How risk averse are you?

bowlhead99

As a trained accountant / auditor, my professional scepticism is ingrained...

But it's just one like any tax or benefits change really - if you try to simplify it someone will always be worse off and someone better. Person A will moan that they used to get 70% taper relief under the old system and now they just get their tax rate knocked down by 50% ; while Person B doesn't feel aggrieved that he now pays a much lower tax rate instead of getting only 20% taper, so he doesn't go running to the papers.

As such, all we generally hear about is the vocal people who pay more tax who are filling media articles about how the government is screwing over the poor man on the street, so we become naturally cynical about any change made in the name of simplification. Single tier pension etc etc.

chucknorris

MoneyMan3 wrote: »

I'm a gambler.

One of my friends was a very successful gambler (he is retired now, as far as I know, I haven't seen him for some years), and he was probably one of betfair's biggest customers. One night we were out for a drink in Battersea and I bumped into a betfair worker at the bar (he mentioned it in passing). When I said that I was with one of your company's most successful customers, he didn't really believe me, until I mentioned his name, which he immediately recognised, and asked if it would be OK if they all came over and spoke to him. I didn't want my friend hassled, so I asked him first and he was OK with it. We all ended up going on to a snooker club to extend the evening. I think they were all a bit in awe of him.

Glen_Clark

bowlhead99 wrote: »

I have my suspicions that they only brought in the new regulations at that point because they saw I was in the process of training to be an accountant and really wanted to screw me over

If they really wanted to screw you over they would create a simpler tax system everyone can understand, and then you would be out of a job.

Glen_Clark

chucknorris wrote: »

One of my friends was a very successful gambler (he is retired now, as far as I know, I haven't seen him for some years)

Was that whilst all the horse race rigging etc we've heard about was going on?

Thrugelmir

MoneyMan3 wrote: »

I'm a gambler.

I've been to a point to point meeting with a guy that was betting £100 to win. When the average punter was staking nearer 50 pence each way. Got 8 out of 9 winners that evening. Though lost £15k on the Arc de Triomphe the same year. No one ever gets it right every time.

chucknorris

Glen_Clark wrote: »

Was that whilst all the horse race rigging etc we've heard about was going on?

It was nothing to do with rigging races etc. He was just better at odds compiling than his opponents (he worked at IG (spread betting) as an odds compiler, although he retired from that, they retained his services on a consultancy basis). He didn't bet on things that he fancied, he bet when he considered that the odds were incorrect.

racing_blue

chucknorris wrote: »

He didn't bet on things that he fancied, he bet when he considered that the odds were incorrect.

"betting when you consider the odds are incorrect" seems like a great metaphor for a certain style of investing?

chucknorris

racing_blue wrote: »

"betting when you consider the odds are incorrect" seems like a great metaphor for a certain style of investing?

I'm not sure what you mean? But what he did was used his expertise and pitched it against other odds compilers, I remember a few of the bets that he made:

There was a change in the cricket rules about the way that 'wides' were defined and called. He said that the odds compilers had not adjusted the spreads enough to account for the additional wide balls that would be called. So he bought the number of wides in a cricket tournament (I can't remember what tournament that it was). He was right.

Similarly the rules for red cards in a world cup changed, he did exactly the same thing, he was right again.

This was only a small bet (it is all that they would allow), but he had £1,000 each way on Klose at 100/1 to win the golden boot in the 2002 World Cup, the odds were definitely wrong on that one. Klose came second in that world cup, (and he actually won the golden boot in the 2006 tournament). The angle here was that the UK bookies had overlooked Klose, at the time he was a 'young gun' and not widely known/exposed at the time. But one of his gambling friends (and also a football odds compiler) who spoke several languages, had been reading up on the squads going to the world cup on the internet, in various languages in the different participating countries, and he spotted that Klose was way over priced at 100/1. They didn't have to wait long to see that they had value, because Klose scored a hat trick in Germany's first game!

