SBA Financial - Solving the financial puzzle... ...piece by piece

Monthly Update - June 2011

How do you find the perfect investment?

This was a recent question that appeared in one of the financial columns I write, so I thought it would be a great subject and area to cover, in this months Newsletter.

Question: My wife and I are quite cautious savers, we are retired in our late 70’s and have always stayed away from stocks and share types of investments, as we have not wanted to take much risk, so all of our savings are in premium bonds, national savings and deposit accounts. Over the last year or so we are finding that we have spent more and more of our money and with such low rates of return our money is dwindling more rapidly than ever, with the cost of living sky rocketing. What type of investments could you suggest that would give us a better return without risking our capital?

Steve’s reply:

The truth is there is no such thing as ‘No Risk’. As you have found yourself, although cash deposits are deemed to be ‘no risk’ investments, there is still a risk, as they are virtually guaranteed to lose you money over the long term; this is because the growth you receive probably won’t even keep pace with inflation, so the true value of your money is actually eroding over time.

But don’t despair, there is a lot of options you can consider and as the saying goes, the key is, “ do not put all of your eggs in one basket”, as this is the best way to reduce your risk.

Most people I meet really only want one thing, financial security and peace of mind. If you ask them how much growth or money they want to make, they will often say ‘I don’t know, I just want to be able to live my life without the fear of running out of money’. So the place to start is always with the end in mind. The first thing you need to do is look at your regular outgoings and compare these with your regular income, to see just how much you really need, but also build in extra capital, to cover any unexpected events or emergency’s in life.

I would recommend that you do this with your chosen financial planner, because if they are any good, they will help you think of many things that you might not think of yourself. Our clients often tell us that having someone to talk too, is as valuable to them, as having our advice on what to do.

If you want a better than average return (and most of us do) then you have to be prepared to accept a degree of risk, but this does not mean high risk. There are many types of investments out there that your financial advisor can arrange for you, so that you keep the risk down to an acceptable level, without compromising on growth that is at least above inflation.

A very important point to mention is that you should always keep access to your savings and investments, as you don’t know what the future holds and you may need it at short notice (many Banks and Financial Institutions are keen to talk you into 1, 2, 3, 4 or even 5 Year fixed contracts, please avoid these, it’s your money and you should stay in control of it at all times.

Managing risk and your emergency fund is critical to success!

As a general rule of thumb I would say that on a medium level of risk, you would be reasonable to assume that over the medium to long term you should get an average growth rate of around 2% above inflation, which should be achievable in a well planned and managed investment that is regularly reviewed.

But you have to remember to always maintain an emergency fund in an easy to access savings account, such as those you already hold. This is really important as it allows you to stay in control and make sensible decisions. The exact figures will of course be specific to you and your circumstances and should be discussed and agreed with your chosen financial planner, but as a rough guide you may want to consider for every £100,000 of savings that you have, keep at least £10,000 as your emergency fund and then consider investing the balance.

Whatever you do, please do not make investment decisions without professional advice from an experienced financial planner and make sure that they will regularly review them for you at least four times a year.

If your money is not working hard enough for you, then contact us for an initial meeting now, by calling our office on 02392 325720.

Do you want to keep the family home safe?

The threat of losing everything including the family home is becoming an ever increasing worry for many people. The fear of losing some or even all of the value in the home you have lived in to pay for care fees is increasingly worrying many older clients and rightly so.

With central and local authorities all having to look for more ways to claw back money wherever they can to fill the public purse back up; it’s no wonder this is becoming a serious problem for many people! Unfortunately the promise, back in the 1940’s when the welfare state came into being, that said we would all be looked after “From the cradle to the grave” was not a promise that the UK Government could keep.

If you remember those days, you will remember that the deal was that everyone in the UK would pay their national insurance to the state and then when you needed care the state would pay for it.

But after decades of successive governments either failing to manage the state finances, not making sufficient forward planning or both, we are left with a situation where we have kept to our end of the bargain, but now the state is reneging on its part of the deal and wants those who have been prudent and saved some money and bought their own home to pay again.

Well I’m sorry to be blunt but it’s unfair and immoral and at the risk of offending some readers (which is not my intention); the argument to just ‘make the wealthy pay more’ is floored and misguided. They have already paid much more throughout their lives, just because they are wealthy.

If a wealthy person is happy to pay more, or if they are happy to give everything to the Government, the NHS or any Charity, that is absolutely fine, but it should be your choice and not something that is forced upon you, just because you have worked hard in life to become successful and saved hard.

Thankfully there is something you can do about Long Term Care fees to protect the family home, savings and investments and anything else that you own, that you don’t want to be taken by the local authorities.

You do have to be careful about such planning and unsure that you don’t breech any areas under the Deprivation Rule, but with the right planning, done in advance for the right reasons, you can successfully ring fence your assets so that they stay where they belong with you and your family. You can then decide if you want to use your assets to pay for care at a later date.

Now for the risk warning: I have lost count of how many people I have met over the years who have said “Oh Steve I wish I had known about this before or I wish I had done this sooner, but now it’s too late.” There is only one force on this earth that will make your financial planning happen and that is you taking some action and making the first steps and seeking some professional advice.

If you would welcome a review of your own estate planning including your Long term Care Planning, then contact us for an initial meeting now, by calling our office on 02392 325720.

Up-coming Workshops & Charity Events!

There is a lot going on at SBA in 2011. We are busy holding regular monthly workshops on all different financial and estate planning topics. Our aim is to help educate and inform the public, so they can avoid the mistakes and pitfalls, which we encounter every day, when we meet new clients who have been mis-sold or poorly advised in the past. If you or someone you know would benefit from coming along to one of our informal workshops, then please take a look at our Workshop Calendar and find a workshop that interests you.

At SBA Financial we are also strong advocates of giving back to the local community. Over the years we have raised over £20,000 for local charities and there are a number of client and charity events scheduled for 2011. Please take a moment to check out our Events Calendar and see if you would like to attend any of our future events, from Sailing to Horse Racing – There is something for everyone!

Book your own expert speaker!

Over the years I have been delighted to help many groups by delivering presentations on a whole range of financial planning areas of importance, ranging from Wills, trusts and estate planning to pensions and retirement planning, savings and investments and many more.

Apart from our own regular workshops, which of course are open to the public, we regularly provide an expert speaker to a number of organisations for their group meetings. If you would like to book an expert speaker for group you belong to, then contact us at our office on 02392 32570.

Regards

Steve

If you would like to find out more about the topics covered in this month’s newsletter, please contact us or come along to one of our regular seminars all of the details can be found on our Seminar Calendar.

The information contained within, including references to taxation, legislation, regulation, or any other issues are correct at time of going to print.

Previous articles

Monthly Update - June 2011

How do you find the perfect investment?

Do you want to keep the family home safe?

Up-coming Workshops & Charity Events!

Book your own expert speaker!