Full Transcript
Dr James:
Hey, what is up everybody? We are joined today by Rohit Rohella. We’re here to talk about tax eviction, investing, especially with the things that are going on in the market at the moment, which are absolutely crazy. A little bit of an impromptu live on dentists who invest, but these are fun. I really do enjoy doing these. Rohit, how are you today?
Rohit:
I’m very good, james, and how are you, my man?
Dr James:
I’m good man, I’m hanging in there. I’m happy you know we’re using some new software today. This stuff is crazy, right. You can broadcast on a Facebook group, you can broadcast on LinkedIn and you can broadcast on YouTube all at once. So shout out to the YouTube followers, shout out to the LinkedIn followers, shout out to the Facebook followers. We’ve all got you together in one place, one big happy place, where we’re here to learn about investing from a good friend, rohit. So, yeah, I’m 10 out of 10, my friend Brilliant, and it’s your enthusiasm for trying out new things, which is really, really inspiring.
Rohit:
So keep that up.
Dr James:
Do you know what? Do you know what? Right? It’s very easy just to get stuck in a rut and just use the same old software over and over again. But yeah, we’ll see how this plan is out today. But yeah, we’ll see how it goes. So, rohit, you wanted to share a little bit of insight and wisdom on the current market situation. You joined us not so long ago in the Dentist Invest podcast, where we did talk about this, and really you can actually distill your advice on what to do in these market circumstances down to about this much of text. But the thing about it is there’s so much flipping, overwhelming information out there that leads people astray, especially on the long term investing plan, and I feel like that’s where people run a file.
Rohit:
Yeah, absolutely. When I speak to my clients, I say to them just one thing follow the kiss principle, keep it short and simple. So there is so much noise out there, and the internet can be a help as well as a hindrance If you let that voice affect you. And there’s a reason why. What is put out there in the media and what these journalists do, I just call it negative events World Service. That’s what they’re to sell, that’s what they propagate and that’s what they get paid for. If anyone based their investment decisions on what they read in the newspapers, no one would ever invest or no one would ever make any money. What I say is stay focused on the goals and let history be your guide, because people that don’t know what has happened before cannot actually get good results going forward. The lesson of the markets is clear and simple Capitalism is not perfect, but it’s the best economic system known to man so far and it does work. So by investing in the great companies of the world, in great quality assets, if you’re doing it and you’re staying calm and composed in these times of turbulence, then you are all set to achieve fantastic results. It’s just staying true to the plan, having a plan in the first place and then having faith in the plan more than anything else.
Dr James:
You know what? I was just going to quickly say something on that. So there’s some big media outlets out there I won’t name names which espouse information inverted commas on investing for people who are interested in that wealth, finance and what have you. You get an email from them every other day and it’ll be like hey, we should all think about buying uranium because this, this and this has happened and nuclear power is going to grow over the next 10 years. It’s forecast to grow by this much. Or hey, we should buy some copper because there’s a scarcity of copper and this mine is not going to open for a few years and in the meantime, inflation is going to ride high. Put your money in copper and it’s almost like this. It’s like they’re making it out, like it’s a casino, you know. And we should be actively moving between investments. And that is the most dangerous thing of all time because all of a sudden, all these people that have solid plans that they’ve either created themselves through their own research or they’ve been provided them by someone who is an FA or someone who’s a professional, is on their side, or just getting this total paradox, these quandary of information that makes them think that they should be more involved in the process and what they are set up correctly at the start and then resist the urge to tinker is a line that I love.
Rohit:
Absolutely, and these media outlets and the content they create. What this leads to is herd mentality, changing the next big thing, and that next big thing would be down in the dumps. And then there’s something else. Where do you end. And where do you even start with this? Is it going to lead you anywhere?
Dr James:
It’s no, it’s not.
Rohit:
Yeah yeah you know, keeping keeping to what you started with and, yes, adapting the strategy where needed is the way to go, and some people are able to do that themselves, but a lot of people feel that having a trusted financial planner who can help them make sense of all this and keep them disciplined, keep them focused, is a real asset. But whichever way you go, it’s good to stay aware, it’s good to know what’s happening in the markets, but not let your emotions get the better of you. And use your brain effectively is the way to go.
