24/11/2009 by Arthur Childs.

Many investors hold fixed interest assets in their portfolios, that is, gilts, index-linked gilts and corporate bonds, either directly or via a professionally managed fixed interest fund. It is generally true that the more cautious the investor or the investment portfolio, the greater the percentage of fixed interest that is held.

This does not mean, however, that fixed interest investments do not pose a risk to investors and a major part of that risk for the majority of fixed interest investments is inflation.

According to the data produced by the Office for National Statistics, inflation as measured by the Retail Prices Index (RPI), has been on a downward trend since the 1970s and is now in negative territory. Holding fixed interest investments, particularly those with a long term, has generally been beneficial for investors during much of this period. Investors have not only received a decent level of income (the ‘coupon’) but there has been some capital growth as well, which in some years has been well into double figures.

The UK economy is coming out of a lengthy recession but is lagging most of the developed countries in the world and a number of the undeveloped ones as well because we, as a nation and as individuals had simply build up far too much debt. Whichever party is in Government by next May they will want to make us all feel better by seeing the value of our houses and incomes rise. At the same time they will need to take tough measures to reduce the budget deficit which is now running at 13% of GDP.

A number of economists believe that there is a simple solution to these various Government desires, whichever party is in power – inflation. By creating a decent level of inflation we will all feel better because our houses will seem to have increased in value, our incomes will rise (unless we have already retired) and our mortgages will appear to shrink in real terms. The mountain of Government debt would also be reduced in real terms as inflation takes hold.

Although inflation may not seem to be an issue while the RPI is negative it is not so much the fact of inflation that will destroy the capital value of fixed interest investments but the expectation of inflation, and financial markets are apt to create such financial tsunamis without warning.

The value of any investment is what someone else is willing to pay you for it. You may, for example, hold £50,000 of fixed interest debt which has been issued by the Government (a ‘gilt’) or a major corporation (a ‘corporate bond’) on which you have been promised 5% per annum for the next 10 years. However, if inflation starts to come back into the system without too much of a check by the Government and interest rates go up then you may find that new fixed interest debt is being issued at 7% per annum for the same period. In very rough terms this will reduce the current value of your fixed interest investment to £35,714.

We are not suggesting that you get out of all of your fixed interest investments as these are a necessary part of any balanced or lower risk portfolio, but you should be reviewing them. In particular you might want to sell your longer term direct holdings and buy shorter term where inflation is less of an issue. If you invest via gilt or corporate bond funds then you should check that these are of the ‘strategic’ variety, in other words the fund manager has the ability to reduce the ‘duration’ of the portfolio and in the case of gilt funds particularly, that the manager has the ability to move heavily into index linked gilts which will at least offer more protection for your capital.

Just as there is a flight to the larger, more secure, companies when stockmarkets are falling, so there tends to be a flight to the more secure issuers of debt when inflation is rising. The reason is liquidity. If investors want to get their money out then they had better be holding Government stock or that issued by AAA rated corporations. So another check should be on the proportion of lesser rated stocks in any fund that you hold.

One of the newer investment groups, City Financial Investment Company Limited, has two very useful fixed interest funds which are being actively managed to take full account of the possibility of increasing inflation, that is, their Strategic Gilt Fund and their Global Bond Fund. The Strategic Gilt Fund uses gilts and index linked gilts in the same fund, is currently keeping the durations short and can use options (specifically ‘covered calls’) to increase returns. Such options pose no additional risk to the fund as they are effectively selling excess growth on fixed interest debt which they already hold in the fund. The Global Bond Fund utilises the fact that the UK now accounts for only 6% of the global bond market.

Investors often choose lower risk investments to keep their capital secure but overlook the need for what has been called ‘purchasing power preservation’. As an aside, if inflation does come back into the system then holding money on deposit, apart from that necessary for an emergency fund, will not fulfil the need for purchasing power preservation but will, in most cases, guarantee a capital loss in real terms.

The cautious portfolios that we use include healthy amounts of equities (ie stocks and shares) not because we are trying to stop our clients from sleeping at night but because we are concerned to make sure that the real value of their investments is maintained in the long term. For further information on our investment proposition see www.arch-fp.co.uk/investment_proposition.php

In summary, the present bull run in fixed interest investments could continue for a little longer, but once sentiment turns and the shape of what is called the ‘yield curve’ changes, it will be too late for investors to move out without capital loss. We would encourage investors to let us review their fixed interest investments now in the light of their overall portfolio.

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11/11/2009 by Arthur Childs.

I am pleased to be able to introduce a new service which is intended to meet the growing demand for simple international payments and low cost foreign exchange.

