Money To The Masses http://moneytothemasses.com Putting you in control Sun, 24 May 2015 06:37:51 +0000 en-GB hourly 1 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, 24 May 2015 05:00:48 +0000 http://moneytothemasses.com/?p=16650 24th May 2015 The Independent Is it really that bad in the bond market? Wonga charm offensive is too little, too late Weekly Money – The personal finance stories you might have missed The Telegraph How ‘middle class’ inflation is threatening your standard of living Driverless cars will shave ‘£265′ off insurance premiums in five years Millions...

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24th May 2015

The Independent

Is it really that bad in the bond market?

Wonga charm offensive is too little, too late

Weekly Money – The personal finance stories you might have missed

The Telegraph

How ‘middle class’ inflation is threatening your standard of living

Driverless cars will shave ‘£265′ off insurance premiums in five years

Millions missing out on £600 free bank cash

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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, 24 May 2015 05:00:36 +0000 http://moneytothemasses.com/?p=16656 24th May 2015 The Independent The top 20 homes hotspots within a 60-minute commute of London Buy a Parisian apartment and enjoy weekends full of culture, food and shopping Chelsea Flower Show 2015: the best show gardens and behind the scenes The Telegraph The cheapest city homes in Britain where the average house price is £110,600...

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24th May 2015

The Independent

The top 20 homes hotspots within a 60-minute commute of London

Buy a Parisian apartment and enjoy weekends full of culture, food and shopping

Chelsea Flower Show 2015: the best show gardens and behind the scenes

The Telegraph

The cheapest city homes in Britain where the average house price is £110,600

I’d rather be skint in London than rich in Hull

Idyllic British beach homes from £195,000

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The funds to buy for the bond market tantrumhttp://moneytothemasses.com/8020-articles/the-funds-to-buy-for-the-bond-market-tantrum http://moneytothemasses.com/8020-articles/the-funds-to-buy-for-the-bond-market-tantrum#comments Thu, 21 May 2015 15:22:18 +0000 http://moneytothemasses.com/?p=19197 The 27th April 2015 could become a significant date in the history of investing. It was around that date that the bond market threw a tantrum and experienced a significant sell-off, the like of which hasn’t been seen since 1994. This in turn saw equity markets tumble and investors’ portfolios fall in value. Even if you don’t buy...

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best bond fundsThe 27th April 2015 could become a significant date in the history of investing. It was around that date that the bond market threw a tantrum and experienced a significant sell-off, the like of which hasn’t been seen since 1994. This in turn saw equity markets tumble and investors’ portfolios fall in value.

Even if you don’t buy explicit bond funds the chances are that some of your low risk funds do buy bonds. But even then, when the lowest part of investors’ portfolios is losing money they tend to run for the hills which in turn is bad for share prices. So is there nothing investors can do to protect their money other than sell up? Well there are actually a few funds out there that have a history of doing well in a bond market sell-off.

Quick guide to how the bond market works

But first let me give you a bit of background of how bonds work so you can understand what has been happening. A bond is essentially a loan to a company made by an investor. The investor lends the company a lump sum in return for a regular interest rate payment plus the return of their capital at the end of the agreed loan term. So let’s keep it simple by using small numbers. Lets say I agreed to lend the company £100 for 10 years if they paid me a 4% interest rate payment (called a coupon) each year and then returned my initial £100 at the end. Simple enough!

But now lets say that I wanted my money back. One way to do this would be to sell the loan (or bond) on to someone else along with the entitlement to all future payments. So lets say I decided to sell the bond on to someone else 3 years into the loan. So the new person will get 6 more annual interest payments plus the £100 back after 10 years. The trouble is that market conditions have changed and the company the money was lent to is not doing so well. The person buying the loan thinks it’s a risky investment and so rather than give me my £100 back he gives me £95. In his eyes he is lending £95 and will receive interest payments of £4 a year still and then get £100 at the end.

Now when people talk about bond yields they are simply talking about the present value of all future income payments as a percentage of what they paid for the bond. In the above example you can see that the chap I sold the bond to is getting a better yield than I did as the price he paid, for the same amount of income I got, was lower. If everyone wanted my bond then I’d probably sell it for £104 and the new buyer would have a lower yield than I had. Bond fund managers are simply doing this on a  daily basis with lots of different bonds and companies – so a bond fund is just a collection of bonds which helps spread risk.

So as bond yields increase the bond price falls and vice versa

Think of it like buying a buy-to-let property, the rent you get is dictated by the house and not the price you paid. Yield is simply the rent you receive as a proportion of the price you paid. That’s why landlords buy cheap houses and touch them up a bit – so that they can maximise their yields.

Now because the payments on bonds are usually fixed from outset (with an agreed coupon) as interest rates and inflation rise in the economy they become less attractive. Because unlike rent on a buy-to-let you can’t increase the coupon on a bond. If the price of everything around you is rising (which is what inflation is) then the interest payments (coupons) from a bond are worth less in real terms.

So deflation (falling prices) is good for bonds – while inflation is poor for bonds and as such their prices fall

The recent bond market sell-off – which I predicted 3 days before

The above all helps to explain the recent bond market sell-off. The bond market has enjoyed a 30 year bull run where prices soared (meaning that yields fell – remember bond yields and prices move in opposite directions). More recently central banks like the European Central Bank (ECB) have been buying lots of bonds through their Quantitative Easing programme (QE or money printing).  Buying lots of Government bonds is the mechanism which they print money – don’t worry about the detail just accept that it is.

All of this money printing is being done to create inflation. Some inflation is good for economy – a bit like engine revs on a car. If the revs fall the car will likely stall. So too will an economy if prices keep falling (deflation) as people stop buying things because they will be cheaper tomorrow. The biggest fear globally is that deflation will set in and economic growth stall.

That’s exactly what happened in Japan for much of the last two decades. It is a vicious circle that’s hard to break. Would you buy a car today if the price is likely to fall tomorrow. If they keep falling when will you buy? The odds are you never will. Not buying things is bad for the economy.

Well the market consensus had been that deflation was waiting in the wings everywhere so buying bonds was the obvious thing to do. Besides the ECB was also buying lots of them so they had your back by driving up prices as well.

But at the end of April 2015 there was a wild switch in the market consensus. Suddenly oil prices were rising, as was the Euro. Everyone thought they’d actually underestimated the chances of inflation returning. As a result investors began changing their mind and thinking that inflation is now more likely than deflation – so they sold out of bonds. This caused a rapid rise in bond yields and a fall in prices as everyone headed for the exit. Think of that change in market sentiment like an earthquake. The market had been built upon an assumption that had suddenly started shaking and everything began crumbling down.

Back on 24th April I sent you all an email warning about the bond market and why it was likely to turn. Three days later it did exactly that!  You can read it here.

But such a bond market earthquake has happened before and rather spookily almost 2 years previously to the day.

The taper tantrum of 2013

On 23rd May 2013 Ben Bernanke, the former chairman of the US Federal Reserve (the equivalent of our Bank of England) shocked markets by suggesting that they would soon stop (‘taper’ was the word he used) their own QE money printing programme. As I mentioned earlier, central banks buy bonds to give the effect of printing money. When the market realised that the biggest buyer in bond markets might exit there was a rout in bond markets as shown below. This has been immortalised as the infamous ‘taper tantrum’. The market eventually recovered but the wobble transcended bond markets and wobbled equity markets – just like an earthquake. The same happened in this year’s bond market sell-off. Let’s call it ‘taper tantrum II’.

taper tantrum

Investment commentators speculating nonsense

At the time of writing taper tantrum II has quietened and markets have recovered slightly, in part thanks to the ECB announcing that it will work its printing presses harder in the coming months. But as can be seen from the taper tantrum chart above these things can have a habit of lulling us into a false sense of security before coming back for a second bite. There’s been a lot of speculation and analysis over whether the bond bull market is finally over. I’m not going to go into this here but on balance most analysts think that the bond market sell-off should almost be done for now.

