If you keep your money in the bank it’s safe….isn’t it?

Ashley Reeves, financial adviser writes;

  Ashley Reeves

While money held in a regular bank account or cash ISA is guarded from many risks that other financial instruments are exposed to, it is subject to one often overlooked factor, inflation risk.

You may well have seen reports in the press recently that the cost of living is rising.  After many years of very low levels of inflation, this is certainly an issue that’s starting to cause concern with our clients.

There are many factors that can affect the rate of inflation, which I won’t go into here, but essentially it leads to a rise in the cost of goods and services over time.

The Office for National Statistics uses a metric called CPI (Consumer Price Index) to measure the rate of inflation. This looks at the average cost for a ‘basket’ of goods and services that the average UK resident will use. It does not include rent or mortgage costs. To take an example, while utility prices have increased by up to 12% at the end of 2021 (bbc.co.uk), the other items in the basket have increased by a smaller amount, leaving the CPI inflation measurement at 5.4% (Dec 2021) (ons.gov.uk).

At the current level of 5.4%, this is already much higher than we have been getting used to, and particularly with rising energy prices, we may well see even higher rates of inflation in the coming months.  On the flip side of this, we haven’t seen any significant rises in the interest that is being paid out on bank and savings accounts, including funds held in cash ISAs.

For many people living on a fixed income, these will be worrying times.  But if your wages rise roughly in line with inflation, then immediate costs, such as food, rent or mortgage, bills and car costs aren’t particularly affected by inflation. As the money is paid out very close to the time you receive it, then inflation doesn’t have time to increase the costs in the time between receiving and spending.

However, let’s look at a scenario where a couple are aiming to earmark some funds for future spending on a special holiday.

Peter and Mary are due to celebrate their 25th wedding anniversary in five years’ time and have recently received a lump sum of £15,000 from a relative.  The holiday they are looking at would cost exactly £15,000 today, so they put the money into a cash ISA with a view to holding it to pay for the holiday in five years.

They find a relatively good deal on a cash ISA, which offers 0.96% interest per year (Oak North Bank, Jan 2022). In five years, their £15,000 will be worth £15,733.96, assuming the interest rate remains unchanged throughout the period.  At first sight, Peter and Mary are pleased with the increase in the value of their money and look forward to splashing out on their holiday.

However, sadly the cost of the holiday is likely to increase over the five years. Let’s assume no factors other than inflation will affect the cost of the holiday. Inflation currently sits at 5.4%, so let’s assume that rate will remain stable throughout the five years.  The holiday will now cost £19,511.66.

Peter and Mary find themselves £3,777.70 short for their holiday of a lifetime and will now have to make the unpleasant decision whether to buy a cheaper holiday or use funds from elsewhere to make up the difference.

So, what if Peter and Mary had come to speak to me at Four Oaks when they first received the £15,000?

After deciding that we can work together, we would have undertaken an in-depth fact find, where we discover all of Peter and Mary’s incomings and outgoings and find out what their goals are.

Now that we know that Peter and Mary are looking to use their £15,000 to pay for a holiday in 5 years’ time, we can advise on the best course of action. Knowing the effect that inflation may have over the investment period, we can choose a fund that will suit Peter and Mary’s attitude towards risk and reward, but that will also offer the potential for growth that will match the rate of inflation.

If that fund performs better than expected, Peter and Mary will have some surplus funds which they can leave invested or use elsewhere.

If the fund performs worse than expected, they may still be left short on their holiday, but with regular reviews through the investment term, they will have been kept updated on the progress of their funds and will have been able to prepare for the shortfall.

Offsetting inflation is important for any funds that are earmarked for use in the future, so contact me for a free initial meeting and find out how I can help.

 

 

 

  • Investors do not pay any personal tax on income or gains, but ISAs do pay unrecoverable tax on income from stocks and shares received by the ISA managers.
  • Tax treatment varies according to individual circumstances and is subject to change.
  • Stocks and Shares ISAs invest in Corporate bonds; stocks and shares and other assets that fluctuate in value.

 

Essentially Mortgages and Essentially Wealth Magazines December 2021

Check out our latest quarterly magazines with lots of tips on getting the best deals tailor made for you!

Essentially Mortgages Nov 21 looks at how lockdown may have worked in your favour and also explains some of the confusing jargon that can be used when deciding which mortgage is best for you!

Essentially Wealth Nov 21 has tips on self-care for the self employed and when to consider making an ‘early inheritance gift’ to loved ones.

