Wealth Management & private Financial Services in 2016


Please find a recent article written by Matthew for a local publication

Only 3 weeks into the New Year and the FTSE100 has dropped 11% since 1st January and 20% in just 9 months making this our first official bear market since the Banking Crisis of 2008.

Events such as this inevitably make the uninitiated reluctant to enter the world of investment; this is a sentiment that I fully understand but invariably the risk of inaction can be so much more costly.

Throughout our lives many of us will find ourselves with unexpected wealth, perhaps though our own endeavours but often due to a significant event such as an inheritance, a divorce, or simply through a property sale.

At these pivotal moments the decisions we make may will impact the rest of our lives, with wealth comes responsibility and a need to take action as a failure to do so will, at best, be a missed opportunity and at worst can lead to unhappiness and regret.

Sound management of your wealth should be liberating and can provide the opportunity to move from a reliance on an ‘earned’ income to the freedom to live by ‘independent means’.

The secret is to understand the subtleties of the tax system and manageable risk; the truth is the levels of tax HMRC collects in unearned ‘investment’ income is a fraction of the level of tax paid through the individual’s ability to ‘earn’ it. Perhaps this explains the mystery of why the rich apparently get richer; I don’t believe in conspiracies, this is simply common sense Wealth Management.

The biggest enemy of wealth creation is prevarication; if we accept that the average rate of inflation in recent years runs at around 2% per annum it stands to reason that your savings need to increase in value by more than 2% per annum after tax or its true value is shrinking.

If you do nothing with your capital other than put it in the bank it will eventually disappear unless you can find a rate of interest greater than 2% per annum after tax. Good luck with that!

The only answer is to invest into an asset; the simplest example is property as its long term capital value is always likely to keep pace with inflation and it has the added advantage in that you can live in it or generate income in the form of rent.

Other ‘assets’ include debt in the form of government bonds known as Gilts or private sector Corporate Bonds providing fixed levels of income for an agreed period, alternatively, shares in private companies have a tradeable value and may well generate an income in the form of a dividend.

All of these options come with inherent risk to capital as your fortunes rise and fall based upon the perceived quality of the asset you have purchased but the unassailable fact is that each of these asset classes will give you a significantly better return than inflation and a much better return than any deposit account.

Clearly not everyday, as 2016 will testify, but over the long term asset backed investments will always prevail, with a clear plan it is possible to manage risk and to make that transition from ‘earning’ your living to enjoying a regular and consistent investment income.