Yellowtail Blog

Dennis Hall is mentioned in the Independent on Saturday in the Invest & Save section providing a wealth check to Lucy Minshall from London.

[She] may have left university far behind her, but the debts she racked up there still haunt her. “I’ve been working for two years, but I’m still trying to get over my student loan and overdraft,” she says “I just about survive on my salary but have nothing left to save for a rainy day. I can’t even begin to think about getting on the property ladder, and I had hoped to stop working when I have children.”

 
You can read the full article on The Independent website.

The hullabaloo about Mervyn’s letter and we are talking about an inflation rate of 3.3%!

I heard an interesting comment from an economist on the radio the gist being the reason we feel inflation is a lot higher than Government figures is because the goods we buy regularly are going up in price dramatically. With my gas guzzling car I do seem to fill up every week and notice the price of petrol! Prices of irregular purchases such as clothes are supposedly dropping.

For a dose of reality, or if you’re like me and aren’t going to be buying any new clothes for a while (I have a closet full of things that I’m not planning on growing out of) you may want to look-up your personal inflation rate on the National Statistics website.  Their neat calculator will give you a monthly estimate of your inflation rate based on the goods and services you buy. Turns out my inflation rate went up to over 20% annually in October 2007 but is now back to around 3%.

We have also been using this to analyse some of our clients spending before using the personal inflation figures in their financial plans. It makes for more accurate planning and can be quite revealing.

Here’s something I wrote a while ago to explain to a prospective client why we felt we were different to most other financial planners out there.

For as long as I can remember, financial advice has been paid for by commission, and that’s still the case today. So it is understandable that there can be a mental block when someone asks you to pay a fee for the advice.

People who come to us for advice like the idea that advice stands alone, real independence you might say. But for some; paying for advice without commission might be a leap of faith too far. Perhaps it would help if we used an analogy to explain our thinking? I turn to the world of golf to help me make my point:

It’s relatively easy to get started in golf and there’s an endless supply of self professed experts to tell you where you’re going wrong. But eventually you reach a plateau. Unable to improve your game any further you figure it’s time to spend some money.

You haven’t got unlimited time and money to throw at the problem so you narrow it down to a couple of options. The Golf Pro working in the shop will analyse your swing and give you some tips before recommending a new set of clubs, he won’t charge you anything which is good because the clubs are expensive enough right? The other option is to spend some time and money on having some individual tuition and lessons, but if you do that you still have to play with your existing clubs, you cannot afford the two.

In the end you decide that new clubs will give you the edge, and the few pointers that the pro gives you will be enough to improve your handicap once more. And so it goes on, each time you reach a plateau you buy newer and better equipment and get a couple of tips to improve your game.

But what if you had chosen the other option? You meet the Pro, the one who isn’t on a commission from the shop, and you sign up for some lessons. After watching you take a few swings with your old clubs the pro picks up a club and steps up to the tee. You watch in awe as ball after ball flies straight and true. It’s clearly not the equipment that’s the problem.

Having seen what’s possible you listen carefully as your coach deconstructs your swing and slowly shows you how to swing properly. Old habits linger and it takes practice, but eventually it begins to fall into place. You begin to understand why when you do x, y happens. Your game is better.

And in a similar way that’s what we do, after analysing your current financial position we coach and educate you toward the life you want - your ultimate game perhaps. We’re not here to sell you a set of new clubs; we’re here to help you build a game plan.

Dennis Hall is on the panel answering questions following the 2008 Budget announcement.

You can read the questions and Dennis’ answers on the AOL Money website.

A Wealth Check in the Independent features Dennis Hall providing advice to Gina who wants ‘to be debt-free by the time I turn 40′.

Gina Coldrick, 31, from Warrington says that her biggest financial goal is to be debt-free by the time she turns 40. But with a young daughter to support, and a restrictive salary, she is struggling to break even. “I am only making enough to cover bills,” she says. “I have found myself eating into my savings and using my credit card for extras.”

You can read the rest o f the article on the their website.

Dennis Hall gives advice to a teacher planning for retirement and hoping to maintain his family’s lifestyle in retirement.

