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The current tax year will end on 5 April 2020, a date when many allowances and tax breaks will reset. In some cases, it will be your last chance to use them. Making use of appropriate allowances can help you get the most out of your money.

Our guide explains seven key allowances you should consider to ensure you’re ready for the 2021/22 tax year. This includes:

  1. Marriage allowance
  2. Pension Annual Allowance
  3. ISA allowance
  4. Gifting allowance
  5. Gifts from your income
  6. Capital Gains Tax
  7. Dividend allowance

Click here to download your copy of the guide.

Keeping on top of allowances and how to use them can be challenging. But creating a financial plan that helps you get the most out of your money can put your mind at ease. Please get in touch to discuss how you can make the most of allowances in the current tax year and put a plan in place for 2021/22.

As the NHS continues to battle the challenges of Covid-19, you may be considering taking out health insurance. The pandemic means many people are facing delays and unable to book appointments when they want to speak to a health professional due to backlogs and restrictions.

Taking out private health insurance could provide you with an alternative and give peace of mind that, should you need to see a nurse, doctor or specialist, you will be able to do so. Before you move forward with taking out a policy, it’s important to know what’s covered and whether it’s appropriate for you.

Number of people taking out health insurance has fallen

According to the Association of British Insurers (ABI), the number of people taking out health insurance has fallen in recent years.

Around 1.2 million people are covered by personal health insurance. In the four years between 2015 and 2019, the figure has fallen by around 10%. A further 3.5 million people are also covered by corporate health insurance, a fall of 5% in the same period.  The fall has been linked to a tax that means insurance premiums are higher, but there are many reasons why people decide to reduce or cannel their cover. You should weigh up if it’s right for you.

How does health insurance work?

Health insurance works in a similar way to other insurance products. You will pay regular premiums for your cover and if you’re ill or injured during the policy’s term, it will pay for medical treatment, tests, and surgery.

In the UK, health insurance is designed to work alongside the NHS. You may still make appointments with your GP through the NHS while seeing a specialist privately. The key benefits of taking out health insurance are:

  • Receiving treatments sooner
  • More choice in where you receive treatment
  • A private room if you are an inpatient
  • A wider range of drugs and treatments that may not be available on the NHS

There is a range of health insurance policies available. Some are more comprehensive, for instance, including physiotherapy, dental treatment, or optical appointments, than others. You can also choose a policy that covers your partner and children if you wish.  

Each policy will have exclusions too. You should read the small print before you proceed to understand what isn’t covered. Most private health insurance policies do not cover:

  • Chronic illnesses
  • Elective treatments, such as cosmetic surgery or fertility treatments
  • Emergency treatment
  • Care and treatment during pregnancy

There will also be a limit on how much you can claim. Again, this will vary by policy and the way it is calculated differs too. Some providers will set a total amount that can be claimed, while others will set a maximum per condition, for example.

Do you need private health insurance? The good news is the NHS is available, so it’s a personal choice. If you want the peace of mind of being able to book appointments quickly or prefer more choice when receiving treatments, health insurance can make sense.

What to consider when taking out health insurance

If you decide to take out health insurance, there are some things to consider to help you pick the right policy and level of cover for you.

  1. Do you have any existing policies? It’s a good idea to review any existing policies you might have so you’re not covered twice and that any new policies complement those already in place. You may have cover that you’re not fully aware of. For example, your employer may offer corporate health insurance and some premium bank accounts include some cover too, so take some time to review your circumstances first.
  2. Who do you want to cover? Decide who you want your policy to cover, this can be just you or include your partner and children too. If you want to cover multiple people, choosing a joint or family policy will typically save you money rather than taking out a policy for each individual.
  3. What do you the policy to cover? The more comprehensive the policy, the more the premiums will be. Setting out what you want the policy to cover first can help you compare different options. Some policies, for instance, will cover mental health and sports injuries, while others may not. Always check what will be excluded too.
  4. What will the premiums be? The cost of the policy will depend on the level of cover you want, as well as your lifestyle and health. Premiums will vary between different providers, so you should compare different options.
  5. Would other protection policies add value too? While talking out health insurance, it’s worth reviewing other insurance products too. Critical illness cover, for example, can provide you with a lump sum following the diagnosis of certain critical illnesses, providing you with financial peace of mind. You may also want to consider Income Protection and Life Insurance policies.

