Money To The Masses http://moneytothemasses.com Putting you in control Tue, 27 Jan 2015 14:13:48 +0000 en-GB hourly 1 Reader Q: Where should I invest £100,000 to generate income?http://moneytothemasses.com/saving-for-your-future/investing/reader-q-where-should-i-invest-100000-to-generate-income http://moneytothemasses.com/saving-for-your-future/investing/reader-q-where-should-i-invest-100000-to-generate-income#comments Mon, 26 Jan 2015 15:30:18 +0000 http://moneytothemasses.com/?p=9037  Reader Question: I’ve been made redundant and have £100,000 to invest. My mortgage is low and almost paid off so need to invest for an income boost. Do I buy a house or where else could I get decent return? FREE DIY INVESTING EMAIL COURSE My response: Essentially what you are asking is how to...

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Get an answer to your financial question online Reader Question:

I’ve been made redundant and have £100,000 to invest. My mortgage is low and almost paid off so need to invest for an income boost. Do I buy a house or where else could I get decent return?

FREE DIY INVESTING EMAIL COURSE

My response:

Essentially what you are asking is how to invest £100,000 to generate income now.

First of all seek independent financial advice

The first thing I would suggest is to seek independent financial advice as your wider personal and financial circumstances need to be taken into consideration before you do anything. For example, how old are you? Are you a high rate income tax payer? Are you married? If so you may want to put investments in your wife’s name if she is a non-tax payer? What is your attitude to risk? What is your investment timescale and do you need access to the capital?

If you don’t already have a reputable financial adviser who specialises in investments click here.

Whether you are investing for income or growth this is one of the best investment guides* I’ve come across. It takes you through the basics of understanding investing and your own risk profile (which is important). It also provides an excellent checklist of questions you should ask before you make an investment. Best of all it’s completely FREE.

But obviously I want to give you an idea of what your options are.

Property

On the assumption that you are looking to make income from your investment then buy-to-let is one option. As a nation we are obsessed with home ownership and as a result property is often seen as a safe investment. How many times have you heard the phrase as safe as houses or been told to invest in property?

Property returns do tend to be uncorrelated to investment markets but they are not without risk. Over the long term house prices have tended to beat inflation (around 2.8% above inflation per annum since 1960) but the housing market like investment markets experiences periodic price corrections and crashes.

For a buy-to-let investor concerned with rental income, the average UK property yield is around 5% gross (i.e. before tax) but there are massive regional variations. Buy-to-let shouldn’t be entered into lightly as property is an illiquid investment and there are often large initial capital outlays.

My guide to buy-to-let covers all the factors you should consider including costs, likely returns and whether it is a good investment.

Cash

Although a lot of people think of cash as the starting place when looking to invest it can be the eventual destination. If you really want to ensure you get the best interest rate for £100,000 or more of savings then I would highly recommend reading through the following Guide for those with large savings*. It’s FREE and provides advice on common mistakes to avoid and how to get the maximum interest and protection on your savings. 

If you would rather go it alone then you need to realise that with inflation in excess of most savings account rates the real value of money on deposit can be quickly eroded. With the withdrawal of the National Savings and Investments (NS&I) Index Linked Saving Certificates savers have been struggling to find an alternative. NS&I Index Linked Savings Certificates offer a risk free and tax free way of beating inflation, as measured by the Retail Prices Index or RPI. So what are the alternatives now?

Typically the only way to earn a higher rate of interest from a savings account is to lock your money away for a longer fixed term. Here is a roundup of the current best savings rates available on instant access accounts. Even these rate usually fall woefully short of inflation. There are also a number of savings bonds available on the market which will provide inflation beating interest rates and the good news is that they can be held in a cash ISA, so returns can be tax-free.

But one word of warning. Theses bonds will either restrict access to your capital during the term of the bond or impose penalties if you wish to withdraw your money early. If in the medium term the Bank of England Base Rate (which influences rates on savings and mortgages) start to return to normal (which is around 5%) then you could find yourself stuck with a deal which isn’t as competitive as rates offered on ordinary savings accounts. Something to think about.

One of the best FREE tools out there is the rate tracker email alert*. You simply enter your email address and the details of the savings accounts you currently have (there are no security issues as I’ve been happily using it for over 18 months). Then not only will the system tell you if you are getting a good deal but it will continuously monitor the market for you and email you when there are better deals out there than your existing account. Make sure you put in the current balance for each of your savings account.

If you do decide to put your money into a savings account then you may wish to limit the amount held with any financial institution to £85,000. This will ensure your savings are covered by the Financial Services Compensation Scheme should your chosen bank go bust. For more details read my article ‘How to protect your savings from your bank going bust’. Of course, National Savings and Investment bank accounts are 100% back by the Government so represent no investment risk. Unsurprisingly the returns from these products are not the most competitive.

