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The Purposeful Wealth Podcast

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Do you want to live a fulfilled and meaningful life? In this podcast, Jonathan introduces his principles for living a fulfilled and meaningful life, as well as sharing the key financial and wealth planning strategies you need to focus on to achieve this.


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Do you want to live a fulfilled and meaningful life? In this podcast, Jonathan introduces his principles for living a fulfilled and meaningful life, as well as sharing the key financial and wealth planning strategies you need to focus on to achieve this.




Cash Rates and Portfolio Returns

As systematic investors, we seek to continually challenge the process in order to maintain a solution which we feel gives us the best ability to meet our lifestyle and financial goals. We understand that trying to predict the time and direction of market movements over shorter time periods is a fool’s pursuit. Any change in portfolio structure or investment approach, therefore, must be guided by a change in the evidence or our investment goals. The interest rates set by central banks have been rising around much of the world in recent times. One will have done well to avoid such headlines in the news. In the UK, the base rate set by the Bank of England was just 0.1% three years ago and now sits at 5.25%, at time of writing. This considerable increase, much of which happened in 2022, led to historically low returns on bonds, as bonds fell in price in order to align with rising market yields. Despite rates not having been at such levels for some time, it is not uncharted territory. In fact, since 1975 rates have been above current levels more than half of the time. For investors with medium to longer term liabilities, i.e. 5 to 10 years and beyond), these rate rises, and corresponding price falls, have significant benefits. Given the structure of portfolios, the - now higher yielding – bonds should get through the price falls experienced and thereafter be enjoying a higher return. It also opens up other options for savers – annuity rates and fixed term instruments now become more viable, in some circumstances. However, when it comes to the expected returns on portfolios, the evidence remains the same. We can look at historical figures to give an insight into whether there is a relationship between current rates on cash and subsequent portfolio returns. Historical data reveals at a given level of starting interest rate, the proportion of times in the subsequent year, that the investment portfolio outperformed this starting cash rate. In essence, this is seeking to answer the question: ‘if I lock up my cash today for the next twelve months I am guaranteed x%, so why take on the additional risk of investing in a portfolio?’. Well, our research reveals that between January 1970 and June 2023, the proportion of periods that a 60% equity portfolio outperformed cash in the subsequent year were higher than 50%. There is no clear relationship between the level of cash rates and subsequent outcome of portfolio returns relative to cash. Over all 1-year periods in our sample, the 60% equity portfolio outperformed locked up cash in 2/3rds of observations. The average excess return of the portfolio over cash in the 1-year periods was 4%. As we extend the holding period of our portfolio to 5- and 10-years the proportion of outperforming periods rises to over 80%. Other practical implications are worth considering. Locking up cash reduces liquidity, and may only be withdrawable outside of the agreed period with a significant penalty. Also, savers with larger sums of cash need to be wise and spread cash across banking groups to remain under FSCS protection limits. Bank failures in the US this year offer a cautious reminder to savers not to naively ignore protection limits. In closing, risk and return remain inextricably linked. The baseline has increased for all asset classes so please stick with the program. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Please don't chase Dividends

Readers of the Sunday papers’ financial pages will be familiar with the dividend chasing stories that pundits and some fund managers love to peddle. These generally focus on high dividend paying shares or ‘income’ funds that focus on these shares. The thought that one can take an income from a portfolio without the need to sell shares can feel appealing to some. But dig a little deeper and it quickly becomes evident that a portfolio constructed from a bottom up dividend-driven approach is unlikely to be the most optimal approach and contain risks that may not be fully appreciated. The first point to note is that you cannot have your cake and eat it! If a company pays out a high dividend, that money cannot be reinvested by the firm to deliver higher future earnings which in turn drives share prices - in other words, the present value of future cashflows of a company. So, with higher dividends today, you forgo tomorrow’s price growth. In theory, the dividend policy of a firm should make little difference to its total return (by total return we mean, dividends plus share price appreciation) . The second point to note is that different sectors of the economy tend to have different average dividend payout strategies. For example, tech companies tend to reinvest most of their cash flows into product development and attaining greater market share, whilst energy companies – operating in a more mature industry - may not be able to find projects in excess of their cost of capital and may return money to shareholders via dividends. Chasing dividends tends to end up in large sector ‘bets’ away from the market. The third point to note is that because each equity market reflects the companies listed on it, large sector differences do exist between markets. For example, the UK has materially less exposure to technology companies compared to the US but higher weightings to energy companies. As a consequence, the UK market has a higher dividend yield than the US market. A dividend-driven approach will likely overweight the UK (and other higher yielding markets) relative to other lower-yielding markets. If we look at the average dividend yield of the 10 largest global markets by size between 2015 and 2023, we can see that Switzerland leads the way, followed by Australia and then the UK. The final points worth noting are: within each market, dividend payments are often concentrated in just a few shares resulting in share concentration risks; and higher dividends tend to describe value companies which are less healthy companies with higher expected returns, potentially inadvertently skewing a portfolio towards higher expected risks. If you have bonds in your portfolio, chasing higher yields from lower quality bonds or lower quality borrowers), this simply adds equity-like risk to your portfolio. The higher the yield, the riskier the borrower. But that story is for another day! An eminently sensible alternative approach to taking income from a portfolio is to think on a ‘total return’ basis where an investor is agnostic to taking dividends or selling shares to deliver the capital required. This is the way that pension plans and endowments tend to draw income. It allows you as an investor to maintain the structural integrity of their portfolio and to avoid company, sector and market bets in the pursuit of higher dividend yields on portfolios. My advice is, don’t cha Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