Please get in touch if you’d like to discuss how health insurance and other protection policies can fit into your financial plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The pandemic and restrictions have meant many families are struggling financially or feel insecure. Research suggests that younger generations have been turning to parents and grandparents for a helping hand. However, some older family members haven’t fully considered the long-term impact that providing support could have on their own plans.

£1.9 billion gifted during the pandemic

According to Legal & General, 5.5 million older family members expect to provide additional financial support as a direct result of Covid-19 on top of the support they may already offer.

Gifting money to help children and grandchildren get onto the property ladder has become commonplace. However, the survey indicates that many are also providing a helping hand to cover day-to-day costs. The figures suggest 15% of the older generation expect to provide an additional sum of £353, on average, in financial aid. In total, that adds up to £1.9 billion being gifted due to the pandemic.

This is on top of support they may already be offering. More than a third (39%) of young adults regularly receive cash from family to help them get by. Collectively, older family members provide £372 million to loved ones each month. Some 29% of recipients use this money to pay for everyday essentials and 27% use it to pay their bills.

When loved ones are struggling with day-to-day costs, it’s natural to want to provide support. However, the research also suggests that some aren’t fully considering the short or long-term impact this could have. The survey found:

  • 38% of those gifting money have made sacrifices in order to do so
  • 31% have cut back on some day-to-day spending
  • 21% admitted they have struggled to pay bills as a result

Understanding the impact a gift can have on your lifestyle before handing it over can mean you feel confident in your decisions. In many cases, family members offering support know they can maintain their current lifestyle, but taking some time to double-check can provide peace of mind.

Don’t forget the long-term impact of gifting

While the study focuses on the short-term implications of gifting, such as paying bills, you need to consider the long term as well.

If you’re taking money out of your pension, for instance, would providing gifts mean you could run out of money later in retirement? Or will cutting back now mean bigger expenses in the future? Again, many clients find they’re in a position to provide the level of financial support they want. But by understanding the long-term consequences, they can proceed with confidence, knowing that it isn’t harming other aspirations they may have.

Reviewing your financial situation now can also help you understand where to take the money from. You may, for example, have money saved in an ISA that you’ve been using, but the annual ISA allowance will limit how much you can replace at a later date. In some cases, this means it makes more sense to draw from other sources of wealth and assets. Reviewing your finances beforehand means you can choose an option that makes sense for you and your plans.

Make gifting part of your financial plan

When asked how they want to use their wealth, many clients will want to provide financial support to loved ones. In the past, this has often been achieved by leaving an inheritance. However, as young families face pressure now, gifting during their lifetime is becoming an increasingly popular option among clients and there are benefits:

  • You can see the impact your money has had for loved ones
  • It can help loved ones overcome challenges they are facing now, such as getting on the property ladder
  • It can reduce a potential Inheritance Tax bill

However, whether you want to lend regular financial support or give a one-off lump sum, gifting should be part of your long-term financial plan. It’s a step that can ensure your plans are viable and have considered other factors, some of which may be outside of your control. For example, if you want to make regular payments to cover school fees for grandchildren, it can allow you to create a plan that ensures this will be provided until they finish their education, even if something unexpected happens.

Please contact us if you’d like to discuss how to pass on money and other assets to loved ones. We’ll help you incorporate it into a financial plan that considers your goals and financial situation to deliver a blueprint you can have confidence in.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only. The Financial Conduct Authority does not regulate estate or tax planning. 

With interest rates low and investment markets experiencing volatility throughout 2020, you may be looking for an alternative place to put your money. Premium Bonds are an option you may be considering, but you could end up missing out on returns.

What are Premium Bonds?

Premium Bonds are a type of investment product issued by National Savings & Investment (NS&I), but they work differently to other types of investments for two key reasons:

  1. The money you place in Premium Bonds is safe and fully backed by the government. This means when you want to withdraw your money, you’ll receive the same amount you deposited.
  2. Rather than receiving interest or investment returns on your money, you’ll be entered into a monthly prize draw.  Prizes range from £25 to £1 million. The more bonds you purchase, the more times you’re entered. Prizes won are free from Income Tax and Capital Gains Tax.