But the truth is that the bond market will likely collapse at some point but is there anywhere to invest other than just sitting in cash which will make money? What should you invest the lower risk section of your portfolio in, as after all even the cautiously run managed funds invest in bonds? When there is a bond market tantrum equities sell-off too. So to use an analogy, are there any funds out there that can withstand another bond earthquake?

The funds for a bond market tantrum

History won’t predict the future but it does give you a good steer of what to expect. As I’ve said previously if you are trying to draw insights from historic data you need to dig deeper to find something useful that can be used in the near future.

So rather than just look at the recent taper tantrum, I decided to analyse the performance and behaviour of funds during the 2013 taper tantrum as well. I wanted to see if there were any low risk funds which had weathered both periods well.

In fact I started by screening every unit trust fund out there (around 3,000 of them) regardless of what they invest in, be it UK bonds or even European equities to find those that had produced a positive return during both bond market sell-offs.

What is interesting is that it confirms that certain property funds are great portfolio diversifiers. Yet it is only those that invest in actual buildings that appear, rather than the higher risk property funds which invest in property company shares. It’s somewhat ironic given my analogy of looking for funds (buildings) that can withstand a bond earthquake that we end up with funds that invest in bricks and mortar.

Also a few Targeted Absolute Return funds have made the cut, a number of which invest in equities and occasionally short them (i.e they take positions to benefit from individual share price falls).

But most interesting of all is that Kames – UK Equity Absolute Return (indicated in red) makes an appearance. Back in December I wrote a piece on the Funds to ‘buy & forget’ in 2015 & the Perfect Portfolio in which I championed the fund. While the fund’s returns since 2013 (up 7.27%) might not seem exciting, to put this into context this is higher than the average bond fund while the FTSE 100 fared not much better achieving 12.28% by comparison.

In the long run momentum and the 80-20 algorithm will see you through the choppy market waters over the long term but it’s always worth knowing where the nearest port is in any storm.

 

Fund nameSectorReturn during 2013 taper tantrumReturn during 2015 sell-offOverall performance from start of 2013 tantrum
City Financial – Absolute EquityTargeted Absolute Return1.095.3750.22
Schroder – Absolute UK DynamicTargeted Absolute Return1.192.667.66
Schroder – UK Real EstateProperty0.530.8334.19
L&G – UK PropertyProperty0.380.6625.31
Threadneedle – UK PropertyProperty0.560.6521.9
M&G – Property PortfolioProperty0.510.5522.15
SJP – PropertyProperty0.640.4323.11
Ignis – UK PropertyProperty0.540.419.75
Standard Life Investments – UK PropertyProperty0.280.3122.37
Kames – UK Equity Absolute ReturnTargeted Absolute Return1.210.37.27
F&C – UK PropertyProperty0.570.1615.46
BlackRock – European Absolute AlphaTargeted Absolute Return1.050.086.81

 

 

Photo by David Castillo Dominici.

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41 things to check & ask when viewing a househttp://moneytothemasses.com/owning-a-home/buying-or-selling-a-home/41-things-to-check-ask-when-viewing-a-house http://moneytothemasses.com/owning-a-home/buying-or-selling-a-home/41-things-to-check-ask-when-viewing-a-house#comments Wed, 20 May 2015 04:45:28 +0000 http://moneytothemasses.com/?p=12999 Buying  a house is likely to be the biggest purchase of your life so it is important that you choose your new property carefully. Here are some tips to help you when viewing a house to make sure you are not buying a dud. Do your homework 1. Search on the internet for as much...

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house for saleBuying  a house is likely to be the biggest purchase of your life so it is important that you choose your new property carefully. Here are some tips to help you when viewing a house to make sure you are not buying a dud.

Do your homework

1. Search on the internet for as much information as you can about the property and the local area. Property portals Rightmove and Zoopla have some useful tools showing previous sold prices in an area. Also the website checkmyarea can give some broad information on a specific postcode which can be quite useful.

2. Ask the estate agent why the seller is moving and how quickly properties sell in the area for potential resale later. Again check the property portals to find out when a specific property was last sold and the sale price achieved.

3. If you need schooling for your children check out the local schools and make sure that they are of an acceptable standard. If you don’t have children, but are planning to, don’t just assume you’ll be able to move near better schools when the need arises. It’s better to plan ahead. Also, go to Locrating to get some excellent information about the schools in a selected location.

4. Use a property site, such as Rightmove or Zoopla, to compare the asking price of any property you want to view with other similar properties in the area to make sure you will be getting value for money.

5. Search the Rightmove ‘House Prices’ section to try and find out the price the property has sold for previously, this may help in assessing whether the current asking price is realistic.

Check out the neighbourhood

6. Visit an area a few times on different days and different times of the day to get a real feel for the environment, make sure you include a weekend visit as this will give you a feel of what it’s like when people are home from work.

7. Check the parking situation in the evening when parked cars are at the maximum, also check with the estate agent if there are any parking restrictions or covenants in the area. Some areas will have restrictions on the type of vehicles allowed to be parked, such as vans or lorries.

8. Find out where all the amenities, such as  schools, shops, doctors and hospital, are located to get an understanding of how convenient it will be to live in the area

9. At www.police.uk  you can see detailed maps of all the crimes not only in the local area but around the property you plan to buy. Simply enter the postcode and you can see detailed information about the type of offences and the action taken. Quite incredible really.

View any property with a critical eye

10. Is the plot flat or on a steep slope, a sloping plot may cause problems in the winter or when gaining access for carrying out repairs and improvements.

11. Is the property on a busy road or a ‘rat run’ during the rush hour, this could cause issues when travelling to work or with background traffic noise

12. Does the garden meet your requirements or is it too big or overgrown, a large garden may be an attraction in theory but their will be a cost in both time and money in keeping it looking nice.

13. Is the roof in good order and are there any damp patches visible on the external brickwork, pay close attention to any new extensions for any signs of poor workmanship.

14. Is the property in good decorative order or will you have to spend money redecorating, don’t underestimate the cost of redecorating a home throughout.

15. Are the carpets in good condition or will these need replacing.

16. Have the electrics been upgraded and are there enough sockets for your requirements, switch on the lights in each room to check if they work.

17. Does the central heating work and when was the last time the boiler was serviced, is their an adequate number of radiators and do they need upgrading.

18. Look for any damp or discoloured internal walls which may indicate a problem, look behind the furniture as well as that sofa might be put in that position for a reason.

19. Check under the kitchen sink for signs of any water leaks or damage.

20. Look up at the ceilings for any cracks, flaky plaster or water stains.

21. Turn on your mobile phone and check the signal strength, if the signal is poor then ask the vendor what network they are on and what is their signal strength.

22. Ask for details regarding any broadband connection and speed.

23. Assess the storage space available and will it be enough for your needs and understand if any fitted cupboards are being left as part of the sale.

