Sterling took another knock-on fears of a ‘no deal’ deadlock
as the Supreme Court ruled that the UK government had illegally prorogued or
shut down parliament, while most stock markets ended up on the week.
In light of billions of dollars indexing stocks, Michael ‘The
Big Short’ Burry is questioning whether index
tracking funds are the safe investment millions of small investors expect
them to be and even warns that they may cause a market meltdown.
Are Index Tracking Funds a Safe Investment? Not according to
Michael Burry, the legendary investor featured in the book and movie, The Big
Short, who is predicting a 2008-style crash. American Michael J. Burry is a
physician, investor, and hedge fund manager. He was the founder of...
Creative Finance Tools by Charles Kelly, Property Investor.
Learn more about own and controlling property using little known creative no
money down strategies used by professionals to create unlimited wealth and get
out...
More worrying stories have been flagged in recent news
stories prompting fears of a looming recession. Earlier today, the FT reported,
that the Federal Reserve Bank of New York injected $66bn into short-term
lending markets on Monday, building on a series of operations from last week...
Charles Kelly Author of Yes, Money Can Buy You Happiness and
creator of Money Tips Podcast People booking package holidays, as opposed to
flight only deals, are covered by the ATOL protection scheme. About ATOL The
law says your holiday must be protected if it is a...
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
Not according to Michael Burry, the legendary investor
featured in the book and movie, The Big Short, who is predicting a 2008-style
crash.
American Michael J. Burry is a physician, investor, and
hedge fund manager. He was the founder of the hedge fund Scion Capital, which
he ran from 2000 until 2008, before closing the firm to focus on his own
personal investments.
Burry made a fortune betting against CDOs before the 2008
financial crisis and his estimate net worth is $250 million. He currently
manages over $100 million in his own fund.
In an interview with Bloomberg, Burry said index fund
inflows (investment money) are distorting prices for stocks and bonds in much
the same way that CDO purchases did for subprime mortgages over a decade ago.
The flows will reverse at some point, he said, and “it will be ugly” when they
do.
“Like most bubbles, the longer it goes on, the worse the
crash will be,” said Burry, who oversees about $340 million at Scion Asset
Management in Cupertino, California. One reason he likes small-cap value
stocks: they tend to be under-represented in passive funds.
Here’s what else Burry had to say about indexing, liquidity,
Japan and more. Comments have been lightly edited and condensed.
“Central banks and Basel III have more or less removed price
discovery from the credit markets, meaning risk does not have an accurate
pricing mechanism in interest rates anymore. And now passive investing has
removed price discovery from the equity markets. The simple theses and the
models that get people into sectors, factors, indexes, or ETFs and mutual funds
mimicking those strategies -- these do not require the security-level analysis
that is required for true price discovery.
“This is very much like the bubble in synthetic asset-backed
CDOs before the Great Financial Crisis in that price-setting in that market was
not done by fundamental security-level analysis, but by massive capital flows
based on Nobel-approved models of risk that proved to be untrue.”
“The dirty secret of passive index funds -- whether
open-end, closed-end, or ETF -- is the distribution of daily dollar value
traded among the securities within the indexes they mimic.
“In the Russell 2000 Index, for instance, the vast majority
of stocks are lower volume, lower value-traded stocks. Today I counted 1,049
stocks that traded less than $5 million in value during the day. That is over
half, and almost half of those -- 456 stocks -- traded less than $1 million
during the day. Yet through indexation and passive investing, hundreds of billions
are linked to stocks like this. The S&P 500 is no different -- the index
contains the world’s largest stocks, but still, 266 stocks -- over half --
traded under $150 million today. That sounds like a lot, but trillions of
dollars in assets globally are indexed to these stocks. The theater keeps
getting more crowded, but the exit door is the same as it always was. All this
gets worse as you get into even less liquid equity and bond markets globally.”
“This structured asset play is the same story again and
again -- so easy to sell, such a self-fulfilling prophecy as the technical
machinery kicks in. All those money managers market lower fees for indexed,
passive products, but they are not fools -- they make up for it in scale.”
“Potentially making it worse will be the impossibility of
unwinding the derivatives and naked buy/sell strategies used to help so many of
these funds pseudo-match flows and prices each and every day. This fundamental
concept is the same one that resulted in the market meltdowns in 2008. However,
I just don’t know what the timeline will be. Like most bubbles, the longer it
goes on, the worse the crash will be.”
“Ironically, the Japanese central bank owning so much of the
largest ETFs in Japan means that during a global panic that revokes existing
dogma, the largest stocks in those indexes might be relatively protected versus
the U.S., Europe and other parts of Asia that do not have any similar
stabilizing force inside their ETFs and passively managed funds.”
“It is not hard in Japan to find simple extreme
undervaluation -- low earnings multiple, or low free cash flow multiple. In
many cases, the company might have significant cash or stock holdings that make
up a lot of the stock price.”
