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Why even financial planners need financial planning

You may find it surprising to learn that even financial planners use financial planners. Surely, they know it all already, don’t they? Don’t they just follow their own advice?

Let’s look at why advisers sometimes find it helpful to sit on the opposite side of the desk.    

To clarify goals 

Setting clear goals is hard, no matter who the person is! If you’re doing it on your own, it’s all too easy to set vague objectives that don’t really challenge you. After all, who will know, or care, if you reach them? You can also easily let the timeframe drift – one year, five years, never. 

Another independent professional, however, will bring your goals into sharp focus and make sure you really consider the level of risk and the possibility of failure. But they’re also likely to push you a bit and encourage you to commit to challenges that you might never have even considered if left to your own devices.     

Goals are also likely to involve other people; spouses and families. So financial planners can often welcome using someone experienced in facilitating these discussions, just as they moderate them for their clients.        

To be held accountable

Just being aware that someone is going to review your progress on a regular basis means you’re more likely to take it seriously. It’s human nature. Think back to school when you had to present something in class, or if a parents’ evening was looming. Or at work when a project is going to be analysed in a meeting.            

It’s invaluable to know that a third party is going to review your goals. Knowing you’re accountable to someone keeps you on track and helps performance. It’s also useful to know there’s someone reminding you of what you deemed important at the outset. 

To stop emotions getting in the way   

No matter how qualified an adviser may be, when it’s their own situation it can be difficult not to get too close but to stay detached. Doing the financial stuff may be relatively easy for them; it’s what they’ve trained for and become qualified in. The harder part can be making sure they don’t get emotionally involved in their own investment decisions, which is where having an independent third party can be invaluable.

Sources

https://medium.com/@behaviorgap/between-me-and-stupid-2947498ddad4

What will the new normal look like?

The Covid-19 outbreak has provoked a crisis of such enormous proportions that things will not just go back to the way they once were. When some semblance of normality emerges, things will be different. We are set for huge social, cultural and economic changes. It’s unlikely that we will suddenly wake up in a world where anxieties around the crisis have vanished into thin air. Rather, a new normality will gradually emerge from its ashes during a transitional period that could last for an extended amount of time. 

As lockdown restrictions are eased, it’s probable that we will enter a phase where life will hang between normality and lockdown. The government may again assert its need to tighten the rules depending on infection rates or the capacity of the health system. The operation of some businesses may be severely restricted and some social distancing rules may remain for some time. In short, we are not going to be able to draw a line in the sand behind coronavirus when the lockdown ends, as much as we may like to.

How the world will look after the outbreak is difficult to call. It depends on many factors, for instance whether or not countries are able to reduce infection rates around the world, and how long it takes scientists to formulate an effective vaccine.

However, there are a few changes that we can infer from what we have already seen during the crisis.

Working culture seems set to change for good. For many, social distancing has seen a complete shift to working from home. Technologies like Zoom and Slack have enabled many to move seamlessly into this way of working. If employees can maintain the same kind of productivity while working from home, there will probably be a large shift towards remote working in the long run. 

The impact of large scale remote working would be huge. London and Manchester would no longer see their daily deluge of commuters from the surrounding area. Experts have hinted that this could change the entire makeup of the country. Rural villages and suburbia could again become a centre of working life. Big city offices may only host a businesses’ core staff and be used occasionally for whole-company events. Flexible office spaces or co-working spaces could become a regular feature in suburbs, towns and villages.

The Covid-19 outbreak also looks set to accelerate the country’s shift to becoming a cashless society. People are being discouraged from using cash as it’s thought that cash can carry the virus, raising the risk of transmission. The crisis may mean that we are increasingly accustomed to using contactless to make transactions and this could continue even after a vaccine is found. 

Sources
https://www.thersa.org/discover/publications-and-articles/matthew-taylor-blog/2020/04/transition-covid-lockdown

https://www.stylist.co.uk/long-reads/life-after-coronavirus-predictions-uk-work-health-relationships-politics-climate-change/372608

What questions should you be asking before you access your pension?

