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The potentially perverse nature of risk budgeting

Risk budgeting can be a relatively straightforward exercise and, if highly personalised, is an essential step in the execution of a successful wealth plan.  At MASECO we budget for risk by thinking both about the ability to take risk, which tends to be governed by the investment horizon, and the willingness or tolerance to take risk, which tends to be more individual. An example can help illustrate this concept. An individual may have a low tolerance for risk, which can be evaluated by how easily they sleep at night during times of market volatility, but at the same time may have a relatively high ability to take risk, if for example investing to meet their retirement needs in 25 years’ time.  There is no exact science to this, but assuming that the goal is to maximise returns over the 25 year investment horizon, the greater the risk they can tolerate the greater the expected returns over the period, and the more successful the outcome is likely to be.  However, if they take on too much risk compared to their risk tolerance, they may find themselves falling into the behavioural finance biases of divesting from the portfolio when the markets are down. This most likely leads to missing out on the ensuing recovery, thereby significantly reducing the return over the 25 year cycle.  It is up to the skill of the adviser to recommend a risk budget that can fulfil both criteria.

Shirtsleeves to shirtsleeves, all around the world

Most major languages have their own version of the idiom “Shirtsleeves to Shirtsleeves in three generations”.  From the very literal Chinese “wealth never survives three generations” to the more musical Italian “dalle stalle alle stelle alle stalle” (from the stalls to the stars to the stalls), this is a phenomenon that has existed for centuries.  However, I believe that in our industry it is poorly understood, continuously under-studied and rarely discussed with clients.

Holidays and Travel – A Cornerstone of your Wealth Plan?

When I work with clients on wealth planning engagements, I spend a lot of time discussing their personal goals and objectives; what is it that they want to get out of the one life they have to live? Through the conversations, a common theme often emerges. For so many people, it is not about buying luxury things or amassing material possessions. It is about affording experiences. It is about making memories with the people who mean the most in their lives, whether that be family or friends.

The Role of Insurance Protection

Insurance protection is hardly a glamorous purchase and generally people will avoid the topics of illness and death, but ensuring you have decent protection for your dependents is a must. Insurance protection is important no matter your employment, life stage, or the number of children you may have.

Considerations when looking at property as an investment

Historically, property alongside pensions has been one of the most common ways to invest in the UK. As many know, property is an asset class, just like cash, bonds and shares and can serve as a form of diversification when building an investment portfolio. In the UK, there have traditionally been many tax incentives for property investing. However, these are slowly being tapered back making other avenues of investing potentially more attractive.

Look to have a tax overlay to your saving plan to help save more money

Clearly defining your personal wealth goals and objectives is the first step towards determining an appropriate investment strategy and asset allocation to suit your needs. The additional value add comes with giving proper consideration as to how to meet your goals in the most tax-efficient and optimal manner. As a US person living in the UK, you want to make sure that you avoid the tax traps that are littered within the investment world to mitigate any overall costs of investing.

The importance of financial planning

Financial planning is often an area that takes a back seat in busy lives. When there is no specific deadline to make a financial decision, it is very easy to say that you will address it in the future when life becomes less hectic. Taking the time to review your financial position, your personal wealth goals and objectives and consider the implications of whether your strategy will appropriately meet those goals can be an important exercise. Ensuring that you have an effective and appropriate strategy will likely afford you future flexibility and peace of mind. Below we discuss the areas that are beneficial to consider and review. A few easy steps can ensure optimal wealth planning strategies.

Is Lifetime Allowance Protection appropriate?

The standard lifetime allowance (LTA) is a limit on the amount of pension benefit that can be drawn from pension schemes – whether lump sums or retirement income – and can be paid without triggering an extra tax charge. As of 6 April 2016, the LTA reduced from £1.25 million to £1 million. Provided nothing changes, the LTA is set to stay at £1 million until April 2018 when it is scheduled to increase each year in line with CPI.

With the lower LTA threshold, there is a segment of individuals who, if not already addressed, should give consideration as to whether or not a form of LTA protection might be appropriate in their situation. Lifetime allowance protection locks in the level of your lifetime allowance. There are three protection programmes that remain available to individuals who do not currently hold protection or have not previously applied for protection in the past. Special attention should be paid to those who think they qualify under the IP2014 programme, noted below as an application for this is only available until 5 April 2017. These are: