Wednesday, 10 December 2014

Is QROPS really the right choice for my UK pension?

As you are probably aware there have been a lot of changes to the UK pensions legislation throughout 2014-2015. The proposed changes to UK pensions and changes already made, such as removing the requirement to buy an annuity and the removal of the 55% "death tax", means that QROPS (Qualifying recognized overseas pension scheme) could have lost some of their appeal for clients compared to a UK based pension such as a SIPP (Self invested personal pension).


A QROPS and a SIPP are very similar, even more so than ever, however, for people residing outside the UK, in particular those intending not to return and expats with large (£1m +) UK pensions, a QROPS can still offer some advantages over a SIPP.

Below are the key questions that a client should consider when discussing their UK pensions and particularly when deciding between QROPS and SIPPs. It should help you to understand the key differences in a simple format.

As always, pensions are a very complex area and before you make a decision about any financial product you should seek independent advice. Ideally try to find an adviser who is FCA regulated in the UK and actually able to recommend a SIPP.

QROPS vs SIPP: The basics

QROPS vs SIPP: Income options

* this will change significantly from April 2015 with the full pension pot allowed to be taken at retirement age, however the tax free portion allowed to be taken will remain the same as the 'before retirement' information above.

QROPS vs SIPP: What happens when you die

* It should be noted that after the age of 75 tax may still apply at death depending on other circumstances

So ....... QROPS or SIPP??

Due to the announced UK pension reforms and existing UK pension changes, the differences between QROPS and SIPPS are now much smaller thus making the decision between a QROPS and a SIPP even more difficult. If you are not resident in the UK you have probably considered a QROPS but beware of the quality of advice you are geting while offshore. Remember that not all financial advisers are qualified or able to recommend a SIPP and will try to push a QROPS on the client whether suitable or not.

If you intend to stay offshore and never return to the UK it may be that a QROPS is still the best choice and especially if there is a risk that your pension may exceed the lifetime allowance before your retirement date as there are still big tax differences for large pensions (over GBP 1 million) which brings several other considerations into play. When leaving your fund in the UK you are also more at risk of future legislation changes.

As always, if you need to speak with a qualified, regulated adviser to get independent advice on your circumstances then you can contact me via

Have a great day, Andrew Lumley-Holmes.

Wednesday, 26 November 2014

Generali, RL360, Skandia & Friends Provident 2015 Investment Review

Planning an investment or having issues with your existing investments? Talk to me first - Contact Me

I speak to many clients day to day who have existing investments. Often in the EEA or international market they are investing with one of the major insurance linked platforms such as Generali International (or Generali Pan Europe or Generali Worldwide), RL360 (previously Royal London 360), Skandia (or Royal Skandia or Skandia International), Old Mutual, Hansard, Prudential and/or Friends Provident (or Friends Provident International). They may also hold these kind of platforms through their QROPS or SIPP pension investments.

Many advisers in the offshore market sell these platforms to clients using their insurance licence with no real understanding of how to actually manage the assets within the portfolio. We help many of these clients all over the world by managing the assets and investments within their portfolio's to ensure their investments are appropriate to their long term goals, their attitude to risk and their current financial, tax and/or residency position. We find many clients who have been sold these investments then left to make their own decisions or confused about how their policies actually work.

The key to successful financial planning is to constantly review your approach to the management of your wealth and ask how, why, where and how much you are investing. The investment plans with Generali, RL360, Skandia, Prudential, Hansard, Old Mutual and Friends Provident (or with QROPS / SIPP investments) can be a useful tool for clients but sometimes can lead to missed opportunities or be unsuitable for the client.

We offer potential clients a free review of their investment portfolio. This will show potential new clients the current geographical spread of their investments, the asset class spread and overall risk grading of the current portfolio along with detailing any specific issues with individual fund holdings or overweight / underweight concerns. The kind of information that we provide to our clients on a regular basis. We can also provide advice on alternate investment platforms that may be better suited to your needs if required.

This time of year is perfect to ensure you are positioned correctly. See how your portfolio's current holdings fit with your needs and financial goals.

I don't have my investments with one of these companies! Can I still contact you regarding my portfolio? - Of course, just use the e-mail below or the contact link to the right ----->

Contact me via:

Have a great day! Andrew Lumley-Holmes

Thursday, 20 November 2014

What is my investment risk profile?

The starting point of any investment decision should always be how much risk you are prepared to take with your investment. Generally, the more risk you take, the higher the potential returns become but equally the higher the potential for loss becomes. The attitude to risk can also be adjusted to take into account your long term goals for the investment you intend to make.

Below is a simple 3 minute, 6 question task that can help you determine your attitude to risk, along with sample portfolio suggestions for your risk appetite (we assume you already have cash as part of your portfolio).

