How did our portfolios perform in 2014?

How did our portfolios perform in 2014?One of the reasons clients choose Informed Choice as their Independent Financial Planner is the strength of our investment management.

We never sell our services purely on investment performance; too much is out of our direct control.

What we can and do offer is suitable investment portfolios designed to meet the specific financial objectives of our clients.

As we start a New Year, it has been interesting to look back at how our investment portfolios performed in 2014.

Last year was quite challenging from an investment perspective, with a volatile UK stockmarket finishing the year at broadly the same level it started. Despite this volatility and uncertainty, the performance of our portfolios is rather pleasing.

Before I share those figures, some important disclaimers.

As you already know, the value of your investments can go down as well as up. Past performance is not necessarily a reliable guide to future investment returns.

What follows is a description of how our three core model portfolios performed last year. We use these model portfolios as a way of monitoring the performance and risk of our investment management, and they also form a starting point for recommending suitable portfolios to our clients.

For this reason, individual clients will experience slightly different investment returns to those described in this post. This is because the timing of investments and tax treatment of portfolios will differ.

Starting with our Cautious Portfolio, which has target volatility between 4.2% and 6.3%, over the year to 31st December 2014 this delivered an investment return of +10.80% compared to a benchmark return (IMA OE Mixed Investment 20-60% Shares) of +5.03%. Returns are net of charges.

Over three years, it delivered an annualised return of +8.80% compared to the benchmark at +7.63%. Over five years, our Cautious Portfolio had an annualised return of +8.21% compared to a benchmark of +5.99%.

For our Moderate Portfolio, which has target volatility of 8.4% to 10.5%, over the year to 31st December 2014 this delivered an investment return of +10.03% compared to a benchmark (IMA OE Mixed Investment 40-85% Shares) of +5.00%.

Over three years, it delivered an annualised return of +10.52% compared to the benchmark at +9.90%. Over five years, our Moderate Portfolio had an annualised return of +8.85% compared to a benchmark of +7.14%.

For our Aggressive Portfolio, which has target volatility of 12.6% to 14.7%, over the year to 31st December 2014 this delivered an investment return of +8.44% compared to a benchmark (IMA OE Global) of +7.14%.

Over three years, it delivered an annualised return of +11.05% compared to the benchmark at +12.69%. Over five years, our Aggressive Portfolio had an annualised return of +8.59% compared to a benchmark of +8.49%.

Last year was clearly a good year to take a more cautious approach, as lower volatility assets outperformed risk assets such as equities.

It’s pleasing to see these figures which confirm our approach to investment management continues to deliver consistent results over the longer-term, with the measured volatility of each portfolio well within our selected risk boundaries.

Does your financial adviser publish their model portfolio performance each year?

If you would like to find out more about our approach to investment management, and how you can apply it to your own investment and pension portfolios, please do get in touch.

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23 and Me

23 and MeAbout a month ago, I wrote about ordering a DNA testing kit from California-based personal genetics company 23andme.com.

The results arrived this week and, after spending 3-4 hours delving into the information, I’m really pleased I bought the service.

First things first; no DNA test is entirely reliable. The information provided by 23andme is only a starting point for further investigation and consideration.

As I wrote back in December, one of the things which prompted me to order a personal genome service was interviewing Jennifer Rusted, Professor of Experimental Psychology at University of Sussex, about dementia research. I interviewed Jenny for the documentary I made about the Baby Boomer generation reaching retirement.

Jenny talked about the “apolipoprotein E” gene, also known as APOE. This gene provides instructions for making a protein which combines with fats (lipids) in the body to form molecules called lipoproteins.

As soon as I finished the interview, I immediately wanted to know whether I carried this hereditary risk factor for late-onset Alzheimer’s, in particular the ε4 variant of the APOE gene. When the 23andme service became available in the UK, I had the option to find out.

When the results arrived on Monday evening, the first section I clicked on was the health overview, specifically genetic risk factors.

23andme ‘locks’ the results for some of the more sensitive genetic risk factors, which means you have to read various warnings and disclaimers before viewing your results. The variants for late-onset Alzheimer’s and also for Parkinson’s Disease were both initially locked.

