My Budget 2019 Wish List

Avoiding the big picture question of whether the government should tax more/less or spend more/less, this is my Budget 2019 Wish List. It’s in no particular order and is definitely not comprehensive – it’s about ending anomalies that have never made sense to me (from a personal not professional point of view). But I guess if there is a theme, it’s all about slimming down those fat cats!

 

  1. End higher rate pension tax relief – it serves only to enrich the wealthy – and use the savings to widen the standard (lower) rate income tax band.
  2. Consider going further and cutting the link between pension contributions and earnings by introducing capped SSIA style pensions for all with a flat rate government gifted discount.
  3. End rental income tax relief for individuals – it’s time to stop subsidising the buy-to-let generation. Why should one asset class get such special treatment?
  4. Eradicate (or tax) child benefit or any other welfare payments that end up in the hands of high earners.
  5. Work on eliminating some of the tax breaks and exemptions (too many to list here) that only benefit rich individuals and corporations.
  6. Level the investor playing field by cutting Fund Exit Tax and DIRT to Capital Gains Tax levels and then cut again (OK this is both a personal and professional gripe).

 

In saying all this, I am no tax guru so I’m sure there are experts out there who will tell me this is all too simplistic or radical or both.

This is not in the interests of my clients (or me) but shouldn’t government policy work for the many not the few?

What Are Binary Options?

The UK financial watchdog recently warned that hundreds of thousands of pounds are lost every year to investment scams. Last month I blogged about How To Spot A Scam. This month I want to concentrate on a growing segment of this ‘market’, binary option scams. So, what are binary options?

A binary option is a financial option in which the payoff is either some fixed monetary amount or nothing at all. The binary option player faces a simple ‘yes’ or ‘no’ proposition – will the underlying stock / commodity / currency / index be above a certain price at a certain time?

But here’s the problem …

1. Deals were often promoted on Facebook, Instagram and Twitter alongside images of luxury cars or watches to entice people to invest while often fraudulently using fake expert or celebrity endorsements. It’s a fact that people ‘investing’ online are much less likely to double check claims and are prone to the addictive attractions of instant online gambling.

2. Some binary option internet trading platforms may overstate returns on investment by advertising a higher average return than a customer should expect given the payout structure.

3. Many binary option brokers fraudulently distort prices to cause customers to lose. While advertised to punters as requiring little or no knowledge of the markets, no one, no matter how knowledgeable, can consistently predict what a stock or commodity will do within a short time frame – except a broker with an unfair ‘house edge’.

4. Even if a client has good reason to expect a payment cash withdrawals can be regularly stalled or refused or the broker will simply stop answering your calls.

5. On non-regulated online platforms client money may not be kept in a segregated account as required by most financial regulators and transactions are not monitored by third parties in order to ensure fair play.

6. In some cases there is no real brokerage at all – the fraudsters don’t actually place trades, they simply disappear with innocent investors’ money.

To sum up, binary option trading websites are so prone to fraud that they are banned by regulators in many jurisdictions. The FBI is investigating binary option scams throughout the world, and the European Union is updating regulations that will ban binary option sales. Facebook, Instagram and Twitter just recently banned binary option and cryptocurrency ads, but unfortunately not before a friend of mine succumbed to a bitcoin binary option scam which had fake endorsements by Dragon’s Den and Money Saving Expert Martin Lewis. To quote the latter (correctly!), when it comes to binary options, do not touch with a bargepole.

How To Spot A Scam

The golden age of the internet has given us ease of connectivity and instant online payments. No wonder it’s also the golden age of the scammer. Here are a few tips on how to spot a scam …

  • You are promised investment returns that are too good to be true.
  • You are asked to pay in advance.
  • You are asked to make a quick decision.
  • You are asked for your credit card or bank account details.
  • It’s not clear exactly who you’re dealing with.
  • You are asked to click on an email link.
  • The message has suspicious wording.