According to HMRC, record numbers of people have been taking money out of their pensions since the beginning of the year. 348,000 people made a withdrawal between January and March, a 23% increase from 284,000 in the same quarter in 2019. The value of the payments was £2.46bn, the highest amount recorded for that period since pension freedoms began in 2015. 

Given these uncertain times, you too may be considering accessing your pension to increase your disposable income and ease any financial pressures. The rules allow you to take out as much as you want from your pot, once you reach the age of 55. The first 25% withdrawal is tax-free while the remaining 75% is subject to your marginal rate of income tax.  

However, just because the freedoms are there doesn’t mean taking them is the right course of action. Here are some key considerations: 

Are there any other savings you can use before you tap into your pension?    

Accessing your pension is a major step. Make sure you’ve explored all your other options first. Have you accessed any government grants that you may be eligible for first? Have you got any other cash savings that could tide you over?   

Remember that if you have a defined contribution pension, a significant proportion of it will probably have been invested in stocks and shares, which will have taken a hit in recent months. So if you access cash from your pension during the current downfall, that money won’t have the opportunity to regain its value once the stock markets recover.     

How much do you really need? 

The purpose of a pension is to give you enough money to live off throughout your retirement. Whatever you take out now will influence what you have to live off in later life. That’s why it’s a good idea to try and leave as much as you can in your pension so that it has the opportunity to benefit from future market rises.  

Most people take the whole of their 25% tax-free lump sum when they first access their pension. But you can take out money from your pension in stages, in line with what you actually need. This way you have a smaller tax-free lump sum at the outset but further tax-free entitlements throughout your retirement. It’s important to seek advice as to what is best for your personal circumstances.     

How much tax will you pay?

It’s worth being aware that by taking a large amount of your pension in a particular tax year     you could be tipping yourself into a higher tax bracket, meaning you will pay more tax than you would have done if you’d taken smaller amounts over a longer time.  

Another consideration is that HMRC will ask your pension provider to deduct income tax when you take an income from your pension pot for the first time (not counting your tax-free lump sum). They will assume that what you take the first month is what you will take every month, which could again push you into the higher bracket. If you haven’t been taking that every month and are a basic rate taxpayer, you can claim the extra tax back.        

Want to continue to pay into your pension in the future?

You may just be focused on accessing some funds for your current circumstances. It’s important to realise, however, that if what you take now is above the tax-free limit, you could be restricting how much you and your employer will be able to contribute to your pension fund in the future. According to the Money Purchase Annual Allowance, your joint contributions cannot exceed £4,000 a year without incurring penalties.           

If you’re considering accessing your pension, do get in touch with us to discuss the implications.    

Sources
https://www.yourmoney.com/retirement/aged-55-or-over-questions-you-should-ask-before-accessing-your-pension/
https://yourmoney.com/saving-banking/savings-market-awash-with-pension-freedoms-cash/

Ways to promote your wellbeing

The general uncertainty in these current times heightens our stress and anxiety. Usually, we like to feel in control and make plans for the future but it’s impossible to plan when there are so many unknowns.  

We’ve never been in this situation before. We don’t know what the new ‘everyday’ will look like. And so we feel uneasy and worried.

Here are a few helpful pointers for maintaining a positive outlook.            

Adopt an attitude of mindfulness

Stay in the moment, if you can. You can’t control the future so don’t even try. Just focus on the  here and now. If you can improve your positivity, it will help boost your immune system, reduce stress and increase your energy levels. Changing the way you frame things can also help: for example, instead of viewing the situation as being ‘stuck indoors’ see it as an opportunity to finally tackle a long overdue project.               

There are some great apps that can help with your mental fitness. Sign up for a free trial with Calm or Headspace. These are full of useful tips and resources on how to reduce stress, improve sleep and live better. Check out the meditation and mindfulness techniques. If you’re a business owner, the business version is also useful to help reduce stress at work and build up resilience among your teams.  

Get a good night’s sleep – regularly

Lack of sleep is known to be a major factor in poor mental health. The body’s natural rhythm gets out of kilter if it is not being reset every day through a regular sleep-wake pattern. Perhaps not surprisingly,  many people have been struggling to sleep properly since the outbreak of the pandemic. This is partly because their routine has been disrupted and their day lacks structure.