Agreeing to unlock my results and view the findings, I was presented with the news that I carry not one but two copies of the APOE ε4 variant. Lucky me!

What this means, based on current research, is that I have a 51-52% chance of developing Alzheimer’s disease by 85 years old. To put this in context, those with the ε2/ε2 or ε2/ε3 variant have a 4-5% chance and women with the same variant as me have a 60-68% chance.

Of course other factors can also influence my risk for late-onset Alzheimer’s. Advancing age, family history of the disease, and head trauma with concussion all are factors to consider.

Reading the results, I wasn’t particularly surprised to see I carried the variant. It’s positive in the sense that I can monitor my health as I get older (I’m only 35 years old now) and potentially take lifestyle steps to reduce my risk of the disease.

Once I had digested the information about the APOE ε4 variant and confirmed there were no other genetic risk variants flagged up in my results, I moved onto the other parts of the reporting.

Within the health overview, there is also personalised information about inherited conditions (none), drug response (three which could be useful to know about in later life) and ‘traits’, which is the area which probably has the most entertainment value.

The traits section of the 23andme.com reporting includes confirmation that I’m likely to have blue eyes and curly hair.

It tells me I have one working copy of alpha-actinin-3 in my fast-twitch muscle fiber, which makes me more likely to be a sprinter than an endurance athlete. This was not the best news ahead of the 30 mile ultra marathon I’m running this weekend!

The other side of the 23andme service is ancestry.

My ancestry results show that an estimated 2.6% of my DNA is from Neanderthals. This is only slightly lower than the average European person!

According to the reporting, on my father’s side I’m part of the haplogroup I1, which can be traced back to a single genetic mutation at a specific place and time, in this case Northern Europe with highest frequencies in Scandinavia 28,000 years ago. This makes me distantly related to Leo Tolstoy and Warren Buffett.

On my mother’s side, I’m in the haplogroup H1a, traced back to Europe, Near East, Central Asia and Northwestern Africa some 13,000 years ago. H1, of which this is a sub-group, appears to have been common in Doggerland, an ancient land now flooded by the North Sea.

My ancestry composition is 47.4% British & Irish, with additional ancestry from the Netherlands,  Russia, Greece and Sweden (the only country I knew about from previous family tree research).

Where 23andme has the potential to get really interesting is exporting the raw data to other analysis services.

I’ve already done this with the third-party application DNAFit, to create a personalised diet report based on my raw data from 23andme.

This explained that I have a high sensitivity to carbohydrates, raised salt sensitivity and medium-low saturated fat sensitivity. Based on these findings, I’m able to tailor my diet for optimum performance.

I’m confident that services like 23andme will become more widespread as genetic research continues and more people take an active interest in their health and ancestry.

There are of course privacy concerns around using these services and, potentially, issues around disclosure and cover for insurance purposes once you know more about your DNA, but for me at least the positive attributes of understanding personal genetics outweighs these minor issues.

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Falling oil price & falling stock markets

Falling oil price & falling stock marketsAs I type this, the price of Brent crude oil has fallen below $50 a barrel for the first time since May 2009.

In response to the falling oil price, stock markets have been falling as well this week, getting the year off to a pretty depressing start (from an investment perspective, at least).

The FTSE 100 index of leading UK company shares is currently trading at 6,398.44, up around 0.5% on the day.

Oil prices are falling as a result of slowing global economic growth combined with an increased supply of oil.

We expect to see the price of oil continue to fall, as shale oil producers in the US keep producing more and OPEC resists pressure to cut production.

Anything around $40 a barrel in the coming weeks seems like a reasonable prediction.

The most insightful commentary I’ve seen to date around the subject of falling oil prices and their impact on stock markets comes from Dominic Rossi, Global CIO of Equities at Fidelity Worldwide Investment.

Here’s what Dominic had to say on the subject yesterday:

“As financial conditions tighten, this is having a knock on effect on those markets which are most vulnerable to a deflationary event; commodity markets and global emerging markets. Naturally, it’s also very beneficial for bond yields.

