British Parliament In Revolt Over Pasty Tax!

Cornish Pasty

OK so this is just for a little fun, every now and again something symbolic happens which seems to have a much wider effect than it should.  I’m not saying the pasty tax is ever going to lead to the scenes following the Boston Tea Party (1773) or recreate the War of Jenkins Ear (1739), but in a week when the Prime Minister is quoted at an event about the Olympic Games as saying “I'm a pasty eater myself” before defending the tax it’s got all the making of a true national farce.

What is the Pasty Tax?

The so called pasty tax relates to the level of VAT (Sales Tax) levied on goods and services.  Traditionally, the decision whether to apply VAT or not relates the question of whether or not an item of food is sold hot or cold.  Foods served hot are considered a luxury item and have VAT levied on them, foods served cold are considered as basic and so don’t attract the levy.  In short, you’ll pay VAT on your fish and chips but not on a sandwich.

The so called pasty tax is effectively a reform of the tax system aimed at closing a loophole on the sale of hot baked goods available at bakeries and in the supermarkets.  Under the reforms, the tax would now be levied on baked goods which were served hot in such outlets but not those served cold.  So if going to buy a pie, pasty or other baked items from Greggs, buy it hot and it will cost 20% more than the same item sold cold!

The Pasty Tax, What’s The Fuss?

The government and David Cameron have argued that the reforms simply reflect a fairer application of the system which has traditionally governed whether of not the tax is levied on an item.  However, the press and those with a vested interest in not paying the tax have accused the government of being out of touch and introducing a tax on the poor.

Key opponents of the tax include Ken McMeikan CEO of the bakery chain Greggs who saw millions wiped of its shares following the decision.  Other opponents include those representing the Cornish pasty industry, now set to see a rise in costs associated with the tax.  However, some have capitalised upon the media’s coverage of the event with Gavin Williams of the West Cornwall Pasty Company quoted as reacting to Cameron’s comments with “We thank him for his glowing endorsement of our quality product and for helping to spread the news that a West Cornwall Pasty Company pasty is the best around.”

The Benefits of Index Funds Vs Actively Managed Funds

City of London at Night

While there are many choices open to those looking to invest in funds, one of the key decisions relates whether to invest in an index linked fund or an actively managed fund.  While there is no clear answer as to which represents the best investment, it is worth taking a look at the pros and cons of each before handing over your money.

The Costs and Benefits of Index Funds

Index funds are funds which seek to give an investor an exposure to a common basket of investments referred to as an index.  Such funds may seek to mimic the performance for example of the FTSE 100 or a specific sector such as mining stocks.  The key to understanding an index fund is to consider that you should see almost like for like performance between your fund and the performance of the relevant index.

The advantage of index funds on the whole relates to costs, for example L&G’s FTSE 100 index fund has an annual management fee of 0.65%, compare this to the company’s UK Alpha fund which has an annual management fee of 1.5% and that’s after paying a 5% initial investment charge.  In short, index linked funds are usually much cheaper than actively managed funds.  However, such funds will only ever (or should) reflect the average performance of the market.

The Costs and Benefits of Actively Managed Funds

Actively managed funds by contrast seek to give levels of performance which beat the market and so in essence, one would expect to see actively managed funds giving higher levels of performance.  In an actively managed fund, a fund manager and their research team will actively trade the assets of a fund in accordance with the objectives of the investment in order to gain the best returns.  Funds may have a wide range of themes from emerging market bonds to natural resources funds and beyond.

While such funds may offer higher levels of performance than index funds (although not in all cases), the associated costs can be quite high thus eating into returns.  Here management fees may be several times those of an index fund and there may also be a high initial charge for entering the fund.  In addition, research would seem to suggest that few fund managers are able to consistently outperform the market year in year out.

So if considering whether to opt for an index based investment or an actively managed fund there are many issues to consider.  Key considerations should include the annual management charge and any additional fees such as initial investment charges.  In addition, consider carefully the level of performance seen by the fund over the long term, not just the previous year’s statistics.

The Difference Between Ethical and Green Funds

The Shard, London UK

While any limitation on the kinds of equities or funds to be invested in may see sub-optimal levels of performance, some will wish to restrict were they put their money based upon ethical beliefs or a desire to contribute towards positive forms of investment.  For those who have such objectives, both green funds and ethical funds may offer an ideal way to combine investment with morality.  However the key question is what is the difference between the two options?

What Are Ethical Funds?

Ethical funds may be seen as those funds which operate according to an ethical code of conduct as specified by the fund managers.  Typical ethical codes of conduct may see funds not placing money in companies which invest in tobacco, arms production or other ethical issues such as high environmental impact industries.  While the code of conduct will be specific to each fund, overall the approach may be seen as one based upon a policy of exclusion of “unethical” investments rather than one seeking to support a given cause or provide exposure to investment in a specific sustainable industry.

What Are Green Funds?

Green funds on the other hand seek to invest specifically in enterprises which as seen as having a positive environmental effect.  While the composition of such funds may vary, typical investments will include equities and bonds associated with companies involved in renewable energy, green transport and waste management.  For some, an investment in green funds may be seen as a way of investing in a way which leads to a positive social development.  For others, green funds may simply be a way of gaining an exposure to industries which are often seen as representing a rapid growth sector.

While there is no clear cut lines between what constitutes an ethical fund and a green fund, generally one may consider that ethical funds will on the whole embrace a wide range of investments so long as the companies involved do not breach the code of conduct of the fund.  On the other hand, green funds may generally be seen as funds which specifically seek to invest in companies which make a positive contribution to a wider range of stakeholders than the investor alone.