So try and go to bed at your normal time and avoid naps during the day. If at all possible, try and ‘park’ your stress at bedtime. Reassure yourself that there’s nothing more you can do for now. Tomorrow will be a new day. It’s a good idea to limit the number of news bulletins you watch. Unfollow accounts on social media if you find them unhelpful. You can also mute certain words on Twitter if they trigger anxiety.   

Stay active (physically and mentally)  

Make sure you get outside for whatever exercise you can. This will help you sleep better as your eyes will get the vital exposure to outdoor light they need. Your body will then produce the correct levels of the hormone melatonin, at the right time, to regulate your sleep and wake pattern.

Keep yourself mentally sharp too. Now could be the opportunity you’ve been waiting for to learn a new skill. There are a wealth of online courses at Learn Direct or Udemy, from traditional work-related subjects to topics such as reflexology, meteorology or even moon gardening! Time to expand your horizons even if you are at home more.   

Sources
https://www.bbc.co.uk/news/newsbeat-52311643
https://sport.leeds.ac.uk/5-ways-to-lockdown-your-wellbeing-boost-positivity/

How to reduce your monthly expenses

Many workers have lost their jobs, accepted part-time hours or been put on furlough as a result of the economic disruption caused by COVID-19. According to the Centre for Economics and Business Research, British households will see a drop in their disposable income of £515 a month – that’s £14.2bn for the country overall.

So what steps can you take to bring down your monthly outgoings? 

Review your TV subscriptions

With all major sports fixtures having been cancelled, you’re not going to be getting much out of a BT Sports or Sky Sports subscription at the moment. Investigate what options are available with your provider, such as a month’s free credit, a donation to the NHS, a different package or a temporary suspension. If you’ve been binge-watching films, check out which package between Netflix or Sky suits you best – and which has the most free extras. Remember, if you’re over 75, the charge for the TV licence, due to be implemented in June, has now been postponed to August.                                      

Look into remortgaging

The largest household bill for many people is their mortgage so reducing this can have a major impact. Bear in mind, most of the best mortgage deals are for a limited period so if you’re coming to the end of yours, or your property has gone up in value, it’s worth investigating what else is available. Remortgaging could save you a hefty chunk off your monthly expenses, especially with interest rates being so low at the moment. You may also be able to borrow at a lower loan to value (LTV) rate now, because you may own more of your property than when you took out the mortgage originally. 

Make sure you’re not just moved to your lender’s standard variable rate at the end of your current deal. You can, in fact, agree to a new rate six months before the end of the fixed-term so if your existing deal ends this summer, start taking proactive steps now. 

You may also consider contacting your lender for a three month mortgage payment holiday.  

Switch suppliers

You may well have noticed your energy bills going up as you’re spending more time at home. So this is a key area to try and save some money. Consumer watchdog, Which?, state that a household that uses an average amount of energy would save £388 per year if they switched to the cheapest deal on the market from the one at the level of the price cap. So if you’ve never switched supplier or you’ve not changed supplier in the last couple of years, you’re probably paying too much. Take the opportunity now to try one of the price comparison sites. Bear in mind though, that it’s worth digging a bit deeper than the initial list they present. 

Talk to your broadband supplier too and try and negotiate a better deal or think about switching providers to benefit from some of  the cheap introductory prices on offer. Many phone providers have also been offering free allowances so check to see if you’re entitled to any free data or minutes. 

Think about car insurance

You won’t be making as many journeys in your car. As a first step, ask your insurer to change your policy from commuter use to social use which may reduce your premiums. But Admiral, the UK’s largest insurer, has already given their customers a £25 rebate. This has prompted MPs to call on the Government to get other providers to follow suit. So while you’re talking to your insurer, ask them what they are prepared to do in these very different times.      