Equities

It is possible to invest directly in shares and hopefully receive an income stream via regular dividend payments along with a bit of capital appreciation (for which you can use your annual capital gains tax allowance to receive receive tax- free, or at least in part) . Well that’s the theory. Direct equity holdings carry much higher investment risk and hopefully rewards. The problem is that if you get your timing or research wrong you can swiftly find yourself sitting on a huge loss and no income stream. (that’s exactly what happened to people who invested in banks in 2008). According to the Barclays Equity Gilt Study equities have produced an annual return of around 5.4%  over the last 50 years but this does mask huge crashes and market rallies.

Bonds

Corporate bonds are essentially loans to companies paying you an interest payment (a coupon) and your original loan amount back at an agreed date. The riskier the company the more likely they are to default, so the greater you potential return by way of compensation. But as ever with greater risk comes the potential for greater loss.

At the safest end of the spectrum we have Gilts (which are loans to the UK Government) through to investment grade bonds (companies with good credit ratings) through to non-invetment grade and high-yield bonds (loans to companies with poorer credit ratings). Like equities it is possible to hold bonds directly and a number of companies (such as Tesco) have even marketed their bonds directly to the public.

Bonds are deemed lower risk than equities and their typical annual return over 19 years has been around 2.5%. But as ever past performance is no guide to future returns.

The above are just a few of the main investment asset classes. There are others such as commodities and hedge funds but I don’t wish to bamboozle you. The main point being you have a wide choice of assets which can produce income.

But up until this point I have talked about holding assets directly. Placing all your money into a single asset (such as one company’s shares) is akin to putting all your eggs into one basket. However, most people invest via an investment wrapper or product into a number of investment funds which invest in a range of assets.

WRAPPER/PRODUCT

When you invest two things to consider are ‘how’ you invest and ‘what’ you invest in. The ‘how’ is whether you invest via pension, investment bonds, collectives etc. While the ‘what’ is usually the underlying investment itself, such as equities, bonds, property etc.

Without trying to oversimplify investment but think of it like a car. In order to get from A to B (ie your current situation to your desired stage in life) you need to choose a car. The car that best suits you will depend on the journey you plan to take, your current budget etc. Every car will have different running costs, tax etc and not one car suits all. Think of this as the investment wrapper (pension, Stock and Shares ISA etc). Once you have chosen a car you need to put petrol in it to get you to your desired destination. This is akin to the underlying investment choices. Clearly the petrol drives performance but the car can enhance it. But obviously it’s no good buying a Ferrari if all you plan on doing is going to the shops and back each day. It’s a similar thing with investment – excessive costs can wipe out any benefit. A good financial adviser can help you make the investment decision that suits you and your plans.

Below is a selection of investment vehicles. Each is taxed differently and has its own rules when it comes to access and drawing an income which a financial adviser will be able to explain in full detail.

Unit trusts/Investment trusts (collective investments)

These are pooled funds where lots of investors’ money is combined and the fund run by an investment manager with a certain brief. This can be based on the asset type such as bonds, property, shares, a geographical region or a theme such as cautious managed. The fund manager will buy and sell a much larger range of holdings which will hopefully reduce exposure to a single company’s share for example. If collective investments are held directly then they are subject to income and capital gains tax

Stock and Share ISA

This is simply a tax wrapper and can hold cash, shares and collective investments as described above. The benefit of investing via an ISA is that income and capital gains are tax free but you have a limited subscription each tax year which is currently £15,000.

Pension

Defined contribution or personal pensions are another tax wrapper offering income and capital gains tax free growth. Again you can invest in the aforementioned assets and collectives (but not residential property).

Investment Bonds

These are products that are offered by life insurance companies that are subject to income tax. Their investment flexibility is usually limited to a range of investment funds.

Building a Portfolio (and a neat tool to help you)

By building a portfolio it is possible to diversify your investments so as to not put all your eggs in one basket. Consequently, other than your investment amount, there is nothing to stop you spreading your risk by investing in a range of asset with which to provide an income. By choosing the right combination of assets and investment wrapper/product to suit your circumstances you can enhance your returns. This is what a good financial adviser would do for you. This value added is often overlooked by investors who concentrate solely on investment performance. While investment performance is important so is tax efficiency, suitability and risk.

But I don’t want to completely sit on the fence. While I don’t know your personal circumstances someone looking to build an investment portfolio (through whatever wrapper) to generate income would likely have Equity Income Funds and Bond Funds at its core (average current yield on an equity income fund is about 4%). But in both these cases don’t just be lured by an attractive yield figure of a given fund. Without exception higher yield means higher risk and normally the greater chance of capital loss. For a pure income seeking investor a short term capital loss is not a problem, as long as they still receive the regular income/dividends, and they do not need to crystalise the capital loss. To download a useful guide on equity income funds click here*. Interestingly there are some property income funds have recently been launched.