WITH a large house, two salaries, two cars and the funds for £4,000 trips each summer, the King family is not used to financial worries. But their budget will tighten considerably next January, when husband Alan retires from teaching after 33 years.

The 59-year-old, who lives in Worthing, West Sussex, with his wife, Sue, 43, and sons Jack, 15, and Sean, 6, is keen to ensure that savings and investments of more than £60,000 are best placed to support their lifestyle. “I have no idea where to start,” he says.

On retirement, Alan will forfeit a salary of £41,000 for a teacher’s pension of £16,800, plus a £50,000 lump sum. Sue, like Alan, teaches geography at the local school, on a salary of £34,000 and will continue until retirement in 2015.

You can read Dennis’ advice to Alan on planning for retirement on The Times website.

Dennis Hall contributed to an article in The Times advising a young couple on their family finances.

Life looks pretty good for Jessica Whittaker and her partner, James. Jessica, 34, a voiceover artist, and James, 35, a documentary film-maker, have a combined income of about £150,000. They live in an attractive three-bedroom house in Putney, southwest London, and are proud parents of nine-month-old Bella.

Read the rest of this article on The Times website.

It all started last week when a fund manager type gave us brief presentation. He showed us an in-house “work in progress” giving the returns of various asset classes over a 30 year period. Alongside each asset class were two different average annual growth rates, which I thought odd so I asked him for an explanation. “Too complicated for me old chap” came the reply, “but one is the arithmetic mean and the other is the geometric mean”.

What are they? Well if you started with £100 and in year one it fell to £80, you would have suffered a 20% fall. If in year two it recovered up to the original £100 it would have grown by 25%. A fund manager might claim that minus 20% in year one followed by a plus 25% in year 2 means an overall gain of 5% approximately equivalent to 2.5% per year. This in simple terms is the arithmetic mean.

The geometric mean takes the same start and end figures but would conclude that to, start with £100 and end with £100 the average rate of return would be 0%. OK so this is a very simplistic exercise but it illustrates a point.

My concern is that the arithmetic mean figures for various investment indices show deliciously high average annual returns, perhaps enough to encourage inexperienced investors that it was a risk worth taking for such high average returns.

Eventually we received a copy of the “work in progress” which had been turned into a “sales aid”. Funnily enough the average rates of return for the various indices was only represented by their arithmetic mean – thus overstating the actual returns that might have been achieved by investors.

Fortunately for our clients, when we undertake our analysis we use the geometric mean.

I’ve just come back from an interesting morning with JP Morgan discussing behavioural finance, the science of behaviour in financial markets and decision making.

Consider the following scenarios: If you have £1,000 and are presented with 2 options, which one would you take? (You must take one). The first option means a loss of £500, no more and no less. The second option is that on the single toss of a coin you will either keep your £1,000 or you will lose the lot, which one will you take?

Most groups of people that I have encountered show that the majority of people take option one, preferring to keep a guaranteed £500 rather than possibly lose it all.

The second question is similar but instead you are starting with £2,000 and you can either a) voluntarily give up £500 or you can b) toss a coin to either keep your £2,000 or lose £1,000.  In my experience (and this is borne out through other studies and research) the majority of people will take the second option, even though the probability of a negative outcome is exactly the same as in the first scenario.

Interesting but it doesn’t exactly answer why supermarket trolleys appear to be getting larger. However, the following might. A recent study by a major UK supermarket asked shoppers the following question: “when did they know when to stop shopping?”

By far and away the most popular answer was not related to shopping lists or budgets, but was in fact simply that the shopping trolley had become full. The supermarket’s answer therefore was to increase the size of the trolley and hey presto, a significantly increased turnover. Are we equally irrational in our investing decisions as we are when out shopping?

Dennis Hall advises an agricultural researcher as part of a financial makeover in The Times.

SARAH COOK enjoys an attractive rural lifestyle. She lives in a £250,000 three-bedroom house in a Cambridgeshire village with her 11-year-old son and works in agricultural research. However, two financial concerns are encroaching on this idyll.

The main worry is that Sarah has no way of paying off all the capital on the interest-only part of her mortgage. “I don’t know whether I should increase my monthly payments or use some of my savings to reduce the deficit,” she says.

Read the rest of this article on The Times website.