The worry over liquidity is real – no-one necessarily foresaw the worsening liquidity in commercial property in the mid-2000s, for example, but the repercussions were profound. Kames Investment Grade Bond fund manager Stephen Snowden has been particularly vocal in suggesting that, as issuance has declined in corporate bond markets, the largest funds may struggle to liquidate their positions in the event of a sell-off. In such an instance, it is plausible corporate bond funds may have to stem redemptions.

This thesis is however premised on a significant sell-off in bond markets and, while US treasury yields have risen, it would be premature to sound the death knell for fixed income just yet. The US Federal Reserve is the only major central bank currently contemplating the end of its monetary easing program – largely because the US is the only economy that has shown a strong enough recovery to merit it. Back in the UK, the 10-year gilt has moved out from 1.8% to 2.07% over the past month.

For his part, Chris Sexton, investment director at Saunderson House, reckons any sell-off in the bond market ought to be self-correcting so that, as yields reach higher levels, income-hungry investors will once again decide bonds look attractive and reinvest. A near ‘risk-free’ asset, such as a treasury, on a yield of 2.2% may just about be worth an investment for the risk-averse – particularly as, for the time being at least, none of the other major global economies are recovering with any vigour.

This suggests a pattern of bond yields rising and then falling, rather than a dramatic rise. The market has long been aware that any sniff of a rise in interest rates would disrupt the decade-long bull market in bonds, which makes a panicked response seem less likely.

Nevertheless, the question for investors to weigh up has to remain why take the risk? It is clear the upside in bonds is limited, as is – in most cases – the income stream. If the downside is a calamitous sell-off and the upside is a few basis points of return, why would investors not start to consider alternative options?

[If you are concerned that you are overly exposed to bond investments or would just like a general financial healthcheck, feel free to contact us and we will arrange for a qualified financial adviser  to get in touch with you.]

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There is not much to be excited about to be honest. The tone is pretty gloomy although there is not much in the way of new information.

Keep checking back for further updates. As soon as we have anything new, we will post it.

Spot gold fell through $1600 an ounce for the first time since August last month and finished trading in February at $1,578, having retreated 12% from a peak just below $1,800 back in October.

The gold price fell 5% in February alone as demand for the safe haven metal declined amid signs of a turn in the economic cycle and positive gains for stock markets around the globe, continuing a trend seen in the final quarter of 2012.

Gold ETFs – a key driver of the gold price – have seen massive outflows in February, with SPDR Gold Trust (GLD), the world’s largest gold ETP, on track for its largest monthly outflow since launching in 2004.

Smaller gold products such as the Comex Gold Trust and ETF Securities’ GBS fund have also reported declines.

Billionaire investors such as George Soros have already liquidated their holdings in the GLD cutting his stake by half in the last quarter.

Late last month, and somewhat late to the party, Goldman Sachs also revised down its gold spot price forecast by a huge $200 plus.

It now sees the spot-price at $1,615 in three-months’ time, and at $1,600 in six-months’ time.

In the note it said: “Most of this price decline has coincided with a gradual increase in US real rates, reflecting the combination of better-than expected US economic data, a more hawkish interpretation of recent Fed communication and a lower level of US fiscal and European sovereign risks.”

It added: “The decline in prices since last fall and our updated forecast suggests that the turn in the gold price cycle is likely already underway. As a result, although our US economic forecasts point to modest near-term upside to gold prices, we believe that a sharp recovery in prices to our previous price forecast is unlikely.

“In fact, we suspect that if indeed our forecast for further declines in gold prices proves correct, the fall in prices could end up being faster and larger than we expect as net long positions across COMEX futures and ETFs remain near their record highs.”

There are a number of certainties, the first being the pressure the downgrade puts on sterling. As markets began to digest the news, the FTSE 100 rose – hardly surprising in itself as such a large chunk of UK plc’s earnings are derived overseas – but sterling sold off significantly. Some alarmists have even suggested the pound may dip to parity with the euro.

While making for expensive summer holidays, this could represent good or bad news for investors. Those with existing unhedged overseas funds will already be seeing those assets become more valuable and this will be particularly positive if they have an income from overseas assets, which should now rise. However, it will make buying foreign assets more expensive, so a local bias may be more rational for new fund flows while sterling remains under pressure. Investors certainly need to be aware of the risks they are now taking.

This is also likely to be another nail in the coffin for gilts. For some time it has been difficult to find any fund selector or asset allocator supportive of the asset class and, in general, the market has been held up by ‘captive’ buyers – in other words, pension funds and of course the Bank of England through quantitative easing – rather than because anyone thought there was value to be found.

