Cry me a river?

So is your portfolio just made up with shares? Do you think that you have diversified because you've bought lots of different shares? Well if that's the case then I'm pretty sure you will be crying a river recently because the markets have had a big correction, and please don't tell me you bought Tesco because they were cheap!

Having money in one asset class does not give you diversification or the promise of greater returns. A little tip for you budding amatuer investors, diversification means different assets.

So if you had some Commercial property exposure and some Corporate Bond (Fixed Interest) you will have had positive returns on those assets that would have reduced your losses on your portfolio this year. The term used is negative correlation, and this is where the investments are affected by different things during the economic cycle. Equities (Shares in companies) will usually perform long term, now notice that I've said usually because between 2000 and 2010 the FTSE 100 produced an average annual return of roughly 2% and this is after dividends, over the same time period UK Government bonds produced 6% annually. Which one offered the greater risk? The FTSE 100 of course by a very long way, so just going for high risk is not a strategy and having no diversification over this time would have produced very poor returns for the level of risk you were exposed to.

A little warning here, past performance does not indicate future returns, so don't think this will happen in the same way for the next ten years.

How many of us want to lose 10 years worth of investing because we went high risk with no real reason why we wanted high risk in the first place. Job number one when you invest is to ask yourself what sort of return you need rather than want. This will not be a known quantity with most investors because their education is based on the highest returns without understanding what the loss of not only money but time will do to their long term goals.

So if you're feeling a bit upset about the past month or feeling that you've made a mistake with this investing thing don't be too hard on yourself. I always ask a plumber to do my plumbing, and electrician to do my electrics and a motor mechanic to fix and service my car, why? I can go on the internet and find out how to do their jobs, YouTube will have videos showing me how to rewire my house so why don't I just do that and save some money? It's because I will never replace their experience or knowledge and end up costing myself more money in the long run with my shoddy workmanship, so I always use professionals.

Do you?

This was a surprise number!

I often talk to people about 'what their number is', this is the amount of money you will need to live on in retirement. People often have asked me how I work it out for them and what's the point of it in the first place so I thought I would blog a little about one client's experience.

This client wanted to know when they could retire as they had hit the 50 plus mark and they were thinking of what standard of living they would have and just as important when they could call it a day!

I use Voyant, this is specialist Cash Flow Modelling software from the US which includes all tax and retirement data from the UK to show how much you have now and what you spend it all on and then it projects this figure into the future to show when you can afford to retire without hitting skid row.

Using this software I showed the client that they could go as early as 57 without losing any standard of living as they had been good savers and they were not a massive spender. We then changed this to age 62 because they enjoyed work enough and just wanted to work less hours.

In a nutshell this client found that the only growth they needed was around 1.92% a year from their existing investments so I simplified them all and put them into risk based investments that don't change the level of risk they take; many funds change risk over time, especially as managers try to cover under performance by additional risk taking. I effectively sacked myself and all future advisors as this client would not need further advice until closer to his retirement, and of course with all the changed options I'm sure I will get the call to go through that minefield with them.

So you can all wonder what you will be able to live on when you retire or you can find out. But remember, for every five years you hold off planning and saving you will need to double the amount you invest. This gets very scary when you hit 50 because you have so little time left for the money to work.

What's your number?

USA takes a dive

Weather disruptions at home and weak demand abroad caused a contraction of rare severity in the U.S. economy in the first quarter, renewing doubts about the strength of the nation's five-year-old recovery.

Gross domestic product, the broadest measure of goods and services produced across the economy, fell at a seasonally adjusted annual rate of 2.9% in the first quarter, the Commerce Department said in its third reading of the data Wednesday.

That was a sharp downward revision from the previous estimate that output fell at an annual rate of 1%. It also represented the fastest rate of decline since the recession, and was the largest drop recorded since the end of World War II that wasn't part of a recession.

To be sure, many signs since March, including reports of growth in consumer spending, business investment and hiring, indicate the first quarter doesn't mark the start of a new recession. And revisions in future years could alter the first-quarter figure.