“There is a lot of value in the small-cap space within
technology and technology components. I’m a big believer in the continued
growth of remote and virtual technologies. The global retracement in
semiconductor, display, and related industries has hurt the shares of related
smaller Japanese companies tremendously. I expect companies like Tazmo and Nippon
Pillar Packing, another holding of mine, to rebound with a high beta to the
sector as the inventory of tech components is finished off and growth resumes.”
“The government would surely like to see these companies
mobilize their zombie cash and other caches of trapped capital. About half of
all Japanese companies under $1 billion in market cap trade at less than
tangible book value, and the median enterprise value to sales ratio for these
companies is less than 50%. There is tremendous opportunity here for re-rating
if companies would take governance more seriously.”
“Far too many companies are sitting on massive piles of cash
and shareholdings. And these holdings are higher, relative to market cap, than
any other market on Earth.”
“I would rather not be active, and in fact, I am only
getting active again in response to the widespread deep value that has arisen
with the sell-off in Asian equities the last couple of years. My intention is
always to improve the share rating by helping management see the benefits of
improved capital allocation. I am not attempting to influence the operations of
the business.”
“I sold out of those investments a few years back. There is
a lot of demand for those assets these days. I am 100% focused on
stock-picking.” Source: Bloomberg.
In short, pardon the pun, Burry is saying that index or
tracking funds are not safe and the amount of money flowing into them is
creating a massive bubble, which will ultimately burst causing a recession.
But what about managed mutual funds and unit trusts? Surely,
if the index funds crash, surely they will follow since they always tell their
investors to “stay invested” or “ride out the storm” and people get burned.
I am not your financial adviser, so take advice on your
investments and pensions funds.
Word of the Day
Index and Tracker Funds
An index or tracker fund is an index fund that
tracks a broad market index or a segment thereof. Tracker funds are
also known as index funds. These funds seek to replicate the
holdings and performance of a designated index. Tracker funds are
designed to offer investors exposure to an entire index at a low
cost. Source: Investopedia.
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
Holding an option on a property gives you the option, but
not the obligation to buy.
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
By Charles Kelly Author of Yes, Money Can Buy You Happiness
and creator of Money Tips Podcast
People booking package holidays, as opposed to flight only
deals, are covered by the ATOL
protection scheme.
About ATOL
The law says your holiday must be protected if it is a
package holiday. ATOL (which stands for Air Travel Organiser’s Licence) is a UK
financial protection scheme and it protects most air package holidays sold by
travel businesses that are based in the UK. The scheme also applies
to some flight bookings, usually those where you book flights (including UK
domestic flights) but do not receive your tickets immediately.
ATOL was first introduced in 1973, as the popularity of
overseas holidays grew. After a number of high profile travel business failures
left people stranded overseas the UK Government realised consumers required
protection when their travel providers fell into difficulties. ATOL currently
protects around 20 million holidaymakers and travellers each year.
If a travel business with an ATOL ceases trading, the
ATOL scheme protects consumers who had booked holidays with the firm. It will
support consumers currently abroad and provide financial reimbursement for the
cost of replacing parts of an ATOL protected package.
The scheme is designed to reassure consumers that their
money is safe, and will provide assistance in the event of a travel business
failure.
Statement by the CAA (Civil Aviation Authority):
Thomas Cook has confirmed that all the UK companies in
its group have ceased trading, including Thomas Cook Airlines.
As a result, we are sorry to inform you that all holidays
and flights provided by these companies have been cancelled and are no longer
operating. All Thomas Cook's retail shops have also closed.
The Government and the Civil Aviation Authority are now
working together to do everything we can to support passengers due to fly back
to the UK with Thomas Cook between 23 September 2019 and 6 October
2019. Depending on your location, this will be either on CAA-operated
flights or by using existing flights with other airlines.
If you are already abroad you will find all the
information you need about your arrangements to get home on this website.
If you are due to depart from a UK airport with Thomas
Cook Airlines, please do not travel to your UK airport as your flight will not
be operating and you will not be able to travel.
This repatriation is hugely complex and we are working
around the clock to support passengers.
You can also claim back money which you paid using your
credit card under and even your debit card under the banking ‘charge back’
scheme. Contact your credit card provider or bank.
Thomas Cook is probably the oldest travel agency in the
world with roots going back to 1841 when the original Thomas Cook arranged a
rail excursion from Leicester to Loughborough.
Recently, it has become burdened with debt and has run out
of cash and support from its bankers, leaving the directors no other choice but
to put the company into liquidation.
What is the underlying problem?...listen to the full podcast
for more thoughts and insights into the demise of the once dominant travel
agent.
Word of the Day
Liquidation
Liquidation is the legal ending of a limited company, stopping
the company from doing business, or employing staff. It is also possible for a
company to be technically solvent, but unable to repay debt. This occurs when a
company is “cash insolvent” and with assets that exceed its liabilities,
but unable to source additional funds.
