This book is not intended

in any way to provide

advice on individual

savings strategies or

products; it is simply the

True Potential philosophy.

Showing our

true colours

Our Philosophy

• Investingcanbemadesimple,easytounderstand,andfun

• Settingagoalforanysavingisakeyactivity

• Understandingtheeffectsofinflationandtakingitinto account is crucial

• Understandingyourownattitudeandcapacityforrisk is important

• Makethemostofanytaxbenefits

• Monitoringyourinvestmentsshouldbeeasy,interesting and educational

• Saveonimpulse,butavoidgettingintodebtonimpulse

• Theresponsibilityforsavingiswiththeindividual

Responsibility for saving

Settingagoal,oradestination,isthemost important and least emphasised

partofinvesting.

A goal gives you a purpose and will

remind you and prompt you to carry on.

Unlessyouknowwhereyouaregoingandwhy,youdon’tknowhowbesttogetthereorhowmuchmoney,orfuel,youwillneed.

Soajourneywithoutadestination,at worstissimplywandering,untilyourunoutoffuel,atwhichpointyouarestranded.

Stretchthemetaphorabit,andthisiswheremanypeoplenowfindthemselves,strandedwithoutthefinancialabilitytolive truly independently.

Retirementage,redundancy,ortheneedtoslowdowncanbeforcedonyou.Bettertosetyourowngoal,yourowndestination and enough money to reach

itinstyle,whileyouhavethephysicalandmental means to do so.

Althoughyoumayhavenumerousgoals,the ability to retire when you want with

yourmortgagerepaidandwithsufficientincometoliveinthestyleyouwant,isformany their primary need.

Goalsettingshouldbefun.Bearinmindwhatevergoalyouset,youareunlikelytohitthatgoalexactly.Nothinginlifeiscertain,everythingchanges,but at least a broad aim is better than

avoiding the process.

Prioritising goals

Finally,althoughyoumayhavemanygoals,itisimportantthatyouworkonafirstthingsfirst,secondthingsneverprinciple.Onlyoneofyourgoalswillbethemostimportant,sotakethetimetoreally prioritise that one. Putting enough

resource to work to achieve that one goal

will almost certainly ensure other goals

become attainable.

The importance of setting a goal

Start with a blank canvas

‘Order from Chaos’

Workingonthecompanyphilosophyofthedesignstartswithbusyandchaoticformsatthetopofthepiece,withnostraightlines,whichleaddownthepiecegraduallydiminishing into complete calm at the

bottom.Thegreyoblongpiecesformchaoscatchersintowhichallthechaosfallsto emerge as calm. The lavender pieces

were chosen to compliment the purple

lights within the boardroom and vice versa.

Quantifythegoalinmoneyterms,andintoday’smoney.

Itisimpossibletopredicthowmuchyouwillneedin5,10,15yearstime.Butweallknow what we need to live on right now.

Ifhavingadecentincomeinretirementisyourgoal,thenyoudeterminehowmuchyouwillneedintoday’sterms.“Iwanttoretireontheequivalentof£20,000pawhenIam60”,isasensiblewayofstatingthat goal.

So,ifyouwereretiringtoday,howmuchcapital would you need to generate an

incomeof£20,000pa?Therearelotsoflifestyleplanningtoolsavailabletoquantifyallofthismoreexactly,butanapproximateguidewouldbetomultiplytherequiredincomeby20(whichequatestoa5%pareturnfromyourcapital).Soyouwouldneedasumof£400,000fromwhichtodrawanincomeof£20,000ata5%rateofreturn.Arealitycheck:ifyouwereretiringnowhowmuchofthat£400,000doyouhave,rightnow?

Butyouaren’tretiringtoday.Youareretiring(let’ssay)in15yearstimesoyouhavetofactorininflationoverthatperiod.Atthecurrent(CPI)rateof2.7%thatmeansyouwillneed£597,000in15yearstobuythesameas£400,000buysnow.

Please note the government has had

atargetof2%inflationforthelast10years,soyoumaywishtousethatfigure.Howeveryoumustnotignoreinflation–theeffectsonyoursavingsandonyourlifeifyoudosowillbedevastating.

