The Mark Twain Story

By acquiring as many assets as possible, you will ensure a foundation base of equity and capital - appreciating assets in your life. These assets will serve you for the rest of your life, as well as your children.

You need an Operations Account. This will include the running of your corporation and business interests. Any associated running costs and taxable items comprise this segment of the master plan.

Individual percentages will often vary, depending on personal income and financial statements. The percentages are up to you. The process is what’s important.

Your third account will be nominated as your Debit Account, which is linked to a debit card. Your debit card in this account will service any non-related investment and non-taxable items only.

With a new financial paradigm in life, we must overcome adversity and Enjoy the greatness of the moment. Unfortunately many individuals are burdened by past negative experiences in life and are unable to raise their level of prosperity, thus continually allowing negativity to dictate their life.

Allow me to further enlighten you with a pertinent story. The financial story of Mark Twain, who was one of the most widely loved and celebrated American writers who became an icon of American culture and humour the world over.

Mark Twain was sitting on his veranda one evening having a beer with his neighbour, who happened to be his local barber. A smartly dressed salesman called and was invited to sit and join them and make his presentation.

The salesman went to great lengths to explain that he represented a business house marketing shares in a new product for a new company that was going to take the world by storm, and would make thousands, and possibly millions, for those who helped to finance the company now, by buying shares. Mark Twain chased the man off his veranda. ‘Get out of here. I’ve been caught before with these wild share schemes. Why, just last year I bought a whole heap of X shares in a new company and within a very few months the company had folded up and I lost all my money. I will never buy shares again.’

The man left and the barber neighbour escorted him off the premises. However the barber, who had not had a bad shares experience, was very interested in what he had heard, and invited the salesman to his place, next door, and he listened to the story again.

The barber bought into the company and made millions! Mark Twain made nothing! Why? Because the company was selling a new invention called the Bell Telephone. Mark Twain surrendered to his deductive mindset and limiting beliefs, hence passing up on a wonderful opportunity.

As for Mark Twain, he remained in debt for a considerable portion of his life until his death in 1910.

The lesson here for all of us is that we must replenish and invigorate our exuberance for life by continually persevering regardless of the circumstances.

Is this crisis the same as the last one ?

Following the massive proposed 1 trillion euro rescue package for the Euro, we now have the markets worried that perhaps the Europeans and the ECB may not back up that package as much with actions as they did with words.

And so, markets being what they are, the markets are waiting to see if we will get the sovereign debt version of the Lehman Brothers default, with all the financial contagion that followed.

There are two important differences between what happened in the US housing market, which of course then affected the rest of the world in terms of the credit system, and what's happening in Europe. One good and one, potentially, not so good.

The good point is that the liabilities are much more transparent. Thinking back to what happened in the US housing market, especially the subprime market in 2007/2008. It was very difficult to know just what the scale of the problem was, because all of these mortgages had been made and sliced up and resold and securitised in so many different ways. It was very difficult to really quantify the scope of the problem.

Further complicating the situation, you had lots of lots of tasty new products, such as collateralised loan obligations, CDOs, CDOs-squared, etc. which even the "masters of the universe" didn’t really understand.

The current situation in Europe is much more transparent. In particular we know where all the borrowers are and, pretty much, how much they owe, and how much "income" they have to pay off their debts.

The potentially bad news however is that when the US Sub-prime market problems became exposed, the US stock market gave Congress a good kick in the backside and forced the US Congress to realise they were all in the same boat. This was no time to play politics unless they wanted the US financial system to freeze up.

Unfortunately, this may not be the case in Europe, as the Germans, the French, and the Italians are all in very different boats. Some (OK, the Germans) are fiscally much more responsible than others, and so their interests are not aligned in the same way as were the Americans in 2007/2008.

Germany has very different incentives than, say, Italy or Ireland, because their sovereign balance sheets are in a very different shape. This brings the strong possibility of procrastination and the likelihood of actions not backing up the recent bold plans.