24. Check out the attic to assess space and whether the insulation, plumbing and water tank are in good condition.

Quiz the seller

25. How long has the seller lived in the property, a short period may indicate issues with the property or neighbourhood.

26. Why are they moving, if the reason appears weak it may indicate issues with the property or area.

27. Ask about the neighbours – are they noisy, do they create parking issues, although they are unlikely to be negative, the tone of their comments may give you some clues to potential problems. Taking a quick look at the the outside of neighbouring properties will give you a feel for how they are looked after.

28. Ask how much their utility and council tax bills are so you can assess your likely outlay in these areas.

29. Ask what home improvements they have made since they bought the property, this will give you an indication of how they have looked after the property.

30. Has the seller already found a property to move to, or are they actively looking, this will indicate their motivation to move.

31. How long has the property been on the market, how many viewings and offers have they had and what are the sellers timescales for moving.

32. If the property is a flat how much are the service charges and ground rent.

33. If the property is leasehold how many years left on the lease.

34. What is included in the sale – curtains, light fittings etc.

35. Check if your furniture fits, take a tape measure with you to make sure your things will fit into the rooms.

36. Picture yourself living in the property and will their be any issues with the layout or location of the property that you may find difficult to live with.

37. Take photographs of the inside of property as you can quickly forget the details if you are viewing several properties.

Quiz the estate agent

38. Check how long the property has been on the market and was it on the market previously with other agents.

39. Has the price been reduced since it was first marketed, search propertysnake.co.uk to see if any reductions are listed.

40. How many viewings and offers have been made and what offers have the been declined.

41. What has been the feedback on the property from other viewings.

Further reading:

14 actions you must take now to secure your dream home

5 reasons your house is not selling and what to do about it

12 ways to increase the value of your home in a weekend

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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 Tue, 19 May 2015 12:01:39 +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. At the bottom of this article I also 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.

At the bottom of this article I also tell you how to quickly calculate the impact of an interest rate rise on your own monthly mortgage payments. Plus I explain why you should consider remortgaging before a new EU rule comes into effect later this year and what you need to do now.

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 partnered up with an award winning mortgage advisory firm to provide fee-free expert mortgage advice for everyone. The service, which I’ve personally vetted, compares thousands of mortgages here* and you also can see the current best-buy mortgage deals as well.

When will interest rates go up?

In summary: in recent months the market consensus of when the Bank of England’s first interest rate rise would occur has dramatically shifted. At the start of 2015 the consensus had been for the first rate rise to occur in the second half of 2015 but weak economic data and falling prices (negative inflation), because of a collapse in the price of oil and a strong pound, has seen this pushed back. Now interest rates are not expected to rise until the second half of 2016 at the earliest. In fact in his recent Inflation Report Mark Carney, the Governor of the Bank of England, suggested that the market was right with its prediction on when interest rates will go up. The market is currently pricing in the first interest rate rise to occur in the latter part of 2016. See bullet points below for more detail. Also enter your email address here to receive interest rate updates to your inbox.

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 was 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 2015 this now seems unlikely because inflation has turned negative (at -0.1%) for the first time on record and is not expected to head back to its 2% target until 2017 due to the plunging oil price.
  • Yet Mark Carney is keeping the market guessing as to what the Bank of England’s next move will be. In February he suggested that the BOE could start printing money again or cutting interest rates further if inflation does not pick up soon! The market wasn’t expecting that at all. Since then inflation has kept falling to the point where it is now negative, which actually means prices are falling. Mark Carney has had to write to the Chancellor, George Osborne, in each of the last five months to explain why inflation is below 2%. It was in the first of these letters that Carney suggested that the boost to the economy that the low oil price will give could mean that he will have to increase interest rates again sooner than the market thinks. It would seem that Mark Carney doesn’t know his own mind at time. However, most of the rhetoric coming from the BOE is now about raising rates rather than cutting them.
  • At the start of 2015 the market had priced in that interest rates would go up in the second half of the year at the very earliest, but now late 2016 is looking much more likely as confirmed in the BOE’s latest Inflation Report
  • Yet another reason why a rate rise might now seems a more distant prospect is that until recently 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 showed that the two dissenters had changed their minds 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.
  • 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 late 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 second half of 2016 with interest rates remaining below 2% in 2017 and 2018. They predict that interest rates will most likely be around 1.5% at the start of 2018.

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 turned negative! – in February the official measure of UK inflation fell to 0%, but has now fallen to -0.1% (the lowest level since 1960) which means that prices generally are falling. That means that the cost of living is less than it was this time last year. Inflation has tumbled in recent months, the biggest reason being the fall in the price of oil. The oil price has almost halved since last summer 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 latest inflation report. In fact, Mark Carney correctly predicted that inflation would fall to below 0%. 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 well into 2016.
  • No official support for a rate rise – between August and December 2014 the Bank of England’s Monetary Policy Committee (MPC), who are the people who decide the UK base rate, were not unanimous in their support for holding interest rates at 0.5%. In fact, 2 out of the 9 committee members consistently voted for a rate rise. However since January’s MPC minutes the voting has once again become 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 had been claiming that only 4% of mortgage borrowers would struggle to cope with a 2% rate rise. Such positive PR was seen as suggesting that the BOE was paving the way for interest rates to start going up sooner rather than later. However, within the latest MPC minutes the committee said “it was more likely than not that the Bank Rate would increase over the next three years” and the two members who had previously voted for a rate rise claimed that their decision was now ‘finely balanced. Which is another way of saying that they are getting closer to voting for an interest rate rise once again. The upshot is that an interest rate rise in 2016 is looking more likely.
  • The UK economy is growing but only slowly – the Office of National Statistics has confirmed that the UK economy grew by just 0.3% in the first quarter of 2015, well below economists’ expectations. In fact, it was the lowest quarterly growth rate since 2012 and well below the 0.6% GDP figure in the last quarter of 2014 when the UK became the fastest growing industrialised economy in the world. Although economic growth is back at its pre-crisis level the slowdown in growth is a concern. Yet a growing economy still increases the prospect of a rate rise and what has surprised a few people is that Mark Carney is worried that the low oil price could in fact see economic growth rates soar and force an early 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 which fed through to the official GDP figures for the first quarter of 2015, as mentioned above. However, if the economic recovery strengthens 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 35,000 to 1.83 million (a seven year low) in the three months to February. The UK unemployment rate now sits at 5.5%, 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. In fact average earnings grew by 2% which is comfortably above the current rate of inflation . 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 tempered – while there is optimism for UK economic growth the previous bullish forecasts have been downgraded slightly. The Bank of England now expects the UK economy to grow by 2.5% in 2015, which is slightly lower than the 2.9% forecast in February. Interest rates are unlikely to raised until economic growth is more stable.

The new EU rule that could soon stop you remortgaging

The ability to remortgage and/or fix your mortgage became a bit more difficult last year as the rules surrounding the affordability tests when applying for a mortgage were tightened slightly. Lenders had to make sure borrowers could still afford to pay the mortgage if interest rates went up. However, if you were simply remortgaging lenders didn’t have to apply the more stringent affordability tests. Some lenders did just that which made remortgaging a bit easier. But new EU rules taking effect later in this year will remove this option for lenders which could end up leaving some borrowers stranded on their existing deals.

If you are planning on fixing your mortgage rate when interest rates start going up the new EU rules may prevent you – leaving you stranded on your existing deal with your mortgage repayments rising in line with the bank base rate or your lender’s whim. 

