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Investments

Re-Invest Or Withdraw? Accumulation Versus Income Funds

Dividend Investing vs. Income Withdrawals - Accumulation - Compounding - Investments

Re-Invest Or Withdraw? Accumulation Versus Income Funds

“Mutual funds were created to make investing easy, so consumers wouldn’t have to be burdened with picking individual stocks” ― Scott Cook

3 min read

Dividend Investing vs. Income Withdrawals - Accumulation - Compounding - Investments

Re-Invest Or Withdraw? Accumulation Versus Income Funds

“Mutual funds were created to make investing easy, so consumers wouldn’t have to be burdened with picking individual stocks” ― Scott Cook

3 min read

Within the world of mutual funds and exchange-traded funds (ETFs), you will often have the choice to opt for accumulation or income.

What’s the difference you may ask?

Put simply, accumulation funds re-invest any income or dividends generated by the underlying assets back into the fund.

On the other hand, income funds distribute any income generated by the underlying assets to you, the investor. This is often in the form of cash dividends or interest payments.

However, just knowing what these are is not necessarily enough to make informed decisions on your investments. Which type is suitable for you? What are the benefits? Read on to find out!

Accumulation Funds

Accumulation funds, often shortened to ‘Acc’ or known as ‘capital growth’ funds, are designed for those who wish to re-invest any income back into the fund in which they are invested.

With this type of investment, the process is automatic and any dividends, interest payments or other distribution types will be re-invested without you having to do anything (at least, nothing beyond buying into the fund in the first place!).

Why might you wish to do this? Because you will benefit from compound growth over time that could have a huge impact on the gains you see when you come to withdraw in the future!

As an example, should you have CHF 1’000 invested and receive a CHF 100 distribution (e.g. as a dividend payment), you would then have CHF 1’100 invested (if you did not take it as income). This is CHF 100 more that can potentially increase both your returns and even future distribution payments.

The longer you leave your funds, the more time this type of approach has to grow your wealth. Hence, this strategy is typically better-suited if you have a longer-term investment horizon and prioritise capital appreciation.

Income Funds

Income funds, you will not be surprised to read, are also sometimes known under another name!

Not only are the often shortened to ‘Inc’, they are alternatively known as ‘distribution’ funds (sometimes shortened to ‘Dist’). As mentioned, these types of investment provide regular income paid out as dividends, interest or through other means.

Income funds are generally more suitable for when you are retired or if you are relying on investment income to cover defined living expenses.

Naturally, this makes the key advantage of income funds exactly that: their ability to provide a steady stream of income. 

What’s more, this income is provided to you without the need to sell off your shares!

Which One Is Right For You?

Now you know what both types of funds are, who they may be more suitable for and how they could benefit you.

This then leaves the question: which one should you choose?

Naturally, each of you reading this will be unique and there is no one-size-fits-all answer.

So, when deciding between accumulation or income funds, consider your investment objectives, risk tolerance and income needs. If you have quite some time before you wish to access your investments, you may be more suited to accumulation funds. On the other hand, income funds provide a regular income that you may prefer.

However, in both cases, assess any tax implications, fees and the benefits you may receive from compounding, or the potential drawbacks if you take the income out of the investment.

Here For You

There are more considerations than those which are in this article, and so you are must do your own research before making any decisions.

Yes, it can be complex, but Patterson Mills are here to help and explain your options in a jargon-free manner that ensures your complete understanding of your most effective route forward.

So, get in touch with Patterson Mills and book your initial, no-cost and no-obligation meeting. Your future financial success is our priority!

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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Investments

Keeping More Money in Your Pocket: Tax-Loss Harvesting

Tax-Loss Harvesting: Reducing Your Tax Liability

Keeping More Money in Your Pocket: Tax-Loss Harvesting

“Whatever you tax, you get less of” ― Alan Greenspan

4 min read

Tax-Loss Harvesting: Reducing Your Tax Liability

Keeping More Money in Your Pocket: Tax-Loss Harvesting

“Whatever you tax, you get less of” ― Alan Greenspan

4 min read

Tax-loss harvesting is a sophisticated strategy that you can use to optimise your investment portfolio(s) and reduce your tax liabilities. Today, we are looking into the intricacies of this strategy that you may not have heard before!

Read on to discover the upsides, downsides and how you can implement this technique to enhance your overall financial wellbeing.

Tax-Loss Harvesting: The Basics

Tax-loss harvesting is a proactive investment strategy designed to mitigate tax liabilities and enhance overall portfolio performance. The process hinges on the strategic selling of investments that have incurred losses, creating an opportunity to offset capital gains and, consequently, lower your taxable income. Seems simple enough, right?

To execute tax-loss harvesting effectively, it is important to closely examine your investment portfolio. This involves identifying specific assets that have experienced a decline in value. These underperforming investments become valuable tools in the tax-loss harvesting toolkit, as their losses can be strategically realised to counterbalance any capital gains within the same tax year.

The key principle is to turn temporary setbacks into long-term advantages. By intentionally selling assets that are currently at a loss, you create a deliberate taxable event. This loss can then be used to offset capital gains, either reducing or entirely eliminating the associated tax obligation. This approach not only minimises the immediate tax impact but can also allow for for improved tax efficiency and potential long-term capital growth.

With regards to which assets to sell, it’s surely just any that have made a loss? Well, whilst that could be the case, it’s actually prudent to identify assets with unrealised losses that align with the your overall financial goals and risk tolerance. Selecting the investments to sell that ensures your investment strategy can remain on track, or making adjustments as required. 

Additionally, the process must adhere to any regulatory guidelines where you are based. Some jurisdictions have laws in place to prevent manipulation of tax benefits such as selling an asset at a loss and buying it back immediately or shortly afterwards.

What is Good About it?

The benefits of tax-loss harvesting extend beyond just a reduction in taxable income; it is a strategic financial tool with many advantages that can significantly impact your overall wealth management plan(s).

  1. Minimising Taxes: Naturally, an immediate reduction in your taxable income is one of the main benefits to tax-loss harvesting. Minimising taxes through this strategy translates to more disposable income that can be redirected towards further investments, other financial goals or a nice holiday.

  2. Balancing Portfolios: An often overlooked benefit of tax-loss harvesting is its role in portfolio rebalancing. In your usual portfolio, you should aim to maintain a specific asset allocation aligned with your financial objectives and risk tolerance. However, market fluctuations can skew this balance. Therefore, tax-loss harvesting allows for strategic selling of underperforming assets without incurring substantial tax consequences. If done correctly, you are able to keep your portfolio in line with your risk tolerance and goals whilst reducing your tax liability!

  3. Creating Tax Efficiency: The cumulative effect of consistent tax-loss harvesting is increased tax efficiency over the long term. As losses are strategically realised, they can be used to offset future capital gains, providing a shield against unnecessary tax liabilities. This enhanced tax efficiency ensures that a larger portion of your returns contributes to growth or income rather than being diverted towards taxes. Over time, this can result in a more streamlined and effective approach to wealth accumulation.

Are There Any Downsides?

Of course, nothing is without it’s disadvantages! Here are some of the key ones that apply to tax-loss harvesting:

Complexity and Monitoring Requirements

Tax-loss harvesting involves a thorough analysis of an investment portfolio to identify opportunities for realising losses. This process can be complex, requiring continuous monitoring of market conditions and individual securities. You need to stay informed about changes in the value of your holdings and make strategic decisions to optimise tax outcomes. The complexity of tracking and managing multiple investments can be overwhelming for some!

Transaction Costs and Fees

Engaging in tax-loss harvesting often involves selling and buying securities, which can trigger transaction costs and fees. These expenses have the potential to erode the tax benefits gained from harvesting losses. Additionally, if you’re not careful, frequent trading may lead to increased transaction fees, impacting the overall returns of the portfolio. It’s crucial to weigh the potential tax advantages against the costs associated with executing the necessary trades. Ensure you speak with your Patterson Mills Financial Adviser before making any decisions.

Potential Market Timing Risks

Tax-loss harvesting requires selling investments at a loss, and the decision of when to execute these sales introduces potential market timing risks. If you sell during a market downturn to realise losses, they risk missing out on a subsequent market upturn. The challenge is to balance the tax benefits of harvesting losses with the uncertainty of market movements. Attempting to time the market can be unpredictable, and decisions made solely for tax purposes may not align with your broader investment strategy.

Can You Benefit?

If you are able to identify losses to offset your gains whilst adhering to applicable regulations and ensuring your investment strategy remains on plan, you can!

If it sounds like the monitoring required, careful selection of which assets to sell and adherance to applicable regulations could be too time consuming for you, it is time to get in touch with Patterson Mills and book your initial, no-cost and no-obligation meeting. Your investments will thank you and you too will be pleased that you have the peace of mind you deserve.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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Investments

Investments Go Down (As Well As Up)

Investments Go Down As Well As Up
Cheering friends riding roller coaster at amusement park

Investments Go Down (As Well As Up)

“It has been quite a rollercoaster ride, but one that I’ve enjoyed” ― Bez

3 min read

Investments Go Down As Well As Up

Investments Go Down (As Well As Up)

“It has been quite a rollercoaster ride, but one that I’ve enjoyed” ― Bez

3 min read

Investing is marked by highs and lows, peaks of prosperity and valleys of decline. At the heart of this rollercoaster ride lies a simple truth: investments can go down just as swiftly as they can rise. It’s a fundamental reality that every investor, from the novice to the seasoned, must come to terms with when navigating their investments.

The Market's Downturns: A Normal Occurrence

Market downturns are inherent to the investment landscape. They are regular events that halt the upward trajectory of the financial markets. These downturns shouldn’t surprise you; rather, they are to be expected in the cyclical nature of markets.

These periods of decline can stem from various factors, including economic shifts, geopolitical events, or sector-specific challenges. However, it’s crucial to grasp that market fluctuations, both upward and downward, are a fundamental aspect of the investment ecosystem.

Typically Your Investments Do Recover

Investing isn’t just about numbers on a screen; it’s deeply intertwined with human psychology. During periods of market turbulence, fear can grip you, clouding rational decision-making. The instinct to sell and salvage what’s left can be compelling, driven by the fear of further losses. However, reacting impulsively to market volatility often leads to selling at a low point, crystallising losses, and missing potential recoveries.

History has repeatedly shown that panic-driven selling in the face of market downturns tends to be counterproductive. Emotional reactions to short-term fluctuations can derail long-term financial strategies. It’s crucial to recognise that markets, although prone to short-term volatility, have historically recovered from downturns. Selling in a panic only crystallises losses, locking in the decline without affording the opportunity to recover when markets bounce back – a pattern that can substantially impact long-term wealth-building goals.

Staying the Course in Volatile Markets

Navigating market fluctuations requires a steady hand and a long-term perspective. History has consistently shown that despite periodic downturns, the market tends to rebound, demonstrating resilience over time. Investors who remain patient and stay invested through the storms tend to reap the benefits of eventual market recoveries.

Studies have shown that attempting to time the market by selling during downturns and re-entering when conditions seem favourable often results in missed opportunities for recovery. It’s essential to recognise that attempting to predict short-term market movements is a challenging and unreliable strategy.

Instead of succumbing to fear-induced reactions, maintaining a steadfast commitment to your investment strategy is crucial. Stay focused on your long-term financial goals and the strategic plan established with your Patterson Mills Financial Adviser. Review your portfolio periodically to ensure alignment with your objectives, risk tolerance, and time horizon.

En Route to Success

At Patterson Mills, we prioritise ensuring our clients are aware of market cycles, the risk they are taking and the importance of staying the course during turbulent times. We provide personalised guidance to help you understand the implications of market volatility on your investments and devise strategies to navigate through these periods. Our goal is to give you the knowledge and confidence needed to make informed decisions, ensuring that you remain steadfast in your investment portfolio, even amidst market uncertainties.

So, get in touch with us today and book your initial, no-cost and no-obligation meeting, you will be pleased that you did. Send us an e-mail to info@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

How Your Biases Impact Your Financial Decisions

Behavioural Economics - Biased Financial Decisions - Biases - Bias
Man with beard confused with thumbs up and down, trying to take a decision expressing doubt and frustration at night

How Your Biases Impact Your Financial Decisions

“I think unconscious bias is one of the hardest things to get at” ― Ruth Bader Ginsburg

3 min read

Behavioural Economics - Biased Financial Decisions - Biases - Bias

How Your Biases Impact Your Financial Decisions

“I think unconscious bias is one of the hardest things to get at” ― Ruth Bader Ginsburg

3 min read

Behavioural economics explores the complexities behind our financial choices. Rooted in psychology and economics, it reveals how human emotions, biases, and cognitive limitations influence our financial decisions. Behavioural economics challenges the traditional economic belief that individuals always act rationally in their best interests. Instead, it acknowledges the influence of human psychology, social factors, and the environment on decision-making. 

Concepts like loss aversion, where individuals tend to feel the pain of loss stronger than the pleasure of gains, and mental accounting, where money is mentally compartmentalised based on its source or intended use, play pivotal roles in shaping our financial behaviour. If you can recognise these patterns, you are able to gain a deeper understanding of how they can impact your finances. So, read on to find out how you can minimise the impact of your own unconscious biases, or contact Patterson Mills for professional guidance.

Emotions and Investment Choices

Behavioural economics highlights the impact of emotions on investment decisions. Fear and greed often drive market sentiment, leading to impulsive actions.

During market fluctuations, investors might succumb to panic selling or irrational exuberance, deviating from a well-thought-out investment strategy. Recognising these emotional triggers enables you to maintain discipline and avoid making hasty decisions that could harm your portfolios.

Additionally, understanding behavioural biases like the herd mentality, where individuals follow the crowd rather than making independent decisions, is crucial. In investing, this can lead to asset bubbles or market inefficiencies. Being aware of this tendency allows investors to remain steadfast in their investment approach, making decisions based on rational analysis rather than following the crowd.

Overcoming Cognitive Biases

Behavioural economics sheds light on various cognitive biases affecting financial decisions. For instance, the framing effect illustrates how the presentation of information influences decisions. Individuals often react differently to the same information depending on whether it is presented positively or negatively.

Understanding this bias helps in making decisions based on objective facts rather than the way information is presented.

Moreover, understanding and overcoming biases like confirmation bias, where individuals seek information that confirms their pre-existing beliefs, is crucial. By acknowledging these biases, you can implement strategies to counteract their influence. This might involve seeking diverse perspectives or conducting thorough research before making financial decisions, ultimately leading to more rational and sound choices.

Educating for Better Decision-Making

Behavioural economics, as well as Patterson Mills, advocates for enhanced financial literacy and education. Educating individuals about behavioural biases equips them with the tools to make more informed financial choices. By understanding common biases like anchoring, where individuals rely heavily on the first piece of information they receive, you can learn to critically evaluate information and avoid making decisions based on arbitrary references.

Furthermore, integrating behavioural economics into financial education can foster better decision-making skills. Teaching yourself to recognise and address biases empowers you to approach financial decisions more objectively. This approach can have far-reaching implications, cultivating a financially savvy society capable of making sounder choices in complex economic landscapes.

The Power of Behavioural Economics

The aim of this article is to equip you with the tools you need to spot your own unconscious biases. Behavioural economics shines a light on the intricate interplay between human behaviour and financial decisions, and it is a complex area whilst being even more difficult to remove your own biases completely.

Patterson Mills is here to ensure you are able to  acknowledge when you may be influenced by an unconscious bias, whilst ensuring you have the tools to make more rational, informed, and goal-oriented choices, thereby steering you towards enhanced financial success.

All you need to do to benefit from the professional and trusted guidance at Patterson Mills is get in touch today and book your initial, no-cost and no-obligation meeting, you will be pleased that you did. Send us an e-mail to info@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

How Does Inflation Affect Investments?

Affect of Inflation on Investments

How Does Inflation Affect Investments?

“Inflation is taxation without legislation” ― Milton Friedman

2 min read

Affect of Inflation on Investments

How Does Inflation Affect Investments?

“Inflation is taxation without legislation” ― Milton Friedman

2 min read

Inflation, the gradual increase in the general price level of goods and services, plays a significant role in shaping investment decisions and portfolio performance. Understanding how inflation erodes purchasing power and affects different asset classes is crucial for those of you seeking to preserve and grow your wealth in an inflationary environment.

Understanding Inflation's Impact on Investments

Inflation’s Erosion of Purchasing Power

Inflation diminishes the purchasing power of money over time. As prices rise, the same amount of money buys fewer goods and services than it did previously. For you, this means that the future value of your returns or income streams might be worth less than anticipated. Inflation can erode the real value of both income and principal invested, affecting investment returns, especially in fixed-income assets like bonds or savings accounts with fixed interest rates.

Asset Allocation and Inflation

Inflation can significantly impact asset allocation strategies. Whilst some assets, like equities or real estate, might act as a hedge against inflation due to their potential for capital appreciation, fixed-income securities or cash holdings might struggle to keep pace with rising prices. Diversification across asset classes can help mitigate the effects of inflation on a portfolio. Investments that historically tend to perform well during inflationary periods, such as certain commodities or inflation-protected securities are often considered as part of a diversified portfolio.

Impact on Different Asset Classes

Stocks and Equities

Stocks have historically outpaced inflation over the long term, as companies can often raise prices for goods and services to maintain profitability. However, during periods of high inflation, rising input costs can affect corporate profits and investor sentiment. Investors often seek companies with strong pricing power, robust business models, and the ability to pass on cost increases to consumers.

Bonds and Fixed-Income Securities

Bonds, particularly those with fixed interest rates, are susceptible to inflation risk. When inflation rises, the purchasing power of future bond interest payments decreases. Consequently, bond prices might decrease as investors demand higher yields to compensate for inflation. Investing in inflation-linked bonds or diversifying into shorter-duration bonds might help mitigate this risk.

Real Estate and Commodities

Real assets like real estate or commodities, such as gold or energy resources, are often viewed as inflation hedges. Real estate values and rents may increase with inflation, providing a potential buffer against rising prices. Commodities, especially those with intrinsic value or used as raw materials in production, might experience price increases during inflationary periods.

Inflation's Influence on Investment Strategies

Risk and Return Trade-Off

Inflation introduces a risk factor that investors must consider when seeking returns on their investments. Whilst certain assets might offer higher potential returns, they could also carry higher inflation risk. Investment strategies often involve balancing risk and return, weighing the potential for higher returns against the risk of losing purchasing power due to inflation. You should reassess your risk tolerance and adjust your investment strategies accordingly in inflationary environments.

Strategies for Hedging Against Inflation

Inflation-Protected Securities and Diversification

Investors often seek refuge in assets that offer inflation protection. Inflation-protected securities adjust their principal value with inflation, providing a safeguard against rising prices. Additionally, diversification across various asset classes, including equities, real assets, commodities, and inflation-hedged securities, can help mitigate the negative impact of inflation on a portfolio’s overall performance.

Patterson Mills, Here For You

Whether inflation is high or low, Patterson Mills offers tailored guidance on how you can navigate and mitigate the impact of inflation on your investments. With a proven track record of providing inflation beating returns, our professional Advisers are waiting to take your investments to the next level.

All you have to do is get in touch today and book your initial, no-cost and no-obligation meeting, you will be pleased that you did. Send us an e-mail to info@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

What Difference Can Your Investments Make in the Real World?

Your Investments Impact on the Real World

What Difference Can Your Investments Make in the Real World?

“What impact are you making, not only today, but for eternity? What impact are you making to leave a legacy?” ― Kirk Cousins

3 min read

Your Investments Impact on the Real World

What Difference Can Your Investments Make in the Real World?