Dr James:
Cool and you’ve got some PowerPoint slides that you’re going to use to educate us further on that matter in just a moment. One more saying that I love because I’m an absolute sticker for my idioms and sayings is that investing is one on day one. Investing is one as in you achieve success on day one, the very first day, because that’s the day that you set up correctly with a plan and then you just execute for the rest of your life. It’s not like any other event or competition in the world where investing where you win on the final day, once everything is in order, once you are well, once the event is complete, you actually win it on the first day because of how you set up interest.
Rohit:
Yeah, and then the only other thing is make your plan adaptable, make your plan change based on your changing circumstances, and then you’ve got a winner.
Dr James:
Absolutely, absolutely so, rohit, let’s jump straight in with what we were planning to talk about today, because I believe that you have some more information that you wanted to share on us. First of all, well, you know what. We covered this the other week a little bit in that podcast where we talked about how to invest in the current market slump, and it was more of the same in building what we were saying tonight, and you know what we can all what I always find is that people, whether they’ve got the best advice in the world or whether they’ve got the best plan, when they are tested, when the, so to speak, the proverbial hits the fan, yeah, they act completely differently, you know. And those people same people will say, yeah, I’ll buy the same thing, yeah, I’ll just keep consistently buying, even when the market goes down. But then, when it does, panic sets in and fear sets in, and it’s just nice to have a little bit of a reminder that this is normal. The stocks are volatile. That’s part of the game. The market doesn’t go up in a straight line, but if you’re sitting back and analysing, eight out of 10 years the market makes a gain. So you go to a casino and you’re playing Blackjack and you win eight out of 10 times. As long as you keep betting the same money, you’re going to make a profit, and the markets are exactly like that, yeah not totally, and we’ve got some data to show people exactly how that has panned out over the last 20 years.
Rohit:
So that’s coming up.
Dr James:
Let’s jump in on that right now. Actually I’m interested to see it.
Rohit:
Yeah, let’s do that then. So the only other thing to add before we go in is there are only two things that are certain in life. People say, and that is death and taxes. Now, I can’t challenge death yet, I haven’t got that magical power, but I’m on a mission to challenge taxes, yeah, and that is through clever strategies which dentists can employ right here, right now, depending on their situation. One or the other, or maybe more, will be applicable, but it’s the keys knowing about these strategies and how to implement them in the right situations. Because if you can claim more money from the tax man or not paid in tax in the first place, then you’ve got that money participating in your financial plan, growing for your future, and that’s part of the journey.
Dr James:
Absolutely so. This will be released as a podcast later, and I’m very aware that what we’re about to display on the screen is highly visual, so we’ll do our best to give some sort of audio description as well for those people who are participating via the podcast and listening to this further on the line. So, rohit, would you like me to show your screen? Let’s do it. Tax-efficient investing for dentists is what I see. In front of me is the title slide.
Rohit:
Yeah, so very quickly pointing out that this is not personalised advice, it is just an information pack. For more specific advice, contact me or any financial planner. They’ll always be happy to have a chat and go through your situation.
Dr James:
Yeah, so if you can jump on to the next, slide, then Absolutely, I think that is that something that you do at your end, or? Oh, I see, or I can do it at mine, as well, both of us, great tool Right.