“Investors should try to look through this current volatility and recognise what we are witnessing is what we saw in the 1980s and 1990s. A collapse in oil and commodities generally effects a re-distribution of wealth from commodity producing to commodity consuming countries.

“Therefore we should consider this to be a material tax cut for both the US and European economies. The equity markets will soon refocus their attention on the benefits of falling oil prices.”

Will this be the same as we saw in the 80s and 90s, or something different?

If these predictions are correct, we might expect to see stock markets bounce back as investor sentiment shifts towards the benefits of a lower oil price.

Only time will tell.

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Monthly Investment Update – January 2015

Monthly Investment Update - January 2015The FTSE 100 index of leading UK company shares finished December at 6,556.10, falling by 166.52 points or 2.48% during the month. A much anticipated ‘Santa rally’ unfortunately failed to materialise, resulting in a mixed year for investors.

For the whole of 2014, the FTSE 100 fell by 2.86%. A plummeting oil price and fears about how Russia might cope with this and economic sanctions prompted falls in December across most global stockmarkets.

Of course the FTSE 100 is only one measure of equity investing; those using the FTSE Techmark as a proxy saw a gain in 2014 of 8.62%. Worst UK index performer last year was the Alternative Investment Market (AIM) which experienced losses of 18.62%, after entering bear market status in October.

Tough times ahead?

Smaller companies, such as those represented by AIM, often act as a barometer for the wider economy, which could suggest tougher times for investors in 2015. However, the most bullish forecasters are already predicting the FTSE 100 could close this year at 7,700 points.

This forecast came from the UK arm of US investment bank CitiGroup. Morgan Stanley are predicting 7,200 and Barclays have plumped for 7,300. All three forecasts would represent a new all-time high for the index, which previously reached 6,930 at the end of 1999.

Falling oil price

As we start the New Year, the falling oil price continues to dominate investor sentiment. Oil prices fell to a five and a half year low on 5th January following concerns about a stock surplus and continued demand weakness. At the time of writing this, Brent Crude Oil Futures stood at $55.35 a barrel, losing close to another 2% in value.

This falling oil price is likely to challenge the viability of the US shale boom in 2015. As a result of lower oil prices, shale drillers are faced with spending money faster than they can possibly make it, largely due to their high debts which were taken on to fund rapid expansion.

It will be interesting to see whether the US government intervenes to support this new industry, which brought the country close to energy self-sufficiency.

Eurozone woes

In Europe, the euro has fallen to a nine year low against the US dollar. Investors are concerned about European growth prospects as more quantitative easing, recently hinted at by the European Central Bank (ECB), is not expected to help the ailing currency. The future of Greece in the Eurozone has also been questioned, following the appointment of new politicians who are keen to cut austerity measures there.

Closer to home, UK property prices are in the headlines again, with prices forecast to rise this year by around 4%. Some commentators believe prices could rise by as much as 7.4% in 2015, but with big regional variations expected and much depending on the outcome of the general election in May.

House price outlook

The annual rate of house price growth continued to soften at the end of last year, according to the latest figures from lender Nationwide. House price inflation fell to 7.2% for the year to December, down from 8.5% the previous month. On a monthly basis, average prices rose by just 0.2% in the December, resulting in an average house price of £188,559. Nationwide does however expect house price growth to pick up again during the coming months.

Price inflation in the UK has fallen to 1% for the year to November, which reduces the probability of an interest rate rise in 2015. Markets still think the first rate rise, which is likely to be very modest, could be in late 2015 and this forecast is shared by most economists.

Expectations for low inflation this year, low global growth and continued economic struggles in the Eurozone is likely to mean interest rates remain lower for longer.

The benchmark 10 year UK Gilt yield currently stands at 1.76%. £1 buys $1.52530 or €1.28130. The Forex Gold Index is $1192.00/oz and the Silver Index is $15.71/oz.

