MFP Wealth Management

Sharing the Wealth: The Case for Equities

JK — Tue, 15 May 2012 10:04:31 +0000

Quiz Question: What do these companies have in common – Whitbread of the United Kingdom, Molson Coors of North America, Qantas of Australia, Honda of Japan and Adidas of Germany?

Yes, they all deliver consumer products and services. Whitbread is in hospitality, Molson-Coors is in brewing, Qantas is in airline transportation, Honda is in automotive products and Adidas is in sportswear.

But that’s not all these companies have in common. Have you guessed yet?

Yes, they are all well established and have internationally recognised brand names.

Whitbread has been around since 1750, when Samuel Whitbread started the first mass production brewery in the UK. The company now employs more than 40,000 people worldwide and serves more than 19,000 customers per month.
Brewing conglomerate Molson Coors has a history going back to 1774 in England, 1786 in Canada and 1873 in the USA. It now employs 15,000 people, services 30 countries and boasts more than 65 individual brands.
International airline Qantas was founded in outback Australia in 1920 as ‘Queensland and Northern Territorial Aerial Services’, operating fragile biplanes. It now employs 35,000 and is one of the most recognised airlines in the world.
Honda’s roots go back to 1937 when a young mechanic named Soichiro Honda started a business making piston rings. Honda is now the seventh largest automaker in the world with 180,000 employees and nearly 500 subsidiaries.
Adidas, renowned for sports apparel, has a history dating back to the mid-1930s when it was a single, small factory run by a humble shoemaker Adi Dassler. The company now employs 47,000 people and sells its products around the world.

Have you guessed yet? Yes, these are all consumer products companies. They all have long histories and humble beginnings. They all operate internationally. They all employ thousands of staff. And their products are globally recognised.

But that’s still not all. Give up yet?

The answer is that these companies all operate in the capital markets. They have grown from humble beginnings, partly because they have issued equity and tapped the savings and pension funds of millions of investors, who in turn have shared in their successes.

It is worth keeping this in mind when you hear grim stories about the future of equity investment and the global economy.

It is true that we have been through and continue to feel the effects of a global financial crisis. This crisis caused strains in the banking system of many developed economies and continues to cause knock-on effects today, particularly in Europe.

But think about this. For all its troubles, the world economy is still growing. The International Monetary Fund estimates global economic growth this year of about 3.5 per cent, accelerating to 4 per cent in 2013. For emerging and developing economies, the growth assumptions are about twice that.¹

Economic growth means an increase in the world’s output of goods and services. This increased productive effort is derived from a number of inputs – namely labour, materials, energy, intellectual capital and financial capital.

So at Honda, for instance, researchers might be working on new technology for a zero-carbon emission electric vehicle. To do this, it will hire skilled labour, bring together the raw materials, apply its intellectual capital and raise funds by issuing shares.

As an investor, your role is to supply the final element – the financial capital. In doing so, you take a risk. But you also get to share in the profits of this endeavour.

So, unless you think the people of the world are going to stop buying cars, stop taking holidays, stop eating at restaurants and stop playing sport, it seems foolish to assume that companies’ demand for capital will not continue.

Now that capital is not free. It costs companies to tap the savings of others. And that cost is your expected return as an investor. That return is not there every day, every week, every month or even every year. But over time, there is a return on capital for those who are patient and who diversify away risks they don’t need to take.

If there was no return, there would be no capitalism. This is not a perfect system by any means. There are questions by some about its efficiency and by others about its equity. But it’s the system we have and that most of us work under.

So to no longer participate in the equity market is to deny yourself a share of the wealth that these companies create – companies that provide livelihoods to millions and products to millions more.

Sharing the wealth means owning shares. Quiz over.

1. ‘World Economic Outlook’, International Monetary Fund, April 2012

Justin needs Casualty Care

JK — Tue, 24 Apr 2012 09:25:12 +0000

As a volunteer crew member of Mudeford RNLI Lifeboat I dedicate quite some time to making sure I’m fully prepared to help rescue people who’ve got themselves in to trouble on the water. So this month I spent 3 days on a ‘Casualty Care’ course at the RNLI’s amazing training facility in Poole.

This wasn’t your usual first aid course; the role plays were quite dramatic with fake blood, multiple victims – including fatalities we learnt to ignore, and the pressure of an examiner watching over us at all times! It was led by the clinical director for the RNLI and two ex-paramedics. The people on the course were diverse in background from stations throughout the UK, as well as trainers from RNLI HQ. One very inspirational chat had just completed rowing across the Atlantic!

We were met by some exceptionally gory videos and photographs of real life injuries suffered at sea and on land, and had group discussions of how we would deal with the injuries facing us. Continual assessment was the name of the game for the 3 days, with multiple choice papers and practical assessment. I somehow managed to resist the temptation of the freshly baked cakes and cookies offered at regular coffee breaks.

So I’ve returned home to Mudeford much more competent and confident in my first aid skills, as long as I am only met with fake blood and pretend severed limbs; I am thinking of volunteering for the local am dram society!

Kathy joins MFP, keeping it in the family

JK — Wed, 04 Apr 2012 11:37:27 +0000

After quite some time helping me out behind the scenes, my partner Kathy has officially joined MFP as Marketing Director.

