximum you can accrue in all pension schemes during your lifetime

This is without there being a tax charge, and is tested when you start to draw the benefits, or at age 75.

The standard lifetime allowance will be reduced from £1.8m to £1.5m from 6 April 2012. If the allowance has been exceeded, there is a tax charge of either 55% or 25% depending on how the funds are used.

Taking Benefits: there is now no requirement to start drawing pension benefits prior to age 77

You can hold on to your pension fund, unused, for as long as you live. However, once you reach age 75, there is a 55% flat tax charge on any lump sum death benefits (whether you have drawn your pension or not).

If you select the draw down option, the maximum withdrawal from a pension plan is roughly equivalent to a single person’s level annuity. This is more formally defined as 100% of a revised HMRC/GAD rate table (previously 120%). This will be reviewed within your pension plan every three years. The rates are below.

Those with existing draw down arrangements retain their current maximum until their next review.

(Insert chart)

When selecting the income draw down, there are two options:

1. Capped draw down: the level of withdrawals are capped based on the HMRC/GAD figures listed above.
2. Flexible draw down: if your total annual pension income (referred to as secured income, basically annuities and Company and State pension schemes) is at least £20,000, you can opt for ‘flexible draw down’ instead of the capped version. This removes the ceiling on what you can withdraw. In theory, you could withdraw your entire pension fund in on e (taxable) payment.

Death Benefits: if your pension fund remains untouched (un-crystallised) and you die prior to age 75, the value passes to your beneficiaries tax free.

If you die after age 75, or if you have selected income draw down, and the proceeds are passed to your spouse or dependents, to be used as a pension fund, there will be now tax liability.

If you die after 75, with an untouched pension scheme or if you have selected income draw down, and the fund passes to your beneficiaries as a cash lump sum, the fund will incur a tax charge of 55% and the proceeds will not be subject to Inheritance Tax.

Notes

These notes are a scaled down summary of the principle points that came from March 2011′s Budget regarding pension provision. They are deliberately written to be easily understood and scan read.

Where a statement is made, there will normally be qualifying rules alongside which I have deliberately left out. The words ‘normally’ or ‘usually’ should be inserted with every statement.

It is absolutely vital, that is you intent to take action, or, intend to take inaction based on what you have read, that you please consult James Harvey Associates in order to understand the full ruling.

It’s made me stop and ponder what it actually means.

I think

it’s nothing to do with work
it’s a little bit about balance
but much more about LIFE

 If you really love your work, you’ll want to be doing it as much as you can. This is how you want to live your life. Fine. The balance is right for you.

 It’s about getting to grips with your bigger picture and this is different for everyone.

 This is where you have to stop and take a breath and try to find answers to those big questions

What do you want?
What do you want to be?
What do you want to have?
What friendships do you seek?

 Work life balance is about living the life we want to live with our partners, family and friends.

 So is the phrase “work life balance” the wrong phrase? Should it be “life balance”?

 100 years ago, for 98% of the population it was about SURVIVAL. None of this work life balance stuff then. Putting food on the table for your family was reward enough.

 Now 98% of the population seek to THRIVE in life rather than just survive. Most of us can put food on the table, so we seek quality. This is good but we have to recognise that we still hold instincts that drive us along the accumulation road. And, for many of us this is not the life we really seek.

 In my work, I have introduced LIFE PLANNING principles when working with clients. It’s a comfortable fit in that spending time understanding core values and objectives brings better financial outcomes.

 Yes it takes time, but it is very effective.

 Everything lines up in the right order

 If priorities are understood and adhered to, then FINANCIAL OUTCOMES ARE MORE ROBUST AND APPROPRIATE.

It is about figures. How much you earn, own, spend, save, and need to save, invest. It does take time but I can tell you that this will be one of the most exciting and useful exercises you will ever do.

Not only that, a feeling of control and understanding will permeate your finances and your life

Still not convinced? I have been running proper cash flow forecasts for clients for some time now.  The results have been truly amazing. Some of the best and most helpful conversations have come from the process, clients have become more animated, and felt more in control and therefore more active and proactive with the process.

The results bring far more robust and well thought through financial decisions, but curiously, far more appropriate and rewarding personal decisions. Because knowing how you stand financially and considering what is possible and what is not, allows for greater freedom.

Freedom from financial worry and anxiety is such a great result.

I feel comfortable and relaxed having been through the process. You engendered a feeling of trust in both Angela & I, following my redundancy when I was 58. Over the seven years since that first encounter, that trust and feeling of comfort has grown – there has been no attempt to sell – it has been very much consultancy – understanding the needs and delivering to them, recognising the aspirations for a life style within a budget.

I have seen your role as being rather like an architect. If you simply design a box with a lid to accumulate stuff, without understanding how life is led inside that box, it will never be a home. There is some digging around the roots, what the Japanese term “nemawashi”, to do before there is a real understanding of the requirements. This requires time and patience. You have given the former and demonstrated the latter – thank you.

Your personable nature and integrity make our meetings a pleasure, and we now have a sensible viable retirement plan.

JL Surrey

I really like the technical influence and the reasons you give for doing something. I am surrounded by academic folk who think they know best and do stuff on their own. I have normally known about the recommendation, but valued your how to action and felt secure in knowing that what I thought was the right decision, was in fact correct. This helps me feel in control and confident about my financial arrangements.

You are not assertive, which is what I like, you don’t do “tell” and you give the impression that you know what you are doing and this gives me confidence. I thought your original report was too long. But I do really like your meeting summaries, each one was an accurate summary of the principle points that came from our meetings, no one else has ever done that before.

I also felt confident that whilst you live a good life style and own a boat, you do not live in a massive house or show off your money, otherwise I might have felt that you were simply earning money for your self rather than your clients.

You are a true adviser.

JC Berkshire

It’s an excellent service. I enjoy the discipline and our face-to-face meetings once a year. As a bit of a control freak, I feel I should be doing more to understand all the figures, but I really find the detail a bit boring. I could do the research myself as I do for everything else, but I don’t really understand it enough and wouldn’t have much confidence in the results. Financial decisions are all long-term; everything else in life is short-term, so our relationship and continuation has been a big reassurance. You stop me making mistakes. I also appreciate the way you blend the emotional side to a decision being made with the factual.

I have introduced my three best friends to you, my mother and my sister. These introductions take some courage, as the liability that exists if the relationship goes wrong is huge.

What more can I say about trusting you?

AG Wimbledon