As such, before selecting a green or ethical fund it is important to consider carefully your own specific investment objectives and match these to a fund with relevant code of conduct and investment processes and practises.

How to Make Money Listening to Music Online Using Slice the Pie

Vinyl Records

OK so this is not a get rich quick scheme, in fact it’s not a get rich at all scheme, but if you enjoy listening to music and want to earn enough money to buy a few extra cappuccinos this is well worth checking out.

Make Money Online: How Slice the Pie Works

The site is hosted as slicethepie.com and allows users to listen to music from a range of new and generally up and coming (or not) bands.  After listening to a track, rate it one to ten and type a short review of the song.  The site will then pay you for each review a small fee of a couple of cents per review.  The payout depends upon the number of key words you use, length of the review and the level of experience on the site.  As such, the more reviews you do, the greater payout you should be able to make on each tracked reviewed.

The reviews are undertaken on an anonymous basis but are used for a wide variety of uses including being sent to radio stations as recommendations and the bands whose music is being hoisted on the site.  Don’t worry, if you don’t like a track be honest, no one will ever know it was you who gave a song a nasty rating!

How Much Can I Make Listening to Music Online?

Once you have spent some time on the site and reviewed a number of tracks, you can download your payment via PayPal as soon as your balance reaches $10.  While you can’t expect to make a career out of this site, it’s a nice way to put some bonus money in the bank and listen to some great (and terrible) music from previously unheard of bands.

So if you enjoy your music and are looking for a fun way to make some extra money online, check out this link to Slice The Pie.

Why it May be Best to Invest Through a Fund Supermarket

City of London

As the new tax year approaches, it’s time to make decisions on which investment companies to make use of in the coming year, especially given the restrictions placed upon the number of ISA providers that can be subscribed to in a single year.  This year I will be personally changing my approach and moving to a fund supermarket and here is why.

Diversifying A Portfolio Through a Fund Supermarket

In the first case, fund supermarkets tend to offer a much wider range of funds to invest in than other forms of investment companies who focus upon their own funds.  For example while the fund supermarket Fidelity offer their own range of products and funds, opening an account with the institution means that the investor is able to invest in fund managed by a whole range of providers thus allowing for greater diversification.  This is especially useful for UK investors looking to hold multiple funds without diversifying outsideof an ISA.

Investment Cost Reduction Through Fund Supermarkets

While many investors will suffer from having to pay both an initial charge and an annual management fee, the fund supermarket is one way in which the cost of investing may be lowered.  In many cases fund supermarkets offer a reduced initial charge and in some cases it is possible to see the initial investment fee waived altogether. 

Investors should however be cautious as in some cases the initial investment fee of a fund is levied through the spread, the difference between the buy and sell price of a fund.  In such a case even a 0% initial change on the behalf of the fund supermarket will mean that there is no true discount.

Consolidating Investments in a Fund Supermarket

The major advantage of a fund supermarket may be seen as the ability to see one’s entire portfolio in one place, this can save significant amounts of time and effort if making use of a large number of fund providers.  Not only do fund supermarkets allow investors to place money with a large number of providers, most fund supermarkets offer a consolidation service allowing investors to transfer existing funds and ISAs into the account with minimal or no fees at all.

So if you are looking for an easy way to invest in a diverse range of funds in one place, the benefits of a fund supermarket may considerable and worthy of further investigation.  However, before making the leap, be sure to research the provider before placing your money considering whether cost savings are genuine and whether the range of products and services offered meet your individual investment needs.

Natural Resource Funds: JP Morgan Natural Resources Vs Blackrock Gold and General

Nodding Donkey Oil Wells Wyoming

Keeping a proportion of your portfolio in natural resources may be a bit of a no brainer, the fact that natural resources are limited by their very nature makes such investments attractive enough in times of economic prosperity.  However, as investors seek to park their money in safe assets such as precious metals in more turbulent times, such funds can also add defensive value to a portfolio.

However, the composition of such funds can be widely varied with different geographic focuses and different corporate compositions which result in a very diverse fund experience.  Here we will now look at two key funds linked to natural resources with very different focuses, JPM’s Natural Resources Fund and Blackrock’s Gold and General Fund.

JP Morgan Natural Resources Fund: Composition and Performance

Of the two funds, this is the older and more diversified dating back to 1965 and currently run by fund manager Ian Henderson.  The fund embraces a number of sectors including base metals, precious metals as well as investments in the energy sector.  Household names in the fund include Rio Tito (3.5%), Kinross Gold (2.0%) and Canadian Natural Resources (1.6%).  While the fund is fairly well diversified from a geographic perspective, the major concentration is in North America with 41.8% of the fund invested in Canada and the USA.  Other large beneficiaries of the fund include the UK at 24.7% and Australia with 16.6%.

From the performance perspective, the results have been mixed.  Over the past ten years investors have seen growth at a staggering 570.90%, a figure which falls to 38.97% in the past five years.  Looking specifically at the past five years a pattern emerges with the fund outpacing the sector average in positive years but doing worse than the average in more challenging times.  This still means however that the fund has outperformed the sector for three of the past five years in total.  Considering the cost of the fund, the fund has an initial charge of 4.25% and an annual management charge of 1.5%.

Blackrock Gold and General Fund: Composition and Performance

As for the focus of this fund, the clue is in the title with the fund giving a specific focus on gold and precious metals rather than a more diversified range of natural resources.  As such, the fund may be seen as having a much higher defensive value for those looking to hedge against economic uncertainty with precious metals related investments.