Risk Profile Questionnaire, choose one answer and total the scores (in brackets) after the answer you have chosen:


a) No understanding / knowledge          (10)
b) Very little understanding / knowledge          (20)
c) About as much understanding / knowledge as the next person         (30)
d) A fair degree of understanding / knowledge         (40)
e) A high level of understanding / knowledge          (50)


a) Sell all of the remaining investments          (10)
b) Sell a proportion of the remaining investments          (20)
c) Hold the investments and do nothing          (30)
d) Buy more of the same investments          (40)


a) Immediate income          (20)
b) Specific goals in 5 – 7 years          (30)
c) Specific goals in 8 – 10 years          (40)
d) Longer term growth, 10+ years          (50)


a) Much less willing to take risks than average          (10)
b) Slightly less willing to take risks than average          (20)
c) No more or less willing to take risks than the next person          (30)
d) Slightly more willing to take risks than average          (40)
e) Much more willing to take risks than average          (50)


a) Very concerned          (10)
b) Slightly concerned          (20)
c) A little uneasy          (30)
d) Confident           (40)
e) Very confident          (50)


A – never has a negative return and return between 0% to 3%          (10)
B – has a negative return once every 12 years and returns -1% to 7%          (20)
C – has a negative return once every 10 years and returns -2% to 9%          (30)
D – has a negative return once every 8 years and returns -3% to 11%          (40)
E – has a negative return once every 6 years and returns -4% to 13%          (50)
F – has a negative return once every 4 years and returns -5% to 15%          (60)

TOTAL SCORE ___________


Up to 160 Cautious Portfolio
161 – 180 Moderately Cautious Portfolio
181 – 210 Balanced Portfolio
211 – 250 Moderately Adventurous Portfolio
251 plus Adventurous Portfolio

Guide to Investment Assets used in the sample portfolios below from low - high risk:

DB - Domestic Bonds, same currency as investment currency in same country
HY - High Yield Bonds, these may be international in nature with varying currencies
LCD - Large Cap Domestic Stocks and Shares in same country/currency as investment
LCDEV - Large Cap Stocks from developed markets
LCEM - Large Cap Emerging Market Stocks
P - Property Funds, for the purpose of this exercise we are assuming they are international funds
SCDEV - Small Cap dDeveoped market stocks
SCEM - Small Cap Emerging Market Stocks
C - Commodities
SS - Sector Specialist / Single Country Specific Stocks

You prefer investments with little risk to your capital. You prepared to accept potentially lower but more predictable returns.

You are prepared to accept a relatively low level of risk on investments over the longer term, in order to achieve potentially higher returns.

You are prepared to invest in equity based assets, where the risk is spread across a variety of investments and the fund is managed on your behalf, with the aim of potentially higher returns.

You will accept above average risk for the prospect of high returns. You are not concerned with short term volatility. You would expect the majority of your funds to be invested in equities and may invest in funds within a specific geographical area.

You are happy to invest predominantly in equity based assets, where the risk is spread across a variety of investments (some of which are “specialist” investments) and the fund is managed on your behalf, with the aim of potentially higher returns, accepting the increased risk of a loss on your capital.


This is not a definitive guide to planning a suitable portfolio for your investments but it should serve as a useful guide. A true financial planner or investment manager will take into account other factors before finalising an investment portfolio for their clients.

As always, should you need any help or advice, please contact me.

Have a great day! Andrew Lumley-Holmes.

Friday, 7 November 2014

Blue Chip Stocks for Dividend Income in 2015

What Are Blue Chip Stocks?

Blue Chip stocks are huge, high quality companies normally with a global reach. They are usually well established companies and household names with strong financial backing. This often means they are more secure in times of poor economic conditions and hold their value better than smaller stocks and shares as the dividend income becomes more valuable.
As blue chips are usually established companies they will normally make consistent profits and often pay out a portion of these profits to their shareholders and investors. This is known as a dividend. Why? It attracts investors looking for income and they may have fewer opportunities to re-invest earned income therefore reward investors with the dividend income payment.

What to look for?

When deciding which dividend paying blue chip stocks to buy you should take into account a number of factors including if the dividend payout is sustainable in the long term and the effect the dividend payments have on the price of the shares. You should look at a few points in particular when trying to find dividend income: 

Is the company still growing?
Earnings per share (EPS) over 5/10 years is a good indicator of of a companies growth, if earnings have continued growing you can be reasonably assured the dividend income is sustainable. An increase in earnings should be backed by an increase in revenue. In particular look for consistent growth in the dividend income payouts year by year.
Check trailing dividend yields
Sometimes a stock will pay a one-time dividend higher than normal. They may not repeat it. Look at the previous dividends paid and see if the trend is stable or increasing. If the dividend is a one off payment or is decreasing then it may be a better idea to look for dividend income elsewhere and a different opportunity.
Make Sure some earnings are retained
If a company distributes all of the profit as dividend income it has nothing left to continue building the business. This results in the lack of potential future growth of the company thus you may lose out on an increase in the value (capital gain) of the stock / share that you hold. It may also mean companies dipping into previous undistributed earnings to maintain the dividend levels. Another warning sign that the income is unsustainable.