The primary difference between the two procedures
is that company administration aims to help the company repay debts
in order to escape insolvency (if possible), whereas liquidation is
the process of selling all assets before dissolving the company completely.
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
If you would like more information about the Cyprus ‘Golden
Visa’ investment programme, email charles@charleskelly.net
By Charles Kelly Author of Yes, Money Can Buy You Happiness
and creator of Money Tips Podcast Yesterday we talked about Airbnb rise
from zero to $31 billion. Today I want to talk about a similar sized company in
terms of valuation which could be floated on... See more at www.moneytipsdaily.com
Airbnb to IPO in 2020 By Charles Kelly Author of Yes, Money
Can Buy You Happiness and creator of Money Tips Podcast The accommodation
platform Airbnb says it plans to go public next year. It was valued
at $31bn in its most recent funding round and made more than $1bn... See more
at www.moneytipsdaily.com
House Price Growth Slowest Since 2012, Say ONS By Charles
Kelly Author of Yes, Money Can Buy You Happiness and creator of Money Tips
Podcast UK house prices rose at the slowest rate to July than at any time since
September 2012, up by 0.7%, official figures reveal. According... See more at www.moneytipsdaily.com
New App launched that cancels subscriptions after free trial
By Charles Kelly Author of Yes, Money Can Buy You Happiness and creator of
Money Tips Podcast Have you ever signed up for a free trial online and then
forgotten all about it? A year later you realise that... See more at www.moneytipsdaily.com
Can you really buy a property with just one click? By
Charles Kelly Author and creator of Money Tips Podcast Joseph Kennedy,
the father of John F Kennedy, once said that when shoeshine boys were telling
him to get into the stock market, he knew it was time... See more at www.moneytipsdaily.com
Should you be buying Gold? By Charles Kelly Author and
creator of Money Tips Podcast Money Tips looks at whether you should be holding
precious metals like Gold and Silver as part of your portfolio. Word of the Day
Indicators An economic indicator is a statistic about
an economic activity, which offers an analysis of economic... See more at www.moneytipsdaily.com
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
If you would like more information about the Cyprus ‘Golden
Visa’ investment programme, email charles@charleskelly.net
The Brothers Stripe Are Richest Self-Made Irish Billionaires
By Charles Kelly
Author of Yes, Money Can Buy You Happiness and
creator of Money Tips Podcast
Yesterday we talked about Airbnb rise from zero to $31
billion. Today I want to talk about a similar sized company in terms of
valuation which could be floated on the stock market.
If you’ve ever sold goods or services online, you may have
come across a payment system called Stripe. I had never heard it of it until I
started using click funnels but it seems to work very well.
The people behind Stripe are John and Patrick Collison who
sold their first company for $5 million when they were still teenagers. Now, a
little more than a decade later, their second start-up is valued at $35
billion, making them Ireland’s richest entrepreneurs, Bloomberg reports.
The latest valuation for their online payment processor,
Stripe Inc., gives John, 29, and Patrick, 31, an estimated net worth of $4.2
billion each, according to calculations by the Bloomberg Billionaires Index,
enough for inclusion in the 500-member ranking. Stripe declined to comment.
Did they build this company up organically using their own
money or remortgaging their houses? No, they used other people’s money, such as
investors and capitalists.
This week, Stripe announced that it had raised $250 million
in its latest funding round, giving the San Francisco-based company a valuation
of $35 billion. The only U.S. start-ups that had higher valuations this year
are vaping giant Juul Labs Inc. and We Co., the parent of office-sharing real
estate firm WeWork.
However, the valuations for both of those companies are now
in doubt. A growing number of vaping illnesses and deaths has prompted some
governments to ban Juul’s products, and Wall Street estimates for We’s
valuation have tumbled following scrutiny of co-founder Adam Neumann’s
unorthodox financial dealings with the firm.
The Irish brothers’ fortunes exceed those of fellow countrymen
Denis O’Brien, the telecom tycoon, and financier Dermot Desmond. The Collisons’
wealth ranks alongside Silicon Valley peers such as Uber Technologies Inc.
co-founder Travis Kalanick and ahead of Airbnb
Inc.’s Brian Chesky, Snap Inc.’s Evan Spiegel and Spotify Technology SA’s
Daniel Ek, according to calculations.
I often watch a show called Dragons den, shark tank in
America, where entrepreneurs pitch their ideas before a panel of
multimillionaires. I’m often dismayed at how the panel dismiss ideas so
carelessly, often on the basis that “it has been done before” and the
competition is too tough for a new start up to get a foothold.
If the brothers behind Stripe had that attitude, they would
never have started the company on the basis that the market had been sewn up
already by Visa, MasterCard, PayPal and so on.
New businesses do not have to reinvent the wheel or come up
with a completely new invention. You don’t even have to find a cure for
baldness to become a billionaire! Amazon were not the first company to sell
products online and they won’t be the last. Uber was not the first company that
run a fleet of cabs and Airbnb were not the first rent to rent accommodation
provider. What all of these companies were did was to put a twist on an
existing idea or find a new way to solve a problem using existing innovation
and technology.