And here are some common scams doing the rounds …

The friend in need – the scammer hacks a friend’s email and tells you they are abroad, their money and cards have been lost or stolen and they need you to wire money to them immediately.

The tax refund – you get an email from ‘Revenue’ telling you to click on a link to claim a tax refund.

The lottery win – out of the blue an email tells you have won a prize (in a draw you have not entered) which you can claim by paying a small administration fee.

The premium rate con – you’re told you’ve just won the holiday of a lifetime but you have to call a (very expensive) premium rate hotline to get the details.

The philanthropist – an African king or a Saudi prince has for reasons unknown chosen you as their beneficiary if only you’d give them your bank details.

The bogus company – an email from your bank (or EBay or PayPal or Netflix…) asks you for account details and password.

The Microsoft scam – a phone call warns you that your computer is at risk from a security threat which they can fix if you just give them some information…

The scammers are getting more inventive all the time so watch out and if you have been scammed you should contact the Competition and Consumer Protection Commission.

Too Much Cash?

The late Ken Dodd once revealed (in court) that he kept £336,000 in cash stashed in suitcases in his attic. I have two immediate thoughts on this story. First, he is not the only one whose wealth is less than it should be as a result of being incredibly risk averse as cash hoarding is now quite common among both millennials and retirees. Second, the Doddster’s stash pales in comparison to some of the ‘great’ cash hoards of modern times …

5. Bill Gates

The second richest human on earth holds about $6 billion of his $90 billion wealth in cash. Some advisors recommend holding 5% to 10% of our wealth in cash, others recommend holding enough cash to meet 6 months of expenses – I think Bill will be fine for a bit more than 6 months.

4. El Chapo

Keeping the ill-gotten gains of drug dealing in cash is a practical rather than asset allocation decision which makes estimating net worth almost impossible. Mexican drug cartel boss El Chapo may have as much as $14 billion in cash but police haven’t found a single dollar yet.

3. “Mexican Drug Lord”

Although the shy and retiring owner remains anonymous, the $22 billion cash hoard of this “Mexican Drug Lord” has to be included if only for the police photographs that show how difficult it is to hide so much cash.

2. Pablo Escobar

The Columbian ‘narco’ died with an estimated $25 billion in cash hidden away. When you’re spending $2,500 a month on rubber bands for your stacks, I think we can safely say you’re holding too much cash.

1. Apple

Yes this is a company not an individual but Apple’s $285 billion cash stockpile is a record for any corporation, ever. After moving the lolly from Ireland to Jersey in 2014 for, er, tax reasons, it may soon be heading back home if Donald Trump gets his way.

 

 Need help investing your cash? Call us on 01 276 0006 or email info@moneysmart.ie.

How To Invest

The question of how to invest is an important one, never more so than in a time of stock market turbulence. 2018 has seen one of the US stock market’s worst ever days, followed by a six day rally, but all adding up to a resurgence in volatility. So, how to invest (and why) in 2018?

What’s your goal? Keeping all your money in cash does not eliminate risk. So start by knowing what you need your money for, and when, as this is the key to deciding how much investment risk you are completely comfortable with.

What type of investment? Understanding the long term expected risk and return of various asset classes allows us to construct a portfolio that controls risk through global diversification.

Don’t be a trader. Because most of us are terrible at it. Those fully invested in the S+P 500 between 1995 and 2015 earned a 10% annualised return but those who missed the 10 best  days earned only 6% – and 6 of those 10 best days were within 2 weeks of the 10 worst days.

Stay invested. Volatility has returned with a vengeance but stock market history teaches us that every bear market has been followed by a recovery. Staying invested has always rewarded patient investors, particularly those who continue to invest year in, year out.

Avoid emotional biases. Media headlines are impossible to avoid in times of market stress but as this recent FT article by Undercover Economist Tim Harford points out, switching off the noise and keeping your emotions out of the investment process is the best way to stick to a financial plan.

