Interest Rate Savers, Know Your Enemy – Hint, It’s Not Your Bank

If you haven’t heard the latest about the interest rates in the UK, where have you been?

The Bank of England has slashed their base rate from 0.5% to 0.25%. 0.25% is a new low interest rate for the UK and is aimed to help stimulate the economy after Brexit.

So what is inflation?

Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time.

When the price level rises your money buys fewer goods and services.

Consequently, inflation reflects a reduction in the purchasing power – a loss of real value of your money.

Essentially, you want your savings rates and your investments to match and beat inflation – hence preserving your wealth.

If you are earning less than the increase in inflation, you are losing the real value of your wealth. Without any action in preserving your wealth you’ve obtained today

then tomorrow’s wealth will be less.

The current inflation rate of the UK is 0.5% with the Bank of England targeting 2%.

After Brexit, in the Bank of England’s latest Inflation Report, they state:

The fall in sterling is likely to push up on CPI inflation in the near term, hastening its return to the 2% target and probably causing it to rise above the target in the latter part of the MPC’s forecast period, before the exchange rate effect dissipates thereafter.

(Source: Bank of England Inflation Report – August 2016)

With current conditions, inflation is on the rise:

So – if you have savings; if you are earning less than 0.5% per year on these savings; you are losing the real value of your money!

If your saving rates are at 0.5% or higher then you are keeping at pace with inflation or beating it.

Soon, rates offered on savings and current accounts from banks may go lower after the Bank of England’s base rate cut to 0.25%, which means it would be a good idea to start looking for alternatives to preserve wealth and the real value of your monies.

To put things into perspective:

If you were earning 0.25% on your savings account and inflation is at 0.5%, your wealth would be eroding -0.25% a year if you did nothing with it.

So where do you look to beat inflation?

There are other alternatives such as real-estate and the stock markets. Although be it involving risk.

However, with low rates and higher inflation – your money will be eroding away like in the example above.

People have been using the stock market to help grow their wealth.

The stock market requires you to take a more pro-active approach compared with money sitting in your bank account gaining interest.

It also, of course, involves risk.

However, you can invest not only to increase your capital but to also receive income through company dividends.

Some investors only invest for capital growth.

Some investors only invest for income, receiving company dividends straight into cash.

When you have a sizeable portfolio, dividends from companies could provide a secondary income.

You can invest in the stock market in two ways, either by yourself or through a professional service like a stockbroker or an investment management service.

As an investor your goal is to not only invest in inflation beating investments but to also outperform inflation to reward the risk of the stock market.

With more information available online about investment options, it’s never been easier to find out which deals might suit your needs best.

Whether you are an experienced investor or an absolute beginner, it makes sense to consider all the choices available to you.

African American Grants and Financial Assistance – Free Money For Minorities

Minorities are the under-represented groups in the country and most of them fall in the low-income bracket, restricting them from fulfilling their daily needs of life. Federal grants and assistance programs have been initiated to help them overcome their monetary constrictions and lead a basic standard of life. The money and grants are a free gift from the government that doesn’t need to be repaid. Start applying now!

Housing Grants

Paying exorbitant housing bills can be a big financial burden that can lead to foreclosure and homelessness. Minority groups often struggle to pay off their rents hence housing grants are given by the government to help them overcome financial barriers. The USDA, Housing Choice Voucher Program, CDBG, Public Housing Program and nonprofits are some of the essential housing grants for all.

Housing grants for minorities pay bills

The Hispanic-Serving Institutions Assisting Communities (HSIAC), Indian Community Development Block Grant (ICDBG) and Project-Based Rental Assistance program are other grant programs for affordable housing facilities for minority people. The HSIAC aims to revitalize the local neighborhood and promote affordable housing. The ICDBG provides grants to Indian communities or Alaska Native for decent housing, its grant limit being $450,000.

The Neighborhood Reinvestment Corporation’s (NRC) receives $200 million to prevent homelessness while the additional provision of $90 million has been made by HUD to prevent foreclosure and eviction.

Educational Grants and Scholarships

Over the years there has been a huge rate of college dropouts. Financial loss or heavy debts have forced minority students to discontinue education hence to boost academic pursuits for a better future, several accredited foundations, private organizations, universities and the government have initiated numerous scholarship programs and grants that cover the majority of the college expenses.

