How to make the unexpected part of your financial plan

When you set out how to reach your financial goals, you might think about the steps you need to take. Just as important could be considering how the unexpected might affect your financial plan. Read on to find out how the unexpected may affect you and how an effective plan could keep you on the right track.

Personal and economic events could derail your financial plan

Unexpected events in your life could derail your financial plan or mean that adjustments are needed to ensure it remains suitable for you. Personal events like getting a divorce or becoming too ill to work may affect both your short- and long-term finances.

For instance, a divorce may have an immediate impact on your household income, so you might need to adjust your expenses. In addition, it could affect long-term plans. According to research from the Nuffield Foundation, two-thirds of divorces bypass the legal system, which can leave many partners, particularly women, worse off if some assets, like pensions, are overlooked.

Large economic events could also affect your financial plan.

Recently the effects of the pandemic and the following period of high inflation have highlighted how unexpected global events might affect your finances.

Indeed, according to the BBC, 7.4 million UK adults are struggling to pay bills due to high inflation, and 1 in 9 had missed a bill or credit payment in the six months to January 2024 as a result.

Even if your budget has been able to absorb the rising cost of living, it might have affected your finances in other ways. For example, you may find you need to save more money for retirement to achieve the same standard of living.

Unexpected events aren’t always negative either. Some could lead to positive changes in your life or finances. Perhaps you experience a surprise windfall or are planning to get married.

There are several ways a tailored financial plan could help you prepare for the unexpected.

A financial plan will consider your resilience

Often, one of the key steps to building a strong financial plan is to consider what would happen if you faced a financial shock, and then assess how you could reduce the impact.

Common solutions include building an emergency fund so you have finances to fall back on to cover short-term expenses, and taking out appropriate financial protection that would pay out under certain conditions. Steps like these could keep your financial plan on track if you experience an unexpected shock, such as losing your job or being unable to work after an accident.

A financial plan could help you understand the impact of unexpected events

In some cases, it is obvious the effect an unexpected event will have on your finances.

If you’ve dipped into your emergency fund to repair your car, you know how much the bill was and can create a plan for building your savings back up.

However, it’s not always straightforward. For example, if you need to take a year off work because you’re ill, you might pause your pension contributions to help you manage your short-term finances. That could mean your employer also stops their contributions. As your pension is usually invested, pausing contributions could affect the returns and you could face a shortfall when you retire.

As part of your financial plan, you could even model questions you might be concerned about, so you’re able to prepare for them. For example, you might assess what would happen if your:

  • Investments didn’t deliver the returns expected before you retire
  • Income stopped due to an illness
  • Outgoings increased sharply due to rising interest rates.

A financial plan could help you assess the implications of an unexpected event and how you respond to it.

Regular financial reviews could help your plan continue to reflect your circumstances

Following an unexpected event, a financial review could help you assess the impact and decide how to respond.

Making regular financial reviews part of your plan allows you to assess how unexpected events have affected your long-term finances, and what steps you could take to get back on track. By identifying potential issues sooner, you might be in a better position to reduce their effect or you may have more options when deciding how to react.

Get in touch to talk about your financial plan

If you want to discuss how you can make the unexpected part of your financial plan, please contact us. Taking the unexpected and factors outside of your control into account may help you feel more confident about your financial future.

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 investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

The Financial Conduct Authority does not regulate cashflow modelling.

 

 

Hooked on Ripley? Fraudsters may use some of the same tactics to scam you

Two people shaking hands.

The psychological thriller Ripley has received critical praise for its cinematography and writing. If you’ve been on the edge of your seat watching the story unfold, you might have thought “I’d never fall for the tactics of a con artist”, but a scam carried out today uses many of the same ploys and relies on catching people off guard.

Ripley is the latest adaption of Patricia Highsmith’s 1955 novel The Talented Mr. Ripley. In 1950s New York, con man Tom Ripley is hired by a wealthy man to convince his son to return home from Italy. As he embarks on a trip to Europe, Ripley starts building a complex life of deceit and fraud.

It’s not only those who come across Ripley that need to be careful. Indeed, there are many “Ripleys” scamming victims today – according to a report in Money Marketing, more than £2.6 billion was stolen between 2020 and 2023 through investment scams alone. More than 98,500 victims reported crimes, with an average loss of £26,773.

So, here are some valuable lessons you could learn from Ripley to protect your wealth.

Appearances can be deceiving

Ripley gets the opportunity to carry out a scam after Herbert Greenleaf mistakes him for a friend of his son, and then he takes up the charade. Ripley uses his ruthless charm and skills to build a rapport with others to get what he wants.

It’s an important reminder that people aren’t always who they seem. If you receive contact out of the blue, a measure of caution could help you spot a potential scam.

It’s not just people you need to be wary of. A growing number of scammers are posing as legitimate companies.

Which? found that more than 2,000 suspected banking copycat websites were reported in 2023. These websites might look genuine and could dupe you into handing over sensitive information.

Fraudsters might also use text messages, emails, or other forms of communication in a way that looks similar to real organisations to build up a sense of trust.

If you’re unsure if the person you’re speaking to is who they claim to be, don’t be afraid to end the contact and directly call the organisation using the details listed on the Financial Conduct Authority’s register. A legitimate firm will understand why you’re being cautious.

Protect your personal details

Scammers don’t always need to contact you to take control of your assets. If they get hold of your personal information, it might be possible for them to carry out identity theft.

In Ripley, Tom assumes the identity of another person to gain access to their trust fund and enjoy a lavish lifestyle. Modern fraudsters who have sensitive information could gain control of your bank accounts and other assets. Criminals may even take out credit in your name.

