The Importance of Financial Planning

New Pension Legislation Relevant to Small Self-Administered Schemes

The Minister for Social Protection, Heather Humphreys announced in a press release issued on Tuesday the 27th of April that she has signed the European Union (Occupational Pension Schemes) Regulations 2021. (IORP stands for Institutions for Occupational Retirement Provision). This means that the EU IORP II directive will be transposed into Irish law through the amendment of the Pensions Act 1990.

How will this impact your Executive Pension Plans?

The legislation specifically targets the Administration and Investment Rules for Small Self- Administered Schemes including Executive Pension Plans. While one-member schemes, such as EPPs, have been granted a transitional period of 5 years to adopt the legislated changes, the increased governance and trustee responsibilities required by the rules are designed to bring immediate benefits to consumers.

What are the Administration Rule changes?

The New Regulations

• Cover trustee qualifications where trustees must pass a “fit and proper” test, risk management, auditing and reporting, cross-border activities, solvency and supervision.
• Provide better protection through enhanced governance and risk management.
• Provide clear, relevant and more consistent communication about pension schemes.
• Remove barriers to cross-border schemes.
• Ensure that trustees have the necessary powers and credentials to supervise schemes.
• Small schemes (schemes with less than 100 members) and trust RACs are no longer exempted from the IORP investment rules.

What are the Investment Rule changes?

The change in investment rules are effective immediately. They apply some restrictions to EPP investments as follows:
• Scheme assets must be predominantly invested in regulated markets. This means that direct property investments and unregulated investments will be restricted to no more than 50% of the aggregate portfolio. We await guidance on what this might look like in practice.
• Scheme assets must be properly diversified in such a way as to avoid excessive reliance on any particular asset, issuer or group of undertakings and accumulation of risk in the portfolio as a whole and
• Environmental, Social and Governance (ESG) issues must be considered when making investments.
These conditions apply only to new investments or borrowings entered into by EPPs and are not retrospective.

What is next?

The Pensions Authority will provide further information and guidance over the coming weeks and months, to ensure the new obligations are fully understood. We are working through the changes as quickly as we can with our providers and will update all our clients where appropriate.

If you have any queries regarding how this new legislation may affect your scheme, please contact our office on 046 92 40961.

The Importance of Financial Planning

Lifetime Financial Planning Remains Open During Lockdown

We at Lifetime Financial Planning wish to reassure our Clients that we are included in the Government’s list of Essential Services. So we are continuing to work as normal through the lockdown. We have however switched to conducting many Client meetings online, and our Clients are finding this very convenient and safe also in these Covid times.

So stay safe everyone and we will all get through this.

Aidan Wall QFA FLIA SIA RPA

The Importance of Financial Planning

The Short and Long Term View

Over the recent economic cycle, the acceleration in Global equities Returns was driven by three catalysts including (1) growth in corporate Earnings (2) a downward trend in interest rates (with bond yields reaching all time lows and indeed dipping into negative territory) and (3) massive liquidity injected into the financial system by Central Banks. (Notably, this resulted in their balance sheets being expanded from $4 trillion to $22 trillion since before the Great Financial Crash). And “Voila”, we are where we are today with market valuations.
Looking across Global Markets, we see divergence in the returns since 2014 when the US (in blue) is included & excluded (in orange). (EAFE: Europe, Australasia, Far East)

 
WORLD & EAFE Standard returns since 1998
NET RETURNS (Euro priced) FROM DEVELOPED MARKETS WORLD (incl US) AND EUROPE AUSTRALASIA AND FAR EAST WORLD (EAFE) (ex US) (Source: MSCI)

 

Taking a closer look at the US markets, we observe today that the Cyclically Adjusted Price Earnings Ratio CAPE for US Equities (shown below) is about 30.6 times earnings compared to its 20 year average of 25.6 and its all time PE average of 17.1. Similarly, the Buffet Indicator (Market Cap to GDP) currently stands at 176.6%. To put that into context “fair” value falls in the range of 93% to 114%.