“What impact are you making, not only today, but for eternity? What impact are you making to leave a legacy?” ― Kirk Cousins

3 min read

Every investment decision carries the potential to influence industries, communities, and global progress. So, let’s explore how your investments can create tangible impacts beyond financial returns.

Fostering Innovation and Technological Advancements

Investments drive innovation by providing capital to businesses at various stages of development. Venture capitalists, for instance, fund startups that introduce groundbreaking technologies, shaping industries and improving lives. Your investments in innovative companies contribute to the development of transformative solutions that address global challenges.

Influence on Corporate Governance and Ethical Standards

Investors wield influence over corporate decisions by exercising voting rights and engaging in shareholder activism. Responsible investors advocate for ethical corporate governance, transparency, and accountability, pushing companies to align with ethical standards and responsible business practices.

Advancing Healthcare and Medical Breakthroughs

Investments in healthcare companies and research institutions drive medical advancements. Funding pharmaceutical companies or biotech startups supports the development of pharmaceutical drugs, innovative treatments, and medical technologies that can improve healthcare globally.

Empowering Sustainable Practices and Environmental Impact

Investing in environmentally conscious companies or sustainable funds plays a pivotal role in driving positive environmental change. These investments support initiatives focused on renewable energy, conservation efforts, or eco-friendly practices, fostering a more sustainable future.

Socially Responsible Investing and Community Development

Socially responsible investments (SRIs) channel funds towards companies dedicated to social causes, ethical practices, and community development. Such investments support initiatives in healthcare, education, affordable housing, and poverty alleviation, directly impacting communities in need.

Job Creation and Economic Growth

Investments in small businesses and emerging markets stimulate economic growth and create employment opportunities. By supporting startups and local enterprises, investors contribute to job creation, economic stability, and the overall prosperity of communities.

Philanthropic and Impact Investing

Impact investing merges financial goals with social and environmental missions. Impact investors prioritise investments that generate measurable, beneficial impacts alongside financial returns, supporting projects with a clear societal or environmental benefit.

Impact the World

As you can see, investments wield significant influence beyond monetary gains. They serve as vehicles for positive change, allowing individuals to align their financial objectives with broader goals.

Get in touch with Patterson Mills today and make sure your investments are making an impact. Book your initial, no-cost and no-obligation meeting, you will be pleased that you did. Send us an e-mail to info@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

What Happens to Your Money When You Invest

What Happens to Your Money When You Invest

What Happens to Your Money When You Invest

“Don’t let making a living prevent you from making a life” ― John Wooden

3 min read

What Happens to Your Money When You Invest

What Happens to Your Money When You Invest

“Don’t let making a living prevent you from making a life” ― John Wooden

3 min read

When you decide to invest your hard-earned money, it goes through the financial landscape like a tiny explorer navigating a vast and complex world. For you, it is like planting a seed in the hope of receiving a bountiful harvest.

But have you ever wondered where your money actually goes when you make an investment? If you have, you’re in luck! Read on to find out.

Investing in Stocks: Owning a Piece of Companies

One common destination for your investment is the stock market. When you buy stocks, you’re essentially purchasing ownership (shares) in a company. Your money becomes a valuable asset on the company’s balance sheet, and you become a shareholder, entitled to a portion of the company’s profits, known as dividends. Your investment supports the company’s operations, growth initiatives, and innovation. So, when you invest in stocks, your money goes into the engine that drives businesses forward. It’s like having a stake in the success of companies and sharing in their prosperity.

Stock prices fluctuate based on market demand, company performance, and other economic factors.

Investing in Bonds: Lending Your Money

Bonds are essentially ‘debt securities’, where investors lend money to governments, corporations, or other entities in exchange for periodic interest payments, known as coupon payments, and the return of the bond’s face value, known as the principal or par value, upon maturity (at the end of the agreed term). Click here to read all you need to know about bonds.

Bonds come in various types, including government bonds (issued by governments), corporate bonds (issued by corporations), municipal bonds (issued by local governments), and more specialised bonds like mortgage-backed securities (backed by pools of mortgages) and convertible bonds (which can be converted into common stock).

In essence, when you invest in a bond, you lend your money to someone else in exchange for regular interest payments as well as the bond’s original value at maturity.

ETFs Investment Process

Typically, the most common investment to make if you are going at it alone is into an ETF (Exchange-Traded Funds). You can find out exactly what an ETF is and our guide to how to choose the ETF or Index Fund for you by clicking here.

When you invest in Exchange-Traded Funds (ETFs), your money typically goes through a series of steps within the financial system. Here’s a simplified breakdown of where your money goes:

  1. Investor Contribution: When you decide to invest in an ETF, you purchase shares of the fund through a brokerage account. Your money, along with that of other investors, is pooled together.

  2. Creation of ETF Shares: To create new ETF shares, a specialised entity called an “Authorised Participant” (AP), often a large financial institution or market maker, assembles a basket of the underlying assets. These assets can include stocks, bonds, commodities, or other securities that the ETF aims to track. The AP delivers this basket of assets to the ETF issuer in exchange for ETF shares.

