Is Your Financial Planning Ready For 2011?


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Here we are at the start of another New Year, a time where we tend to wonder what the next 12 months will have in store for us. Many of us also evaluate where we are and where we want to be and p

Here we are at the start of another New Year, a time where we tend to wonder what the next 12 months will have in store for us. Many of us also evaluate where we are and where we want to be and perhaps make New Year resolutions to help us achieve our aims.

From an investment point of view, I am cautiously optimistic about what 2011 will bring. Yes, the economic recovery will probably be slow; we?ll have to cope with austerity measures and there are still risks such as Eurozone sovereign debt, but company fundamentals are strong and improving and this should bode well for equities. Companies have been biding their time and will start to undertake new investment and projects and many commentators are predicting share prices to rally. I think there?ll be bumps along the way but I?d expect markets to have provided a satisfying return by the end of the year.

Company fundamentals also lead me to believe there is potential for high yield corporate bonds, which provide superior income generation as well as the potential for capital appreciation over the medium term.

On the other hand, bank interest rates are likely to remain low. At the moment the general view is that we?ll only get a small increase by the end of the year.

Of course I don?t have a crystal ball, and nor do other market commentators. The economy isn?t out of the woods yet and it?s unlikely it will be plain sailing for the markets. We cannot predict exactly what will happen or if any unexpected events will throw markets off course. This is why it is important to have a cohesive, well thought out portfolio strategy. It should invest in a broad spread of assets, often including equities, bonds, property and cash and possibly some commodities, infrastructure and a capital protected fund. Where possible the assets would be diversified over regions, sectors, and capitalisation size.

This brings me back to the New Year resolution theme. While obviously any time of the year is good to evaluate your wealth management, if you haven?t done so for a while you could take this ?New Year? opportunity to review, plan ahead and implement any necessary changes.

If your portfolio was strategically set up with the help of a professional wealth manager and based on your personal circumstances, objectives and risk tolerance, then all you probably need to do each year is sit down with your adviser to look at where you are now and where you are going and see if any adjustments need to be made.

Adjustments may be needed to re-balance your portfolio (the risk associated with investment assets is not constant and your portfolio may have become riskier than you originally planned it to be), or because your situation or aims have changed. Consider your short, medium and long-term objectives to see if there is anything new your adviser should be aware of.

If, on the other hand, you?ve bought shares and funds in isolation over the years and without an overall strategy, then ask a wealth manager to review everything you own and give his opinion on the best way forward.

It?s quite possible that you?ve ended up with an unbalanced portfolio which is riskier than you realise ? and riskier than it need be to meet your objectives. You may, for example, have too much exposure to equities, with limited lower risk assets to balance them out. You may have limited or no diversification across companies, industries and countries. Alternatively you may be missing out on potential opportunities, such as high yield bonds, high dividend funds or emerging markets.

Your portfolio may also not be specifically targeted to your needs. For example, many retired people take income from their investments, but if your portfolio does not generate a natural income you may find yourself having to withdraw capital, leaving you with less capital working to provide income and growth in the future or tap into when you need it.

Another downside of buying investments here and there without an overall strategy is that they probably aren?t particularly tax efficient. You may be missing out on the opportunities available here in Spain/France/Portugal/Cyprus to pay less tax on your savings and investments ? and it may be much less tax than you realise. If you?re looking to increase the growth potential of your portfolio it doesn?t make sense to be paying more tax on it than you need to.

Earlier I said that I was cautiously optimistic about the markets, but it?s the opposite I?m afraid for the tax situation. I know we?ve already seen tax rises in many European countries but I suspect there?s more to come over the next few years. Governments still have a long way to go before their deficits are back under control and they also need to deal with the demographic time bomb and the escalating costs of healthcare and state pensions. Everything considered, governments may have little choice but to increase tax revenue.

This will also involve increasing and innovative measures to prevent people evading tax and collect previously unpaid tax from them. It is still possible to legitimately lower your tax liabilities in your country of residence ? and with tax rates on the rise you?re probably more inclined to do so ? but it?s important to seek professional guidance for your tax and estate planning to make sure you get it right.

A wealth manager like Blevins Franks will help you establish a plan to achieve your investment and taxation objectives and improve your financial security. The sooner your strategy is in place, the sooner you can cross financial planning off your to do list and get on with enjoying the rest of the year!

By Bill Blevins, Managing Director, Blevins Franks

20th December 2010

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.