As a result, if you’re lucky, your Premium Bonds could earn you far more than a savings account or investments if you won one of the larger prizes. However, there’s a real chance you’ll receive nothing at all.

One of the reasons that Premium Bonds are attractive is that your deposits are secure. When you decide to withdraw your money, you’ll receive the same amount you put it, but once you factor in inflation, your savings will be lower in value in real terms. This is because the cost of living rises each year and, unless your saving increase by the same amount, your money buys less. In the short term, this effect is minimal. However, look at the impact of long-term inflation and it can be significant.

To keep pace with inflation, your Premium Bonds would consistently need to win the prize draw. So, how likely is that?

According to Money Saving Expert, if you placed £5,000 in Premium Bonds and had average luck, you’d expect to win roughly £50 a year. Of course, there are thousands of people with Premium Bonds that have below-average luck and are potentially missing out on returns.

Recent change means 1 million fewer Premium Bond prizes every month

Since their introduction, Premium Bonds have been popular products. In fact, over 21 million people hold Premium Bonds and over £80 billion is placed in them. But changes in November 2020 mean they’re not as attractive as they once were.

Previously, the prize rate for Premium Bonds was 1.4%, this means each £1 bond had a one in 24,500 chance of winning a prize. The change meant the prize rate was slashed to 1%, resulting in odds of one in 34,500 per bond. That means over one million fewer prizes are given out each month.

As a result, there’s now a greater chance that your Premium Bonds will earn nothing at all, and inflation will affect the value of your savings.

With this in mind, should you use Premium Bonds?

As with every financial decision, the answer will depend on your goals and situation. If you’re looking to create a regular income or guaranteed returns, Premium Bonds are not likely to be the right product for you. However, if you’ve made use if other tax-efficient allowances, such as the Personal Savings Allowance and ISA allowance, they can be a useful option to consider.

How do Premium Bonds compare to savings or investments?

Before you decide if Premium Bonds are the right option, you should weigh up the alternatives too.

Savings: If the security of your money is important, a traditional savings account may be the right option. Assuming you stay within the limits of the Financial Services Compensation Scheme, your money is safe. It will earn regular, guaranteed interest. However, interest rates are low and can mean your savings don’t keep pace with inflation. If you’re in a position to do so, choosing products with restrictions, such as locking your money away for a defined period, can help you access higher rates of interest. Saving accounts are a good option for emergency funds and short-term saving goals.

Investing: If it’s the potentially higher returns that are attracting you to Premium Bonds, investing may be an option. Money invested can deliver returns higher than interest rates, but this is not guaranteed, and your money will be exposed to investment risk. This means that your initial investment can fall, as well as rise, in value. Over the long term, investments have historically delivered returns, so a minimum timeframe of five years is advisable when investing. If you’re focused on long-term returns, investing could provide an alternative to Premium Bonds.

Finding a home for your savings

There’s no right or wrong answer when deciding where to put your money, but it’s essential that you consider what you want to get out of it and your financial circumstances. Please get in touch to create a financial plan that considers your options, whether you have a lump sum to save or want to make regular deposits.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Have you started preparing for retirement yet? If you’re nearing this milestone you may have contemplated whether your pension will be enough and how you’ll create an income. It’s often the financial side of retirement that people focus on.

It’s understandable why. Retirement is a big change to your income. But the lifestyle and emotional aspect of retirement are just as important, yet often overlooked. Not preparing emotionally can mean you miss out on opportunities to get the most out of the next stage of your life and don’t enjoy it as much as you could.

Why retirement can be an emotional challenge

Retirement is a big step to take. It’s one we’ve often been looking forward to, how often have you thought ‘I wish I could give up work now’?

Looking forward to the next chapter of your life is a good thing, but it can mean retirement becomes a dream where everything is perfect. Once the initial excitement wears off, some retirees can find the loss of a routine and focus that work provides can lead to retirement blues or that it simply fails to live up to expectations. 

As retirement draws near, you’ll take steps to prepare an income, thinking about where you’ll live and what your expenses will be. You may also have planned experiences to celebrate the milestone, perhaps travelling or undertaking a renovation project on your home. But you may not have thought about the day-to-day. How will you fill your time?