The fund has a strong track record and has been in existence since 1988 and is currently managed by Blackrock’s Evy Hambro.  For the sake of comparison, the fund is benchmarked against the FTSE Gold Mine sector.  In terms of composition the fund is invested in mining and related equities with 75.5% of the fund is invested in gold and other large investments in silver (11.2%) and platinum (4.5%).  In terms of companies, well known ventures include Newcrest Mining (8.0%), Goldcorp (6.0%) and Randgold Resources (5.6%).  Like JPM’s fund, there is a significant investment in North America with 53.6% of the fund being invested on the continent.  Other areas of investment include Europe (20.0%) and Australasia (9.5%).

Considering the performance of the fund, Blackrock’s offering has delivered growth of 87.5% over past five years compared to the sector average of 11.1%.  Generally, the fund has outperformed the relevant sector average, however this comes at a cost with a 5% initial charge and 1.75% annual management fee.

So if looking to invest in natural resources, both JPM’s Natural Resources Fund and Blackrock’s Gold and General Fund very different angles, both of which are worth considering.  For those looking for true diversification in one fund with slightly lower charges, then JP Morgan’s fund may be the better option.  On the other hand, if looking for a solid investment in precious metals, Blackrock’s Gold and General Fund may be more suitable option.

Supermarket Credit Cards Are They Value For Money?

Tesco Supermarket

There isn’t much you can’t buy in the supermarkets these days and this includes financial products and services.  However, despite all the inducements to take out a store branded credit card with the promise of extra reward points and promotional offers the real question should be, how do such cards compare to the market?

Example Supermarket Credit Card APRs

Sainsbury’s Bank – This supermarket offers one of the lowest costing credit cards in the market with the Sainsbury’s Low Cost Credit Card having an APR of just 6.9% making it one of the few cards to have an APR less than10%.  However in order to qualify for the card you will need to be an existing Nectar Card holder and have a good credit rating.  The supermarket also issues a number of other cards at the 16.9% APR level and a Gold Card with additional benefits at 20.1% APR.

Tesco Finance – This supermarket issues its own Tesco Clubcard Credit Card with a representative APR of 16.9% making it comparable to most standard cards offered in the supermarket sector.  As with all supermarket offering, the card it heavily linked to in store offers and the supermarket’s Clubcard loyalty scheme offering shoppers the chance to earn additional points on purchases.

M&S – The standard M&S credit card come in slightly cheaper than the standard offering of both Tesco and Sainsbury’s at 15.9% APR.  In addition, shoppers also receive an extended interest free period of 55 days assuming previous balances have been paid in full.  Additional benefits include the ability to collect “M&S Rewards” and card holders can upgrade to receive additional features for a monthly fee.

How Do Supermarket Credit Cards Compare To The Market?

In shopping around, don’t just compare supermarket credit cards with one another, here are some examples of typical rates which may be received on a range of credit cards from cards for poor credit to credit cards designed for online use:

• Mastercard Aqua (Poor Credit) 35.9% APR
• Visa Granite (Poor Credit) 34.9% APR
• RBS Your Points (Standard Card) 17.9% APR
• Capital One Click Card (Specialist Online Card) 9.9% APR

Overall, one can see that the supermarket offering come in pretty middle of the road with rates slightly cheaper than some high street banks but not in all cases offering consumers the best deal.

So if looking for a credit card, the supermarket offering is certainly worth a look.  However, in making you decision, think about the cost in terms of APR and consider carefully the real value of those extra points and promotional offers.

Roller Coaster Funds: Neptune Russia and Greater Russia

Balakhani Oil Wells Russia

I won’t personally be investing in this fund in the near future, it’s far too risky for my strategy.  However if you want a bit of excitement in your portfolio and some exposure to Russia as an emerging market, then check out Neptune Investments Russia and Greater Russia fund run by Robert Geffen.

Neptune Russia and Greater Russia Fund: What’s in the Package?

OK, so the clues in the title, the bulk of the investment in this fund is in Russian equities (96.5%), as such this is a great way for investors to get an exposure either specifically to Russia or to what may be considered as one of the key emerging markets.  As for what specific sectors are covered in the fund, the bulk of investment is in companies which are linked to Russia’s natural resources with 31.6% of the fund invested in energy (oil & gas), and 19.8% in materials.  Other large investments go into consumer staples and financials.

So as well as being an emerging markets fund, large exposure to the energy and materials sector also make the fund an effective way of gaining a large exposure to natural resources within the country.

Fund Performance: How Has Neptune Russia and Greater Russia Performed?

The performance of the fund over the past five years has been anything but boring, this is not a fund to invest in if looking for long term steady returns.  Since the funds launch in 2004 investors have received and incredible 186.7% return with 107.9% return being seen over the past five years.  However, discrete data shows a rollercoaster ride for investors, while the fund nose dived by -60.69% in 2007/08 an incredible bounce back was seen in 2008/09 yielding a whopping 116.03%. 

If its sector performance that interests you, then the fund has consistently outperformed both the IMA sector average and the relevant benchmark index over the past five years by a considerable margin.  Of course, such levels of performance do not come for free, the fund has an initial charge of 5% and annual management fees of 1.75% making the fund much more expensive in comparison to an index fund.

So if looking for a fund that casts caution to the wind and will add a bit of excitement to your portfolio of investments, Neptune Russia and Greater Russia may just be the place to put a few quid.  If low risks and stable returns are more your think, give this one a miss.

Funds That Perform: L&G Global Health and Pharmaceutical Index

Pfizer World HQ New York City

The past few years have been anything but easy for equities investors and the performance of funds in 2011 hardly inspired confidence.  However, as well look into 2012, here is one fund that I’m really keen on, the Global health and pharmaceuticals index fund managed by Joseph Molloy of Legal and General.