Some stock ideas:
Below are a list of 20 Blue Chip stocks and shares you may wish to consider adding to your portfolio for dividend income and long term capital growth. They are ranked in no particular order:
Royal Dutch Shell - Energy 
HSBC - Financials
Roche - Health Care
Total - Energy
Sanofi - Health Care
BP - Energy
Unilever - Consumer Staples
British American Tobacco - Consumer Staples
AstraZeneca - Health Care
Siemens - Technology
Woodside Petroleum - Energy
BAE Systems - Industrials
AT & T - Technology
Lockheed Martin Group - Industrials
Johnson & Johnson - Health Care
Microsoft Corp. - Technology
Merck & Co. Inc. - Health Care
TJX Cos. Inc. - Retail
Amlin - Financials
Carillion - Construction
As always if you want specific advice based on your personal situation regarding the suitability of these investments for you then please contact me directly.
Have a great day! Andrew Lumley-Holmes

Friday, 10 October 2014

5 Steps to Review Your Investment Portfolio

Request your portfolio review here: Review My Portfolio

Now is a popular time of year that I sit down with many of my clients to review their financial situation and investments. But what are the steps you should take when reviewing your investment portfolio?

As a specialist investment manager for private clients we will normally do an in depth review including the underlying holdings of the portfolio for each individual client but there are 5 basic first steps everyone should take:

Step 1: Review Your Asset Allocation

Most client portfolios will have a mix of asset classes that will often include equities, fixed interest, property and cash. It’s important to make sure that the portfolio still reflects your current goals and attitude to risk.

For most people who take a long term view with their portfolios there is a good chance they are overly exposed toward equities now. Most developed market equity funds have had good returns recently, whereas most fixed-income investments have not. If your required weighting of an asset class is just a few percentage points out from your target there is not much to be concerned about, however where the allocation of an asset is more/less than 5-10% out of the target range it may be time to re-balance things. That's more important the closer you are to the end of your time frame for investment. Where you have a heavy equity focus it may be time to start locking in some of those gains or looking at options that offer more protection on the downside.

Step 2: Check Your Equity Sector Positioning

Look at the holdings you have within your equity investments to review which sectors most of your money is within. It’s important not to be too over exposed to a specific sector eg, technology or financials. Diversification is just as important when it comes to sector weightings in the portfolio as it is when looking at overall asset allocation.

When it comes to sectors for investment, generally the technology sector looks the most expensive right now. On the other side, stocks in the basic materials and energy sectors look attractive based on their price/fair values.

Step 3: Think Globally

The next step is to check how your equity exposure is apportioned internationally. Developed market equities have returned bigger numbers than emerging markets for most of the last five years. This means that many clients are perhaps not diverse enough in their exposure to emerging markets, especially where they have a longer investment time frame and should be taking more risk. Investors should not ignore global market capitalization when building their portfolios. If you're closer to or in retirement, it makes sense to reduce the emerging market weighting.

Step 4: Assess Your Fixed-Income Positioning

Increasing interest rates are a concern for a bond investor, however, the biggest concern when I see most portfolio’s is the poorer quality of debt. High-yield bond funds have seen strong inflows recently but many mixed asset funds have also been reducing quality to increase yield. As part of a portfolio review make sure that your fixed interest / bond holdings offer true diversification.

Step 5: Take Stock of Liquid Reserves

As well as reconsidering your long term investment allocations, you should also check your cash reserves. Have you got 3-6 months cash in your bank account in case of emergency? If you are retired this portion should be even greater around 1-2 years of expenses is recommended. If you have more than this it may be time to consider investing more toward your long term portfolio to potentially generate better returns and keep up with the impacts of inflation on your net worth.


In summary you need to go through the basics of your portfolio and check that it matches with your current attitude to risk, the investment goals that you have and the timescale for the investment. If you want professional advice on your portfolio, feel free to contact me for a complimentary review of your investments on 

Have a great day, Andrew Lumley-Holmes.

Wednesday, 17 September 2014

Passive Income - A Key To Wealth

Creating Passive Income – A Key To Wealth

What is passive income?

Passive income is an income received on a regular basis, with little effort required to maintain it. Creating passive income is one of the quickest ways to improve your overall wealth as it means your money is earning more money. The bigger the % return you can generate the faster your wealth will grow, especially when that income is re-invested to create more income. Let’s look at how your money can grow, let’s assume you invest $1,000 per month into income producing assets for a period of 10 years (total investment $120,000). The examples below show returns at 3% per year, 7% per year and 11% per year, with the income re-invested.