What is the Scourge of Investors

For many investors a propensity to place too much weight on recent events in terms of what the future may look like is quite common. This is known a ‘recency bias’ and it is this, we regards as the scourge of investors. Charles Schwab, a major US broker, sponsored some research on its own client base to identify which behavioural biases predominate in their clients and recency bias was the one most commonly exhibited. Around 50% to 60% of all investors appear to suffer from recency bias, and the number is even higher for younger investors. Some investors may include global commercial property such as shopping malls, offices, industrial buildings, logistics hubs and data centres, in the growth assets portion of their portfolios to provide a bit of diversification to their pure equity exposures. It is not guaranteed to work all the time but can be beneficial at times. The logic and empirical data certainly supports a reasonable case for including global commercial property. Yet, of late, global commercial property has been under pressure on account of lifestyle and work-pattern changes. Add in rapidly rising interest rates and the ‘story’ sounds quite bleak - in 2022, global commerical property, as an asset class was down by around -14%, whilst the UK equity market was up by about +7%. And, global commercial property is down again in 2023. Many investors might be tempted to consider abandoning it as an asset class, because they believe the future ‘obviously’ looks bleak, and its recent run of poor performance is thus likely to persist. Yet, doing this would ignore a central tenet of systematic investing that all this doom and gloom is already reflected in market prices for global commercial property - in other words, it might go higher or lower from here, not because of what has recently happened but what new information the market receives. Every asset class has its bad and good periods yet global commerical property has been the most consistent when compared to Developed and Emerging Market equities over the past 20 years or so! Abandoning or adding to a portfolio simply by extrapolating what has recently done well or badly is not a great strategy. In 2022, commodity futures were the star asset class, returning around +30% in a year when bonds and equities were down in value. In 2023 they are down in value by around -15%. And, when gold rises in price, investors’ are always curious. As investors, we should never fall into the trap of thinking that the recent past points us to future outcomes. Furthermore, we should never fall into the trap of thinking that a winning investment strategy is to pick what has just done well and avoid what has just done badly - follow this path is highly likely to result in great disappointment. In closing, let's reflect on these wise words written by Charles D. Ellis in his excellent 2002 book Winning the Loser’s Game (Ellis, 2002): ‘The hardest work in investing is not intellectual, it’s emotional. Being rational in an emotional environment is not easy. The hardest work is not figuring out the optimal investment policy; it’s sustaining a long-term focus at market highs or market lows and staying committed to a sound investment policy. Holding on to sound investment policy at market highs and market lows in notoriously hard and important work, particularly when Mr. Market always tries to trick you into making change Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Modern Society Loves a Star Rating

Isn't it true that modern society loves a ‘star rating’? Most of us know what to expect if we book a 5-star hotel stay for a business trip when compared to a 3-star bed-and-breakfast for a weekend away. The investment field is no different, with many institutions offering their own spin on star ratings and how to calculate them. However, unlike the hotel industry, I would suggest many of the rating systems that assess the funds used by investors are best ignored. Let's investigate why this might be the case… A quick Google of a fund name will most likely return links to some of the major data providers out there such as Trustnet, Morningstar, and The Financial Times. For instance, I recently came across a UK Equity Fund that is currently rated as 5 Crowns on Trustnet through a system calculated by Financial Express - I won't however mention the fund as I wouldn't want anyone to consider this as a recommendation! On these pages one might find star ratings, or similar, implying the relative quality of a product. But, the challenge with these types of ratings is that the focus is solely on recent, short-term performance as opposed to long-term, sensible structure. Without getting too granular, the Crown Ratings are derived using 3-year performance and volatility - in other words, how much the performance moves up and down compared to a benchmark, such as the FTSE 100 Index aka the Footsie 100 Index. The thing is, 3-years is not nearly enough time, nor the sole use of performance figures insightful enough, to properly test the efficacy of a fund’s strategy or test the ability of the fund manager to pick shares or time markets. In any case, remeber that picking shares and timing the markets is not a game played by sensible, systematic investors! Reviewing a track record of 20-years would be statistically more prudent, however, to have benefited as an investor one would have had to identify the investment in advance which is nigh-impossible. As Frederick the Great once said, "A crown is merely a hat that lets the rain in"! At Wells Gibson, we believe strongly that structuring portfolios based on ratings that are derived with hindsight goggles is a dangerous game. However, sadly, there are many investors out there that do pay attention to these ratings and are engaged in a repetitive cycle of buying-high and selling-low. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Are Balanced Portfolios Dead?