Download our Monthly Investment Update for January 2015 as a PDF

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Informed Choice team share their New Year’s Resolutions

Informed Choice team share their New Year's ResolutionsWith 2015 just around the corner, we asked the team at Informed Choice about their New Year’s Resolutions.

Read to the end of this post for details of how you could win an Amazon gift voucher by telling us your own resolutions for 2015!

Chartered Financial Planner Nick Bamford aims to keep French wine producers happy in 2015

“My big goal is to increase my consumption of red wine up to the Government recommended level of 21 units per week.

“On a more serious note, I want to run 5k at Cranleigh parkrun in under 26 minutes by the end of June. I also want to take my grandson Barnaby fishing at least six times next year, and take more than five days holiday!

“Reading is one of my favourite things to do; I plan to read at least 50 books in 2015.”

CFP professional Shelley McCarthy is not a fan of New Year’s Resolutions, has a big goal anyway

“To complete my first triathlon! Other than that, I don’t really like making resolutions as they have the power to make you feel bad if you don’t stick to them!”

Also with a triathlon in mind, Chartered Financial Planner Andrew Neligan has a simple and ambitious goal

“To complete Ironman UK in July.”

Our Client Services Director Andy Bamford wants to get better sleep

“I want to be more organised & have a tidy house & desk, also worry less about everyone & everything so I sleep better!”

Chartered Financial Planner Philip Sullivan wants to cut back on the baked goods

“I’ve got three main goals in 2015 – improve my tennis, stop eating as many cakes and keep my clients happy.”

Our Client Services Manager Lizanne Doyle is getting fit and travelling

“My target for 2015 is to continue to strip body fat by increasing muscle mass – measured by mirror image only!”

“I also want to go on my first European bike tour in June 2015 (on the Harley), get the classic car on the road for June 2015 to take my youngest niece to her prom; then enjoy taking her to car shows.

And travel to New York in December 2015!”

Chartered Financial Planner Martin Bamford has a few goals for 2015

“I’m looking forward to completing the London Marathon in April, my first 100 mile ultra marathon in June and, most importantly, getting married to Becky!”

What about you?

What are your New Year’s Resolutions for 2015? We want to hear from you, especially any personal finance resolutions you have.

Record a short message for us here and tell us about your New Year’s Resolutions. We might feature your resolutions in the first episode of the Informed Choice Podcast in 2015 and you will be in with a chance of winning one of three £10 Amazon gift vouchers.

Let us know your resolutions by 5pm on Monday 5th January 2015 to be in with a chance of winning the prize. The winners will be revealed in the next episode of the Informed Choice Podcast on Friday 9th January 2015.

UK residents only. One entry per household. We reserve the right to play your voicemail on our podcast.

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Our 10 most popular posts of 2014

Our 10 most popular posts of 2014It’s been another busy year in the world of personal finance and investing.

The team at Informed Choice brought you over 400 new blog posts this year, on a variety of topics and covering every important finance story to break during the past twelve months.

What have you been reading about most on the Informed Choice website in 2014?

Here’s our top 10 most popular posts of the year:

1 – Budget 2014 Live Blog

George Osbornes fifth Budget saw him drop a pensions bombshell, designed to get older voters on his side ahead of the General Election next May.

2 – Why I’m not backing Woodford Equity Income

With the rest of the financial services community (advisers and journalists) seemingly fawning over Neil Woodford and his new equity income fund, our managing director Martin Bamford went against the grain and explained his reasons for not backing the new fund.

3 – Paul Lewis, filters and addiction

Broadcaster Paul Lewis delivered a fiery speech to financial advisers at the Personal Finance Society (PFS) National Conference in November. Martin was there to hear what he had to say, and this was what Martin had to say about that.

4 – New ISA rules

The Budget in March also revamped the rules for Individual Savings Accounts (ISAs). We explained the new rules and savings limits here.

5 – Plans to build new homes in Cranleigh

The hot topic in our village this year has been proposed new housing developments. Following a visit to Cranleigh from a BBC film crew to explore the issues, here’s what we had to say.

6 – Dinosaur financial advisers & smoking beagles

When new online insurance company Beagle Life launched a provocative new advertising campaign, claiming financial advisers were out of date. We hit back, hard.