United Negro College Fund, Black Women in Sisterhood for Action, Asian American Journalist Association, Ciri Foundation, Iowa Minority Academic Grants for Economic Success, Ronald Mcdonald House Charities, Jackie Robinson Foundation, Hispanic Scholarship Fund are some of the scholarship programs for minorities. The Ohio State University and the Yale School of Business Management are the universities that offer minority scholarship programs. For government grants, apply for the Pell Grant, FSEOG, National SMART Grant and Academic Competitiveness Grant.

Educational Grants and Scholarships for Hispanics

Loan Exemptions: students with overburdened loans now have easy loan repayment plans from the government. President Obama has made provisions for reduced monthly payments, debt forgiving after 20 years and exemption from loan payments after 10 years for students joining public service.

Business Grants

The U.S. government offers minority business grants to boost minority group entrepreneurs to establish and grow their businesses. Minority-owned firms and business are offered financial aid in the form of loans, grants, counseling, assistance and training to help them run, expand and compete in the federal marketplace.

Some of the business grants are available through SBA 8(a) Business Development Program, Small Business Administration’s Minority Owned Program and USDA Grant that lends funds to rural community grantees. Georgia-Pacific Grant, Amber Foundation Grant, Operation HOPE and business Loans are also available for minority business assistance.

How to Generate Income Easily? Take These Passive Income Tips!

Creating passive income is the dream of everyone. Why not? Aside from requiring you not to spend lots of money, time and effort, you can also double or even triple the income you earn. The idea of building your own website, providing a service or product and sitting back to watch the flow of cash is really tempting. There are other ways in which you can earn money in an instant way. Here’s how to get started.

· Create money for the tasks you are doing

Yes, you can certainly create some money when doing some things you are used to. There are other platforms such as In-box-Dollars that allows people to generate passive income through searching the web, playing games, shopping online and more. You can take advantage of their services to make some extra income.

· Invest in real property

When you have a fully rented and established property, it is mostly a matter of managing your property and making sure it performs well. If you are busy with your work or have other important matters, professional property managers can handle the task. They can manage your property while making the investment more passive.

· Purchase and rent expensive tools, equipment, etc. repeatedly

You can consider photo booth, camera, treadmills, etc. This may not very passive, but this is another type of rental income you can capitalize on. Start with one, and you can buy second one or more if you see it is in-demand among consumers.

· Be a silent business partner

Maybe you have heard different horrible stories with regard to investing in a bar, pub or whatever. But, this is not always the case. As long as you do your due diligence, you can be a business investor or silent partner just like property investors. Sounds interesting, right? However, bear in mind to invest ONLY in a business where you are sure to get a cash flow constantly or yearly.

· Designs stuffs (e.g. mugs, t-shirts) and sell them through an online store

If you have talent in designing stuffs, this can be your cool passive income idea. Different sites make it very easy for people to submit designs. Therefore, you can create lots of designs and leave them up waiting for consumers. The main idea here is to make and design stuff for the niches you know.

· Design, manufacture and trade your own item, product, etc.

This type of passive income has been tried and proven by numerous people across the world, helping them achieve better living. Start by creating a product or item, manufacture and sell it through an online site. If not, you can build your own online store and start spreading your unique work through guest posts by an affiliate program or online networking.

There you have it! These are only some of the passive income tips you can use to start your own business and earn impressive passive income after some time. They are only simple to do, yet the amount of profit you can expect to produce is incalculable.

Individual Retirement Accounts: Understanding Your Choices for Tax Advantaged Savings

Have you funded your IRA this year? Are you eligible? How often have you heard these questions? In 1974, Congress passed legislation that created Individual Retirement Accounts (IRAs) to encourage individuals to save for retirement. Life expectancies were expanding, traditional pension plans were going by the wayside and it was clear that Social Security would one day be insufficient to support people in retirement. The idea of an IRA is to encourage savings today to be used later in life. The benefits of IRAs have now proven themselves for over a generation, but too often we still do a poor job explaining how these accounts work, and the incredible ad-vantages that these types of accounts provide. The different names can be confusing and the advantages of each can vary. Here, we will look at the three most common types of Individual Retirement Accounts including the Traditional IRA, the Roth IRA and the Rollover IRA.