Are Balanced Portfolios dead? Legend has it that in 1895 whilst in London, Mark Twain, who had been feeling a little poorly, on discovering that a journalist had written his obituary, quipped the following: ‘The reports of my death are greatly exaggerated’. In the past few years, obituaries for a traditional ‘balanced’ portfolio of, say, 60% equity, 40% bonds have been written by quite a number of financial journalists and fund managers. At Wells Gibson, we believe such a portfolio continues to be alive and kicking. Good investing is grounded in three things: 1. Using investment logic to think clearly about what one puts into a portfolio; 2. Using empirical insights to inform us of the general longer-term characteristics of assets and how they work together in a portfolio, and the shorter-term exceptions to these generalities; and 3. The fortitude to stick with a sensible portfolio strategy through these shorter-term, trying periods. A portfolio mix of bonds and equities balances the potentially severe downside falls in equity markets by owning far less volatile, good quality bonds that will not fall as far, if they do fall at all. There is a general expectation that at times of severe equity market trauma, fearful money will move into high quality bonds pushing yields down and bond prices up - in other words, there is a see-saw effect between yields and prices - that is often but not always the case, as 2022 and 1994 demonstrated. It is certainly fair to say that the past five-year period has been tough for 60/40 balanced portfolios, given that it included the global pandemic, the war in Ukraine, a rapid end to the era of low nominal and negative real interest rates, the highest inflation in 40 years in the UK, and a downturn in global equity markets in 2022. Even so, it delivered a return that more-or-less matched inflation over this period, which should be regarded as a good outcome. Furthermore, if we look at annualised, rolling real returns (after inflation) since 1970, for different investment horizons, we learn that the 60/40 structure has delivered growth of purchasing power in the vast majority of five-year horizons (and beyond). The longer one holds, the more consistent returns become. The reports of the death of balanced portfolios are greatly exaggerated. Balanced portfolios are not dead and at Wells Gibson, we are sure Mark Twain would agree. Note that this is not to suggest that a balanced portfolio is suitable for any specific investor. The decision as to what is suitable will be the result of an informed discussion between an investor and their adviser. This is not a recommendation. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


A Formula for Success

In today's episode, we're going to consider the subject being a formula for success. But before we look at, that, thank you again to all of our listeners who tune into the Purposeful Wealth podcast. I've made apologies before that the recordings haven't been maybe as frequent as we would have liked, and the library hasn't been updated. That's just largely been due to the other competing factors, such as family and business, and perhaps also the good weather we've had of late and being able to enjoy, a walk around the golf course. Can't say that it's been great rounds of golf, but it's certainly a good walk, if nothing else. But we can blame the weather for that, too. But, today we're going to consider a formula for success and really want to just talk about the fact that combining, an enduring investment philosophy with, a simple formula that helps maintain investment discipline can increase the ODS of having a positive financial experience. So, if you want to increase the odds of having a positive financial experience, it's important to ensure you start with, an enduring, robust investment philosophy with a simple formula that helps maintain our discipline as an investor. David Booth, the founder and chairman of the American Fund Manager Dimensional Fund Advisors, once said, the important thing about an investment philosophy is that you have one you can stick with. So I would agree with that, 100% entirely. However, what is an enduring investment philosophy? Investing, as you know, should be and is a long term endeavor. Indeed, people will spend decades pursuing their financial goals. But being an investor, as you know, can be complicated, challenging, frustrating, and sometimes frightening. This is exactly why, as David Booth says, it is important to have an investment philosophy you can stick with, one that can help you stay the course. This simple idea highlights an important question how can we, as investors, maintain discipline? Through optimistic markets or bull markets, the pessimistic markets or the bear markets? Political strife, economic instability, or whatever crisis of the day threatens progress towards our investment goals. Over our lifetimes, us. Investors face many decisions prompted by events that are both within and outside our control. So, without an enduring investment philosophy to help inform our choices, we can potentially suffer unnecessary anxiety, which then leads to poor decisions and outcomes that, of course, are damaging to our long term financial well being when we don't get the results we want. It's true that investors, or us, as investors, can blame things outside of our control. Investors might point the finger at the government or central banks or markets or the economy. Unfortunately, the majority will not do the things that might be more beneficial such as evaluating and reflecting on their own responses to events and ultimately taking responsibility for their decisions. Some people suggest that among the characteristics that separate highly successful people from the rest of us is a focus on influencing outcomes by controlling one's response or reaction to events rather than the events themselves. And this relationship can be described using a simple formula. And it is this this formula, I love this. The E plus R equals O. So the E is the event, the R is response and the O is outcome. So the event plus response equals the outcome. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Don't just take our word for it

