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August 10 2020 8.42am

Financial Guidance Thread

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View Goal Machine's Profile Goal Machine Flag The Cronx 15 May 20 12.53pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by Tom-the-eagle


Agree 100%

You learn more about finance from reading Rich Dad, Poor Dad or Richest man in Babylon than in youíre entire school life.

Most people still follow outdated principles set by their parents or grandparents which are now not really applicable.

Since we left the gold standard and became a currency due to inflation there is pretty much no point now in savings.

Itís all about investments. Buy assets, not liabilities!

As per Rich Dad Poor Dad, your assets are your employees. They are working for you

 

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View doi209's Profile doi209 Flag Fighting for the weak and innocent... 15 May 20 2.56pm Send a Private Message to doi209 Add doi209 as a friend

I have been managing my ISA and pension assets for over 30 years having worked in designing and developing computer systems in asset management for american banks most of this time both permanent and freelance. I understand the financial world better than most. I am now going to take my permanent company pension and may transfer into my own company pension, but I am forced to take IFA advice to allow me to do this. I know my options and how they work. Two questions:- A) how can I not involve an IFA ? B) how much would I expect to pay for advice I don't need or want ? Tx

 

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View Badger11's Profile Badger11 Flag Beckenham 15 May 20 3.48pm Send a Private Message to Badger11 Add Badger11 as a friend

Originally posted by doi209

I have been managing my ISA and pension assets for over 30 years having worked in designing and developing computer systems in asset management for american banks most of this time both permanent and freelance. I understand the financial world better than most. I am now going to take my permanent company pension and may transfer into my own company pension, but I am forced to take IFA advice to allow me to do this. I know my options and how they work. Two questions:- A) how can I not involve an IFA ? B) how much would I expect to pay for advice I don't need or want ? Tx

I was forced to employ a Pension specialist when I transferred my company pension. They would only offer me an annuity I wanted a draw down pension. The reason they forced me to employ a specialist was simple they were covering themselves from future legal action. The specialist cost me a couple of thousand and basically said annuity rates are poor the draw down option is better. If it had gone wrong my company would have pointed to the report.

Good luck but I think you will not be able to avoid this.

 


One more point

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View Goal Machine's Profile Goal Machine Flag The Cronx 15 May 20 3.54pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by doi209

I have been managing my ISA and pension assets for over 30 years having worked in designing and developing computer systems in asset management for american banks most of this time both permanent and freelance. I understand the financial world better than most. I am now going to take my permanent company pension and may transfer into my own company pension, but I am forced to take IFA advice to allow me to do this. I know my options and how they work. Two questions:- A) how can I not involve an IFA ? B) how much would I expect to pay for advice I don't need or want ? Tx

It sounds like the pension you wish to transfer is a Final Salary (Defined Benefit) pension.

If so, and the transfer value is over £30,000, it is a regulatory requirement that you must receive advice to transfer. No provider will accept the transfer without proof that you have received advice. There is no way to avoid an IFA here.

This advice is expensive as it is deemed to be high risk, and usually not suitable to give up a risk free, inflation linked, guaranteed income for life in exchange for a lump sum where you bear the investment risk yourself.

I say it's usually not suitable, but the adviser will base their recommendation on your personal circumstances, such as experience, capacity for loss, family situation, other assets etc, and they may deem that it is suitable for you.

As a rough estimate, you might see a flat fee of around £3,500 plus a implementation fee of around 2% of the transfer value.

Many advisers have stopped writing this business recently as the PI insurance costs have become so expensive, which is reflected in the high charges.

However, if it is a defined contribution (or money purchase) pension, there is no requirement to receive advice. You will get the standard risk warnings which you can choose to ignore.

Hope that helps?

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 15 May 20 4.18pm Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by Badger11

I was forced to employ a Pension specialist when I transferred my company pension. They would only offer me an annuity I wanted a draw down pension. The reason they forced me to employ a specialist was simple they were covering themselves from future legal action. The specialist cost me a couple of thousand and basically said annuity rates are poor the draw down option is better. If it had gone wrong my company would have pointed to the report.

Good luck but I think you will not be able to avoid this.

It really is hairy area for the IFA market at present and is heavily under the FCA spotlight. Additional, specialist qualifications are required to give this type of advice, and many of those who have the qualification are scared to touch this type of business currently.

When pension freedoms were introduced in 2015, there were a lot of advisers who recommended transfers away from Final Salary pensions. Upon FCA compliance checks, it was deemed that a large percentage of these transfers were unsuitable. Complaints flew in from clients who regretted transferring, which lead to an upsurge in insurance payouts.

This is why the insurance costs are so high and why fees are expensive. It also means it's increasingly difficult for an Adviser to recommend that a transfer.

Whilst I hold the specialist qualification, our company has temporarily pulled out of the market due to PI costs and high risk nature. It's less risk and cost for us to refer this to a third party.

There seems to be a little bit of pressure on the FCA to look at the current PI cost problems as it crippling the DB transfer market.

My hope is that the FCA will relax their stance over the next couple of years, because it's currently not helpful for clients.