J.P. Morgan Chase economist Michael Feroli described the decline as "mostly a confluence of several negative, but mostly one-off, factors."

But the severity of the drop, he said, "calls into question how much vigor there is in the pace of activity" going forward.

• Why the GDP Report Stinks, And Why Nobody Cares
• Economists React to -2.9% Q1 GDP Revision: 'Different Shades of Nasty'
• U.S. Durable Goods Orders Drop 1.0% in May
• Five Things to Know About the Latest GDP Report
•  Sign Up: Receive the Capital Journal Daybreak newsletter in your inbox

One factor in the government's revision of first-quarter output was difficulty in estimating the impact of the Affordable Care Act on health-care expenditures. Actual health spending came in substantially lower than expected based on ACA enrollments and Medicaid data, declining at a 1.4% annualized pace in the period compared with an earlier estimate of a 9.1% increase.

Beyond that, consumer spending on goods, business outlays on equipment and housing investment were all soft, a weakness that economists have attributed, at least in part, to unusually harsh winter weather.

Overall consumer spending on goods and services, which accounts for more than two thirds of economic output, increased at an annual rate of 1%, off from the earlier estimate of 3.1% growth.

The Commerce report showed businesses sharply drawing down inventories in the first quarter after building them up to levels deemed unsustainable by economists late last year. The move subtracted 1.7 percentage points from growth.

Exports in the period fell by nearly 10%, a new sign of a challenging global economic environment. The European recovery remains anemic, while growth in fast-expanding emerging markets such as China and Brazil has downshifted.

The severity of the first-quarter downturn is at odds with other data showing greater strength in the economy, especially a recent pickup in job creation. Since World War II, there have been 15 other quarters during which GDP contracted by this amount or more. In 14 of those 15 quarters, hiring contracted along with output.

Meanwhile, early data from the second quarter indicate the economy has improved this spring, as warmer weather has helped release pent-up demand. Sales of new homes surged to a six-year high last month, while existing-home sales rose to their highest level since October, data released earlier this week showed.

"Things are looking very strong here in Naples," said Anthony Solomon, owner of The Ronto Group, a land developer in Naples, Fla. "In all our communities, we're seeing great appetite from home builders and from end buyers."

Still, the depth of the first-quarter decline in output means growth during the first half of the year likely will fall below the economy's average rate of just over 2% since it emerged from recession in June 2009. That is below the longer-term growth rate, during recent decades, of slightly more than 3%.

"It does not sound like the economy has reached escape velocity no matter how you try to spin it," said Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi.

For economic output to ratchet up to a healthier long-term trend, economists say consumer spending must rise to its prerecession pace of about 3% growth. But five years into the recovery, high unemployment and stagnant incomes continue to restrain the American consumer.

"We just don't see consumer spending coming back to the levels that they were before," Virginia McDowell, chief executive of Isle of Capri Casinos, Inc., recently told investors at a presentation of the company's fourth-quarter earnings. "We continue to get pressured on the top line because our consumer spending habits have changed," Ms. McDowell said.

The great bank robbery part two

Previously I talked about my time with Bradford & Bingley and the gunman who held up the bank. I left it with the robber getting away with the loot and the bank manageress running to the door to lock it!

I heard the helicopter the moment I started ringing 999 for the police, they were already out to get him. I gave the description of what went on and the general direction he travelled in. I then was told that the helicopter could see a plume of purple smoke from where the double bagged dye bombs had gone off in his bag and that armed units were on the ground going for it!
It just goes to show, you should watch Quentin Tarantino's pulp fiction if you're going to be a robber. They decided to knock off a coffee shop rather than a bank because they are linked to the police and have security. This guy has already knocked off the post office the same week and the police were waiting for him to do it again, nice to be warned.

We were all offered counselling which we duly took up. One of our number broke down in tears as she recounted the horror of not being at the bank when the robbery took place; we all looked to the ceiling as she cried her heart out. To be fair, those of us who were present were suffering from post traumatic shock but none of us believed it.

