Using your savings to achieve aspirations
What’s on your bucket list? Whether incredibly exciting experiences, exotic travel destinations or something entirely different features on your list, it’s likely finances will play some role in how achievable they are. Could your savings be used to tick a few of your aspirations off?
You may have been saving with specific goals in mind or simply putting money to one side for the future. However, dipping into savings can be something people find difficult. To have built up a healthy savings fund you’ve likely established good money habits and accessing savings can go against this. However, it may mean you miss out on opportunities to achieve aspirations, even if you’re in a financial position that allows for it.
As a result, it’s important to understand your savings and how dipping into them will affect your plans, giving you the confidence to make decisions.
If you have big plans ahead, from helping younger generations get on to the property ladder to a once in a lifetime trip, there are a few things to consider. Your savings are likely to be spread across multiple products, how do you know where you should take the money from and when should you do it? Among the areas to consider are:
- Accessibility: When looking at various savings, the first step should be to see how accessible they are. Are any of them fixed term accounts? Or are some of them invested? If you’re planning ahead for a few years’ time, accessibility is less likely to be an issue, but if you want the money soon, it may limit your options. Be sure to check that you won’t lose any of your savings, interest or returns by taking money out. Some accounts may lower interest rates, for example, if you make a withdrawal before a set date.
- Tax efficiency: Would accessing your savings affect your tax position? There are some instances where taking a lump sum from savings may mean an unexpected tax bill. Let’s say you decide to use some of your pension after the age of 55 savings to kick-start retirement; the first 25% can usually be withdrawn tax-free, but, take out more than this and it may be considered income for tax purposes. If you sell stocks and shares, you may be liable for Capital Gains Tax too. Looking at the tax efficiency of different options allows you to maximise your savings.
- Allowances: As you’ve been saving for the future, you may have made use of allowances. Your ISA (Individual Savings Account) allowance means you can save £20,000 each tax-year tax-efficiently. If you take money out of an ISA, you can’t return the money without using the current year’s allowance, which may limit you. In some cases, allowances will have little impact on your decisions, but in others they are important. This will depend on your personal circumstances and plans.
- Potential for future growth: Which of your saving pots has the biggest potential for growth in the future? Accessing savings that are invested over a cash account with a low-interest rate may not be in your best interests financially when you look at the long term, for example.
The impact on your long-term financial security
Of course, it’s important to consider what impact using savings now will have on your long-term financial security. If you’re worried about how taking money out of savings could affect future plans, this is an area financial planning can help with.
Often people find they’re in a better financial position to start accessing their savings than they first think, but it’s normal to have some concerns. Cashflow modelling can help you visualise the short, medium and long-term impact of using your savings. It can also model how taking savings out of different saving products will have an effect, allowing you to choose the right option for you.
It’s also an opportunity to weigh up how your financial security will be affected. Would using a portion of savings mean your emergency fund is depleted, for example? Understanding the long-term implications gives you the tools needed to decide how much and when you should make a withdrawal from your savings. Taking the time to consider the long-term impact of your decision means you can proceed with confidence and really enjoy spending the money on turning aspirations into a reality.
If you’re thinking of accessing some of your hard-earned savings to work through your bucket list and have concerns, please contact us. Our goal is to work with you to help you get the most out of your money by creating a financial plan that reflects aspirations and boosts confidence.
Just a fifth of investors stuck to their plan during 2018 volatility
2018 proved a difficult year for investors. Volatility meant many saw the value of their investments fluctuate and it led to the majority tinkering with their long-term financial plans amid concerns. However, it’s a step that may not be right for them and could mean lower returns over the long term.
During a year that was characterised by global economic concerns and uncertainty, from Brexit to a trade war between the US and China, investment markets were volatile. In the last quarter of 2018 alone the MSCI World Index fell by 13.9%, the 11th worst quarterly fall since 1970. As a result, it’s not surprising that some investors felt they had to respond by changing plans they’d initially set out.
Responding to market volatility
Whilst investing should form part of a long-term financial plan, research from Schroders indicates that many investors decided to take action after experiencing volatility in the short term. Just 18% of investors stuck to their plans in the last three months of 2018. Seven in ten investors said they made some changes to their portfolio risk profile:
- 35% took more risk
- 56% moved into lower-risk investments (36%) or into cash (20%)
Despite many making changes to their plans, more than half of investors said they have not achieved what they wanted with their investments over the past five years. Interestingly, many attribute their own action or inaction as the main cause of this failure. The findings indicate that investors may recognise that deviating from long-term plans can have a negative impact, as well as judging decisions with the benefit of hindsight.
