Our content this month are as follows:-
Index Wealth Management Newsletter - June 2009
Welcome to this edition of our electronic newsletter. The newsletter is for Index Wealth Management clients, prospective clients and professional connections; it will be posted conventionally for those who do not have or choose not to use electronic communication.
Although we seek market returns for clients, some people are surprised that we do not use index trackers. We have used trackers in the past, but not been entirely happy with the way they are constructed and with some of their features.
Two of the major problems with trackers are, first of all, there is a huge bias towards the results of those large companies at the very top of most indexes and, secondly, whenever the index is reconstituted, there is an obligation to buy companies at a high price that are coming in and sell those that are going out at a low price.
Three or four years ago, Dimensional began to develop their "core equity" approach, in conjunction with their limited number of supporting financial adviser firms. With this approach they deliberately reduce the exposure to very large companies, in the process increasing their exposure to smaller and "value" companies. This means there is greater exposure to those areas of the market that provide the highest returns. One of the factors of investment that we pay great attention to is reduction in management costs and Dimensional were able to achieve a reduction in trading costs, rebalancing and reconstitution costs. This means that investors will achieve higher returns and with our own testing we were also able to determine that risk would be reduced.
In a nutshell, the core equity approach reduces risk, reduces expenses and increases investment return, when compared with tracker funds.
The "Efficient Market Theory" came under fire this month in an article by Tom Stevenson in the Daily Telegraph. As well as confusing it with Milton Friedman's free market philosophy he seemed to think that the events of last year, combined with those of 2000 to 2002 somehow undermined the theory.
The problem for those who take issue with the efficient market theory is that they cannot point to another theory that explains market prices; more than that, as Stevenson concedes, whether you believe it is true or not, active fund managers find it almost impossible to beat markets. Recent events simply show that once accurate information is fed into the system prices reflect that new information and in a nutshell that it is simply what the theory says.
The Sunday Times of 21st June carried an article about Nouriel Roubini, who was billed as one of the world's most respected economists, having predicted the credit crunch and the housing meltdown. For this reason he is also known as "Dr Doom ". The newspaper was interested to know what his opinion of the current situation is and suffice it to say he is not too bullish. History is littered however, with those who have made one successful prediction which they find impossible to repeat; after any economic downturn, stock market reversal or housing collapse the newspapers will always find one or two well-known people who "got out" just at the right time - usually this is down to sheer luck. There is one interesting quote from Mr Roubini who responded, when asked about his personal finances: - "As for actively managed funds, I never saw the point of paying someone large fees for substandard returns."
Networking Success!
One of our long standing clients Mark Panayides, whom some of you may know is currently having huge success marketing businesses by organising networking events on their behalf. Mark is a business investor and has been promoting his own business investments via networking for many years.
As a prolific networker, Mark is incredibly well connected and his events are extremely well attended by high calibre business people. All events are bespoke and are delivered with a distinctive personal touch and friendly committed service.
If you would like to speak to Mark about your networking opportunities he can be contacted on 07976 154394 or via email on info@markpanayides.com.
In additional, testimonials on past events can be viewed on Mark's linked-in profile www.linkedin.com/in/markpanayides or at www.edgecreativesolutions.com (one of Mark's companies).
Mills and Reeve - Minimising the chances of a dispute after death
Much of the good work you may have done investing wisely and protecting your assets during lifetime could be undone if you fail to take adequate steps to consider the position following your death. The first and most obvious step is to have a detailed and tax efficient will prepared by a competent professional. But be warned there are a number of grounds on which even a well prepared will can be contested.
Disputes over wills can arise, for example, where there is a question over whether the testator had the requisite mental capacity at the time the will was executed; whether they knew and approved the contents of the will; where the will has been improperly executed or if the will was procured as a result of undue influence.
Even where there is no dispute over the validity of the will, or someone dies intestate, how their estate passes can still be questioned if someone makes a claim under the Inheritance (Provision for Family and Dependants) Act 1975.
The best advice to avoid any possible claims is to ensure that you make adequate financial provision for those who have a reasonable expectation to receive something from your estate. If you are elderly or infirm at the time of executing your will, it is prudent to get a specialist medical practitioner to confirm you have capacity. You can also help by showing your reasons for making certain dispositions, preferably via a letter of wishes to accompany your will, with the will draftsman making detailed attendance notes of your instructions plus an explanation why your wishes have differed from any previous wills. Alternatively, ensure you spend every penny during your lifetime so that there is nothing left for others to fight over!
If you would like to discuss this further you can contact the author, David Catchpole, who is an associate at Mills and Reeve Solicitors, Birmingham at david.catchpole@mills-reeve.com
This month we are recommending "The Return of the Economic Naturalist" by Robert H. Frank.
Robert H. Frank is a New York Times columnist, whose mission is to show us how economics makes sense of the world (the subtitle of the book). In each chapter he discusses broad economic principles, such as taxation, and uses selected columns to illustrate the principle concerned. It is extremely effective and as well as clarifying and explaining economic concepts it is interesting and thought provoking.
It is available from good bookstores and Amazon, but if you have any difficulty finding it please contact vickie@indexwm.co.uk.
"Courage is resistance to fear, mastery of fear - not absence of fear."
Mark Twain
"True courage is a result of reasoning. A brave mind is always impregnable."
Jeremy Collier, English bishop, (1650 – 1726).