Investment Insights
Investments do rise and do fall in value and we strongly advise that professional advice is taken before investing your money
Bricks and mortar are considered to be a very successful asset class and anyone who has been lucky enough to own their own home would vouch for that.
When advising my own children on when to buy their own home, based on my experience I would say, get your first job and then save, save, save! Once you have enough for your deposit then jump onto the property ladder as quickly as possible, as this asset is best bought the earlier you can afford to invest. Of course there have been exceptions to this, but I would suggest that a passive attitude to this asset class is the right approach from a residential owner perspective. Now, if you look at recent performance of this asset class, and I will use my own personal data for analysis, the returns that I have experienced have been c4% p.a. over 8 years, using Zoopla as the data provider. So, historically this is not such a good return based on previous experience, as it used to be said that that property would double every 7 years, therefore achieving an average return of c10% p.a. Here at SM & Associates we do not typically advise clients about this asset class, unless they have turned to us for buy to let investment, however we do advise on property funds which mainly focus on industrial units, offices and retail units, in other words commercial not residential. We typically focus on the ‘bricks and mortar’ funds as opposed to the REIT’s. A REIT is very liquid but our view is that it acts like an equity investment and therefore does not offer volatility diversification. With the headlines telling us that the ‘march of the machines’, led by the likes of Amazon is taking its toll on the high street, I as an investor want to better understand what impact this may have on property funds. So, I jump in my car and go to a meeting with one of the largest fund managers in this sector - 'Justin' whom is the funds co-manager, and then try to understand how he is positioning the fund's money and what he expects going forward. The important point here to understand is the cost of money and the yield that tenants are prepared to pay today and potentially in the future. Once you have this data you can build your spreadsheets to price ‘commercial property’ and then tactically make your investments. Residential property is similar but supply and demand is more prevalent I would say. Also, wage inflation and the cost of money, i.e. the mortgage rate, affordability and the prospects of future wage rises are likely to be the key determinants of future house price inflation. Ok, so coming back to Justin and how he makes his decisions when running the funds, he takes time to explain that the risk premium investors require is 2% over the ten-year gilt yield, and within his yields, fully expecting rate rises over the coming years, he is looking to maintain this rate differential. His portfolio currently has a 4.8% yield and therefore he is confident of maintaining the risk premium to protect the capital value of the portfolio. So, the question that I ask is how does the carnage on the high street affect you? He admits that some retail units are under attack by private equity scoundrels who are using the CVA laws as a negotiating tool to reduce rents, but he is mindful to emphasise that c60% of the portfolio is ‘prime location’, with c15% in cash, and therefore my analysis leads me to think that based on the fund manager's style, c25% of the portfolio is where he can gain some speculative uplift and improve yields for capital gain. It’s always good to get an insight from those at the ‘coal face’ as they are typically the ones who can see the strengths and weaknesses of their ‘markets’. This is a typical example of how we at SM & Associates continue to review markets and investments for our clients so that we can potentially optimise our client’s portfolios. Congratulations, you have just sold your business for a large capital amount, won the lottery or Inherited a large estate, but the sum involved is more than £5 million. You have paid the taxes due (don’t worry we may be able to legally claim some of that money back) and the question is now ‘how do I secure mine and my family’s future’.
A large sum of money is very daunting, if you have been a business owner you have been used to dealing with large sums of money on a regular basis. But all of a sudden, your whole financial future depends upon the decisions you now make. As a business owner you will probably be surrounded by professional advisers such as accountants, lawyers and even a financial adviser, so the likelihood is that you will turn to these individuals in the first instance, but you are now asking ‘do they have the skill and knowledge to manage and advise me on my capital’. A ‘family wealth office’ can have one client or several very high net worth clients. These individuals or families ‘employ’ by appointing a professional advisor to advise and manage their capital. By definition these high net worth clients are deemed professional and non-retail clients and they forgo their rights to the financial services compensation scheme (FSCS). The reason that they do this is primarily so that they can make full use of tax structures on and off shore, and access non-mainstream assets. Depending upon the clients remit and experience no investment vehicle is off the radar, but this is not always advisable. The best investors in the world are said to be the Endowment funds of the likes of Harvard and Yale universities, etc. They consistently achieve above inflation returns on their ‘portfolios’ due to their ability to invest ‘patiently’ for the long term. As a broad statement they invest a large portion of their capital in ‘Alternative’ assets which can mean ‘anything’ but generally could be termed; private equity or venture capital. The advantage to an investor is that if you put a portion of your capital into a private equity (small venture) and it is successful your returns can be multiplied many times over, the negative point is that you can lose the lot! This is why access to a group of suitable professionals is prudent as they can assess the risk and return parameters that you are prepared to take or should take, typically based on income and lifestyle needs and the time that the monies would be invested. They will construct a strategy to meet a said objective, also building in the needs for children (such as schooling, future homes etc) and grandchildren, to have a multi generation investment and tax strategy. Once you have the plan established the input of tax planning accountants are brought in to the plan along with solicitors to build the legal frame works, such as trusts and special purpose vehicles. Once the tax structures have been established to minimise tax and cash flows (incomes) are known, then the investment of capital can be implemented, segmenting the capital to target specific goals/objectives and then asset allocation of this capital to investments targeting the required returns/yields. The above is a broad example of what could be achieved, but the most important thing to do is to appoint an adviser who understands how to invest capital and fully understands your requirements. Do not expect to achieve this at one meeting, it could even take months and years before the first investment is undertaken, particularly if your investment experiences are limited. We here at SM & Associates do offer bespoke planning for ultra-high net worth individuals, do please call us if we can be of assistance. |
AuthorSteven is a Fellow of the Personal Finance Society, whom is passionate about investing and getting the most from your money. Archives
February 2024
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Steven Mufti & Associates Ltd is authorised and regulated by the Financial Conduct Authority.
Financial Services Register Number 607613. Registered in England & Wales, Company number 8664240. Registered Office address: 27 Armitage Court, Ascot, Berkshire, SL5 9TA. Telephone: 01344 623811 Email: advice@smawm.co.uk The guidance and or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted to customers in the UK. The FCA does not regulate taxation advice. The value of your investments may fall as well as rise. Financial Conduct Authority register: https://register.fca.org.uk/ShPo_FirmDetailsPage?id=001b000000NMlk7AAD |
20/6/2018
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