Claire Walsh, Schroders Personal Finance Director, said: “No-one likes to lose money so it is not surprising that when markets go down investors feel nervous. Research has repeatedly shown that investors feel the pain of loss more strongly than the pleasure of gains. That can affect decision making.
“As our study shows even just three months of rocky markets led many investors to make changes to what should have been long-term investment plans. That could potentially lead them into making classic investment mistakes. These include selling at the bottom when things feel bad or moving their money into cash in an attempt to protect their wealth, but then leaving it there too long where it can be eaten away by inflation over time.”
Why should investors have held their nerve?
It’s easy to see why investors might be tempted to tinker with financial plans after seeking investment values fall. But, for many, it’s likely to have been the wrong decision.
Investing should be done with a long-term outlook, generally a minimum of five years. Volatility is a normal part of investing and any financial plan should have considered how the ups and downs of the market would affect your goals. A long-term outlook allows for dips and peaks to smooth out. Changing your position whilst experiencing volatility could mean selling at low points and missing out on a potential recovery in the future.
Of course, there are times when it’s appropriate to change your investment position. For example, a change in your income or investment goals may mean that your risk profile has changed. However, changes shouldn’t be made in response to normal investment volatility alone, they should consider the bigger picture.
Creating a financial plan that considers volatility
When you create a financial plan, it’s impossible to guarantee the returns investments will deliver. However, your decisions should consider potential volatility and what’s appropriate for you. With the right approach, you should feel confident in the plans you’ve set and hold your nerve next time investment values fall.
Among the areas to consider when building a financial plan with a risk profile and level of volatility that suits you are:
- What are you investing for?
- How long do you intend to remain invested?
- What is the risk profile of other investments or assets that you hold?
- How likely is it that your situation will change in the short or medium-term?
- What’s your overall attitude to risk?
If you’re worried about investment volatility, please get in touch. Our goal is to work with you to create a long-term financial plan that you have confidence in, even when markets are experiencing a downturn.
Please note: The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Ethical pensions: Considering where your money is invested
Considering ethics when investing has slowly been on the rise over the last couple of decades. However, even if it’s something you think about with your investment portfolio, you may not have factored in your pension(s). As contributions are often deducted from your salary automatically, they can slip your mind.
Yet, whether you have one or multiple pensions, they’re likely to be one of your largest assets. After all, employee contributions typically span decades over your working life, coupled with employer contributions, tax relief and investment returns. As a result, if ethical investing is something you’re interested in, including your pension in such decisions is worthwhile.
What is ethical investing?
Put simply, ethical investing is about incorporating your personal views into how and where you invest. Much like ethical shopping means actively choosing some products and avoiding others for ethical reasons, it’s the same concept with investing, Whilst you might choose the Fairtrade fruit at the supermarket, for example, you’d choose the companies that pay a fair wage to invest in.
It’s about having a goal that goes beyond simply delivering returns on your money. For example, encouraging green energy innovation, fairer working practices across the global supply chain, or reducing environmental degradation. Some refer to ethical investing as having a double bottom line; the returns and the positive impact you hope it will encourage.
Ethical investing is often filled with jargon and you may have heard the practice of incorporating values into investing as sustainable, responsible or green investing; they all broadly mean the same thing. Ethical investing can then be broken down into three key areas, referred to collectively as ESG:
- Environmental: These link to sustainability and the depletion of resources. Environmental considerations may be using energy efficiently, managing waste, or reducing deforestation.
- Social: The social issues that relate to how a company treats people. This could cover relationships in communities where they operate, diversity policies, and labour standards throughout supply chains.
- Governance: This term focuses on corporate policies and how a company is run. Among the areas covered are tax strategy, executive remuneration and protecting shareholder interests.
When it comes to pensions, incorporating ethics may mean switching to a different fund or actively selecting ethical investments if you have a SIPP (Self-Invested Personal Pension).