Word of the Day
Floatation
Flotation is the process of converting a private company
into a public company by issuing shares available for the public. It allows companies
to obtain financing externally instead of using retained earnings to fund new
projects or expansion. Source: Investopedia
There are more examples and practical steps to getting rich and being
happy in my book, Yes, money can buy
happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
If you would like more information about the Cyprus ‘Golden
Visa’ investment programme, email charles@charleskelly.net
Author of Yes, Money Can Buy You Happiness and
creator of Money Tips Podcast
The accommodation platform Airbnb says it plans to go
public next year. It was valued at $31bn in its most recent funding round
and made more than $1bn in revenues in the second quarter. Airbnb hosts, of
which I was once one, have made more than $80bn from renting their properties
as of this month, according to the company.
Airbnb, like Uber, Amazon and Apple, have disrupted
industries and brought down prices for consumers. But they have also done
something else which they have in common - they have all helped small
entrepreneurs make money and compete with larger businesses as well.
Airbnb has made $80 billion for landlords, like myself, Uber
indirectly employees millions of drivers and Amazon has enabled small
businesses to open up online stores and reach millions of people at a fraction
of the cost it would’ve been a few years ago.
I started with Airbnb around five years ago when it was
quite new in the UK, after hearing about it from my Son.
From the start, it really was an amazing system. I made
money from day one and rarely had an empty room. I only gave it up because it
was becoming too much work and I couldn’t find anybody reliable to manage it
for me.
Now there are companies which manage thousands of properties
on behalf of landlords which are rented out through www.Airbnb.com and other platforms like booking.com.
I went to their convention when it was held in Paris. The
guys who started the company are still young. They have built a worldwide
property business without owning the properties, which is a lesson for all of
you to think that you can’t get into property unless you have lots of money.
They do of course own their own properties and they used to let rooms out to
Airbnb guests just to keep their hand in and set an example.
The convention was amazing and so well organised. The staff
were evangelical in their belief in the company and the whole event was almost
like a religious experience. Unfortunately, the farewell Saturday night party
was cancelled due to the Paris bombings. It was such a shame because Airbnb
staff were contributing to helping to clean up parts of Paris in their little
way.
I’m sure their IPO will be successful and will be very
different from Saudi Arabia is Aramco listing, where wealthy families are being
browbeaten in soon investing in the $2 trillion company.
If you would like to know how to get into property drop me a
line n Facebook or email Charles@charleskelly.net
Word of the Day
Limited Company or Corporation
A limited company is an organisation and legal entity that
you use to set up to run your business. This means that each shareholder's
responsibility for financial liability is limited by the value of the shares
that they own but have not paid for. Company directors of such companies are
not responsible for business debts.
In other words, if you are the sole shareholder and director
of a limited company and the company goes bust owing £10 million or is sued for
£10 million, you will not be liable for the debt, unless you have signed a
personal guarantee or have acted fraudulently. However, if you are
trading as a sole trader, or a partnership, you would be liable for the debts
and the creditors could go after you and sees your personal assets such as your
house.
Limited companies can also use the letters LTD after their
name and the UK is one of the easiest countries in the world in which to set up
a company, which can be done within hours online at Companies House,
and run a business. The tax treatment in the UK is favourable to business and
we have good governance and rule of law.
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
Author of Yes, Money Can Buy You Happiness and
creator of Money Tips Podcast
UK house prices rose at the slowest rate to July than at any
time since September 2012, up by 0.7%, official figures reveal.
According to the Office for National Statistics (ONS) there
has been a general slowdown in UK property price growth in the last three
years.
The overall growth rate has been dragged down by a declining
market in London and south-eastern England.
However, the latest figures show the biggest drop in prices
in the last year was in the North East of England.
Property values in the North East region dropped by 2.9% in
the year to July and were down by 2.1% in July compared with June, data from
the ONS and Land Registry shows.
There were also annual falls in house prices in the South
East of England (down 2%), London (down 1.4%), and the East of England (down
0.5%).
Overall in the UK, the annual rise of 0.7% was the slowest
since the 0.4% rise of September 2012. The biggest rise was in Wales, up 4.2%.
The typical property in the UK is now valued at £233,000.
The ONS/Land Registry data is generally considered to be the
most accurate house price estimate, although it covers a period which is
slightly earlier than other surveys.
The news comes on the back of government measures to
penalise buy-to-let
investors and anybody buying a property over £1 million, which could be a
London flat or small detached in the South East of England.
If you would like
to get into property but not sure how, my friends at Progressive are running several
events to give you the opportunity to look at a number of strategies so you can
decide which is best for you.
Here are some upcoming
dates, but don’t worry if you can’t make or have missed them as there will be
more courses laid on in the new year.
