January for many is a time to think about the year ahead and I was reminded recently why this is so important. Reviews are often about making sure that you and your financial arrangements are well placed for what lies ahead. This is sometimes about making the most of forthcoming opportunities but I wonder whether this year is about making sure you are not in the wrong places!
In financial and economic terms, there is a great deal of uncertainty in the road ahead. The election outcome in May, the timing and implications of an interest rate increase, falling oil prices, the reduction of quantitative easing support in the US, the continuation of it in Japan and the need for a sustainable recovery in Europe. This might all sound very pessimistic and human nature is such that in times of uncertainty, ‘doing nothing’ might seem like the right thing to do. However this is only the case if where you are currently, is the right place to be. If not, then doing nothing could be an expensive mistake. Of course in investment terms you are more likely to think you are in the right place if ‘it’ has done well for you in the past – but as history tells us, that is a trap many people fall into.
I was recently contacted by a new employee of a company I look after, who asked if I could review some pensions he had taken out many years ago. One in particular which he started 17 years ago was not performing as it should – not because of inferior investment returns as he thought, but as I uncovered because of the extent of charges on the plan. The annual charge on a pension plan of this kind might typically be about 1%. However this increment had an equivalent annual charge of 7.14%!
There is a phrase that I have come across many times over the past few years and that is, “kicking the can down the road”. In whatever context, the argument goes that if a decision or action has been postponed then the implications are put off for another day. It seems to me that at the start of this year in particular there are quite a few cans in the road and you might have a few you are aware of in terms of your own arrangements. Maybe now is a good time to find out how you are placed to deal with them?
Author: Phil James, Grosvenor Consultancy Ltd
There are advantages and disadvantages to using all of these strategies and they depend on individual circumstances so don’t take action without seeking competent advice. Tax rules, rates and allowances are all subject to change. The Financial Conduct Authority does not regulate tax advice and some forms of offshore investments. The value of investments and the income from them can fall as well as rise and you may not get back the full amount you invested.
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