Legal and General Global Health and Pharmaceutical Index – Past Performance

OK so the golden rule is that past performance is never an indicator of future potential in investment.  While this may be true, a strong five year record of consistent growth despite difficult market conditions is what attracted me to the fund in the first place.

The fact is over the past five years the fund has delivered an overall yield of 35.45% against the sector average of 5.85% in the same period.  The key successes of the fund may be seen as the avoidance of losses in 2008 and 2011.  Here when the sector suffered a 24.28% loss in 2008 and 9.45% loss in 2011, L&G’s fund managed to grow by 7.67% and 9.15% respectively.

L&G Global Health and Pharmaceutical Index Fund Trust: Charges and Tax

A further feature which attracts me to the fund is the relatively low level charges, here costs include a 1% annual management charge and a 0.15% additional extras charge.  However, there are no initial charges, exit fees or performance management fees levied on the fund.  This is a good cost structure compared to some of L&G’s other funds which carry an 5% initial change and much higher annual management charges.

In addition, the fund can also be held in an ISA so the tax man will not be eating away at capital gains or dividend payments thus making the fund all the more attractive for those who still have some of their ISA allowance to use up.

Global Health and Pharmaceutical Fund Holdings

The fund is a good way to gain an explore to a wide number of large scale corporate in the health and pharmaceuticals sector with the fund holding 135 companies including GSK, Novartis, Pfizer and Johnson and Johnson. 

The fund it also quite well diversified from a geographic perspective with holding mainly spread between North America and developed parts of Europe.  The two largest parts of the fund are invested in the US (56.91%) and in Switzerland (11.83%).  As such, it may be seen that the fund offers a level of diversification without investing too much in politically unstable regions.

So whatever the world holds for funds and equities this year, I’m hoping a strong record over the past five years will see the L&G Global Health and Pharmaceutical Fund deliver some real results for me in 2012.

Why Canadian Polar Bear Diamonds Are a Good Investment

Polar Bear Diamonds

When it comes to spending your money, you could do worse than making an investment in good quality jewellery.  In the long term, such hard assets rarely lose their value and besides that what’s more attractive a nice solid diamond or as pile worn out bank notes?  Not only that, with the banking sector in its current state, it might just be safer keeping at least a little of your wealth close to hand.

However, if you’re looking for a piece that may beat the market in the long term, lookout for Canadian polar bear diamonds, here are a few reasons why:

Limited Availability – While there are many brands of Canadian diamonds, the polar bear brand has only been available since the late 1990’s.  Unfortunately at the end of 2010 the two companies with the rights use the signature polar bear engraving on the girdle of each diamond ceased operations.  Due to legal wrangling, the rights to use the polar bear brand have remained in dispute and simply put polar bear diamonds are extinct for now.

Prices – Due to the stop in production prices of polar bear diamonds have grown relatively faster than other brands.  Some suppliers have reported a 10% rise in the premium over that seen on other Canadian diamond brands.

Ethics – As a product of the Northwest Territories of Canada, polar bear diamonds are produced in conditions which are deemed as ethically acceptable.  This is likely to make polar bear diamonds a better long term investment in comparison to “blood diamonds” obtained from other parts of the world.

Celebrity Status – Celebrity ownership of items has always helped to add long term value to an object, when it comes to diamonds, there can be none more fashionable than the polar bear.  Reputed owners of the brand include Meryl Streep, Jodie Foster and Sahara Jessica Parker.  Most recently, Prince William and Kate Middleton were given some of the last polar bear diamonds ever to be produced as a wedding gift giving the brand that regal touch.

So if you’re looking to park your money in jewellery with some serious growth potential, it may be worth looking into getting your hands on a few Canadian polar bear diamonds, that is if you can still find any at a reasonable price.

How Wealthy Are You? What its the Average UK Wage?

Cheque

The media is constantly reporting on stories of other peoples incomes, whether its bankers bonuses or benefits claimants there’s scarcely a day when there isn't a story about someone else’s income.  However, apart from these high profile stories, income tends to be a shy topic of conversation in the UK and the reality is that most of us probably don’t have a clue what our neighbors earn or where we fit on the grand scale of income.

What is the UK National Average Wage?

Unfortunately it’s not that simple, the first question to ask is what do you mean by the term average salary?  Here we can use the mean or the median and not surprisingly this results in two separate answers:

Average Mean Income – This is the average income taken by adding up all the salaries of those in the sample and then dividing the answer by the number of the sample population.  The problem with mean income is that the figures are skewed by those at each end of the spectrum who earn exceptionally large or exceptionally small amounts.  At the end of 2010 HBAI data put the UK mean income at £519 per week or £26,988 pa.

Average Median Income – Most prefer to use the median as a way of measuring the average income.  The median income represents the figures at which exactly half of the population earns a figure either side of this level.  In 2010 HBAI data put the UK Median income at £414 per week or £21,528 pa.

So depending upon what you mean by average, if your monthly income is £2,249 (Mean) or £1,794 (Median), congratulations you’ve hit the national average.

What do Other People Earn?

OK so now you know the national average, here are some other average earnings just for fun:

Annual Salaries

·         Office Administrator - £16,296

·         Retail Store Manager - £21,392

·         PA - £24,250

·         General Manager - £35,325

Hourly Wages

·         Retail Assistant - £6.06

·         Admin Staff - £7.64

·         Dental Nurse - £7.96

·         Electrician - £10.99

So there you have it, for better or for worse if your income is in the £21k-£27k band, you’re probably doing just about average. 