 

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View cryrst's Profile cryrst Flag Chatham 15 May 20 7.53pm Send a Private Message to cryrst Add cryrst as a friend

My (frozen) pension is with a company whom supply an FCA with the annual costs of maintaining the pension. Admittedly they might be slightly biased but legally cannot advise advice that will be bad advice and potentially cost you money, whether in an investment to withdrawal or from you to an investment. I learnt years ago that you have to (even verbally) instruct what you want to do, not ask if you can do it. Then it can be discussed including the negatives. Ie can I withdraw this blah blah is different to I want to withdraw this blah blah. The wording makes a big difference as once the advice or money movement is done you sign that you instructed rather than asked. Weird but legally you made the choice. Bear in mind at the end of the day it is your money and really you can do what you want.

 

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View JohnB's Profile JohnB Flag 16 May 20 8.20am Send a Private Message to JohnB Add JohnB as a friend

What's your thoughts on overpaying mortgages if you think there is still another move in you at a later date?

I think I can overpay something like 10% of outstanding balance per year. My savings accounts are pulling in such pathetic rates at the moment that it could make more sense paying off a chunk, but then if I plan on moving within the next 5-10 years, is it worth it if I am only going to have to re-mortgage and potentially borrow more?

I already max out my ISA allowance every year so can't throw anymore into that and the best rates at the moment are about 1.16% for easy access or 1.5% fixed.

I have no debt other than the mortgage so I'm not really sure what's the best thing to do at the moment. I did read the BoE were even considering the option of negative interest rates.

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 16 May 20 9.38am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by JohnB

What's your thoughts on overpaying mortgages if you think there is still another move in you at a later date?

I think I can overpay something like 10% of outstanding balance per year. My savings accounts are pulling in such pathetic rates at the moment that it could make more sense paying off a chunk, but then if I plan on moving within the next 5-10 years, is it worth it if I am only going to have to re-mortgage and potentially borrow more?

I already max out my ISA allowance every year so can't throw anymore into that and the best rates at the moment are about 1.16% for easy access or 1.5% fixed.

I have no debt other than the mortgage so I'm not really sure what's the best thing to do at the moment. I did read the BoE were even considering the option of negative interest rates.

Morning John, good question.

My thoughts are that as interest rates are so low, you would be better off dragging out that mortgage for as long as you can and instead divert the extra 10% into an investment which is suitable for your risk appetite. If you're new to investing, it would be sensible to discuss with an adviser who could recommend something suitable.

As you have a relatively long investment time horizon (5-10 years), the short term volatility is less of an issue for you, so can afford to take a little more risk (and likely better returns). By saving and investing for 5-10 years, you will have a larger lump sum at the end of that period compared with the reduction of your debt.

The lump sum at the end of the 5-10 years will provide you chunk of money to either pay towards your current mortage or towards the new house.

Think of this way, 5% growth (not guaranteed, but realistic for a 'moderate' investment) vs 2% interest to be repaid. 3% difference may not seem much, but it is huge if compounded over 10 years.

It's sounds like you're in the trap of long term cash savings in your ISA. Your 1.16% interest compared to 2.5% inflation means your cash savings are losing their spending power by approximately (2.5% - 1.16%) 1.34% per year. A cash ISA can be transferred into a Stocks and Shares ISA. As its a transfer, it doesn't count as a contribution.

 

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View cryrst's Profile cryrst Flag Chatham 16 May 20 9.46am Send a Private Message to cryrst Add cryrst as a friend

Originally posted by JohnB

What's your thoughts on overpaying mortgages if you think there is still another move in you at a later date?

I think I can overpay something like 10% of outstanding balance per year. My savings accounts are pulling in such pathetic rates at the moment that it could make more sense paying off a chunk, but then if I plan on moving within the next 5-10 years, is it worth it if I am only going to have to re-mortgage and potentially borrow more?

I already max out my ISA allowance every year so can't throw anymore into that and the best rates at the moment are about 1.16% for easy access or 1.5% fixed.

I have no debt other than the mortgage so I'm not really sure what's the best thing to do at the moment. I did read the BoE were even considering the option of negative interest rates.

I would think it will depend on how much interest you are saving by paying it and how long you have left on your mortgage.it is unknown territory atm and after this who knows what's going to happen. The government could increase isa interest rates and amounts you can have just to get some dough through the door. Maybe just pay a little extra each month for now as even that can help. 5-10 years is a long way off and it's pretty guaranteed your drum will have increased by then even coming back from any drop this bug may cause.

 

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View JohnB's Profile JohnB Flag 16 May 20 10.36am Send a Private Message to JohnB Add JohnB as a friend

Originally posted by Goal Machine

Morning John, good question.

My thoughts are that as interest rates are so low, you would be better off dragging out that mortgage for as long as you can and instead divert the extra 10% into an investment which is suitable for your risk appetite. If you're new to investing, it would be sensible to discuss with an adviser who could recommend something suitable.

As you have a relatively long investment time horizon (5-10 years), the short term volatility is less of an issue for you, so can afford to take a little more risk (and likely better returns). By saving and investing for 5-10 years, you will have a larger lump sum at the end of that period compared with the reduction of your debt.