What is an IRA?

Before we look at the differences in each of these types of accounts, it’s important to understand what’s so special about retirement accounts in the first place. It all centers around one word – taxes. In a regular investment account, as your money grows, you are required to pay taxes each time you make a sale, earn interest or receive a dividend. These taxes reduce the value of your gains, and can lower your account balance when you pay. But in an IRA, as long as the assets stay in the account, they grow tax-deferred or even tax-free! For assets in these accounts there are no taxes paid on sales, dividends or interest. This tax-free nature is the incentive Congress baked into IRAs with the hope of enticing everyone to save more. These accounts give you a chance to build up everything you earn until you need it for retirement.

But, as with all things tax related, each of these accounts are federally regulated, reviewed annually and subject to Congress changing them at any time. So it is important to always check the latest rules and opportunities with your financial advisor, accountant or the IRS website.

Traditional IRAs

This is the basic IRA that you open as a new stand-alone account to save for your retirement. You can open a traditional IRA at any bank or brokerage firm, and you can invest the money in the account in a wide range of acceptable investments, including most all publicly traded securities. There is an annual limit to how much can be contributed to an IRA, and the IRS updates this amount annually.

What’s unique about a Traditional IRA?
In addition to the assets growing tax-free as long as they’re in the account, your annual contributions might be tax-deductible. In the year you make the contribution, you may be able to sub-tract that amount of your contribution from your taxable income depending on your annual income, filing status, and whether you or your spouse have a retirement plan at work. For example, in 2016, if you are single and make less than $61,000 this year in modified adjusted gross income, you can deduct your full $5,500 contribution from your taxable earnings.

Do I qualify?
In 2016, anyone who is younger than 70.5 years old, and has earned income, can contribute up to $5,500 a year. If you’re 50 or older, you’re also allowed to contribute an additional $1,000 as a “catch-up.”

When can I start using the money?
You can start withdrawing from the account penalty-free at 59.5, and you must start withdrawing soon after you reach 70.5. Starting at age 70.5, you are required to make annual withdrawals from your IRA. These are called Required Minimum Distributions or RMDs. Your RMD is calculated each year based on the year-end value of your IRA and a factor table established by the IRS. For example, in the year you turn 70.5, you are required to withdrawal last year’s December 31 value dividend by 27.4.

How are withdrawals taxed?
All withdrawals from a Traditional IRA are subject to your regular income tax rate. Along the way, you have deferred capital gains, and taxes on your dividends and interest. When you take money out, your entire withdrawal is subject to ordinary income taxes. There is one exception to these taxes. If your contributions did NOT qualify for a tax deduction, each year you can reduce the amount of the withdrawal that is taxable by a pro-rata portion of your contributions over the years. Talk to your accountant about how this applies in your situation.

What are the penalties I should be concerned about?
If you withdraw from your IRA before you’re 59.5 you will need to pay not only taxes on the withdrawal, but an additional penalty of 10%. That’s in addition to a state tax penalty that may also apply.

Are there any exceptions?
There are a few situations in which you can withdraw from these accounts without paying a penalty. These are generally considered hardship situations and include things such as qualified first-time home purchases (up to $10,000), and qualified education or medical expenses.

Is a Traditional IRA best for me?
When IRAs were created, the thinking was that you would most likely be in a lower income tax bracket once you retire and start withdrawing from your IRA. So, even though you will be paying ordinary taxes on the full amount, it was expected that you would be in a low enough tax bracket to make this attractive. Today, we see this is true for some people, but not all.

Traditional IRAs are the best choice for people who qualify for and need the annual tax deduction. If you believe that you will be in a much lower tax bracket in retirement than you are now, contributing to a Traditional IRA is the right choice. If you don’t, you might want to consider a Roth IRA instead.

Roth IRAs

Roth IRAs are the relative new kid on the block, having been established in the Taxpayer Relief Act of 1997. They are named after Senator William Roth, one of the congressmen who’s credited with establishing them. Roth IRAs were meant to provide even more encouragement to save for retirement.