As part of my drive to empower DIY investors I have created a FREE DIY INVESTING EMAIL COURSEwhich has been specifically designed to teach you how to become a better investor in minutes. The course will teach you how to quickly indentify which funds to buy and when to sell, as well as show you a simple solution to asset allocation. By asset allocation I mean how much you should be investing in UK company shares, how much you should be investing in property unit trusts etc. It is absolutely free. The course is based on decades of research and will show you the simple tools to use in order to outperform the wider market.

Annuity

If you simply want income and no access to capital then it is possible to buy an annuity which will provide you with a guaranteed income stream. The level of income will depend on your age and possibly health but once purchased you lose all access to the capital.

Conclusion

So is property the best way to provide income? Not necessarily and in my opinion I’d be wary of putting all my eggs in one basket. Buy-to-let yields vary wildly and the costs involved are often unforeseen.

Diversifying the assets you invest in not only reduces risk but also diversifies the source of your income. The greater the investment risk you take the greater the potential loss. Can you afford to lose any money? If not then you may need to be realistic with your income targets for any investment and settle for safer assets.

As I’ve said seek financial advice as an adviser will be able to advise you on the best thing to do with the £100,000 which may not even be to invest it, once your wider circumstances have been taken into account.

I hope that helps

Best Wishes

 

Damien

Money to the Masses

Website: www.moneytothemasses.com

Twitter: money2themasses

The material in any email, the Money to the Masses website, associated pages / channels / accounts and any other correspondence are for general information only and do not constitute investment, tax, legal or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation. See full Terms & Conditions and Privacy Policy

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The latest MTTM Podcast – How to make it, How to save it, How to spend ithttp://moneytothemasses.com/news/podcast/latest-mttm-podcast-make-save-spend http://moneytothemasses.com/news/podcast/latest-mttm-podcast-make-save-spend#comments Sat, 24 Jan 2015 18:00:00 +0000 http://moneytothemasses.com/?p=15948 Welcome to the FREE MoneytotheMasses.com podcast. MTTM Podcast episodes You can listen to the latest episode of the podcast by clicking on the play button in the player below. To hear past episodes simply click on ‘More Episodes’ in the player’s top menu. Here is the full list of episodes: Episode 28 – Making Money From...

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Money to the Masses podcastWelcome to the FREE MoneytotheMasses.com podcast.

MTTM Podcast episodes

You can listen to the latest episode of the podcast by clicking on the play button in the player below. To hear past episodes simply click on ‘More Episodes’ in the player’s top menu. Here is the full list of episodes:

  • Episode 28 – Making Money From Your Talents And How To Get Noticed
  • Episode 27 – New Year Resolutions And Train Travel Solutions
  • Episode 26 – How To Win At DIY Investing And Crash Diet Testing
  • Episode 25 – Investment Analogies And Pension Pot Strategies
  • Episode 24 – Lost and found & selling your house for a pound
  • Episode 23 – Scams, spam and diet plans
  • Episode 22 – How to make £40,000 in 6 months
  • Episode 21 – Best ways to save for kids, cheap MOT trick, new tax disc laws & remortgaging
  • Episode 20 – How comparison sites work & car insurance quirks
  • Episode 19 – Changes to pensions & radio mentions
  • Episode 18 – Interest rate hikes & cashback sites
  • Episode 17 – Property Auction Tips And Money Regrets
  • Episode 16 – Christmas steals & train ticket deals
  • Episode 15 – Income protection, Private Jets and Investment Mantras
  • Episode 14 – Damien’s little nuggets (and the rules of money)
  • Episode 13 – Claiming Your Fuel Payment And Becoming A Field Agent
  • Episode 12 – Inside Estate Agents’ Minds And Back To School Finds
  • Episode 11 – Get a pay rise, credit myths & business start-up gems
  • Episode 10 – Lets talk about tax baby
  • Episode 9 – Buying, Selling And Letting Advice – The Property Special
  • Episode 8 – Huge Amounts on Current Accounts and You Can’t Go Wrong With Honest John
  • Episode 7 – Reader and Listener Question Special – Pensions, Trusts and IFA’s
  • Episode 6 – Big Picture Budgeting and The Fiver Challenge
  • Episode 5 – Organic Pear and Best Airfares
  • Episode 4 – Writing a Bestseller & Magnificent Melons
  • Episode 3 – House Buying Tricks and Life Insurance Tips
  • Episode 2 – Insider Secrets and DIY Investing
  • Episode 1 – Interesting Apps and Interest Rates

For those who don’t know, the show is jointly hosted by myself and Andy Leeks (author of the brilliant As They Slept – The comical tales of a London commuter) and aims to be informative as well as enjoyable. Every show is split into 4 sections:

  1. How to make money – covering ways to make money whether it be apps, websites, investing, business ideas or any way we can make you richer
  2. How to save money – this section teaches you how to not loose it. Be it saving, cutting bills, secret tricks or insurance
  3. How to spend money – this section covers how to spend it and how others do including celebrities.
  4. Reader / listener questions – I answer questions sent in by you guys!