Retirement has a lot to offer and it’s a chance to indulge your interests. With some planning outside of the financial aspect, it can live up to your expectations.

5 steps to improve emotional wellbeing in retirement

1. Think about the things you enjoy

When working takes up much of your time, some of the things that you enjoy can get left out. Thinking about some of the missed opportunities, such as the times you’d like to have indulged in a hobby, can help you fill your time in retirement and improve your sense of wellbeing.

2. Find something you can focus on

If work provides drive in your life, switching to a retirement lifestyle can be difficult. Picking something that you can focus your energy on and work to improve can help fill the gap. More retirees today are taking a flexible approach to retirement, launching businesses and consulting once they’ve given up a traditional job. Alternatively, you may plan to get involved with charity work, help raise grandchildren or pen that book you’ve always wanted to write.  

3. Keep up with social activities

Isolation and loneliness can harm our emotional wellbeing, and it can be easy to slowly lose social activities when you stop working. Your workplace may have played an important role in your social life, from a quick chat on your lunch break to going for a drink together after work. Spending time with family, friends or old colleagues comes with plenty of benefits. Retirement is also the perfect time to meet new people who you share an interest with.

4. Be open to trying new things

With more time on your hands, don’t get stuck in a routine but try new things too. Taking a class you’ve always been interested in is a great way to learn new things, meet people and break from the day-to-day norm, for example. Heading to new places to take advantage of your new-found freedoms is an option too, whether you explore more of your local area or head further afield.

5. Remember, doing nothing is fine

Going from a work environment to having more free time can make it challenging to just relax. If you’re used to having a packed schedule, you may feel guilty about doing nothing at all. Whether you want to go for a leisurely stroll, spend all day buried in a book, or just watch the world go by, taking some time to yourself is fine. You don’t always have to be productive. Having more time to relax is something you may have looked forward to before retirement, but it can still be difficult to change your mindset.

Financial planning isn’t just about your pensions

It’s a common misconception that financial planning means going over your pensions, investments and savings. And that is an important part of it, after all, you want to understand your assets and how to get the most out of them.

However, financial planning starts with you, not your assets.

We know that what you can do and achieve with your pension is far more important to you than its value. Preparing for retirement with a financial planner means thinking about what you want to achieve, how you want to spend your time and what your priorities are. The financial side comes afterwards when we help you create a long-term that show how you can use your assets to ticks off those goals and improve wellbeing.

Please get in touch if you’re planning for retirement and would like to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

From 2030, the government will stop using the retail price index (RPI) measure of inflation, instead, it will use the consumer prices index (CPI) measure. While this switch might not seem impactful, it could affect your pension income and other personal finance areas.

The switch has been on the cards for a while, but Chancellor Rishi Sunak confirmed it would go ahead in the November 2020 Spending Review.

What is the difference between RPI and CPI?

Both indexes aim to measure the cost of living and how it is increasing. However, how the figure is calculated varies between the two.

The RPI was first calculated in 1947 and was used for many years as the headline measure for inflation. It has slowly been used less due to “shortcomings in its composition”, according to the government. The CPI was introduced in 1996 to measure inflation consistently across all EU members. So, how do the calculations differ?

  • The RPI calculates the rate of inflation by measuring the price of various everyday items, as well as housing costs, such as mortgage interest payments and council tax. However, it doesn’t account for some people switching to cheaper products when prices rise.
  • The CPI calculates inflation by measuring the price of thousands of items that we regularly spend money on, but excludes housing costs. This includes things like cinema tickets or technology.  The prices are weighted to give more prominence to what we spend more money on.

Some people argue that CPI is a better measure as it represents a more realistic view of how inflation affects spending.

While RPI has not been used as an official statistic since 2013, it’s still the figure used for some calculations. This includes some pensions, index-linked gilts, and student loan interest. As the RPI is usually higher than the CPI, switching measures could mean that some people miss out.

Switch predicted to cost savers and investors £96 billion

The plans to reform the inflation measure is predicted to cost savers and investors £96 billion according to the Association of British Insurers (ABI). It will particularly affect workers and retirees with a Defined Benefits pension, as it may reduce expected income. Retirees who have taken out an inflation-linked Annuity could also be affected.