7 – Risk profiling, investment recommendations & robot advisers

Can a robot ever replace a financial adviser when it comes to making investment recommendations? We commented on a popular article in The Telegraph.

8 – 40 questions to ask before taking pension benefits

New pension freedoms being introduced in April 2015 will be accompanied to a new guidance service. There’s a big difference between guidance and advice, of course. We came up with 40 questions to ask before taking pension benefits; questions that might not be answered by a guidance service.

9 – 10,000 suckers in ‘Give & Take’ pyramid scam

Investment scams appear to be a regular feature, despite tougher and more expensive regulation each year. We caused a little controversy by branding those victims in one high profile scam this year as ‘suckers’, but with good reason.

10 – BHS Trec at Kilnhanger

One big event we sponsored in 2014 was the BHS Trec at Kilnhanger Stables near Shamley Green. Lots of people wanted to read more about the ponies!

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Fear & greed

Here’s a way to make your investment decisions; buy when markets are high (and investors are greedy), sell when markets are low or volatile (when investors are fearful).

Fear & greed

As an investment philosophy, it’s contrary to common-sense. It’s more than likely based on emotions, not logic. You probably already know that.

The legendary investor Warren Buffett is well known for his quote, possibly misquoted or taken out of context, that you should, “Be fearful when others are greedy and greedy when others are fearful”.

What Buffett is telling us is we need to find ways to do the opposite of the pattern described in the excellent illustration above, which is from Carl Richards.

Instead of getting caught up in the euphoria and hype often associated with rising investment markets, you need to find a way to remain calm and rational.

Rather than getting caught up in the fear and panic we often see when markets are falling, you have to choose a strategy which removes the emotion from investing.

How do you do this? Working with an Independent Financial Planner is one solution.

Part of the value in what we do is the behavioural coaching we provide; keeping investors focused on long-term goals and helping them stick to a regular investment plan.

Because when you invest based on a long-term Financial Plan, following an agreed asset allocation strategy and rebalancing your portfolio at scheduled intervals, you can avoid the fear and greed cycle so often experienced by investors who lack the benefit of professional advice.

How will you invest in 2015? Based on fear and greed, or because of a long-term Financial Plan.

It’s your choice.

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Thank you, Bank of Mum & Dad

Thank you, Bank of Mum & DadThere was an interesting article in The Times recently, explaining that the Baby Boomer generation has given more than £10bn to their children and grandchildren this year to help them onto the property ladder.

Thank you, Bank of Mum and Dad!

According to the research reported in the article, the over-55s are giving their children and grandchildren an average of £14,064 each, more than £10bn in total, to help them buy property.

A combination of rising house prices and low wages is apparently resulting in the Baby Boomer generation feeling (at least partially) responsible for helping adult children buy their first home.

In addition this assistance with house buying, Baby Boomers have spent over £2.bn to pay for weddings, £2.4bn on new cars and £590m on establishing new businesses.

During 2014, the Bank of Mum and Dad has paid out an estimated £26.7bn.

The source of these funds makes quite interesting reading.

Existing savings, passing on an inheritance to the next generation or accessing pension funds are the most popular sources of wealth, representing the source of the money for more than half of over-55s who made gifts.

It was also interesting to note that 14% of Baby Boomers deferred their retirement in order to give money to children or grandchildren,

12% went as far as taking on extra work to get hold of the necessary funds.

Many of the Baby Boomer clients we work with feel a moral obligation to act as the Bank of Mum and Dad, especially to help their children up onto the property ladder.

House prices in this part of the world make the prospect of buying your first home quite unlikely, unless you have some form of parental assistance.

An important part of our role as Financial Planners is helping our clients a) understand how much they can afford to give to children, without the risk of running out of money during their own lifetimes, and b) selecting the most appropriate source of funds for these gifts.

As adult children continue to say thank you to the Bank of Mum and Dad, families are engaging with Financial Planners to make sure these gifts are made in a sensible and sustainable way.