At the end of the day this is political risk, and financial markets hate political risk for the simple reason that it is hard to put a price on it. If they can’t put a price on it, the safest route is to price downwards. The Europeans are going to have to realise that we are all in the same boat, and they need to do so pretty soon.

Investors In People Award

I am delighted to announce that following an intense and detailed assessment, our support services provider, Independent Financial Services (UK) Limited has been awarded Investors in People for a further three years.

This prestigious award is an outward sign of their commitment to training and developing their staff, both internally and externally. They are rightly proud to have achieved it once again.

Some of the comments to the external assessor sum up what IFS is all about :

IFS core values are integrity, honesty, providing good quality work for clients

We get direct access to and support from the directors and an excellent service from the supervisors and all the Head Office staff

The company is well structured, particularly the compliance framework and IT systems

The assessor commented:

There was very positive feedback from everyone about the business and the way it is run, in particular the openness, approachability and willingness to offer help and support from the directors

IFS has always built the business via long term relationships based on trust, be it with over 50,000 clients, our many business partners, or our staff.

The IFS Motto ‘Advice from People you can Trust’ is as relevant today as it was when the company was first launched over 15 years ago and we remain extremely comfortable with our relationship with them and hope it continues for many years to come.

Well Done to All at IFS !!

Five top tips to avoid capital gains tax (CGT)

On the 22nd June we will have the new Governments first budget. It is widely predicted that we will see a rise in the capital gains tax rate on non business assets – maybe aligning rates with those of income tax.

Analysts are warning thousands of investors could be hit with massive CGT bills if a planned rise goes ahead. There are some practical ways to keep gains out of the taxman's hands, and here I list five of the main one’s:

Fully utilise your ISA allowance and hold as much of your investments as possible into ISA’s. With the full allowance at £10,200 most people will be able to put a large proportion of their investments into ISAs.

Everybody has an allowance of £10,100 in gains before any tax is charged so many people can avoid paying the tax by strategically selling assets in different tax years.

If you have any losses not utilised in previous years then you can carry these forward and offset against gains made, however you need to declare these losses with the Inland Revenue.

Transfer assets into your spouse's name. Transfers between married couples are not deemed as a sale so the original cost and gain is transferred across. This allows you to use both allowances of £10,100 to maximise CGT exemptions.

Consider Investing in CGT exempt products such as gilts or Venture Capital Trusts – a couple of investment options at different ends of the risk spectrum. Of course, do not invest simply to gain the CGT exemption, as the investment must match your risk tolerance and match your objectives.

Allocation must be priority for our most valued Assets

Never a week goes by without me seeing and reading blogs and articles on the pro's and con's of active versus passive investment management.

The majority are written by individuals with somethimg to gain by promoting their views from one side of the fence or the other. The fact of the matter is that which is better remains inconclusive.

What I can conclude, however, is that there is a lack of focus and promotion on the need to correctly allocate assets for a client and the overiding importance of this compared to actual fund selection.

It's getting on for 60 years now, since Professor Harry Markowitz published his doctoral thesis “Portfolio Selection”, marking the introduction of what is now known as Modern Portfolio Theory (MPT.

Professor Markowitz established that for any given level of risk, it was possible to construct an investment portfolio that mathematically delivers the maximum possible investment returns. That portfolio is said to sit on the “efficient frontier”.

MPT states any portfolio that does not sit on the efficient frontier is inefficient, as the portfolio is not maximising the returns for that given level of risk.

More recent research by Brinson, Singer and Beebower (Brinson, Singer and Beebower; "Determinants of Portfolio Performance II: An Update"; 1991) indicates that asset allocation is by far the dominant determinant (91.5%) in the variability of returns in a portfolio. Market timing represents 1.8% and Stock Selection 4.6%.

Furthermore, the Myners report of 2001 clearly states the significance of asset allocation and suggested it offers significant long term benefits in preserving and increasing wealth.

The allocation of assets - how much of a portfolio is invested in a given investment sector - drives our risk assessment and investment process, so much so that we have recently added a dedicated page to our website to explain our approach.

So, yes, there is a conversation to be had about passive and active management, but the first priority has to be asset allocation.