Ratio of current US500 levels

RATIO OF CURRENT US500 LEVELS TO 10 YEAR AVERAGE PE RATIO ADJUSTED TO INFLATION (CAPE) (Source: Shiller RS)

 

Though US valuations usually tend to be higher than other global regions, it is reasonable however, to attribute this (over) growth in US market valuations (by in large) to the technology sector. While overheated valuations within sectors are not unusual, it appears that the US growth stocks are particularly affected by over exuberant market participation leading to often eyewatering valuations. Indeed, one could argue that we are in a period of irrational exuberance within this sector when we see stocks like Tesla inc (TSLA) trading at Price/Sales = 13.8x, Price/Book Value = 35.2x, Price/Earnings = 224, and EV/Operating cash = 101.3x.
So, the CAPE, Buffet indicators (& others) suggest that US equities are indeed overvalued implying likely lower returns in the long term.
Casting our “Valuation” eyes around the globe however, we see a different picture. In Europe, Australasia, the Far East and Emerging Markets, valuations (and hence long-term returns) do appear more attractive. As the chart below shows, current Price to Earnings (PE) and Future Price to Earnings ratios (fPE) are lower than those for the US.

 
Current & Forward Price to Earnings Ratio

CURRENT (in blue) AND FORWARD (in orange) PRICE TO EARNINGS RATIOS FOR GLOBAL EQUITIES (Source: MSCI)
As investors really favoured “Growth” over “Value” factors for the past 5 years, we are now seeing attractive entry points across the European, Australasia, Far East and in particular, Emerging Markets. An opportune time then to consider adding a list of some of the worlds great and innovative companies to your portfolios from these regions?
Perhaps, but as always, we need to add further consideration and perspective to the analysis. As we begin a cycle of more challenging corporate outlooks and continued low interest rates, global earnings too, will be challenged and we shouldn’t be surprised if overall future returns are lower than the last decade. Indeed, within sectors, we shouldn’t be surprised where we also see swift reversal of fortunes of stocks which are currently in favour.
So how does all this distill into your long-term Financial Plan? From a practical viewpoint, if your plan contains long-term financial objectives, having a solid core of funds invested in Global Equities in your portfolio provides a decent foundation for long-term returns. Being Globally invested, your investment will already be positioned to take advantage when investor sentiment shifts to more attractive valuations within markets and across regions.

At Lifetime Financial Planning, our core beliefs continue to be…..that portfolio diversification, time in the market, not timing, passive investments and a long-term horizon all lead to decent and consistent capital returns in portfolios. We just have to remain disciplined (some would say boring), accept the short-term volatility and ignore the “noise”.

Michael Wall CFP® PhD is a Director of Lifetime Financial Planning. Aidan Wall Financial Services Ltd Trading as Lifetime Financial Planning is regulated by the Central Bank of Ireland. All views and details contained within this article are for information purposes only, are subject to change & are not advice. We recommend you seek independent clarification for your particular circumstances. Lifetime Financial Planning makes no representations as to the accuracy, completeness nor suitability of any of the information contained within and will not be held liable for any errors, omissions or any losses arising from its use.

The Importance of Financial Planning

Stick to the Plan – Time in the Markets!

Just a brief note to share a thought on the recent market activities. As a long-term investor in equities, I remind myself regularly that I am buying a small stake in the world’s most innovative companies. These global businesses are the service, travel & leisure providers, drivers of technology and manufacturing advancements, medicine discoverers, communication enablers, food producers, green energy innovators, etc. who shape the world as we know it today.

 

Investment Although it is nigh impossible to put a future value on these companies currently, if you are a regular investor, today you are purchasing a stake in these companies at a discount to what they were valued at two months ago.
If you are fully invested, then it is worth noting that you already own that stake and if you SELL now, you are gifting somebody else a potential bargain.

 

Remember, SELLING equities in a temporary decline in markets could lead to a permanent loss to your portfolio and a bargain to someone else, which is not rational.  

 

Experience from a decade ago teaches us that these world innovators will adapt, will revamp their business, will tool up and will face the new business environment in a post Coronavirus era. This may involve new ground being broken, a change in business and work practice or new products and services.
So, during these temporary declines in valuations, it is important to remain rational and recall that it is “diversity & time in the market, not market timing” which leads to better investment returns over the long term. This is exemplified by the S&P500 index of North America’s biggest 500 companies (above)
If you have any queries or concerns about current market conditions, please do give me a call on 085 866 9813.
Please do stay safe & check in on those who are cocooned.
Michael

The Importance of Financial Planning

Is the Stock Market Downturn Any Cause for Concern?

