It as important for investors not to allow their emotions to dictate investment decisions, because emotions can often be giving the wrong signal. Markets and economies move in cycles and naturally attract a fair amount of human emotion as they evolve. An investor’s behavioural response to market swings can lead them to buy and to sell at the most inopportune times. Such an emotional response can thus be highly detrimental to the performance of an investment portfolio.

Emotion may trigger misjudgement
With emotions driving investment decisions, it is likely that the investor will make major misjudgements about buying and selling. The emotion-led investor will probably be most inclined to invest during the period of thrill and euphoria that may precede a market downturn. They may be equally likely to disinvest when feeling the panic and depression that can prevail when markets are near rock bottom but perhaps likely to recover as the economic cycle takes its course.

So, we think it important to resist emotional responses, have a long-term investment horizon and stay the course. Our advisers work with you, the client, to create an investment portfolio that is specific to your own needs and designed to achieve your financial objectives. Your portfolio will be built on sound investment principles that have stood the test of time and will not be based on the latest investment fad.

Many politicians and economists see a more vigorous property market as key to future growth and prosperity in the UK. Not only would more house building create jobs in the construction industry and its supply chain, it could generate wider property market activity that could help boost consumer spending on home furnishings and other major household items.

One interesting fact about property market trends is that, according to the National Housing Federation, the ratio of owner-occupied homes in Britain has been falling for the past decade and may continue to do so. ‘Right to buy’, mortgage interest relief and rising affluence fuelled the booms of the 1970s and ’80s. Now, first-timers struggle to raise the deposit needed get them onto the ladder, forcing many to rent, which in turn stimulates the buy-to-let market.

Mortgage availability and cost
The future course of house prices remains uncertain and the subject of much expert debate. Regional variations seen in the past are likely to be a continuing feature. Overall, though, one big factor will be mortgages – their availability and their cost. The post-recession era of low official interest rates has helped many homeowners, but not all mortgage rates are linked directly to Bank of England base rate. As beleaguered banks struggle to recapitalise, they hope to squeeze higher margins from their depositors and borrowers.

The potential for widespread increases in the major lenders’ standard variable rate (SVR) became apparent when one of the very largest announced in early March that its SVR cap would rise from 3.5% to 3.99% with effect from 1 May. Two other banks then pushed their SVR up from 4.59% to 4.95%. Other lenders announced rate rises between 0.25% and 1%.

Whilst few people expect a rise in the 0.5% base rate any time soon, mortgage lenders seem to have ideas of their own on setting rates that don’t track the official level. Nobody can be sure, but it seems the only way is up – which makes Spring 2012 an ideal time to secure a new mortgage deal, with the benefit of professional advice.

Limiting the damage
Things can be very different for smaller companies, where the unexpected absence of one individual may hugely affect corporate performance. In many cases, when temporary or permanent loss of a vital director or employee occurs, the impact on production, customer service and other areas can damage corporate reputation and hit the bottom line. This makes key person insurance to cover lost profits an essential precaution.

Finding and paying an experienced replacement at short notice can stretch some companies. The absentee’s working role may, however, be just one of the issues, particularly if the accident or illness was fatal and the victim a shareholder. What happens to their shareholding may be crucial for the company’s future direction. A large equity stake could pass to relatives with no business expertise and no wish to help run the company.

Fair deal for the estate
So, key person insurance can assist operationally after a setback but further cover is needed to enable the surviving proprietors to maintain strategic direction. Directors’ protection cover can provide the financial means by which the deceased’s shares may be bought from their executors. There are essentially two ways to structure the cover.
The directors may insure themselves under a policy held in trust, with the surviving directors as beneficiaries. The policy proceeds would by agreement pay for the deceased’s shares. The alternative is for the company (if permitted to buy its own shares) to take out the policy and use the proceeds to buy back the shares from the estate. Talk to your adviser about the terms and tax aspects of key person and directors’ protection insurance

Way back in 1973, then Chancellor Denis Healey promised ‘to tax the rich until the pips squeak’. Now it seems those just a bit better off than average are being made to squeal as they find themselves ‘piggy in the middle’. The credit crunch and recession have affected almost everybody, but the financial structure supporting middle-class family life appears to be under sustained attack.

Times change, of course, and everyone needs to adapt, but for those in the middle a lot has been changing and rather rapidly. The long-term career with a generous pension at 60, or perhaps a successful family firm, helped to instil a feeling of financial security. The climate for middle and upper management as well as the established small business owner is now more hostile and concern about a major loss of family income is felt more widely.