Growing interest in Ethical Pensions
Research conducted by Invesco highlights a growing demand for pension products that reflect ESG principles in some way:
- 82% of people would favour part of their pension(s) automatically going to a company which meets a certain ethical standard
- 72% of defined contribution (DC) pension members want their scheme to include ethical investments in its default fund
- 46% would choose a fund that only invests in ‘socially and environmentally responsible companies’ with returns of 6%, rather than a fund that delivers returns of 6.5% but invested in all types of companies
- If a fund only investing in ‘socially and environmentally responsible companies’ and one investing in all types of companies both had the same historic returns of 6%, 60% would rather invest in the responsible option
The drawbacks of investing ethically
Whilst ethical investing does allow you to back companies that align with your values, there are drawbacks to consider.
First, ethics are highly subjective. Whilst your pension provider may offer an ethical fund to choose from, it might not align with your values. As a result, you may have to compromise.
Second, considering ethics is a growing trend among businesses, but you will be limiting your investment opportunities. This may mean that returns are lower due to choosing ethical investments.
Finally, validating claims that companies make in their corporate social responsibility (CSR) reports can be difficult, as can measuring the positive impact of investments.
As demand for ethical investment continues to grow, it’s likely these issues will become smaller. However, they are worth considering if you’re interested in investing your pension ethically. Remember, your pension should provide you with an income throughout retirement. Other factors need to be considered alongside ethics too.
Investing your pension ethically
If you decide you want to invest your pension ethically, how you do so will depend on the type of pension you have.
- If you have a Workplace Pension, you’ll be automatically enrolled in the default fund. However, many providers now offer an ethical option that you can easily switch to, often through logging in online. Here, you should be able to see the ESG criteria set out, as well as historic performance.
- A Personal Pension typically works in the same way as a Workplace Pension, except you can choose which provider you want to use. As a result, you can screen out those that don’t offer an ethical fund.
- If you have a SIPP, you can either choose investments personally or select a fund, giving you far more control over the ESG elements you want your investment to incorporate.
- With a Defined Benefit pension, you don’t have control over how your pension is invested. However, many have begun to embed some ESG practices into their investing principles, having responded to action from members to do so.
If you’d like to discuss how your pension is invested and the income it’s projected to deliver at retirement, please contact us.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
Ten tips for boosting mental wellbeing
When we think about improving health, it’s often the physical that springs to mind, but mental wellbeing is just as important. Luckily, it’s rising up the list of priorities for many people. Whether you’re feeling stressed about a certain area of your life or you want to be able to relax more, these tips can help boost your mental health and cultivate a positive mindset.
- Make time for the things you enjoy: When you’re stressed, it’s easy to focus on what’s causing you concern and skipping the things you’d normally do. But having a break and some time to think about other things can be exactly what you need. Doing the things you enjoy can remind you of the things you should be grateful for and deliver a positive boost to your mental health.
- Be sociable: When we’re worried some people have a tendency to shut themselves off from loved ones and avoid social situations. However, connecting with others has plenty of benefits, from improving your self-esteem to offering a support network if you need it. Making plans with family and friends gives you something to look forward to as well.
- Exercise: Exercising might be the last thing on your mind when you have concerns. Whilst it’s associated with physical health, exercise is just as good for mental wellbeing too. Getting your blood pumping releases feel-good hormones that can improve your mood and focus. It doesn’t have to be a lengthy gym session, a brisk walk can be just as beneficial.
- Get outdoors: With the British weather, getting outdoors isn’t always attractive. But it’s been linked to improving mental wellbeing. An activity outdoors can help alleviate some of the stress that you may be feeling. Where possible, try heading to a park or calm area to help you get away from it all.
- Practice mindfulness: Modern life often means our thoughts are distracted and we fail to focus on the present. This is where mindfulness can help. Focussing on what you’re doing now, rather than concerns about something that has happened or may occur, can lead to a better state of mental wellbeing and help you appreciate life more.
- Understand your triggers: Do you know what leads to you feeling stressed? Understanding what triggers poor mental wellbeing can help you better manage low points. It’s an area that’s personal, keeping a written note of what’s causing you to lose positivity, worry or just generally feel low can help you put together a plan to tackle it.
- Eat well: Everyone knows food is important for physical health, but ensuring you get a balanced diet is crucial for mental wellbeing. Foods that are packed with vitamins and minerals can help your body run at its best, giving you more energy, improving concentration, and leading to a better mood or outlook overall.