If you are on your lender’s standard variable rate then I strongly suggest you do the following exercise which will takes you a few seconds but could prevent your mortgage repayments crippling your finances in the near future.

Step 1 – Use this interest rate rise / fall calculator to calculate the impact on your monthly mortgage payments

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 as 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.

So let’s say for example that back in 2007 I borrowed £200,000 for 30 years at a rate of 5%, which has since dropped to 2.5% (the lender’s standard variable rate). In the calculator I would enter the original loan amount (£200,000 on a repayment basis), the original term (30 years) and the current rate of interest (2.5%). The bank of England base rate is currently 0.5%. So let’s say I want to see the impact if the base rate increased by 4.5% (to 5% – which is the historic long term average) I just enter 4.5% into the ‘anticipated rate change’ box and click calculate.

The result shown below the interest rate rise calculator tells you that my current mortgage repayment would increase from £790 a month to £1,331 a month. That’s an extra £541 a month that I’d need to find!

Once you have the result move on to step 2 below.

Step 2 – The best way to find out your mortgage options

Consumers are unaware of the impending EU rules and the fact it will leave some stranded on their current deals. At best their mortgage repayments will increase in line with the Bank of England base rate, at worst at the whim of their lender.

Most consumers will wrongly assume that using a price comparison site is the best thing to do when looking to remortgage. However, bear in mind

  • many mortgage deals are only available via mortgage advisers so don’t appear on price comparison sites
  • not everyone can get the rates quoted on price comparison sites
  • price comparison sites don’t take into account your credit rating or personal circumstances which will determine whether a lender will actually lend to you. For example you may not be eligible for the deals quoted by comparison sites and won’t find out until they credit check you. That in itself will then hinder future mortgage applications

That is why you are almost always better off dealing with an independent mortgage adviser rather than going it alone. Which is why most borrowers now use a mortgage adviser to find the best deal from a lender who will actually lend to them.

We therefore recommend that you book a FREE callback from this award winning mortgage broker* before you do anything else. There is no obligation on your part and I’ve personally vetted them. Simply click on the link, enter your name and number and they will take the hassle out of searching the market and make a recommendation, even if it is to stick with your current deal. Alternatively you can call them for FREE for an informal chat on 0800 073 2325.

If you already have an independent mortgage broker that you trust then I suggest you get in touch with them ASAP. There has never been a better time to remortgage.

Further reading – should you fix your mortgage rate now

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How much do I need to retire comfortably?http://moneytothemasses.com/saving-for-your-future/pensions/how-much-do-i-need-to-retire http://moneytothemasses.com/saving-for-your-future/pensions/how-much-do-i-need-to-retire#comments Mon, 18 May 2015 12:09:18 +0000 http://moneytothemasses.com/?p=17154 Reader question: How much do I need to retire? I have been reading a lot about the new pension rules and being able to cash in my pension pot. However, I do not want to withdraw money from my pension in this way as I am worried that it will run out. Also, I don’t...

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how much do i need to retireReader question: How much do I need to retire?

I have been reading a lot about the new pension rules and being able to cash in my pension pot. However, I do not want to withdraw money from my pension in this way as I am worried that it will run out. Also, I don’t know how much income I need when I retire. What is the average pension income and how much pension do I need? I’m really confused, any help would be appreciated.

My response

There’s been a lot of press coverage over the new pension rules, especially concerning people raiding their pension and spending all their money. But how can you expect people to make sensible decisions when most people don’t know how much income they need to retire?

Interestingly a new piece of research by True Potential has found that:

  • people think they need £23,457 a year for a comfortable retirement income;
  • however the average UK pension pot could only support that income for 5 years;
  • and the reality is that the average pension pot could provide just over £6,000 a year, in today’s money!

So that’s a big problem. How do you work out how much income you need to retire and how big your pension pot needs to be to deliver it? Also, how much should you be putting into your pension? I’ll show you how to work this out, in minutes, below.

How much do you need to retire comfortably?

First of all you shouldn’t worry about what the average pension is or what the average income in retirement stands at. How much you need depends on your personal and financial circumstances.

The quick way to work out what you will get when you retire

Here is a brilliant pension pot calculator* which can be quickly used to work out what your pension pot is worth (if you have one already) and how much income you will get. You can also use it to see what age you can retire at; how much pension you need and how much extra you need to save to get the retirement income you desire. Best of all the tool is absolutely FREE! I have used it to find out how much my pension will be, and below I explain how to use it in the same way that I did.

Step 1 – How much income do I need to retire?

First of all, write down all your monthly outgoings such as bills. Include only those things that will continue once you’ve retired. Will you still be paying a mortgage? Think about how you are planning to pay off your mortgage.

Then simply total all these figures up to get a monthly figure.

Step 2 – How much pension will I get?

Now use this pension pot calculator* and enter the few simple details it ask, such as your age, your gender, your existing pension pot (if you have one) and your current salary. Finally enter when you would like to retire and any monthly pension contributions you are paying. Don’t worry if this is zero. Then click ‘calculate now’

You’ll then be presented with an estimation a the size of your pension pot when you retire, in today’s money. This figure assumes a 5% growth rate (which is the rate the industry regulator, the FCA, use as their mid range assumption) and inflation of 2.5%.

You will then see an estimated amount of tax-free cash (25% of your pension pot) which you can have tax-free and an estimate of the gross income you can take from the rest of the pension. Obviously under the new pension rules that came into effect from April 2015 you can take as much of your pension as you want as a lump sum, but, remember only 25% will be tax-free with the remainder taxed as income.

You are then presented with a summary of how far ahead or behind the sort of income that you will likely need in retirement you are, given your current salary.

Step 3 – Work out your net retirement income

Don’t forget that income from pensions is taxable. So while the calculated figures are in today’s money (i.e. taking into inflation) they are gross of tax. So open this PAYE calculator and enter the gross pension income amount into the calculator (making sure you set the age band to match your desired retirement age) and click ‘calculate’. Again, it is a FREE tool.

You will then see how much your net monthly pension income will be. Is this enough to meet your bills etc calculated in Step 1?

Was it not what you were hoping for?

The chances are that your pension pot is not worth as much as you’d hoped and your retirement income will be lower than you need. So now look at:

How much do you need to save into your pension?

One way to boost your retirement income is to pay more into your pension. To work out how much you would need to pay enter affordable amounts into the ‘personal  contribution’ section of the tool. It will automatically recalculate the amount of pension you might receive in retirement. By playing with this section of the tool you can see how much you need to pay into your pension versus what you can afford.

If you are employed, will your employer pay into your pension as well? Some employers will match the amount employees pay into their own pension. If your employer will match at least part of your contributions it will give your pension pot a massive boost.

Once you’ve tried the above tweaks you need to work out when you can afford to retire.

When can you afford to retire?

If your pension pot is still not big enough to fund the retirement income you want then you may need to consider delaying your retirement.This gives you more time to pay into your pension and hopefully more time for your pension pot to grow. So alter the retirement age in the calculator to find out when you can retire. Working out when you can retire. How much you need to retire at age 65 is a lot less then how much you need to retire at age 60 or age 55. Also don’t just focus on your pension income……

Do you need your pension tax free cash to pay off your mortgage?

Don’t forget to allow for any withdrawal of tax free cash you plan to take. Alter the amount you plan to take to see the impact on your potential income. By not taking 25% of your pension funds as tax-free cash you will increase your retirement income by up to a third. Is there going to be enough in your pension pot to even pay off your mortgage if you still need to?