Various issues threaten family budgets. Although the recent national Budget softened the original formula, child benefit will still be reduced or stopped altogether for many middle-income families. On top of that, changes to thresholds will push many other middle-earners into the 40% tax band. These things are happening against a background of high, but currently easing, inflation and ultra-low interest rates that depress income from devalued savings.

It is getting more difficult for those who want to help younger generations of the family at vital stages in their personal development. For twenty years or more, school fees have been rising, often faster than inflation, making private education less accessible for some; now university tuition fees and associated costs have turned that into a double whammy. Helping the family’s academics to avoid the drag of student debt is getting harder.

Pay rent, save deposit
Everyone hopes that youth unemployment, from which graduates are not immune, will soon start reducing. However, even those who gain a degree and land a graduate-level job face an uphill struggle when it comes to housing. Saving for a deposit whilst renting a home seems like mission impossible. A parental contribution is often the only way, but older generations have their own problems looming, with higher living costs, a rising State Pension Age and potentially huge residential care costs. Can they now spare the money to give a helping hand?

All that may sound a bit negative, but we believe that the right kind of financial planning can help to deal with the erosion of wealth and security that some families are experiencing. It can be a balancing act of sorts, but whatever your situation and whether you are concerned about retirement, inheritance tax, providing for dependants or saving tax-efficiently, quality professional advice can help you plan for the future without leaving you short today. Do get in touch to see how we can help construct a plan that puts you firmly in control.

This short piece will cover the main personal insurances or ‘protection policies’ that individuals could consider when putting together a financial plan.

The Protection Need

When people think of their assets or rather losing them through unforeseen circumstances, they will typically seek to insure their property and personal possessions. This is a reasonably straightforward task and requires little underwriting:  a matter of establishing what the market value of the asset is today and what would be the cost of replacement.   Unfortunately however, people often fail to insure their most valuable asset, the driver of virtually all wealth into their financial plan: themselves!

So how do you value yourself?  Your worth, in financial terms, could be defined as what your sector would remunerate someone of your age, qualifications, expertise and experience on an annual basis.  Your employer puts a value on you and so too should your household.   You may well be the biggest ‘income generating asset’ in your household because your efforts generate the essential cash that pays for all current expenses, such as mortgages, food, children’s education, as well as saving for future expenses when earned income stops in retirement.

Once you have established what you are worth today, you need to understand what impact a reduction or complete loss of income would do to your household.  A partial or total cessation of income can destroy an existing financial position and ruin any plans for the future.

If we assume that you are capable, competent and in demand, the single issue that will bring all your dreams crashing down is ill health.  It doesn’t matter how good you are at your job or how enthusiastic you are about doing it, ill-health or worse death will prevent you doing it.

Money that has been diligently saved over a number of years is very quickly spent if your earned income stops. Until an individual has a significant body of capital to fall back on or even generate sufficient income from, pooling risk using insurance is a cost effective way to avoid short term financial problems.

The Protection Solution

So what could happen and what cover can you put in place to repair or alleviate the potential damage?

1.            Death (life cover)

Abraham Lincoln was half right: you can actually mitigate a fair bit of tax but we still can’t help clients avoid death. Cheat it, put it off perhaps, but avoid it – definitely not.

Putting Lazarus aside for the moment, there is no come back from death.  It kills your income.  If you are single with no debts or dependants, death isn’t really too much of a concern.  Conversely, leaving secured debts and people behind who depend on your income to survive will have damaging consequences. Fortunately, a simple life cover policy means that causing financial hardship for others on death is now unnecessary and preventable.

2.            Near Death (critical illness cover)

Two hundred years ago if you caught a cold you were done for; even today most modern sneezes are followed by the mandatory blessing.  Nowadays modern medicine attempts to keep us alive no matter what, if you speak to most of the retired community they are more machine than man.

These days we face illnesses that don’t kill us but render us less capable of functioning to our full capacity; this can lead people to conclude that they would be better off dead.  In situations like these, a backup, replacement income to bridge the gap or an injection of capital in the form of a lump sum to clear debts or boost retirement assets can have a huge influence on quality of life.

3.            Ill, but none of the Above (income protection or sick pay)

So your not dead, even your boss should be able to tell this, and you have managed to avoid getting anything that would render you critically ill; what if you are off work with a sporting injury or stress?  You may be unfortunate to suffer ill-health that keeps you off work for a short or prolonged period of time. Income Protection policies provide a solution here by paying out a monthly income during sickness at a level similar to net earned income.

4.            The alternative NHS (private medical insurance)

When you have adequate and necessary provision in categories 1 to 3 above, and some money left to spend to hedge more risk, it is worthwhile looking at private healthcare.  For many this cover is first on their protection wishlist and yet this is the main area in which there is a viable state alternative, which you have already paid for:  the NHS.

