"HatTip" - Foolish Forecasts

Like more and more of us I no longer read the printed press. Yet I know what the newspaper money supplements will be full of at this time of year: useless - useless - financial forecasts for 2016.

How do I know this? Because it happens every year; it is as guaranteed as the sun rising in the east, as certain as that extra dose of misery unveiled in the Christmas Day East Enders episode.

But if these forecasts really are useless, how come they come around, again and again?

"HatTip" - You And I Are Different

People that know me will have read the title of this "HatTip" and exhaled a sigh of relief: who on Earth would want to be like me?!

Thankfully of course we are all different, in our own lovely, different ways. Each of us has different wants, needs, aspirations, values (morals, even), ages, states of health. Financially, we have differing incomes, debts, inheritances, spending patterns and so on.

"HatTip" - Autumn Market Update

Stock markets around the world probably went up and down over the last few months. The fundamentals behind these movements were thought to be people buying shares and other people selling them.

If you would like to get more regular drivel like this then simply Google “financial advisers who send out pointless monthly market updates”. You will find literally hundreds of them. Take your pick.

"HatTip" - 2015 Autumn Statement

And exhale! Miracles do happen: Gorgeous George managed to get through an Autumn Statement without completely rearranging the personal financial services landscape.

Perhaps he read the last paragraph in this....

Of course, the devil is often in the detail, so don't pop those champagne corks quite yet. Especially if you are a buy-to-let landlord; the Chancellor seems to have you in his sights....

However, for the moment, let us be grateful. No doubt he will find things to dicker about with during next year's budget!

"HatTip" - Nick Interviewed in "Adviser Business Review"

An interview from October 2015 which first appeared in "Adviser Business Review".

In practice: Financial forecasting software

Nick Lincoln, owner of Values to Vision, has been using financial forecasting software since 2008.

ABR editor Rob Kingsbury spoke to him at a recent Voyant Mastery training session about why and how he uses it and whether it has affected the bottom line of the business

Nick Lincoln began using financial forecasting software in 2008, around the time he set up his lifestyle financial planning company, Values to Vision. He first used Prestwood Software’s Truth and switched to Voyant in 2011.

"HatTip" - Open Letter to George at Number 11

"Dear George

I am a basic rate taxpayer. When, on 8th July 2015, you sat down after your Budget, I was nearly £2,000 a year worse off because of changes to the tax regime.

Yet the media lauded your Budget as a tax-cutting success. How did this discrepancy arise? It arose because I am the owner of a small business and I remunerate myself via salary and dividends.

8th July 2015 marked the day when the Conservative party finally ditched any pretence to being the party of small business; the era of “crony capitalism” (corporatism) is now accepted and openly touted by the establishment. Small business is so “yesterday”.

So yes, I have a vested interest in whingeing. I admit it. But let me put to paper my thoughts on why this new taxation of dividends is so damaging.

First, let us dismiss the pernicious myth that somehow paying oneself via dividends means you are avoiding tax. This is nonsense; every penny of dividend income I receive has come out of business profits already taxed once via Corporation Tax.

The compact between the State and the business owner was that the State would take its share via this tax and whatever was left over was yours. There would be no further tax to pay (unless you had the temerity to take dividends that put your income into the 40% tax band - hey big spender!)

The State recognised that, as a small business owner, you were running incredible risks. The State understood that there was no benevolent employer looking after you; that there was no company pension scheme waiting for you to join; there was no employer sick pay or life cover or employment “rights”. It was just you, the marketplace and your offering.

The State saw that, if small businesses flourished, they would grow and employ people. These employees in turn would pay Income Tax, National Insurance etc.

The quid pro quo was that the State would not tax business owners as heavily as PAYE employees, a

A dividend certificate, as spotted yesterday

vast number of whom enjoy all of the above benefits.

That compact has now been blown away; the State will continue to tax you first on every penny of your profits (for, unlike Income Tax,  there are no allowances with Corporation Tax) and now tax you again when you extract what remains, bar a truly pathetic £5,000 “dividend allowance”.

Of course, this is where dividends meet the thin end of the wedge. Once a tax is introduced it never seems to go away. A 7.5% tax on dividends could just as easily be 17.5% or 27.5% whenever a future Chancellor needs more of our money. The door has been opened.

This is the country of the “butcher, baker and candlestick maker.” It is built on commerce, on entrepreneurship, on the collective risk-taking of hundreds of thousands of people who have had the courage and conviction to go it alone. These same people may now be thinking “why bother?”

Not every small business will become a big business, either through choice or because of business failure. But every  - every - big business was once a small one: the ramifications of this ideological sea change from a purported Tory chancellor could be catastrophic.

As ever, the outcomes will not be felt until you and your generation of politicians have long departed, to retire on your (taxpayer funded) final salary pensions. You know, those pension schemes that small business owners have not a hope in hell’s chance of ever enjoying!

Anyway, hope you are well and that the family is OK. Speak soon.

Yours sincerely

Nick

"HatTip" - What's Your Attitude to Pain?!

The inspiration for this piece comes from US based adviser Alan Roth. In a recent blog he pretty much summed up everything that is wrong with my profession's fixation on investor "attitude to risk".

Here is the process: you plod through a questionnaire given to you by your adviser; the adviser feeds the answers into a bit of software; hey presto, you are told that your attitude to risk is 8 out of 10, or “balanced”, or “low-risk” or some other meaningless grading.

It is meaningless because a risk score simply pretends to know demonstrates how much pain someone can bear to take when markets fall.

But just because you theoretically can mentally stomach a large loss in your portfolio does not mean you have to. This is because - on its own -the risk attitude questionnaire bears no relation to the actual return that a client needs to get to achieve her life goals.

For example, if your portfolio simply needs to “earn” 3% a year to maintain your lifestyle then why on earth would you be in a portfolio that carries the potential return and commensurate risk of, say,  8% a year?

A risk questionnaire, as seen yesterday

Advisers that answer with "my client's attitude to risk score indicated that was the ideal portfolio" are just doing half a job.

Even worse, imagine a “cautious” risk profile client, advised to invest in a portfolio that will ensure he runs out of money before he runs out of life. What is the biggest risk for all of us? A temporary dip in the value of our investments (because markets go down as well as up) or a permanent drop in lifestyle when we run out of money?

Risk assessment questionnaires and their ilk are only ever the starting point of a conversation about your investments. Far more important is the return you need to get on your assets so as not to run out of money during your lifetime. When you know this figure then you can construct a portfolio that has the best chance of achieving it (in no way guaranteed etc).

If the resulting portfolio is too racy (or too cautious) for you, then adjust accordingly and accept the consequences on your lifestyle. But remember: markets generally recover from falls; time is a great healer. However if you run out of money in later life then all the time in the world will not save you: the dosh is gone and it ain't coming back. That is real pain.

A short term paper loss or a long-term drop in living standards? The choice is yours!

"HatTip" - Promises, Promises

In case you missed it, there was an election recently.
And in the 12 months leading up to it, a lot of promises were made. Will they be kept?

The Labour Party seemed to spend the dreadful Mansion Tax about 15 times over. The LibDems... well, I was not listening to their promises. Come on, hands up - neither were you.

As for the Conservatives, one has the feeling they were making promises on the assumption they