Sources
https://www.which.co.uk/news/2020/03/coronavirus-tips-to-cut-costs-on-subscriptions-shopping-and-household-bills/

https://www.theguardian.com/business/2020/apr/20/british-households-face-disposable-income-fall-of-515-per-month

How to make the most of a Junior ISA nest egg

As of 6 April, the amount you can put into a Junior ISA (JISA) per annum has increased to £9,000 – quite a jump from the previous allowance of £4,368.

The tax saving this provides makes it an effective way of building up a nest egg for your children if you want to help with a gap year, university fees, or to enable them to get a foot on the property ladder.  

Which type of JISA?

You can choose to put the money into either a cash JISA or a stocks and shares one. Even in these low-interest rate days, the cash ones can attract quite generous rates with some as high as 3.6%. Another advantage is that they don’t have the volatility associated with the stock market, a particular issue at the current time.          

Yet while the majority of JISAs tend to be in cash, experts state that this can be a wasted opportunity. Despite the recent turmoil, the stock market will usually outperform cash savings over the long term. Wealth manager, Jason Hollands, calculates that if you achieved a 6 per cent annual return – which he describes as ‘quite modest’ – a JISA that had £9,000 invested in it each year would be worth more than £290,000 after 18 years. As you can see, once compound interest kicks in, it can have a considerable effect. He estimates that even JISAs that had smaller sums of £50 or £100 a month invested into them would accumulate pots of £19,367 or £38,735 respectively.

So if you’re wanting to use the JISA as a vehicle for a long-term investment to get your child through a degree course or to help them to buy a property, cash is not the most effective way to do so. 

It’s also advisable to invest a regular amount on a monthly basis amount rather than just put in lump sums at specific times. This avoids the worry of knowing whether it’s the right time to invest and also has the benefit of smoothing out the peaks and troughs in share prices.  

Inheritance Tax Implications

Parents or guardians are the only ones who can actually open a JISA but grandparents can pay money into the account. This can be a productive way of using up their annual gift allowance. They do just need to bear in mind the Inheritance Tax rules, though, especially now the JISA allowance has increased. The annual gift allowance on an Inheritance Tax free basis is £3,000 per donor (with one year’s allowance carried forward). Inheritance Tax would be charged on anything over this limit in the seven years before their death. Gifts of up to £250 per person can be given during the tax year as long as another exemption has not been used on the same person.

Once your child turns 18, the JISA becomes theirs. They can either access it directly or transfer it into an adult ISA. This encourages them to develop a lifelong interest in money and helps build up a great investment discipline. In fact, the Government’s decision to increase the JISA allowance was all part of its aim to create a generation of savers.    

The new JISA allowance could mean that your child comes of age on a much sounder financial footing.  

Sources
https://www.thisismoney.co.uk/money/isainvesting/article-8116351/How-build-290-000-nest-egg-child-Junior-Isa.html

https://www.express.co.uk/finance/personalfinance/1256356/junior-isa-allowance-changes-inheritance-tax-latest-news

https://www.gov.uk/inheritance-tax/gifts

The art of armchair travelling

The Covid-19 outbreak has meant that it’s unlikely any of us will be travelling any time soon. However, virtual escapism remains on the cards for anyone with an internet connection. You can now see some of the world’s most amazing travel experiences from the comfort of your chair. Best of all, you don’t even have to bother with flying or crowds of tourists. Don’t let anyone tell you that the lockdown doesn’t have its positives!

Here are some of our favourite virtual tours:

The Louvre

The Louvre is the world’s largest art and antiques museum, and is definitely an essential visit for any culture aficionados. The museum closed its doors on 13 March as Paris went into lockdown but this doesn’t mean that you can’t see some of its world class exhibitions. From Egyptian antiquities to the Galerie d’Apollon, online visitors are blessed with a wealth of cultural gems. You aren’t able to marvel at the famous glass exterior, but you can find out about the history of the paintings and the gallery.

The northern lights

The northern lights are one of nature’s most incredible sights. Caused by electrically charged particles from the sun interacting with the earth’s magnetic field, the aurora borealis can be seen in the world’s most northerly and therefore coldest regions. Well, the virtual tours courtesy of Lights Over Lapland mean that you can see them without braving the biting arctic cold. The tour takes visitors on a five-minute journey through a series of high definition 360 degree videos.