The lump sum at the end of the 5-10 years will provide you chunk of money to either pay towards your current mortage or towards the new house.

Think of this way, 5% growth (not guaranteed, but realistic for a 'moderate' investment) vs 2% interest to be repaid. 3% difference may not seem much, but it is huge if compounded over 10 years.

It's sounds like you're in the trap of long term cash savings in your ISA. Your 1.16% interest compared to 2.5% inflation means your cash savings are losing their spending power by approximately (2.5% - 1.16%) 1.34% per year. A cash ISA can be transferred into a Stocks and Shares ISA. As its a transfer, it doesn't count as a contribution.

My ISA allocation is already in stocks and shares ISA and they are generally doing well, especially Baillie Gifford American fund which is currently returning 43% on my investment. However, I will use up the £20k allowance on that over the course of the year as I have about 8 or 9 different funds I do regular monthly savings/investments into.

All my savings are spread across several easy access accounts like Marcus, Shawbrook and Kent Reliance but they've all been reducing rates over the last 6 months.

My mortgage has 2 years until the term ends and I'm on something like 1.8% which was a 5 year fixed term.

Like you say, I feel like my savings are just sitting their not gaining anything and I'm not really sure what the best options are in the current climate.

I also feel a little bit like cash is king at the moment with all the uncertainty and maybe just leaving savings in the bank for the next few months whilst everything pans out might also be sensible.

Anyone got a crystal ball they can lend me?

 

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View Goal Machine's Profile Goal Machine Flag The Cronx 17 May 20 8.40am Send a Private Message to Goal Machine Add Goal Machine as a friend

Originally posted by JohnB

My ISA allocation is already in stocks and shares ISA and they are generally doing well, especially Baillie Gifford American fund which is currently returning 43% on my investment. However, I will use up the £20k allowance on that over the course of the year as I have about 8 or 9 different funds I do regular monthly savings/investments into.

All my savings are spread across several easy access accounts like Marcus, Shawbrook and Kent Reliance but they've all been reducing rates over the last 6 months.

My mortgage has 2 years until the term ends and I'm on something like 1.8% which was a 5 year fixed term.

Like you say, I feel like my savings are just sitting their not gaining anything and I'm not really sure what the best options are in the current climate.

I also feel a little bit like cash is king at the moment with all the uncertainty and maybe just leaving savings in the bank for the next few months whilst everything pans out might also be sensible.

Anyone got a crystal ball they can lend me?


Hi John, my apologies, I wasnít aware that you were already invested.

Crystal balls are cheating and would make it far too easy, Iím afraid.

With stock market investing you can never be sure about the climate as you donít know what will happen tomorrow. There could a coronavirus cure announced this week for all know. Thatís why you need to take a long-term view. If you are genuinely worried about investing new money, your mortgage interest rate of 1.8% is higher than the interest on your cash of 1.16%, so it would make sense to pay it off.

Iím of the opinion that cash is never king, unless its for short term savings or for day to day liquidity. Others will have a different view to this.

Judging by the fact youíre maxing out your ISA, Iím assuming you are at least a higher rate tax payer.

If you do still want to invest further, there are other options availableÖ.

1. Invest via a General Investment Account, separate to your ISA. You are still entitled to the £2,000 dividend allowance (assuming you donít already receive dividends from elsewhere), i.e. your first £2,000 of dividends are tax free. Each individual has a £12,300 CGT allowance, so if your profit on sale is below this, its tax free. Any profit over £12,300 is taxed at 20% for a HR taxpayer. This can be managed by selling your investments once per tax year when they get close to £12,300 profit.

2. If youíre married, use your wifeís £20,000 ISA allowance.

The next two are more exotic and not for the faint hearted, but possibly attractive for those paying higher taxes:

3. Enterprise Investment Scheme (EIS) Ė These are tax relief schemes created by government to encourage investment into start-up businesses. Like a fund, itís managed by a professional across a portfolio of business. Charges are higher, as is the risk. Potential for big gains and big losses. New investments qualify for 30% income tax relief, e.g. if, you made a £10,000 investment, you would qualify a 30% (£3,000) income tax rebate. However, the investment must be held for 3 years or this is withdrawn. Additionally, if held for 3 years, any gains made on sale are exempt from CGT. Less of a bonus for someone younger, but after 2 years, assets are outside of your estate for IHT purposes on death.

4. Venture Capital Trusts (VCT). Similar to the EIS concept of investing in small businesses, via a professional manager with generous tax benefits. Still get 30% income tax reduction on new investment, although this is withdrawn if investment is not held for at least 5 years. Sales are CGT exempt with no minimum holding period.

 

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View Forest Hillbilly's Profile Forest Hillbilly Flag in a hidey-hole 17 May 20 8.52am Send a Private Message to Forest Hillbilly Add Forest Hillbilly as a friend

The pound (£) you earn, is worth more than the pound (£) you are given.

Or as my wife would say, "What's yours is ours, and what's mine is mine"

 


,.,.,..,

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