Rohit:
So the way I’ve structured it is I’ve put a problem description and then the solution and how it works. So the problem that dentists face is that they often have high incomes. If they are associates or if they are partners in a practice, then they’ll achieve their income as net profit. If they have a limited company, then the challenge is they can extract up to the personal allowance $12,570 a salary. They can do dividends up to $50,570 and that’s a basic rate tax of 8.75% on the dividend. But beyond that it starts to get very punitive. So as an individual contributor you get taxed at 40, maybe 45% above that $50,570 magic number. If you are a limited company director, then you get taxed at 33.75. So either way, it’s a very punitive way to extract money. So how to get around that? There are various solutions. The first solution we’re going to talk about is venture capital trusts, or EISs enterprise investment schemes. Now, both of these. The way they work is that they are investments into small companies, so these companies can have up to 250 employees and they can have turnover of up to 15 million pounds, or for knowledge companies, it can be up to 20 million. But what tends to happen is VCT managers or EIS managers tend to look at businesses which are scale ups. So these are businesses which we hear of every day. Some of them, like Zoopla, was a startup business of this nature. Kazoo Dorset Diller of Used Cars was one Oxygen which was involved in research on the vaccine for COVID. That was part of this as well. So you’ve got companies which are in things like AI, big data technology, artificial intelligence, genetics, high tech, knowledge based entities, and they target growth of anywhere from two and a half to five times. So high growth, higher risk. But the real advantage from a tax point of view is you get 30% income tax refund on the amount you invest. So if you look at the planning scenario. Let’s say that a dentist has 50,000 of income that they are willing to put into a VCT. They get a tax refund of 15,000. That’s 30% of the amount straight away. So that’s a lot of their downside risk already taken care of. Now, with effective management, with looking at more than 4,000 potential investment opportunities, narrowing it down to about 10 to 15 for a particular VCT, you can imagine the kind of top of the funnel to the bottom, how much risk management is going on there. So you still have some companies that can fail, but the ones that succeed can actually get you between two and a half to five times your capital Obviously not guaranteed, but it’s a possible return and it’s a way of reducing tax on your income. Limited company directors can also sort of extract money as dividends. So if you think about it, you get taxed at 33.75, but you take 30% of it back, which means that you’ve just paid 3-4% tax on your income. How cool is that?
Dr James:
That is cool. So let’s put that in the figures. So as you say you’ve got the basic tax rate, anything over and above that, let’s say you have 100,000 clients in theory, so you’re 50,000 over the basic tax rate roughly. Let’s call it that. And let’s say back what you’re putting into the trust, so the 30% rebate or tax that comes back to you. Let’s call everything over 50,000, roughly 40% tax rate. So there’s 50,000 that you normally get taxed on at 40% there. So let’s do the math really quick. That would be 20,000 points in tax. Normally should you just pay it as income. But that 30% means that let me say you’re actually only paying 5,000 points in tax when that’s placed into the venture capital trust.
Rohit:
Is that how it works? Absolutely so. You get obviously taxed at your income. So if you’re self employed, then you’re due to pay that tax in either January or July. So if you invest in a DCT beforehand, it will entitle you to a refund of 15,000 in that case 30% of 15,000. So you may have to reclaim it back from the government, or you may not pay it in the first place, depending on the timing of your investment. But the end result is exactly as you said, james. The tax liability is limited to 5,000 in that case.
Dr James:
Okay. So it’s like a little booster, because think about it like this everything that goes into an ISA is NAT. You know what I mean. It’s like a little booster on your investment, isn’t it A bit? Not a little booster, a big booster, wow.
Rohit:
Yeah, so the difference between ISAs and this, james, is ISAs tend to stock shares, tend to invest in large cap companies billions of pounds of turnover normally Whereas here you’re talking about smaller businesses and these are going to be the big success stories, the disruptors of the future. So you’re investing in something that is good for the economy, is good for people at large, good for innovation, but also good for your pocket.
Dr James:
Interesting and who manages the actual portfolio within the trust? Do you buy a fund or do you buy the companies yourself?