Get a low cost pension

The costs applied by your pension provider will reduce your pension pot by thousands of pounds over time, which in turn will reduce your retirement income. So the key is to use a low cost pension. You can reduce the projected charges used in the calculator in the advanced settings below the results. So one of the most important things you can do is to ensure your are using a low cost SIPP or pension to save for retirement. The cost of a pension is determined by the size of your pension fund. To help you choose the best pension product I’ve analysed the charges on the leading pension products for you – see my article The best & cheapest SIPPs – low cost DIY pensions.

Hopefully the above will give you an idea and possibly a reality check about your likely pension. Of course the figures are only estimates. I strongly recommend seeking the advice of an independent financial adviser before making any decisions regarding your pension planning. If you don’t have a financial adviser you can trust then you can find one here.

 

(image by Witthaya Phonsawat – freedigitalphotos.net)

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How much income could I get from a £100,000 pension pot?http://moneytothemasses.com/saving-for-your-future/pensions/how-much-income-could-i-get-from-a-100000-pension-pot http://moneytothemasses.com/saving-for-your-future/pensions/how-much-income-could-i-get-from-a-100000-pension-pot#comments Mon, 18 May 2015 11:00:42 +0000 http://moneytothemasses.com/?p=12501 If you either have or are thinking of saving into a pension plan you are probably wondering how much retirement income you can expect from your pension pot. So what’s the answer? Under the new pension rules that came into effect in April 2015 you can take now 25% of your pension as a tax free lump sum and...

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What's your pension pot worth?

What’s your pension pot worth?

If you either have or are thinking of saving into a pension plan you are probably wondering how much retirement income you can expect from your pension pot. So what’s the answer?

Under the new pension rules that came into effect in April 2015 you can take now 25% of your pension as a tax free lump sum and as much of the remaining pot as you like as lump sums, but these are taxed as income. In fact, you can treat your pension a bit like a bank account, withdrawing adhoc amounts but where 25% of it is tax-free while the remainder is taxed at your marginal income tax rate. But one thing I must point out is that when the new pension freedoms came into effect pension schemes were not compelled to provide access to them. I cover this in more detail at the end of this article. If your existing personal pension provider does not allow you to access your pension, as per the new pension rules, you can transfer your pension to a provider who will let you. I look at the best SIPPS and pensions for this later in the article as well.

In any event, cashing in your pension is not tax efficient and you will also then need to generate an income from a now smaller pot of money as a result of the taxation. So let’s assume that you want to use your pension pot to produce an income.

How much will my pension be?

Here is a fantastic pension pot calculator* which allows you to enter a few details and will instantly tell you how much income you can expect from your pension pot but also whether you are on track for the retirement you want. Plus it can tell you what the impact will be of increasing your monthly pension contributions. Best of all its absolutely FREE! I used it to find out how much my pension will be.

Once you have done that, there are a few other things to consider…..

Will you want to take a tax free cash sum from your pension savings?

Ordinarily you are entitled to take a tax free cash lump sum, from your pension before taking an income. You can take up to 25% of the total fund value but obviously this will reduce the income you receive when buying an annuity (which is a guaranteed income stream in exchange for a capital lump sum) or taking an income via what is known as income drawdown. There is no hard and fast rule whether it’s more beneficial to take a cash sum or not, it depends on your individual circumstances. The cash sum is tax free whereas any income payments you receive will be taxed.

With a pension pot of £100,000 a maximum tax free cash lump sum of £25,000 can be taken leaving £75,000 to produce an income.

What type of income do you want from your pension pot?

Details of your pension pot options under the new pension rules are explained here. Ultimately if you want to use your pension pot to generate an income you can use income drawdown (see later), purchase an annuity or a combination of both. If you are unsure what to do then seek the help of a qualified financial adviser. If you don’t already have a financial adviser you can trust then you can find a reputable one here.

One advantage of income drawdown is that it gives you greater flexibility over your retirement income and also allows you to keep your pension pot invested so that it can grow, along with your income (although neither is guaranteed). I cover drawdown in more detail later. While annuities are less attractive than they were post the Budget 2014 some people still prefer the security of a guaranteed income stream.

When purchasing an annuity there are a number of different options regarding conditions attached to the payments. For instance payments could be guaranteed for a number of years, increase over time or be payable to a spouse following your demise.

The following examples give you an idea of how these conditions would affect your payments.

  • A person aged 65 could currently receive an annual annuity income of £3,400 from £100,000 purchase price, which would increase by the Retail Price Index and be guaranteed for 5 years. The annual income from this annuity is £2,400 less than a level annuity.

What age can I retire?

The age at which you want to start receiving an income makes a massive difference to the amount of income you will receive.

  • A male aged 65 could currently receive an annual annuity income of around £5,800 (gross) from a £100,000 purchase price. This income would increase to around £6,800 if aged 70 at time of purchase. These examples are based on a single life, level income with no guarantee.

But for a more personal estimate of potential annuity income this annuity comparison tool is useful.

Do you currently have any health issues?

If you smoke, suffer from ill health or currently take any prescribed medication then you may be able to increase your retirement income by purchasing an enhanced or impaired life annuity. The level of annuity income will depend on your individual circumstances. Interestingly Hargreaves Lansdown has launched an enhanced annuity calculator* which, although not covering every insurer, will give you an indication of the potential uplift in retirement income.

If you want an annuity then decide how you want your income paid?

How you want your income paid can affect, marginally, the income you receive. If you choose to receive your first payment immediately on purchase of your annuity then your income will be slightly lower than if your first payment was 6 or 12 months later.

What annuity provider should I choose?

The amount of your annuity income will differ depending on the annuity provider you choose. Even amongst the top ‘best buy’ providers there can be a difference of hundreds of pounds each year in the amount of income they will provide. So shop around using the aforementioned annuity calculator.

Is there an alternative to buying an annuity on retirement?

Yes, you could leave your pension pot invested and still receive an income using what is known as income drawdown, this would provide an income now and leave the decision on purchasing an annuity until later. This could be a possible approach for someone moving to part-time employment and who just needs a top-up income rather than annuitising their entire pension pot.

There is a drawback, however, as your pension pot remains invested and therefore could go down in value. If your investment underperforms then you would  be left with a much smaller pension pot when/if you eventually want to purchase an annuity or draw further lump sums from your pension pot. For a number of reasons, primarily costs, income drawdown is not considered a viable option for those with pension investments under £100,000 although this is dropping.

So how much income can you draw from income drawdown? Under what is known as capped drawdown there are a number of rules surrounding the level of income that can be drawn which include a maximum amount as well as regular reviews. The calculations of the maximum income are complex but here is a handy drawdown calculator which does the job for you. But to give you a guide a man of 65 can draw a maximum of £8,700 a year initially, subject to ongoing review, from a £100,000 drawdown pension pot (assuming all that £100,000 is being used for income generation).

But there is another option known as flexible drawdown. Under flexible drawdown you can withdraw as little or as much income from your pension fund, as you choose, as and when you need it. When it was first announced flexible drawdown was only available to those with £12,000 secure pension income already. However, since April 2015 this entry level rule has been removed and capped and flexible income drawdown have been superseded by flexible access drawdown to simplify things.