Welcome to The Purposeful Wealth Podcast and this episode on how a systematic approach to investing provides the best chance of experiencing a successful investing journey - 'Don’t just take our word for it!' Sticking to some key guiding principles – which are grounded in evidence and logic – gives investors a solid foundation on which to build a sensible investment solution. This short note provides an insight into five of our favourite insights from experienced and accomplished academics and practitioners and explains how these words help us plant our investment philosophical flag in sensible space. 1. A focus on risk management, rather than chasing performance Quote by Warren Buffet, Berkshire Hathaway 1994 Annual Meeting ‘You don’t find out who’s been swimming naked until the tide goes out.’ The financial media enjoys reporting on top performing fund managers. Humans like exciting stories. Good investing, however, should – to most - seem relatively boring through taking a ‘risk-first’ approach. Ultimately, sensibly considered risks should be rewarded appropriately over time. The risk management process involves deciding which risks one wants to be exposed to in portfolios (such as broad global equity market risk) and which we do not (such as the use of leverage). Managing these risks tightly over time and monitoring them on a regular basis is key. 2. Be diligent and act rationally, with due patience Quote by Charles D. Ellis, Winning the Losers Game, 1993 ‘Activity in investing is almost always in surplus.’ Ensuring any decision made is free from an emotional reaction is a must. Many are prone to making knee-jerk – and sometimes permanently damaging - investment decisions. Taking steps to avoid this is well-advised. 3. Take part and believe in capital markets Quote by Eugene Fama, Nobel laureate, speaking with The Rational Reminder Podcast, May 2020 ‘You’ve got to talk yourself out of the market portfolio.’ Owning a share of companies through investing in capital markets is an effective way for investors to grow their wealth over time. Owning a little bit of everything is not a bad place to start. Luckily for investors these days, one can do so with relative ease through investing in mutual funds. Doing so enables investors to participate in the growth of listed companies from around the world in a diversified manner, avoiding being overly concentrated in a single stock. 4. Keep costs low Quote by John C. Bogle, Founder of The Vanguard Group, February 2005 ‘In Investing, You Get What You Don’t Pay For.’ Cost is by no means the only factor separating better and worse investment solutions, but it is a significant one. Costs can be implicit (e.g. frictional trading costs) or explicit (e.g. fund manager fees). Clearly, any saving made by an investor is retained in the portfolio, rather than being passed off to another party in the process. 5. Stick to the plan Quote by David F. Swensen, author and former CIO of Yale University endowment, 2005 ‘Real-world application of fundamental investment principles produces superior outcomes.’ An investor who can recall their key investment principles stands in good stead to avoid making mistakes. Abiding by some simple guidelines – such as those outlined by the investment mavens in this note – enables investors to employ a robust and repeatable pr Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Home Bias and Global Diversification

So, today's topic on looking at home bias and global diversification. I think it's fair to say that every day we enjoy the benefits of an interconnected world. We may well start our day with, a cup of coffee that originated in South America. We check our email on our smartphone, which has been designed in California and manufactured in Taiwan, and then we dress and clothes woven from Egyptian fabrics before driving our American made Tesla or German made BMW, or riding in a French built train to work. And as consumers, we rarely think twice about the benefits that we have from access to such a, wide variety of goods that the global market has to offer. And yet, many investors will often concentrate their portfolios in favor of their home market at the expense of global diversification. For example, while UK equity markets represent around 4% of the value of global equity markets, many UK investors tend to allocate around a third of their equity assets to domestic equities. And this phenomenon, which can be observed across other countries around the world, is known in the investment community as home country bias. Given that certain frictions may be associated with investing abroad, a home country bias might make sense for an investor in certain cases. However, in general, neglecting the benefits that global diversification has to offer may increase risks and greatly reduce the investment opportunity set. There's been many charts and graphs that reveal that between, for instance, even looking at, period 2002 to 2021, that twelve different developed countries out of 22 had the best performing equity market in a given calendar year, but yet no country had the best performing market for more than two consecutive years. And this trend was also observed in emerging markets, whereby 14 different emerging market countries out of 20 had ah, the best performing market in a given year and once again, no country had the best performing market in two consecutive years. In other words, the data shows that it is difficult to know which markets will outperform, from year to year and we see that also at company level, at sector level too. So by holding a globally diversified portfolio, investors such as clients of Wells Gibson are instead well positioned to capture the returns wherever they occur. And clearly, attempting to pick only winning markets in any given period is ah, a challenging proposition. By pursuing a globally diversified approach to investing, one doesn't have to attempt to pick winners to achieve a rewarding and perhaps successful investment experience. So by expanding the investment opportunity set beyond your domestic equity market, as an investor you can really help increase the reliability of outcomes. In other words, investors can be confident that, a globally diversified portfolio will hold the best and worst, of course, performing countries each year. But the key thing is that by holding a diversified portfolio you are more than likely going to capture the returns that the market gives. And what that means probably, is, over time that your portfolio should give you a return above inflation, which really is something we all need to be aware of increasingly. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Fake News - Active outperforms Passive

