Spring 2018 | Wealth into words
7IM Investment Update Topic
Retirement
What more can you do to help with your retirement?
First quarter learning curve Bull market and memory loss
Interview
Financial behaviour
Greg Davies on financial decisionmaking
Lifestyle
Investing in art
Justin Urquhart Stewart explores investing in the art world 01
Is there an art to investing in art? Lifestyle page 10
Welcome Welcome to inBrief. We aim to be true to the name and make sure that we only give you concise snippets, ‘read with a cup of coffee’ articles and pithy insights. We promise we’ll only talk about the things that really matter to our clients: tax year end planning, retirement, helping the next generation, and so on rather than go on too much about ourselves…. We are realistic enough to know that most of you, and to be honest many of us, constantly put off sorting out our finances. Yet putting some order around our financial affairs is probably one of the most useful and most protective things we can do for ourselves and our families. On every topic we cover, just ask yourself, “Was it useful to me? Did I learn anything? Did it make me consider my own situation?” If after you have had a browse the answer to any one of those questions is ‘yes’ then we are on the right track. From a layman’s introduction to the science of decision-making to the laundry list of annual tax planning, we really hope that there is something that strikes a chord with you.
The Private Client Team
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Financial Education How good is your tax planning?
Michael Martin, Relationship Manager explains various ways to help you make the most of your tax year end planning.
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7IM Investment Update What should investors learn from the first quarter of 2018?
Ben Kumar, Investment Manager
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Topic Can you do more for your retirement?
Jeremy Greenwood, Relationship Manager talks about maximising your retirement planning.
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Lifestyle Is there an art to investing in art?
Justin Urquhart Stewart, Co-founder explores his thoughts behind investment in the art world.
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Social Tune into our on demand webinar series
A look at recent and upcoming webinars. Plus how you can view them on demand.
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Interview Making better financial decisions
Sophie Kilvert, Relationship Manager meets with Greg Davies, a behavioural finance expert, to discuss how people can make better financial decisions.
We’d love to chat to you. Call us on 020 3823 8678 & we’d be happy to answer any of your queries. 02
Spring 2018
www.7im.co.uk
@7IM_Private
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“You may delay, but time will not.”
x plann a t r u o y i ng s i
– Benjamin Franklin
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How g oo d
Financial Education
We estimate that some 80% of 7IM’s new clients aren’t aware of all of their allowances, and we want to make sure you know and use all of your family’s options. This article doesn’t aim to give tax advice – your individual circumstances will result in small print that’s unique to you and changes over time. However, it’s worth seeking professional advice about:
ISA allowances
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very year sees a last minute rush ahead of 5 April to sort out your tax affairs. However, you should be making decisions across the year to benefit most from the tax allowances. Are you?
These can’t be backdated – use it each tax year or lose it. You and your spouse can transfer up to £40,000 of existing or new investments into an ISA and benefit from any potential investment gains tax free. You cannot open an ISA in joint names or on behalf of another adult, so do plan ahead. Any children who are 16 and 17 can also open both an adult cash ISA and Junior ISA account in their name (as long as they don’t have a child trust fund). That could mean putting up to £24,128 in your child’s name tax free. It’s worth noting though that when they become 18 the money is legally theirs, so instead you could invest some of the money into a pension on their behalf.
Income tax allowances
Dividend allowances
If you are married or in a civil partnership and your spouse or partner earns £11,500 or less, they may be able to transfer up to £1,150 of their personal income tax allowance to you. This might reduce your tax bill by £230 in the 2017/18 tax year and you may be able to backdate claims to April 2015.
This allowance is reducing to £2,000 (from £5,000) in the 2018/19 tax year. So you may want to look at your investments and see whether any income should be reallocated and recorded as capital gains, where the tax may be less than that on income.
We estimate
80% of 7IM’s new clients aren’t aware of all of their allowances. Pension allowances The 2017/18 lifetime allowance is £1 million and your annual allowance is £40,000. However, your annual allowance could be lower if you earn over £150,000 a year or if you’ve started drawing down your pension. It’s also important to realise that the £1 million includes any gains on your investments, which can compound quickly if you’ve been saving for some time. Simply stopping paying into a pension scheme can affect other benefits so discuss this first with a professional adviser ahead of any decisions.