Zh?ngji?jiè national forest park, China

This is a wonder of the world you might not have heard about before. The quartz-sandstone pillars of Zh?ngji?jiè (pronounced jaang-jyaa-jie) are simply breathtaking. These dramatic pinnacles rise out of the thick forest creating a landscape like no other, full of mystery and awe. The interactive video tour allows visitors to see the landscape from a high-definition 360 tour.

Jerusalem, Israel

Jerusalem is blessed with a rich history that dates back to 3000BC and is home to religious sites important to Muslims, Jews and Christians. Israel is currently promoting a series of virtual tours which let you visit many of the city’s religious sites with an informative voiceover that gives you an insight into the history of the city.   

Grand Canyon, Arizona

At 277 miles in length and 1,857 metres deep at its deepest point, it’s not hard to understand how the canyon got its reputation as one of the world’s most breathtaking places. This virtual reality archaeological tour lets you go a little deeper than most other tours. Click on geological features to learn about their formation.

Sources

https://www.theguardian.com/travel/2020/apr/06/10-best-virtual-tours-of-worlds-natural-wonders-everest-patagonia-grand-canyon-yosemite

https://www.independent.co.uk/travel/news-and-advice/virtual-travel-experiences-vr-museums-galleries-national-parks-coronavirus-lockdown-a9409776.html

How to spot fake news

Social media and online platforms are full of misinformation and fake news at the best of times so in the midst of a pandemic, the problem only escalates. Conspiracy theories, fake cures and scams abound – myths that 5G causes coronavirus, that COVID-19 is a biochemical weapon released by China, or that drinking bleach can cure infected patients start to circulate like crazy.        

The power of social media lies in its ability to spread rapidly so the minute we like, share, or retweet something fake, we’re just amplifying it. We’re also more likely to forward something without thinking when we’re scared or angry because we’re anxious to ‘inform’ or protect someone else. 

So now more than ever we need to watch out for fake news. But how to spot what is genuine? And how to stop something going viral? 

Check the source

It’s always good to start from a position of scepticism. Ask yourself, is this real? Look to see who is sharing the information and who has published it. Does the language sound heavily biased or sensationalist? Memes on social media should be viewed with caution. They can often look authentic, especially if they feature a public figure and a quote. But double check the facts – did they actually say that, was it even the right era?   

Look more closely 

Zoom in on a picture to check all the details and confirm whether the location is authentic. Look for shop fronts, billboards, placards, car registration numbers or street signs. Does the language  on the signs in the image tally with the location in the headline? Platforms like Google, Bing, TinEye or Yandex enable you to check when an image first appeared on the Internet so you can tell whether it has been taken recently or it is an old picture doing the rounds.        

Anything odd?

Only the tech companies can really identify a bot account but there are a few things that may ring alarm bells. None of these on their own will mean it’s an inauthentic account but a few  combined begin to look suspicious. So you may see a long string of weird letters and numbers as the handle or username, for example @thedolandld2klht for a fake Donald Trump account. This suggests it has been created by an algorithm. There may be no bio or it may be at odds with the rest of their activity. You can also click on their profile picture and search Google to see if it is genuine or is just a generic stock image. Check through their timeline. Do they post content of their own and engage with other people or do they just keep retweeting content from somewhere else? As a general rule, if you see someone posting 60x times a day on a regular basis, be suspicious.   

If in doubt, don’t share! 

Sources
https://www.bbc.co.uk/news/av/stories-51974040/fake-news-and-how-to-spot-it

Is the UK mortgage market still open for business?

You may be wondering what the current situation is with the mortgage market. Have providers stopped lending altogether? Are all new mortgage deals off?  

It’s true that some providers have withdrawn their higher loan to value (LTV) mortgage products.  Nationwide, Santander and Skipton Building Society have recently announced that they’re only going to be offering loans to borrowers with a 75% LTV ratio. So only people who have a 25% deposit or equity in their home will be approved for a mortgage.   

Other lenders, including Barclays, Halifax, Virgin Money and The Family Building Society, have gone even further, reducing the LTV ratio to 60%, while the Coventry Building Society has reduced thiers to 65%.   