At the margins, some foreign buyers or money market funds may have been buying gilts because of the UK’s AAA rating but their departure, if it comes, seems unlikely to prompt a significant sell-off – and certainly not if the Bank of England’s Monetary Policy Committee sanctions a further round of quantitative easing.

On the whole, however – and much as with the US and France before it – the UK downgrade had been so well-flagged as to come as little surprise to markets when it finally arrived. As some commentators have pointed out, the rating agencies have been consistently behind the curve and may be best ignored.

For a start, the UK’s situation is not materially different to a year ago. Furthermore, the agencies’ approach of downgrading the US because the country is not doing enough to address its deficit and then downgrading the UK because it is doing too much is quixotic to say the least. While some UK politicians are going to have to deal with a degree of wounded pride, the downgrade is likely to mean little for investors – and certainly for those who were already alert to the potential for sterling depreciation. The markets continue to be one step ahead of the rating agencies.

[To receive a FREE copy of our new expat guide to living and working abroad, just contact us.]

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The lender, which both securitises the lending its makes, as well as managing portfolios for third parties, is looking to add directly to its corporate cash pile by issuing a senior unsecured bond.

Fixed interest at the rate of 6% per annum, will be payable semi-annually in arrears on March 5 and September 5 of each year until September 5, 2020, with a final short coupon payable on December 5, 2020, the date the bonds mature. The first coupon payment will be on September 5, 2013. At any time during the life of the bonds, investors are permitted to sell the bonds (within market hours and in normal market conditions) on the open market.

Buy to Let (BTL) has been one of the surprising success stories of the recent financial crisis. In the darkest hours of 2008 it was assumed that the knock on effect of the crisis would be a fall in property prices, a fall in the rents that could be charged and an increase in vacancies which would send many BTL landlords over the edge.

In the spirit of that pervading opinion Bradford and Bingley, a better known provider of mortgages to the BTL sector, was nationalised without compensation in the Autumn of 2008. The bank could no longer fund itself in the wholesale markets, the government offered no liquidity (unlike with Lloyds and RBS) and no white knight rode to the rescue (Santander took over Alliance and Leicester at that time). Buy to Let was deemed too toxic. Paragon, however, survived, with a timely rights issue paying off their existing bank debt.

Buy to Let landlords did not, however, suffer the fate that anticipated. The nationwide fall in property prices has been limited and in London prices have resumed their strong upward trend. Even if landlords are underwater on the value of their houses and flats they have benefited from record breaking ultra low interest rates and at the same time steadily rising rents, significantly improving their cash flow. Landlords’ purchases have changed from a capital gain to income producing proposition.

With the favourable background of BTL mortgages Paragon has prospered and not least because much of the competition has been removed. Here is some basic information about the company. They were launched as a specialist lender in 1985 and now have a loan book of £9.6bn (which would make them the equivalent of the 5th largest Building Society) and they have around 350,000 active accounts. BTL mortgages constitute £8billion and consumer lending £1 billion of the portfolio. They have an impressive record at generating profits and were profitable through-out the current crisis. 2012’s group profits were a record £95.5million, up from £50million in 2008. They also have good cash flow of around £100 million per annum.

With margins much higher and LTVs lower on new business, new mortgages are more profitable than legacy/ pre-crisis business. In addition to writing new business they have also purchased nine loan portfolios worth over £3billion. Most of these are consumer loans which are higher risk, involve more costly administration but have much higher margins and run off very quickly. Banks have many more potentially juicy disposals to make in order to achieve required capital levels and doubtless Paragon will be picking over them.

The particular strengths of Paragon are two fold. Firstly they take no interest rate risk. Paragon does not take deposits and therefore all their mortgages, bar a short period in which they are warehoused while sufficient volumes are accumulated, are securitised. Any interest rate rise will only have a modest effect in two indirect ways: A) Paragon will earn more on their own equity (roughly 10% of the loan book) and B) by potentially undermining the credit quality of their book. Unless rates were to go stratospherically higher A is likely to positively outweigh B.

Paragon’s other strength is their expertise and experience in managing and administering a stream lined mortgage business. Their attention to detail results in very impressive arrears figures. As of the 3rd quarter 2012 arrears on all CML (Council of Mortgage Lenders) is 1.93%, CML Buy to Let arrears were a better 1.51% (bearing up the Bradford and Bingley/ Northern Rock experience) but Paragon themselves had an excellent arrears rate of 0.48%. Paragon also earns money providing loan servicing to third parties (eg hedge funds) who are otherwise competing with them for the purchase of portfolios.