Money Smart can design a globally diversified multi-asset long term investment portfolio for you – for life. Call 01 276 0006 or email info@moneysmart.ie.

2017 : The Year In Numbers

1,700% … the bubble-like rise in Bitcoin so far in 2017.

€50,000,000,000 … the cost to the UK of Brexit (and that’s only the divorce bill).

500,000 … people at Trump’s inauguration in January, or was it 1 million, or maybe 5 million?

€222,000,000 … PSG paid Barcelona this record breaking fee for Brazilian footballer Neymar.

11,500,000 … leaked documents in the Panama Papers, divulging the vast wealth held in secretive offshore tax havens.

61.6% … of Australians said yes to gay marriage.

90% … of Catalans said yes to independence (but only 42% voted).

$450,000,000 … the price paid for the Leonardo da Vinci painting, Salvator Mundi, a new record for any work of art.

37 … years of rule of Zimbabwean President  Robert Mugabe finally ended this year.

$99,000,000,000 – the wealth of Jeff Bezos of Amazon, now the world’s richest person – Bill Gates has dropped to the No.2 after a long run in the top spot with Warren Buffett No.3.

1% … of people now own half the world’s wealth.

$1,000 – the price of the new iPhone X, made by Apple, the world’s biggest company with a valuation heading towards 1 trillion dollars (too many zeroes).

Probate In Ireland

It’s not a subject we like to dwell on but it is important to know what happens to our money after we die. Knowing the processes involved (and how long they take) is a great motivation to structure our finances in a way that makes it as easy as possible for our beneficiaries to ‘get the money’.

Should I have a will?

In short, yes. If you do not, your money and property is distributed in accordance with the rules set out in the Succession Act. If you do have a will (which all of the following assumes) your estate will be divided according to your wishes by your executor (usually your next of kin or your solicitor). But that process can still be lengthy …

What is Probate?

On death (most) assets are frozen and a Grant of Probate is necessary to administer the estate. Taking out probate basically means having the Probate Office certify that the will is valid and that all legal, financial and tax matters are in order so that the executor can be allowed to get on with the job of distributing the estate.

How long does Probate take?

The process can be very lengthy (16 months on average!) and stressful so is best left to the solicitor. To get to the point of Grant Of Probate requires lots of forms, documents, interviews and of course a fee.

What then?

Once your solicitor gets the Grant Of Probate, distribution of assets begins, but only after payment of debts and taxes.

How can I make it easier?

The trick is to try to keep assets out of the Probate system. Married couples should hold joint current and deposit accounts (and joint investment accounts) as the surviving joint owner automatically owns the funds (on production of paperwork). Ensure all your insurance policies and pensions have correct next-of-kin information. Keep a copy of your will and a detailed statement of assets at home and at your solicitor’s office. And have a read of Money Matters After A Death from Citizens Information.

How To Spend

Reading media reports about Johnny Depp’s financial woes (he has allegedly come close to bankruptcy despite earning $650 million over the last decade or so thanks to a serious spending habit) it brings to mind a question we all ask, what’s the right way to spend money? Or to put it another way, What Would Johnny (Not) Do?

Have a budget

First up, be aware of your net monthly income and set monthly expenditure accordingly – which ideally means setting aside funds to invest for a rainy day (see How To Save). Johnny’s $2 million a month ‘allowance’ was clearly over budget (even for him).

Pay attention

Continually check your accounts to ensure you are keeping track of all outgoings. Set a spending limit and stick to it. Don’t expect someone else to tell you you’re spending too much (yes, I’m looking at you Johnny).

Be flexible

If your income varies then you must be ready to adjust spending habits. For most of us the income side of the equation is out of our control – at least Johnny can always do another Pirates of the Caribbean movie (‘Pirates 5’ out this Friday!).

Spend wisely (part 1)

Essential expenses are those necessary for basic living. Be conscious, perhaps ruthless, about what you consider ‘essential’. For example, for most of us one car is a necessity, but do we really need two cars, or forty-five (you know who)? Our home is undoubtedly a necessity, a second, or fourteenth (him again) is definitely non-essential.