What’s unique about a Roth IRA?
Like a traditional IRA, any contribution you make into a Roth IRA grows tax-free, reinvesting year after year. Unlike a traditional IRA, no one is eligible to receive a tax deduction when they contribute to these accounts. Instead, you get a far more valuable long-term benefit; as long as certain requirements are met, you won’t pay any taxes when you make a withdrawal. And if you never need the money, you’re never forced to make a withdrawal or take an RMD.

Do I qualify?
Unlike a traditional IRA, only certain people are eligible to contribute to a Roth IRA. In 2016, you must make less than $132,000 (if you’re single) or $194,000 (if you’re married filing jointly) to contribute. If you qualify, you can contribute up to $5,500 a year, with an additional $1,000 “catch-up” if you’re 50 or older. The allowable contribution is proportionally reduced starting at incomes of $117,000 if you single and $184,000 if you are married filing jointly.

If you make more than these income limits, there is still a way that you can take advantage of a Roth IRA. As long as you have no other IRA accounts, you can use a strategy called an immediate “Roth Conversion.” You contribute each year to a Traditional IRA and immediately convert the full amount into a Roth IRA while the funds are still in cash. If you have any other IRA accounts, this strategy will not work as Roth Conversions generally involve paying ordinary income taxes on the pretax contributions and investment gains within all traditional IRAs that exist.

When can I start using the money?
You can withdraw what you’ve contributed at anytime both tax and penalty-free. After you turn 59.5, and if the account has been opened for 5 years, you can withdraw both your contributions and all earnings tax and penalty-free as well. And like we discussed above, there is no mandatory age when you must start withdrawing from these accounts.

What are the penalties I should be concerned about?
With Roth IRAs, because contributions are always penalty and tax-free, income taxes and the possible 10% early withdraw penalty is only accessed on the earnings. There are two requirements you need to be concerned with using these accounts. Like Traditional IRAs, you have to be over 59.5 to avoid an early withdraw penalty. In addition, Roth IRAs also have a special “Five Year Rule.” This rule means that even if you’re over 59.5, you have to have your account open for five years before you start withdrawing earnings to avoid a penalty or income taxes on your earnings.

Are there any exceptions?
There are some exemptions to these rules when withdraws are used for, including among other things qualified first-time home purchases (up to $10,000) and qualified education or medical expenses. The details can be confusing, so it’s important that you work closely with your accountant or investment advisor to understand the rules.

Is a Roth IRA best for me?
Those that benefit most from Roth IRAs are the exact opposite of those that benefit from a Traditional IRAs. If you believe that you might be in the same or a higher tax bracket in retirement than you are now, Roth’s might be best for you. Also, if you want to set aside assets for retirement, but don’t want to have any restrictions on when you must access them, Roth IRAs might be the right fit for you. Finally, if you might have future generations to consider in your estate planning, you might want a Roth IRA.

Should I consider both kinds of IRAs?
You are able to contribute to both a Traditional and Roth IRA in the same year. However, you can’t contribute more than a total of $5,500 (or $6,500 if you’re eligible for “catch-up”) between the two accounts. So if you can’t predict your taxes and financial success twenty years from now, it might be a good choice to contribute partially to both kinds of IRAs each year.

Rollover IRAs

These days, people are constantly on the move and jumping from job to job. All of this job-hopping can leave a trail of abandoned retirement accounts behind. A rollover IRA is a traditional IRA that is funded by all of these possibly forgotten accounts, consolidating them into one place.

What’s unique about a Rollover IRA?
Rollover IRAs are a little different from Traditional and Roth IRAs. They can’t be contributed to directly. Instead, they’re used to consolidate retirement accounts. If you were to leave your job and decided to “cash out” of your company retirement plan before retirement age, your money would be subject to taxes and early withdraw fees. By utilizing a Rollover IRA, you can “roll-over” the account directly into an IRA without incurring any early withdraw penalties, and the as-sets remain invested tax-deferred until distribution.

Do I qualify?
Rollover IRAs are used by those who have changed jobs or retired and have assets accumulated in their employer-sponsored retirement plans, such as a 401(k) or 403(b) for example. IRA rollovers can occur from a retirement account such as a 401(k) into an IRA, or from one IRA to another if you are consolidating IRA accounts.

