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Money and what to do with it!

By Morgan International Staff Writers

All of us learn to have loads of money but in truth, becoming a billionaire is something that happens to very few.  But just imagine what it would be like if you had so much money that you could literally live on the interest without having to dip into the capital; if you had $1 billion and made a 5% return then your annual interest would be a whopping $50 million – much more than the take home salary of most!

The problem is that when you have the money you need to know what to do with it in the way of investments.  One thing that all billionaires tend to do is invest in liquid securities so how about we take a look at how some real-life billionaires invest?

  1. Bernard Arnault - Chairman of LVMH – approximate net wealth of $38.1 billion

The richest guy in France runs a mix of luxury goods companies including Christian Dior and LVMH Moët Hennessy Louis Vuitton.  A great art collector, much of his money is invested in his companies with his cash sums coming from things like salaries, holdings and dividends.  Properties also encompass a large amount of his wealth with a mansion in Paris and a home in the Bahamas; the rest of his millions is divided amongst art and yachts.

  1. Steven A. Ballmer - Former chief executive of Microsoft – approximate net wealth $30.8 billion

Although he is no longer with Microsoft, much of his money is invested into the company’s stock and he keeps several billion in cash and several hundred million in Twitter shares.  His various homes are also worth several million between them.

  1. Susanne Klatten - Deputy chairwoman of Altana – approximate net wealth $20 billion

At 54 and already the richest woman in Germany, she inherited stakes in BMW and Altana.  Also chairwoman of the SGL Group, most of her wealth is tied up in these companies with several billion of it in the BMW Group.  Keeping 22.5% of her money in cash, she is fairly private when it comes to disclosing the details of her wealth.

  1. Azim Premji - Chairman of Wipro – approximate net wealth $10 billion

His wealth was inherited from his father who owned the Wipro Company (originally Western India Vegetable Products).  64% of his wealth is invested into company shares and 13% into an offshoot company named Wipro Enterprises. Several million are held in JM Financial, several hundred million are in cash and about a million is tied up in property in Mumbai.  His wealth has been set up in a way that his privacy is well protected.

So as you can see, the issue is not just about accumulating wealth but looking after it once you have it.  All of these people have one thing in common and that is that they have spread their wealth well, keeping some in cash and the rest secured via a variety of investments.

Many people can struggle with knowing how to take care of their wealth which is why we provide a range of training courses that can imbibe you with the necessary knowledge to share with them.

Contact us now and find out exactly what type of courses will suit you best.

 

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Ethics and the Financial Industry; do the two go together?

By: Morgan International Staff Writers

When it comes to the financial industry, ethics are incredibly important.  No matter the size of the business operating within this arena, it is essential that it behaves in a totally ethical way, not just for the business’s benefit and that of their customers but in order to protect the image of the financial industry as a whole.

The worrying thing is that although the financial industry has a massive impact upon the economy, in the past it has been tarnished by the sometimes illegal or unethical behavior of a few.  This in turn can have a vastly negative impact in other areas, with lack of transparency adding to the issues.

But what can be done to preserve and establish these ethics which are so very important? Some have said that the overall values need to change and that bankers, for example, should take an oath (as doctors do) to protect the interests of their customers.  The trouble with this idea is that although it seems great in principle, in practice, values cannot be amended purely by re-writing them as they naturally tend to evolve over time and after all, how do you split financial culture from the effects that it has upon money and the economy?

The solution needs to come from elsewhere.

  • Compliance needs to be rigorously enforced

The Government may oversee the financial industry but what does it do if something goes wrong?  It needs to ensure that if companies or individuals cross the line, behaving unethically, and regulations will kick in that will ensure they are dealt with severely; it is not just enough to give them a rap on the knuckles but custodial sentences must be top of the agenda.  Where certain professions are obliged to comply with a set code of ethics, such as with certified public accountants, not only should their training ensure that this is understood but they must be seen to actually comply.

