Stock investments are superior to investment in bonds, despite the general view that bonds investments are relatively low-risk, according to the world’s most successful investor, Warren Buffett.

Speaking at a conference for top US businesswomen organised by Fortune magazine, Buffett said of stocks investments: “It’s quite clear that stocks are cheaper than bonds. I can’t imagine anyone having bonds in their portfolio when they can have equities.”

For the world’s 3rd-richest man, with a personal net worth estimated at $47 billion in March 2010, low-risk investments may no longer be necessary – but even for the ordinary investor prepared to put their money away for a decade or two, the arguments for stocks and shares investments are what Buffett might call a ‘no-brainer’.

By charting the performance of a long-term investment in stocks and shares made in 1945, figures released recently by Scottish Widows shows that returns over a 60-year term were 70 times greater than investing the same sum as cash in a bank or building society account.

A sum of £100 invested in a building society account in 1945 would have been worth just £1,767 by 2006, according to Scottish Widows. Invested in bonds, the sum would have been worth £4,323.

However, the same £100 invested in the UK stock markets, as measured by the Barclays Equity Index and including dividends reinvested, would have grown to £125,243 over the same time period.

While bonds may be attractive for an investment of 5-10 years, as you are told in advance what your minimum return will be, stocks and shares investments are the clear winner in the longer term.

Warren Buffett’s investment activities are carried on through his investment company Berkshire Hathaway, which has been voted the world’s most respected company by the leading US business publication Barron’s Magazine.

The stamp duty break for those taking first time buyers mortgages may go, following the June 2010 budget report published this week.

The June 2010 budget report states: “As announced in the Coalition Agreement, the Government will review the stamp duty land tax relief for first time buyers, taking into account its impact on affordability and value for money.”

The stamp duty break means that the 1% stamp duty levy does not apply to properties valued at less than £250,000. It therefore saves first time buyers up to £2,500 in stamp duty.

The stamp duty exemption was contained in the last budget of the previous government, and fixed for 2 years from March 2010. The Labour government had calculated that the break would cost the government £550m in lost revenues over the two years.

For properties over £250,000, stamp duty is phased in according to three tax bands. For properties from £250,001 to £500,000 stamp duty is 3%. From £500,001 to £1m the stamp duty is 4%. From £1m upwards, a new rate of 5% comes onstream in April 2011.

This means that first time buyers purchasing a property for £249,000 pay nothing (i.e. is currently exempt from paying duty which would have been 1%). However, someone taking a first time buyer mortgage for £250,001 is immediately hit with a 3% stamp duty bill of £7500.03.

Who is a first time buyer?

The definition of a first time buyer is someone who has never owned a property before – not just in the UK, but anywhere in the world. In terms of mortgages, therefore, the stamp duty exemption is available only to those taking first time buyers mortgages.  For couples, both must fit the bill – i.e. you lose your status as a first time buyer mortgage customer, and must pay your stamp duty, if your partner has owned a property before.

The Revenue (HMRC) has recently replaced its simple Particulars Delivered form to make it more difficult for first time buyers to avoid stamp duty. While the Particulars Delivered form was a single sheet reporting names of buyer and seller and price paid, the new form is 6 pages long and records details of all elements of the sale.

This is because some buyers were reporting the price of the property at below the £250,000 threshold but then using a dubious excessive amount for  ’additional cost for fixtures and fittings’ to make the real cost of the property much higher. First time buyers deals with an excessive charge for fixtures and fittings or other add-ons are likely to attract the attentions of the taxman, who can investigate a sale for up to 9 months after the deal is complete.

Read more

The new report* reveals that while the number of seriously underperforming funds has risen from 77 to 90 over the last six months, the amount of money invested in these s0-called ‘dog’ funds is now £14.25bn, almost double what it was in January 2009. This is because adverse conditions in the markets in recent years have caused some of the country’s largest funds to slide into the ‘dog’ category.

“The last three years cover a period in which markets have fallen sharply and then recovered strongly. Funds which have managed to perform poorly in both conditions need to be inspected closely,” said Bestinvest.

In order for a fund to qualify for the ‘dog’ category in the Bestinvest report, it must be a UK-registered unit trust or open-ended investment company (OEIC) investing mainly in equities. The fund is then compared to the relevant benchmark or index, which for most is the FTSE All Share Index.

Then the fund must have underperformed the selected benchmark in each of the last 3 years, and have underperformed its benchmark by 10% cumulatively over three years as well.

The report serves as a reminder that any shares investment or stocks investment needs to be monitored on an ongoing basis, as a fund performing above its benchmark this year may not maintain its performance in the future.

One way to ensure that a shares investment is still performing well is by taking financial planning advice, preferably from an independent financial planner.

Principle First Financial Advisers offers a free funds portfolio analysis within its investments advice service, which will analyse a client’s existing shares investment portfolio, identify any underperforming funds, and recommend changes that should be made. Clients interested in setting up funds investments, Principle First offers a range of investment portfolios.