Best Pension & SIPP

Whether you are planning to save for retirement or want to cash in your pension there are a number things to consider before making your product choice. Think of a personal pension like a car. What makes the car go is what’s under the bonnet and the fuel you put in it – not the bodywork. So a pension product pulls together everything into a neat package. The array of pensions may seem pretty mind boggling but the good news is that they are now much cheaper and more flexible than ever. A SIPP (a self invested personal pension) used to be only suitable for those with large pension pots but this is no longer the case as competition has driven down SIPP charges. And it is costs which are one of the most important factors when choosing a SIPP. So I have produced a roundup of The best & cheapest SIPPs – low cost DIY pensions.

Conclusion

Hopefully, the above has given an idea of the level of income a £100,000 pension pot can provide. However, you need to be aware that annuity rates are always changing, therefore the above figures should only be used as a guide. Also, I strongly recommend seeking the advice of an independent financial adviser.

The post How much income could I get from a £100,000 pension pot? appeared first on Money To The Masses.

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Forget posting – get stuff delivered on the cheap with Nimber insteadhttp://moneytothemasses.com/quick-savings/tips/forget-posting-get-stuff-delivered-on-the-cheap-with-nimber-instead http://moneytothemasses.com/quick-savings/tips/forget-posting-get-stuff-delivered-on-the-cheap-with-nimber-instead#comments Fri, 15 May 2015 13:13:27 +0000 http://moneytothemasses.com/?p=19134 Sending stuff has just got more social with Nimber Want to deliver a bed to Bedfordshire or collect some cheese from Cheddar then the latest entrant to the UK sharing economy may be able to help. Nimber a new start-up that has recently launched in the UK allows users to send items of any size with...

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Sending stuff has just got more social with Nimber

Sending stuff has just got more social with NimberWant to deliver a bed to Bedfordshire or collect some cheese from Cheddar then the latest entrant to the UK sharing economy may be able to help. Nimber a new start-up that has recently launched in the UK allows users to send items of any size with people who are already travelling that way.

What is Nimber?

Nimber is a collaborative peer-to-peer service that connects people who want to send something from one place to another with people who are already going travelling that way. Whether the ‘travellers’ are on the road, taking the train or travelling by other means, they can use their mobile phone to pick up and deliver, make some money and maybe save the environment as well. Smart,safe and sustainable.

How does Nimber work?

A location-based algorithm matches delivery jobs with people who are heading that way, while the pricing system offers a fair deal to both parties.

It is the first social delivery service to launch in the UK, and offers both parties an opportunity to either save on delivery costs or cut the cost of their journey. A skateboard would cost £20 to ship from London to Birmingham, for example.

How can I use Nimber?

Just go to the NImber website and register to start using the service. A smartphone app will be launched in early June 2015. The service is free to use right now, but once the network reaches scale, Nimber will take a small slice of each transaction, which is only payable upon delivery.

Nimber originated in Norway and currently boasts 30,000 users and is aiming for 400,000 users in the UK within two years. Users who deliver goods are known as ‘bringers’ and fall into three categories: people heading somewhere on a trip, commuters and a growing number of ”professional bringers’. Some of the professional bringers have earned as much as £50,000 in the two years since Nimber launched in Norway.

 

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Should you buy China funds now?http://moneytothemasses.com/saving-for-your-future/investing/should-you-buy-china-funds-now http://moneytothemasses.com/saving-for-your-future/investing/should-you-buy-china-funds-now#comments Thu, 14 May 2015 14:24:22 +0000 http://moneytothemasses.com/?p=18963 Should you buy into the Chinese equity rally? To give you a sense of the strength of the recent rally in Chinese equities the chart below compares the returns a UK investor would have achieved had they invested in Chinese equities versus those in the US and the UK over the last year.     Now there...

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Should you buy into the Chinese equity rally?

To give you a sense of the strength of the recent rally in Chinese equities the chart below compares the returns a UK investor would have achieved had they invested in Chinese equities versus those in the US and the UK over the last year.

 

best china fund

 

Now there is a reason why I have benchmarked it against the US stock market. Firstly because the US stock market was the best performing market in 2014.

Secondly, in order to illustrate how severe the rally in Chinese equities has been. The size of the rally actually distorts the vertical scale on the chart. So much so that the incredible 15% return from the S&P 500 in the last 6 weeks of 2014 is barely noticeable!

What is driving the rally in Chinese equities?

The chart below shows the performance of the MSCI China Index over the last 3 years. You can clearly see that at the end of 2014 the Chinese stock market rally gathered momentum. So what was the trigger?

 

msci china performance

A shares and H shares explained

To explain what is going on I need to give you a bit of background to set the scene. There are two ways of investing in the shares of Chinese companies, firstly via the Shanghai stock exchange in mainland China (buying what are known as A-shares) and secondly via the Hong Kong Stock Exchange (buying what are known as H-shares).

Historically investors outside of China could only buy H-shares while Chinese investors could only buy the A-shares. So many companies are listed on both exchanges with the A-shares usually trading at a premium to their H-share counterparts.

Shangai-Hong Kong Stock Connect explained

Back in November Chinese authorities launched the Shanghai-Hong Kong Stock Connect, a pilot scheme to allow very limited trading between both exchanges, effectively opening up the Chinese domestic stock market to the world’s investors and vice versa.

Despite the long wait for such a tie-up (it had been set back and cancelled numerous times over the previous 7 years) investor demand didn’t live up to the pre-launch hype. Part of the reason was that only wealthy domestic Chinese retail investors (when I say ‘retail’ that means ordinary investors not companies) could take advantage of it. Yet they had already been trading in overseas shares via other creative methods. So there was little appetite for the new scheme. The long and short of all this is that flows of investment money in and out of China had been effectively frozen but things begun to thaw at the end of 2014.

Then in April 2015 the Chinese regulators extended the tie-up so China’s professional fund managers could now start buying H-shares which also paved the way for international investors and hedge funds to get stuck into A-shares. So in a sense the flood gates were propped slightly ajar.

Chinese investors buy into the rally

But there is another wall of demand that is fuelling the current rally, On the back of a soaring domestic Chinese stock market (A-shares) Chinese investors began rushing to buy into the rally. In the first week of April alone 1.67 million new trading accounts were opened and the trend is continuing.

China equities are actually cheap by historical standards – and buying cheap can lead to profits further down the line.

P/E ratios of 50+!

One measure of a company’s value is the simple P/E ratio (price to earnings). As a very loose rule of thumb anything around 10 is pretty good. So it’s shocking to see that over a third of the stocks on the Shanghai exchange have a P/E ratio of over 50! That means their price is completely disengaged from the actual earnings the company is expected to make over the coming year. Or in other words reality has well and truly left the building! In the tech sector there are valuation levels not seen since the US dotcom bubble. On top of that 1 in 17 shares have at least doubled in value in this year alone according to the FT.

It is these sorts of figures that are driving the frenzy among Chinese retail investors with the initial spark that ignited the rally being the property downturn in China.

Hong Kong stock market feels the heat

Yet the improved tie-up between the Shanghai stock exchange and Hong Kong’s exchange has meant there has been a rotation from the overheated higher valued A-shares into cheaper H-shares, so driving up the Hong-Kong market. Remember, previously Chinese investors could only buy in China (A-shares) so values soared versus H-shares. So why hold A-shares in a company when you can buy the cheaper H-share version? Just look at the chart below to get a sense of how A shares (the red line) have become overheated versus H shares (the blue line) over the last year.