Please have a listen below and if you do enjoy it then please thank us by downloading the podcast from itunes and leaving a 5 star review. I realise that you might listen to the podcast in the window below so be thinking ‘why the hell would I want to download it as I’ve already heard it once?’ Well by downloading it you will help push the show up the itunes charts and help us spread the word. Think of it as a thank you from you to us.

Download from iTunes

Alternatively here’s the show’s RSS feed – http://moneytothemasses.libsyn.com/rss.

Get in touch

If you want to get in touch, whether it’s a reader question or just to give feedback on the show then you can contact the show here.

Once again, please leave a review of the podcast on itunes here.

 

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Latest interest rate predictions – when will rates rise?http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise http://moneytothemasses.com/owning-a-home/interest-rate-forecasts/latest-interest-rate-predictions-when-will-rates-rise#comments Wed, 21 Jan 2015 23:01:39 +0000 http://moneytothemasses.com/?p=12789  This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. You can now enter your email address here to receive updates to your inbox. Also at the bottom of this article I tell you how to quickly calculate the impact of an interest rate rise on your...

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bank of england This article is continually updated to bring you the latest analysis on when interest rates are likely to rise. You can now enter your email address here to receive updates to your inbox.

Also at the bottom of this article I tell you how to quickly calculate the impact of an interest rate rise on your own monthly mortgage payments.

If you are wondering whether you should fix your mortgage rate, but don’t know a mortgage adviser whose opinion you trust, then we’ve team up with an award winning mortgage advisory firm to provide fee-free expert mortgage advice. The service, which I’ve personally vetted, compares thousands of mortgages here* plus you can see the current best-buy mortgages as well.

When will interest rates go up?

In summary: in recent weeks the market consensus of when the Bank of England’s first interest rate rise would occur has dramatically shifted. At the start of year the consensus had been for the first rate rise to occur in the second half of 2015 but weak economic data and falling inflation, because of a collapse in the price of oil, has seen this pushed back. Now interest rates are not expected to rise until the start of 2016 at the earliest, rather than in 2015. In fact some areas of the market are pricing in interest rates to rise in the latter part of 2016. See bullet points below for more detail.

The forecasting of the Bank of England base rate has been transformed in recent years. First of all Mark Carney, the Governor of the Bank of England (BOE), issued new ‘forward guidance’ on when the Bank of England will raise interest rates.

This is a policy which he employed during his previous role in Canada’s central bank to try and control the market’s expectations of when interest rates will rise. The reason for doing this is that an expectation of a rate rise is as important as the actual rate rise itself. If a market thinks that the BOE will increase rates then the cost of borrowing throughout the economy will rise. This can prove damaging for a stuttering economic recovery, meanwhile artificially low interest rates also make cash deposits unattractive, which in turn boosts consumer and corporate spending.

Mark Carney originally created a notional link between the UK unemployment rate and the BOE base rate. In a pledge to keep rates lower for longer Mark Carney said that rates would not rise until UK unemployment fell below 7%. But this threshold was hit, somewhat unexpectedly, so Mark Carney had to ditch the unemployment trigger when it looked like a breach was imminent, instead replacing it with 18 economic indicators.

So now Mr Carney has moved the goal posts on when interest rates will likely go up:

  • The BOE has now decided it won’t tie interest rate rises to any particular economic indicator but a range of 18 of them
  • Throughout 2014 Mark Carney kept the markets guessing over when interest rates are likely to go up again. After much speculation that interest rates would go up in in 2015, this now seems unlikely because inflation has now fallen to just 0.5% (the joint lowest reading on record)largely due to a plunging oil price.
  • Mark Carney now says that the market is right to rule out a rise in interest rates any time soon. In an interview after the release of the latest inflation data, he admitted that the pace and degree of any rate rise had now changed from what he thought a year previously. At the time markets had taken this to mean that interest rates won’t go up until the second half of 2015 at the very earliest.
  • However, recent minutes from the BOE rate setting meetings had shown that two committee members had started voting for a rate rise. Amazingly, minutes from January’s meeting show that the two dissenters had changed their mind and the committee was now again unanimous on keeping rates on hold. Markets immediately pushed out their predictions of when interest rates will rise back into 2016.
  • But a small word of warning, when interpreting its annual survey of household finances, the BOE claimed that the majority of mortgage borrowers could cope with a 2% interest rate rise. Yet, just a year earlier similar survey results were interpreted as showing that borrowers would struggle if rates were raised to 2%. This is a complete change in rhetoric and had been taken as an indication that the BOE would look to increase interest rates by Autumn 2015. But the recent change in voting by the MPC has changed things.
  • Either way, Mark Carney keeps reiterating that when rates do rise it will be gradual and, in the medium term, materially below the 5% level set on average by the BOE historically. It is expected that the first interest rate rise will occur in early 2016, at the earliest, to 0.75% followed by further 0.25% increases at regular intervals.