Spend wisely (part 2)

Discretionary spending is everything non-essential – without doubt the area we can all ‘improve on’. For example, I would categorise a guitar, or seventy (uh-huh) as not essential. Did Johnny really need to spend $3 million blasting journalist Hunter S. Thompson’s ashes out of a cannon? I would say not.

Spend wisely (part 3)

And when it comes to discretionary spending, all the evidence suggests we get more happiness out of experiences rather than stuff (both before and after the purchase). So maybe don’t bother with the Hollywood memorabilia (for which Johnny needs 12 storage facilities) and instead enjoy a nice holiday.

 

Need help avoiding the temptation of splurging $30k a month on wine (like Johnny)?  You could call Money Smart on 01 276 0006 or email info@moneysmart.ie but maybe seek other help first!

 

All figures above are alleged in a lawsuit by Johnny Depp’s former business advisors.

What’s Your Financial Personality?

We all have very different ideas about what money means to us and we have many different, often damaging, psychological biases that impact how we make money decisions. Knowing our financial personality is the first step to making better decisions. So which one are you?

The Saver

= Values the security of cash much more than the fear of investment loss.

+ Rarely gets into any financial trouble of any kind as not all income is spent and no risk is ever taken.

May not enjoy life to the full if money is always hoarded. And being too risk averse, such as keeping all your money in the bank, will never make you rich.

The Spender

= Prefers the thrill of spending to the security of saving.

+ Gets full value out of the joy of spending money and amassing ‘stuff’.

May not think of the future and end up living beyond their means and in debt.

The Gambler

= Happy to speculate with their money. “If you’re not in, you can’t win”.

+ Big risks can occasionally mean big investment wins.

Often driven more by optimism and gut feeling than by research and analysis. Can lose it all with if just one big bet goes sour.

The Procrastinator

= Would rather bury their head in the sand than organise their finances.

+ I’m afraid there is no positive to this one!

Not engaging with personal finances leads to anxiety and stress.

 

Need help making better money decisions? Just call Money Smart on 01 276 0006 or email info@moneysmart.ie.

Is Trump A Genius With Money?

Did Donald Trump, with Buffett-like financial genius, really turn $1m into $10bn? Can we learn something from his self-proclaimed golden touch? For those of you who have more to do than tweet / watch TV (perhaps in a bathrobe?) and want the executive summary, the short answer is… No. And here’s why…

Daddy’s Money

Donald Trump’s father Fred ‘had a good war’, by which I mean he got seriously rich building houses for American soldiers. By 1974, the Trump business was worth $200m, at which point Donald inherited $40m* (not the $1m “small loan” he claims) plus tens of millions more in later years. Business Week estimated Trump’s net worth at $100m in 1978 and the Washington Post has pointed out that if he had simply put that money in the S&P 500 index he would be worth over $6 billion today.

Trump Net Worth

So what is his net worth today? This is as hard to nail down as a Trump tax return. The man himself claims he is worth $10bn whereas Forbes (which compiles the annual rich list) puts his true net worth at $3.7bn.  So in other words, if he had put all his wealth into a simple stock market index fund, he’d be almost twice as rich as he is now. Or if he had asked Warren Buffett (now there’s a true financial genius) to invest his money for him, he’d be six times richer.

Can You Beat The Donald At Investing?

To borrow a phrase from his much-missed predecessor, yes you can. By sticking to an appropriate financial plan and investing over the long term in a simple index tracker you’ll almost certainly earn a much better percentage return than Trump has managed. Mind you, starting off with a “small loan” from the old man would also help!

*Sources: The Washington Post / The Motley Fool / Investopedia / Forbes / Business Week / Fortune / Bloomberg / Fake News Network (sorry I mean CNN)

Want to make your investment portfolio great again? Contact us at info@moneysmart.ie or 01 276 0006.