  3. Trading on Stock Exchanges: Once the ETF shares are created, they can be bought and sold on stock exchanges, much like individual stocks. Investors can purchase these shares from other investors who are looking to sell or directly from the ETF issuer in some cases.

  4. Index Tracking: ETFs are designed to track specific market indices or benchmarks. The ETF issuer manages the portfolio to mimic the performance of the underlying index. This passive management strategy helps keep costs low.

  5. Dividends and Interest: As the ETF holds the underlying assets, it receives dividends, interest payments, or other income generated by those assets. These payments are typically distributed to ETF shareholders.

  6. Redemption of ETF Shares: When an investor decides to sell their ETF shares, the process works in reverse. The shares are sold on the exchange, and the investor receives the current market price for their shares. The AP can then redeem these shares with the ETF issuer in exchange for the underlying assets or cash.

To summarise, your money is invested in the underlying assets held by the ETF, and the ETF shares represent your ownership in those assets until such time as you choose to sell the fund.

How To Get Your Money Back: Selling Your Investments

Getting your money back from investments involves several steps, and the process can vary depending on the type of investment you’ve made. Here’s a general overview of how you can receive your invested funds:

  1. Stocks and ETFs: When you invest in stocks or Exchange-Traded Funds (ETFs), you have the flexibility to sell your holdings at any time during the trading hours of the stock exchange where they are listed. To get your money back, you need to place a sell order through your brokerage account. Once the order is executed, you’ll receive the proceeds in your brokerage account. You can then transfer the funds from your brokerage account to your bank account. Keep in mind that stock prices fluctuate throughout the trading day, so the amount you receive may vary depending on the prevailing market price when your order is filled.

  2. Bonds: Bond investments typically involve receiving periodic interest payments and, upon maturity, the return of the bond’s face value. If you hold an individual bond until its maturity date, you’ll receive the face value of the bond, which is the initial principal amount you invested. However, if you wish to sell a bond before its maturity, you can do so through the secondary bond market. Bond prices in the secondary market may differ from their face value due to changes in interest rates and credit risk. Selling a bond before maturity may result in a capital gain or loss.

  3. Mutual Funds: When you invest in mutual funds, you can redeem your shares directly with the fund company at the current net asset value (NAV) price, which is calculated at the end of each trading day. To redeem your mutual fund shares, you typically submit a redemption request to the fund company through your brokerage or directly if you have an account with the fund company. The fund company will then send you the redemption proceeds, usually via check or electronic transfer, which you can deposit into your bank account.

It’s important to note that the time it takes to receive your investment proceeds can vary. Stock and ETF sales are generally settled within a few business days, whilst bond transactions and mutual fund redemptions may take a bit longer. Additionally, some investments, such as real estate and certain alternative investments, may have longer exit timelines and specific processes for cashing out. Always check with your Patterson Mills Financial Adviser or financial institution for the specific procedures related to your investments.

Master the Investment Process with Patterson Mills

Investing your money is a powerful tool for building wealth over time. It’s not a one-size-fits-all endeavour, but rather a maze with various paths to choose from. Understanding where your money goes when you invest, how to make informed investment choices, and how to retrieve your funds when needed are crucial aspects of your overall financial planning and investment strategy.

Patterson Mills have the knowledge and experience to ensure your money is invested in the right places and remains under your control throughout your investment term. Investing requires patience, research, and a clear strategy. So, whether you’re considering venturing into stocks, bonds, mutual funds, or other investment vehicles, get in touch with us today and book your initial, no-cost and no-obligation meeting. Just send us an e-mail to info@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all information within this article has been prepared for informational purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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Pensions

The 10 Worst Retirement Planning Mistakes

The 10 Worst Retirement Planning Mistakes

3 min read

Retirement planning should always be a top priority. More and more people are beginning to consider their own retirement, but the truth is that our retirement is often decided long before we even think about it.

See below my 10 worst retirement planning mistakes. With the appropriate advice, you will be able to avoid all of the below.

1. Underestimating Your Lifespan

It may be something that goes unconsidered, but nowadays it could well be that retirement lasts for 30 or more years. This then leads to the growing potential that people out-live their retirement savings. It is hugely important to take notice of your family history and other factors and make sure you take into account your own longevity to determine what steps to take before reaching retirement.

2. Underestimating Retirement Costs

Despite retirement being a wonderful, work-free, time of our lives (at least, that’s our aim!), it is possible that the lifestyle you currently have becomes out of your reach as prices rise, and your income does not, or you may find that you end up spending more in retirement than you thought. It could be simply that you want more than you initially planned for, so within your retirement plan it is important to take many factors into account to gain a rough idea of any potential increase in your spending.

3. Financial Scams

A common thought around scams is that it will never be you. However, no matter how careful you are, it is never a guarantee that you will not get caught out. No matter how rare, it is not impossible that you experience a misuse of your funds by an untrustworthy financial advisor, or even deceptive family members trying to take advantage of you. Make sure that you are also aware of healthcare scams, investment scheme scams, lottery scams and more. Remember, if it seems too good to be true, it probably is!