So the current forecast of when interest rates will go up is: Markets are now pricing in the first rate rise (to 0.75%) to occur in the first half of 2016 with interest rates remaining below 2% in 2017 and beyond.

Whilst the BOE is now claiming that not just one economic indicator will be used in any ‘forward guidance’ of when rates will rise, a range of them will still determine when they actually do put them up. So economic indicators are still important in judging when interest and mortgage rates are likely to rise. Below is a roundup of the most important indicators which will influence when interest rates go up:

So what might influence when rates rise, despite the change in the BOEs ‘forward guidance’  

  • Inflation has unexpectedly fallen – in December the official measure of UK inflation fell to just 0.5%, a 14 year low and the joint lowest figure on record! Inflation has tumbled in recent months, the biggest reason being the fall in the price of oil. The oil price has almost halved in the last 6 months meaning cheaper petrol at the pumps for consumers. We have even seen the first petrol stations charging just £1 a litre. Inflation doesn’t look like spiking any time soon either and Mark Carney has admitted as much. In his Autumn Statement the Chancellor claimed that inflation will still only be 1.2% in 2015 and only 1.7% in 2016. But after the latest inflation data he has had to admit that even that looks a touch high given the unexpected fall in the oil price. Don’t forget that the Bank of England’s target inflation rate is 2% (with anything above 3% or below 1% getting a slapped wrist from the Chancellor). To combat inflation interest rates would be increased but the prospect of low inflation for the foreseeable future has fuelled speculation that the first interest rate rise will now not occur until the beginning of 2016.
  • No official support for a rate rise – since August 2014 the Bank of England’s Monetary Policy Committee (MPC), who are the people who decide the UK base rate, have not been unanimous in their support for holding interest rates at 0.5%. In fact, 2 out of the 9 committee members had continued to vote for a rate rise. However January’s MPC minutes show that the vote was once again unanimous (9-0) for holding rates. This is a dramatic turnaround (a result of fears over falling inflation) and was taken as a sign that the date of the first rate rise has been pushed back at least until 2016. Just months earlier the BOE was claiming that only 4% of mortgage borrowers would struggle to cope with a 2% rate rise. Such positive PR would had suggested that the BOE was paving the way for interest rates to start going up soon.
  • The UK economy is growing again –  the Office of National Statistics has confirmed that the UK economy grew by 0.7% in the third quarter of 2014. Although this is below the 0.9% recorded for the second quarter, it still makes the UK the fastest growing industrialised economy in the world!  Economic growth is already back at its pre-crisis level. However, a growing economy increases the prospect of a rate rise.
  • There’s cautious optimism about future economic growth – be it the UK services, manufacturing or construction official data has pointed to improved signs of economic recovery. However, the services sector which accounts for about 75% of the economy, saw an unexpected slip in activity at the end of 2014. The sector is still growing strongly but it has raised concerns over the prospects for the UK economy. However, if the economic recovery continues to strengthen then interest rates will rise sooner and faster than suggested by the official guidance.
  • Unemployment is falling – The number of people out of work fell by 58,000 to 1.91 million (a six-year low) in the three months to November. The UK unemployment rate now sits at 5.8%, below the BOE’s old ‘forward guidance’ threshold, a threshold the BOE hadn’t expected to be breached until 2016. But interestingly wage growth now finally exceeds inflation – a trend we last saw back in 2009. A lack of wage growth is a sign of slack in the economy which would make an early rate rise less likely. But if wage growth continues to improve then calls for an interest rate rise will increase.
  • UK economic growth forecasts are being upgraded – such is the optimism for UK economic growth that the British Chambers of Commerce, the BOE as well the International Monetary Fund (IMF) have upgraded forecasts for economic growth. The IMF in particular now expects the UK economy to grow faster than any other major European economy in 2014, while the BOE now expects a growth rate of 3.5%. Plus, the Chancellor George Osborne upgraded his forecasts for UK economic growth in his Autumn statement. He now expects the UK economy to grow by 3% in 2014, which is higher than the 2.7% he originally forecast in his Budget back in March.

So should you rush to fix your mortgage now while rates are low?

Fortunately I’ve answered this question in my  post ‘Should you fix your mortgage rate now?‘ But if you want more help or advice then you can contact an award winning mortgage adviser here*.

Interest rate rise / fall calculator – calculate the impact on your monthly mortgage payments

You can quickly calculate the impact of an interest rate rise on your mortgage payments in pounds and pence by using this interest rate rise calculator*. Just make sure you enter the original details of your mortgage, such the original amount you borrowed and the original term. This will ensure that the starting monthly mortgage payment matches yours. Then simply enter different interest rate rises and you will see how your monthly mortgage payments will change. Now that you know the answer don’t just bury your head in the sand about it, take action and review your mortgage options today.

