Our content this month are as follows:-

• The Budget
• In the news
• Paperless solutions
• Books we have read
• Quotes of the month

Little good news in the budget, particularly for high earners. Labour's promise at the last election not to increase personal tax rates has gone by the board and high earners face income tax rates of 50% plus. Because of the complicated way the personal allowances reduce on earnings over £100,000, some will pay effective tax rates of 60% on at least part of their earnings. Given that Labour have admitted that they expect a large proportion of taxpayers in this bracket to avoid this higher tax, it can only be assumed that this measure was brought in to mollify their more socialist members.

Moving now to pensions and despite this government's commitment to pensions "simplification" they have made the calculations for high earners extremely complex indeed. Effectively, anyone earning more than £150,000 per annum will be restricted to 20% relief on contributions above £20,000. The restrictions come into effect from April 2011 but measures have been introduced to stop individuals making large contributions prior to that. Those that have a pattern of large contributions, made monthly or quarterly in recent years will be able to continue until April 2011, but please check with us before making any large contributions whatsoever. The detailed rules on this will not be with us until summer, after "consultation" and we will know more then. We intend to discuss this with those affected on an individual basis, but if you have any queries in the meantime then please contact us.

Better news on individual savings accounts; if you are over 50 on the 6th October 2009 you can invest another £3,000 into your stocks and shares Isa, giving you an overall total of £10,200 for this tax year. The limit for cash ISAs has gone up to £5,100. These new increased limits apply to all from the 6th April 2010; again we will keep you updated at our regular meetings.

Good news also for owners of old bangers - you can receive £2000 for scrapping it if you buy a new car. The drawback is that you need to have owned the old banger for at least 12 months, so those who have been collecting rust buckets in anticipation of this measure may have to wait a while before cashing in.

John Authers has a regular column in the Financial Times entitled " The Long View" and in his column of 25th April he reviews research from Rob Arnott of Research Affiliates, which has concluded that the return from long-term bonds in the US has outperformed the US market over the last 40 years. Many have jumped on this particular piece rushing to the conclusion that the "cult" of equities is dead, without really understanding what the phrase means. The "cult" of equities took hold in the 90s when individuals and, in particular, institutions began to devote more and more of their portfolios to equities rather than bonds. In addition "alternative" assets began to appear, such as commodities, hedge funds and private equity. In his article, Authers makes the comment, "This statistic proved that many Americans who will retire soon should be deeply unhappy with their equity investments. Beyond that what does it tell us?”

We have run the figures ourselves and doubt that many Americans who will retire soon will be unhappy with their equity investments, as over the 40 year period discussed (up to the end of February 2009) the S&P 500 produced an annualised return of 9.98% per annum. Admittedly long-term bonds produced an annualised return of 10.06% with marginally lower volatility. When we analysed a portfolio made up of 60% of equities (the S&P 500 index) and 40% of long-term government bonds, we discovered that the annualised return increased to 10.41% per annum producing a total return almost 14% greater than a bond only portfolio. Again, we doubt that many portfolios were made up of 100% equities in 1969, although there will be many since, particularly in recent years. So, investors could have had a greater return from a classical 60/40 portfolio and if they had been students of investment theory would have diversified their equity investments globally, again increasing return.

We have available a very interesting article entitled "The 60/40 Solution” from Peter Bernstein (author of "Against The Gods" and one of the most respected names in finance), written in 2002, pointing out the benefits of a portfolio diversified into bonds, as well as equities. He rightly points out that it will serve investors well in good times and bad and if you would like a copy of that article please contact vickie@ indexwm.co.uk

At Index we have been paperless for more than 10 years. This gives us huge freedom and efficiencies from not having to store large amounts of paper. Faith Stonehouse of Paperless Solutions tells you how you might go about it.

Whilst we can never completely remove the need for paper in the office, there are some compelling reasons for moving to an electronic document archiving system. Faith Stonehouse, Managing Director of Staffordshire based firm Paperless Solutions, explains:

“Paperless Solutions is an archive scanning company. We specialise in transferring all of your paper based files onto disk and electronically indexing them for easy retrieval at a later date. The equivalent of 10 boxes of paper files can be held on just one single disk. This enables a business to rid the office of its old filing cabinets and put the space to much better use.”

“A considerable benefit is the disaster recovery aspect of electronic archiving. Paper is not a secure format for storing your most valuable company information, even a small fire or flood could wipe out your entire business records in seconds. Electronically archived files are easy to back up and highly resistant to major unforeseen events. And you can archive in small stages thus spreading the cost. By the time the project is complete you are likely to have already seen return on the investment.”

To find out more contact Faith Stonehouse of Paperless Solutions on 01827 875266.

This month we are recommending, " On Being Certain " by Robert A. Burton M. D. The book is subtitled, " Believing You Are Right Even When You’re Not " and will give you a flavour of the subject matter.

A major theme of the book is how we arrive at a feeling of knowing something to be true or correct. It discusses how the memory works, particularly when recalling an event some years afterwards and how studies of those who have suffered brain damage help us to understand how the memory can, more often than we would think, play tricks on us. The author distinguishes between "semantic" and "episodic" memories; semantic memories are made up of dates and times and the sort of facts you might have learned in a history lesson, whereas episodic memory relies on your recollection of an event - you might be able to guess which is the more reliable! There are chapters on reason and objectivity, faith and why the unconscious may always be a mystery to us. This book will make you think about your thinking.

It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact vickie@indexwm.co.uk.

"It is never too late to be what you might have been."
George Eliot

"The real measure of your wealth is how much you'd be worth if you lost all your money."
Anon