Multiple Streams
of Property Income Event
20-22nd September – Peterborough
11-13th October – Peterborough
25-27th October – Peterborough
An excellent 3
day event covering multiple streams of income and strategies.
No money for
deposits?
Why not start by finding deals and packaging them up to sell
on to others. Learn more at the deal packaging discovery day
Deal Packaging
Discovery Day
25th September
30th October
A 1 day event
giving you a strategy where you can make money from property without using any
of your own money.
We also have a 1
day beginners property secrets course, which can introduce you to property
investing.
Beginners
Property Secrets Day
9th September
17th September
24th September
3rd October
8th October
Other events:
No Money Down
Discovery Day
23rd September
10th October
Joint Venture
Finance Day
5-6th September
23-24th October
Serviced
Accommodation Discovery Day
13th September
26th September
31st October
House of Multiple
Occupancy Discovery Day
11th September
I have a limited
number of complimentary tickets for these events. If you are interested, message
me on Facebook or email me at charles@charleskelly.net
The Bank of England kept base rates at .75% today, as the US
Federal Reserve and ECB cut rates this week.
Word of the Day
ONS
ONS is the Office for
National Statistics. ONS is the official body with responsibilities are
collecting, analysing and disseminating statistics about the UK's economy,
society and population.
There are more examples and practical steps to getting rich
and being happy in my book, Yes, money can
buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F
System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
New App launched that cancels subscriptions after free
trial
By Charles Kelly
Author of Yes, Money Can Buy You Happiness and creator of
Money Tips Podcast
Have you ever signed up for a free trial online and then
forgotten all about it? A year later you realise that you’ve been paying for a
service you didn’t really want. Sometimes, it only comes to light when your credit
card expires!
Good news. A young British entrepreneur has launched service
which automatically cancels subscriptions at the end of the free trial period,
the BBC reports.
The ingenious App was developed by Josh Browder, who in his
teenage years invented an algorithm called ‘Do Not Pay’, which continues to
successfully fight parking fines.
His latest App, Free Trial Surfing, is not directly linked
to a customer's bank account or credit card, but Mr Browder says it is in
partnership with a major bank. He declined to say which bank was supporting the
venture.
"The idea for this product came when I realised I was
being charged for a $21.99 (£18) gym membership from over a year ago that I was
never using," he told the BBC.
"In fact, I had completely forgotten that I had signed
up for a free trial in the first place. Constantly trying to keep track of when
a 'free trial' period ends is annoying and time-consuming."
Ironically, he said 10,000 people had signed up to for a “free
trial” to try Free Trial Surfing since its launch six weeks ago in the US,
where Mr Browder, who is from the UK, now lives.
The two most common subscriptions the service has been used
for are porn platforms followed by Netflix, he added.
How does Free Trial Surfing work?
Currently only available on Apple's app store, with a web
version in development, customers are sent a virtual credit card number and
invented name, which they can use to sign up for a service.
The card is actually registered to Mr Browder's firm, Do Not
Pay.
The app can also forward emails between the service provider
and the virtual card so that the customer's own email address is secure.
Mr Browder says the card will not work if used to pay for
any other form of purchase.
He said some platforms were trying to block the service by
figuring out which cards belong to Do Not Pay.
"Our bank is so big they would have to screw a lot of
customers to stop the product. They would have to end the entire free-trial
programme," he said.
He says that one day he may charge a subscription to use the
service, which is currently free.
"It took around six months to build," he said.
"Right now we're testing it - maybe one day it will be
a cheap subscription, like $2 per month.
"The reason it took so long was that we wanted to be
sure it would be declined if it is used with a real purchase. We won't hold
people to account - it will be us who takes the hit."
This looks like a brilliant idea, but not sure they have got
the application right just yet.
Inflation growth slowed sharply in August to 1.7% after
computer game prices dropped and clothing prices were slow to recover from the
summer sales.
The Consumer Prices Index measure of inflation fell below
2.1% in July, according to the Office for National Statistics.
Word of the Day
CPI - Consumer Prices Index
Consumer Price Indices are important indicators of how the
UK economy is performing.
The Consumer Price Index (CPI) is a measure that
examines the weighted average of prices of a basket of consumer goods
and services, such as transportation, food, and medical care. It is calculated
by taking price changes for each item in the predetermined basket of
goods and averaging them.
The indices are used in many ways by the government,
businesses, and society in general. They can affect interest rates, tax
allowances, wages, state benefits, pensions, maintenance, contracts and many
other payments. They also show the impact of inflation on family budgets.
There are more
examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3
R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it
out on Amazon http://bit.ly/2MoneyBook.
Consumer Price Indices are important indicators of how the
UK economy is performing.
The Consumer Price Index (CPI) is a measure that
examines the weighted average of prices of a basket of consumer goods
and services, such as transportation, food, and medical care. It is calculated
by taking price changes for each item in the predetermined basket of
goods and averaging them.