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Bankruptcy rules set to change – good news for those in debthttp://moneytothemasses.com/using-credit/tackling-debt/bankruptcy-rules-set-change-good-news-debt http://moneytothemasses.com/using-credit/tackling-debt/bankruptcy-rules-set-change-good-news-debt#comments Wed, 21 Jan 2015 06:20:19 +0000 http://moneytothemasses.com/?p=18175 Bankruptcy rules set to change – good news for those in debt There is some goods news for those struggling with debt as the the minimum amount to be forced into bankruptcy is set to rise. The current level of £750, set back in 1986, is set to rise to £5,000 from October 2015. At the...

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Bankruptcy rules set to change – good news for those in debt

Bankruptcy rules set to change - good news for those in debtThere is some goods news for those struggling with debt as the the minimum amount to be forced into bankruptcy is set to rise. The current level of £750, set back in 1986, is set to rise to £5,000 from October 2015.

At the same time the maximum amount of debt that can be covered by a Debt Relief Order will increase from £15,000 to £20,000. Debt Relief Orders are designed as an alternative to bankruptcy for those with lower levels of debt and the proposed changes will allow more debtors access to this option.

Debt charities and insolvency firms have been campaigning for these changes as many debtors are unable to afford the fees involved in bankruptcy and owe too much to use a Debt Relief Order. This problem leaves many people stuck trying to handle their debts without any chance of drawing a line under them and moving on.

Further reading

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Best of the Sunday papers’ MONEY sectionshttp://moneytothemasses.com/news/best-sunday-papers-money-sections http://moneytothemasses.com/news/best-sunday-papers-money-sections#comments Sun, 18 Jan 2015 07:00:48 +0000 http://moneytothemasses.com/?p=16650 18th January 2015 The Independent What to do if you’re facing repossession So you’ve got pension freedom…will it end up as a cold shower? Weekly Money: Round-up of the personal finance stories you may have missed 12-16 January The Telegraph Three get-fit rip-offs that can lose dieters hundreds of pounds Millions with multiple incomes at...

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18th January 2015

The Independent

What to do if you’re facing repossession

So you’ve got pension freedom…will it end up as a cold shower?

Weekly Money: Round-up of the personal finance stories you may have missed 12-16 January

The Telegraph

Three get-fit rip-offs that can lose dieters hundreds of pounds

Millions with multiple incomes at risk of shock tax bills

HMRC wanted £5k I didn’t owe

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Best of the Sunday papers’ PROPERTY sectionshttp://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections http://moneytothemasses.com/news/best-of-the-sunday-papers-property-sections#comments Sun, 18 Jan 2015 07:00:36 +0000 http://moneytothemasses.com/?p=16656 18th January 2015 The Independent Round-up of this weeks property stories Slash commuting costs with a new home near a station What the new stamp duty rates mean for first-buyers: what and where to buy The Telegraph My space: Uri Geller From Sussex farmhouse to country empire Killer fees and creepy landlords: Welcome to renting...

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18th January 2015

The Independent

Round-up of this weeks property stories

Slash commuting costs with a new home near a station

What the new stamp duty rates mean for first-buyers: what and where to buy

The Telegraph

My space: Uri Geller

From Sussex farmhouse to country empire

Killer fees and creepy landlords: Welcome to renting in the UK

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The funds to buy to benefit from eurozone QEhttp://moneytothemasses.com/8020-articles/the-funds-to-buy-to-benefit-from-eurozone-qe http://moneytothemasses.com/8020-articles/the-funds-to-buy-to-benefit-from-eurozone-qe#comments Fri, 16 Jan 2015 13:35:19 +0000 http://moneytothemasses.com/?p=18145 More than 6 years on from the financial crisis a number of central banks around the world attempted to steady the ship by printing money, or quantitative easing (QE) to give it its correct title. While the mechanism of how the process works in each case may differ, to all intents and purposes it’s printing...

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pile of eurosMore than 6 years on from the financial crisis a number of central banks around the world attempted to steady the ship by printing money, or quantitative easing (QE) to give it its correct title. While the mechanism of how the process works in each case may differ, to all intents and purposes it’s printing money. While the likes of the US, Japan and even the UK have tried QE the European Central Bank hasn’t and almost certainly looks likely to in the coming weeks.

Investors will know that QE has driven equity markets to new highs over the last 5 years and a lot of them have made a lot of money. So if the ECB is about to fire up the printing presses can DIY investors benefit and what should they buy?

What happens when central banks print money?

First let me quickly explain what happens when central banks print money (QE). The best way I find to explain QE is to use an analogy. Imagine that the UK economy is a garden full of plants which is starting to struggle and dry up in a drought. The gardner (the central bank) tending the garden has tried collecting rain water to water the garden but this has not helped and the reserves have gone. Think of that as a lose comparison with a central bank (in our example the Bank of England) trying to boost growth by lowering interest rates. So the gardner has to do something else and unnatural to try and bring the garden (the economy) back to life.