- Get plenty of sleep: Sleep is really important for mental wellbeing. However, if you’re feeling stressed, it can make drifting off far more difficult, creating a vicious circle. If it’s an issue, giving yourself plenty of time to unwind beforehand can help, others find that exercising in the evening can help them drift off too.
- Set goals: If you’re stressed about something, in particular, it’s often due to the scale of it. Perhaps a challenge seems too big to overcome or a solution feels impossible. Breaking down the steps you need to tick off into manageable chunks can make you feel far more positive. Being able to track your progress as you work towards a bigger goal can ease worries too.
- Don’t be afraid to ask for help: We all need a helping hand sometimes, but asking for help when you’re stressed can still be a difficult thing to do. Whether you simply turn to family and friends or seek professional help, it can greatly improve your mental wellbeing. As the saying goes: a problem shared is a problem halved.
Stress and your finances
There are many areas of life that can cause stress, but one of the most common is money. If you have concerns about your finances, you’re not alone. In fact, according to research from Ceridian 42% of UK employees would describe themselves as feeling stressed about money issues on a regular basis.
Financial worry can occur no matter your wealth. Whilst you might be earning a comfortable income, concerns about what would happen if it stopped, whether you’re saving enough for retirement, or how investments will perform are typical. Taking control of your money and building a financial plan that reflects your goals can improve overall wellbeing. If this is an area you’d like support in, please contact us.
Five benefits of estate planning
Planning how you’ll pass your estate to loved ones can be challenging, both practically and emotionally. But taking some steps to understand how you can efficiently achieve your goals, can make them more likely to become a reality.
From writing a will to discussing potential inheritance with loved ones, estate planning is a task that many put off. However, it should be considered an essential part of your financial plan that’s just as important as putting money into pensions or checking the performance of investments.
There are many benefits of estate planning, among them:
- Understand the value of your estate better
Financial planning should help you understand the value of your estate and how this might change in the future. Taking a look at what assets you have to leave behind for loved ones and considering how they’d be distributed can help with this. Cashflow modelling can show you how wealth and assets will be depleted over time. This can help give you an understanding of the inheritance that you can leave or where you may want to make lifestyle changes in light of this.
- Minimise potential Inheritance Tax
Is your estate likely to be liable for Inheritance Tax (IHT)? If the total value of all your assets exceeds £325,000 IHT may be due, reducing the amount loved ones will receive from your estate. However, there are often things you can do to reduce or eliminate an IHT bill. However, this requires a proactive approach and you should take steps to do so as soon as possible. From setting up a trust for some assets to gifting to charity, an effective estate plan can mean leaving more behind for loved ones.
- Calculate the sustainability of your income
You might have a clear idea of what you’d like to leave behind for family and friends. If so, how does this correlate with the income you’re already taking or plan to take? Estate planning can help you reconcile your income with legacy plans. It’s also an opportunity to assess how sustainable your income is over the long term. If your expenditure remains the same, how much would you leave behind if you lived ten years beyond the average life expectancy, for example?
- Help loved ones plan for the future
Research from Royal London suggests that almost 6.5 million adults refuse to discuss their will with loved ones. Whilst it can be difficult to talk about your estate plan, it can help loved ones prepare for the future. Letting beneficiaries know how much they can expect to receive through inheritance can improve their personal financial security. Without a discussion, they could make inaccurate assumptions that affect them long term. It’s a step that can give you peace of mind about their future too.
- Support loved ones now
As you look at what you’re likely to leave behind for loved ones, you may realise you’re in a position to offer financial support now rather than leave an inheritance. As life expectancy rises, some beneficiaries are finding that inheritance is coming too late to help them tick off financial milestones, such as paying off the mortgage. Providing support to children and grandchildren now could have a larger impact than receiving an inheritance. Of course, you need to ensure that offering gifts won’t have a negative impact on your lifestyle in later years and you should consider the IHT implications.
When should you review your estate plan?
You might think once complete an estate plan is finished, but, like any other part of your financial plan, it’s important to keep going back to it. Over time, your aspirations and financial positions will change, which should be reflected in your estate plan. From needing to pay for care costs to welcoming grandchildren, your initial plan may be very different from what you want in five years’ time. As a result, it’s wise to review it regularly alongside other financial plans and make adjustments where necessary.
If you’re thinking about how you’ll pass wealth on to loved ones, please contact us. Our goal is to give you complete confidence in your financial situation now and in the future.