Chinese investors are looking for a home for their huge profits from A-shares and given that the Chinese currency is tightly controlled they can’t send it overseas. So the Hong Kong stock exchange is the natural beneficiary. So from a UK investor’s perspective as the Hong Kong stock exchange has rallied so have the value of Chinese funds that we can invest in.

china a vs hong kong shares

Chinese money printing?

Subscribers to our DIY investment service, 80-20 Investor, will have read in the weekly newsletters that Chinese economic growth is one of the BIG worries for global markets. China’s economy grew at its lowest rate in 6 years, during the first 3 months of this year. While the actual rate is 7% it needs to be taken with a pinch of salt given the secrecy of Chinese economic data and the fact that it is bang on the Government’s stated target. The point is that China’s economy is slowing and ahead lies a difficult transition period.

China needs to do something to prop up its economic growth and that inevitably means some form of monetary policy loosening (i.e. interest rate reductions and the like). Yet investors have learned from the US and Europe that easy money means higher share prices. So the market has rallied even more as a result.

China has already taken steps along this path by cutting interest rates again last week. Previously they also loosened the restrictions on bank lending. But there was a fly in the ointment. China has tightened the rules which allow investors to borrow money and invest it (called ‘margin lending’) and rumours abound over further measures in the pipeline. This prompted the market to sell off and trigger 80-20 Investor stop loss alerts in recent weeks on 2 funds within the 80-20 Best of the Best selection.

So should you buy Chinese equities now?

Unlike most investment experts I actually invest £50,000 of my own money live for 80-20 Investor subscribers to see. In just the first 10 days of running the portfolio I made  back the cost of an 80-20 Investor subscription. At the start of April I sold out of US technology stocks (because I thought they were expensive) and bought Chinese equities. Interestingly the point at which I bought into China was right at the bottom of the latest spike on 7th April 2015 (see chart below showing the fund’s performance over the past 3 months ) and the fund made 14% in a week before selling off slightly. While it only makes up 7% of my portfolio it contributed to the portfolio making 4.8% (net of charges) in just 6 weeks.

best china fund now

Let’s make no bones about it, Chinese equities are in a bubble and remember bubbles pop. Right now the mainland China stock market bubble is inflating another bubble on the Hong Kong stock exchange.

Yet what the current rally does emphasise is the untapped wealth in China. To put the 1.67 million new trading accounts opened by Chinese investors in a single week into context that number only equates to a 1% increase in accounts per week due to sheer size of China.

On top of that, according to Forbes, Chinese households still have between 60-70% of their assets in cash compared to 40% for Korea and Taiwan.

While valuation methods are debatable and mask a multitude of sins the fact remains that Chinese equities on the Hong Kong exchange remain cheap by historical standards.

There is also the conundrum of the Chinese Government’s attempts to cool its stock market. While it clamped down on margin lending, just a week previously it had increased the number of trading accounts retail investor are allowed to 20… up from the previous limit of 1?! That doesn’t sound like a Government trying too hard to burst an equity bubble. Plus regulators limit short selling of Chinese shares, i.e. making bets that the market will crash.

What is likely to dictate the top performing fund managers in 2015 is how they play China. Sit on the sidelines and you could be left behind, over commit and you risk getting caught when the bubble bursts.

There remain huge risks with investing in China and we will never get the exit right. So how am I going to play it with my £50,000 portfolio? 

So to sum up…

  • Chinese equities are looking like a bubble
  • It will burst
  • We just don’t know when

That is why I’m entrusting my allocation to the 80-20 Investor algorithm which has been backing China since the end of 2014, well before the current rally. When it comes to market timing you need a process as you won’t get it right. The 80-20 stop losses can help avert disaster.

The journey will be bumpy yet Morgan Stanley believe the Hong Kong’s Hang Seng Index could hit 30,000 by the end of the year. Which means there’s another 8% upside in their view.

But to put that into context they said the same thing at the start of 2008 (look at the peak in the chart above) predicting a 22% rise. In fact by the end of that year it had fallen 48.27%!

Therein lies the danger of Chinese equities.

Which funds to buy?

If you decide to invest in China then you should do so with your eyes wide open, knowing that you could be sitting on a heavy loss as easily as a big profit. The 80-20 Investor algorithm can help identify the best funds while the 80-20 Investor stop loss alerts can warn of a reversal in fortunes. Sign up to 80-20 investor to find out more.

Find out how to be a successful DIY investor

If would like to learn how to choose which funds to buy and when, even if you are a complete novice, then read my FREE short series of emails which teaches you how. It takes just a couple of minutes a day and is the result of thousands of hours of research and a career in analysing investment funds. You will learn the simple techniques and tools that the very best fund managers use which you can too.

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The best & cheapest SIPPs – low cost DIY pensionshttp://moneytothemasses.com/saving-for-your-future/pensions/the-best-cheapest-sipps-low-cost-diy-pensions http://moneytothemasses.com/saving-for-your-future/pensions/the-best-cheapest-sipps-low-cost-diy-pensions#comments Tue, 12 May 2015 16:10:54 +0000 http://moneytothemasses.com/?p=19055 The best SIPP & cheapest SIPP In this independent SIPP comparison we compare SIPP charges from all the leading SIPP providers to help find the cheapest SIPP for you. A SIPP is short for a Self Invested Personal Pension. Finding a cheap low cost SIPP is only part of the story. In order to find the Best SIPP for...

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cheapest low cost Sipp & best sippThe best SIPP & cheapest SIPP

In this independent SIPP comparison we compare SIPP charges from all the leading SIPP providers to help find the cheapest SIPP for you. A SIPP is short for a Self Invested Personal Pension. Finding a cheap low cost SIPP is only part of the story. In order to find the Best SIPP for your personal circumstances you must consider more than just cost.

I suggest that you start by downloading the following FREE SIPP guide* which tells you:

  • How to start building a DIY pension pot in minutes by using a SIPP
  • How to benefit from the new pension rules with a SIPP account
  • How to improve your existing pensions and transfer them into a SIPP account
  • How the pension tax rules work including tax relief on SIPP contributions
  • The tax advantages of a SIPP and how they can boost your pension pot

What is a SIPP?

A SIPP is a DIY pension where investors can choose their own investments. The full title is Self Invested Personal Pension. Traditional personal pensions limit your investment choices to a small number of funds typically run by the pension provider’s fund managers. With a SIPP you can invest anywhere you want making your own choice of pension funds and managing them over time. That way you can ensure you are in the best pension funds and maximise your pension fund at retirement.

How do SIPPs work?

A SIPP works in a similar way as investing in a Stocks and Shares ISA via a fund platform, the only difference is that you get income tax relief on your SIPP contributions when investing in a SIPP. Using a SIPP to build a private pension fund gives the investor complete control over their investments to hopefully obtain a greater return than using the limited investment choices of a simple personal pension product, such as a stakeholder pension. The growth of fund supermarkets in recent years has meant the cost of investing in a SIPP has fallen dramatically, often comparable with that of a Stocks and Shares ISA. If you are considering investing in a Stocks and Shares ISA read our guide – The best stocks and shares investment ISA (& the cheapest fund platform).

Should I consider investing in a SIPP pension?

If you are currently in a company pension scheme, particularly one where your employer makes contributions then you will probably be better off remaining in that scheme. If, however, you are investing directly into a personal pension via a pension provider then you may want to consider moving to a Self Invested Personal Pension (SIPP) especially if you are comfortable with choosing your own SIPP funds and regularly monitoring them.