So the gardner decides to get a hose pipe with a sprinkler attached and water the garden artificially. Watering the garden is equivalent to QE and the hose pipe is the system by which the water (QE) is transmitted, which in the economy largely equates to the banking system.

But there is one snag, the hose pipe has a kink which he can’t undo. So he turns the tap on and water dribbles out of the sprinkler onto the plants. So he turns it on faster and faster to make the dribble much stronger so he can water the plants to boost growth. Meanwhile, in the hose pipe the water behind the kink is building and building. And the hose pipe is expanding rapidly!

While the gardner might be pleased that he seems to averted a disastrous drought he has a few problems he hasn’t bargained for.

  1. When he turns the tap off there is now so much water in the pipe that once the kink clears (and he doesn’t know when) he’s likely to flood the garden completely and kill everything
  2. He doesn’t have a lot of control of where the water from the sprinkler is ending up
  3. It might start raining again anyway (an external factor he’s not bargaining for)

So in real life when central banks print money they do this by buying assets off banks in return for cash they’ve created out of thin air. The banks then have cash and are supposed to then lend it to people and businesses to boost growth. That would be the equivalent of a hose pipe with no kink. Yet there is always a kink because banks often keep the money to themselves to stabilise their own businesses. So this wall of money (water) builds and at some point they might release it and if they do it could flood the economy causing rampant inflation (i.e. flood the garden).

So what we’ve seen from other QE experiments is the water (money) doesn’t necessarily end up where you want it. Pour a load of water on hardened ground and it doesn’t seep in straight away but flows to where it wants to naturally, like a river. Where it ends up is where things will grow first, weeds and all! So this analogy helps explain the following charts…..

What happened when other central banks tried QE

They say a picture paints a thousand words…..

Here’s what happened to US equities after each bout of QE:

the effect of US qe

Here’s what happened in Japan when they first announced QE in late 2012

japan

Once central banks have cut interest rates to almost zero (or even below) that’s where QE comes in. The central banks usually by government bonds as they are liquid and in theory it should be easier to reverse the process in the future than buying other kinds of assets. This drives down long term interest rates in the economy (as the price of the bonds go up so yields go down) which makes long term saving unattractive. It also reduces loan and mortgage rates. This ‘wealth effect’ causes people to buy assets such as equities and property which explains the charts above. So going back to our analogy, the water flows into pools. And it tends to be riskier assets at that, which explains why the equity markets have rallied over the last 5 years.

Will the ECB launch QE & if so when

The ECB have been late to the QE party, largely down to protests from some eurozone members, led by Germany. The eurozone is a marriage between 19 countries where monetary policies are set by one central bank, the ECB. Inevitably what is good for one country will be detrimental to another. Yet the prospect of continued deflation (falling prices) had boosted the pro-QE camp’s cause. Falling prices encourage people to hold onto their money instead of buying things, which is bad for economic growth. Printing money might just help reverse that trend as in theory it should cause inflation (prices rise as more money exists which is chasing the same number of assets that existed previously). But the legal challenges against QE were dealt a blow when the ECB’s idea for QE was given the backing by the advocate general of the European Court of Justice.

Also, the Swiss Central Bank had for the past 3 years been holding down the value of its currency to no more than SF1.20 to the Euro by buying euros and selling its own currency. But yesterday it gave up on this and the Swiss Franc strengthened by nearly 40% at one point in the day! That’s unprecedented for a major currency and is seen as another sign that the eurozone QE (money printing) is coming and the value of the Euro will fall. The Swiss Central Bank just does not have the firepower to fight it.

So the markets are pricing in eurozone QE to be announced as early as next week.

How to play eurozone QE

While the assets the ECB decides to buy to deliver QE should rally (most likely government bonds), playing that trade can be difficult until we know further details. For example, which sovereign bonds will they buy? But at least in theory some European bond funds may benefit.

However, based on history and other QE programmes european equities could well receive a boost. The fly in the ointment is that markets have already priced in the anticipation of QE commencing soon so equities might not rally much upon announcement. A lot rides on the scale of the QE if announced. If it’s small in size the market will be disappointed and shares will fall. If it is bigger than expected (a bazooka) then things could get exciting.

First of all QE is about lowering the euro. So if you are brave and want to play the currency angle then have a look at a cheap ETF such as ETFS Short EUR Long USD. The monetary policy in the US is going the opposite way to in Europe so the dollar looks set to strengthen against the euro further. For more on the how to play the dollar strength click here.

As highlighted by the earlier gardening analogy one sector likely to benefit is the banking sector. Elsewhere exporters will benefit from a weaker euro while mid-sized and smaller companies are likely to get a boost from increased liquidity and an uptick in mergers and acquisitions, as the cost of funding falls.  A bold play would be to buy Baring Europe Select which has a small cap focus, with financials as its biggest sector by exposure (19%) . The fund remains one of the top performing European funds over the last 3 and 5 years.

Another way to play it is chose a fund which is sensitive to the wider market (this can be statistically measured by something called beta) but where the manager does add value (measured by alpha). In this instance you might pick Artemis European Growth.