@ 3% returns your account is worth $140,090 and will generate income of $4,202 per year

@ 7% returns your account is worth $174,094 and will generate income of $12,186 per year

@ 11% returns your account is worth $218,987 and will generate income of $24,088 per year

Let’s look at that for a second, by investing $1,000 per month with a 7% return for 10 years you can provide a consistent income stream of over $1,000 per month for as long as you keep the account (assuming the 7% returns continue). At 11% returns a $1,000 per month saving will give you over $2,000 per month for as long as you need it.

So let’s look at some examples of passive income

1. Bank Account Interest. This is interest paid to you by the bank for depositing your money with them and maintaining a positive balance. Currently the returns from bank interest are quite low but they are fairly secure and predictable although by sopping around or using term deposits you may be able to get 3 or 4% per year.

2. Dividend Stock Investing.  What is better than a stock that goes up in value?  How about one that pays you along the way.  That’s the idea behind dividend stock investing: Picking stocks that not only have a high potential to show growth (capital gains) but will also pay you a handsome cut of the company earnings every quarter (the dividend payment).  If you can manage to collect enough shares of these high quality stocks, then you could set yourself up to receive thousands of dollars in annual income for doing nothing more than being a shareholder (now that’s passive income!) 

3. Real Estate Investment Trust (REIT). If you like the concepts of receiving dividends and owning real estate, but would rather not directly own physical property, then an REIT might be a better choice for you.  REIT’s were very popular during the housing boom (as you might imagine), but they lost a lot of steam after prices fell.  However, don’t rule them out as there are still some excellent investment choices available.

4. Bond Ladders or Bond Interest. Bonds have much more stable returns.  That’s because unlike a stock, a bond is a payment of debt where you collect interest for being a lender to a company.  If you can manage to purchase enough bond coupons, you could create a steady stream of passive income.  That is the idea behind a bond ladder: Basically each year you buy one set of long-term bonds with a fixed high paying interest rate and then stagger them over a long period of time.  After a while each year a bond will become due and you can use the proceeds to buy into another long-term bond; preferably at a higher interest rate.

5. CD Ladders. Similar to the Bond Ladder, you could use the same strategy with Certificates of Deposit (CD’s).   In this day and age, online banks seem to offer the best interest rates for CD’s. 

6. Rental & Commercial Property: Renting out a house or shop/office is one of the oldest passive income ideas. You not only collect monthly rent and make a profit from it, but you can also use the rent to pay off the actual mortgage of the property. This type of investment requires more time to manage than the above ideas, however, If that bothers you, there are also rental management companies you can hire to take care of the dirty work at a cost. The only thing to keep in mind is that the risk is that much higher if you struggle to find any tenants and the property can be hard to liquidate should you require your money back and the initial purchase costs are significantly more.

7. Business Owner: Owning a business that you do not work in can also be a lucrative way to generate passive income – if you choose the right one! Many of my clients own small hairdressers, restaurants, and niche companies where they are either an investor and thus receive a share of the profits or are the full owner but install managers to run thing day to day. The returns can be very good but it does require more time and some business knowledge.

To Summarize

There is no better time to start than now. The simplest way to start building a passive income portfolio is to buy some high quality dividend paying stocks or bonds.

As always, if you have any questions, feel free to contact me directly.

Have a great day, Andrew Lumley-Holmes.

Friday, 22 August 2014

Why you MUST review your UK final salary pension before November 2014

What's changing? Why review now?
In this years budget announcement the UK government announced a raft of changes to UK pension schemes. For most clients this will result in more flexibility, however, for those with final salary pension schemes it has resulted in more restrictions. It is important for anyone with a UK final salary pension scheme to review the options available to them. As this new legislation comes into effect for the new 2015/1016 tax year  in April you MUST begin the review process before the end of November 2014 to allow time for the review (and if appropriate the transfer process) to be completed before the new rules take effect. 
It is also important to only take advice from a FCA regulated firm that can advise on both onshore (UK) and offshore transfer choices. From April 2015 only FCA regulated firms will be able to advise on final salary transfers.

Most people will be better off after the changes, in particular UK residents. They will have freedom of choice in terms of how to take their benefits at retirement age. Unfortunately members of Defined Benefit (final salary) schemes will lose this flexibility.

It seems likely that members of defined benefit schemes (particularly those from public sector schemes) will lose the ability to transfer their pension to something more flexible from April next year. It sort of makes sense because public sector final salary schemes are expensive for the government. If people are locked into them in the future they can, in subtle ways over time, alter the benefit structure inside the schemes and therefore reduce the cost to provide pension income to members.

