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Monthly Archives: July 2014

The Truth About Statistics



Statistics Blog 2There’s a lot of cynicism about statistics and some of it is entirely understandable.  Whenever there is any sort of controversial debate both sides will inevitably trot out statistics to support their viewpoint.  Even the same set of statistics can be interpreted in different ways by different people.  Statistics, by their nature are generalizations, whereas we as humans often find it easier to grasp specific examples.  We can be told a fact about a certain percentage of the population, but it only becomes meaningful when we see people who put a human face to the statistic.  With that in mind, let’s look at some of the statistics about income protection in the UK and see what they really mean.


The size of the industry is massive compared to the size of the population


At December 2010 there were estimated to be just below 7 billion people in the world of whom around 61 million lived in the UK.  That means the UK is home to just below 1% of the world’s population but its insurance industry is the 3rd biggest in the world.  In 2012 the number of term, life, and other protection policies active in the UK was estimated to be around 29 million, and these have paid out almost £200 billion in claims and benefits.  Insurance companies employed over 300,000 people and paid over £10 billion more in taxes.


Insurance companies are more than twice as likely to pay out as people think


Many people may be pleasantly surprised when they come to make a claim on their insurance.  The public think that fewer than 40% of claims are successful whereas the reality is that over 90% are.  These claims cover everything from cars and homes to pets with over a £1 million a year being paid out on cats and dogs alone.  In terms of human health, 60% of successful income protection claims relate to disorders which would be outside the scope of critical illness cover.

You may have more control over your premiums than you think


A recent study found that a third of people who were without income protection insurance felt that it was too expensive for them.  This is in spite of the fact that 20% of people will be off work for more than three months for health reasons at some point in their lives.  While protecting against potential threats always comes second to being able to pay your bills in the here and now, there are simple ways to reduce the cost of income protection insurance.  Income protection insurers are increasingly moving to offer lower premiums to people who take care of themselves – and the savings made by moving to a healthier lifestyle (e.g. giving up smoking and reducing alcohol) can be put towards these premiums.


Young people can get sick too.


Children have an absolutely incredible ability to repair themselves after cuts and bruises, and even broken bones.  A small percentage of them, however, do get seriously ill.  Worryingly, 66% of families do not have a financial plan in place to manage a child’s illness if it meant they had to give up work to assist with their care.  Approximately two thirds of people with critical illness cover for themselves do know whether or not their policy also covers their children.  Many policies do actually provide some level of cover for minor children.  While this may be the healthiest period of a person’s life, young adults can be afflicted with critical illnesses and therefore their financial needs should ideally be assessed on the same basis as those of more mature years.

Why is everyone talking about Neil Woodford?

Blog ImagePeople have been writing about Neil Woodford for years, his success as a fund manager has attracted the interest of financial writers and economists from the national papers and TV, so why recently has he been propelled, in investment terms, to the level of a household name?

About seven or eight years ago, the personal finance section in every Waterstones was bristling with biographies of or books by or books about Warren Buffett; the ‘sage of Omaha’ who famously refused to follow the herd and invest in anything with a .com after its name or simply any technology he didn’t understand, had become a celebrity.

Buffett’s fame and his standing was hardly anything new, ever since the 1920s and the era of frenzied over speculation that led to the Wall Street Crash, investors have become public heroes.

John J Raskob, the man who built the Empire State Building published a famous article just two months before the crash titled ‘Everyone Ought To Be Rich’ urging people to have blind faith in stocks and shares.

Raskob was perhaps the first celebrity investor, but as you can imagine, the public’s love affair with his was somewhat short lived.

Woodford, like Buffett, wisely avoided the .com boom in 2003, ignoring the short term feeding frenzy while he was running his High Income fund and the Invesco Perpetual Income fund.

In a Guardian article dating back to 2006, the working day of Neil Woodford was worlds away from the frenzy one normally associates with investing; at a quiet office in Henley On Thames, the lack of a frenetic pace and Woodford’s decisions often to ignore the pack mentality have clearly been part of his success.

In March this year he stepped down from heading his two celebrated funds to form Woodford Investment Management. His successor at Invesco Mark Barnett explained Woodford’s philosophy and strategy; to invest long term and only in companies he has absolute faith in.

Often this has meant sticking to his investment decisions when the sector or companies he has invested in have ceased to be fashionable, exciting or zeitgeisty. He is a fan of tobacco stocks and has stuck with them even when it appeared increasingly likely that there would be a smoking ban in pubs and restaurants in the US and UK.

Irrespective of the ethics of the investment, the lesson is clear, by not giving in to either greed or fear (the two prime motivators for any investor), Woodford’s investments have soared.

Some £2bn in funds were withdrawn from Invesco when Woodford left, which gives us an insight into the faith that his clients have placed in him as an investment manager; the Telegraph reported last year that £1,000 invested with Invesco would have appreciated in value by £23,000 over the course of 25 years – extremely impressive performance for investors looking to build wealth in the long term.

Many of the clients that Woodford has enriched in the past two quarter century, including fund supermarket Hargreaves Lansdown have followed him to his new venture. The new rules around fund charge transparency have created new opportunities to invest in Woodford’s fund for less.

Hargreaves Lansdown themselves are offering a commission rate on Woodford’s fund of just over one percent (a more standard rate across the industry before the new rules was about 1.5 percent).

The reduction in fees is a change that is affecting funds across the industry so this is not an act of largesse, but altogether it adds up to an interesting opportunity for investors.

America’s Winter Blues


Friday's BlogAmerican Independence Day is an opportunity in the United States to reflect on the country’s current challenges and to celebrate its successes.