Finally you could buy the european stock market while hedging out exposure to the falling euro. That way what you make on the shares you don’t lose on the currency conversion. One cheap way to do this is via an ETF such as UBS – ETF – MSCI EMU 100 % hedged to GBP.

One word of warning, there are still some serious downside risks out there for European equities. The potential for a Greek exit from the eurozone following this month’s elections being one of them.

 

 

(Photo by David Castillo Dominici – freedigitalphotos.net)

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How to claim compensation if your train is delayed – Money tip #299http://moneytothemasses.com/quick-savings/tips/how-to-claim-compensation-if-your-train-is-delayed http://moneytothemasses.com/quick-savings/tips/how-to-claim-compensation-if-your-train-is-delayed#comments Fri, 16 Jan 2015 09:36:25 +0000 http://moneytothemasses.com/?p=18135 How to claim compensation if your train is delayed There is nothing worse, when travelling by train, than your particular journey being delayed. This can cause problems with you missing appointments or other travel connections. Train operators, however, do offer compensation when trains are delayed beyond a certain period of time and this can at...

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How to claim compensation if your train is delayed

How to claim compensation if your train is delayedThere is nothing worse, when travelling by train, than your particular journey being delayed. This can cause problems with you missing appointments or other travel connections. Train operators, however, do offer compensation when trains are delayed beyond a certain period of time and this can at least help your finances.

The National Rail Condition of Carriage outlines the minimum offered through Passenger’s Charters but in reality the vast majority of operators pay more than this minimum.

I have linked below to the main train operator refund policies to make it easier for you to locate the details if you need to make a claim.

Rail Operators Compensation Schemes

Things to remember when making a claim

  • Claims need to be made within 28 days of completing the journey
  • Claims need to be accompanied by the ticket to prove claim validity
  • Claims are usually settled with rail vouchers but most operators do offer a cash alternative
  • Claims are normally submitted by post by some operators now offer an online claims process

Further reading

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Our top 10 money tips for 2015http://moneytothemasses.com/quick-savings/tips/our-top-10-money-tips-of-2014 http://moneytothemasses.com/quick-savings/tips/our-top-10-money-tips-of-2014#comments Fri, 16 Jan 2015 09:29:26 +0000 http://moneytothemasses.com/?p=18125 Top 10 money tips for 2015 We are always looking to bring you the best money tips that will make the most of your hard earned cash. It’s no surprise that I was recently asked what my top 10 money tips would be for 2015. With so many to choose from within our money tips section...

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Top 10 money tips for 2015

We are always looking to bring you the best money tips that will make the most of your hard earned cash. It’s no surprise that I was recently asked what my top 10 money tips would be for 2015. With so many to choose from within our money tips section I thought the best way to decide was to look at which money tips had been the most widely read in 2014. So without further ado here are my top 10 money tips for 2015:

ID-1002722847 common money mistakes – and how to prevent them

Copycat websites – how not to get duped

Buying wine? – get value for money with this new smartphone app

How to bag a bargain at lost property auctions

5 of the Best money saving apps for drivers

How to keep on top of your finances in just 5 minutes a day

How to get the best prices when shopping on the internet

Top 10 things we waste our money on and what to do about it

Shop online to make sure you get your money back

The Do’s & Don’ts of buying gift vouchers

 

 

Image: Serge Bertasius Photography

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Turn your old iPhone into a home security systemhttp://moneytothemasses.com/quick-savings/tips/turn-old-iphone-home-security-system http://moneytothemasses.com/quick-savings/tips/turn-old-iphone-home-security-system#comments Tue, 13 Jan 2015 06:30:05 +0000 http://moneytothemasses.com/?p=18108 Turn your old iPhone into a home security system When you next upgrade your iPhone why not keep the old phone and turn it into a home security system. A free app called Manything can turn your old mobile phone into a motion-sensing security camera. How does Manything work? Just download the free app on both...

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Turn your old iPhone into a home security system

Turn your old iPhone into a home security system When you next upgrade your iPhone why not keep the old phone and turn it into a home security system. A free app called Manything can turn your old mobile phone into a motion-sensing security camera.

How does Manything work?

Just download the free app on both your old and current iPhone and register either by email or Facebook. You will then be presented with a screen similar to when you use video on your phone and you just press record to get going. Now position your old mobile in an area where you wish to record to get continuous recording from that area. Recordings up to 30 days are saved automatically but you have the option to create clips if you wish to save recordings for longer, this can be done using a pc or laptop.

How can I view my Manything recordings?

You will be able to view the recordings on your current mobile phone anytime by just opening the app. So when you are out and about you can keep an eye on things back home. There is also a motion option within the app that will send an alert to your current mobile phone when any motion occurs within the recording area. The settings for the motion sensor can be adjusted to screen out small motions to limit the amount of alerts you receive.

 

Image: stuart miles

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