Capital gains tax allowances If you’ve used up your own annual allowance of £11,300, you may be able to gift investments to your spouse if you as a couple would benefit from their disposal. Yet again rules apply, but it could be worth finding out more. It’s also worth seeing whether you recorded a loss in 2016/17 as that can be offset against 2017/18 gains above the threshold. You can’t carry forward any unused allowance so do use what you can. We hope this article could be a well-timed hint to get your 2018/19 tax year off to a good start!
If this sounds like you, call us on 020 3823 8678.
26 February 2018 | Michael Martin, Relationship Manager 04
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7IM Investment Update
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WHAT SHOULD INVESTORS LEARN FROM THE FIRST QUARTER OF 2018?
omeone once told me that on average, we won’t remember 10% of what we read, 20% of what we see and 30% of what we hear. There is no way that’s true. I think we forget a lot more than that. Why else do I have to pause Game of Thrones every three minutes to google who a character is? And I’m paying attention during Game of Thrones!
12 March 2018 | Ben Kumar, Investment Manager
It gets more challenging depending on where we were when we were trying to retain the information, what else was going on (in the room and in our lives) and how long ago it was. However, memories are really important with regard to investing. They affect us positively when we remember how well an investment has done and negatively when we suffer at the hand of market movements. Those negative moves hurt us a lot more than the positive ones. Experiences bring in behavioural biases that change how we make decisions, and it’s amazing how quickly the past fades. Throughout 2017 and into January 2018, markets were incredibly unruffled by world events. Whatever the news, markets kept calm and carried on steadily increasing. An excellent example of this composure was the S&P 500. Throughout 2017, we saw just eight days when the market moved more than 1%. However, just at the end of January, markets moved and volatility came back. In the first 12 weeks of 2018 (as at the time of writing this), the S&P 500’s already moved by more than 1% over 10 times.
“We won’t remember 10% of what we read, 20% of what we see, and 30% of what we hear.”
Many people seem to have forgotten that this is much more of a normal state of affairs and we’ve been lulled into a false sense of security by recent history. The initial overreaction from investors was akin to having a couple of hot weeks in September, and deciding that you’d never need central heating again. Just going back to 2016 shows that what’s happened is reasonably ‘normal’ – markets moved by that 1% mark or more nearly 50 times that year i.e. about once a week, around the long term annual average for the main US stockmarket. This raises two issues. The first is that cautious investors have been tempted into equity investing in far greater volumes than they’d traditionally ever be comfortable with. The second is that it’s started the debate as to whether this is the beginning of the end of the equity market bull run. The first matter has concerned 7IM for some time. We are multi asset investors, believing that each
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investment plays a different role in a portfolio. So we invest across as many different assets as possible – sometimes over 30. This diversification should also be across companies, sectors, geographies, as well as currencies. This reduces the likelihood of a one-off event affecting all of your holdings. An earthquake in California might hurt Silicon Valley tech stocks, but have no impact on German bonds or the price of copper. Equity investments, meanwhile, have for us traditionally held the role of delivering higher returns than other investments, but they came with a recognition that those returns recompensed for the higher levels of risk they typically carried. Meanwhile, the conventional role of bonds was to deliver a steady stream of interest income and to dampen the volatility of the equity in a portfolio. Recent history has challenged both these views. Record low volatility has led some to believe they can increase the allocation to equities without increasing risk. There have also been occasions when both equities and bonds have fallen in value. This situation poses challenges to all multi asset investors. The second concern is a more difficult debate. Markets can start to trend downwards some six to 12 months before any troubling economic data is released. As I’m writing this, the equity bull run is the third longest since 1945. However, bull markets do not simply run out of steam – they need a catalyst. The global economic situation – even including our own confused scenario here in the UK due to Brexit – looks set to continue for the foreseeable future. Given memories should have been jolted recently that markets do go down as well as up, this is something to be aware of. Again though, look out for that recency bias! Just because markets may have moved in the last few weeks in one direction, doesn’t mean that they will carry on generally trending up. Since I’m writing this article, it should come as no surprise that we have thought about these things. Indeed we’re continually thinking through market conditions, economic expectations and potential scenarios – it’s our job after all! We’ll also continue to aim to have a broad range of investments to support portfolio growth, offer up defensive measures and keep a percentage in cash that gives us the option to buy more attractive assets as markets allow. This helps us as we aim to deliver our clients’ targeted returns over the long term and seek to mitigate any pain – something that any Game of Thrones enthusiast should appreciate given how often favourite characters are killed off. 07
7IM Topic
Can you do more for your retirement? 31 January 2018 | Jeremy Greenwood, Relationship Manager
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t some point you will stop working. Ahead of that you will have to make a number of decisions about your finances to be able to choose how and when. But how do you achieve a really enjoyable retirement? No matter how many decisions you have made to date, there is often a niggling doubt in the back of the mind as to whether you could do more. These are some of the questions we discuss with clients that have a big impact on their pension.