4. Ignoring Inflation

Inflation is a silent taxation on our wealth. Slowly eroding it as time goes on. Even a small increase in inflation, hardly noticeable in the short term, can be of great detriment to your spending power in the future. Over a long period of 15 or 20 years, there could be the potential of your purchasing power being halved. It is certainly something you should allow for in your future retirement plan.

5. Paying Over the Odds

Excessive fees are something we strive to avoid. Throughout your lifetime, fees really can add up and make a dent in your pocket. Often, what looks on the surface a small difference, e.g. between 1% and 2%, can end up making all the difference in the long-run. It is of paramount importance to have regular reviews to ensure your costs are as low as possible.

6. Age-Based Risk Profiling

“Lifestyling” or “Lifestyle Funds” refers to reducing the risk of your portfolio as you get closer to retirement, along with other assumed factors. It aims to lock-in the investment gains you have already made throughout your life so you can comfortably retire. This sounds good in theory, and may well be suitable for some, though, as with everything, it is not without risk. As much as we wish it, there is no ‘one size fits all’ formula. It might even be your spouse or children that you were planning to have benefit from your investments, so the best decision is certainly to seek trusted financial advice to find the solution that works best for you.

7. Not Rebalancing Regularly

Rebalancing is essential to the future of your wealth. It ensures that your assets remain within your agreed risk level without ever straying too far from the path and can optimise gains already made. Of course, over-rebalancing exists, so it is important to not avoid over-rebalancing. Approximately 2-4 times per year is a good amount for most portfolios.

8. Attempting to Predict the Market

Trying to find the perfect time to withdraw from, or enter into, the market will often come up short of your expectations. Nobody knows for certain exactly what is going to happen in the next few years, or even the next few weeks, so the best route is making informed decisions from high-quality analysis using trusted advice. Cumulative returns can be seriously harmed if your prediction turns out to be wrong.

9. Not Talking to a Financial Professional

The complexities of today’s financial systems are simple when it is your day job, but the reality is that the majority of people do not have the time to spend their few hours of relaxation a day researching the latest changes in the system. Of course, it is not impossible to do, but as with most things there are often rules that you might miss. It is essential to contact a financial professional to ensure your retirement plan and financial future is as secure as possible, and if not, to make it so. After all, that is what we are here for.

10. Not Getting Around to it

This may seem obvious, though unfortunately it is more common than you may think. Retirement is often overlooked as it is ‘so far’ into the future that you do not consider it, or you believe that your respective State pension will suffice. It is important to note that State pension benefits often leave a gap in your income. Therefore, it is essential that you begin sooner rather than later as every day you wait is one more day that you will be playing catch-up in retirement. You might miss out on investment returns, end up not having enough money in retirement, or simply miss out on compound interest. Either way, one thing remains certain, begin sooner rather than later.

Here to Help

We are here to take the stress out of retirement planning. Get in touch today and book your initial, free, no-obligation meeting. You have nothing to lose and potentially lots to gain! Send us an e-mail to charles@pattersonmills.ch, call us direct at +41 78 214 84 32.

Categories
Financial Planning Investments

Positive Steps to Achieve Financial Freedom

Plan for your future

Positive Steps to Achieve Financial Freedom

3 min read

When are you thinking of retiring? With many pre-retirees reassessing their lives and priorities in the wake of the pandemic, there really is a seismic shift for many people towards achieving life balance. People need a plan to flex with their changing aspirations – it has become more about living life rather than going through the motions of the daily grind.

With earlier retirement a serious consideration for many seeking balance, a quarter of those sampled who aspire to retire early feel that age 60 is the optimum time to do so1.

Embracing a New Lifestyle

What really makes you happy? If you are planning to celebrate your 60th birthday by saying ‘goodbye’ to working life, it’s good to know that 68% of people report an increase in overall happiness as a result of retiring early, with 44% of early retirees reporting their family relationships improved and 34% citing improvements in their friendships. From a health perspective, 57% of early retiree respondents report a boost to their mental wellbeing, with 50% believing their physical wellbeing has improved.

Driving Force

Nearly a third (32%) of people who retired early or plan to do so are driven by the desire ‘to enjoy more freedom while still being physically fit and well enough to enjoy it.’ Other factors driving people to pursue early retirement include financial security (26%), reassessing priorities and what’s important to them in life (23%), wishing to spend more time with family (20%) and finding they are either ‘tired or bored’ of working (19%). Stress is also a contributing factor that 19% of respondents are keen to eradicate.

Pause for Thought

With a sizable 24% of people returning to work after retiring because they experience financial issues, careful planning is essential. Interestingly, 47% of retirees found that their finances worsened and only 22% felt they benefited financially from their decision to retire early.

Positive Steps to Financial Freedom

People cited steps toward making early retirement achievable like paying off a mortgage (30%), saving little and often (29%), saving extra when they receive a pay rise or bonus (19%) and receiving an inheritance (14%).

We are here to reassure you that happiness does not need to come at a cost when retiring early. Although it is very important to be realistic, with meticulous planning and careful consideration, we can assess and develop a robust plan to align and flex with your changing requirements and priorities.