  • Individual businesses need to pay attention

Let’s take a look at ethics where they apply to businesses, such as in the case of an accountant working for a client in line with a code of respect and trust.  In this case, they must always put the client first, guaranteeing that their financial affairs and their money is safe.  Even the slightest flavor of unethical behavior in these circumstances not only destroys the client-accountant relationship and the business but also impacts generally upon the way in which the industry is regarded by those outside of it.

  • Total transparency needs to be applied

This may sound like an obvious statement but it is paramount that anyone operating within the financial industry reveals all and any relevant information that involves the parties they are dealing with.  Not only should client details be kept confidential but contracts should be explained clearly and self-regulation should always be in place; by setting up their systems and procedures to operate in this way, laws and codes of ethics more easily be complied with.

In summary, ethics within the financial industry are essential, not only because rules and regulations demand it but because failure to apply them tarnishes the image of a sector that has long been subject to bad press; sometimes purely due to the nature of the business as money and morality are not always seen as going together.

Many of our clients take part in our training courses to ensure that they are fully compliant with the financial industry’s code of ethics.  Check out the many training opportunities that we provide that deal with this matter in detail and point you in the right direction when it comes to running your business not only professionally but absolutely ethically.

4 Rules to be a Prudent Investor

4 Rules to be a Prudent Investor

By: Morgan International Staff Writers

When talking of investments, many will speak of being a prudent investor. The word Prudent traces back to Middle French and the Latin verb providēre which means to see ahead, foresee, and provide (for). The word is a natural choice when speaking of investments. We would like to share our 4 rules to be a prudent investor and therefore make strong returns whilst not being exposed to an undue amount of risk.

 

  • Primarily invest in major index stocks and bonds

Major index stocks and the more frequently held bonds move more predictably. Remember that these often have long histories so that trends can be observed and analysed over many years. They also tend to be less shocked by market forces. We are not saying not to invest in small caps and foreign bonds too, but ensure the primary investment is in the big and established stocks and bonds.

 

  • Diversify – but not too much

In your portfolio you should have a prudent level of diversification. Clearly you do not want to be spread too thin, but consider commodities, property, and perhaps even emerging market stocks. Clearly the less traditional the asset class, the higher the level of risk, and the reward too.

 

  • Review often

Review the portfolio often and take action accordingly. This might include withdrawing from certain investments and ‘cashing in’, or perhaps deciding to take a loss. The prudent investors frequently review their portfolio (often multiple times a day using real time apps).

 

  • Minimize fees

There will be many small fees across the portfolio for various types of transactions – buying stock, selling stock etc. These add up, particularly with a complex portfolio. These costs should be kept track off and streamlined where possible.

 

The prudent investor is mindful of the tips above, and also takes advice from a professionally qualified Chartered Financial Analyst (CFA) when they need some extra support and/or information.

 

4 Bad Small Business Money Habits

4 Bad Small Business Money Habits

By Morgan International Staff Writers

Money is the lifeblood of all businesses – without it – a business will not be trading for long. Therefore robust financial management is imperative for a business to be successful. Yet all too often it is evident that organizations are not doing fairly basic money related tasks. These over time can cumulatively be extremely damaging. Unfortunately it is often small businesses that are the worst offenders.

 

  • Not looking after the small change

It can be tempting to not keep track of small purchases or sales. The administrative burden of tracking a dollar out of the door can feel too time consuming – particularly for a small new business who is trying to sell, sell, sell. However, the small amounts add up very quickly and it is important that they are tracked.

 

  • Not saving

Some businesses are continuously on the edge from a liquidity perspective, and saving can be impossible or difficult depending on income versus expenditure. However for business with positive cash flow, it is important to have a savings plan, and to not reinvest everything. Savings are the safety net to get businesses out of unexpected financial issues.