The indices are used in many ways by the government,
businesses, and society in general. They can affect interest rates, tax
allowances, wages, state benefits, pensions, maintenance, contracts and many
other payments. They also show the impact of inflation on family budgets.
There are more
examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3
R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it
out on Amazon http://bit.ly/2MoneyBook.
Can you really buy a property with just one click?
By Charles Kelly
Author and creator of Money Tips Podcast
Joseph Kennedy, the father of John F Kennedy, once said that
when shoeshine boys were telling him to get into the stock market, he knew it
was time to get out. That’s exactly what he did just before the 1929 stock
market crash, which was followed by a bear market which lasted for decades.
Sometimes I feel the same about property when everyone seems
to be jumping on the bandwagon. Now, there is even a company offering investors
a way to buy a buy-to-let property with the click of a mouse.
Can you really buy a property online just like ordering
something on Amazon? Well, not quite.
Dot, a Californian company with offices in Manchester,
effectively gives you the facility to reserve a property online, leaving completion
and the legal work to be done later on.
Investors are told that they can buy one and two bedroomed properties
costing up to £200,000 in a “few pain-free minutes”, with just a few clicks,
and enjoy a yield of up to 6% pa. Once you have selected a property, the
company sends out a computer generated image of what the property would look
like when refurbished, without investors needing to visit the site themselves.
I guess this would be of more benefit in America where a site visit could
involve thousands of miles of travel and even a flight.
The company is currently packaging up to 40 flats in
Manchester, Birmingham and Leeds, Cities which it has identified as rental
growth areas.
They told the Sunday Times that they expect it “will be
completely normal for an investor to acquire, renovate and hold properties
without ever visiting them in person”.
After the property has been reserved and Dot has carried out
a credit check and verified that the investor is earning at least £30,000 per
annum, the company lends investor the money to purchase the property and pay
all of the stamp duty and legal costs, plus Dot’s 3% fee – which is £6000 based
on a typical £200,000.
The loan, effectively a bridging loan, is offered at 0.6%
per month or 7% per annum for 12 months. Investors are required to contribute a
minimum 25% deposit.
Dot also sets up a limited company in the investors name, so
that tax on the profits will be paid at the corporate rate of 19% rather than
personal rates of 20%, 40% or 45%.
After the sale has been legally completed, Dot will offer to
refurbish the property for an agreed fee, which can take up to three months.
Before refurbishment starts, the investor takes out a second
mortgage with Dot, on the same terms as the first bridge, to cover the interest
accrued on the first loan plus the cost of the works.
Note that at this point, the investor has still not paid
anything more than their initial 25% deposit.
When the works on the property have been completed, the
investor takes out a new long-term mortgage to refinance the first two bridging
loans, based on the new higher value of the property. Dot then arranges a
mortgage at an annual interest rate of between 2.89% to 3.99% for up to 30
years.
This reflects the higher mortgage rates paid by limited
companies. It is still a mystery to me why the mainstream lenders have not got
in on the market for lending to limited companies at more competitive rates
than those offered by some of the more expensive challenger banks.
Investors are free to arrange their own mortgage and find
their own letting agency to manage the property.
Bear in mind that unless the property has dramatically
increased in value, you will need a bigger deposit than 25% (you are unlikely
to be able to raise much more that 75% and may be lucky to get 70%) to take out
the previous Dot loan, fees and refurbishment costs.
Based on their current projections, investors who stay with
the company would make £3358 per year from a two-bed property worth £207,000
and rented out for £1000 per month or £12,000 per year. The rent looks a little
high to me. A quick search on Rightmove showed that you can rent older 2 bed
flats for £575 pcm and the only luxury city centre new-build flats command an
asking price near to £1000 pcm.
Based on my calculations, this means investors will only
receive less than 40% of the rental income. Mortgage payments, ground rent and
service charge of roughly 30% (for insurance, tax reporting services and a
management fee) are deducted from the rental income.
That doesn’t sound like a 6% rental yield to me and in in
reality is more like 1.76% after costs.
Dot claims it will make it easy for people to purchase a buy
to let investment without doing any work or research for themselves. However,
nobody is going to do all this for nothing so there are quite lumpy fees and
charges involved.
On the face of it, the Dot deal looks like an innovative
scheme using technology to make it easy to get into property, but there are
drawbacks.
Firstly, the advertised 6% yield is a little exaggerated,
even without mortgage costs, when you take into account the hefty management
fees. You may argue that any property will involve some sort of management
fees, but Dot are selling a buying a package.
Secondly, buying a property remotely is always risky.
Thirdly, much of your profit will be eaten up by bridging
loan interest costs, which of course are adding to the profits of Dot.
Fourthly, you are almost totally reliant on this company to
fulfil the refurbishment and management and you have very little control over
either. If the company releases 40 flats onto the market at once, there is a
risk that you may not be able to find suitable tenants.