The robber was caught covered in purple dye; he threw the bag and gun away. The police surrounded him a couple of hundred yards away from the bank. He admitted the crime and got 7 years, which probably meant 2 years and a free lollipop.

Ross broke down in tears when he went to ID the guy, I wondered why the delayed reaction. I wish it had been me who had a cry because for two months after the event I couldn't get to sleep. My subconscious was working away at the reasons why I didn't take the guy on. The reasons were that I would have been shot, but you try telling your subconscious that!

The Budget in brief

Just to make things simple for you all.

The budget kicked off with news that The Office of Budget Responsibility (OBR) has upgraded its forecast of UK gross domestic product (GDP) growth in 2014 to 2.7%.

This is faster than the OBR's previous for previous forecast of 2.4% economic growth in 2014. Osborne said that this was the biggest upward revision to growth for at least 30 years.

George Osborne then announced he will cut the income required for flexible drawdown from £20,000 to £12,000.

He also announced changes to the trivial commutation rules meaning that small pots (Pension) up to a total of £30,000 can be cashed in.

By abolishing a 55% tax charge on full pension fund withdrawals, together with the reforms to drawdown, the chancellor announced that he had effectively abolished the requirement to buy an annuity.

The government said it would abolish a current 55% tax on withdrawals from pension funds. From April next year, people will be able to access pension savings as they wish at the point of retirement, subject to their marginal rate of income tax, rather than the current 55% charge for full withdrawal.

This news left a rather large hole in the pockets of some insurers.

Shares of specialist annuity providers Partnership and Just Retirement took a beating directly after the announcement of the pensions overhaul, plummeting 56% and 42% respectively.

Other insurers left to examine their wounds were Legal and General and Friends Life.

The new ISA, unveiled today, will merge stocks and shares ISAs with their cash equivalents to create a new, super ISA.

It will have a limit of £15,000.

Every person at retirement will now have access to free, impartial advice under new rules.

The chancellor guarantees face to face advice for anyone in a defined contribution (DC) and private sector defined benefit (DB) scheme, in an initiative that will be developed using £20 million of government money over the next two years.

The government has increased the personal allowance to £10,500.

The amount an individual can have without it being taxed will be increased to £10,500 next year,according to new rules.

Among moves to aid savings, Osborne also introduced a pensioner bond to help retired people suffering from low interest rates.

The new pensioner bond, launched by National Savings and Investment (NS&I), will be available from 1 January 2015 and be available to everyone over 65.

The exact rates will be set in the autumn to 'ensure the best possible offer,' Osborne said. It would be something like 2.8% for a one-year bond and 4% on a three-year, he said.

The government will be raising the higher rate trigger for 2015/16 by 1% to £42,285 next year.

The move follows calls for Osborne to increase the higher rate trigger from £41,865 so fewer people with modest incomes fall into the bracket.

The government is set to stop public sector pension scheme members transferring into defined contribution (DC) pensions, and is considering a ban on private sector defined benefit (DB) members too.

Transfers will only be allowed in 'exceptional circumstances,' it said. 

The taxman has been granted more powers to help it fight the battle against pension liberation fraud.

Under the new rules, HMRC will be able to refuse to register a scheme, or de-register an existing scheme as well as enter business premises to inspect documents, if it so wishes. 

The government announced it was getting even tougher on tax avoidance schemes, and aimed to bring in £4 billion in tax receipts from individuals who have used them.

Individuals will have to come forward and pay taxes upfront and claim relief later, Osborne announced.

The government is to also investigate abuses of tax-efficient venture capital trusts (VCTs) and Enterprise Investment Schemes (EISs),

And in other news, Brits will have a new pound in 2017.

The coin, also unveiled today, has 12 sides and has been developed specifically to guard against fraud.

The great bank robbery

I said in a previous blog that I would tell you about the day I was held up in a bank, so here it goes.

