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Asset Allocation and Bonds
Comments
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I love these threads.
They always follow a similar pattern, being kicked off by a novice investor who struggles to articulate the question because he doesn't know the terminology, and then in weigh the big fellows who - before long - get into a tussle which has pretty much nothing to do with the original question at all.0 -
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Is dunstonh an IFA? I didn't realise. He keeps it so quiet.0
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No. It's too cautions to fit a really aggressive stance.Does this sound like a good diversified portfolio for growth for a agressive risk investor?
With a fifteen year timespan an aggressive mixture would be dominated by emerging markets, natural resources funds and Asia-Pacific. The truly very aggressive might be all in emerging markets. You're a bit too much in the developed markets for that. It's still quite high on the risk and potential growth front, though. I'd personally cut back on the UK, Euro and America portions and up a corporate bond (not with profits bond) portion for rebalancing into when the markets are doing well. But that's me and a quite aggressive approach for a 15 year timespan.
For fifteen years I'm not greatly keen on gold either. It's doing decently now but it's also at uncommonly high values now so I think that over 15 years the value is more likely to fall than rise. I'd be interested in holding it as a portion of a managed natural resources fund so the manager can move out of gold or into it as seems necessary.
I'd avoid the Youngster Bond. With profits funds are largely discredited and it's not a good match to the rest of your portfolio construction. If you do want it, treat it as simply part of your UK shares allocation, not as a part of corporate bond allocation. If you're limited to fixed monthly contributions you can't rebalance into or out of it as you'd want to with a real corporate bond holding, so you can make money from the ups and downs of the markets (buy more during ups, sell to buy equities after drops). So it's not hugely useful to your plan and for an aggressive plan it's just a drag on performance.0 -
Since whiteflag seems to have disagreed without taking the trouble to give details, see CTM40325 - Particular bodies: friendly societies: exemption for life or endowment business, specifically "Tax credits on dividends and other distributions from a UK resident company ... were payable to the society ... for distributions made before 6 April 2004". That 10% tax on dividend payment reclaiming is no longer around and the remaining corporation tax benefit is of limited value. An earlier provision ceased to have effect back in 1999.
The limitations on contribution rates and inability to use it as a proper bond holding matter more than the remaining tax benefit.0 -
With a fifteen year timespan an aggressive mixture would be dominated by emerging markets, natural resources funds and Asia-Pacific. The truly very aggressive might be all in emerging markets. You're a bit too much in the developed markets for that.
Had you accounted for smaller company exposure? He had mentioned UK and European smaller companies. I also have US and Japanese smaller company funds.
To the OP: don't rush into anything and read up on the topic of building a portfolio and what you can do to control your risk and returns.
I'd start with William Bernstein's "Four Pillars of Investing" and then maybe check out his other book or move on to Roger Gibson's "Asset Allocation" to get an appreciation of what you're getting involved in.0 -
Really depends on how much in them and how aggressive he wants to go, so I allowed for it a bit. He's already more aggressive than most people would want to be but for his timespan that makes a lot of sense.0
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Tax free is a red herring as only fixed interest sector investments (bonds) benefit from the tax free status. Equity and property is taxed within the fund.
This appears to be incorrect.
With an ordinary endowment, all gains within the fund are subject to tax up to 20%.(This is why endowments are obsolete - no such tax applies to the same investments within an ISA).
But with a friendly society plan, gains on amounts invested up to £25 a month accumulate free of tax.
http://www.scottishfriendly.co.uk/regular/index.htmlNo matter how much you invest, the first £25 of your monthly contributions will be invested tax-free. That's because under current law, you can save this amount tax-free with a friendly society. Tax-free means free of income and capital gains tax *except for taxes on UK dividend income from UK shares.
The rest, if any, will have the tax on any growth automatically deducted by Scottish Friendly. So if you invest £40 a month, £25 will grow tax-free and £15 will grow tax paid.Whatever amount you decide to invest at the end of the life of your plan there will be no tax to pay, even for a higher rate taxpayer.
Nobody would bother with friendly societies if this wasn't the case.
*The reference to dividend tax refers to an historical ability claim back a former tax in pensions ISAs and FS plans which is no longer applicable.Trying to keep it simple...
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Externally to the consumer there is no tax to be paid. However, internally tax still exists on the dividends within the fund.
So, there isnt going to be any difference on the taxation within the fund compared to a unit trust unless its on the fixed interest component. Externally, a small regular contribution isnt likely to be subject to capital gains tax and there would only be further taxation if the OP is a higher rate taxpayer. If basic or non tax payer then there is no further tax.
So, the tax free label, whilst correct, is a bit of a red herring because it has very little or no benefit to most people. The high charges of this product more than wipe out what little benefit there is.
And they probably shouldnt bother unless they can get a low cost one and have it heavy in fixed interest securities or are a higher rate taxpayer with their ISA allowance fully utilised every year.Nobody would bother with friendly societies if this wasn't the case.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0
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