 

  • Not reinvesting

I have just said not to reinvest everything, but a level of reinvestment is critical. The level of this against savings will depend on a number of factors. However a business must be investing strategically to grow and be successful.

 

  • Not reducing debt

Businesses often have loans, credit cards, and other types of debt. When interest rates are zero on a debt, it can be tempting to not have a plan to pay it off. However, these deals always have an end date, and the consideration of how to pay it off should not happen once the high interest rates kick in.

 

As a small business, there is a lot to do, and sometimes administrative tasks are deprioritized. Yet when they relate to income and expenditure, them being ignored is dangerous and potentially business ending. Many small business owners find it useful to take a short course in finance, or to hire the services of a qualified accountant to advise them.

How to manage your investment portfolio (2)

How to manage your investment portfolio

By Morgan International Staff Writers

Would you put all of your eggs in one basket? It is an old saying, but it is a good one – one that is used so often in our personal and working lives. It is talking about gain versus risk. This is a concept spoken of frequently in investment management, and specifically in the context of portfolio management. What investments are made, and how risky are each of those investments? Typically the riskier the investment, the greater the swing on the gain/loss. There are two basic portfolio management approaches; Active Portfolio Management Strategy and Passive Portfolio Management Strategy.

Active Portfolio Management Strategy

Active portfolio management assumes that the market is not efficient and therefore analysis and management by those trading can create greater than average market returns. In essence market inefficiencies can be exploited to the advantage of the person trading. This approach is typically higher risk, faster, and has a higher risk/reward profile.

 

Within this management strategy there are two different approaches to selecting stocks – top down and bottom up. In the top down approach, portfolio managers look at the market holistically and identify industries and sectors they expect to perform well. Stocks are selected on this basis. In the bottom up approach, market conditions and anticipated trends are ignored, with evaluations of the companies being based on criteria such as financial statements and product roadmaps. It assumes that a company’s performance is not governed primarily by economic conditions, i.e. the best and strongest companies will perform well even if economic conditions are poor.

 

Passive Portfolio Management Strategy

Passive portfolio management works on the assumption that the markets are efficient and it is therefore impossible to regularly beat market returns over times. Therefore it assumes the best returns are made from low cost investments that are kept long term. There are many more stock selection styles within the Passive Portfolio Management Strategy. For example the patient portfolio involves investing in well-known stocks that historically have had stable growth and generated higher than average growth regardless of market conditions. Whereas aggressive portfolio management involves making investments in expensive stocks that provide strong returns but do carry big risks. In this type of portfolio you will see stocks of companies that are of different sizes but are growing rapidly and are expected to create a fast return.

 

In summary, portfolio management and investment strategies are both complex areas. It is always advisable to seek advice from a professionally qualified Chartered Financial Analyst (CFA) when seeking to make investments or indeed review a current portfolio.

 

 

Battling Climate Change with Lean Six Sigma

Battling Climate Change with Lean Six Sigma

By Morgan International Staff Writers

Six sigma methodologies are widely used in business to improve processes, reduce waste, and increase efficiency. The techniques employed are also transferable to other areas, and one issue currently benefiting from their application is climate change.

Six sigma uses hard data as the basis for managing a problem and improving outcomes. So what specific techniques and methodologies are helping climate change scientists tackle the issue on a day-to-day basis?

·        Root Cause Analysis

Root Cause Analysis exposes problems within a system, allowing scientists to find the cause of a certain aspect of climate change. This aspect could be the reason we’re experiencing warmer summers in the UK, or why high levels of smog are lingering in certain cities around the globe.

The methodology involves asking multiple questions to find an explanation for an issue, and reveal its basic cause. In conjunction with the following six sigma methodologies, it covers the groundwork needed to expose issues at their roots.

·        DMAIC (Define, Measure, Analyse, Improve, Control)

DMAIC allows scientists to focus on a specific problem, for instance the release of methane and carbon dioxide into the atmosphere. Having identified where these gases originate - landfill sites or cattle, for example – they determine how to measure the problem scientifically.