Looking at the Private sector people transferring out of their Deferred Benefits / final salary schemes is good news because it takes the liability away from the scheme, most of which are in a negative position anyway. The consultation document proposes that the private sector may well be treated in the same way as the public sector, with either a ban on the ability to transfer out, or heavy restrictions on it. We expect the provision of benefits from the fund would be restricted. That makes consideration of transferring out of Deferred Benefits / final salary pensions, for both public sector and private sector deferred benefits, extremely important because if you transfer those benefits out now, before April 2015 you know what the position is going to be. If you wait till after 2015 you will have no idea what the tax position or options are going to be and there is a good chance the options will be worse than now.
What are my options?
Where to transfer? There are lots of options for transferring a UK final salary defined benefits scheme. If non-uk resident and living offshore a QROPS scheme could be a good place to move, equally if UK resident or intending to return to the UK within a few years then a UK based SIPP could be the answer. Why these options?
Firstly some people like to have the option of taking their benefit earlier than is allowable in the UK, say from the age of 50, and QROPS pension scheme will allow that.
Secondly – and this is a key driver for most people – people don’t like the thought that after they die their loved ones will have to pay a lump of UK tax, in particular when they actually die after they have taken benefits from a final salary scheme. If you transfer to a QROPS or SIPP, you don’t have the lump sum death benefit charge. We know the UK are looking at reducing the level of the charge, but we think they will likely reduce it from 55% to 40%; whereas with a QROPS or SIPP you have the certainty of knowing there will be no tax on the pension fund. (in some circumstance tax may be payable depending on full estate, discuss this with your adviser).
The Third reason is really a point about investment flexibility. QROPS and a SIPP allow people to have much more investment flexibility than a defined benefit scheme does.
A QROPS uses the individual’s tax certainty in relation to how the benefits will be dealt with in their own country of residence.         
As a company (and personally) regulated in the UK, EEA and Internationally i can advise people to transfer to a UK SIPP in exactly the same way that i can advise people to transfer to QROPS. For expats it’s usually the case that QROPS are a more compelling argument for non UK residents.
QROPS - Qualifying recognised overseas pension scheme (regulated by HMRC)
SIPP - Self Invested Peronal Pension
Pensions are a complex area. Speak to a specialist and get advice relevant to your own personal situation. If you have an individual questions please contact me. Have a great day.
Andrew Lumley-Holmes

Monday, 18 August 2014

Is it important to diversify my assets?

Diversification is one of the most basic principles of investment and investing. The reason it is important to diversify your investments is because the investment markets can be very difficult to predict. By being well diversified you can protect your downside risk and hopefully reduce the volatility or swings in value within your investment portfolio.

Depending on how much risk you want to take with your investments will constitute what kind of assets you will want to hold in your investment accounts and what kind of assets you want to buy. Lets look at the table below, detailing investment returns over the last 10 years from several of the key asset classes.

Lets look at the average annual returns from each of these asset classes from '04 to '13, in order:

11.14% pa - Event Driven Equity Funds
11.13% pa - Real Estate Investment Trusts (reits)
10.42% pa - S&P 500
9.79% pa - Global Equity Fund
9.51% pa - International Equity Fund
8.54% pa - Hedge Funds
7.56% pa - Long / Short Equity Funds
5.60% pa - Bond Funds
3.63% pa - Managed Futures Funds
1.81% pa - Cash
0.72% pa - Commodities Funds
-0.27% pa - Equity Market Neutral Fund
-0.79% pa - Currency Fund
-5.57 % pa - Short Equity Bias Fund

Immediately you can see that if you want to make real returns above inflation then equities need to form some part of your portfolio. Despite the fact most of these equity funds posted losses of around 40% of their value during the 2008 market crash, they have shown the ability to bounce back.

The traditional buy and hold equity funds have produced much stronger average returns than the newer classes such as long/short, market neutral and short bias funds.

But coming back to diversification, what does this mean? As you can see from the table above its very difficult to predict which asset class will perform the strongest from year to year. With several asset classes jumping from top to bottom from one year to the next. This difficulty in prediction is exactly why diversification is important. As an example. Had you invested your money equally into each of the 14 asset classes above you would have ended with an overall return of 5.23% per year with a maximum draw down of -21.69% in 2008. Because we reduce the risk and the volatility the return becomes lower but more predictable. But lets look at a typical example of a balanced investment portfolio. Typically we would take cash out of the equation as that should be safe and liquid in a bank account. On an investment of say $100,000 we might decide to put together a balanced portfolio that looks something like this:

International Equity - 10%
Global Equity - 10%
S&P 500 - 10%
Hedge Funds - 10%
Commodities - 10%
Real Estate Investment Trust - 10%
Bonds - 40%

We have several different asset classes above so the volatility of the account should be lower than usual while still providing good, solid returns. As an example the portfolio above would have returned 7.25% per year with a maximum draw down of -23.55% in 2008 (the only year that produces a negative investment return on the portfolio shown).