Becauseno-oneknowstherateofinflationoverthattime,ortheratethatyourinvestmentwillgrowat,nevermindyourownpersonalcircumstanceschanging,allthesecalculationsarealwaysapproximate.Youcanonlyaim,notguarantee,butthatshouldnevereverputyouoff.Inflationmaybegreater,butitmaybeless.Yourinvestmentmaygrowfaster,orslower.Bettertoknownow,andact,whileyouhave time.

Converting tomorrow’s goals and income to today’s values

Focusing on the big picture

Yourattitudetoriskisveryimportant.Althoughlivingisarisk,mostofussensiblyavoid doing things where the downside

isoblivion.Alwaysensureyouhave,especiallymentally,moretogainthanlose.

Ourviewisthatanyinvestment,whethercashorasset-backedinvestments(shares,propertyorsimilar),shouldhaveasitsminimumgoaltheabilitytooutperforminflation.

There should also be the intention

toavoidmoneylosingvalue,inotherwordstryandretaingains,ratherthanrisking the lot on a bigger return.

Aquickwordabouttherisksofrelyingtoomuchoncash.Cashisportrayederroneouslyasbeingsafe.Acashdepositthat is consistently at a rate lower than

inflationisguaranteeingthatyouarelosingthevalueofyourmoney.Inflationisahugelyimportantfactor,adestroyerofvalueandlivingstandards,whichbanksand government seem to overlook.

Forbanksthisistheirlifeblood,payingsaverslessthaninflation,whilstcharging borrowers much higher than

inflation.Thedifferencebetweenthetwocreatingmassiveprofitsforthem,forlittleornoworkorrisk.

Thusanyreturnaheadofinflation,nomatterwhattheinvestment,isaminimumoutcome. Asset backed investments have

tended,overthelongterm,tobethebestwaytoachievethis.Thereforethisneedstobeencouraged,andunderstoodintermsoftherealriskstoanyonesaving.Asset-backinvestmentscan,andoftenwillgodown,aswellasup,andsometimestheyaredowninvalueforquitealongtime.

Alotofriskisabouttimescale,thetimeremainingbeforeyouneedtoen-cashyour investment. Although cash at

ratesbelowinflationisriskyoverthemediumtolongterm,itisthebestplaceifyoursavingsgoalsareshortterm.

Usingriskcategories,suchasdefensivethrough to aggressive is our attempt to

help investors relate that description

backtothem.Butifindoubt,bemorecautious. What this should mean is

thattoachievethesameamount,overthelongerterm,youwillneedtosavemore.Andthatisn’tabadthing-havingtoo much rather than too little.

We recommend that no-one talks you

intobeingtooaggressive,orhopingthatafundmanagerwillperformmiracleseachyear,toensureyouhityourgoal.Itisyourgoal,notanyoneelse’s.Itistooimportantforyoutodelegateittoanyone,trustedornot.Ifyouarenotontarget,savemore,donottakeabiggerchance.

Understanding the risk you are willing to take in order to reach your goals

Painting your own picture

Goodfundmanagersaddvalueto your investment. There is a positive

gapbetweenwhatyousave,andwhat theygrowyourmoneyto,minustheir costsandinflation.

Differentfundmanagersmayusedifferent“styles”orprocessestoachievetheseobjectives.Forexample,someruntheirownfundsandpicktheirownassetclassessuchasshares,property,bondsandcommodities.

Othersmayusea“managerofmanager”approach,choosingmanagersthathaveaproventrackrecordofexcellingintheirownassetclassinvestment.Sometaketheviewthatactivefundmanagementisnotasgoodaspassive(wherethemanagers use passive investments such

astrackerfundstokeeppacewiththemarket,ratherthantrytooutperformit).

Weseektohavesomedifferenceinstylebetween each manager so that people

haveachoice,withoutgivingsomuchchoicethatitbecomesconfusing.

All styles have their merits and

supporters as well as detractors.

Our approach is to pick top quality

investment managers who have a

reputation to uphold and a clear process

that can be inspected to ensure they are

stickingtoit.Iftheycan’tachievewhat

they said they would do over a shorter

period,say5years,thenyoushouldnothope they will get it right over a longer

period either. Asset backed investment is

meantforthemediumtolong-term,say,5to10yearsplus,butthosetimeperiodsstartwiththefirst5years,notthefinal5.

Transparency,simplicityandclarityofintentionareparamounttous.Notallfundswillhavea5-yearrecord,andtoanextent,pastperformanceissecondary.It’swhattheydowithyourmoneyinthefuture,nototherpeople’smoneyinthepast,thatisofgreatestimportancetoyou.