Please note: The Financial Conduct Authority does not regulate estate and Inheritance Tax planning.
Bank of Mum and Dad: Can you afford to support family?
The Bank of Mum and Dad has become essential for many first-time buyers struggling to scrape together a deposit to secure a mortgage. However, research indicates that children and grandchildren are increasingly relying on financial support for a variety of reasons.
Whilst you may be keen to provide as much help as possible to loved ones, you may also be worried about the impact it will have on your own financial security. Understanding whether you’re in the financial position to offer some form of monetary help can give you the confidence and peace of mind to do so.
So, how are parents and grandparents providing support for adult offspring? Offering a helping hand when purchasing a house makes up a sizeable chunk of the money handed over, however, it’s not the only area where financial support is sought.
- Research from Legal and General suggests that in 2019, up to £6.3 billion will be taken from the Bank of Mum and Dad to fund thousands of property purchases. By offering up sums to act as a deposit, parents are financing around one in five transactions in the UK property market. The average amount received for this purpose is £24,100.
- Relatives are also putting their money into the entrepreneurial ventures of children too. A survey conducted by Worldpay indicates that around one in ten small business owners asked their parents to invest in their idea. With under-35s twice as likely to seek family support than older generations, it could be a growing trend.
- Finally, figures from SunLife found that more than half of people aged over 55 are financially supporting their children. Around a fifth are providing more support than they had planned to. This is despite some feeling as though their own finances are being squeezed as a result.
What’s causing the trend?
There are many reasons why children or grandchildren could benefit from financial support, some of which may be personal. However, generally speaking, wage growth has remained low whilst expenditure, including property, has continued to rise. As a result, younger generations are often finding it a struggle to balance the books and still reach life milestones, from buying a first home to starting a family, without risking financial instability.
It’s natural that as a parent or grandparent, you want to provide support to help loved ones live comfortably. Whilst your heart may be saying ‘yes’ when they ask for help, your head may have some reservations. That’s normal too. After all, if you place your own financial security at risk you won’t be in a position to provide support at all.
Making it part of your financial plan
Whether you want to offer ongoing support, to cover school fees for grandchildren, for example, or a one-off gift, you should make it part of your financial plan.
This gives you the insight needed to understand how your finances will be affected in the short, medium or long term. Would taking a £25,000 lump sum out of your savings to act as a house deposit mean you could run out of money in later retirement, for instance? By building gifts and monetary support into your financial plan you can make an informed decision based on your circumstances.
Often, potential benefactors find they’re in a better position to help than they first thought. Using financial planning to fully understand the long-term consequences of gifting means they decide in full confidence and with complete peace of mind.
It’s not just confidence that financial planning can help with either, but deciding which assets to use:
- Would your long-term wealth be impacted more by withdrawing from investments or cash savings?
- What is the most tax-efficient way to access large lump sums?
- Will the support potentially be liable for Inheritance Tax?
- Could you replace the money at a later date if you choose to?
Financial planning can help you answer the above questions and more to create a solution that’s right for you.
If you decide you’re not in a position to offer financial gifts, there are likely to be alternative options too. You could, for example, act as a guarantor on a mortgage to allow for a lower deposit or provide a lump sum on a loan basis. Financial planning can help you better understand what other routes there are to explore.
To discuss your financial situation and aspirations for helping loved ones find their feet, please get in touch.
Retirees risk pensions running out ten years early
Do you have enough money in your pension to see you through retirement? Research indicates there’s a very real risk that UK retirees will be short of more than a decade’s worth of money.
As we start making withdrawals from a pension and even when saving into one, it’s crucial to think about the kind of lifestyle it’ll afford and how long for. Without this vital bit of information, there’s a chance you’ll be left with a shortfall that could mean a retirement that promised much, leads to disappointment or struggles in later years.
Measuring the gap between savings and lifestyle
A recently published report from the World Economic Forum set out to calculate how financially secure retirement will be. It notes, pension systems around the world are facing the common problem of trying to deliver existing promises whilst life expectancy has increased. It’s a challenge that is expected to become even more significant over the coming decades.
The findings indicate that the average UK woman will run out of money 12.6 years before she dies. For men, it’s 10.3 years. With a vital source of income drying up a full decade before passing away, some retirees could face struggling to get by on the State Pension alone. It could mean lifestyles need to be adjusted if dreams are to be realised.