A large number of us are now purchasing high value items worldwide, thanks to the Internet.  The Office for National Statistics 2006 Social Trends Report noted that between 2000 and 2004 the number of UK households that owned second homes abroad increased by 45%. 

Whilst international payments and foreign exchange has been the domain of high street banks and currency broker businesses, there has not been much emphasis on keeping costs low for the customer and the service can be quite poor.

We have partnered with FTT Global, an international payment provider with offices in London and Guildford which uses the smartest technology in the industry to make exchanging currencies and sending international payments fast, easy, cheap and secure.

We believe that this will save you time and money by providing the best rates, zero commission and no fees via an online, 24/7 payment platform.  Within a few minutes you can register online, open an account and send funds in 40 currencies to over 140 countries.  Do have a look at the 45 second demo which you will find via a link on our website.  FTT sends Euro, US Dollar and Canadian Dollar payments to most accounts in the world the same day.  This means that your payments are sent faster than any other method available.  You can even set a target rate for the currency exchange. The FTT system will monitor market movements 24/7 and fill your order at the target rate you set.

When you register you will find a simple to use online system, professional and courteous support staff and the best real rates in the market which will enable you to make transfers 24 hours a day, 7 days a week.

FTT Global

In 2005, the founders of FTT Global were frustrated to find that the cost of currency exchange for individuals or small businesses was up to 200 times more expensive than if a large corporate company performed the same trade.

FTT Global set about building a solution to this anomaly, putting great pricing and direct international payments in the hands of individuals and small business users. The result is the FTT Global online payment system.

FTT Currency is now underwritten by A-rated insurer Hiscox to the tune of £1 million per claim. This means that in the unlikely event that FTT did anything wrong with your payment then you could claim against their insurance policy.  That compares very favourably with the £50K cover provided by Banks.

Sending Foreign Currency

The process is very straightforward.  Login (or telephone FTT) and set the amount of foreign currency you need.  FTT will instantly tell you the best rate of exchange. You accept and FTT guarantee it. You then send FTT your domestic currency and they send the agreed foreign currency to the bank account you specified.

Receiving Foreign Currency

The process is again very straightforward.  FTT provides you with their foreign currency bank details and a unique ID number. You provide these to whoever is sending you the foreign currency. When the funds arrive, the FTT system emails you to let you know. FTT converts the currency into your domestic currency at the best rate of exchange and sends your domestic currency to the bank account you specified.

Who Can Use this New Service?

The service is designed for individuals (perhaps transferring money to a relative overseas or buying an overseas property); for companies (particularly those who need to buy goods or services in another currency); for charities (who may need to send money overseas or pay support workers in another currency) and for investors (who want to hold some of their investment portfolio in another currency).

Please note that Arch Financial Planning Limited is merely acting as an introducer to FTT Global and can take no responsibility for the transactions that you may place. However we believe that FTT Global has the necessary insurance and regulatory protection in place to protect our clients.

To find out more and to register for the service please visit our website www.arch-fp.co.uk/ftt_global.php.

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09/11/2009 by Arthur Childs.

When you invest your money with Arch Financial Planning Limited, or indeed any other independent financial adviser (IFA) firm, it is natural that you will be concerned about a number of things:

1. Am I dealing with a professional, authorised organisation with all the protection which that includes?
2. Will my money be invested in a way that ‘enables me to sleep at night’?
3. Am I reliant on a few people in a small local organisation or is there something more substantial behind them?
4. Can I be confident that my money will produce higher levels of growth/income than if I simply left it on deposit?
5. Will the overall charges made on the investments and by Arch undermine any additional returns I may hope to achieve?

To answer these and other concerns which clients quite rightly have, we have developed the Arch Investment Proposition.  It is a proposition which we believe can add significant value to our clients’ investment portfolios. 

We have confidence in this, not because of an overblown belief in our own abilities, but because we involve widely acknowledged expert organisations to carry out all of the vital aspects of the management of our clients’ investment portfolios.

We have put in place an investment proposition which includes 20 professionally managed risk-rated portfolios and these are all available to our clients via the Nucleus Wrap.  By investing in the most appropriate of these portfolios you can have the certainty of knowing that your investment portfolio is being managed in line with your attitude to risk and means that your portfolio will not move into a different level of risk over time. 

The investment proposition involves active monitoring, regular fund selection and automatic rebalancing carried out by some outstanding organisations, the use of which we believe will deliver real benefits for our clients.

For an overview of our investment proposition please refer to www.arch-fp.co.uk/investment_proposition.php.

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05/11/2009 by Arthur Childs.