*Bestinvest’s quarterly ‘Spot the Dog’ guide to UK funds, Spring 2010

Would you like to discuss funds investments, or check  how your funds are performing? Contact us by making an online investment enquiry or ring freephone 0800 678 5929 now

One first time buyer in 10 believes that cost extras will amount to just £1,000 on their first home, when in fact conveyancing payments alone can amount to this much, according to the financial website unbiased.co.uk.

At the extreme end of the scale, 4% of first time buyers admitted they were completely unaware that any additional costs would arise at all, the research revealed. The data indicates the urgent need for quality independent first time buyer mortgage advice.

In order to cover the additional costs of homebuying, over two-fifths (41%) of first time buyers said they would break into their savings, while 18% said they would seek to roll these costs into their mortgage deal.

The principle costs associated with most mortgages deals include a survey of the home you wish to buy. Depending on the level of detail you require, the costs of a survey can range from £50 to £1,000.

Solicitor’s fees will range between £600 to £1,000 for a standard process, but if complications arise additional work may be required, at additional cost.

A local, environmental and water search will also be needed, and this will be charged to you by your solicitor, a cost of up to £300 depending on your local council.

If you are not a first time buyer, then you will not enjoy the current stamp duty holiday on all homes up to £250,000. If you are liable to pay stamp duty then this will apply at 1% of the cost of your home. For example, when purchasing a home valued at £200,000, as a second time buyer, you would have to pay £2,000 to the government.

Saving or investing for your own and your family’s future is not a complex matter, when you are working with a good financial adviser. We like to make it easy!

Here is our jargon-free round-up of the basic savings and  investment types, to show you the advantages and risks of each. These are just some of the options that we, as independent financial planners, might suggest you consider as part of your financial plan.

Cash investments in a bank or building society account are seen as the lowest-risk investments, but tend to provide lowest returns, especially now that interest rates are low. In the current climate, cash savings may actually fail to keep up with inflation.

Bonds are a way of ‘lending’ your cash to government or a company, over a set period and for an agreed rate of interest. The interest agreement may be fixed, or linked to an index such as the Retail Price Index, and the bond issuer undertakes to repay the original loan plus interest at the end of the loan term. While returns on bonds can be higher than from a bank or building society account, risk is also slightly higher, as the bond issuer may fail to make the interest rate payments.

Property You can invest in property to live in, to let, or to develop and sell. You can derive an income from a property you rent to tenants, at the same time regarding the property as part of your retirement planning, for example. However, if the property market declines, you could have to sell your property for less than you paid. The 1980s were good years for property values, but many investors were lulled into a false sense of security and discovered in the last decade that property values can also nosedive. When buying and selling property, timing is essential.

Equities are stocks and shares in companies. If you own them, you are entitled to a share of the profits – these are known as dividends. Values of equities can fluctuate in the short term, but tend to do better than cash over longer periods of ten years or more. As such, they are a long-term investment.

You can invest in all of the above asset classes directly, or through investment funds. Investment funds and unit trusts pool the cash of many investors, and buy cash, bonds, property and stocks and shares in many companies, to diversify and spread risk. These days, there are also ethical funds available, which aim to invest only in ‘green’ companies, or avoid certain industries known to pollute the environment.

Deciding how to save for your future is much less daunting, with just a little knowledge of the products on offer – and, of course, with good financial advice.

Interested in learning more? You can drop us a line right now by making a free financial advice enquiry here, or call 0800 6785929

The challenge continues for managers of ethical funds, in their quest to verify which companies really meet their ethical investment criteria.

Ethical watchdog EIRIS claims that almost half of manufacturing companies fail to monitor the record of the companies in their supply chain, with regard to workers’ rights and labour standards*.

EIRIS found that 45% of companies analysed had no ethical policy or management systems in place to protect labour standards among their suppliers, and therefore fail to report on the issue.

Focusing on developed world large and mid-cap companies, EIRIS found that 13% were high or medium risk for supply chain labour standards.

The consumer industry was by far the largest offender, accounting for 66% of these companies.

Products with the greatest likelihood of poor labour standards in manufacture are clothing, footwear, toys, consumer electronics, and agricultural items.

Interest in ethical funds investments is growing extremely rapidly in the UK. EIRiS reveals there is currently £7bn invested in ethical funds in Britain, compared to £1.5bn ten years ago.

Seventy per cent of people in Great Britain consider their outlook and lifestyle to be green and ethical, and 49% of people with savings and investments would like to make a difference with their money, EIRIS adds.

However, investors remain sceptical of how ethical so-called ethical investments really are, and 44% claim that clearer evidence is needed of the ‘green’ impact of ethical investments.

*Source: ‘A Risky Business’, EIRIS Convention Watch research

Only 19% of homebuyers during November were first time buyers, the lowest proportion of FTBs in the property market in a year, NAEA revealed.

Statistics compiled at local level by NAEA showed that nationally 16% of people do not want to own their own home*.