Rohit:
So based on what you’ve got. So a venture capital trust or a VCT is nothing but an investment company. So the investment company is what you’re buying. You’re buying the shares of the VCT. It’s not a trust but it’s more an investment company, and then the underlying fund managers will actually choose these companies to invest in. The value of the VCT shares that you buy is driven by that. But enterprise investment schemes you can think of them as stock brokers. So there you are, engaging an EIS stock broker or a manager who will then select these companies and you buy their shares directly. So that’s the slight difference. There are specific advantages to an EIS compared to a VCT. So what both of them will offer you, james, is 30% income tax refund. That’s common across the EIS and VCT. But what EIS offers you on top is capital gain tax deferral. So this can be very useful in scenarios where, let’s say, you’ve sold your practice and you’ve got a certain sum of money, so you may be liable to pay entrepreneurs relief CGT of 10%. The other scenario we come across is dentists who have invested in buy to let. If they’re selling a buy to let property, then there would be capital gains tax to pay If you can put that gain into any IS, then you can defer that capital gain, you don’t have to pay it, or you can reclaim it back. Shall we take an example of that to illustrate? Yes, I’m interested to hear it. OK, so let’s say that a dentist sold their practice for a million pounds, so on that there would be capital gains tax of 100,000 to pay Now let’s say that they agreed to put 200,000 out of the overall gain they made from the sale into any IS. So 30% of that, which is 60,000 pounds, is claimable as income tax relief. So provided they had good income tax liability in this tax here or the previous one with the IS, you can take it back one tax year as well. You can claim back 60,000 as income tax relief. But what you can also do is you can claim 28% or sorry, in this case, 10% of capital gains tax back. So 10% of 200,000 is 20,000 pounds and that can be claimed back as capital gains tax relief. So not only have they got 60,000 in income tax relief, they’ve also got 20,000 pounds in capital gains tax relief. So out of 200, they’ve already made back 80,000 in tax refunds, and anything else they make on top is tax free as well. And that is the power of EIS and VCT investment.
Dr James:
Wow. I guess it all comes down to which trust you actually put your money in, I suppose how well you trust them, so to speak, given that you’ve got all this rebate and that’s absolutely brilliant. But then you want someone that is trustworthy and useful with your money, so someone that will actually cause that to continue to grow, shall we say, with time. But I’m sure there are many out there that have good track records and what have you?
Rohit:
Absolutely, and this is more true in this domain than any other domain, because there are a whole lot of cowboys in this industry who I would not touch with a barge pole, and that’s where having a trusted advisor who has done thorough due diligence on the market, I mean that’s what I do for a living really so. Having analyzed more than 60 to 70 providers, the only rate seven or eight worth investing in, and the reason for that is a strong track record of successful exits. So for 15 to 20 years, or at least 10 years, they’ve shown their capability to identify the success stories. They have PhDs in biotech, in genetics, in AI, who are actually scrutinizing these startups, their business plans and their way forward, and then they analyze whether they are worthy of investing in. So you have still have failures. Don’t get me wrong, it’s not always successes, but as long as they are keeping the failure rate within 20%, you’re still in for a gain of anywhere from 50% to 300%.
Dr James:
Well, it’s called tail-led investing, isn’t it? You ever heard of the art industry? You know how big art brokers invest in art. They’ll literally buy 1,000 pieces 990. Now, from what I gather, venture capital trusts are not quite to this extreme, but it’s a similar concept. You’ve got 1,000 pieces of art, buy 1,997, go to zero or don’t really move. Maybe one or two There’ll be reasonably noteworthy level of fame for the artists to achieve and therefore the price will go up. And then in there, in one of those 1,000s one out of 1,000, you’ll have the next flip in Van Gogh or Picasso, and that one does so well that it makes up for the other 997. Yeah, it’s interesting and they make money doing it, but they understand it’s an odds game and it’s called tail-led investing. It’s a name for the concept.
Rohit:
It’s very similar in this space. So out of every 10 EIS or VCT managers investing, you’d find maybe one or two fail. You’d find maybe three or four are average success stories maybe 30%, 40%, 50% gain and you’d be hoping that you will have two or three nuggets where you can make five or 10 times the retail and good providers demonstrate that over time certainly.
Dr James:
So very good analogy there. That’s cool, that’s cool. What’s the exit strategy on these things then? Is it just buy and hold indefinitely, or do you get in with the means to get out in mind?
