Investment Lessons from University Endowments

Recently a familiar theme cropped up in discussion following an article on Bloomberg – that of the potential lessons from investing like the big US university endowment plans.[1] They excite interest due to the vast sums they manage[2] and that they can access some of the best and brightest individuals in academia who are based literally on their door steps. The Yale Endowment Model has been widely publicised and described by the Yale Chief Investment Officer, David Swensen, in his book “Pioneering Portfolio Management”.

Cash Flow Planning

I attended a conference earlier this week and one of the featured speakers, Jeffery Coyle of Monograph Wealth Advisors in California, discussed the role of fixed income over time in an asset allocation strategy.  The presentation was thought-provoking because it was, in many ways, contrary to generally accepted industry practices.

UK pension drawdown – managing your exposure to the Lifetime Allowance Charge

The new pension freedoms on offer since 6 April 2015 have allowed individuals to become more strategic in the way they access their UK retirement funds. Traditionally, the tax-efficient way to drawdown your assets in retirement is to access taxable assets, tax deferred assets and tax exempt assets. These freedoms provide the ability to meet retirement needs in a way that can also mitigate your tax bill.

Financial considerations of becoming self-employed

Many people, at one point or another, think about leaving the ranks of conventional employment to start their own business. Sometimes the proposed business venture will be within the same industry and sometimes it will be a complete departure from their career to date. Taking the plunge into the world of self-employment can be scary but also incredibly rewarding. After all, being your own boss allows you to build something meaningful and should provide you with some flexibility that is often difficult to find when working for someone else. Giving credence to some of the important financial considerations can help you properly prepare for the transition.

Insurance Planning

Make protection a priority
Every day in the news, we are bombarded with stories of loss and tragedy. I often find myself thinking of the family members who are left behind when someone suddenly dies. The emotional impact of the death or disability of a loved one is traumatic in itself. However, amidst their grief, families affected by tragedy must continue to pay their bills, care for children and attend to mundane financial considerations. If the primary earner of a family dies prematurely or is seriously disabled, this can have a catastrophic effect on a family’s financial stability.

You have moved to the UK – Now what?

As an American living in the UK, almost nothing related to your financial affairs is easy. The consequences of seemingly simple decisions – such as how to pay for a new home or purchase a mutual fund – may create unnecessary tax charges and complexities. There are a number of key milestones that occur, from the time you arrive in the UK to the time you approach retirement. Many of these changes will impact the appropriate wealth management strategies for American expats. Understanding how rules will change for you over time will allow you to plan ahead and make prudent financial decisions. We begin these series of articles with some initial considerations for your first three years in the UK.

The role of QDOTs for bi-national estate planning

There can be some great planning advantages in the case of a bi-national couple where one spouse is American. Opportunities often abound, for example, in choosing to own certain assets in either spouse’s name to optimise the tax implications for either US or UK purposes. For instance, the non-US spouse could take advantage of some of the UK tax-advantaged accounts and asset ownership structures in the UK that are generally not beneficial for a US person, whilst the US spouse could focus on utilising US tax-efficient vehicles.

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.