Unfortunately we now live in a world of fake news and ‘alternative facts’ where parties shamelessly push their own agenda and narrative at the cost of salient facts. In order to be heard in the noise of social media, research headlines need to be bigger and more eye-catching. For those investors using an evidence-based approach that means it is important to make sure that any evidence being reviewed is based on true facts, reliable data and sound research methodologies. There is much good research and empirical evidence available, but some of a lesser quality occasionally makes the headlines. A recent piece of research by a fund management firm that manages over US $580 billion is a case in point, making the statement: ‘Active funds beat passives in every market in the UK over a 20-year period.' That is quite a claim to make. The firm looked at funds in seven categories using the services of Lipper, the American fund performance research firm, and – somewhat surprisingly for an investment house filled with bright and talented people - compared how the fund with the best performance over the past 20-years had done relative to passive alternatives (index funds) and the index. The methodology is so evidently flawed as to hardly be worth reviewing. It is best summarised as requiring a fund-picking strategy of perfect 20-20 hindsight! They concluded that it would have been worth identifying the best active fund instead of using a passive fund. The problem is that this is almost impossible to do. Alan Miller of SCM Direct – a firm which has campaigned to improve investor outcomes – summed it up most effectively: ‘It's a bit like saying you're better off buying a lottery ticket than putting your money in the bank because had you won the lottery each year, you'd have done much better.’ Unfortunately this type of naïve research risks misleading retail investors, and even some advisers, against a sensible evidence-based approach. In their own data, the fund management firm in question revealed that in the six Lipper categories where there was a passive fund with a 20-year track record, in five categories, the average passive fund beat the average active fund. In the sixth category, there was nothing much in it. The best passive fund – which you do have a fair chance of identifying, unlike an active fund – outperformed in all six categories. Another methodological flaw arises; no account seems to have been taken of the high proportion of UK-based funds that would have failed to survive the period. A reputable study reveals that only around 50% of sterling denominated funds survived the 10-year period to the end of 2022. Over 20-years this figure is likely to have been even worse. We also know from this study that, on average across the eight categories of funds denominated in sterling (so a similar fund set to the flawed research above), 80% of active funds failed to deliver on their promise of beating their market benchmark over 10-years. For a 20-year period this is likely to be higher, as evidenced in the US version of this study. All I can say is, ‘Enough, already!’ as our American friends might say. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


The Paradox of Uncertainty

The saying, “The market hates uncertainty” has been a common enough in recent years, but how logical is it? There are certainly many different aspects to uncertainty, some that can be measured and some that cannot. Uncertainty is quite simply an unchangeable condition of our existence. As individuals, we can feel more or less uncertain, but that is a distinctly human phenomenon. Rather than ebbing and flowing with investor sentiment, uncertainty is an inherent and ever-present part of investing in capital markets. Any investment that has an expected return above the prevailing “risk-free rate” involves trading off certainty for a potentially increased return. Consider this concept through the lens of bonds versus shares otherwise known as equities. Shares have higher expected returns than bonds largely because there is more uncertainty about the future state of the world for shareholder investors than bond investors. Bonds, for the most part, have fixed coupon or interest payments and a maturity date at which principal is expected to be repaid. Shares have neither. Bonds also sit higher in a company’s capital structure. In the event a company goes bust, bondholders get paid before shareholders. So, do investors avoid owning shares in favour of bonds as a result of this increased uncertainty? Quite the contrary, many investors end up allocating capital to shares due to their higher expected return. In the end, many investors are often willing to make the tradeoff of bearing some increased uncertainty for potentially higher returns. Now onto managing emotions... While the statement “the market hates uncertainty” may not be totally logical, it doesn’t mean it lacks educational value. Thinking about what the statement is expressing allows us to gain insight into the mindset of individuals. It is recognition of the fact that when markets go up and down, many investors struggle to separate their emotions from their investments. It ultimately tells us that for many an investor, regardless of whether markets are reaching new highs or declining, changes in market prices can be a source of anxiety. During these periods, it may not feel like a good time to invest. Only with the benefit of hindsight do we feel as if we know whether any time period was a good one to be invested. Unfortunately, while the past may be prologue, the future will forever remain uncertain. Why it's important to stay in your seat as an investor... In an interview, David Booth of Dimensional Fund Advisors was asked, what it means to be a long-term investor: He said, “People often ask the question, ‘How long do I have to wait for an investment strategy to pay off? How long do I have to wait so I’m confident that shares will have a higher return than money market funds, or have a positive return?’ And his answer is it’s at least one year longer than you’re willing to give. There is no magic number. Risk is always there.” It also helps to remember that, during what feels like good times and bad, one wouldn’t expect to earn a higher return without taking on some form of risk. While a decline in markets may not feel good, having a portfolio you are comfortable with, understanding that uncertainty is part of investing, and sticking to a plan that is agreed upon in advance and reviewed on a regular basis can help keep investors from reacting emotionally. This may ultimately lead to a better inves Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Pensions as an Inheritance Tax Break