Hugh Savill, Director of Conduct and Regulation at the ABI, said: “It is widely accepted that the RPI model is less than perfect, but the proposal’s impact will be felt by policyholders and pension savers for decades.

“Compensation by the government should also be seriously considered to avoid creating winners and losers.”

With the government not commenting on any compensation for those negatively affected by the plans, pension savers, retirees and investors should take steps now to understand if their retirement income will be affected.

Will the inflation change affect your retirement income?

The change could affect anyone receiving a retirement income that is linked to inflation. This is likely to be if you have either an inflation-linked Annuity or a Defined Benefit pension.

  1. Inflation-linked Annuity: This is a product you purchase with a lump sum, usually built up in a Defined Contribution pension, when you retire. It provides you with a guaranteed income for life, increasing each year in line with inflation. Many products will already use CPI as their measure of inflation. If this is the case, you will not be affected by the switch. However, if your Annuity increases according to RPI now, you could lose out in the long run. Check your product documents to see how your Annuity annual rise is calculated and get in touch if you have any questions.
  2. Defined Benefit pensions: Defined Benefit pension holders are likely to be among the most affected by the changes. With this type of pension, you receive a guaranteed retirement income for life, which is usually linked to inflation. Again, if your pension is currently linked to the RPI, you’ll lose out once this switches to CPI. You should check your pension scheme documents to see how annual increases are currently calculated.

At first glance, the difference between RPI and CPI can seem minimal. However, when you factor in the difference it will have on your income over your full retirement, it can be significant. Research conducted by the Pensions Policy Institute (PPI) suggests it could mean Defined Benefit pension members receive up to 9% less from their pension overall.

Daniela Silcock, Head of Policy Research at the PPI, said: “Women and younger pensioners will experience the greatest reduction as women live longer than men, on average, and younger pensioners will experience a compounding effect. Older pensioners on low incomes will also struggle with a reduction in benefits as they have less opportunity to make up income deficits than younger members.”

If you have a retirement income linked to inflation and want to understand what the changes mean for you, please get in touch. We’ll help you understand whether you’ll be affected, the extent of the impact over your lifetime, and what steps you can take to secure the retirement lifestyle you want.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

2020 saw a lot of volatility within investment markets. While vaccine news means there is hope for battling Covid-19 in 2021, there’s still a lot of uncertainty. If you’re retired and are taking a flexible income from your pension, it’s likely your pension is invested, so it’s important to take stock of how it has been affected.

If you chose to access your pension flexibly using a Flexi-Access Drawdown scheme, your pension savings will typically remain invested throughout retirement. This gives your pension an opportunity to deliver returns, but also means you remain exposed to investment risk. With this option, you’re also responsible for ensuring your pension will provide an income for the rest of your life.

As a result, keeping an eye on performance and the impact of withdrawals is important.

2020: Covid-19 volatility

Investment markets often experience short-term volatility, but 2020 saw more than most. In fact, markets experienced some of the sharpest declines they’ve seen in decades.

As the Covid-19 virus spread and was declared a pandemic, markets reacted to the news and the steps governments took to slow it. This led to sharp dips in March, followed by ups and downs throughout the rest of the year. As your pension is invested, the value of your savings will have been affected.

However, it’s important not to focus on the headline figures. A well-diversified portfolio will hold assets across a variety of industries and geographical locations. This means your investments are unlikely to have suffered dips as sharp as those stated in the headlines. While some sectors have been badly affected, others have seen a small impact and some have even benefited.

The FTSE 100, for example, suffered its worst year since the 2008 financial crisis, with the index falling 14.3% during 2020, according to the Guardian. But this was the worst performance among the largest international stock indexes. Look at the wider global market and you’ll find records too. World stock markets are ending 2020 up 13%.

Why investment performance is important when taking a flexible income

If you’re investing with a long-term goal in mind, short-term volatility generally has little impact on your overall strategy and goals. However, this changes if you’re taking a regular income from the investments. This is because you’ll be taking an income when the market is at low points.

