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.

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).

Millennial Misery

There is no doubt that the Millennial generation (born 1975 to 1995) are now facing hardships that the luckier generation of their parents did not have to endure.

Inequality

Yes it’s been part of the capitalist system since the days of the ‘robber barons’ but it’s now worse than ever. Credit Suisse reported this week that the richest 1% own half the world’s wealth. The sustained bull run in equities has been a factor but so too has tax avoidance by rich individuals and multinationals, as revealed by the recent Panama Papers.

Housing

A perfect storm of rising house prices, a shortage of accommodation and tighter mortgage rules have all combined to result in lower home ownership for Millennials compared to Generation X (born 1965 to 1975) or Baby Boomers (born 1945 to 1965) at the same age. The absence of this fundamental base of financial security for so many has serious long term social consequences.

Income

Technological change continues to impact employment (and therefore incomes) massively.  Millennials may be more educated than their parents but they have to deal with student loan debt, zero hour contracts and competing with robots for jobs – potentially making them the first generation in history to be worse off than their parents.

Pensions

The Credit Suisse Global Wealth Report also noted that the Millennial generation have a poorer pension outlook than the generation before. This is a consequence of lower earnings (and hence lower pension contributions), the end of generous defined benefit company pension schemes and lower / later future State pensions as a result of the large and ageing Boomer generation.

 

It may be that the Millennial generation will driven by the inequality of their socio-economic circumstances to protest many of the government policies than underpin the modern capitalist system, both in Ireland and globally. This might result in sweeping changes to tax and welfare systems and lead to a fairer and less divided society.

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.

Good Advice Doesn’t Cost, It Pays

Do you need a Financial Advisor? Yes. You do. We all do. Why? Because an expert independent advisor will save you from making poor financial decisions and guide you towards a consistent and disciplined investment strategy. I will come back again and again to this co-called ‘behaviour gap’ but today I want to simply relate two research studies which prove that good financial advice pays.

Firstly, at home in Ireland, an independent survey of 1000 adults carried out for PIBA in 2013 showed that the average pension pot of advised individuals is 75% greater than the pensions of those that don’t use a financial advisor. And those who use a financial adviser on a regular basis, more than once a year, are significantly wealthier (more than twice) and more financially confident.

Now, I know what you’re thinking – this is not a surprise as financial advisors will obviously engage with people with more money.

However, the second study, a comprehensive survey of Canadian households by CIRANO in 2012, addressed this causality issue. It compared households with the same starting wealth and showed that those who use a financial advisor have 1.6 times more financial assets after 4-6 years of advice, 2 times more financial assets after 7-14 years of advice and 2.7 times more financial assets after 15+ years of advice. The research concluded that this significant wealth difference over time was attributed to the advisor encouraging more saving, better asset class diversification, tax efficiency and impartial fund advice.

Now that you’ve had your stat fix, if you are not already engaging an expert independent advisor, what are you waiting for?