Finally, and most crucially, the scheme relies on a new
higher valuation in order for you to remortgage out of the expensive bridging
loan. If your lender’s valuer does not agree with Dot’s higher valuation, or the
market dips or Dot just gets it wrong, you may end up having to put in a lot more
of your own cash than 25% into the deal in order to get out of the punitive 12-month
bridging loan.
The scheme could either be a major flop, leaving hundreds of
investors out of pocket, or become the “Uber” of property investment.
In the meantime, I’ll stick to my own research and deals.
The best way to get into property is to do your homework and learn from
experts.
Word of the Day
Land Registry
Official government body that registers most property titles
in England and Wales.
Your solicitor will normally do a search to check ownership
as well as registering your interest in the property once you have completed
your purchase.
If you would like further details on how to learn about
property and become a professional property investor, email charles@charleskelly.net
There are more
examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3
R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it
out on Amazon http://bit.ly/2MoneyBook.
Money Tips looks at whether you should be holding precious
metals like Gold and Silver as part of your portfolio.
Word of the Day
Indicators
An economic indicator is a statistic about
an economic activity, which offers an analysis of economic performance
and predictions of future performance.
Top 5 Economic Indicators for Global Investors
1. Gross Domestic Product. GDP represents the
market value of all final goods and services produced within a country over a
period.
2. Employment Indicators
3. Consumer Price Index. CPI is an indicator of
inflation.
4. Central Bank Minutes
5. PMI Manufacturing & Services
Company indicators
Sometimes called Key Performance Indicator, KPI’s gives a
snapshot of key measures, such as sales, capital reserves or accounts payable
turnover, which tell investors and managers at a glace where the business is heading.
You could also run a KPI for your health. For instance, how
many hours exercise did you do last week? How much alcohol or sugary foods did you
consume? Do you smoke, and so on. Based on these KPI’s, you don’t need to be a
doctor to know where your health is heading.
There are more
examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3
R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it
out on Amazon http://bit.ly/2MoneyBook.
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There are more
examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3
R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it
out on Amazon http://bit.ly/2MoneyBook.
How to get bursaries and assisted places for top private
schools
By Charles Kelly
Author and creator of Money Tips
The gift of education is one of the most valuable things you
can give to your children. However, the cost of sending a child or grandchild
to an independent or private (strangely, also known as a “public school”) school
has soared well above the rate of inflation, yet the number of UK pupils in
private education has never been higher. Why is this?
Part of the answer is that more than £1bn a year of
financial assistance is available to parents, enabling one in three students to
have their school fees reduced or even waived, according to the FT.
School fees have become a major problem for the middle classes
in recent years. The cost of a private education is nearly 50% higher than a
decade ago, according to data from the Independent Schools Council (ISC).
Average fees for day pupils are now nearly £4,800 per term,
or just over £14,000 a year. Fees are higher in the Southeast and London, where
boarding school fees now average more than £13,000 a term — close to £40,000
per year, according to the ISC.
Scholarships and bursaries have become a key factor in
affordability, but many parents may not be aware of the level of help available.
For instance, at some schools, parents who apply for means-tested support could
qualify even if they have a household income of £90,000.
Competition for the brightest children means that an
increasing amount of assistance is being provided on a “needs blind” basis to
pupils with a flair for particular subjects, such as music and sports.
My Son won a music scholarship and bursary, which covered part
of the fees, and a government assisted place scheme, which was later abolished
by the Tony Blair government.
The strict application criteria will vary for each school, but
typically with a high level of financial disclosure required to obtain
means-tested funding.
Schools reject assistance requests from parents who own
second homes or expensive properties. If the school senses parents could afford
to pay the fees by downsizing their home, or asking grandparents for help, they
will say so.
Independent schools need to justify their charitable status,
which has encouraged more generosity in the form of scholarships and
means-tested bursaries. The ISC says that £800m of the £1bn provided in “fee
assistance” last year came directly from the schools themselves.
Over 175,000 ISC students currently enjoy some form of fee
reduction, around half of these through means testing. The number of those
receiving “free” fully paid places more than 6,000 pupils, an increase of 5 per
cent year-on-year.
Parents of children who win a scholarship can often also
apply for a bursary — often referred to as an “assisted place”.
In addition to help with school fees, financial help may be
granted towards the cost of expensive uniforms, sports equipment, laptops,
trips and other travel costs. The vast majority of this kind of financial
assistance is directed at UK families, but many parents do not know how to
access the increased funding. “Believe it or not, it’s quite a challenge for
independent schools to get applications from the families for whom their
bursaries are intended — gifted children from low-income families,” says
Catherine Stoker, managing director of Independent Education Consultants, which
advises parents on choosing the right school. “Scholarships and bursaries are
certainly one of the most ‘searched for’ items on our website,” she says.
“Parents often call us for advice on how to secure bursaries — it’s a confusing
area. Parents who would be eligible often lack the confidence to call their
local independent school and inquire about how to apply. Sometimes they don’t
know bursaries exist.”