Reasons to Refinance Your Mortgage

Sold Sign

OK so the home mortgage market and home ownership path has been anything but fun over the past few years, those looking to get on the property ladder have seen reductions in the availability of mortgages in the first place and need for larger deposits.    On the other hand, those of us already on the ladder have seen stagnating prices at best and a lot have suffered a loss.  However, not all is doom and gloom, now may be the time to save some cash and refinance your mortgage.

Why You May Benefit From Refinancing Your Mortgage

Interest Rates – If you financed your mortgage in the days before the crash, you probably also financed at rates of interest which were far higher than they are now.  If this is the case moving to a mortgage financed at today’s rates is likely to be much more attractive.

Equity – Many people when financing their first home would have saved only the bare minimum deposit, around 10%.  If this was the case you probably got a mortgage at a rate which was higher than would have been available with a larger deposit.  However, if it’s been a few years since you financed and the equity has built up in your home, this could make you much more attractive as a borrower.  Even a small increase in the equity (say to 15%) can make a difference and make a change worthwhile.

Credit Ratings – Having repaid a mortgage over a number of years is a great way to improve your credit rating.  Even just the fact that you have had a mortgage for a number of years may now make you more attractive to banks and mortgage issuers thus making those monthly repayments lower.

Things to Watch Out For in Refinancing Your Mortgage

Type of Mortgage – Make sure you are comparing like with like.  Tracker rates are usually lower than fixed rates, although if you’re coming to the end of a fixed rate, to get a fair comparison you need to consider the rate on the same kind of mortgage even if you do end up opting for a tracker rate.

Fees – While refinancing may result in considerable cost savings, there are also some costs too look out for.  These include exit costs from your current mortgage provider and product fees charged by the prospective new provider.

Valuation – In moving to a new mortgage provider you may also need to get a valuation on the property, this can again add costs to the operation.

So while the current mortgage market isn’t great, if you’ve been in your existing property for a number of years or are coming to the end of a fixed rate period, now could be the time save on those monthly repayment by shopping around for a better deal.

Writing for Money – Is the Content Farm Dead?

Writer at Work

Since mid way through 2009 I’ve earned a considerable part of my income from writing in various forms including writing for the web.  In 2010 I dedicated a proportion of my time to writing for so called “content farms.”  For those not familiar with the concept, a content farm is simply a website which allows members to publish material in return for some form of financial gain usually linked to the clicks on adverts placed in close proximity to the article.  While the term content farm is usually used in a derogatory way, like all web content there exists the good the bad and the dam right ugly.

Content Farming in 2010

I quickly found my experiment in 2010 to be quite profitable, I registered with a number of sites including Suite 101 (my main site), Triond and Infobarrel.  Within a few months I’d built up an article based and was making what I would consider to be reasonable “bonus” money, nothing that was going to let me quit the day job but certainly enough to make a real difference to my monthly bottom line.

In short, from a personal perspective content farming was certainly worth the effort in 2010, every month I wrote new articles and every month my income grew.  The advantages of the content farm in 2010 were obvious, the average writer could gain a reasonable income by publishing articles on a pre-existing platform without a great deal of knowledge of search engine optimisation (SEO) or web marketing.  Content farms generally held a high ranking in the search engines and this lead to steady traffic and with it a steady stream of add clicks and income.

Content Farming in 2011 – Year of the Panda

Unfortunately starting in February 2011, Google implemented a major set of changes to its algorithms which affected the page rank of many sites.  The algorithm updates referred to as “Panda” while hitting many sites saw those sites classified as content farms hit the worst.  The results for content farmers like myself were devastating, articles which had previously been on the first page of Google search results now languished in the back waters and with the death of traffic also came the death of revenue.

While many content farms responded with changes to editorial policy, the large culling of poor quality content and various cosmetic changes in order try to gain favour again with Google and the search engines.  The fact remains that at the end of 2011, few if any of the content farms had made a significant impact in restoring traffic volumes to pre-Panda levels.

Content Farming in 2012 – Year of the Dragon

2012 and the Chinese year of the Dragon is now upon us, but what’s the future for content farmers?  Since the Panda algorithm changes I have seen little evidence that any of the major content farms has the ability rise again in the Google search ranks.  While there are always those eternal optimists, only a change in the bottom line will see me returning to the content farm model. 

As such, in 2012 it may be better to focus on writing for your own websites and blogs, personally the reason for writing for the content farms before was due to the high ranking such sites enjoyed in the search engines.  However, with that gone and no sign of it coming back, far better to maintain editorial freedom and 100% of the revenues generated from own branded websites and blogs.  

Look After the Pennies and the Pounds Will Look After Themselves?

George C Scott as Scrooge

I remember hearing this phrase as a kid and never really understood it, surely if you want to look after the big things in life then look after the big things right?  Ok so this is not the place to launch an attack on the penny pinching brigade, for some it’s necessary and yes a lot of small frivolous spending will add up to, well a lot. However, if there’s a choice between tackling the mortgage or the morning cappuccino, go for the mortgage.

Why Focusing on Big Ticket Items Pays Dividends

If you’re really looking to save money the best place to start is the big ticket items, consider what do you spend the bulk of your money on, home mortgage, car finance, utilities?  These are the items which you are most likely to be able to save the most money on and there probably the items in all reality that can be fixed relatively quickly.  A single switch of the mortgage could save you thousands or years off your payment schedule and changes in insurance and utility providers can often save hundreds in a few phone calls.

The other great thing about switching big ticket items is that you often won’t suffer from any downside other than the hassle of switching.  I promise your house will not bear a grudge if you switch mortgages and your lights will be as bright with NPower or Eon.