A new report from the Institute for Fiscal Studies (IFS) has claimed pensions are treated more generously by the tax system as a vehicle for inheritance than for retirement income. The IFS said that keeping savings in a pension tax wrapper can be a highly effective way of avoiding inheritance tax, and this is an anomaly that needs to be addressed. Their new “Death and Taxes and Pensions” study was funded by the Financial Fairness Trust and includes proposals to make the tax treatment of pensions on death fairer and more economically efficient. According to the IFS, the additional tax revenue generated by shifting to a different system could be substantial in the long term. The report said: “If the UK government did not want to raise the overall level of inheritance tax, then the revenue could be used to cut inheritance tax in ways that made the overall system fairer and more efficient. The report described the following problems with pensions: Inheritance tax. Any funds that remain in a pension at death (at any age) are not subject to inheritance tax. As such, there is a substantial incentive, for those who can, to use non-pension assets to fund their retirement while preserving their pensions for bequests. To give the most extreme example: a married couple could each leave £1,073,100 in their pensions free of inheritance tax (i.e. £2,146,200 in total), whereas if they both bequeathed the same amount in other financial assets instead there could be a total inheritance tax bill approaching £600,000 (or more). Income tax. Pension contributions are already free from income tax, but usually money received from a pension is taxed instead. Income tax is payable on money received from a pension pot inherited from someone who died at or after age 75. But when someone dies before age 75 funds remaining in their pension escape income tax entirely. For a basic-rate taxpayer, the difference in income tax between inheriting a £100,000 pension pot from someone who died the day before they turned 75 and someone who died the day after turning age 75 would be £20,000. For a higher-rate taxpayer receiving a £1,000,000 pension pot, this difference in income tax would rise to £400,000. More pension wealth is being passed down the generations due to growth in defined contribution pensions, the introduction of pension freedoms, and the substantial tax incentives for bequeathing pension wealth. The IFS wants pension pots to be included in the taxable value of estates on death, and therefore subject to inheritance tax. They argue that inheritance tax should apply equally across all forms of wealth. The body also wants basic-rate income tax to be charged on all funds that stay in pensions at death, or to see the current income tax rules extended to those inheriting pension pots from someone who dies before age 75. Isaac Delestre, author of the report, said: “Whether by accident, design or inertia, the tax treatment of pension pots at death has become increasingly eccentric. The coalition government missed the opportunity to fix the tax treatment of pensions at death when pension freedoms were introduced. It is not yet too late to act, but the longer the government delays, the more painful such reforms will become." By applying the recommendations in its report, the IFS believes it could raise around £1 billion a year in additional inheritance tax revenue, enough to reduce the rate of inheritance tax from 40% to 35% or to help fund the growing pressure on public services. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Costs Do Matter

Hopefully, this headline will not come as a surprise to you. It is remarkable, though, just how relaxed some investors are about letting others dip their hands in their pockets to extract high fees. The problem has two root causes. The first is that in most walks of life, paying higher costs should help you to secure the best lawyer, architect or builder, yet when it comes to investing this relationship breaks down. The second is that costs of, say 1% p.a. do not sound very much, but unfortunately, they are when compounded over time as we shall see. Unfortunately, the vast majority of active managers, who promise to beat the market, fail to deliver on their promise as revealed by numerous studies and SPIVA reports across several markets and time frames. High costs are a contributory factor to this failure. Surprisingly to some, picking funds by their costs is one of the few useful metrics available to us. Research by Morningstar – a firm that makes a living providing star ratings for mutual funds – confirms this: ‘If there’s anything in the whole world of mutual funds that you can take to the bank, it is that expense ratios [i.e., ongoing charges figure or OCF] help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.’ A recent piece of research on US mutual funds by Dimensional Fund Advisors reveals that the relentless drag of costs makes a meaningful difference to investor outcomes. It ranked equity funds – over 20 years to the end of 2021 - into low and high-cost quartiles - of those with the lowest costs (0.84% p.a.), 31% were ‘winners’ (i.e. beat the benchmark) and of those with high costs (1.75% p.a.) only 6% were ‘winners’. Similar results were observed when funds were ranked by trading costs (incurred through buying and selling). In the UK, there is still a big gap between the ongoing charges figure (OCF) of active and passive (index) funds, and also reported trading costs, which recent research from Albion (2022) reveals. For instance, at the end of September 2022, actively managed global equity funds were 94 basis points higher on average, than passive funds; actively managed emerging market equity funds were 120 basis points higher on average; actively managed global property funds were 106 basis points higher; and actively managed global short-dated bond funds were 35 basis points higher! Now, if we were to construct a simple illustrative portfolio with 48% in global equities, 6% in emerging market equities, 6% in global property and 40% in global short-dated bonds, the portfolio level fees are 98 basis points for the ‘high cost’ active fund version and 26 basis points for the ‘low cost’ passive (index) fund version. With some straightforward maths, we can calculate the difference in wealth outcomes of investing in these two cost strategies over different time horizons. For the purposes of this exercise, we will assume that the two strategies earn the same return, which is favourable to the active funds, as most deliver a return lower than the market. After 10 years, your investment pot from the passive strategy would be 7.6% higher; after 20 years, 15.8% higher; and after 40 years, the passive strategy would be 34% higher. Wealth Planners like Wells Gibson, who adopt a systematic, evidence-based approach to investing, take costs seriously on their clients’ behalf. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