When you make a withdrawal when the market has dipped, you need to sell more units to achieve the same income. This can mean your investments are depleted quicker than expected. You also have less in your pension to benefit from any rises that may follow, which can mean returns fall short of expectations too.

Therefore, regular reviews when you’re using a Flexi-Access Drawdown scheme are important to ensure your retirement income remains on track.

5 things to do when reviewing your pension

If you take a flexible income, don’t panic. If you worked with a financial planner, volatility will have been considered when setting out a plan and there are often steps you can take to bridge gaps to ensure your long-term finances remain secure.

Here are five things to do to review the impact of volatility in your pension:

  1. Review pension values: The first step to take is to see what the value of your pension is now. This will give you an idea of how volatility and withdrawals have affected investments.
  2. Look at your lifestyle plans: The above figure alone isn’t enough to understand if volatility has affected your retirement plans. You also need to consider your lifestyle, how long your pension needs to last for, and the income required.
  3. Consider investment growth: Remember, your pension savings remain invested, so over the long-term should benefit from investment growth. This can help your savings keep pace with inflation and provide you with security throughout retirement.
  4. Calculate if there will be a gap: With an understanding of how your pension will grow and the income needed for your lifestyle, you’re in a position to see if volatility has left you with a gap and where additional steps may need to be taken. We understand this can be difficult to do, which is why working with a financial planner can offer you peace of mind.
  5. Book a meeting with a financial planner: Pulling together the different pieces of information to see if the market volatility will have an impact on your plans can be difficult and time-consuming. We’re here to help you with the process and give you peace of mind that your retirement income is secure. If adjustments do need to be made, we can work with you to provide a solution that matches your aspirations.

One of the steps you can take to protect against future volatility is to reduce or pause pension withdrawals during these periods. Ideally, you should have three to six months of expenses in a cash account that you can draw upon in these circumstances. This can help protect your long-term income.

Please get in touch if you’d like to review your pension and wider financial plan.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.


Even carefully laid financial plans can go astray. Financial shocks, such as losing your job or being too ill to work, can affect your financial security. Yet, figures show many Brits aren’t taking the necessary steps to improve their financial resilience.

A financial shock can cause short-term stress and money worries. But they can also have a long-term impact, for example, if you’re forced to dip into savings earmarked for something else, stop contributing to your pension, or need to take a mortgage holiday. Preparing for the unexpected can help place you in a position where financial shocks can be managed.

Brits are failing to prepare for financial shocks

Despite feeling confident about their financial situation, a survey found many Brits aren’t in a position to manage financial shocks. The survey rated respondents in four main areas:

  1. Getting the basics right
  2. Managing borrowing
  3. Protecting against the unexpected
  4. Planning for the future

Out of a score of 25, respondents scored just three on protecting against the unexpected. Planning for the future scored only slightly higher at five. While Brits are good at keeping on top of day-to-day spending and borrowing, looking further ahead is often overlooked.

While we hope things will stay on track, planning for the unexpected can provide security. As part of your financial plan, protection against the unexpected should be considered. No one wants to experience a financial shock, but they do happen. And they’re often outside of your control. Taking steps to consider how your finances would hold up and what you can do to improve resilience is important.

Securing your finances in the short term

When a financial shock occurs, it’s usually your short-term finances that are your focus. This may be because your regular income has stopped or you need to dip into other assets to cover essential outgoings. Luckily, there are steps you can take to help secure your short-term finances when something does happen.

  1. Have an emergency fund. We should all have money set to one side for a rainy day. This money should be easily accessible and, ideally, cover between three and six months of expenses. This means you don’t have to worry about regular outgoings should a financial shock interrupt your income. It can give you some space to deal with the shock and put a long-term plan in place if you need to, without worrying about how you’re going to meet this month’s bills.
  2. Reduce debt. Borrowing can be incredibly useful, and it’s likely you’ll take on a range of different debts throughout your lifetime. However, paying down debt while your financial situation is secure can help build resilience too. For instance, overpaying on a mortgage may mean you have an opportunity to take a payment holiday should a financial shock happen. Having fewer financial commitments can make it easier to manage a financial shock.
  3. Consider income protection. Income protection is a financial protection product that can provide a regular income if you’re unable to work due to accident or illness. These policies typically pay out a percentage of your salary, say 70%, until the policy ends, you return to work or until retirement. Knowing you have a policy that will provide an income should you need it can provide peace of mind and allow you to focus on recovering.