Summary

Rather than insuring the i-pad, insure the income that bought you the i-pad, then insure the i-pad.  Be proactive, not reactive when it comes to your protection needs; no one will give you cover when it is too late.  When you have all the cover you need, you can relax knowing you couldn’t have done anything more.

Conclusion

Paying for insurance is unexciting but vital; it is a necessary companion on the road to riches, and something you can disregard when you have more money than you know what to do with.  The reasons for taking out different protection contracts have not changed over time because what can happen to us as humans hasn’t changed: we die, we get a little bit sick or very sick.  A relevant, affordable suite of protection products won’t cure all ills, bring people back to life or change the course of history; what it should do though is push the issue of money down the agenda when tragedy strikes and is the last thing you want to think about.

Holistic financial planning looks at the income and capital you have now, and how best to use this to ensure that your lifetime financial objectives become a reality.

Goal-setting and objectives

Let’s be honest, no-one likes setting themselves goals, mainly because the prospect of failure is always present and it involves coming out of one’s comfort zone.  When it comes to money though, most of us want something to show for all our hard graft so setting goals or targets is a means to be able to recognize when our cash is working efficiently.

Before doing something positive with your money it is vital to first establish what lifetime objectives you have.  These need to be realistic and achievable.  These could include private education for children, retiring abroad, starting a business or fulfilling a lifelong ambition.  Not all of our objectives involve money but many will.

Once you have understood your objectives you then need to know at what points you will require money, for example: selecting a retirement age, an age when children might start private school or the target date for a deposit on a second property.  This will allow you to put a timeframe on your goals and give you a target lump sum or income to plan for.

Income and Expenditure

All successful businesses will know how much money they can expect as turnover and the overheads and expenses that are required to maintain and grow that turnover.  Such an approach is no different for holistic financial planning.  Boring as it may be, it is vital to understand your own profit and loss position, the companies you work for or run yourself will be doing this and you should too.  This exercise will tell you whether, you have any disposable income to plan with and also what percentage of your current disposable income is being attributed to what.  For example, spending 50% of your net disposable income on retirement planning may see you enjoy a varied and exciting retirement but would do little to help you fund private education for your children.  Your ability to generate income and lump sums through gainful employment is one of the two cornerstones that any financial plan is built on.

Assets and Liabilities

Now you know what is coming in and what is going out you are in a better position to reassess your goals and the likelihood of their success.  Before doing this you need to write your own balance sheet; this has nothing to do with Pilates but simply sets your assets against your liabilities.  Once you have done this you can assess whether the money you have amassed will meet, help with or have no impact on your goals.  Are you asset rich and cash poor?  Does this even matter?

The Financial Life cycle

How do you know what you could or should be planning for?  As we travel through life we face different financial challenges and our income and capital are put under more or less pressure.  As a basic guide the lifecycle could look something like this:

1) Employed – pre-marriage – this is typically a time when disposable income is in short supply and any spare cash is spent on having a good time.  This is a great time to start planning because premiums will be cheap for young people and starting the term of any investment contract early will always give the best chance of meaningful long term returns.

2) Employed – married – no children – this is the optimum time to start planning and putting money aside.  By now career paths should be clearer and therefore potential future earnings.  This is also the time when there is most disposable income but typically no assets in the early years.

3) Employed – married – with dependent children – starting a family undoubtedly puts strain on your finances.  One worker bee might remain in the hive and disposable income will drop.  It is likely that by now secured debt will be in place and coupled with children means that insurance needs to be high on the agenda.

4) Employed – married – with children in full-time education – it is at this point that any financial plan is feeling the most pressure.  When the family is complete the cost of living is high with larger accommodation needed, cars, holidays, schooling and university.

5) Employed – married – empty nest – now is the time to rebuild the damage created by the beloved offspring and start to repay debts and start to grow the retirement plan.

6) Retirement early years – many find adjusting to retirement quite daunting and worry about running out of money.  It is very difficult to judge how long a meaningful retirement could last before ill health sets in, this can make planning difficult.  A general de-risking of assets is now on the agenda, cash is relied upon and the impact of inflation now starts to bite.

7) Retirement later years – the latter years of retirement can be spent juggling the real or potential cost of some form of care, against trying to decumulate the asset base in favour of family and not HMRC.  As with the early part of retirement you are trying to plan for a timeframe that is not set in stone; this makes planning very difficult.

Changing with the seasons

It is vital that the interconnection between the different financial decisions you make are continually reviewed and adjusted as your situation changes.

What’s the alternative?