 

 

Pension Planning at 40… – What have I learnt reaching this milestone?

Matt Rogers, Financial Adviser

When is the best time to start saving for your future?

As Financial Advisers, this is a question we will be asked by our clients. In short, it is never too late to invest in your future however, the younger you start the better.

Having recently turned 40, this is quite a poignant subject for me personally. It doesn’t seem five minutes ago since my 30th birthday and in another ten years’ time, I will be at an age where I could potentially be looking at accessing my pension within the next five to ten years.

When I was a young adult in my first full time job, my father tried to instil in me the importance of paying into a workplace pension. At the time I thought ‘why the rush’? I have another forty plus years before I need to think about retirement. However, this was one of the best lessons I learnt and has always stayed with me.

Worryingly, many individuals are most probably of the same mindset that I was in back in my early twenties as in fact one in five Britons say they have no form of private or workplace pension. – (according to a recent survey by comparison site finder.com) – Source Financial Mail on Sunday 02/10/21

 

Being financially independent in later life makes life easier for both you and your family.

The ideal time to start paying into a pension is between the ages of 20 – 40 years old. Even small contributions into a pension can make a huge difference as any money that is put aside early has time to snowball into something much bigger.

If you pay the money into your pension yourself, or if it is taken by your employer from your pay packet, you automatically get 20% tax back from the government as an additional deposit into your pension pot.

If you are a higher-rate tax payer you can claim an additional 20%, while top-rate tax payers can claim an additional 25%.

If you are self-employed, you would need to set up your own private pension but you are still able to benefit from tax relief on contributions. However, only around 15% of the 5 million self employed people in the UK are currently saving into a private pension. (Source: Financial Mail on Sunday 2/10/21)

In addition to tax relief on pension contributions, the pension fund benefits from tax-free growth just like an ISA.

Don’t wait to start your pension – The cost of delaying!

If your present age is 30, with a retirement age of 65, by starting to pay now, you could receive a pension:

  • 31% higher than if you waited 5 years and made the same monthly payments
  • 76% higher than if you waited 10 years and made the same monthly payments
  • 21% higher than if you waited 5 years and made the same single payment
  • 47% higher than if you waited 10 years and made the same single payment

These figures are based on a Stakeholder Pension and assume a yearly investment growth rate of 5% with fund charges of 1% each year.

Tax rules can change. The value of an investment is not guaranteed and can go up as well as down depending on investment performance (and currency exchange rates where a fund invests overseas). You could get back less than you invested.

Source – Cost of Pension Delay Calculator – Scottish Widows

Many people in their 50’s think they have left it too late to invest into a pension when in fact, this is not the case. The fact that you can take money out of your pension from the age of 55 means that once you reach your 50’s and 60’s, you don’t need to lock your money away for decades to benefit from the tax advantages.

If you’ve reached your 60’s with no money set aside for your retirement, you’re not alone. Around 17% of those aged 55 and above admit to having no pension investments. (Source – Financial Mail on Sunday 02/10/21).

However, there are steps that you can take. Check that you have no pensions that you have forgotten about from former employers. It’s important that the performance and allocation of these investments are reviewed regularly as new funds may be available that offer greater growth potential.

Older pension policies potentially have higher fund charges and if your attitude to risk has changed, the funds may need to be moved to investments that better meet your needs and may benefit from lower fund charges.

Make sure that you are receiving the full state pension to which you are entitled. You may be able to top up your state pension by making voluntary contributions.

So, what can you do to start saving for your future now?

The easiest way and one which I still do now is by setting up a direct debit. By setting up a direct debit to go into a pension, you effectively ‘pay yourself first’ by looking after your future self before spending on other outgoings.

The one thing I would like you to take away from reading this is that it’s never too late to start saving for your future and it is part of my job as a Financial Adviser to help you plan and achieve your retirement goals and objectives.

It doesn’t matter if you have left building a nest egg until now, the important thing is to not put it off any longer.

Plan for the worst…But still plan for the best!

Financial Adviser Sutton Coldfield
Andy Robinson, Financial Adviser

Clients often think of Four Oaks Financial Services Ltd when they want to make an investment, or plan for retirement and want pension advice, in general, planning for the good times in life and looking ahead in a positive manner.
However, it’s just as important to plan for the worst that life could throw at you, to minimise the impact that unwanted events have on your best made plans for a happy future. Without the right protection in place, you or your family could lose your home, and in the case of a business owner, control of your business too.