Between 2015 and 2050, the report predicts the gap will grow even further, suggesting struggles are ahead for generation X and millennials. In 2015, it was estimated there was an $8 trillion (£6.2 trillion) shortfall in UK pensions, rising by 4% annually to $33 trillion (£25.8 trillion) by mid-century.
The risk of running out of money later in retirement is particularly troubling when you consider the potential need for care. Longer lives mean more people are requiring some form of support, from home visits to moving into a residential home. Most retirees will be required to pay at least a portion of care costs themselves until total assets are depleted to £23,250 under current legislation.
On top of this, the risk of running out of money is further compounded by the hope of retiring early. Research suggests that two in five savers hope to retire before they reach the age of 65. Given that the State Pension age is already steadily increasing, it’s a dream that could place further pressure on finances. If you do want to retire before the traditional age, it’s crucial to think about how those extra years will affect the savings earmarked for retirement.
How much is enough to retire?
This is a question that often comes up when people start thinking about retiring. However, there’s no straightforward answer, it’s very subjective.
Research indicates that covering the basics in retirement, such as food and utility bills, along with a few extras like eating out and entertainment, will set retirees back by almost £230 each week. Over the course of the year, the figure mounts up to more than £11,830, 35% more than the State Pension provides. The findings suggest that retirees need their personal provisions to pay out a minimum of £3,062 a year. That may not sound like a lot, but when you think retirement can last 30 or 40 years, it may be easier than you think to run out of money. When you factor in the luxuries you might be looking forward to in retirement, such as holidays, the risk rises even more.
As you think about how your own pensions will pay for retirement, it’s important to consider the type of lifestyle you hope to achieve. It’ll have a direct impact on how much you should be saving whilst working and whether you’re at risk of falling short.
- When paying into a pension: Taking the time to consider how much you’ll need to fund retirement whilst you’re still paying into a pension puts you in a better position to secure the lifestyle you want. The further ahead you start to think about this, the better. Uncovering a shortfall with a decade still to go gives you an opportunity to increase contributions where necessary. Here it is crucial to consider how long you’ll spend in retirement to calculate your target sum as accurately as possible.
- When taking an income from savings: Changes to how we access pensions in 2015 means more retirees are now opting to withdraw from their pensions in a flexible way. The ability to increase and decrease withdrawals can be valuable. However, you need to carefully balance the amount you’re taking out with how long it needs to support you for. Taking sums that are unsustainable now may leave you struggling in the future.
If you’re worried about how your retirement savings will match up to aspirations, please contact us. We’re here to help you understand how long provisions will last with your lifestyle in mind.
Please note: A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
The effect the media has on your financial decisions
In the digital age, it’s impossible to escape the media. But you might not realise the influence it’s having on your financial decisions. Often, it’s subconscious, but being aware of the impact it could be having mean you’re in a position to better understand the decisions you’re making and ensure they’re right for you.
The news and media aim to sell. And, as a result, it often sensationalises headlines and content to catch your attention and draw you in. When reading the financial section of a newspaper, how many times have you seen the words ‘dive’, ‘crash’ or ‘plummet’ to describe a fall in share price that is relatively short-lived? It’s the same story for shares that have performed well.
It’s not just the financial sections of media that may have an impact on how you view financial decisions either. Headlines on the state of the economy, which industries are fast growing, or challenges on the high street, for example, could affect your decisions. Whether you read the news in the paper or use social media to keep up to date, it can be challenging to filter out the sensational news and understand what matters to you.
Does it really have an impact? You might feel as though you’re rarely influenced by the media when making decisions, but it has probably happened at various points throughout your life, for instance:
- After seeing multiple sources citing that the economy was suffering, you decided to slow down investment deposits and instead hold savings in cash. If a slowdown did come, you might have felt satisfied that you’d minimised the impact. However, typically, investments outperform cash over the long term and media influence may have actually meant you lost money.
- Alternatively, after seeing several news stories looking at funds that have outperformed or individuals that have made their fortune through investing, you may be tempted to take on more risk. Seeing regular media sources claiming how others have secured above average returns can make you feel it’s more likely to have than the reality.
The solution: Financial planning
So, what can you do about the media influence on your financial decisions? Financial planning can offer a solution for five key reasons.
- Bring the focus back to you: Often in the media, stories will be conflicting. Differing opinions and outlooks means that people will have very different views on the best financial steps to take. This is because which route is best for you will depend on a whole range of personal circumstances. Financial planning helps bring financial decisions back to you and what you want to achieve.
