SBA Financial - Solving the financial puzzle... ...piece by piece

Monthly Update - August 2010

How to use your property to create a free monthly income!

One of the most innovative products to come to the market place is due to be launched on 1st September 2010. The product is called a Property Income Plan (PIP) and will be available to anyone with a property that has no mortgage attached to it. There is also a plan to release a version that can be used with properties that do still have mortgages attached to them.

In essence the plan is set up to create a 3 year lease on the property in question and then you receive an income paid monthly into your bank account, to the value of 2.5% of the property value, so on a typical house valued at just £200,000 you could receive an income of £5,000 PA for three years, so £416.66 per month for the use of the three year lease.

Theses PIP’s will only be available via a suitably qualified person or firm such as SBA Financial Ltd so you will need to seek advice on them to see if they would be right for you.

To get a guide emailed to you, just use our contact page on our website using the following link http://www.sba-financial.co.uk/contact_form.asp and tell us that you would like a copy of the PIP brochure emailed to you.

Why I hate personal pensions so much!

The main reason I hate personal pensions so much is the fact that they are so inflexible, you are told what you can and can’t do, then you are told when you can and can’t take your benefits and on top of all of that, they are not even as tax efficient as you are led to believe. In fact for a basic rate taxpayer they are likely to be less tax efficient than an ISA.

I am a great fan of planning for your future and some pensions are fantastic, but it all depends on your own personal circumstances. If you would like to know the “Truth About Pensions” then use the following link http://www.sba-financial.co.uk/seminars_calendar.asp to book your place on last pension’s workshop for 2010, which will really open your eyes to “The Truth About Pensions”.

Saving your home from the cost of Long Term Care Fees!

For many people the biggest asset they ever have is the family home and they hate the thought that having spent a lifetime of working hard, saving hard and buying their own home, that if they need care in their twilight years then the local authorities will be digging around to see just how much they can grab from you and your family.

Some of you reading this may well remember the promise when the welfare state came into force after WWII when the country was told “pay your National Insurance and the state will look after you from the Cradle to the Grave”

Of course this well intentioned plan, like many offered to us by successive governments and politicians becomes a hollow promise, now when you are at your lowest point, instead of the authorities caring for you, they are more intent in getting their hands on what you have left because they wasted the tax and NI you have paid all your life.

There is a great deal that can be done to protect you and your loved ones from this problem as well as all the other estate planning problems. If you would like to know more and find out “The Truth About Wills, Trust’s, Long Term Care and Estate Planning” then use this link http://www.sba-financial.co.uk/seminars_calendar.asp to book your place on this year’s last “The Truth About Wills, Trust’s and Estate Planning” workshop.

Are corporate bonds really a safe investment?

Many readers of this e-newsletter will know that I write a column for the Meon Valley News and also for the Chichester Observer. Below I have copied a recent Q&A for my column in the Observer, which many readers may find helpful.

Readers Question:
Steve - I'm a pensioner, standard rate for tax - just - and have successfully invested ISA’s in managed collective corporate bonds, high yield corporate and strategic corporate bond OEICs over many years to the maximum allowed each year. These have been safe investments so far, have performed well for me and of course yield tax free incomes currently between around 4% and 7%, which I take and spend. But with the current economic climate now getting much worse, is this a policy I should continue with? I am risk-adverse; preserving capital is paramount for me, which I have been successful with since last working 20 years ago. My wife is a non-taxpayer, to whom I have gifted the bulk of my investments for maximum returns.
Regards and Many Thanks,
Tony, Chichester

Steve’s Reply:
It sounds like you have done a good job by your own hard work and efforts over the years and of course quite rightly the use of ISA’s & PEP’s as they were before, is great for tax efficiency as a shelter for both income tax and capital gains tax, for any tax payer, but even more so for higher rate tax payers, which you may become, depending on future tax changes. Also from a tax view again quite rightly, you have used your wife’s non tax payer status to good effect, but here I would raise a note of real caution as this is not always the best way.

What I mean by this, is there is little benefit in saving income tax at basic rate or capital gains at what was 18%, now 28%, if we end up paying 40% later in inheritance tax and you may find that you have moved the problem to another area that is far worse. So I would recommend a look at this aspect at some point, which ties in with your estate planning as a whole. One of my favorite quotes is… “Let’s not spend a £1 to save 50p”.

