The Trip of a Lifetime - Partridge Muir & Warren Ltd (PMW)

The Trip of a Lifetime

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Keeping the Tax Man at bay
1st March 2010

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The icy British weather provides a sharp reminder that now is a good time of year to plan a break in sunnier climes. Although you may be feeling upbeat about trips to come, however, spare a thought for your money. Not only will it need to work harder to pay for your trip as a result of sterling devaluation, but while you’re happily sunning yourself abroad, it will be left to fend for itself in an ailing UK economy.

Like most developed, industrialised nations, the UK is saddled with eye-watering levels of debt. Necessary reductions in public spending and increases in taxation will inevitably act as a brake on economic growth, but our position is particularly grave. Add together government, corporate and household debt, and it’s equivalent to 800% of GDP (annual economic output). In other words, the UK has an eight-times-salary mortgage. Get the picture?

Emigration is perhaps too drastic a step, but a viable alternative is to send some of your money away instead. Why keep all your money tied up in UK equity funds which, like the economy, might struggle, when investing where global growth is strongest could provide much healthier returns? The question, of course, is which destinations to choose. Thumb through the investment travel brochure, and you’ll find that China and India look attractive, as does much of Latin America. Travelling to such exotic locations is not without risk, but you can reduce the danger to your money by taking sensible precautions. Overseas investment is certainly something to be considered, but only as part of a diversified investment strategy. Such investment will help to reduce dependence on domestic economic performance and, in most cases, hedge against any further weakness in sterling.

As with most things in life, it’s about getting the balance right. Just as you wouldn’t want to be 100% exposed to the UK market right now, from a risk management perspective you wouldn’t want to have all your money in a China fund either.

As creatures of habit, UK investors have a tendency to stick to what they know – UK funds – so, in many cases, now is a prime time to broaden horizons. Even those seeking income might consider global equity income products rather than the staple UK offerings.

What investors are not short of is choice. There are plenty of country and regional investment funds from which to pick. However, not all funds have a satisfactory track record, so take care to ensure that your money is well managed. This is where a good independent financial adviser can help, as he or she should be able to sort the luxury liners from the pedalos!

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