- Ensuring regular reviews: Aspirations, opportunities and risks all change over time, and this should be reflected in your plans and decisions. Engaging with a financial planner on an ongoing basis means you can take advantage of regular reviews to ensure you remain on track and bring up concerns. So, if you’re worried about how the economy is performing and the impact on investments, for example, a review can either ease your concerns or lead to adjustments where necessary.
- Visualise the long-term impact of decisions: When making a financial decision, it can be difficult to comprehend the impact beyond the immediate. For example, reducing the amount you put into your pension may free up some extra cash now, but what impact will it have had in 30- or 40-years’ time? Through using cashflow planning tools, financial planning can give you a visual representation and put decisions into context with long-term aspirations.
- Offering an outside perspective: Media influences can be hard to recognise in ourselves. You may make a subconscious decision, believing it’s right for you, when an alternative would be better suited. Working with a professional financial planner means someone else takes a look at your plans. Another pair of eyes and a different perspective can be hugely valuable when weighing up what you should do.
- Confidence: It’s important to have confidence in your overall financial plan and the decisions you make. This is what financial planning should aim to achieve. With a plan that’s tailored to your short, medium and long-term aspirations, it can help block out some of the noise and influence from the media, which may not be right for you.
If you’d like to discuss your financial plan or concerns you may have with a professional, please get in touch.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Trusts: What are they and what are they used for?
A trust may be one of those financial tools you’ve heard of but know little about. In some circumstances, they can be an excellent way to help manage assets and reduce tax liabilities. However, it’s important to understand what they are and where setting up a trust can be useful before proceeding.
What is a trust?
Even the basics of a trust can seem complicated due to the legal jargon used. But the principle is relatively simple.
A trust is simply a legal arrangement for handing assets to one or more people or a company (trustees) to control on behalf of one or more people, known as beneficiaries. Whilst the trustees have control of the assets, they must act according to rules set out by the person that set up the trust (the settlor) and with the interests of the beneficiaries in mind.
Say, for example, you want to ensure a child in your family would be taken care of should something happen. A child won’t be able to take control of an inheritance, but you may not want to hand over money intended for the child to another adult without being able to stipulate how it can be used. A trust allows you to set out some rules and have peace of mind that the trustee must act in the interests of the child.
Many different assets can be placed in a trust, including money, investments or property.
There are many different types of trust, which may have different advantages depending on your needs. Among the most common types of trusts are:
Bare trusts: As the name suggests, these are the simplest types of trust. The beneficiary has the absolute right to the assets within the trusts, as well as any income they may generate. Whilst, the trustee will take responsibility for managing the trust’s assets, they have no say in how or when the assets or capital is distributed.
Discretionary trusts: This is where you give the trustees the power to decide how to use the income assets which the trust generates. How much power they have is stipulated by the settlor in a letter of wishes. They may, for example, have the power to decide the portion of income that is paid out, which beneficiaries beneficiates will receive income and how frequently disbursements are made.
Interest-in-possession trusts: In this case, a beneficiary has the right to receive an income generated by the trust’s assets or the right to use assets it holds. This can be for life or for a defined period of time. For instance, a beneficiary may have the right to live in a property that is held in trust until they die.
Settlor-interested trusts: If you or your spouse or civil partner will benefit from the trust, this is known as a settlor-interested trust.
Mixed trust: This is an option that blends multiple types of trusts. So, a portion of the assets held in trust can be set aside as an interest-in-possession trust, whilst the remainder can be treated as a discretionary trust, giving trustees greater control over a portion of the assets.
The above are examples of just a few of the types of trusts available. There are other options, which may be more suitable to your circumstances, if you’re thinking of using a trust.
When can using a trust be useful?
There are many instances where a trust can be a useful way to hold assets, including:
- Providing certain conditions are satisfied, assets held in trust aren’t considered part of your estate. This means they will not count towards a potential Inheritance Tax bill when you die.
- Having greater control over how and when assets are distributed after you die.
- Preserving the assets rather than splitting them up between beneficiaries. This may mean the wealth you’ve accumulated is able to grow further and still benefit loved ones.
- Holding and managing assets for people that are not ready or are unable to do so themselves. This may include children or vulnerable people.