Rohit:
So, with VCTs, exits happen after five years, so you can only keep the tax relief if you exit after that. Now exit can happen in one of three ways. Either the company can get listed on the main stock market, so the VC player can exit their investment by listing. The other one can be by being bought over by a big company. So you might have heard of a company called Pasti Evangelist, for example, that was sold to Nestle. There have been many other stories like that where innovative companies which can move really fast when it comes to new technology, their agile, are bought over by the so-called oil tankers. So Swiftkey everybody probably knows Swiftkey, the keyboard app on Android and so on on iOS. So that was bought over by Microsoft. That was also one of the VC investments that we made. So that’s the second route. And the third route is being bought over by a private equity firm. So when VC managers put their money in, they have their exit in mind with a five to seven year window. Eiss there is no defined time frame other than three years minimum. So over there, because you are buying the shares directly, it’s controlled by the EIS fund manager. It could be anywhere from three to seven years, but as VCT exits in five years.
Dr James:
Interesting? And at what point would you typically recommend a VCT to someone? Because for me, right, I’m thinking to myself OK, we’ve got these, this is all well and good, this is cool, but the simple things we have in our hand. We’ve got our 50,270. The basic tax rate, yeah, I believe it’s 50,270. Let me just check that out, but yeah, anyway. So, yeah, that number, that’s the magic number which we want to stay under. And really, if we can maximize every single pound held in our personal name under that amount, that is flipping gold dust. Ok, that, because the tax rate is minimal on it. And then after that, most dentists are going to have a limited company and then they have to extract as much as they can out of that in using these different methods or invest within the limited company as well.
Rohit:
We can do that we can talk about that. Absolutely, that’s coming up next. You read my mind, james. That’s what you’re doing.
Dr James:
Oh, I see. Ok, well, I’ll tell you what. I’ll tell you what. This is what I’ll do. Lips are sealed and let’s come in with that one. Let’s go.
Rohit:
Yeah.
Dr James:
Let me hear more on that, and then I’ll give my spiel.
Rohit:
So one very quick point in relation to what you raised when do VCTs and EISs fit in? So the bread and butter of investing should be pensions and ICES. Ok, I always say this to clients, but specific planning scenarios will mean that VCTs and EISs are also a useful component of that. So pensions, as you know, have an annual allowance limit of 40,000 pounds. Now, most dentists, or many dentists who do NHS work, will be members of the NHS pension scheme, so part of their annual allowance will be used by that. And then you could make contributions into a personal pension through a limited company. We are going to talk about that. You could do corporate investments, but that means you’re keeping investments within the company If you want to extract capital other than what you’re going to put in a. This is your answer yeah, yeah, that’s what we’re going to do. And then what you could do and here’s an excellent planning angle, James as well is VCTs and EISs. They give you tax refunds. You could use those tax refunds to make ISA and pension contributions. So you could put the, let’s say, in that example where we were putting 50,000 pounds into a VCT, we were going to get 15,000 back in income tax refunds. We could use that money to top up our ISA allowances or, if we had personal income, we could use that to make pension contributions. So that’s tax relief, one tax relief, if you know what I mean.
Dr James:
Oh, I like that. I like that Because what you get, yeah, when you sell the, when you cash out of the trust, you’re liable for capital gains versus income. Is that right?
Rohit:
You’re not liable for any the gains that you make.
Dr James:
You’re not liable for anything.
Rohit:
Right, it’s tremendous. It’s really unbelievable to look at. So with VCTs and EIS, when you exit, all the gains are tax-free. Vcts also pay you dividends which are tax-free during the time they’re holding it.
Dr James:
So it’s phenomenal. I must have missed that when you said that earlier. Okay, that is interesting, that is cool. Food for thought. Food for thought. Let’s jump into limited companies.