So use your head when investing. Spread your risk across different asset classes within your attitude to risk. If you want to use a high risk / high potential return investment strategy or a safe, secure investment strategy to help provide an income then do so, just make sure to spread your risk by using diversity to your advantage.

Have a great day, Andrew Lumley-Holmes.

Friday, 8 August 2014

£3.4bn UK Inheritance Tax Bill for 2013/2014 - Don't get caught!

More and more people are falling into the trap of having a large inheritance tax bill to pay upon the passing of someone close to them. In 2013-2014, £3.4bn was paid to HMRC in inheritance tax. A significant rise over the last two years in particular. But why is this? Its partly down to the rising asset values (of property in particular) in the UK recently. More and more people are finding themselves with a liability and there has been a growing trend of British Expats getting caught in the trap more often since the change to the rules determining domicile. Particularly where they have assets in multiple countries around the world. There is a big difference between domicile and residency of a country, its important to understand the difference:

Domicile: the country that a person treats as their permanent home, or lives in or has a
substantial connection with.

Residency: the act of living in a place

This is an important distinction, an expat may well have lived outside their home country for 10
years but may still be classed as domiciled there, particularly if they maintain assets there like
a residence or bank accounts, etc. Failure to plan their taxation exposure can result in
some hefty bills dropping through the letterbox while they are alive and when they pass on.

So how can you and / or your family members avoid the tax trap that so many are falling into?

Firstly, it pays to get professional advice from a financial adviser as there can be many pitfalls, however, there are basically several options to reduce or remove an inheritance tax liability:

1) Make a will - this is the number one most important thing to do. If you are an expat get a specialist international will writer to do it for you. If you don't know one contact me and i can point you in the right direction.

2) Transfers between spouses (husband/wife) are often exempt. However, be aware, if you are British and your partner is of a different nationality you may not receive the spouse exemption.

3) Give away the liability - you can give away the excess money over and above the tax threshold, thus reducing your taxable estate. Some gifts may not qualify so get advice on how, to whom and where you can gift your money to.

4) Use trusts. There are many different trust options available, these can be a very cheap and effective way of reducing your inheritance tax liability while still being able to retain access to income or capital should it be required, however some tax may still be payable. Speak to an adviser on the most suitable option.

5) Insure against the tax liability. For example if you know you have a tax liability of £100,000 then take out life insurance to cover that liability. This will result in the estate being settled quicker and can be a cheap way of negating a future inheritance tax payment for your family.

As always, if you have any questions, let me know!

Have a great day, Andrew Lumley-Holmes.

Monday, 4 August 2014

Retirement Planning - how much should I save?

Whats Your Number?

One of the key things i help clients with is retirement planning by working out what they need to do now so they can retire when they want, with the income they require. While this is often done individually depending upon a clients exact situation, needs and timings for their retirement planning, I have put together a tabular guide for you below to show you what you need to do NOW to get where you want to be in the future. 

All the figures are in dollars but the currency is irrelevant. Its the numbers that matter.

Retirement planning is never simple but there are two key questions you need to ask yourself first:

- At what age do i want the option to stop working? (or how long do i have left until retirement?)
- How much income do i need / want to retire? (Assume you retire tomorrow, how much income would you want / need?)

Simple Retirement Planning

You can then use the table below to work out how much you need to save, each month, to achieve your retirement planning goal:

- Assumes an inflation rate pre-retirement of 3% per annum. So $20,900 is 25 years time would buy the same as $10,000 would buy today.
- Pay days remaining gives you an idea of how many paychecks you have left before retirement.
- Retirement fund required is based upon a fixed income drawdown of the annual income each year. Assuming this income is kept constant and the remaining fund invested cautiously achieving returns of 3% per annum the inflation adjusted income will be produced for a period of 30 years. Or, more simply, if you have a fund of $232,000 (using the 5 year data) you can produce an income of $11,600 per year from that fund for a period of 30 years if the remaining fund is returning 3% per annum.
- No consideration has been made for taxation. This does not constitute individual advice. If advice is required on the retirement planning structures and tax advantages available speak with an adviser.
- The retirement planning figures below assumes there are no existing savings. Where existing savings need to be taken into account the calculation is more complicated. If you need help drop me a message and i can produce the numbers for you.

So - lets look at a couple of examples:

Client A wants to retire in 15 years with an annual income of $30,000 per year in today's terms. He has a reasonably high appetite for risk so 9% is not an unreasonable assumption of returns. Therefore client A needs to save:
$2,553 per month

Use the 15 year data: saving $851 per month at 9% growth will bring him $10,000 per year today so he needs to triple this figure.

Client B wants to retire in 25 years with an annual income of $40,000 per year in today's terms. She has a reasonably high appetite for risk so 9% is not an unreasonable assumption of returns. Therefore client B needs to save:
$1,584 per month

Use the 25 year data: saving $396 per month at 9% growth will bring her $10,000 per year today so she needs to quadruple this figure.