It must be ten years ago now when I was working as a not so young mortgage broker at the now defunct Bradford & Bingley bank. I say not so young but I did have more hair covering my birds nest at that time, and before you say it, no it was not a comb over! It was doing the best it could do at the time; poor hairdresser.

I was usually stuck in my office at the back when I was feeling the walls closing in on me so I decided to go into the banking hall. The world decided that it was time that I was robbed at gun point just to remind me that I was working in a bank and not in a shoe shop; to be fair it's normally knives in that part of Hull or baseball bats so it's nice to have a change. I was sat chatting to my friend Ross who at that time was doing his apprenticeship before his real job as a Santander bank manager in later life, when a gun appeared over the counter pointing at Ross. As always he was in full flow telling me about this and that oblivious to his manager prodding his shoulder and my mouth slowing becoming slack while at the same time trying to mouth the word gun!

Very slowly it dawned on him that something was happening in front of him and he looked up to see the muzzle of the gun. This sight made him jerk back in shock and when the holdall came flying over the counter with the usual warning of fill it or I'll kill you all he proceeded to fill it up with everything in the till.

Fair doos to Ross, he may have been in shock and a bit terrified to the point of a bowel movement but he managed to double bag the guy. Now this has nothing to do with melvins or grundy pulls (depends which part of the country you're from or what you call underpants) but the tills were filled with exploding powder bombs cunningly disguised as bags of money. If you put them to your ear you could hear them tick! That's not a joke they actually ticked!

This mad man swung his bag back over the counter and pointed his gun at everyone saying if we followed him he would shoot us all. The branch manager ran as fast as her sensible heels would carry her towards the door with her keys making an odd clip clop as she picked up pace and with one quick twist she locked the door!

Now at this point I really should finish the story, what happened when he left the branch holding the bomb, did he get caught, did he do it again, etc etc. I will complete it but another day as it's very late and I need some kip, so watch the blog and I will tell the end of the tale blood, tears and all in part two of the great bank robbery.

Is this the Hitler for the 21st Century?

I've had a very busy day today reducing the Equity content for all of my clients with the on-going threat of a full scale Russian invasion of Ukraine. It's a hell of a lot of work and that's just the selling let alone the number of switching letters that I'm going to have to write over this week for every client. 

A lot of advisers will be telling their clients to hold on to their shares and sit it through, however this is such an obvious risk that they should be looking to reduce clients risk all round. So if your Financial Adviser hasn't sent you a message you might need to give me a call instead!

I've been watching the events unfold over the weekend and to me it's clear that Putin needs room to breath! He feels the need to expand in to all countries that might have had something to do with Russia at some time. The next thing you will see is the UN handing him Poland to keep him quite, it would be peace in our time you will hear.

He was after all elected via his thugs in controlled elections and his Hitler youth, I mean Putin youth bullied all that opposed him. If you might pose a threat you ended up in prison until you agreed with him, lucky really it could have been a radio active substance in your tea. 

Bullies understand one thing and one thing alone, the guy who's bigger and tougher than him. That should be the USA but since they have had so many wars recently they are a little fatigued. Lessons of history are screaming at us all and if the world doesn't show Putin that they will fight him and he will lose badly then what's stopping him marching across Europe?

Some people will say that I'm taking it out of context and that we can talk to the prime minister, oh I mean President, oh I mean Dictator. This is a man out of control and it's partly our fault. When you allow a man to murder someone on your soil in cold blood and you don't realise that he's now quite mad then you shouldn't be surprised when he rolls tanks down your street. This is Ego gone mad and only US forces on the ground will stop him, he may be mad but he's not stupid the Americans would teach him all about Modern Warfare in the first real shooting war; the Russians wouldn't last very long.

Sometimes you need to take it to the brink and bring the fleet along for a chat before the bully gets the message, otherwise we will have a slow trot to a real world war where no-one wins. 

Feel free to comment, it may be your last chance at free speech before your tea is poisoned!