Financial freedom is what many strive to achieve, though not all of us know how to get there. This is where we come in.

Get in touch today and book your initial, free, no-obligation meeting so we can show you the way. You have nothing to lose and potentially lots to gain! Send us an e-mail to charles@pattersonmills.ch, call us direct at +41 78 214 84 32, or fill in our contact form

1Aviva, Dec 2021

Categories
ESG Investing Financial Planning Investments

Sustainable Investing: the What, the How, the Why

ESG concept of environmental, social, and governance.ESG icon on a woodblock with small tree on stack coins idea for esg investment sustainable organizational development. account the environment,

Sustainable Investing: the What, the How, the Why

Sustainability is no longer about doing less harm. It’s about doing more good

Jochen Zeitz, President and CEO of Harley-Davidson Tweet

5 min read

Many people have heard of ESG-SRI, including sustainable and impact investing. These words may seemingly appear around every corner, in every questionnaire and are growing in popularity. So, what exactly is it all about?

The What

It is important to first understand what these terms actually mean:

  • “ESG” stands for Environmental, Social and Governance
  • “SRI” stands for Sustainable (or Socially) Responsible Investing
  • “Impact investing” seeks to make a positive impact on the World, as well as using ESG and SRI principles at all times

ESG integration as an investment tool is very different from sustainable investing. While some ESG factors do describe aspects of company sustainability, its aim is to unlock factors that solely impact financial performance. For example, an excellent ESG integrated strategy may still invest in sectors that could be considered unsustainable – like tobacco manufacturers or fossil fuel extractors.

A potential issue, and definitely something to look out for, is ‘greenwashing’. This is where a company is making false claims about a product that purports to be environmentally conscious but is not actually making any notable efforts for sustainability at all. To avoid this, seek companies that display their sustainability ‘credentials’ in a clear and easy to understand manner, with no misleading messaging or imagery, backed up by data and compared to a suitable benchmark.

The How

ESG investing has three criteria:

  1. Environmental impact
  2. Social impact
  3. Governance

The environmental aspect looks at how a company impacts the planet by asking what a company does to reduce its harmful environmental footprint, utilise renewable resources and energy, and how it incentivises its employees to reduce their own footprint.

The social aspect questions how a company treats its employees, customers, suppliers, and the local community. This will analyse healthcare policies, compensation, employee working conditions, discrimination and more.

Governance relates to information about a company’s board of directors, business ethics and structure. Specifically, voting practices, independence, diversity, how new members are selected, how the company trades, levels of transparency, and so on.

Impact Investing seeks to make a positive impact by investing in companies whose products and services create positive impacts rather than just avoiding a negative impact. Impact investing also adds another element: the ability to measure the (global) effect of the investment.

This usually means that Impact Investors are more focused on creating a measurable impact on the World, even if it means foregoing a larger financial return possible elsewhere. It should be noted however that a lower financial return is far from being the norm nowadays from an Impact portfolio.

A lesser-known facet of ESG investing is to look for companies that are B-Lab certified as a B-Corp.  B Lab creates standards, policies, tools, and programs that shift the behaviour, culture, and structural underpinnings of capitalism.  Discover more about B-Lab’s work as a non-profit here.

The Why

There are clear reasons for the rise of ESG investing. Volatility in this sector has seen a great decline for investors over the last 5 or 6 years and it is now possible to obtain enhanced returns with reduced volatility risk in some cases. This is making ESG investments highly attractive as this sector develops further.

In addition, consumers and investors are holding companies accountable for their impact on environmental, social and governance factors against relevant benchmarks. This leads to the decision that a more ESG oriented company may deserve your money over a less ESG oriented company.

A record $649 billion poured into ESG-focused funds worldwide up to 30th November 2021. This was up from $542 billion in 2020 and $285 billion in 2019, making a 127% annual increase over just two years! In December 2021, Morningstar Direct estimated that global sustainable fund assets reached $2.7 trillion.

Sustainably Investing for the Future

ESG and Impact Investing should not be only for a select few. At Patterson-Mills, we believe in investing for a better future and making it accessible for all. To accomplish this, we offer tailored solutions from a carefully selective range of funds, fund managers, with rigorous analysis of appropriate criteria. Following an initial no-obligation meeting, we create a bespoke recommendation for our clients so as to successfully achieve their investment objectives.

Whether our clients wish to invest 100% of their available capital into ESG, SRI and Impact Investing fund styles, or maybe 25%, or perhaps initially none at all, we have a suitable offering available. However, the key is to be put into a position to make a fully informed choice, which at Patterson-Mills, we show all prospective clients. 

Our interests and those of our clients are one and the same, and so we only use proven, cost-effective, and tailored solutions in order to produce the most positive outcomes for our clients’ financial objectives.

Get in touch today and book your free no-obligation review meeting. You have nothing to lose and potentially lots to gain!

Send us an e-mail to edward@pattersonmills.ch, call us direct at +41 78 214 84 32, or fill in our contact form below.

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