Moving to the issue of Corporate Bonds, historically they have been seen by many as a low risk area and indeed you have said that you are risk adverse, but actually they are not safe at all, as their values have been proven to fluctuate, especially during the depths of the credit crisis and subsequent market rally. In 2008, the Sterling Corporate Bond sector fund fell (-8.25%), Strategic Bond sector by (-12.05%) and High Yield sector by (-24.55%), while rising by (+13.93%), (+21.5%) and (+47.05%) respectively in 2009, so Corporate Bonds have been proven to be more volatile than previous expectations and actually perform more like equity markets.

Also in more ‘normalised’ market conditions, corporate bonds tend to offer little potential to provide capital gains, so it is likely that inflation will erode the ‘real’ value (spending power) over the time of the corporate bond investments, so in essence you could find yourselves getting poorer as you get older, particularly as inflation rises and the fact that inflation for most retired people is actually much higher than the stated RPI or CPI, due to the spending patterns of most retired people.

That said, whilst Corporate Bonds performed exceptionally well from March 2009 to March 2010, providing returns similar to equities, in the last few months, bonds have witnessed a retrenchment from the impact of the Euro-debt crisis with prices back down to the autumn values of last year. In short, corporate bonds appear to offer good value, especially high yield ones, but this is not necessarily the case. However they can and do sometimes have a part to play in a balanced portfolio.

I would suggest that you may want to reconsider your approach towards a more diversified stance to capital preservation, by considering other investments such as capital protected or defensive structured products, in a properly constructed portfolio that is actively managed and re-balanced to keep it in line with your changing needs.

Finally, you mention that you spend the income generated from your investments, and so I believe that like many thousands of others you may wish to take advantage of an Property Income Plan, I am told that they are due to be launched in September 2010 and will have a massive up take in my opinion because they offer total protection with guaranteed income, better than any yield on any bond. There will be more information about these Property Income Plans in my future columns after September.

Lifestyle Planning The Ultimate Financial Plan!

Frequent readers of my columns will have often see me make reference to something we call “Lifestyle Planning”.

But what is Lifestyle Planning? It is very difficult to explain in detail without taking time to demonstrate its power and benefits, but in essence it is in my opinion the most powerful and professional level of financial planning available in the UK today.

Try to imagine having a bank statement that showed you all the cash in-flows and all the cash out-flows, not just for a month, or a year not even for 5 or 10 years, but for the rest of your life! Then imagine that into this plan you had also built in inflation, and every possible extra, such as holidays, school fees, replacing your car, weddings for the kids, etc etc etc.

This plan could now show you what your financial future will look like for the rest of your life and then if the future you see, is not one that you want, you can now plan how to change it and see for yourselves what effect the actions taken now will have on the rest of your life.
Of course you have to bear in mind some ground rules, such as rubbish in, equals rubbish out, so it is very important that the assumptions used in your Lifestyle Plan are reasonable. There is no point assuming that inflation is going to be 1% and that your money at the bank is going to grow by 10% it just is not going to happen.

So the golden rule is “if you can’t fault the very reasonable assumptions used, then it is also reasonable to accept that the future you see before you, will be accurate” It’s a bit like being able to foresee a road accident from 10 miles away, so you have plenty of time to be able to take actions now to avoid the problem later in life.
The next thing is, you need to be committed to Lifestyle Planning. Realistically you need to commit to a whole day with your expert Lifestyle Financial Planner each year, this is the rest of your life that we are planning for, so it’s important. I have met people that will spend more time planning their next holiday or car purchase, it’s crazy not to give quality time to your financial future and remember it’s your life and your future, if you don’t care enough to plan it, then no one else will either.

The latest figures I saw reported suggest that less than 1% of IFA’s (Independent Financial Advisors) in the UK like us have the ability, and technology to be able to offer Lifestyle Planning as a service and I have tended to find that those are normally the top IFA’s around.

Since providing this ultimate service, I have had clients retire 10 years earlier than they thought they could, I have had clients gift thousands of pounds early to children and grandchildren because they could be certain that they would not run out of money, and clients who have disappeared off on a 5 year travelling tour of Europe because they could see that they really could afford to live that dream, without the fear of ever running out of money.

If you would love to start taking real control of not just your finances but also your life, if you want to live the Lifestyle you want without the fear of ever running out of money, then you need to speak to us now and come and see what our Lifestyle Planning Service can do for you and your family.

If you would like to find out more about the topics covered in this month’s newsletter, please contact us or come along to one of our regular workshops, all of the details can be found on our website: http://www.sba-financial.co.uk/seminars_calendar.asp

Steve