I attended a seminar this week where the speaker was stockbroker and multi manager Justin Urquhart-Smith of 7IM. He used a good illustration of where the UK economy is right now. He likened it to a bonfire with fairly damp wood where we were throwing lighted matches at it hoping it would catch alight. If it takes and starts to burn them we will be fine in the long run but we could be throwing matches at it for a long time before it catches alight.

Justin said that China is now the engine of world growth. However we should not forget that China is still largely a peasant agricultural nation. China’s economy is growing because of demand from the western nations so it is in China’s interests to see the US and Europe recover from recession as soon as possible.

Justin likened China to the distillery and the US to the alcoholic. This is the big relationship in the world at present and will determine how things turn out for us all. Although there are some serious conflicts between the two nations they both realise that they need the other.

The UK is no longer a world power and even our currency at less than 3% of world reserves can no longer be considered as a reserve currency. We are still the 4th, 5th or 6th largest global economy, depending on the way you look at the figures, but we are now weakening. However, he firmly believes that Britain will recover over time as we have a great resource of good small dynamic businesses. This makes our economy far more flexible than that of our main European partners and is the main reason that we should resist joining the Euro.

The G20 nations are clearly now the drivers of the world economy. This means that UK investors should be prepared to allocate a much larger proportion of their investment portfolios to the Far East and the emerging economies generally. The old adage “Go West Young Man” is now not the best advice for investors, but “Go East” as the transfer of influence is now clearly in that direction.

For any potential investor in the stock markets Justin believes that there is only really one question – “Will the world economy be better in five years’ time?” If the answer is “Yes” then potential investors should at least be drip feeding their money into the markets now. In fact Justin was very clear that in his view the current situation is a “once in a generation opportunity”.

If you would like to find out how the Arch Investment Proposition can help you take part in this once in a lifetime opportunity please look at our website and click on the link to the Arch Investment Proposition and when you have read it by all means get in touch.

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03/11/2009 by Arthur Childs.

The Financial Services Authority (FSA) has announced ain industry-wide review of the sale of so called structured products. This has come on the back of an FSA review of a small number of adviser firms where they found a large percentage had not given suitable advice in their view.Structured products are also referred to as protected investments. They have been defined as investment products that deliver a known return for given investment circumstances. The problem is that some of the companies who promised that known return have been unable to deliver it.

IFA firms such as ours will be wanting to make sure that we have access to some good research for giving future advice on structured products. In addition we will be wanting to get hold of sufficient information to enable us to carry out a thorough investigation into the previous advice we have given in this area.

One of the most useful websites which provides IFA firms with the in dept research that we need is www.structuredproductreview.com, which is managed by Lowes Financial Management.

Although this particular research facility is only available to IFAs and other professional advisers I am delighted to say that they have seen fit to include our recent Guide to Structured Products. This is a Guide which is freely available on our website so if you would like to get hold of a copy you can do so from www.arch-fp.co.uk/structured_products.php.

If you are concerned about an existing structured product that you own you may like to get in touch so that we can provide you will an assessment of it.

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01/11/2009 by Arthur Childs.

Welcome to our very first blog which is now part of ‘the Arch circle of knowledge’. This is simply the way that we describe our attempts to provide easy-to-understand financial planning information to our clients and anyone else who cares to read it.

The objective of the arch circle of knowledge is to provide the right information to the right person at the right time.

The ‘right information’ speaks to us about providing relevant and easily understood knowledge in a financial world that is increasingly complicated.

The ‘right person’ speaks to us about the clients and others who need to use it in a financial world which is in danger of providing an overload of information.

The ‘right time’ speaks to us about knowledge which is provided just at the time when clients (and others) will need to use it (or at least when they are most likely to be able to assimilate it).

With these three key issues in our mind, we have produced the Arch circle of knowledge. It is a circle because each item leads into the next in a continuing circle.

The circle includes client Guides. We have produced around 60 reader-friendly in-house Guides to provide information on a range of financial planning topics. In any year around a third of these are revised as a result of changes to tax and legislation generally.

Our main website, www.arch-fp.co.uk, holds these guides so they are easily accessible. But we have also created a dozen or more single-topic micro sites so that all that you want on a particular topic such as care fees funding is in one place.

A very important part of the ‘circle’ is MoneyTalk, our regular email bulletin which provides timely information in a client-friendly, digestible package.

Then there is ‘Ask Arch’ which makes it easy for visitors to our website to ask us answers to specific technical questions.

The circle will shortly include 60-second video introductions to some of the more important financial planning topics, but I am getting ahead of myself for now.

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