Results are then analysed with a view to improving and controlling the situation more effectively. In the case of landfills this might involve having stricter control over the number of landfill sites and levels of toxicity, or incentivising the public to change the way they dispose of waste.

·        DFSS (Design for Six Sigma)

This process has no defined steps as with DMAIC, but uses a technique called Critical Parameter Management (CPM) to predict the likely success of a project. DFSS also concentrates on the ideal outcomes for everyone involved, including those companies whose activities add to the climate-change issue.

Learn more about how six sigma methodologies can help your business. We offer a number of courses and certifications for you and your staff - take a look at our website for the full range of training opportunities.

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Making Your First Million – From Entrepreneur to CEO

By Morgan International Staff Writers

It is the milestone that most entrepreneurs hold in great esteem – the first million dollars. It is a mark of success (usually), and highlights that revenue is going in the right direction. However it is typically around this time that a number of additional considerations and responsibilities come into play. Typically it is the time where consummate entrepreneurs find themselves as more of a CEO – and for many this can feel like a rather big transition. This is the reason that for some, they decide to hire in a CEO whilst they remain in charge of product/service direction. So what are the main changes?

1) You will need more people
More revenue usually means more people are required within the business. This in turn means more hiring, more people to manage, and often a more formalized HR structure. It can be the tipping point whereby you start to need many more policies and procedures for staff to follow.

2) You rethink financing
In the early days you may be using your own funds, money from family/friends, perhaps small bank loans, or even credit card debt. There comes a point where a business will need to find different types of finance if they are to grow and be supported appropriately. This might mean business bank loans, venture capital, private investment, and/or stock market floatation.

3) You rethink your company structure
When you set up the business you will undoubtedly have done so with the current circumstances of your business in mind. Once you grow to a certain size, you may find that a different structure is more appropriate to reduce tax liabilities and also to support your business.

In Summary
Undoubtedly, a million dollar revenue will not be the exact point that everything changes. However the point of this article is that there will be a stage in the life of every growing business that things shift across a multitude of areas, and the savvy entrepreneur should be ready to make changes to support future growth.

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Financial Habits of Successful Small Businesses

By Morgan International Staff Writers

I am sure you have heard it said many times that liquidity is an imperative consideration for all businesses – not just those that are small. However for small businesses it can be even more important as they may have less financial back up when the bank balance is zero and invoices are stacking up. Being financially savvy is incredibly important for a small business, and a study by Freshbooks in the US looked at 1700 small businesses to ascertain the financial habits that make for success or failure. These are our top 5:

 

  • 69% of small business owners review finances regularly

It is important to have a real time view of the financial situation, and a forecast of what is coming up. For most businesses there will be a pattern of income and expenses, but as with all things there will financial impacts that fall outside of this pattern. Reviewing finances regularly allows for planning in case of impending liquidity issues.

 

  • 47% of small business owners maintain a budget

Reviewing finances is a first step, but it is also important to have a budget that looks to the future and estimates income and expenses. This is in essence a planning document and it allows small business owners to make more informed decisions. Most find that they get more accurate at budgeting over time.

 

  • 52% of small business owners put their taxes aside

The government is one institution most small business owners are fearful of being indebted to. Taxes that will become due should be estimated as income is earnt, and put to one side for when the tax bill arrives. In most countries, late payment of taxes will incur a substantial penalty, therefore should be avoided.

 

  • 50% of small business owners proactively reduce debt

Some debt is cheaper than other types of debt. Most businesses will be leveraged to some degree, but there should be a plan to pay off debt, particularly that which attracts high interest rates.

 

  • 64% of small business owners set up an optimal structure for tax purposes

In each country there will be various company set up structures. It is important for small business owners to consider what the most appropriate structure is for them and often that relates to minimizing liabilities, including taxes.