These three steps can help improve your resilience, placing you in a better position to overcome financial shocks and the short-term instability they cause. But you also need to consider the long-term impact too.

Ensuring your long-term plans stay on track

In some cases, a financial shock can have a long-lasting impact. This may be because the effects move from short to long term or due to the decisions you make affecting other plans. But what can you do?

We’ve already mentioned that income protection products can be a useful way to create an income while you’re unable to work. But other insurance policies can be useful in the event of a financial shock and are worth considering too. Critical illness cover, for example, will pay out a lump sum on the diagnosis of certain illnesses that could mean you need to give up work permanently or need to take an extended period off. This lump sum may allow you to take steps like paying off your mortgage and improve your financial situation over the long term while allowing you to focus on other areas of your life.

When taking out insurance policies, it’s important to weigh up the different options to see what is right for you and your priorities. Please get in touch if you’d like to talk about financial protection policies.

During and following a financial shock, it’s important to review your finances with your long-term goal in mind. You may, for instance, have paused pension contributions or used savings to get you through the short term. Understanding the impact of this can help you stay on track for long-term goals. In some cases, a review will simply provide peace of mind that a financial shock hasn’t derailed plans, in others, it may show you need to take additional steps to remain on track.

Please contact us if you have any questions about your financial plan and ability to weather financial shocks. Our goal is to help you create a financial plan that you can have complete confidence in, including when the unexpected happens.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

2020 has been an eventful year for investment markets. Impacted by the Covid-19 pandemic and government responses to this, there have been many valuable investment lessons that will apply in 2021 and beyond.

As the extent of the pandemic became known in March, stock markets around the world suffered sharp falls. In fact, fears of a recession meant the FTSE suffered its biggest fall since the 2008 financial crisis and trading was temporarily suspended on Wall Street as circuit breakers were triggered, according to the Guardian.

Since then, markets have bounced back but continued to experience volatility. The uncertainty of the situation, with governments changing restrictions and support as they try to control the virus, affected markets throughout the summer and autumn.

So, 2020 has been useful in highlighting the investment lessons we should keep in mind.

1. The unexpected does happen

A year ago, who would have predicted that a global pandemic would have occurred? It’s probably not something you’ve ever considered when weighing up investment risks. Yet, it’s had a huge impact on investment volatility and opportunity in 2020.

This year has taught us that the unexpected does happen. We can’t consider every eventuality but preparing for the unexpected can improve your financial resilience. In terms of investing, this may mean having liquid assets or a rainy-day fund you can use if investment values fall. This is particularly important if you’re drawing an income from investments. Having options for when the unexpected does occur should be part of your financial plan. 

2. Volatility is part of investing

No one wants to see the value of their investments fall. But volatility is part of investing. When you invest, you need to be aware of the risk that values can fall.

This is why a long-term time frame and goal is so important when investing. Short-term volatility is often smoothed out once you look at investment performance over a longer time frame. It can be frustrating to see that investment values fell in 2020, but when you look at performance over the last five years, for example, you’ll probably still see an upward trend.

3. Diversifying is important

We all know we should diversify our portfolio. Investing in a range of assets, industries and geographical locations can help spread the risk. When one investment falls, another may perform better helping to create balance.

Covid-19 has had a far-reaching impact, with countries around the world affected by the virus. However, some industries have been affected far more than others. Travel and hospitality businesses, for instance, have been forced to close for weeks at a time in many places. In contrast, the pandemic has created opportunities for some firms too. While a balanced portfolio will still have suffered volatility, it can lessen the impact.

4. Financial bias can affect us all

Investment markets have featured in the news more heavily than usual this year, thanks to the volatility experienced. If headlines or talk about the markets meant you considered changing your strategy, financial bias is likely to have played a role.

Financial bias simply means other factors besides facts have influenced your investment decisions. When markets fell sharply at the beginning of the pandemic, an emotional reaction that means you considered taking money out of the markets is normal. However, recognising where bias occurs and limiting the impact is important. Working with a financial adviser can help you with this as you have a professional you trust and one that understands your situation to talk to.