Rohit:
Yeah, let’s do that. So this, before we do that, this chart just explains visually what a VCT and DIS does. So you have a combination of small and medium companies they could be aim listed, so alternative investment markets, or they could be unlisted, and it’s just a diversified portfolio of those types of companies. Okay, right, so now we talk about what you mentioned corporate investments. Okay, so the problem statement here dentists that have limited companies and they have savings held on deposit. So some part of that capital is what I call active capital. Ie, you’re going to use that to buy practices, expand your, you know, surgery, buy new equipment, whatever. But most practices have some element of the other aspect, which is lazy capital. Okay, so that capital is just that they’re putting on the calories, you know, eroding in value.
Dr James:
Can I say one tiny thing on that right? That is the easiest thing for any dentist to ever accrue, because they’re over here, they’re doing so many root canals and fillings and extractions. All this money builds up right. And then they look over and they think, oh wow, all that money sat there, that looks good. I should probably do something about that. But let me just do this fill in, let me just do this check up, right. And then they come back two months later and it’s exactly the same right Now. That’s all well and good. It’s really easy to look at that money and be complacent, right, every single second. That money is not working for you. It’s actually working against you because you’re holding it in cash right. The time that you spent to acquire that money is physically being taken back from you because the cash is losing value, and that’s why it’s so important to explore somewhere to store that cash effectively, a better home for it. And what asset will that be? Your complacency is costing you.
Rohit:
That’s what I want to get across precisely, and with inflation being close to 9, 10%, your money is losing value If you have 100,000 today, next year it’ll be worth 90, and so on. And yeah so investing, it is important, and how you invest, it is the question.
Dr James:
And just it’s just very important. Just one tiny thing I just wanted to say on top of what I’ve just said. It only applies to surplus cash, right, because you’re going to need some as a cushion. You’re going to need some to be active capital, to use your term. We’re talking about the surplus on top that’s just sat there, the excess fat that needs trimming. Basically, this leads into exactly what you’re about to talk about.
Rohit:
You’ve been going to the gym a lot, james. I can tell that I try Bodybuilding course next, james, yeah, maybe maybe, hopefully.
Dr James:
I don’t know if anyone would pay me for that, necessarily, but it could be fun. Yeah, I don’t know if they take fitness advice from me. Who knows, who knows man, who knows?
Rohit:
The way you’ve diversified fitness advice for dentists.
Dr James:
that sounds cool, I’m up for that there could be something in there. There could be something in there.
Rohit:
Cool, okay. So let’s talk about the planning need here. So we talked about tax efficient extraction of capital from a limited company, but for various reasons it may not be feasible. It may be we’ve used all our allowances. It may be the money is required later on for some sort of business purpose, so for that we have to take out an investment which is in the name of the company, ie a corporate investment. The most efficient way of doing that is taking out what is called a corporate investment bond. So a corporate investment bond is an investment vehicle. Under need of that you can have any large cap investment fund you want. So you could have a global tracker, for example. You could have niche investments, any kind of funds that you could buy in an ISA, you could buy in an investment bond. But it’s the qualities, the tax treatment of this bond which really is the advantage here. So most dentists, most limited companies that are below a million pounds in turnover, benefit from something called a historic accounting standard, which means that if they invest into this type of bond, they do not pay tax on any returns or gains made until partial or full surrender of the investment. So let’s take an example again. Let’s say a dental practice owner with a limited company had 100,000 pounds per cash to put into this bond. So they put that money in the bond and let’s say they’ve kept it there for six years and it’s grown from 100 to 150. So that 50,000 of gain which they’ve made, there is no tax on that until they decide to cash it in. When they cash it in, it just is liable to operation tax as any other gains made. But here is the beauty of it you have control. So you have something called gross roll up, which means the returns are building up within the bond free of tax, just as they would in a pension or an ISA. So you’ve got that growth without any tax. When you come to take it out you can actually combine it in a year that you’re going to have losses. For example, let’s say you’re buying a new practice or you are actually investing in doing up your existing practice, buying more equipment, whatever. So that will actually mean that you have an artificial law that particular year and you can then crystallize your gain in the bond to tie in with that, so it is offset against that loss. Therefore, that gain itself will be subject to very little tax, if any, and that introduces a very interesting dynamic to planning.