As a result, first-time borrowers or those with low equity in their homes won’t be able to proceed with their plans.  

Support for existing customers

Nationwide has stressed the change in policy won’t affect deals in progress. In fact, they say the step has been taken so that they can focus on helping existing members to process ongoing applications.They will still be offering mortgage deals of up to 95% LTV to existing customers.

It’s hoped the changes will be temporary but they were taken to limit new applications so that  providers could concentrate on their existing customers. Many are dealing with thousands of calls from worried borrowers requesting mortgage payment holidays while at the same time coping with staff shortages due to the virus. In addition, as valuers can’t get out to see properties under the current restrictions, it’s not possible for the more complex property purchases to go ahead anyway.  

What’s still possible?            

Despite the difficulties, however, industry experts stress that the mortgage market is very much open for business. Lenders are still working with existing borrowers, advisers are still contacting existing clients to offer support and conveyancers are still communicating with people over whether their housing transaction will complete. Mortgage products are still available, albeit with lower LTVs, and online or automated valuations are still possible for some cases. 

So no one should feel that the mortgage industry is in lockdown. Providers are urging anyone who is concerned to talk to them, whether it’s about taking a mortgage holiday, reducing a payment, remortgaging, doing a product transfer or even starting a mortgage journey. There are many options available, even in the current circumstances.  

Sources
https://www.bbc.co.uk/news/business-52106119

https://www.financialreporter.co.uk/blogs/e-mortgage-market-is-as-far-from-lockdown-as-it-is-possible-to-be.html

Technology bringing the generations together

One positive outcome of the crisis has been the way technology is helping us to stay in touch  with each other, especially across the generations. Various apps are playing a vital role in keeping us entertained in lieu of all the social events and sporting activities being cancelled.   

As staying in becomes the new going out, we’ve highlighted a few ways to keep you connected.    

Video conferencing – not just for work!         

Zoom, Microsoft Teams and Google Hangouts may be effective for those working from home but it’s the video chat app, Houseparty, that has soared in popularity in recent months. 

It’s thought to be more spontaneous than the other apps as it allows you to mimic an actual house party, with friends chatting in different rooms. Previously popular with millennials and Generation Z teeenagers, adults now want to make use of Houseparty for their own connections.    

It’s getting to the point where people are attending more events in the virtual world than they were in the real one. You know you’ve really made it when you’re double booked for two online drinks parties or AperiTVs!

Inspirational ideas on Instagram 

You’ll find many celebrity chefs have taken to Instagram to offer free cookery classes during lockdown. There are lessons on everything from how to cook the perfect curry to how to bake your own bread.

Likewise, famous musicians are giving free ‘virtual’ concerts or even guitar lessons. And, of course, you can recommend your ‘favourite finds’ to friends and family. Why not challenge each other to mini contests, such as who can decorate the best cupcakes?             

Family time  

Regular video calls over FaceTime or Skype are a great way for all the family to keep in touch. Think of novel ways to make this inclusive. We heard of one family, for example, who deliberately arranged the call for lunchtime, propping the tablet up at the table so that it felt like they were all still sharing the meal together.     

Encourage grandchildren to show their grandparents what they’ve been up to. Get them to share stories, music or their artistic creations. Set up a board game challenge. You’ll no doubt find the youngsters can sort out any technical difficulties!   

Keeping fit – online

If you’re worried about what all those baking tutorials might do to your waistline, there are plenty of online exercise classes to sign up for. Joe Wicks has taken the nation by storm with his  YouTube daily P.E.classes. Originally aimed at children, these have proven equally popular with parents and grandparents. Enterprising local gyms and fitness instructors are also offering their usual classes in strength training, pilates and yoga online, so you can stay fit but keep in touch with fellow members at the same time.  

Technology is helping us to keep in touch in new ways with our friends and family through these strange times. Will the tools, which we are embracing now, represent a lasting shift in how we communicate in the future? 

Sources
https://www.ft.com/content/c7ce2ad3-7276-4d8a-9deb-21acca871082