5. You can’t time the market

Finally, the events of 2020 have supported the saying: It’s time in the market, not timing the market.

If you’d tried to guess when to put your money into the stock market and exit this year, you’d probably have ended up making mistakes. Trying to time the market to maximise returns is incredibly difficult, as so many factors play a role. Even investment professionals with a huge number of resources make mistakes.

Rather than trying to time the market, creating a long-term plan and sticking to it is usually the most appropriate strategy for investors.

What to expect in 2021

So, what lies ahead for the next 12 months? With lockdowns and restrictions continuing around the world, we expect further investment volatility as we head into 2021. But if 2020 has taught us anything, it’s that we can’t predict what’s around the corner. Think about your aspirations and build a long-term financial plan around these, including investing where appropriate.

Please get in touch if you’d like to review your investment portfolio for the year ahead.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.

Stock markets in 2020 have been characterised by volatility and uncertainty. If you’ve made financial decisions based on your feeling towards this, it could have cost you money.

Whenever we make a decision, we have to weigh up the different options. While reasons and facts should be the basis for any decision you make, emotions play a role too. Where this happens when making financial decisions, this is called financial bias. It can mean you end up making decisions that aren’t appropriate for you.

In recent months, as markets have experienced volatility and economic uncertainty has featured in the news, this may have affected the decisions you’ve made too.

Moving to cash due to Covid-19 cost investors 3%

According to behavioural finance experts Oxford Risk, investors that responded to Covid-19 uncertainty by moving more of their wealth into cash could have missed out. By switching to cash for ‘emotional comfort’ it’s calculated that investors have missed out on returns of 3% or more a year.

Separate research also suggests that investors moved more of their wealth into cash in response to Covid-19. In the first half of 2020, UK households put away £77 billion in cash, taking the total amount saved in cash accounts to £1.5 trillion. While a cash account to cover emergencies is advisable, it’s estimated that nearly £1.2 trillion of this cash isn’t needed for contingencies.

With cash accounts currently offering low-interest rates, it’s estimated that UK households have missed out on £38 billion in potential investment returns.

While investing does come with risk, it can help your money grow at a faster pace than when using a savings account. However, you need to invest with a long-term time frame, a minimum of five years. This provides an opportunity for short-term volatility to smooth out. Investing for a short period means there’s a higher chance that you could lose money due to short-term downturns.

There are many reasons investors held more of their money in cash during the first half of this year. But for some, financial bias will have played a role.

For example, information bias occurs when investors evaluate information, even if it doesn’t relate to their situation. It makes it difficult to assess what information is relevant. The sheer amount of information can be overwhelming. During the pandemic, investors have been bombarded with news, forecasts and opinions about what will happen. With much of this coverage negative, it’s natural that some investors will have had an emotional reaction and decided that cash was safer.

Trying to time the market provides an opportunity for financial bias

It’s not just a trend that is having an impact due to Covid-19 either. When the markets are performing well, it can be tempting to increase how much of your wealth is invested. In contrast, it’s common to want to move your money to ‘safety’ at times when markets are performing poorly or experiencing volatility.

However, this can mean you end up buying assets while prices are high and selling at low points. Oxford Risk estimates this type of financial bias can cost investors an average of 1.5% to 2% a year over time. Over a long-term investment strategy, financial bias can end up costing you significant sums.

While it can be tempting to move money in and out of investments to maximise returns, trying to time the market is difficult. As the above averages show, you’re more likely to miss out on returns than to increase your portfolio’s value. For most investors, a long-term investment strategy is appropriate.

Minimising financial bias: Stick to your long-term plan

Creating a long-term plan based on your goals and sticking to it can help you minimise the impact of financial bias. That can be easier said than done, though, especially at times of uncertainty. Working with us can help you here. A financial planner will be able to help you understand your long-term financial positions and act as a second pair of eyes when you want to make changes. It can mean financial biases can be highlighted and discussed.

That doesn’t mean you should never make changes to your financial plan. After all, circumstances and goals do change, and your financial plan may need to change to reflect this. However, this should be driven by long-term aspirations and be based on evidence.

Please contact us, if you’d like to go through your financial plan and investment strategy.

Please note: The blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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.