Of course you don’t need to follow the holistic financial planning route.  Many people fall in to the trap of doing nothing or what could be described as “scratch card financial planning”.  This is simply where someone collects a series of products and contracts from newspapers, supermarkets, banks and chance meetings with financial advisers; when something unforeseen happens or an unplanned for event materialises – one of these products or contracts is found at the bottom of the filing cabinet and whatever was done years ago, and has never been reviewed since, is relied upon as the solution!  This haphazard style of planning is costly and ineffective.  Don’t leave the success of your objectives to chance; don’t wait until you are 65 to find the scratch card that says ‘retirement’ only to find that you didn’t hit the jackpot!

Summary

In summary, take time to establish and clearly define your lifetime objectives and then fit your finances around those objectives, not the other way around.  Making a holistic financial plan should be fun and should be treated like a bonsai tree as opposed to an allotment: small amounts of very frequent but precise pruning!

PEPs were introduced in 1986 and were replaced by ISAs in 1999. Several individuals who have used their allowance each year since inception have managed to accumulate over £1m in this tax free environment, the so called ‘ISA millionaires’. This highlights the importance of religiously using up your allowance to benefit from years of tax free compounded returns, assuming sound investment choices are made of course.

The allowance for 2011/2012 is £10,680, of which up to half can be used to hold cash deposits. The balance can be used to invest for the longer term in ‘real assets’ such as stocks and shares:

With only a few weeks to go unti the deadline for ISA subscriptions to be used – please contact us if you would like to discuss where best to invest using your ISA allowance.

In case the article on the exciting world of ISAs did not grab your attention in the Standard last night, CLICK HERE to view it online.

ISA season is fast approaching – if you would advice on how to make best use of your allowances this year, please just let us know.

Using some of your ISA allowance to shelter part of your cash account would use up some of the ‘CASH ISA’ element.

Keen to get us all investing in real assets like stocks and shares, the Government allow us to use the remaining allowance to shelter part of a share portfolio or perhaps some collective investment funds. This would use up the ‘Securities ISA’ element.

The decision for many then should not be, ‘should I buy an ISA?’, rather ‘should I be saving in the bank or investing in the stock market?’

It is surprising how many people we meet who have an ISA but did not realise that they hold a basket of FTSE shares via a tracker fund, sold to them by the nice man in the bank!

If you are making provision for the longer term and you are comfortable to invest some cash as opposed to save it, then here are some tips when choosing an ISA:

Investment ISA

• Would you like to select the individual shares yourself (self select) or rather use collective funds to outsource these decisions?
• If using funds then be sure to check initial charges – these can range from 0% to 5.5% on the money you invest
• If you are paying initial charges, what are you receiving in return? Advice, top active fund management..?
• What are the annual management charges (AMCs) or better still the Total Expense Ratios (TERs) of the funds selected?
• Are there any other charges – switching, annual or quarterly fixed costs etc.
• Using an ISA via a platform or wrap, as opposed to a single fund group or bank, will provide access to funds from many different providers, often 1000’s to choose from
• Flexibility: If you later need to take some funds out, what is the minimum amount that must be left in to keep an account open?
• Online access: can you view and make changes to your investments online?

If you are excited about ISAs and want to know more – feel free to drop in or call or e-mail.

From October, starting with major organisations, most employees aged over 22 must be enrolled automatically into a ‘qualifying pension scheme’; individuals can opt out, employers can’t. Companies with no qualifying scheme must take action, failing which they will have to enrol employees into the government-sponsored National Employment Savings Trust (NEST). It is in the employer’s direct interest to examine the alternatives because they will from September 2017 be making a minimum 3% contribution and it is questionable whether NEST will be the perfect choice for them and their employees.

Not one for the back burner
Some smaller employers may think they can leave auto-enrolment on the back burner, because they have heard it is coming in gradually or think that accepting the default arrangement – NEST – will make things easier. That may not be so and it would not be in employers’ or employees’ interests to ignore other options such as a group personal pension scheme. It has been decreed that NEST administration must not be complex, so limited investment fund choice is envisaged – yet there will be a 1.8% levy on each contribution until NEST’s start-up costs have been recovered.

The danger of deferring action on auto-enrolment is that a last-minute decision will not produce the best outcome. Thus, employers of all sizes must start preparing for auto-enrolment now, as companies with 3,000-plus employees will be drawn in during July 2013. There is no let-out even for those with fewer than 50 on the payroll, although the Government has recently announced a delay to implementation for smaller employers, due to the economic climate. So, how best to progress things? Take specialist professional advice as soon as possible, allowing time to put the optimum solution in place. Among the first things to check with advisers is the actual staging date by which registration with the Pensions Regulator and full implementation of auto-enrolment must by law be completed by your business.