1. How long do you have to live?
4. How can you maximise pension savings?
You could search on the internet for a life expectancy calculator. We like the one on Confused. com because it takes a broad number of factors into account. Most people think they’ll die in their early 80s, and yet at least one in 10 will live to get a card from Buckingham Palace. Are you underestimating your longevity?
If you’ve changed jobs a couple of times in your career, you probably have more than one pension pot. Consolidating them with one provider often makes a lot of sense. You can make sure your money is working as effectively as possible and may even save yourself some money on fees and charges. Is it worth getting help on finding out the pros and cons?
2. What does retirement mean for you?
5. Do you want to pass on any of your wealth?
Retirement has changed. Gradual career changes may be the beginning of some lifestyle changes. In your sixties, you might take on non-executive director roles, regularly work from home and enjoy more holidays. During your seventies, the balance between an office and home almost certainly changes again. The truth is that all plans evolve. Have you made any assumptions about your future spending to help plan for the income you need?
There’s a lot of bad advice out there that involves the selling of a product to mitigate inheritance tax. Most people just need some sensible planning. Do you want to pass on wealth? If yes, then there’s help to minimise the tax bill for your heirs.
3. How long will you be retired for? Obviously how long you’ll live and how old you’ll be when you retire feed into this number. You may end up retiring at a different age to the one originally envisaged or change the way that you earn. Do you know how to update your financial plans in case life changes unexpectedly? 08
“You may end up retiring at a different age to the one originally envisaged or change the way that you earn.”
There are huge swathes of information on all these subjects from tax allowances to longevity calculators. However, it can feel a little like trying to self-diagnose a health problem given the overload of options. Maybe it’s worth asking for help from a professional adviser so you’re sure you understand all of the implications for the long term.
Sparks your interest? Call us on 020 3823 8678 09
Lifestyle
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Is there an art to investing in art? 17 February 2018 | Justin Urquhart Stewart, Co-founder
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Are you prepared for tax year end? Art is also affected by fashion trends, provenance and by the views of a handful of individuals – dealers and gallery owners remain key – and it’s still the collector who sets the price at the end of the day.
Financial investments – despite the amount of money often involved – are inherently intangible. You also only tend to find out that you made the right decision many years after the event. Meanwhile, any benefits tend to accumulate gradually rather than provide any instant gratification!
While I’m not going to give any investment advice, I have seven practical points you might want to consider:
The most extravagant art that I’ve ever bought was a pair of small Venetian-style bronze sculptures by Philip Jackson. They cost about £30,000 and I saw them as an indulgence and an investment. But, I bought them because of their beauty rather than what they might be worth in the future. So, where do I think you should start if you’re interested in an art investment? First, whether you’re buying art, financials or anything else, you should start off with a plan to invest and what you expect the investment to provide you in the future. All investments have the capability of falling in value, as well as increasing, to the point where you could get back less than you initially stumped up and artworks can fall out of favour for a variety of reasons. That’s because you’re buying something that has a value that is more than its cost of production. Creations by living artists sometimes easily exceed the cost of art made by someone a century ago, despite the fact that someone alive can replicate their work and dilute the value of the original.
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e’ve already hosted a variety of webinars this year. If you’ve not had the chance to already – tune in.
Recent webinars
espite spending more years in the industry than I care to admit, I do realise that financial investments are peculiar animals.
These same points, however, also serve to underline what a different proposition investing in art is. If you are buying art as an investment, rather than to ‘fill’ a space, there is some immediate fulfilment. You should be able to very quickly step back and admire an acquisition. And this for me is what’s key to buying art – that sense of satisfaction.
Have you TUNED IN?
1. Keep an open mind and allow yourself to be surprised – art can inspire and (should) spark an emotional reaction 2. Take the time to look – art requires a commitment as it will probably be in your home or office for many years to come. Also try to understand what is a realistic value to pay, so you are not just paying for a fashion fad 3. Be careful what you buy – do your homework into who has owned it, why it’s being sold and what’s the provenance. As with most things, if it seems too good to be true, it probably is – art, after all, is an unregulated industry 4. Talk to other collectors of the same artist – find out as much history as you can about the market for your art and assess if there’s some sustainable demand 5. Stick to your budget – given that art can be difficult to sell on, if you have paid too much for a piece, you may come to resent it
The deadline of 5 April and the end of the tax year is looming. But are you aware of all of the allowances you can benefit from? 7IM’s Michael Martin goes through his checklist of what’s available to help you and your family get your finances into shape.