The other great thing about big ticket savings is they often come in lump sums, if you save £100 on your annual insurance premiums that's a £100 saving today, not spread over a year in a way that is neither here nor there.

The Problem With Saving the Pennies

On the other hand, you could focus on saving the pennies, cutting out all the small and unnecessary things in life over a year saving quite a bit of money.  The problem however is that small savings take a long time to add up, yes cutting out a coffee three times a week will save you £300 a year, but that’s taken you a whole year to achieve what you might of done in a few hours working on the big ticket items.  In addition, would you have really put that £2 a time in jar and then spent it at the end of the year or would you have just spent it on something else and not really have saved anything?

The other problem with small savings is that they often have a noticeable impact on one’s lifestyle, you won’t notice the difference between one company’s gas and another but switch from a decent set of coffee beans to the cheapest instant stuff, sure you’ll save a little money but you’ll also have bad tasting coffee.

As such, there’s nothing wrong with saving money and trying not to waste your resources.  However, to reap the maximum benefits, focus on big ticket items and items were there is truly no difference between alternatives.  If you want to save big, think big.

Self Employment and Small Business: Saving for Tax in the First Year

Gibraltar £5 Note

Whether making the transition to self employment full time or just running a small business as a sideline, it’s essential to put aside enough money to cover the tax bill at the end of the year.  However, due to the system of making “payments on account” it may mean that you need to save more in the first year than you actually think.

Tax in the First Year of Operation

Although you will need to register with HMRC for taxation reasons as soon as possible after commencing operations, the great news is that with the exception of class 2 NICs you won’t be sent any further bills until after filling your first tax return at the end of the financial year (April).  However, most engaging in self employment will set aside a percentage of their income to cover the tax bill when it arrives.  In essence this should be quite simple, just put aside the relevant percentages for tax, national insurance and any extras such as student loans right?

Unfortunately in the first year of operations it’s not quite this simple due to the fact that your first tax bill will include a balancing payment and two payments on account which will mean that you effectively need twice as much as you might have thought.

Your First Tax Bill

In this case let’s assume the business filed its first tax return and the owner correctly estimated based upon the relevant tax bands a tax liability of £5k.  When the tax bill comes there will be three payments to be made as follow:

Balancing Payment £5k – In the first year this considers that you have no credit with HMRC and therefore pay the entire sum due for the previous year.  This is due by the January 31^st deadline.

Payments on Account £5K – In addition to the balancing payment, HMRC also requires you to make a provision for taxation for the coming year, these are split down into two payments on account (£2.5k each in this case) due in January and July and are based upon the total amount of tax due in the previous year according to actual profits.

As such, due to the fact that at the end of year one you have to pay both your outstanding tax and make a provision for the coming year, the effect is that your tax bill may be twice what you were expecting.

So, while it may be great that you don’t have to part with your money straight away as with the PAYE system, the first tax bill may come as a shock and the moral of the story is to save as much as possible in the first year.  However, when the bill does finally come, don’t panic and remember that you have until the January and July deadlines respectively to get the money over the HMRC.

Useful Links:

HMRC Deadlines

HMRC Rates

How Much Do I Need For a Mortgage Deposit?

Federal Home Loan Bank Board Building

While the home mortgage market isn't as buoyant as it used to be a few years back and the days of the 100% or even 125% mortgage are well and truly over.  For those who can get a decent deposit together, low rates of interest mean that now is an ideal time to finance a mortgage.  The key question however for many is how much do I need to save in order to get a mortgage?

In general terms, most banks and financial institutions offer mortgage products for borrowers with access to a 10% deposit.  This stated, larger deposits are often preferred and this is often reflected in the considerably lower rates of interest charged.  In addition, those looking for a specialist kind of mortgage such as a buy to let mortgage may require significantly more, usually 25% as a bare minimum.

When calculating the amount needed, use the concept of loan to value (LTV), this means the deposit is calculated as a percentage of the value of the property, not the value of the mortgage.  For instance if the property is valued at £100,000 and a bank is willing to offer you 90% LTV, this means you need £10,000 or 10% of the value of the property.

Should I Get a Mortgage With a 10% Deposit?

While most people can get a residential mortgage with a 10% deposit, this may not be the best option if it is at all possible to go the extra mile and save up that 20% or 25% deposit.  For instance, at the time of writing HSBC offered a tracker rate mortgage at 4.7% for those with a 10% mortgage.  However, this declines to 3.0% for those with a 20% deposit and drops further to 2.6% for those who can manage a 30% deposit.

Considering that on a mortgage loan of £100,000 a 1% difference in the rate of interest levied represents £1,000 in charges, it’s not hard to see how saving up that extra deposit will make a large difference to your monthly repayments.

In addition, while many banks and financial institutions may have mortgages available to those with a 10% deposit, whether a mortgage will be issued depends on a range of other factors including your financial history, credit rating and household income.  In general, a larger deposit is usually preferred and you will have a greater chance of success with a 20% deposit or more than with a 10% deposit.  

As such, the short answer is that most prospective homebuyers looking for a residential mortgage will be able to get a loan with a 10% deposit.  However, the cost of borrowing and general lack of liquidity in the sector means that it may be much better to aim for that 20% or 25% deposit before setting your heart on that dream home.