The 6% interest rate is viewed as generous and this issue would be worth considering for expats as part of a QROPS or SIPP portfolio. It would also be interesting for holders of offshore portfolio bonds (e.g. Skandia Executive Investment Bond, Friends Provident Reserve, Generali Professional Portfolio) who are looking to draw an income and are struggling to find interesting yield elsewhere.

[Caveat - This article is not and should not be construed as advice. Each individuals circumstances are unique and this bond may not be suitable for you. However, if you would like to discuss it's suitability in more detail, please contact us.]

More than 20 million codes, which tell you how much of your income will be tax-free, are sent to 16 million people at this time of year.

But already The Daily Mail has seen several cases where the code – a combination of letters and numbers – is wrong.

Mistakes typically occur when someone has several sources of income or where they have received a large one-off boost, such as a dividend payment, in the previous year.

This can leave someone paying too much or too little tax in future years. The problem is compounded because a rule that allows taxpayers to fight unfair bills is being quietly thrown out by HM Revenue & Customs, according to the Daily Mail.

Tax bosses want to overhaul a special concession used by hundreds of thousands of people each year to contest debts they believe have been caused by mistakes at HMRC.

The new rules make taxpayers themselves directly responsible for checking their code is correct and spotting mistakes. If they fail to do this, their appeal will not be upheld.

This will make it all but impossible to claim, since the vast majority rely on their employer or pension provider to take care of tax matters.

Previously, to qualify for an appeal the mistake had to have been spotted within 12 months of the end of the tax year, and the people owing the cash had to have had no reasonable way of knowing they were underpaying.

Read more: http://www.ifaonline.co.uk/ifaonline/news/2249230/warning-if-the-taxman-gets-your-bill-wrong-its-officially-your-fault#ixzz2LRlVC9MA
IFA Online – News, blogs and analysis for IFAs. Visit the website now.

If you already have money invested in ISAs then you can keep that invested. However, you are not allowed to add new money.

[Contact us to discuss alternative, tax efficient ISA alternatives.]

There are many ways to avoid this, some of which are more proactive while others are reactive in nature. But none of them are particularly difficult; all any of them really require is discipline and a modicum of common sense.

Here are my top 6 ways in which you might be endangering your retirement.

1. Taking Too Much Risk – You worked and sweated for years to accumulate enough money to be able to live a comfortable retirement. Therefore, this is probably not money that you want to use to start trading commodities futures contracts unless you are very experienced with them. Derivatives, small cap stocks and other high-risk ventures including many UCIS funds should be approached with caution and used judiciously as part of a well-thought out investment strategy.

2. Not Taking Enough Risk - This mistake can be every bit as costly as the first one; those expatriates who invest their portfolios too conservatively may find that their expenses are outgrowing their income. Gilts and other fixed income investments can be great foundations for any retirement portfolio, but virtually all retirees need to have at least a small portion of their assets invested in either equities or other real assets in order to provide themselves with a hedge against inflation.

3. Retiring Too Early - Early retirement has become something of a status symbol among expats. However, early retirement can also be disastrous for those who are not adequately prepared for it. For every five years that one wishes to retire early, at least GBP100,000 of additional assets should be saved (assuming a payout of GBP2,000 per month and a rate of 6%).

Those who choose this path should therefore be prepared to accept a reduced income if they have not made adequate provision.

4. Failing to Plan for Long-Term Care - Nothing can destroy a retirement portfolio like having to pay for the cost of a nursing home or other long-term care without any kind of insurance protection. Nursing home care can easily eat up and savings that you have salted away.

There are “spend down” plans available for those who wish to follow their rules, but these plans can be substantially disruptive to daily living in most cases. Purchasing a long-term care insurance policy is usually the preferable alternative for those who wish to address it in advance.

5. Retiring All At Once - For some expats, the radical adjustments that come from retirement are too much to absorb all at one time. It may be necessary to work another, lesser job for a time, such as a part-time job with an employer in a field in which you have an interest. A few years of this type of work may allow you to “gear down” sufficiently to total retirement at some point. This strategy can also help to stretch an insufficient retirement portfolio a long way.

6. Living Beyond Your Means - As obvious as this is, those who spend more than they have in retirement will find themselves in dire straits at some point. Run the numbers carefully before you buy that 54-foot yacht or that vacation home in Tuscany. These items often fail to fetch their purchase prices if you have to sell them, so think twice before you plunge into a major pleasure purchase that will eat up a material chunk of your savings.

Conclusion

These are just some of the ways that you can ruin your retirement if you’re not careful.  For more information on how you can avoid these mistakes during retirement, consult your financial adviser.