What we got right and wrong in 2017 Ben Kumar and Sophie Kilvert reviewed our forecasts for 2018 and how our predictions for 2017 turned out.
Seven’s steps to pension freedom Michael Martin presented our educational webinar on Seven’s steps to pension freedom.
Upcoming webinars What are we doing in portfolios? Ian Jensen-Humphreys and Justin Urquhart Stewart The first quarter of the year already saw markets react to events differently from 2017, with mixed results. Can the third longest bull market since 1945 continue or should investors be preparing for an end to that positive momentum?
10 April 2018 at 12:00 BST Protecting your wealth Michael Martin Do you worry about protecting your wealth in a changing environment? Investors may be faced by an entirely different balance sheet under a Corbyn-led government. Tune in to hear our thoughts on how we are dealing with and preparing for any potential changes.
15 May 2018 at 08:30 BST
6. Toss out any preconceptions – just because your best friend has a hideous piece of contemporary art, you can’t tar the whole genre with the same brush! 7. Think whether you can keep it safe – if you like it, so may others! And any insurance might not be enough… At the end of the day, any art investments are and should be personal. But, it is always worth remembering that past performance is never an indication of what might happen in the future, and you bought it because it’s great, not for greed.
You can view all our webinars by using the link below: www.7im.co.uk/webinars
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Interview
16 March 2018 | Sophie Kilvert, Relationship Manager
I recently talked with Greg Davies, to discuss how people can make better financial decisions. He investigates human decision-making processes and helps us understand how our instinct and personal biases affect our choices. Interestingly, his theoretical views are often borne out in practice by the behaviours and choices we see clients exhibiting. These behaviours are so common because they stem from the fact that we’re all human. We are all driven by emotion more often than we’d like to admit, particularly when we make decisions based on a gut feel. While it’s fine for regular choices in life, we simply don’t assess our finances often enough to use this shortcut. Three of the most common traps that people can fall into are: Cost of reluctance: People have a tendency to keep more money in cash than they really need. Confirmation bias: We tend to view new information as a reaffirmation of existing beliefs rather than a catalyst for change. Emotional comfort: Too often we make the easy decision.
These, however, can cost us dearly in terms of potential investment returns. So how can we protect ourselves? Greg’s advice is that people develop their own ‘decision constitution’. This has certain key ingredients: • A circle of competence: You should only make decisions on topics where you have sufficient knowledge to be confident that you really are making the right decision. 12
• Scheduled actions: By diarising the times that you need to make decisions (e.g. ahead of tax year end, completing your annual tax return), you can give yourself time and the mental ‘space’ to really think things through. • Contingency plans: In thinking about which way you might invest, you can develop ‘what if’ scenarios. It’s always worth remembering that selling something is almost always more difficult than buying something, so give yourself the opportunity to weigh up any costs of your decisions and compare to the alternatives. • Forbidden actions: It is easier ahead of time to understand what you can and cannot do than in the heat of the moment. This should therefore mean setting limits as to how much you’re willing to invest or allowing yourself only to make certain decisions when you have the time, for example at the weekend. Setting these ‘rules’ will help you make more balanced choices. • Cooling off period: In the same way that we should save that angry email for a few hours rather than instantly pressing send, it’s a good idea for you to take time away from your decision-making before you act. The amount of time needed in-between depends on you, but it gives you time to reflect on your choices. The final piece of advice from Greg was that we should recognise that we may never solve some of our problems because we can’t change being human. But, acknowledging a behaviour and how it affects you should help. Meanwhile, the team at 7IM would be happy to challenge your confirmation biases and need for emotional comfort. Helping you make better long term financial decisions is based on our know-how and your personal circumstances.
Want to have a chat? Call us on 020 3823 8678
Any reference to specific instruments within this document are part of widely diversified portfolios and do not constitute an investment recommendation. You should not rely on it as investment advice or act upon it, and should address any questions to your financial adviser. The value of investments can vary and you may get back less than you invested. Tax rules are subject to change and taxation will vary depending on individual circumstances. Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales No. OC378740.
Spring 2018