This year, whilst the economic news may have recently been encouraging, there are dark clouds on the horizon and they may have implications for Britain too.


In both Britain and America, the last five years of financial austerity has seen a great deal of economic pain for the squeezed middle and the working poor.


The boom of the late 1990’s and 2000s created huge debts and deficits that needed to be repaid and massive distortions in housing and financial markets which we are still feeling the after effects of now.


One of the encouraging things to emerge from all this economic hardship has been record growth from 2012 onwards on both sides of the Atlantic, giving rise to hopes that in Britain and America, our two heavily interlinked economies were both turning a corner.


These hopes might be premature in America’s case; in the first quarter of 2014 US GDP actually shrank, despite the 4.1 percent increase in output in the last quarter of 2013. Some onlookers have blamed the extremely harsh winter that America endured at the end of 2013, causing a downturn in consumer spending and an increased caution in US businesses in investment.


The old adage that when America sneezes, the rest of the world catches a cold is to some extent true, but to extend the analogy to breaking point, it really does depend on the health of other countries in the first place. The winter chills that have brought on America’s sneezing might not yet lead to a world pandemic.


Any downturn in the US, however temporary, will obviously impact on British exports to America and the relative value of the pound, but the economic ‘pain’ that the British economy has gone through in the last five years should have left it better able to weather financial shocks.


In the past five years Britain has undergone an enormous structural adjustment in her labor market, a reduced state sector and a surge in unemployment have been addressed (for better or worse) by a huge increase in freelance and zero hours employment.


Not all of these new jobs involve stacking the shelves in ASDA, and the fact that representatives of the new booming digital industries were recently invited to Buckingham Palace to meet the Queen gives a clue as to their new importance to Britain.


If there is any short term transmission of America’s problems it is unlikely to affect the British economy directly, but that does not mean that UK investors have no reason to be cautious.


In the short term, it is worth looking at the funds, shares and bonds you might hold in an investment portfolio to see what is directly issued by or related to the US economy.


If your fund has invested in US property, for example, or owns a portion of government debt, or is involved in higher risk ventures such as technology then it is worth considering in the next six months how much risk you wish to be exposed to.


All pundits seem to agree that the downturn is likely to be relatively short term and will correct itself later in the year, so if you are investing for the long haul (as most prudent investors tend to be), then it might be worth allowing your portfolio to take a temporary hit and to focus on the next quarter’s figures.

Our Top Ten Ideas For Remortgaging

re-mort planningRemortgaging has become much more challenging and complex in the last few months due to new Government regulations that stipulate that borrowers must not be allowed to take on more debt than they can afford. This means that remortgage deals will only go to borrowers who can prove their financial well being and lenders will want a full audit of your incomings and outgoings. Here is a quick list of our top ten ideas to help you get the home loan you need.

1. Organise Your Finances
If you take an organised approach to your personal finances, reviewing your mortgage deal once every three to five years and then planning any possible remortgage in a systematic way, it will be financially rewarding. Often, the difference between people with a comfortable standard of living and those without isn’t so much their salary as the ability to organise financially.
2. When In Doubt, Ask…
It goes without saying that when we are dealing with personal financial decisions of the magnitude of a mortgage or remortgage, one should always ask for advice. There is a wide array of products and rates on the market at any one time and the sheer level of choice can be overwhelming. There are also countless web pages full of free and for the most part reliable and impartial advice, and if this isn’t enough, you can always pay for a session with a mortgage qualified independent financial advisor.
3. Know Your Loan
Before you start the process of remortgaging, look at your existing deal. Are there any hidden pitfalls, early repayment or exit fees? Finding this out will give you a clue as to how expensive the whole transaction will be ultimately.
4. Look For Hidden Costs
There is no point in switching to a mortgage that you hope will save you money in the long run if the fees, charges and other costs actually wind up forcing you to spend more. Make sure you know exactly how much the remortgage will really cost you before you accept the deal.
5. You Might Be On First Name Terms, But Don’t Be Fooled…
Whilst you lender might pour you a coffee when you have a consultation, or seem friendly and nice, remember that they work for the lender and the lender takes care of itself. Similarly, if there are extras and benefits in the deal, rate caps, cash back offers and the like, be certain that the lender will have already included a way to claw back the money later on with interest. This isn’t to say that you should reject any benefits, just know them for what they are.
6. Look For Remortgage Packages

You might find that there are specific mortgage offers tailored to you. The majority of offers apply to anyone who hits the eligibility criteria for a mortgage, but there are some packages that are specifically designed for borrowers in your circumstances and they might be more flexible or cheaper in the long run.
7. We All Love Our Homes But…
If you over inflate the price or the perceived value of your home, you are bound to be disappointed sooner or later. Lenders will lend based on what they think the property will sell for, not what you would like it to sell for.
8. Your Credit Score Is As Important As Your Property Value
Credit checks are an inevitable part of life in the 21st Century. We are now living in a time when our entire financial history can be purchased and examined. With this in mind it’s important to make sure you know exactly what has been written about you before the lender does. You can get your credit score from Equifax, Experian and Call Credit, along with advice about how to improve your score.
9. Get Your ID In Order
Your lender will want to see that you are who you say you are (countless frauds are attempted every single day) and that you actually own the property you are hoping to remortgage. If you have your proof of ID, utility bills, deeds to the property and Council Tax bill organised before you even get started, you will save yourself stress in the future.
10. Get Insured
Lenders look favorably on the insured. If your mortgage is protected against untimely death, long term illness, redundancy and other unforeseen problems, you will make yourself a less risky prospect in the eyes of lenders