When can I start using the money?
Rollover IRAs are treated exactly like Traditional IRAs. You can start withdrawing from the account penalty-free at 59.5, and RMDs are required once you reach 70.5. When you start withdrawing from these accounts, you pay your regular income tax rate on the distributions.

What are the penalties I should be concerned about?
When initiating a rollover, there are two ways you can do it. The recommended way is to utilize a “trustee-to-trustee” rollover, where the trustee of the retirement plan sends the proceeds from your work retirement account directly to the trustee of your new Rollover IRA. It’s a clean and easy way to transfer the money without being subject to any penalties.

The other way to initiate the rollover is much more complicated. You can have the distribution from the company retirement plan sent directly to you by check. You then have 60 days to deposit these proceeds into your Rollover IRA. However, when distributions are sent by check, there is often a 20% withholding penalty taken out of the distribution. When you deposit the check into your new Rollover IRA, you have to replace the 20% that was withheld with your own savings. Otherwise, this 20% will be considered a completed distribution and will be subject to regular income taxes and an early withdraw penalty of 10% if you’re under 59.5. If you follow the rules, the 20% that was withheld is credited from your Federal Income tax liability when you file your tax return.

It’s also important to note that you’re only allowed to do one IRA to IRA rollover by check, each year. The one-year calendar running from the time the distribution is made. If more than one rollover is done in a calendar year, the entire amount is subject to your regular income tax rate as well as a 10% early withdraw penalty.

Is a Rollover IRA best for me?
There are many reasons someone might want to use a Rollover IRA. Consolidating work retirement accounts into a single Rollover IRA can make it easier to allocate and monitor your assets. Many company retirement plans charge rather large fees, both in administrative fees to maintain the account as well as in the mutual funds management fees that are available in the plan. Consolidating in a Rollover IRA also allows you to decide how to invest your assets, especially if you have limited options available in the work retirement plan.


So have you contributed to your IRA yet? Actually you have until April 15th of the following year to make your tax year IRA contribution. You will get the most tax-deferred investment advantage, though, by contributing early in January and letting your funds grow all year. Even if you have a qualified plan at work, an after-tax Traditional IRA or Roth IRA can be a great way to supplement your long-term savings, and these opportunities should be funded before your taxable investment account.

Predictions for the Financial Advice Sector in the UK

It was late November, dark and the eighties. I knocked on the door and was immediately welcomed in, offered a cup of tea and sat on the sofa. I’d never met them before, although they were expecting me and I wore a suit. And that night they were happy to sign up a Standing Order for £120 a month for the next 25 years.

As a financial adviser at the famous Prudential Insurance Company, I advised and sold hundreds of financial products to a myriad of customers, both rich and poor and my company serviced the vast majority of the UK’s population without asking for a penny in return. We ran a commission based business with the provider paying this. All over the UK similar sales people were operating in the same model and UK consumers never lacked access to quality advice.

Naturally some of this advice was rather dubious, we know this and our regulators have slowly fixed this in a very painful but needed manner, a little bit like removing infected teeth. Witness T&C, pension scandals, PPI mis-selling, FOS.

The last wave of the flag was witnessed with the eradication of commission on wealth and pension advice which came about in 2013. The regulator’s argument was that commission drove mis-selling and that accepting a fee only for the actual time spent with the adviser would produce totally impartial advice.

It did. It also reduced the number of advisers, both independent and restricted, to just over 25,600 and drove these advisers to service only the wealthiest customers who both value advice and could afford it. The rest of the population was left to wither on the vine.

Thankfully our regulators have instigated some changes called the Financial Advice Market Report or FAMR which has pretty much concluded what I said in the paragraph just before this one. But progress is being made, particularly in encouraging robo advice models and removing the litigation hurdle many firms use to avoid dealing with the mass markets.

Add this to the apprenticeship levy on firms which will encourage training of new advisers, and I do believe we’re on the right roadmap. So here’s my predictions on how it’ll all look in 2020.

