Smoke and numbers
by Doug Brodie
/1. Great Uncle Cecil and the African savannah
If you haven’t done so already, you need to put an LPA in place, for yourself. It’s likely that at some stage you’ll become unable, or unwilling, to make decisions about your money or your health and that’s the purpose of the Lasting Power of Attorney – it authorises people who you specify to make decisions on your behalf. If you don’t have an LPA, those decisions will still be made on your behalf but by strangers within the NHS and the civil service.
Like insurance policies, the LPA should be a waste of time. You can go back and change the people (attorneys) that you appoint, and you can appoint one or several people, family or professionals or a mix.
Do it online here: https://www.gov.uk/power-of-attorney/make-lasting-power
Make a lasting power of attorney
You can make a lasting power of attorney (LPA) online or using paper forms.
Either way, you need to get other people to sign the forms, including the attorneys and witnesses.
You can get someone else to use the online service or fill in the paper forms for you, for example a family member, friend or solicitor.
You must register your LPA or your attorney will not be able to make decisions for you.
It takes 8 to 10 weeks to make an LPA if there are no mistakes in the application. It’s usually quicker if you make it and pay online.
Next, dear Uncle Cecil has a stroke whilst in the African wetlands, chasing a sighting of the White-winged Flufftail, needs a medical evacuation back to Blighty, and you’re the favourite niece, how do you enact the LPA to get the money to pay for his repatriation?
Go here: https://www.gov.uk/use-lasting-power-of-attorney
You need a code/key via the website, however, if the LPA was registered before 1st January 2016 you’ll need to send in a paper form. If it was registered after 17th July 2020, the activation key is in the letter telling you that the LPA had been registered.
/2. Here’s how much discount you get with us…
100%. You cannot buy an investment fund, company, scheme with more than nil adviser charge. We once had a very learned (haughty?) lawyer client, partner at one of the global Big4 firms (a household name), who at the age of 50-ish came to us for income planning. He proudly displayed the portfolio he’d self-created including a £100,000 bond with Prudential. He then wanted to discuss fees, pointing out his obvious competence (it wasn’t bad), and that he’d done all the admin himself previously by going direct to the providers. I showed him the relevant part of the Prudential paperwork that showed they had charged him a simple £6,000 upfront. Direct is never cheaper, I think he was slightly embarrassed when I pointed out the reality.
For clarity, investment trusts are simply the same as Vodafone – you buy their shares in the stock market, you buy them from other investors who are selling their shares, there are no costs such as commissions and upfront fees as you might find with unit trusts and pension funds; you buy those directly from the investment company, so you buy Aviva pension funds from Aviva and Fidelity unit trusts from Fidelity.
/3. Who stole your cheese?? When 3% is more than 6%.
We love this chart: it shows the actual investment in the FTSE100 over 30 years – that’s the grey section – and it shows the theoretical value of the same invested sum at the same annual growth rate. The difference is the orange shows the return when the average growth rate is applied to each and every year, whereas the grey box is the reality – it averages all the returns of all the up and down years, those returns averaged at 9.27%.
This shows the potential fallacy of averages when trying to compare investments – both scenarios below have an average growth rate of 9.27% but the grey box has returns much higher and much lower during the 30-year period.
And it gets worse - when is 3% more than 6%?
Take two funds, one whizzy, one plodding:
Whizzy average over five years is 6% pa
+30%, -25%, +35%, -21%, 11%
Plodding average over five years is 3% pa
+3%, +3%, +3%, +3%, 3%
Oddly, the 3% average fund produces more profit (just, but you get the argument), than a fund with twice the average growth. This is why our investment strategy is based on ‘Winning the Losers’ Game’, the fundamental outline of our investment strategy.
/4. Slide 99 – what’s the point of trying to guess annual asset allocation?
This is from the wonderful team at JP Morgan; it shows the ranking of each investment sector over the last ten years. Emerging market equities were top in 2017 and 2020, developed markets in 2023 and 2024. Interestingly the 10-year return for developed markets was top at 135, and emerging markets came in with a lowly 6.3%, a full 51% less – is that what you’d have guessed? I very much suspect that if the table was taken back to 25 years the stats would be different – the tech collapse of dotcom would have washed out the tech gains of 2023/24. But hey, that’s all history and you can’t invest in historical returns, only the future. So, if you have an adviser or investment manager telling you they need to rebalance the asset allocation for the coming year, you might want to ask for the evidence.