As you can see, retirement planning for a comfortable future requires a certain amount of thought and commitment now. The earlier you start to save, the easier it will be. 

As an example below i will also demonstrate a more complex calculation still utilising the table for your retirement planning:

Client C wants to retire with an income of $50,000 per annum in 20 years time. He has existing savings of $100,000 and expects to receive another $200,000 on the day of his retirement. The $100,000 is invested returning 9% per annum. The $200,000 will increase in line with inflation at 3% annually. How much does he need to save??

- To produce an income of $50,000 per annum in 20 years time Client C will require a total fund value of $1,810,000 on his retirement date. (Using 20 year data he needs $362,000 for each $10,000 of income produced therefore we need to multiply $362,000 x 5).
- His existing $100,000 will be worth $560,441 in 20 years (at 9% per annum growth)
- His $200,000 retirement bonus will be worth $361,222 in 20 years

Therefore his existing retirement savings will be worth $921,663
Required fund $1,810,000 minus existing savings of $921,663 leaves us with a shortfall of: $888,337

We need to divide this figure by the fund required to produce $10,000 on the table, therefore:

$888,337 / $362,000 (the fund required to generate $10,000 in 20 years) = 2.46
Monthly saving @ 9% x factor above will show us the monthly saving required to produce the shortfall in the clients planning and is equal to $567 x 2.46 = $1,394.82

Therefore including his existing retirement funds, Client C needs to save an additional $1,394.82 per month at returns of 9% per annum to reach his retirement savings goal. 

I hope this perhaps helps one or two of you to better understand what you require to achieve your goals. As always if there are any questions then let me know!

Have a great day. Andrew Lumley-Holmes.

Wednesday, 30 July 2014

How Anyone Can Achieve Financial Independence

Why can some professionals making $2 million a year quickly go bankrupt, while someone on an average income can retire and have no financial worries?
The path to achieve financial independence is not a secret. I will share with you a few simple rules.
Most people think wealth is a high income job. Yes, it's easier to amass assets if you have more money coming in each month, but the true secret to increasing your net worth is:
Spend less than you make and use the excess to generate passive income and growth on your money. I repeat, income is not wealth.
What is wealth? Everyone has a different definition depending on their circumstance, however, i personally believe wealth is having a sufficient passive income to maintain your current standard of living. Your total assets (what you own) minus your total liabilities (what you owe) give you a number that is your net worth. I then use a figure of 5% to determine how much passive income could be generated. For example; If a portfolio has a value of $1,000,000 it would be safe to assume a passive income of $50,000 per annum could be maintained.
To acheive financial independence we need to increase our net worth number and start to generate passive income from it (capital gains, income and dividends without requiring any work or labour). If you have a portfolio of private businesses, stocks, bonds, mutual funds, real estate and other cash generators, you could sit by the pool all day. It's also very difficult to wipe out a well-constructed portfolio. 
If you had to stop working right now, how long could you keep up your purchasing pattern for cars, clothing, music lessons, college tuition, video games, etc.? The average person isn't educated in this truth, which is why the more and more they earn, they are left wondering why financial independence and security continue to allude them, always seemingly just out of grasp.
The only way to take advantage of investment opportunities is to have the money to invest until you reach a point where the returns generated on your assets can change your life; e.g., earning a 10% return on $10,000 is only going to net you $1,000 before taxes - not too bad but hardly earth shattering, but the same return on a $1,000,000 portfolio is $100,000 despite requiring roughly the same effort and research.
Amassing wealth and becoming financially independent is a slow process that takes time. You do small things every day such as cut your expenses, generate extra income, and put the money into investment and tax efficient accounts. With time it will build. As each new opportunity appears, you can react on a larger scale than your previous investments. Over time the interest, dividends, and capital gains your money has earned begin to generate their own interest, dividends, and capital gains, and on and on in a virtuous cycle. 
Einstein called compound interest the 8th wonder of the world and it's how $100,000 now can grow to $1,083,471 over 25 years at 10% per annum.
Starting from $0 now, a saving / investment of only $100 per month will be worth $133,789 over 25 years at 10% per annum.
If you have not started yet then the only way you can have more money left over at the end of the month to start investing is to either increase revenue (your income) or decrease expenses. Make a plan, go through your current bank statements and see where you can make changes. Its that simple: 
Increase revenue, cut costs, or both then use the surplus to invest for your future.
Use tax breaks - saving your money in the most tax efficient way is important. Depending on your nationality and country of residence there may be several options available to you to allow you to reduce or eliminate tax on your wealth and/or your income.
So where do you put the money?
I have four simple but key rules when sourcing investments for my private clients (these can vary slightly depending on a clients exact requirements):
- Diversify - Don't put all your eggs in one basket. Buy a mix of assets and buy assets according to a risk level you are comfortable with. Don't know what to buy? Speak to a specialist or read some of my other blog posts as a good starting point.
- Buy Quality - Buy the best quality investments you can afford. If you have the choice of three US Large Cap Equity funds and one has been consistently ranked in the top 10% for returns over the last 5 years. Buy it above the others. If buying property buy the best location you can afford.
- Focus on Income - Try to buy assets and investments that produce income. It can help to lower overall risk and with regular income flowing into your portfolio you can choose how and where to re-invest the income to help diversity and, when ready, can start to use the additional passive income to fund your lifestyle.