Low cost – low touch advice

Robo advice will become ubiquitous. Generation Y and older Zs, who have money to invest, will go online and enrol in advice systems that are controlled by computer algorithms. The algos will create an investment strategy based around risk issues and other needs. Investing will be mostly in passive funds – funds tracking indexes, exchange traded funds and other software based funds requiring no humans apart from coders.

Remember Gen Ys trust computers more than humans. At the dinner table last Sunday my son asked me when the Beatles released Sergeant Pepper’s Lonely Hearts Club Band. I said 1966, he immediately checked his phone and Google said 1967, Guess who he believed? And rightly so.

They will access their funds’ performance online, pay very low annual fees, a fraction of that charged by active fund managers. The Gen Ys won’t want to see an adviser unless they are willing to, and they value personal service.

For those wanting the human touch, or those who are willing to pay a little more for their advice, the paraplanner model will work well. An online meeting with a suitably qualified individual starts the process. The video meeting or virtual reality equipment will simulate the face to face meeting as well as technology will allow. The adviser would be less expensive, a paraplanner, a new adviser with less experience, maybe someone training. The key here is that they are cheaper than a fully qualified adviser. They would carry out the factfind and engage with the customer. Specific and soft needs would develop in a similar manner to a factfind carried out by a fully qualified adviser.

The planner would then transfer the results into a robo system which would then create the advice. The advice would then be delivered to the customer. An alternative model would involve the advice being vetted by a qualified adviser, and then it would be delivered.

Regular reviews would occur automatically using the same process and the qualified adviser would only be involved as and when needed.

High cost – high touch

Available to those who are willing to pay fees in a similar manner to legal and accountancy advice. Ostensibly the same model as we’ve seen before; a series of face to face or virtual reality meetings would evolve into personalised advice being provided. The best advisers would still use robo systems to augment their advice, these systems would do much of the crunching and administration but they would still be involved in advising and vetting the results.

Increasingly fund management would be conducted using passive methods, i.e. no active fund managers, as robo systems and algo based programmes become more and more reliable and effective. Humans will be moved on from this role except for the high end hedge funds.

The end of the face to face advising era will soon become apparent as communication via virtual and augmented reality gradually replaces personal interactions. I’ll still appear in my customer’s front room and be able to build rapport and trust, but I won’t be able to drink a cup of tea provided by the customer, that might be around in 10 years further on.

A Peek Into 2030

2030, we’re talking about a completely different model for receiving financial advice. Here’s a peek.

The IFA that we know today will be doing another job. What kind of job we don’t know, since it hasn’t yet been created. She will be doing something mentally demanding that automated intelligent computer systems can’t yet do.

Financial advice of any sort will be recognised by your personal digital assistant. This is the conduit we will all use that accesses what we currently call “Big Data”; data held in the cloud that has been collected about you since the early part of the century. Your assistant, which we’ll call Lola, knows you and everything about you from the myriad of sensors that have been gaining data.

Government computer systems covering your education results, tax returns, the car you drive, your visits abroad. Retailer systems showing everything you’ve ever bought. Tesco showing everything you’ve ever eaten. Banks displaying all of your financial transactions since you were born. Bear in mind cash was abolished in 2020.

Your wearable technology screening every signal from your body – exercise routines, blood pressure, illnesses. Your car data showing every journey you’ve taken. Social media streams with enormous amounts of data on your life.

The list goes on. Lola knows everything about you and you rely on her as your life coach. So when you need financial advice, Lola has already picked this up and will offer it to you without you asking. She recognised the inheritance in your bank account and understands your risk attitude and your goals for the future, so she’ll link to some algorithms in the cloud and provide the advice automatically. It’ll just happen, you’ve allowed it.

She’ll know when you need a mortgage from your email and social media steams and will just find one that is suitable and arrange it. No humans, just algos.

Life insurance. There’ll be no such thing because Big Data will know from your genetics, wearables and DNA, how long you’re going to live for anyway, so accidental life assurance will be offered at individual rates direct from the cloud. Motor insurance? No need, you won’t be driving the car anymore and accidents stopped in 2022.

We’ll look back at the days of individual IFA practices in the High Street, bank branches, football pitch sized call centres and the Man from the Pru with a sense of nostalgia, as the replicator makes you a cup of tea.