Protecting your family and business is my speciality. It’s a role I love to provide, which gives me enormous satisfaction knowing that you have peace of mind, in that you have done the best you can to protect those that you love and care for, and that a potentially devastating event will not be compounded by the financial ruin of your family.
Part of my service to you is to have the conversations with you that we’ve all been guilty of ignoring and putting off because we’re busy, and ‘it’ll never happen to me’. Clients tell me that I work in a very sensitive way, but still get to know what it is that’s really important to you, which enables me to recommend the right cover that’s in your best interests every time.

Your cover could be only 3-steps away:
1. Our journey starts with an initial complimentary review of your current situation, to find out more about you, and to see how I can best help you. Also, and most importantly, for you to decide if you’d like me to work for you. You have nothing to lose.
2. I will then research the options available to us, you will then receive a letter from me, recapping on your scenario and explaining the reasons and rationale for the cover we are recommending.
3. The final stage is to make the application with a short telephone appointment to cover any lifestyle and health questions with one of my expert colleagues.

Estate Preservation & Inheritance Tax planning:
‘Keeping it in the family’. Our service to you ensures your desired legacies and business interests are properly protected from the tax man, liquidators, and or people that fall outside the family bloodline such as children’s former and future partners.
In conjunction with our legal specialists, we offer a complimentary will review, they can advise upon your will and if required, arrange Power of Attorney, both for property and finance matters as well as health and welfare.
Will Writing and Powers of Attorney are not regulated by the Financial Conduct Authority and do not form part of the Quilter proposition. They are offered in our own right and Quilter Financial Planning can accept no responsibility for this area of advice.

Business protection:
If you are a director or have partners in your business, allow me to ask you one question:
Q: What could happen if a director or partner dies, or is unable to work due to a serious illness?
A: The spouse of the deceased could inherit, and benefit from their business Income, Shareholding, Dividend payments, and voting rights of the deceased spouse.

Business protection provides 3 main benefits:
1. Maintaining Control of your business: = Shareholder protection & Business loan protection.
2. Protecting profitability: = Keyperson cover.
3. Looking after your staff: = Death in service benefits.

I can provide you with appropriate protection and arrange the associated agreements that provide peace of mind in the event of the above.
This is an arrangement that is fair to all parties, the surviving business owners, and the family of the deceased.
It leaves you to retain control of your business whilst the spouse of the deceased receives immediate payment of the pre agreed value of their interest of the business.

Working with Four Oaks Financial Ltd not only gives you a one stop shop to the best providers in the market place for protection, you also gain access to the expertise of my colleagues who specialise in investments, pensions and mortgages.
I offer a complimentary business protection review to all; you don’t even have to be a client of Four Oaks Financial Services Ltd to benefit. You really have nothing to lose and everything to gain, or retain.

Essentially Wealth Magazine Summer 2021 Read It Now

This quarter’s Essentially Wealth magazine is a must read especially in these extraordinary times. In this edition find out where in the world are the happiest places to retire to and how the Covid-19 vaccines are putting a spring in investors’ step!

This is a complimentary magazine for all Four Oaks Financial Services clients.  Over the next few days we will be emailing this out, but you can click on this link and read it right now Four Oaks Essentially Wealth Q2 2021.

Financial Adviser Ray Ceairns Retires

We are delighted to announce that one of our longest serving financial advisers, Ray Ceairns, has retired. Ray has worked in financial services since 1984 and says he decided to retire earlier than planned owing to our Lifestyle Financial Planning service. This gave him the reassurance he needed that he could have the long and comfortable retirement he wanted, only sooner!

2020 was a big year for Ray. Two grand-children arrived, Sophia in June and Oscar in November, he had a big birthday, his wedding was postponed and he retired! As well as spending lots of time with his grand-children Ray is looking forward to getting back into hill walking and extended stays at his lodge in the Lake District. And he is getting married in June.

During his 36 years in financial services, he says the biggest change has been the shift to professionalism and mandatory qualifications in the industry. These changes being enforced by the Regulators and rightly so. Ray originally joined Four Oaks Financial Services partly with a view to his planned retirement. He wanted to be able to retire, knowing his clients would be in safe hands.

Ray has sent his personal thanks to Martin Ward, Managing Director and all the staff that have supported him. With the easing of Covid-19 restrictions we are looking forward to Ray’s “retirement do” and wish him a long and happy retirement.