Cash Rich, Time Poor or Are You? Find a Job Closer to Home

First Capital Connect Bedford by Stephen Craven

I’m lucky these days, the daily commute takes all of about ten seconds and crosses a few feet between bedroom and backroom office, it’s one of the greatest benefits of working from home.  However, this hasn’t always been a reality for me, I’ve tried every model of the work life arrangement from renting a room and travelling home at weekends to a 100 mile a day round trip between home and office.  At the time I thought this left me cash rich, time poor but on reflection it made me just plain poor.

Why do People Commute?

Despite falling out of love with the commuter model, it’s hardly a rare lifestyle choice especially in metropolitan and other high cost of living areas such as London and the Southeast in the UK or NYC in the US.  The fact is, many people living in such areas spend a significant amount of time and effort getting from home to work and back again.  The obvious reason of course being that people can often earn more money working in a place other than where they live.  The question is, is it worth it?

This is something I’d spent four years doing in one form or another and true to form I earned more than most of the people I graduated with who lived and worked locally.  However, the reality is I probably spent much more on the travelling and living away from my home than the extra I was making.

How Much Extra Do I Need to Commute or Live Away From Home?

Aside from the fact that travelling to work for any more than a short distance is an expensive operation, the extra amount needed to break even may be more than you think.  Consider the scenarios below:

·         Option A – Salary £20k annual travel cost £0

·         Option B – Salary £23k annual travel cost £3k

Ignoring travel time and the impact this has on a person’s lifestyle, it would appear at first that both options lead to the same result, £20k leftover after the cost of getting to work is taken into account.  However, this doesn’t take into account the effects of tax and other deductions, for simplicity apply a 20% tax rate and one can see the effects below:

·         Option A – Salary £20k, Tax £4k, Travel £0 Net £16k

·         Option B – Salary £23k, Tax £4.6K, Travel £3k, Net £15.4k

In other words, in order to breakeven, a gross salary must increase not only to cover the increased cost of travel but also to cover the additional deductions associated with the salary rise.  Such deductions can be considerable when considering all the elements including, the basic rate of tax, national insurance the possibility of student loans and higher rate tax deductions and this doesn’t even factor in any personal value added for the time loss.

In short, while commuting or working away from home can lead to opportunities and a higher salary, when considering whether or not such an option is worth the effort, a much higher premium may be required to justify the decision than just recouping the costs of travel.  On the other hand, even a small reduction in costs resulting from a job closer to home can result in a considerable increase in lifestyle as every pound saved goes straight onto the bottom line assuming you manage to maintain the same salary.

How to Get a Free Credit Report Using Experian

Visa and Mastercard Credit Cards

Whether you’re looking to get a loan for a car, take out a mortgage or just curious about your credit rating, it’s always handy to get a look at a credit report provided by one of the major credit reference agencies.  However, if you’re anything like me, you also won’t want to pay monthly subscription fees or spend hours on the phone trying to cancel an account.  So from personal experience, here is how I got a free credit report and dumped the subscription without so much as a phone call.

Credit Expert Free 30 Day Trial

I signed up for the 30 day free trial of Credit Expert by Experian, one of the largest credit reference agencies. In order to register, you will need a credit card and your address history for the past six years as well as the usual email details.  While you will have to provide your credit card details, no subscription will be charged to your card so long as you cancel within the 30 day free trial.

When signing up for the trial, ensure that you get the version with identity protection insurance.  The reason for this is that when coming to cancel your account this gives you the right to cancel via an email, if you don’t get this extra, you will still be able to cancel but unfortunately it will involve the dreaded phone call and hours of on hold music.

Most of the major credit reference agencies offer similar deals and trials although I can only comment on the Experian offering from a personal perspective.  However, the other agencies to check out are Equifax and Callcredit, together these three agencies are the major point of reference for consumer credit in the UK.

Accessing Your Credit Report

Once you have signed up for the trial, if all has gone well you will be able to access your report instantly which gives you access to a scary array of detail listing everything from your estimated credit score to where you are registered on the electoral roll.

In using your report it’s important to act fast and get all the relevant details if you intend to undertake any credit repairing exercises.  Remember, if you don’t cancel within the trial period you will be changed for a subscription and prices can be relatively high at around £14.99 per month.

So, if you need to know what your financial health looks like or are just curious to see how much data these agencies hold this is a great way to find out.  However, unless you’re really keen, don’t just create an account and forget about it as this will set you back another £180 a year. 

Should I Pay Off My Student Loan Early?

Cambridge University by Christian Richardt

Paying off debt in any form is usually a good idea as it will reduce the amount of dead money being spent on interest over a life time leaving you more money to spend on the important things in life.  However, if you took out a loan in the UK with the Student Loans Company (SLC) there may be some good reasons not to pay off your student loan early.

Consider the Cost of an SLC Student Loan

The main reason not to payback a student loan is the fact that it will probably be your lowest costing form of debt and therefore should be the last priority in comparison to other forms of debt.  The rate of interest paid will depend which scheme you borrowed under but rates on the whole tend to be lower than other commercially available sources of finance.  As such, if you have any outstanding debts including a mortgage which have a higher rate of interest, pay these off first.

In some years and on some schemes this can mean that you may even be able to make more money in interest in a high interest savings account than you would by paying off the equivalent amount off your student loan.  If this is the case, keep your money to hand.  Here are some examples of the cost of debt at the start of 2012:

·         SLC Student Loan (Issued 1998-2011) – 1.5% APR

·         RBS Platinum Card – 17.9% APR

·         RBS Unsecured Personal Loan – 8.9% APR

·         HSBC Tracker Mortgage – 4.7% APR

·         Lloyds TSB Cash ISA – 2.35% AER

The Unique Features of an SLC Student Loan

There are also some other reasons why you may wish not to pay back a student loan early despite the cost savings in interest:

Expiration – A unique feature of the SLC student loan is that the debt expires after 25 years, this means that if you don’t payback all of the money after 25 years the remaining balance will be cancelled.  In short it may not be worth paying back more than the minimum if you believe that after 25 years you will still have a significant outstanding balance.

