With little over a month to go until Christmas, now is the perfect time to plan for the big spend.
The following 12 Financial Tips for Christmas Bliss are developed to make the festive season a truly family one and less of a debt-filled one.
Frank Conway is a qualified financial adviser and founder of MoneyWhizz, the financial literacy initiative. He is co-author of Cents & Sensibility – A Financial Guide for Young Adults. He works with leading global brands delivering financial fitness seminars.
If you can’t beat then, join them.
In the case of Northern Ireland, this is precisely what it has agreed to do as it joins the Republic of Ireland…in corporate taxation!
It has now emerged that Northern Ireland has been granted the authority to reduce the corporate rate of taxation to 12.5%, from April 2018, matching that of the Republic of Ireland.
But, unfortunately, instead of this being an amicable union, it is a strategic drive to compete for global foreign direct investment (FDI) with the Republic of Ireland.
The current rate of corporate tax rate in Northern Ireland is 20% and the reduction will make Northern Ireland home to the lowest rate of corporate taxation across the UK.
New KDB tax at 6.25%
In anticipation of the lowering of the corporate tax rate in Northern Ireland, the Irish Government has just launched a 6.25% Knowledge Development Box (KDB) tax where qualifying income would be subject to a reduced rate of corporation tax of 6.25%, half the regular corporate tax rate of 12.5%.
It’s about a lot more than tax
The Republic of Ireland has set the trend in FDI attraction. In addition to its multi-tier competitive tax rates, it is also a leading provider of a host of other service offerings, especially market entry strategies for many global corporates seeking EU market entry opportunities. This is a major point for up-and-coming high growth companies, especially in the financial technology (FinTech) space. Such companies are highly innovative and disruptive in the delivery of a wide range of financial services, including payments, lending and investing. So, while the 12.5% and 6.25% tax rates will serve as major incentives, it is the elevated service package that the Republic of Ireland currently offers that makes it such an ideal partner in the global growth plans for many brands.
Changing global landscape
Over the course of the next few years, the completion of the EU / US TTIP and ISDS will have a major impact on how trade is conducted across the largest economic space in the world. Conceived to abolish a massive amount to trade tariffs and other trade barriers, under TTIP (ISDS) the new trade landscape will make it easier to trade and access markets on both sides of the Atlantic. But the need for lower corporate taxation will not go away and in some cases, the proven skills of the IDA are likely to be in greater demand as more US brands look to expand across the EU.
Just in time
For the Republic of Ireland and Northern Ireland, the changing trade landscape combined with new and lower corporate tax rates must serve as a catalyst for sustained long-term growth. So perhaps in that sense, maybe the island can be united in economic growth and sustainable prosperity.
During the month of October, Vanguard Group pulled in US$196 billion of new investor cash.
Vanguard is the largest provider of index-tracking investment products and its October figures represents a rise of $33 billion from a year earlier. The Pennsylvania based investment giant’s growth is an indication of the growing preference of investors’ for index-tracking funds over those that rely on stock pickers.
Vanguard’s strong investor growth highlights the changing face of investing and mirrors those of Warren Buffet who has advocated for greater use of index trackers over more traditional active fund investment.
In fact, the growth of Vanguard combined with the consistent strong index-fund performance highlight the dilemma for active fund managers globally who have lower growth track records but higher fee structures.
Devastating impact of fees
Highly managed funds incur higher fees on client accounts. And it is fees that have a devastating impact on long-term fund growth. Analysis conducted by Ablata reveals fees costing 3% – 4% annually can reduce the overall value of client fund balance by 30% or more over the full term of an investment period. So, on a fund valued at $600,000, fees can reduce it by $200,000 or more.
Passive Vs Active investing
Passive management (also called passive investing) is an investing strategy that tracks a market-weighted index or portfolio. The idea is to minimise investing fees and to avoid the adverse consequences of failing to correctly anticipate the future.
Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark. However, this particular strategy requires a lot of guess-work along with buying and selling and amending of fund construction – all of which costs money but which clients ultimately pay for.
A broad dilemma for active investment managers is a long-term lack of ability to truly outperform benchmarks. So, while some active fund managers may outperform an index for a period of time, history shows their capacity to do so on a long-term basis is extremely limited. This is a fact that investors must consider as they evaluate their long term investment strategy.
Consistent growth and low fees
The biggest components of fund growth are driven by the overall rate of fund growth on year-on-year basis in addition to the fees applied to having their investment managed. So far, it is the Vanguard model that offers investors the greatest rate of wealth growth over the long term. And it seems that investors in general are buying into the Vanguard model in increasing numbers.