The number rises to over a quarter of people in Manchester (27.7%), Belfast (25%) and Brighton (25%), while Cardiff tops the national poll, with 30% of those surveyed not wishing to be homeowners.

NAEA chief executive Peter Bolton King attributed consumer disillusionment among first time buyers to the recession, but also to government’s refusal to extend higher levels of stamp duty relief beyond the end of this year.

Stamp duty of 1% is currently levied only on properties valued at over £175,000, but this will return to previous levels of £125,000 on 1^st January 2010.

*Source: NAEA survey of 1,800 British adults nationwide

Investors have gradually reduced the risk in their investment portfolios over the decade to date, with sales of equity investments falling to 49% of total sales (from 79% in 2000) and bond investments rising to 29% (from 11% in 2000).

Equities have had a choppy time in the past three years, topping the popularity league in 2007, but then coming in as least popular asset type in 2008.

Now they appear to be rallying, however, as equities have outsold bonds in October and November, indicating that investors are beginning to take on a little more investment risk as the year comes to an end.

While new investment in Individual Savings Accounts (ISAs) was down this year (£2.3bn of new savings compared with £7.2bn in 2000), ISA investors also showed the same marked tendency towards diversification over the decade, according to the IMA.

The IMA’s director of markets Jane Lowe said: “This may indicate that advice, guidance and investor protection are central to consumers when investing and can provide a degree of stability in times of market stress.”

*Source: Retail Investor Trends, IMA, December 2009

With so many mortgage categories, and so many variations within each, choosing a first time buyers mortgage can be one of the most confusing decisions of your life.

Types of mortgage

First of all, there are two principal types of mortgage. These are the ‘repayment mortgage’ and the ‘interest only mortgage’. Their titles reflect the fact that a mortgage repayment is made up of two elements:

1. First is the capital repayment, which repays the capital you borrowed to buy your home.

2. The second is the interest repayment, which pays the monthly interest due on that capital.

With a repayment mortgage, you repay both the capital loan and the interest every month, for an agreed term. A typical agreed term might be 25 years. At the end of that time, your mortgage is cleared.

An interest only mortgage repays only the interest on the capital, for an agreed term. This leaves the capital loan to be repaid in a single large transaction at the end of your interest repayment term. If you decide to go with an interest only mortgage, you normally set up a separate investment to cover the large repayment of the capital loan. Making a wise choice in this is crucial. If this investment fails to yield enough to cover your capital loan, you could be forced to sell your home in order to settle the debt.

Interested in interest?

Fixed rate mortgages allow you to fix your repayments for a period at the start of your mortgage, usually for the first one to five years. You know exactly how much you have to repay each month, because it does not change. If bank interest rates rise above your own rate during this period, you are sheltered from the rise. If, on the other hand, interest rates fall to below the level of your rate, you stand to miss out on the benefit, as you are ‘tied in’.

At the end of your fixed rate period, your mortgage normally reverts to the lender’s standard variable rate (SVR). From then on, your monthly repayment can change. Your payments can rise when the Bank if England’s interest rate goes up, and fall when rates are cut.

The second type of mortgage is the Variable Rate Mortgage. Interest on these is set by the lender and is free to fluctuate from the beginning. An increase in the Bank of England’s base rate can have a significant impact on your monthly repayment, and past realities show that several hikes in the rate can leave the typical mortgage holder with one or two hundred pounds more to pay each month.

Other types of mortgage available are tracker mortgages and discounted rate mortgages.

A tracker mortgage is linked to the Bank of England’s base rate (or another ‘base rate’) and moves up or down in line with changes to that rate.

A discounted rate mortgage gives you a special low interest rate for an initial period, and then reverts to a different rate, usually the lender’s standard rate.

Once these financial issues are resolved, there are the ‘practical’ expenses and purchases to consider: furniture and carpets, bathrooms, kitchens and tiles – the things that turn a newly-built shell into an attractive family home!

Meanwhile in the stock markets the FTSE 100 hit a six-year low this Spring, and many now believe that equity values are set for a gradual recovery.

Stocks and Shares ISA

Conditions have seldom looked better for considering placing your surplus funds in an equity investment, with a stocks and shares ISA being a popular way for savers to tap into a potential rise in the equities market.

A stocks and shares ISA allows you to place funds in an equity investment which will allow you to benefit from stock market growth on a tax-efficient basis.

With the current low interest rates, many savers are transferring funds from their Cash ISAs over into a stocks and shares ISA – although they must bear in mind that funds thus transferred cannot be transferred back again.

Historically, equity investments have tended to perform better than cash over the long-term. And in an equity fund, the risk is spread by investing in a range of companies over different asset classes. However, equity investments are subject to fluctuation and are not guaranteed – so while the potential gains are attractive, there is a risk that the value of your investment could go down. To put it another way, there is a chance that you could get back less than you invest.

Everyone over 18 can now invest up to £7,200 per year in an ISA, and this figure doubles for a married couple, even where one may not be a taxpayer.