Setting up a trust
If you think that setting up a trust is right for you, it needs to be a carefully considered decision, from both a financial and legal perspective.
Once a trust has been set up it may be impossible or very difficult to reverse the decision. As a result, it’s vital that you ensure it’s the right choice for you financially before you take any further steps. Ensure you look at the medium and long term when assessing how appropriate a trust is for your financial situation. It’s also important to note that beneficiaries may pay tax on distributions they receive, this may play a key role in understanding if it’s a good idea for you.
From a legal perspective, a trust needs to be precisely worded. For this reason, you should use a solicitor to help you set it up. You can expect solicitor fees to be around £1,000 or more, though this will depend on your personal situation and the complexity of the trust. It’s a fee that could save you from making costly mistakes.
If you’d like to discuss the financial merits and drawbacks of a trust with your situation in mind, please contact us.
Please note: The Financial Conduct Authority does not regulate wills, trusts, tax or estate planning.
Brexit and your finances
Three years after the Brexit referendum, it’s still uncertain how and when the UK may leave the EU. With political turmoil, highlighted by the recent EU election and Theresa May stepping down as Prime Minister, you might be worried about how Brexit is and will affect your finances.
Held on 23rd June 2016, the Brexit referendum indicated that 51.9% of those voting supported leaving the EU. Whilst a majority, the vote was incredibly close, and it’s led to difficult negotiations, both in the UK and the EU. As well as the close vote, there are many different forms that Brexit could take and navigating a plan that satisfies a majority is, again, proving difficult. The House of Commons has voted against several Brexit deals put forward by Theresa May.
When the UK invoked Article 50 it was intended to start a two-year process with the UK leaving the EU on the 29th March 2019. The deadline has now been extended to 31st October 2019.
What does it mean for your finances?
As Brexit is uncertain and the long-term impact it will have even more so, you may have concerns about how it’ll affect your wealth and investments. Though it’s important to remember that Brexit is just one of many influential factors that are outside of your control. It may cause increased volatility, but there are things you can do to minimise the impact and safeguard your wealth.
1. Focus on your long-term plan
Short-term fluctuations in investment values are normal, it’s part of the investing process. However, it’s easy to panic when you see values fall and think you should take action. Here, a long-term outlook is essential. When you began investing, it should have been with a long-term goal in mind, perhaps to fund retirement or support grandchildren through further education. A long time frame gives you an opportunity to ride out dips in the market and hopefully secure returns.
With this in mind, the volatility UK stocks may be experiencing at the moment should be looked at in the context of the bigger picture. It can be worrying but, typically, holding steady and sticking to your plan is the right option.
2. Check the level of volatility you’re exposed to is appropriate
If the ups and downs of investments worry you, it may be time to reassess the level of risk you’re taking. There’s no one-size-fits-all solution for risk, it should depend on a range of personal factors. However, it’s important to recognise that the appropriate level of risk for you may change throughout your life. At some points, you may opt for a more cautious approach, but as your capacity for loss rises, you may decide to increase it, for example. If the impact of Brexit on your finances or potential falls in value makes you nervous, it’s a good idea to take a look at how much risk you’re taking and whether it’s still appropriate for you.
3. Diversify your investments
Whilst you consider risk there’s another area to assess in your current portfolio too: how diversified are your investments? By spreading risk across several different types of investments, you minimise the risk of significant falls in value as it’s less likely a downturn will affect all investments. Often, it’s asset classes that are focussed on here. But in the context of Brexit, assessing where geographically your money is invested, may be wise too. How much of your portfolio is invested in companies that are UK based, for example?
4. Keep an eye on performance
We know we said you shouldn’t focus on the short term. But that doesn’t mean you should ignore investment performance entirely. Keep an eye on how your portfolio is doing and ensure you regularly review it. Usually, we’d suggest a full financial review once a year or following big life events, this allows you to cut out some of the short-term peaks and troughs to see the overall performance.
A review also gives you a chance to spot opportunities. Brexit uncertainty might often be associated with values falling in the media, but that doesn’t mean it can’t bring opportunities too.
5. Speak to your financial adviser
If you’re contemplating making changes to your investment portfolio or financial plan in light of Brexit, getting professional advice can help you put the impact your decisions could have into perspective, looking at both the short and long term. If you’d like to discuss how Brexit, investment volatility or any other concerns may affect your finances, please get in touch.
Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.