In any given year, even in good years, the World Stock market will be minus an average of 15% at some point during the year.

Every seven or eight years the market will be down two or three times that, minus 30% to 50%. Right now we are going through one of those major downturns. Is this a cause for concern ? the answer is no, we have been here many times before.

In the past forty years for example there have been six major downturns in 1981, 1987, 1990, 1998, 2002, and 2008. At times like these the benefit of having a Lifetime Financial Plan becomes clear, because it allows you to see the big picture. Give us a call if you want to discuss any financial planning matter.

The Importance of Financial Planning

A Little Care and Attention Can Save on Tax

Many people own shares in publicly listed companies such as Aviva, Glanbia, Ryanair, Kerry, Vodafone etc, but few are aware that a little care and attention in managing these can save you a considerable amount of money in tax.

At Lifetime Financial Planning, we provide that attention. Invest 20 minutes of your time today and we will show you how.

For Personal Financial Planning advice, talk to Michael or Aidan, at Lifetime Financial Planning today. Visit us at www.lifetimefinancial.ie then call us on 046 9240961. Lifetime Financial Planning; with you every step of the way.

The Importance of Financial Planning

Stand Back from the Scrum Snips #5

Its happening again, Stock markets are at all-time highs and confidence is flying high. But at Lifetime Financial Planning we use our tried and tested Value Based Investment Strategy to identify good value for our Clients. And from the 600 largest companies in the US and UK, only 12 meet our value criteria currently, which means 98% are not good value. However, the good news is we are likely to see a lot of Volatility in 2017, and volatility always means good value buying opportunities for our Clients.

Talk to us if you would like your Pensions and Investments to be managed in a strategy with a long (20 year) successful track record, and with a focus on value for money assets.

As always, bear in mind that Investments fall as well as rise, and past performance is not a good guide to future performance.

The Importance of Financial Planning

Moved Job – Lost Track of your Pension ?

Lost track of your pension after moving jobs?

If you work in a job which includes a Pension, then you have a valuable asset. If you move to another job though, you might have lost track of your pension, especially if you change your address.

Indeed you might have moved job several times, and have several Pension pots. The safest solution may be to take control of these assets yourself so then there is no danger of losing track of them.

If you need help in relation to this or any other financial matter give us a call at Lifetime Financial Planning, Michael 085 866 9813 or Aidan 087 2621 006.

The Importance of Financial Planning

Will you have enough to retire?

It’s a worry, isn’t it. You don’t want to run out of money after you stop working, or have to live in austerity. You may have a mix of things you are relying on, a business, property, pension fund, cash savings, your home. You may also have debts, loans. So it’s complicated, and the State Pension is good, but not nearly enough, and will it stay the pace ?

Our Recommendation. You need a PLAN. We call it a Lifetime Financial Plan, because it’s a long term plan, taking everything into account. And as your circumstances change, the plan is updated so you are always on track. You can get more info about this on our website www.lifetimefinancial.ie In making the plan, we also make sure you are making the best of any opportunities, such as saving tax. The sense of relief, and peace of mind that having a plan brings, means you can confidently get on with enjoying your life.

To find out more, and take the next step to your Lifetime Financial Plan, give Aidan a call at 087 262 1006 or Mick at 085 866 9813.

The Importance of Financial Planning

Meeting Investment Expectations

Investors now have a much wider range of investment choice open to them than ever before, ranging from the US stock market to the value of the euro versus the Japanese yen, the price of commodities such as oil, German government bonds and a whole range of other securities. For the non-professional, attempting to devise an appropriate investment strategy with all of these options and choices available can be a daunting task.

It is widely understood that higher investment returns are accompanied by higher risks. While we might dream of making a killing on the stock markets, however, we might not want to risk our hard earned cash on high risk strategies. Fortunately there are now some quite useful and necessary tools available to assess an individual’s risk appetite to ensure they don’t find themselves outside their comfort zone.

There are three key elements that feed in to an investors profile and risk tolerance with regard to the investment strategy required.

  • Attitude to Risk
  • Requirement
  • Capacity

Attitude to Risk

This deals with the individual investors own risk attitude and/or their tolerance of risk.

“How can I emotionally handle moves in the value of my portfolio?”