Dr James:
That is interesting. Now, that is interesting. That’s cool, yeah, so you cash out of your investments at the same time as you’re going to invest in your practice.
Rohit:
Absolutely, and that’s how most businesses use it, to be honest. But even if you were not doing that, the tax rate is 19%. That’s all there is, and the average rate of growth in even medium risk investments, as you know, james, is about 7% to 8% on average. Again, not guaranteed a warning, but that’s what we’ve seen over the long term More at racey investments could do 10% to 12% as well, potentially, and all that your company can be earning whilst that money is invested, and it’s fantastic.
Dr James:
Yeah, yeah. And what are these corporate bonds then? Or these government bonds, or a mixture.
Rohit:
So this is the important distinction. So these are not investment vehicles in their own right. These are rapid. So corporate bonds and government bonds are actual investments here. The investment bond is a term that refers to just like an ISA or a pension Underneath the investment bond. The government doesn’t help, the industry doesn’t help by having names like that, so it’s a bit confusing. These are structures within which you are investing into funds.
Dr James:
Right, OK, no, it does, no it does. And then the wizardry comes in, because obviously over a certain time frame you need the money. So then what actually you put into the bond or the vehicle is such I’d imagine probably you’re going to need professional help on that one. Really.
Rohit:
Yeah, yeah, absolutely. It helps to take advice in terms of how you should encash it, and we work with accountants, dentist accountants to work out optimally how to structure this. So let’s say that your 100,000 bond grew to 150, and you were cashing in only 20,000 of it, so it would be taxed proportionately. So on that 20,000, your proportionate gain might be X figure. On that, you pay the corporation tax.
Dr James:
Interesting Food for thought. Food for thought. Anything more you wanted to say on those?
Rohit:
Just that they are very efficient ways of investing your corporate money. So have a look at your account statements. If they show surplus cash and if they have done for a number of years, like a lot of clients I’ve seen then certainly it should be a trigger for you to have a chat.
Dr James:
Yeah, this is the thing. It was just like what I was saying earlier. It’s so easy to be complacent with excess cash, but the excess cash is costing you. That’s the key thing to understand, Because all of a sudden, that flips everything on its head. Every second you spend not finding a home for that, not finding somewhere to put it. If inflation stays the same which, well, I’d like to think it won’t do but at the minute it’s 10%. That means 10%. You’re losing 10% of your wealth every year. It’s crazy, Just by not doing anything. And that’s what it’s so easy to do.
Rohit:
Yeah, exactly, and that’s the thing. There is an estimate that 374 billion pounds is sat in company accounts earning less than 0.1%, which I just read recently 374 billion pounds. I’m pretty sure a significant part of that is in the dental community.
Dr James:
Yeah, yeah, I see it all the time as well. It’s really common and don’t get me wrong, I get it. But it’s because when you own a business, basically time is the biggest factor for most things. Most people who own principles, they have cash. They have some cash. They can afford the nicer things in life Within reason. Obviously there’s the total extremes, like a flipping solid gold Lamborghini and a Super Yacht and stuff like that, but they can afford most nice things. But for those people, what they never have is time, and it’s the time that holds them back from actually finding a home for that money. It’s actually worthwhile. It’s not something that you’re going to see the return on in the short term, in the very immediate future, if you take some time out of your busy schedule and allocate it towards reading on investing, learning a little bit about what to do with this money, but it will pay dividends further down the line Dividends literally and metaphorically. Depending on what you invest in, you will quite literally be able to multiply that money and that account, rather than just slogging away doing the same old thing and hammering away with the dentistry and the thing of what it is. You can do that. You can keep hammering away at your dentistry. You can keep doing that and you’ll never be poor. You’ll never not have money, and that’s why it’s so easy to continuously do that, and it’s for me, it’s sticking to what we know, and until we actually step outside of that will we begin to understand these things. That is where your wealth can truly go stellar, if you understand it and if you have the right vehicles. Precisely five times Food for thought. Rohit, we are getting close to us rounding this up. We’ve been on the air for about 40 minutes or so and I like to keep these fairly concise, short and sweet information on investing nuggets effectively. Is there anything that you’d like to say in conclusion? Just to wrap things up, yeah, absolutely.