In general, schools will seek to ascertain the “relevant
income” — the gross household income less an amount of between £2,000 and
£3,000 per dependent child. Having relevant income of £20,000 or less would
usually qualify for full fees to be paid, but some schools will provide funding
on a sliding scale of up to £90,000.
Despite the fact that sending a child to a private school
saves the state money, not everyone is happy that the children of relatively
well-off middle class families are benefiting from charity.
The Labour Party pledged to remove the VAT exemption on
private school fees, and could go further by scrapping business rates relief
which is granted to independent schools owing to their charitable status.
The headmaster of the prestigious Stowe School said middle-class
families who could have afforded to pay for private education a generation ago
were now being “squeezed out because of affordability”.
Assisted places are usually awarded for a set period when a
pupil joins a school at the age of 11, although many schools offer specific
bursaries to sixth-form entrants. Last year, £420m was provided in
means-tested, as opposed to merit-based, fee assistance for pupils at ISC
schools; an increase of nearly £160m since 2011.
Special bursaries are available for pupils whose parents are
in the armed forces, Church of England clergy, or who work for independent
schools. There can also be favourable terms for second and subsequent siblings
attending a school.
As a parent, you will need to do your homework, researching
the websites of the schools and applying early. Pupils will normally sit an
entrance exam and many parents prepare them for this by taking them to extracurricular
classes and cramming schools specialising in helping pupils pass.
Top schools like Westminster School, founded in 1560 and earning
its royal charter from Elizabeth I for offering help to 40 poor scholars, donate
millions to help poorer children.
Westminster currently allocates £1.4m a year to bursaries
and these can pay up to the full fees of £29,709 per year, plus uniform,
equipment and other school expenditure.
Its website advises parents: “There are no exact financial
criteria for bursaries but in judging a family’s needs, all income, essential
expenditure, and all assets in savings, investments and property will be
assessed.
Where, for example, a home is considered to be too large, in
an expensive area or where excess equity could be released, a family may be
expected to downsize or remortgage as necessary to release funds. It is also
expected that savings in shares, Isas, other investments and equity in second
homes will be released.
The school will then assess what level of bursary (between
10 per cent and 100 per cent of the fees) is needed.” Where parents live can
also give children access to financial help as some bursaries were set up to
benefit specific communities.
At Harrow School, where Winston Churchill studied, pupils
who have lived in London boroughs, including Barnet, Brent, Camden, City of
London, Ealing or Hammersmith, for more than two years may be eligible for
financial help from the John Lyons Foundation.
The choice of royalty, Eton College, charges boarding fees
of more than £42,000pa, but more than one in five pupils receive some form of
financial assistance. The school, whose alumni includes countless prime
ministers (David Cameron and Boris Johnson), Prince William and Prince Harry, will
spend £6.5m this year to support 273 of its 1,300 pupils. The average bursary
covers two-thirds of school fees. “We are proud of our bursary and scholarship
provision which last year saw 74 boys receiving 100 per cent fee remission and
a further 208 boys receiving a range of financial assistance,” says the
college.
Eton aims to support one in four pupils in future, and is
able to fund this from the school’s own resources and donations from its
powerful network of alumni.
The son of a Windsor pharmacist won a scholarship to pay the
full boarding fees for his education at Eton. His father said: “Applying for
the scholarship was very easy indeed, he told the FT.
The information was readily available on Eton’s website. “At
the time, so long as your child was under 10 years of age and had not been to a
fee-paying school, you just had to contact Eton and ask to come and sit the
scholarship test. “On the day, there were, I think, around 200 or so other
children sitting it. It was a week or so before we were notified that they
wanted him to come back again. At this follow-up day, there were around 6-10
children called back and they were involved in discussions rather than actual
tests.
Our son was offered a junior scholarship a few days later.”
The income of both parents was assessed and Eton covered all the school fees.
“We supplied a detailed list of our income and expenses and Eton then set a
contribution level.” The parents paid “a small contribution each term” of
around £750 plus any expenses such as dinners, laundry, and society
subscriptions. “Our son got A star and A grades in everything, plus a clutch of
school awards and went on to read English at Cambridge.”
Word of the Day
Hedge Fund
A hedge fund is an official partnership of
investors who pool money together to be guided by professional management
firms, not unlike a mutual fund.
A hedge fund manager raises money from outside investors and
then invests it according to whatever strategy he or she has promised to
use. There are hedge funds that specialise in "long-only"
equities, meaning they only buy common stock and never sell
short. There are hedge funds that engage in private equity, which is the
buying of entire privately held businesses, often taking them over, improving
operations, and later sponsoring an initial public offering. There
are hedge funds that trade junk bonds.
There are hedge funds that specialise in property and real
estate. There are even hedge funds that put money to work in specialised asset
classes such as patents and music rights. In other words, unlike a Mutual
Fund or Unit Trust, hedge funds can invest in just about anything.
There are more
examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3
R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it
out on Amazon http://bit.ly/2MoneyBook.