- Take a long term view - The value of all investments will fluctuate over time. Have patience and if you have followed the rules above you should develop some nice returns over the long term.
If you follow these basic rules and ideas you should soon see your wealth begin to increase. The only decision you need to make is to start today. The bigger your wealth gets the more i would encourage you to seek professional tax and or investment advice.
Have a great day,
Andrew Lumley-Holmes

Monday, 14 July 2014

Measuring Investment Risk

There are five main indicators of investment risk that apply to the analysis of stocks, bonds and mutual fund portfolios. They are alpha, beta, r-squared, standard deviation and the Sharpe ratio. These statistical measures are historical predictors of investment risk/volatility and are used for assessing the performance of equity, fixed-income and mutual fund investments by comparing them to market benchmarks.


Alpha is a measure of an investment's performance on a risk-adjusted basis. It takes the volatility (price risk) of a security or fund portfolio and compares its risk-adjusted performance to a benchmark index. The excess return of the investment relative to the return of the benchmark index is its "alpha."

Simply stated, alpha is often considered to represent the value that a portfolio manager adds or subtracts from a fund portfolio's return. A positive alpha of 1.0 means the fund has outperformed its benchmark index by 1%. Correspondingly, a similar negative alpha would indicate an underperformance of 1%. For investors, the more positive an alpha is, the better it is. 


Beta, also known as the "beta coefficient," is a measure of the volatility, or systematic risk, of a security or a portfolio in comparison to the market as a whole. Beta is calculated using regression analysis, and you can think of it as the tendency of an investment's return to respond to swings in the market. By definition, the market has a beta of 1.0. Individual security and portfolio values are measured according to how they deviate from the market.

A beta of 1.0 indicates that the investment's price will move in lock-step with the market. A beta of less than 1.0 indicates that the investment will be less volatile than the market, and, correspondingly, a beta of more than 1.0 indicates that the investment's price will be more volatile than the market. For example, if a fund portfolio's beta is 1.2, it's theoretically 20% more volatile than the market.

Conservative investors looking to preserve capital should focus on securities and fund portfolios with low betas, whereas those investors willing to take on more risk in search of higher returns should look for high beta investments. 


R-Squared is a statistical measure that represents the percentage of a fund portfolio's or security's movements that can be explained by movements in a benchmark index. For US fixed-income securities and their corresponding mutual funds, the benchmark is the U.S. Treasury Bill, and, likewise with equities and equity funds, the benchmark is the S&P 500 Index.

R-squared values range from 0 to 100. According to Morningstar, a mutual fund with an R-squared value between 85 and 100 has a performance record that is closely correlated to the index. A fund rated 70 or less would not perform like the index.

Mutual fund investors should avoid actively managed funds with high R-squared ratios, which are generally criticized by analysts as being "closet" index funds. In these cases, why pay the higher fees for so-called professional management when you can get the same or better results from an index fund?

Standard Deviation

Standard deviation measures the dispersion of data from its mean. In plain English, the more that data is spread apart, the higher the difference is from the norm. In finance, standard deviation is applied to the annual rate of return of an investment to measure its volatility (risk). A volatile stock would have a high standard deviation. With mutual funds, the standard deviation tells us how much the return on a fund is deviating from the expected returns based on its historical performance.

Sharpe Ratio

Developed by Nobel laureate economist William Sharpe, this ratio measures risk-adjusted performance. It is calculated by subtracting the risk-free rate of return (U.S. Treasury Bond) from the rate of return for an investment and dividing the result by the investment's standard deviation of its return.

The Sharpe ratio tells investors whether an investment's returns are due to smart investment decisions or the result of excess risk. This measurement is very useful because although one portfolio or security can reap higher returns than its peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater an investment's Sharpe ratio, the better its risk-adjusted performance. 

The Bottom Line

Many investors tend to focus exclusively on investment return, with little concern for investment risk. The five risk measures we have just discussed can provide some balance to the risk-return equation. The good news for investors is that these indicators are calculated for them and are available on several financial websites, as well as being incorporated into many investment research reports. As useful as these measurements are, keep in mind that when considering a stock, bond or mutual fund investment, volatility risk is just one of the factors you should be considering that can affect the quality of an investment. 

Have a great day,

Andrew Lumley-Holmes