Rohit:
The last one, very helpful, is short and sweet. This is about making company pension contributions. So individuals, as you know individual contributors, partners, associates or sole traders. They can contribute up to 100% of their relevant earnings, so their profits. Up to 40,000 pounds is allowed every year, but you can carry forward for the last three tax years. Unused allowances, limited company directors can make pension contributions by their limited company. And then for inheritance tax, we have a business relief qualifying investments and trusts. We have touched upon this in a previous podcast. But this is where you’ve sold their practices. You’ve come into a large sum of money which could potentially be taxed at 40%. So the way to prevent that is by investing in special purpose vehicles. So they are effectively businesses which carry out qualifying trades, things like asset-backed lending. So you’re bridging loans, investing in renewable energy, infrastructure solutions, aim shares. So, in a nutshell, investments like this can help you safeguard your assets from inheritance tax. So all these vehicles which I’ve talked about, they help dentists mitigate income tax, capital gains tax, inheritance tax. So, in other words, coming back to what I started with mitigate your tax. At least have certainty of knowing that you can do that, because everything else is down to chance in life, isn’t it?
Dr James:
Cool, I love it. Awesome, Rohit. Thank you so much for your time today. Anybody who was listening wants to reach out to Rohit. You can find Rohit on the group Rohit, Rohella, rohit. It’s been fun and educational, as always. My friend, I shall catch up with you very, very soon and, as I say, thank you for your time. No thank you, and just to end with, this particular slide which we’ve got.
Rohit:
This just shows slower and steady. No, calm and steady wins the race. Highlights 2002, 2008, which are really bad outcomes for investors. But you look at all the other years more than 22% through 25% growth in the good years. Overall, we’ve seen a return of 8.1% on this particular portfolio on an annualized basis. So what does that tell you? Keep calm, stay focused on the plan. Don’t let negative news affect your decision making. If anything, this should be a call to action by the day. Grab a bargain and invest confidently. That would be my takeover message for today.
Dr James:
That’s totally cool. Thank you for that. And it comes back to what I was sharing just a minute ago, which is the Blackjack analogy. That was one of the most powerful things that I ever realized or learned about investing, and that was that if you go to the casino and if you’re the let’s say, you’re the casino rather than the punter. Ok, you know that if you keep executing the same game of Blackjack, the odds are slightly weighted in your favor, and that’s how we should be looking at the markets. Be the casino, not the punter. If you make the rules rather than letting the markets make the rules, then you can make money and learn from the people who’ve been doing it consistently and successfully over many years. And if the odds are in your favor, even if it’s just a slight margin, even if it’s six odd, even if it’s only a 51% chance that you’re going to win, then if you keep betting the same amount, you’ll win 51 times and you lose 49 times, but there’ll be a net win. There’ll be a net win rate of you winning. There’s a net plus one in there every single time, and what that means is you make money. Now, that would be true in itself. Then apply that to the markets and understand that eight out of 10 years you win. Ok, eight out of 10 years. The S&P 500 has went up right and now we should know? Now we know how we should be investing. Just keep doing the same thing and realize that eight out of 10 years you’re going to win and over time, those eight out of 10 years can quite literally make you millions.
Rohit:
Yeah, absolutely. Newspakers would make you think it’s different this time. It isn’t really. Reasons may be different, but the same thing tends to play out in markets every time.
Dr James:
Yeah, that’s never, ever happened before. And really, if you’re invested appropriately and diversified sufficiently across global equities, then the only thing that can ever sink your investment portfolio is if the whole world economy fails because you’ve sufficiently diversified. And if the whole world’s economy fails, we’ve got bigger fish to fry. That’s never happened and it likely never will, and we’re going to end the time.
Rohit:
Thank you so much. Thank you, james, good to see you, as always, and until the next time, my friend, we’ll catch up soon.
Dr James:
See you later. See you later.
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