Kathy is a marketer by trade with 15 years experience working in large organisations such as GlaxoSmithKline (GSK) and First Drinks Brands. Whilst at GSK she was responsible for multi-million pound budgets and iconic British brands like Beechams. She then switched from drugs to drink at First Drinks where Glenfiddich Malt Whisky and Remy Martin were the brands of choice. Prior to going on maternity leave last Summer Kathy was Marketing Manager at Organix baby food in Bournemouth.

A couple of years ago Kathy and I underwent our own ‘Financial Life Plan’ with a good friend of mine which was a real awakening for both of us. This was the trigger for her to stop running on the corporate treadmill and try to achieve a better work and family life balance. Since having our second daughter, Amy, in July of last year Kathy has gradually become more involved in the business until this month, when she is officially on the payroll!

No longer working for someone else, we’re now working together to build our business and Kathy gets to spend a lot more time with Olivia and Amy. So you’ll be hearing lots more from Kathy in coming months.

If you want to drop her an email, you can contact Kathy on Kathy@mfpwealthmanagement.co.uk.

2012 Budget – What it means for you

JK — Thu, 22 Mar 2012 14:59:34 +0000

No doubt you’ve seen the headlines, and maybe read various budget reports, so below are the key snippets we feel are most relevant to our clients. Please give us a call to chat about any questions you may have.

Tax Implications

What	The Government will increase the personal allowance by £1,100, taking it to £9,205 in 2013. An increase to £8,105 had already been announced for April 2012.
When	6th April 2013
What this means	This is a significant increase in the basic rate tax allowance. The full allowance is only available to those earning under £100,000 – as is the case currently. Where an individual’s income exceeds £100,000, the level of the basic personal allowance will be reduced by £1 for each £2 over £100,000 until it reaches zero. This means that the basic personal allowance will reduce to zero where adjusted net income is £116,210 or more.So if you have income in the band between £100,000 and £116,210 (or just above £116,210) a part of that income will be taxed at 60%. . . . Speak to us about ways to reduce your overall tax charge, as pension contributions could generate 60% tax relief.

What	Freezing Age Related Allowances.
When	6th April 2013
What this means	Pensioners currently have higher personal allowances and these additional allowances will be frozen and reduced over time, bringing them in line with the standard personal allowance. Those currently receiving the higher allowances won’t see them reduced, although inflation will reduce pensioner income in real terms.

What	A reduction from 50p to 45p on the top rate of tax on incomes above £150,000.
When	6th April 2013
What this means	This reduction in top rate tax provides serious tax planning opportunities! The best of these is probably in relation to pensions. 50% tax relief now (but only until April 2013), 25% tax free cash, and take your residual pension at a possible top rate of 45% – a great deal to pay tax at lower rates. Add to that death benefits held on trust and tax free gains, pensions are looking good.

Housing

What	Increase in Stamp Duty for houses worth over £2m to 7%.
When	22nd March 2012
What this means	The ‘mansion tax’ that was widely reported prior to the Budget equates to a £140,000 tax bill on a £2m property. The Chancellor has also put in place measures to stop individuals paying stamp duty by purchasing a residential property through a company. Such purchases will now incur a 15% tax charge.

Tax Credits and Benefits

What	Child Benefit to be withdrawn for higher earners.
When	April 2013
What this means	Only households where someone has an income in excess of £60,000 a year will no longer gain from child benefit. There will be a tapering of the benefits received from £50,000 – £60,000. Get advice if your income falls into this bracket – pension contributions and salary sacrifice could reduce income so you gain from the full benefits available.

Savings, Pensions and Investments

What	Introduction of initial flat-rate pension of £140 per week for those with 30-year national insurance record.
When	2016
What this means	This long awaited measure to simplify the pension system is welcome news. Those that will lose out are higher earners who may have seen higher levels of state benefits; some low earners will see an increase in their pension entitlement.

What	Auto review of state pension age.
When	Proposals will be published at the time of the Office for Budget Responsibility’s (OBR) 2012 Fiscal sustainability report.
What this means	The link between State Pension Age and longevity has been confirmed which means there will be an automatic review of state pension age. State Pension Age is already scheduled to rise to 67 by 2026 for both men and women. This link means the state pension age could keep increasing if longevity increases. It is forecast to do so, so your pension age could be unknown. You need to take control of your own pensions so you have choice of when to retire.

Business

- The introduction of a new cash basis for calculating tax for small businesses – the aim is to create a simpler tax system for smaller firms with a turnover of less than £77,000. Consultation will take place before the proposed implementation from April 2013.
- The Government is increasing the funds available to invest through the Business Finance Partnership to £1.2 billion.
- The Government will pilot the best way to introduce a programme of enterprise loans to help young people set up and grow their own business.

Justin’s tax advice appears in Daily Express

JK — Wed, 14 Mar 2012 15:55:32 +0000

A journalist from the Daily Express asked me to be on a panel of advisers providing tax advice pertinent to the upcoming end of the tax year. Like my other blog post, now is a critical time to make sure you’re making the most of your tax allowances.

I’m quoted talking about Capital Gains Tax and how important it is for higher rate taxpayers in particular to fully exploit the allowance, especially in relation to investment returns. Read the full article here.