If you wish to learn how to choose which funds to buy and when, even if you are a complete novice, then read my FREE short series of emails which teaches you how. It takes just 2 minutes a day and is the result of thousands of hours of research and a career as an investment analyst. You will learn the simple tools and techniques that the very best fund managers use which you can too when DIY investing.

What should I look for when choosing a SIPP provider?

If you are simply looking for a cheap SIPP then there are a number of pension charges to consider when choosing your SIPP provider. These costs vary depending on what you invest in and how big your pension pot is. Yet the fees charged are only part of the story. Some providers will only allow you to invest in funds, others also offer access to shares and investment trusts. Some providers offer a basic service while others provide a more comprehensive service including a selection of useful tools and guides to help with your investment research.

The main SIPP charges and costs are:

  • Admin fee – this is typically an annual charge. There might also be further charges applied for transferring money in or out of your SIPP (known as SIPP transfer charges)
  • Dealing charges – this is a fee charged when dealing in funds or shares and they vary between SIPP providers. You need to make sure the provider you choose has a charging structure that meets your requirements
  • Fund manager charges and other fees – fund managers also charge an annual fee. Some SIPP providers negotiate cheaper fund deals and pass this reduction on to their investors. Also check out the fund platform’s full fee list for any extra fees charged before you make your final choice

Below, we include a full SIPP comparison of the costs of each SIPP provider so that you can find the cheapest SIPP for the size of your pension pot.

However, as previously mentioned, you shouldn’t just focus on cost but instead consider value for money as well as the level of service provided. If good customer service (including helplines) as well as research and tools are important to you then you need to look beyond cost. A lot of DIY investors require the ability to buy and sell investments quickly and easily online or via an app – so make sure your SIPP provider will let you. Also not all SIPP providers allow you to invest in shares and investment trusts, something the more experienced DIY investor might want to do. So if this is important to you then check your permitted investment choices.

Which is the best SIPP?

The Best SIPP for tools & functionality – Hargreaves Lansdown Vantage SIPP*

Hargreaves Lansdown Vantage SIPP* – click for more details

  • reasonably priced and offers excellent investment choice and customer service
  • the most popular SIPP in the UK and winner of numerous Best SIPP awards
  • excellent website and app enabling you to buy and sell investments quickly and easily
  • allows you to invest in shares, unit trusts and investment trusts
  • annual admin charge for funds – 0.45%  up to £250,000, 0.25% for £250,000 to £1m, then 0.10% above £1m
  • separate 0.45% charge for holding shares, applied to the whole account, but capped at £200
  • transfer out fee £25 per holding

Which is the cheapest SIPP?

The cheapest SIPP for most people – Fidelity SIPP

Fidelity SIPP – click for more details

  • a low cost SIPP
  • no set up or annual fees
  • just the annual fund admin fee is applied at 0.35% up to £250K, then 0.2% on larger portfolios but capped at £2000
  • there is a trading fee of £9
  • Online service not as slick as the likes of Hargreaves Vantage SIPP.

Alternatives…

A J Bell Youinvest

  •  annual admin charge – up to £10,000  £5 per quarter, increased to £15 for between £10,000 and £20,000 and £25 for above £20,000
  •  one annual charge for funds and shares at 0.20% but you will pay varying amounts depending on whether you want to trade funds or shares
  • fund dealing is a flat fee of £4.95, share dealing is £9.95 a month for zero to nine deals, and £4.95 a month for 10 or more
  • transfer out fee £75 plus £25 per holding

Alliance Trust and Savings

  • annual admin charge of £155 plus vat
  • buying or selling shares £12.50 per deal
  • transfer out fee £150 plus vat

Bestinvest

  • annual charge for funds and shares of 0.30% up to £250,000 and 0.20% from £250,001 to £1m, no charge over £1m
  • fund dealing is free while share deals will cost you £7.50 per deal
  • transfer out fee £25 per holding

Charles Stanley

  • annual admin fee of £100 + vat
  • annual charge for funds and shares at 0.25% on the first £500,000, 0.15% on balances in excess of £500,000.
  • fund dealing is free, share trades £10 per trade
  • transfer out fee £125 + vat plus £10 per holding

Interactive Investor

  • annual admin fee of £80 + vat
  • annual charge for funds £80 per year to use on trades
  • fund dealing and share dealing charge of £10 per trade, £1.50 with regular investments with ‘Portfolio Builder’
  • transfer out fee free in 1st year then £100 after

Selftrade

  • annual admin fee £99 + vat
  • fund dealing free, share dealing £12.50 or £6 if more than 100 deals per quarter
  • transfer out fee £15 per holding

The Share Centre

  • annual admin fee £14.40 a month.
  • standard dealing fee of 1% with a minimum of £7.50, more frequent traders £7.50 a trade plus a £24.00 quarterly fee
  • Transferring in is free unless you are in drawdown which will cost £90.

The cheapest SIPP provider comparison table

If you are only focused on getting the cheapest SIPP then below is a comparison of SIPP charges for all the major SIPP providers. Simply look at the column that most closely matches the size of your pension pot for an estimate of the annual cost if your SIPP were held with each fund platform.

Portfolio sizeFund Switching Costs£5,000£15,000£25,000£50,000£100,000£250,000£500,000£1,000,000
Aegon Retiready£0.00£25£75£125£250£450£900£1,650£3,150
AJ Bell Youinvest£49.50£80£140£200£250£350£350£350£350
Alliance Trust Savings£125.00£311£311£311£311£311£311£311£311
Barclays Stockbrokers£0.00£35£53£88£175£350£875£1,750£1,750
Bestinvest£0.00£15£45£75£150£300£750£1,250£2,250
Charles Stanley Direct£0.00£133£158£183£245£370£745£1,370£2,120
Chelsea Financial Services£0.00£30£90£150£300£600£1,500£2,875£5,375
Close Brothers A.M. Self Directed Service£0.00£18£53£88£175£350£875£1,750£3,500
Close Brothers A.M. Self Directed Service1£0.00£14£43£71£142£283£708£1,417£2,833
Clubfinance£0.00£120£120£120£120£240£600£1,200£2,400
Fidelity Personal Investing£0.00£18£53£88£175£350£500£1,000£2,000
Halifax Share Dealing£125.00£215£215£215£215£305£305£305£305
Hargreaves Lansdown£0.00£23£68£113£225£450£1,125£1,750£3,000
Interactive Investor£20.00£196£196£196£196£196£196£196£196
iWeb£50.00£140£140£140£140£230£230£230£230
iWeb year 12£50.00£340£340£340£340£430£430£430£430
James Hay Modular iPlan£0.00£204£222£240£285£375£450£900£1,650
Nutmeg£0.00£50£150£225£375£600£1,250£1,500£3,000
Strawberry£0.00£160£183£218£305£430£805£1,430£2,680
Telegraph Investor£0.00£116£141£171£246£396£396£396£396
TD Direct£0.00£111£141£200£390£540£990£1,490£1,740
The Share Centre£12.50 to £753£185£210£235£344£344£344£344£344
Trustnet Direct£100.00£216£234£259£321£396£396£396£396
Willis Owen£0.00£152£192£232£332£482£1,007£1,382£2,132

The data was compiled by langcatfinancial

1. Special offer of platform charge of 0.25% for rest of 2015, reverting to 0.35%. 2. Account opening fee of £200 applies here 3. Assume frequent trader option for £50k and above. Assume standard option and 25% portfolio turnover for below.

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