The Number One Investment Decision

If all you had to go by was the information presented in the financial media, you’d be forgiven for believing that to be a successful investor you needed to know which companies were best to own, and that you had to be able to forecast market cycles, predicting the tops and bottoms, which no one can. Fortunately, to enjoy a successful investment experience, either of these are true. At Wells Gibson, we believe that the most important financial decision you’ll make in your life is what portion of your assets you allocate to equities (in other words, the greatest wealth building asset). Indeed, extensive research has shown that your asset allocation decision is responsible for the majority of your portfolio’s return. Asset allocation refers to your decision about how much you allocate to fixed interest and equities assets, respectively. However before we proceed, let’s define these terms. Fixed income (or Bonds) are a form of lending to corporations/governments who need to raise capital for maintaining or expanding their operations. Usually, a fixed rate of return is agreed, hence the term “fixed income”. These investors do not own any share of the company (which costs them dearly over decades). Equities (or shares) is a part-ownership in a publicly listed business. Investors are rewarded if the company is successful in growing its revenues over time. This usually leads to an increase in share price. Investors are also rewarded in the form of dividends - company profits which management decide to payout to the owners. To the casual observer, both are forms of investments which provide returns over time. However, they are fundamentally different asset classes. The distinction is vitally important to understand. Investing in equities makes you an owner of a business. Investing in a diversified portfolio of said equities makes you an owner of the great companies of the world, the companies we all use each and every day. Now, that's a thought! Investing in bonds (or any fixed interest instrument) makes you a lender to these same businesses. You have no claim to their future profits. As an owner of a successful business, would you prefer to raise money by borrowing at a fixed cost, or would you give up a part of your business to access the cash? The answer may not be clear: if prospects were good you would borrow the money, all else being equal. Similarly, as an investor, would you prefer to own a share of a successful business, or would you prefer to lend money to them? The answer may again be self-evident. You want to own small pieces of the great companies rather than just loan them money. Owners beat lenders. As investors battling the financial dragon called inflation (the slow and steady increase in the price of goods), the only returns we are interested in are real returns - returns above inflation. History has shown us that equities have provided investors with a significantly higher real return than fixed interest assets. The numbers differ between regions and time periods, as could be expected. This makes sense when you understand the distinction we explained above. The best asset class to own in your fight against inflation is, therefore, equities or shares in the great companies of the world. Great news so far I hear you say... Who wouldn’t want the returns of being an equity investor? However, there’s a price of admission for earning higher returns. There’s no such thing as a free lunch, as they say. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Life is Taxing part 2

Partial Transcript In part-1 we considered the difference between tax evasion and tax avoidance and in particular the simple and effective ways to reduce tax via the annual pension and ISA allowances... Philanthropy makes it possible to reduce your liability to higher-rate or additional-rate tax by giving more to charity, an area we will consider more when the Purposeful Wealth podcast considers the subject of Giving.... For instance, if you’re earning over £100,000 a year, you lose your personal allowance by £1 for every £2 that your taxable income is over £100,000. In 2022/23, this means you lose your allowance if your taxable income is above £125,140. Your Financial or Wealth Plan might reveal you can afford to gift £20,000 to charity, perhaps your church, and because of Gift Aid, that charity receives a gift of £25,000. As you have gifted £20,000 and the charity has received £25,000, your adjusted income is now deemed to be £100,000; however, your net income has only reduced by around £9,500. Essentially, when you donate to charities, you can claim Gift Aid (if you’re a UK taxpayer) and when you do that you’re able to record your donation as a gift on your tax return, which reduces your liability to higher-rate and additional-rate tax, as well as potentially retaining your personal allowance. It’s an entirely legal way to avoid paying some of your tax, yet support causes you care about. Now onto the subject of investing to reduce tax, however a word of caution, don’t put the tax cart before the investment horse though When it comes to tax it’s important to make sure that you don’t pay more tax than you need to and that you legally minimise the impact tax has on your wealth and financial future. However, the challenge comes in not putting the tax cart before the investment horse, so to speak. People can get so focused on reducing their tax liabilities that they make risky investment decisions and take investment risks, which their Financial Plan reveals they are not able to take and don’t need to take. For example, some people might put money into what I would call higher-risk tax planning products, like enterprise investment schemes and venture capital trusts. They do this for the very good reason that they want to reduce their various tax liabilities; however, I regard of most of these products as a fund manager’s remuneration package, dressed up as an investment strategy. Whilst they might reduce tax, you can potentially lose more money on the investment itself. The problem with putting your money into tax planning products like these is that you immediately find yourself invested in products that are not consistent with systematic investing. In other words, they’re not evidence based, informed by decades of empirical academic research and insight. Although higher-risk tax planning products might be suitable for some people, it is important to know that many of these products are poorly diversified, expensive and lack transparency. The success of these products is dependent on speculation and the active manager’s so-called skill. It is also worth noting that these products can be highly illiquid which means access to income or capital is limited and there is a greater possibility of capital loss. Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Life is Taxing part 1