He also did a lot of 'bread and butter' betting on a daily basis too, which I don't know the details of, the only reason that I know about the above ones, is that they were made on tournaments that took time to finish, so as there was a lot of time between placing the bet and winning, he had time to mention those bets to me.

His big problem was that he couldn't get money on (because he was either barred or reduced to small bets with bookmakers), so he employed two people to put bets on for him in betting shops. Once I also let him use an old bank account of mine (with a debit card) that I didn't use, and he opened a couple of accounts in my name. But they were both subjected to a max £25 bet about a month after opening the accounts, so he closed the accounts, by then his winnings on that account were well over £100k, which I could obviously see on my bank statements.

I don't know how much he won, but I think that it was over £5m, and that was over 10 years ago, so it is worth more today. From what I've heard, he doesn't bet now because he knows that he doesn't have an edge any more. I'm pretty certain that he is far wealthier than we (my wife and I) are, and we are both multi-millionaires.

racing_blue

Chuck - i was thinking of Benjamin Graham's cigar butt approach. And perhaps more recent innovations like smart / value ETFs. Just a passing thought! Selecting not the best team/company, but the best odds/valuation

grey_gym_sock

chucknorris wrote: »

Capital gains tax at 28% can and often is ridiculously high, because the 'taxable gains' are not necessarily actual real term gains, if inflation is taken into account. It would be much fairer to tax capital gains at the same rate as income tax, but allow an indexation allowance (that old system was far fairer).

that was more logical. or at least less illogical. but you didn't get indexation allowance against interest on savings accounts. so you could get taxed on income which was merely keeping up with inflation, but not when it was in the form of a capital gain. to be more logical, all forms of investment return, whether income or capital gain, should be taxed similarly, which implies (as well as applying the same tax rates to all income and gains) either allowing indexation allowance to be set against either income or capital gains, or not having any indexation allowance at all.

in practice, some people are in a position to choose whether they get their return in the form of income or capital gain, so treating the 2 differently (in tax rates, or indexation allowance, or separate annual allowances) is an open invitation to invent tax avoidance schemes (e.g. to convert income into capital gains).

so long as inflation remains low, i think no indexation allowance is reasonable; but if inflation were higher, i would give some indexation allowance (which could be set against income for assets, such as savings accounts, which can't produce capital gains). no indexation allowance, with low inflation, would be intended as a deliberate small bias in favour of earned income (the opposite of what we have now). also worth noting that many people have non-tax-deductible job-related expenses - e.g. for commuting - so perhaps there would be no bias if you allow for that.

(i doubt the government realized inflation would be so low when they removed indexation allowance, BTW.)

For example if someone invested £1m in an asset (or assets), and over a period of 10 years their asset had increased by 30% (after deducting acquisition costs), they would have a taxable gain of £288.9k(allowing for their £11.1k capital gains tax allowance), which would be taxed at 28% = a tax bill of over £80k.

But if inflation had averaged say 2.5% per annum during that period, compounded that would be 28% in total. Therefore the true gain taking inflation into account would only be £15,625 (calculated by (£1.3m x (1/1.28)) - £1m), yet they would be paying far more in tax, than the actual real term gain.

well, did the asset pay any income while it was held? if it did, then the net total return - i.e. income plus capital gain minus tax on income and gain - may well be ahead of inflation.

also, a capital gains tax bill may look high because you it's all paid at the end - in a similar way that self-employed people sometimes resent paying tax more than people on PAYE, because they have to actually hand over the tax themselves. but, supposing the tax rates are the same, you get more benefit from compounding if you only pay at the end instead of every year. e.g. suppose your gross return is 5%, compounded over 30 years, and the tax rate is 20% ... if you pay the tax every year, you get 4% compounded, so you end up with 3.24 times your starting capital; but if you get 5% compounded, and pay 20% tax on the final gain, you end up with 3.66 times your starting capital. so even with the same tax rates, long-term capital gains have some advantage.