Our view is that you should simply

ensureyoucanbeatinflationbyamargin,overthelongterm,butthatyoushouldnotlockyourmoneyintojustoneinvestment,uncheckedforthelongterm and become complacent. Long-

terminvestmentisafterall,aseriesofshorter time periods over a longer time.

Ifyousetadestinationandplaceitonamap,thejobissimplytomonitoritandensureyoustayontrack.Ifthegoalisset correctly and your attitude to risk is

sensible,therealthingtoworryaboutisensuringyouputsufficientmoneyintoyourinvestment,whateveritis,tohityourgoal.Andlikeanyoneonajourney,youwillcheckfromtimetotimeastoyourprogressandadjustaccordingly.

Fund managers and investment style

An eye for detail

As a nation we have been told that we

should have a pension. We should buy

property. And we should avoid risky

stock markets.

Currentexperienceshowsmuchofthathasproven to be erroneous.

Regulatorscan’tstopriskandaddinglayeruponlayerofregulationaddstocosts,opacity,andactuallydissuadespeoplefromsavingfortheirfuturebenefit.Soweshouldtakewhatevertaxallowancesthegovernmentgives,butwithaneyeonhowsimple and sustainable they could be.

Outlinedhereare3ofthemainsavings vehicles used. This is not an

attempt to detail each one or recommend

themindividually,justsimplifythem.

Individual Savings Account (ISA)

Therearetwomaintypes,CashandStocksandShares,plusaJuniorISA.

Theyarerelativelysimple–youinvestinthemfromafter-taxincome.

YourinvestmentgrowsfreeofallUKtaxes.Youcanhaveaccesstoallofyourinvestment at any time.

AnymoneycomingoutoftheISAistaxfree,soincomeinretirement,forexample,isn’ttaxedandyoudon’thavetopurchaseanannuitywithyourmoney.Youtakeasmuchasyourequire,whenyourrequireit.

ISA’sarethereforeaflexibleretirementoption.Theydonotattracttaxreliefonpaymentsgoingintothem,butafterthatenjoygreattaxbenefits.

Understanding your options

Our palette of choice

Pension

Themainbenefitofapension(thenameismisleading–itissimplyasavingsoraccumulation vehicle until you actually

“retire’andbegintakingmoneyoutofitasa“pension”),isthatyoureceive,withincertainlimits,taxreliefatyourhighestrateon payments going into it.

Yourmoneythengrows,moreorless,tax-free.

Howeveryoucan’tgainaccesstoyourfundsuntilyoureachtheageof55,whichmayhavetheeffectofputtingpeopleofffundingthemintheearlyyears.Clearlythelogichereistoensurepeopledon’traidtheirpensionpotsforminoritems,afterreceivingtaxrelief,andstillendupwithinsufficientfundsatthepointofretirement.

Theeffectofallthismaybetomassivelyunder-fundpensionsintheearlyyears,which are the crucial years.

Whenyoudecidetotakeyourpension,there are several things to consider.

Currentlyannuity(thethingyoupurchasewithyourpotofmoney)ratesareextremelylow,andarelikelytostaylowbasedonincreasedlifeexpectancy.Otheroptionsareavailablebutanyincomecomingfromapensionisalsotaxed.Ourviewisthatmost pensions are more complicated than

they need be. Governments change the

rulestoofrequentlyandinturnincreasethe uncertainty about their long-term

use,soacombinationofISAandPensionsavingsmaybemoresuitableforthelong-term saver.

General Investment Account

Althoughthesearetaxed,theyareusefulforanymoneyinexcessofyourISAallowance,orforinvestmentsthatyoudonot wish to tie up inside a pension.

Mostpeoplehavesavingsandinvestmentsscatteredacrossdifferentproducts and providers. This makes

thejobofunderstandinghowwellyouaredoingnearlyimpossible,evenifyoudounderstandeachproductaftercuttingthroughtheinevitablejargon.

Thislackofunderstandingisoftenbasedonanasymmetryofinformation(thedifferencebetweenwhatthesellerandbuyerknow),andcanbewronglyexploited.

We believe it is crucial that people

understand their savings and thus we

have a total bias towards simplicity and

providingasmuchinformation,inanunderstandablefashion,inoneplace.