Unsecured Borrowing – Another key feature of the SLC student loans system is that the debt is not secured against any of your personal assets and mandatory collections only take place through the PAYE system and self assessment.  In short, unlike other forms of debt no one will come knocking on your door demanding payments, the repayment system is much like an additional tax band in effect.  As such it may be better to tackle secured forms of borrowing first.

Credit Rating – At present SLC student loans are not shown on the reports generate by major credit reference agencies such as Experian.  As such, having an outstanding student loan should not affect your credit rating which is important when trying to obtain credit for other ventures such as getting on the property ladder.

Final word, it’s always good to pay off debt and paying off an SLC student loan early is unlikely to do you any harm.  However, do your homework first, if you have other outstanding forms of debt, the cost of a student loan and unique terms and conditions are unlikely to make this the best option for early repayment.  Even if you have no other forms of debt, check carefully that there aren’t better alternative investments for your money before paying off your student loan.

Why Wealth Creation Seminars Are a Waste of Money

Mulloy O'Higgins Lecturing

There have been a bunch of TV shows on lately about the so called “wealth creationists” who sell the dream of being able to live a luxury lifestyle and all without having a regular 9-5 job.  The key question is, are these people con artists and more importantly should you part with your hard earned money to hear what they have to say?  My answer is no and no and here is why?

Is the Wealth Creation Dream a Con?

The short answer is no, the basic principles of what wealth creationists preach really is based upon very simple financial logic and economic theory with a bit of psychology thrown in.  Here are the principals of the dream so far as I can see:

Invest in Productive Assets – The most fundamental principal appears to be the concept that investing time and money in things that generate an income be it property, stocks and shares or anything else preserves existing wealth generated from a linear income and serves to create passive income in the future.

Passive Income – Wealth creationists advocate the creation of passive rather than linear income streams as firstly this unlocks the ability to earn potentially unlimited amounts of income and secondly results in the ultimate goal of being able to live without having to work.

Focus – Wealth creation seminars are characterised by all the weird happy clappy stuff, group hugs and funny exercises.  It’s not for me but we get the point, if you want to be successful at anything in life focus and positive thinking is a must. However, no hugs for me, I am British a handshake will suffice.

Why You Shouldn’t Part with Your Cash

If the wealth creation dream isn’t a con then why not spend your money on wealth creation seminars? Here are some good reasons:

Information is Free – There are no magic secrets to wealth creation, you probably already understand the basic principles, even if you don’t practise them.  If not, the internet is a wonderful place and free!

Contradiction – Spending money on wealth creation seminars may be seen as a contradiction of the basic principles of what is being taught.  Is spending £500 on a lecture an expense or an investment in an asset?  You could have invested the money you spent on the lecture in a real productive asset rather than learning something you could have probably learned for free.

The Economic Man – In theory, people should spend their working time doing which ever activity is most economically beneficial.  What does this tell us about the wealth creation lecturer?  Simple, they are making more money lecturing than they would have been by practising what they lecture.  This doesn’t mean that what they teach is nonsense but it does indicate that the sale of the concept is more profitable than the practise of the concept.

Final word, I like the wealth creation principals, they seem to be based on good old fashioned capitalist principals and sensible financial logic.  However, you won’t find me lining up to part with £500 a time to attend some lecture though, that’s a payment off a mortgage. 

Passive Income Vs Linear Income

Luxury Rental Apartments in Dallas by Andreas Praefcke

What is passive income and why is it superior to linear income?   There are many sources of income, most people earn a linear income throughout their life, you go to work and exchange your labour for an agreed amount of money.  However, linear income has a problem, when you stop working so does your income.  This means that even if you have a great job that pays plenty of money, your income will always be limited to the amount of time you are able to spend working.

Contrast this to passive income streams and you’ll see how income can become technically unlimited and more importantly linked to what you own rather than how much your work.  Passive income is income which is earned from past efforts and investment in productive assets requiring no further investment of time or effort.  For example, if you buy a rental property you will have to work to get the property but the rental income is passive, invest in a ten year bond at 3% and you have a 3% passive income for ten years.

So what’s so great about passive income?  Despite the fact that you may have to work hard to get passive income streams up and running, once you have a few it frees your time up to do other things, like generate more passive income streams.  This is just not an option with linear income, imagine trying to convince your boss to let you spend a couple of hours working on a personal money making venture?

Is it too good to be true? The answer is no but this doesn’t mean it’s easy or that you can give up work tomorrow.  Most people will at some stage live off passive income, usually by investing for an entire lifetime in a pension and then buying an annuity to live off for the rest of their life.  However, creating passive income streams earlier in life can be challenging.  One problem is that the initial work required to generate a passive income stream can be considerable, think how long it may take to save up for your first rental property or the length of time it takes to write a book that people actually want to buy, passive income is not a something for nothing deal.  In addition, while passive income may provide a return without any further effort, returns can be low and in some cases hardly worth the effort, think of the tiny returns on your savings account, that’s passive income but it’s hardly going to keep a Ferrari on the road any time soon.

Final word, if you want to get seriously wealthy in life passive income is the way to go.  However, be realistic, most of us aren’t going to be living off passive income in the next year no matter how hard we try but a small amount of time and money invested in passive income streams over a prolonged period of time will start to put a bonus in the bank each month and who knows, one day it might just put the Bentley on the drive.