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 investmentaccount becomes a very good habit. Andit helps ensure you have money to go outmoreoften,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