Checkingonhowyourmoneyisgrowing,versusyourgoals,shouldbeaseasyandinteresting as possible. And it needs to be

doneonareasonablyfrequentbasis,sayonceaweek.Why,afterallthesearelong-terminvestments?Theanswerissoyouget to know your investments well and can

see how well they react in volatile times.

This does not mean when stock markets

godownyourushfortheexits,orevenbuy more guessing that the market has

reacheditsbottom.Youdon’tknowthat.Infact,fewcanevercallthatmomenton a regular basis. There is an old saying

“Itistimeinthemarket,notmarkettiming,thatmakesthedifference.”

Butitisyourmoney,andyoushouldhavethe right and responsibility to keep an eye

onit.Themainthingtowatchforisthatyourinvestmentisdoingwhatthefundmanagers said it would do; it is behaving

appropriately.Forexample,amoreadventurousfundshouldgoupfasterwhenstockmarketsaregoingup,thanadefensivefundthatwillhavelesssharesand more cash inside it. And vice versa.

Trackyourinvestmentagainstyourgoal–ifitisunder-shootingthensimplytopitupwithasmuchasyoucanreasonablyafford.Thereisnothingwrongwiththis–thisisexactlywhatyouwoulddoinreallife,onarealjourney,youwouldputmorefuelinthetank.bettertoarriveearly,thanlate.

Monitoring your investments

Keeping you in the picture

Impulse saving

Wewantthathouse,soweborrow.ThatmaybeOK,aslongashousepricesgoup,interestratesstaylowenough,andour personal circumstances mean we can

affordthecostofborrowing.Attheendofthe mortgage term we have an asset backed

investment,andnoborrowing.

But many are tempted to continue to

borrowagainstthesamepropertyforthingswhicharenotassetbacked,oraremuchmorerisky,suchaspropertythatotherslivein,orpropertyabroad.

Inaddition,wealluseourcreditcardsforpurchases,withoutathought.

Goodhabitsandbadonesarejusthabits.Gettingintothehabitofsavingsmallamountsratherthanbuyingthatextracoffee,orifyoudecidetostayin,putthemoney saved straight into your investment

account becomes a very good habit. And

it helps ensure you have money to go out

moreoften,whenyoureallywantto.

Whenever you get the impulse to borrow

(likeacreditcardpurchase),orover-indulge,justpause.Thatcoffeeandcake-youdon’treallyneedit,popthemoneyinstead into your savings and not into

thepocketsofotherspreyingonyourtemporary weaknesses.

Iris HoughtonFused Glass Panel

Working on the True

Potentialphilosophy,thedesign starts with busy

andchaoticformsatthetopofthepiece,withnostraightlines,whichleaddown the piece gradually

diminishing into complete

calm at the bottom.

The grey oblong pieces

formchaoscatchersintowhichallthechaosfallsto emerge as calm.

Order from

Chaos

Resolution

Glynnis CarterOil on canvas

True Potential LLP wants to

createorganisationoutofchaos and wishes to

presentitselfasaclearthinking leader in a

marketplace that presents

itselfasachaoticone.

From a seemingly chaotic

beginning the artist

exploredtheformalaspectsofcolour,texture,line and tone to make a

painting that draws an

immediate response but

which also has the depth

and interest to reward

sustained viewing and

evokesasenseoflandscape.

Vision

Frank BriffaOil on canvas

InkeepingwithFrank’snormalpractice“Vision”isbasedonapieceofmusic,inthiscase,AnAlpineSymphonybyRichardStrauss.Thisisalarge orchestral work that

describes11hours–justbeforedawntonightfall–duringwhichthereisan ascent up a mountain

followedbydescent.

Theworkcomprises22continuous sections and

isbasedspecificallyonthesectioncalled“vision”during which the summit

ofthemountainisreachedand the music here seems

to describe a sudden clear

visionofachievementfollowingthearduousandsometimes chaotic climb.

Commissioned artwork

The True Potential Gallery

Commissioned artwork

True Potential LLPRegistered Head Office: Newburn House, Gateway West, Newburn Riverside, Newcastle upon Tyne, NE15 8NXLondon Office: 42-44 Grosvenor Gardens, Belgravia, London, SW1W 0EB

T: 0871 700 0007 E: discover@tpllp.com www.tpllp.com

True Potential LLP is registered in England and Wales as a Limited Liability Partnership No. OC380771