Welcome to the Purposeful Wealth Podcast Partial Transcript: Benjamin Franklin once said, "But in this world nothing can be said to be certain except death and taxes." I'm sure you would agree...albeit there are other certainties I can think of! Not paying more tax than you need to is sensible in order to create and preserve wealth. Strategies will include utilising allowances, exemptions and tax planning products and solutions to legally minimise tax, in other words, Income Tax, Capital Gains Tax and Inheritance Tax. As much as reducing tax is about wealth creation and wealth preservation, it is also about proper stewardship. In other words, you want your money to work hard and smart for you so you can live the life that’s important to you, yet to ultimately transfer as much as possible to loved ones or causes and communities you care about. Tax will always play a part in the transfer of wealth, but if it’s done tax efficiently then the next generation will be able to enjoy more money. Furthermore, you will also enjoy more money during your life if you take a tax-efficient approach to wealth creation and preservation. I feel it’s important to explain, I don’t believe tax is a bad thing. We have to accept our responsibility for giving something back, paying our way in society and to ensure that goods and services are paid for. Paying tax is about integrity, and I believe, integrity is an important principle in living a fulfilled, and meaningful life. There’s also a Christian principle of paying tax. A story in the Bible, in Matthew’s Gospel, tells of an exchange between Jesus and the Pharisees, who were Jewish and the religious leaders of Jesus’s time. They were always trying to plot and catch Jesus out. One day they said to Jesus, “Tell us then, what you think? Is it lawful to pay taxes to Caesar, or not?” But Jesus, aware of their malice, said, “Why put me to the test, you hypocrites? Show me the coin for the tax.” And they brought him a denarius. And Jesus said, “Whose likeness and inscription is this?” They said, “Caesar’s.” Then Jesus said to them, “Therefore render to Caesar the things that are Caesar’s, and to God the things that are God’s.” Tax evasion vs tax avoidance Whenever you’re dealing with tax, it’s very important to understand the distinction between tax evasion and tax avoidance. Tax evasion is illegal; however, legally there are things that you can do to reduce your tax liabilities. You need to know that the strategy you are employing does not constitute tax evasion. In fact, tax evasion cases have reached a record high over the past few years, according to figures by HM Revenue & Customs (HMRC). Therefore, I would advise you to be very cautious in this respect as HMRC takes tax evasion extremely seriously. The government is always looking for ways to clamp down on anything that’s a little too aggressive when it comes to evading tax. As well as being cautious, much diligence is needed and you need to understand the risks of whatever you’re doing. Over the years, I’ve seen many people reduce their tax liabilities following advice they have received, from an accountant or financial adviser, but lose money in the process. There’s a balance to be struck here and new ways to avoid tax are emerging all the time. You have to be careful about what strategies you choose to implement and make sure you’re aware of the risks so you can determine whether these are risks worth taking. Simple ways to reduce tax There are som Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Happy New Investment Year

Welcome to the Purposeful Wealth Podcast. Partial Transcript: At the start of 2022 investors needed reminding that investing is not an easy game, despite having enjoyed around a decade of relatively strong – and fairly consistent - market returns, even in light of a global pandemic, recession, and political polarisation. The year 2022 laid bare the fact that investing can very much be a game of ‘three steps forward, one step back’. If there was no risk of market downside, it would be unreasonable to expect any return at all above cash. This podcast provides a brief look at the past 12 months, and highlights some of the lessons we can learn as investors. So let's look backwards For many investors, 2022 was a relatively tough year, with returns ranging from benign to poor, across most major asset developed, value companies being the exception. Rising prices made returns significantly worse on an after-inflation basis, with year-on-year inflation in the UK having reached levels not seen for decades. 2022 was particularly challenging for investors in bonds, as yields have risen (and thus prices have fallen) across much of the world. Bondholders with longer and lower quality debt suffered greater capital falls... ...whereas, shorter dated, high-quality bonds, as used in Wells Gibson portfolios, continue to be preferred. With few places to hide most investors will have finished the year in negative territory, which is to be expected from time to time. The magnitude of the falls, however, lie well within the tolerances of our client's financial plans. Investors with a reasonable amount of equity exposure should be able to withstand more material falls than those experienced last year - for instance, global equities fell by over 40% during the 2008 Financial Crisis. That said, those investors overweighting value companies and focusing on shorter-dated bonds will find themselves in better space than most, though this is little consolation when returns are still negative in an absolute sense. Investing is never a straight-line journey. Wells Gibson's sensible, systematic portfolios which comprise a diversified basket of equities – with tilts in favour of value and smaller companies - paired with short dated high-quality bonds - have provided better results than most other solutions in 2022. In fact, Wells Gibson's portfolios as whole, outperformed over 70% of professionally managed multi-asset funds over the 12 months due to these portfolio decisions. Investors, such as clients of Wells Gibson, with portfolios denominated in British Pounds, have benefited from the strong performance of the US dollar, which has meant overseas assets translate back to more in British Pound terms. In US Dollar terms (which is often reported by MSM), global equities fell around 18% in 2022, around 10% more than when viewed in British Pound terms. Some major US firms like Tesla and Meta may have hit the headlines with share price falls of over 70% and 60% respectively in the past year, however, they only represent a small allocation – and thus have a small impact - in Wells Gibson's well diversified portfolios. Why not visit us at: And get a copy of the book, Purposeful Wealth here: Find all our useful links on our LinkTree - And why not visit us at: And get a copy of the book, Purposeful Wealth here:


Risky Business

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Don't Choke your Financial Future

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Absolute Returns? Absolutely Not!

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Spending Your Inheritance

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