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Investment predictions for 2015

Investment predictions for 2015I was recently asked by Financial Planner magazine, the official magazine of the Institute of Financial Planning, about my investment predictions for 2015.

At this time of the year, we are often asked to make an educated guess about how investment markets might look in the future.

Rather than fall into the usual trap of predicting where the FTSE 100 might end up – commentators rarely get it right and it doesn’t matter all that much anyway – I instead wrote about some of the main investment themes and pitfalls investors need to consider in 2015.

Here’s what I had to say:

“May you live in interesting times”, is the readily accepted English translation of a traditional Chinese curse.

As far as the investment markets go, we’ve been living in those interesting times since the global financial crisis first struck. Thinking ahead to 2015 (and beyond), there seems to be little prospect of things becoming any less interesting.

It’s currently tough to look beyond market risks and identify genuine opportunities.

Perhaps the biggest risk is the continued intervention from central banks. Nothing feels particularly natural about equities or bonds right now, artificially inflated as they are by quantitative easing.

QE is a powerful drug, one which markets need to beat their addiction to before investments can return to anything resembling normal.

We’ve already seen the hissy fit markets threw when the US Fed suggested they might slow the rate of QE; not stop or reserve it, just slow it down.

At some point, investors need to accept the consequences of what happens when QE is withdrawn and then, eventually, reversed.

Debt is another risk, especially in the Eurozone where sovereign debt problems were never properly resolved.

Recent market wobbles as the European debt crisis has raised its head again have been less severe than in the past, so hopefully here there is scope for a calm, rational solution from policymakers.

As we finish 2014, many parts of the world are in political turmoil. So-called Islamic jihadists seem resistant to Western air strikes in Iraq and Syria, Boko Haram are stepping up their campaign of kidnapping in Nigeria, violence is escalating again in Israel and Gaza, and Russia belligerently refuses to temper their ambitions for Ukraine, despite increasingly punitive economic sanctions.

We have worrying developments in North Korea, murderous drug cartels in Mexico and sabre-ratting by China and Japan over uninhabited islands. You can stick a pin in a globe and stand a reasonable chance of identifying a trouble spot.

Closer to home we have a General Election in May which, whilst unlikely to redefine British politics, could continue its journey away from a two-party system to something incapable of generating a majority government.

Austerity measures will need to continue, regardless of which colour party forms a coalition, as the country cannot keep loading more debt onto the existing national debt. Deflation could also become a risk here as it has been in Europe, threatening economic recovery.

Throughout all of this, Financial Planners will have their work cut out keeping clients focused on the long-term and investing to meet specific goals.

Diversification, asset allocation and goals-based investing; cutting through all of the noise we will no doubt continue to hear in 2015. Financial Planners have a great opportunity to demonstrate their value.

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Informed Choice Podcast 006: Simonne Gnessen & Failing Oil Price

Informed Choice Podcast 006: Simonne Gnessen & Failing Oil PriceThis week on the Informed Choice Podcast, Martin interviews Simonne Gnessen of Wise Monkey Financial Coaching.

Listen to episode six of the Informed Choice Podcast now

Simonne is a financial coach who helps people build a better relationship with money, feeling calmer, more in control and more confident about their personal finances.

He also talks about the falling oil price; why is this happening and what does it mean for investors?

In the introduction, Martin mentioned he has started on a new book, with the working title 100 Financial Planners. This will feature contributions from different CFP professionals and is scheduled to be published next November, during Financial Planning Week 2015.

He mentioned the book he recently finished reading, Never Eat Alone by Keith Ferrazzi, and the book he is currently reading, Running to Extremes by Lisa Tamati.

Martin has become addicted to Serial Podcast, slightly late to the phenomenon as the first episode was published in October and the final episode of the first season was released this week!

During the interview with Simonne Gnessen, her book Sheconomics was mentioned. You can find out more about Simonne on her website or follow her on Twitter @simonnegnessen.

You can use the comments box below to share any thoughts you had about this episode or ask questions. Alternatively, you can leave a voicemail for the show here.

Listen to episode six of the Informed Choice Podcast now

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