Are you likely to panic, for example, if there are significant downward movements in values? On the other hand are you a bit of a gambler and feel you can take on lots of risk and volatility in order the achieve high returns? To get the balance right the attitude to risk then need to be co-related to requirement and capacity, bearing in mind that in most cases taking some level of investment risk is key to higher investment return.

Requirement

Here the need is to focus in on what is the objective of any investment. If, for example, the investor has €200,000 and wishes this to grow to €300,000 over 10 years this is probably achievable without too much risk. On the other hand if the need is to do this over 3 years then history shows us what short-term volatility can do to an investment over that period. In addition an individual’s requirement when it comes to investing a capital sum for example could be quite different to the same individual’s requirement for his pension scheme. In the first case the time horizon may be quite short while for the pension you are probably looking at a longer term.

Capacity

This is perhaps the most important consideration of the lot and deals with the individual’s ability to take the financial risk.

“If this investment lost a significant amount of its value would it make a material impact on my financial position?”

Capacity is particularly important for individuals taking on higher levels of risk obviously. Risk tolerance and appetites change over time and can actually change very quickly. It could be a significant inheritance or business success that changes circumstances for the better or when it comes to pension planning it will be necessary to calibrate risk capacity the closer the person gets to retirement. Suffice to say that there are strategies to suit each circumstance and it is vitally important you review risk tolerance regularly.


Aidan Wall has been providing impartial and unbiased investment and pension advice to clients at all stages in the their lives since 1983. If you would like to talk to Aidan about a lump sum investment or pension fund please call 046 924 0961 or email: aidan@lifetimefinancial.ie

At Lifetime Financial Planning we also conduct regular reviews of your investment / pension fund performance, which we believe are the key to ensuring your chosen fund(s) can meet your expectations.

The Importance of Financial Planning

Serious Illness Cover – Protecting Your Family Income

How often does it happen that you bump into an old friend in the shopping centre or at a social gathering when, not long into the conversation, you learn of their suffering or that of someone close to them? Primarily your concerns are for their well being and that they make a full recovery, but what we often overlook are the associated financial costs which may impact heavily on a family or an individual. These could include loss of earnings, treatment or care and/or medical equipment which could aid recovery. What’s more, your financial situation should be the least of your worries if you were to become seriously ill.

We often overlook are the associated financial costs of a serious illness which may impact heavily on a family income, including loss of earnings, cost of treatment or care and/or medical equipment

Another consideration is that people are now living longer than ever and as a consequence the chances of being diagnosed with a serious illness are higher. Below lists out some more common serious illnesses and the average number of people affected in Ireland each year:

Cancer – 20,000 new cases each year*
Stroke – 10,000 per year**
MS – 250 new cases diagnosed each year***

One way to potentially alleviate such costs or worries would be to put a Serious Illness Cover policy in place. Serious Illness Cover, also referred to as Critical Illness Cover or Specified Illness Cover is designed to provide financial support in the event that a person suffers from / is diagnosed with an illness which is specified in the policy conditions. The plan pays a cash lump sum which can be used to offset costs during recuperation.

In recent years, Life Assurance companies have enhanced their offerings in the area of Serious Illness plans. We are now seeing the addition of illnesses to their specified lists and indeed the addition of partial payouts for more minor conditions / accidents. Although hard to think about, most plans also include some level of cover for children at no additional cost.

What is covered?

Most insurers now cover in the region of 40-50 illnesses but a key point for consideration is that the range of conditions varies between one insurance company and another. The statistics show claims to be greatest for malignant cancer, heart related diseases and stroke. On a more positive note, however, survival rates have improved significantly with advancements in science and research.

If you have ever asked yourself the question; “How financially secure would my family be if I became seriously ill?” and if the answer is “not very” then consider Serious Illness Cover.

Of course, it is extremely important to seek professional advice in this area and with that in mind please contact us to arrange a discussion.

Who should be covered?

Ideally the main breadwinner of the family should be covered, especially if that person is self employed and if an inability to earn an income would impact on their family finances.

*Source: National Cancer Registry, Ireland ** Irish Heart Foundation *** MS Ireland


If you would like to seek impartial and unbiased advice on Serious Illness Cover then please contact Aidan Wall at 046 924 0961 or email aidan@lifetimefinancial.ie

We can help you to gauge what level of cover you might need or whether you even need any cover at all. We can also research the market to find you the appropriate product in terms of price, terms and level of cover.