In Summary

The success or failure of small businesses is strongly correlated to their ability to manage their finances. For those running small businesses that are not financially savvy, it could be very useful to employ the services of a financial advisor who can provide assistance.

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How Much Should I Really Save?

By Morgan International Staff Writers

This is a question people have been asking financial advisors regularly for many years. The answer is typically less than straightforward and depends on personal circumstances and goals/aspirations. These are our top four considerations.

1) What can I afford?
There will be those in unfortunate circumstances who do not have any money left each month after they have paid the rent and bills. Of course there is then a question of whether there is a way that some of those expenses can be reduced so that there is money left for savings. Or perhaps there is a way to increase income such as taking on additional hours or looking for a better paying role.

2) Emergency fund
One step up from saving nothing is to consider how much you would need to have saved in case of an emergency. This situation will be different for each and every person, and whilst you will make some calculations and assumptions – it does not mean they will turn out to be correct. Let us take an example of an individual with no savings who rents a property on their own, who is in a permanent role. An emergency would be the individual losing that job for whatever reason – redundancy, illness etc. Clearly you would expect statutory redundancy or some sort of payment in the event of ill health. However to keep this simple, the individual would want to consider how long they think it would take them to get back into employment, and how much their expenditure would be each month. If their expenditure is $3,000 per month and they think it will take 6 months to find a new role, then they need $18,000 in savings.

3) Retirement planning
Once the emergency fund is covered, the next natural step is to consider planning for old age. Of course for some this might be part of a pension through work and therefore this might be covered whilst the emergency fund is still a work in progress.

4) Investments
There may be various investments that you want to engage in, such as buying a property to live in, or perhaps stocks and shares. It is important to have a diversified portfolio and be clear about the purpose of each investment. Clearly to make investments, a certain amount of funds will be required, and this should be researched and saved for as appropriate.

In Summary
The reality is that your ability to save will be linked to your income and your outgoings. For many people, they can reduce their outgoings to allow them the ability to save. If you wish to get some professional support with savings planning, you might consider contacting a professionally qualified financial planner.

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Why Do We Struggle With Financial Literacy

By Morgan International Staff Writers

According to an OECD study, one in five US students do not meet basic levels for financial literacy proficiency. Financial literacy is defined as a person’s ability to understand how money works in the work. This applies to both personal and business finances. A number of attributes of the 2007/2008 economic crisis indicate that the human race is somewhat lacking when it comes to financial literacy. This article seeks to question why we are seemingly so inadequate in this area of knowledge.

 

  • Access to financial education – or lack of it

School curriculums differ by country, but the overwhelming sense is that financial education is very poor. Most children learn algebra which for many is of limited use in later life. However few learn about savings, pensions, interest rates, inflation, and so on. Those who undertake specific finance qualifications typically do so later on in their education when they have decision making over what they learn. For those that do not pursue financial qualifications, they are unlikely to have had any access to formal financial education.

 

  • Information gained from non-neutral sources

When we do finally get information it is typically provided by a service provider, such as a bank who wants to sell us a particular savings product. Therefore the information is to some extent biased. Many countries now have strict regulations against advice being anything other than neutral and transparent, but there is still some way to go.

 

  • A little bit of knowledge is dangerous

This is an old adage, but to some extent it is true, particularly in the financial industry. Once we do start accumulating financial knowledge, it tends to come from multiple sources and we cobble that together into our sense and understanding of the financial environment. None of this information is likely to have been validated, and the way we combine that knowledge may not be a true reflection of the particular financial ecosystem.

 

In Summary

A lack of financial literacy has the potential to have personally devastating effects, as well as causing wider business and financial ecosystem impacts. We know that there is a gap with respect to financial literacy that must be bridged, and a natural place to start seems to be within the education system. However for those of us that left education some time ago, it is advisable to seek professional advice when making important financial decisions. Within a business setting, qualified professionals from the finance function should be involved in decisions that require a level of financial acumen.