Keeping personal details such as your date of birth, current and previous addresses, and passwords secure could reduce the risk of identity theft. If you’re getting rid of old documents, shredding or destroying them before putting them in the bin may be a useful step to take too.

Victims of a scam might not get a happy ending

In the novel, Ripley comes out on top at the end – he’s rich and plans to continue his travels in Europe, although he’s plagued by worries that the consequences of his actions will come back to haunt him.

However, The Talented Mr. Ripley doesn’t have a happy ending for the victims of his scams, and, sadly, that can all too often be the case in real life. Tracking down scammers can be impossible, and you might not recover the assets that have been stolen.

While some banks or other financial institutions might offer you a refund if you fall victim to a scam, they often don’t have to, and many are left out of pocket. Indeed, according to UK Finance, in the first half of 2023, around a third of people who lost money to authorised push payment scams didn’t receive their money back.

So, taking a cautious approach if you’re offered a financial opportunity, even if it appears genuine, is usually a good idea.

You should be particularly cautious if you’ve been approached out of the blue and the person is putting pressure on you to act quickly – both these potential red flags could signal it’s a scam.

Contact us to talk about your financial plan

Feeling confident about your financial plan could mean you’re less likely to fall victim to a scammer. You could also contact us if you’re unsure if a financial opportunity you’re considering is legitimate or right for you. Please contact us 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.

8 fantastic reasons to support local causes for Small Charity Week

A group of women volunteering outside.

Every year, the UK celebrates Small Charity Week. The event’s goal is to raise awareness for the thousands of local causes which make a huge difference to vulnerable communities across the UK and the rest of the world.

This year’s theme is “Resilient Charities for Stronger Communities”, and the movement is encouraging everyone to get involved in helping the small charities that matter to them.

Read on to discover eight reasons to celebrate Small Charity Week from 24 to 28 June 2024.

1. Watch your community improve

People often choose to help a cause close to their hearts. Whether you’re a cat lover helping out at your local rescue or want to give back to a charity which has supported you in the past, the causes you donate your time or money to will directly affect you and the people around you.

By helping out a small charity, you can watch the positive effect your kindness has on your local area or the group of people you care most about.

2. Help society’s most vulnerable

Often, the people turning to charities are desperate and vulnerable. Charities are designed to protect those who have nowhere else to turn, and small charities especially tend to focus on the causes that are overlooked by everyone else.

When you donate your time or money to a small charity, you know that you are helping the people who need it most.

3. It makes you feel good

Although much of the focus of charity work is on the people you are helping, it can also be good to think a little selfishly sometimes.

Not only does volunteering help make the world a better place, but acts of kindness can also boost your mood by helping you feel better about yourself and the world you live in.

4. Earn a sense of belonging

Dedicating your time to a small charity will help you foster a sense of community and friendship between you and your fellow volunteers, as well as the people you support.

By volunteering, you’re not only spreading kindness in your local community but also building strong connections with the people around you.

5. Set an example for others

There is power in numbers. By helping out at your small charity of choice, you may encourage other people to do the same.

In an ideal world, charities wouldn’t have to exist. But the more people there are striving to improve the world we live in, the closer we get to a society where no one is left behind.

6. Get stuck into new opportunities

One of the benefits of helping a small charity over a larger organisation is that you can get more deeply involved in the cause.

A small charity is classed as one that makes under £1 million per year, which means that they often have fewer volunteers and resources. When you offer to help a small charity, you can help change the world while also learning new skills and experiencing incredible new things.

7. Strengthen your personal values

Many people who help charities feel they have a “moral duty” to help people less fortunate than them, which is a sentiment deeply rooted in your personal values and principles.

Having the power to improve the lives of others may come with a feeling of responsibility. Acting on this sense of obligation will help you to feel like you’re living your life true to your beliefs, making your life feel more meaningful.

8. Enjoy tax relief when you donate

A bonus of donating to a charity is that there are some methods to donate tax-free, such as when you donate directly through your payroll. It could reduce your tax bill while supporting good causes.

A financial planner can help you donate to charity as tax-efficiently as possible. Get in touch with us to add charitable donations to your financial plan, so you can save money and the world at the same time.

Please note:

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

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

5 powerful tips that could help women close the investment gap

Two women talking and drinking coffee.

Women are less likely to invest than men – in fact, more than a third (37%) of women don’t invest at all. There are many reasons for the gender investment gap, and it could widen the wealth gap.

According to an Aviva survey, men are almost twice as likely to invest in a Stocks and Shares ISA, self-invested personal pensions, and general investment accounts.

The decision not to invest might seem like a small one, but it can have a significant effect on wealth creation over the long term.

The research found that women are more likely to use a savings account to hold their money. However, interest rates are often below the rate of inflation, which means cash is likely to be falling in value in real terms.

The Bank of England states that between 2013 and 2023, the average rate of inflation was 3% a year. So, if you added £10,000 to a savings account at the start of 2013, you’d need to receive more than £3,400 in interest over the next decade simply for your savings to have the same spending power.

In many cases, savings won’t have delivered the interest needed to maintain their value in real terms.

One way to grow your wealth in real terms could be to invest. Historically, investment returns have outpaced the rate of inflation when you take a long-term view. As a result, women being less likely to invest could have a profound impact on their wealth

If you’ve not taken the plunge and started investing yet, here are five useful steps that could help you.

1. Recognise when investing could be useful

Investing could provide a way to grow your wealth, but it’s not the right choice in all circumstances. Recognising when you might benefit from investing may help you feel more confident about your decision.

The Aviva research found that 6 in 10 women have a savings account. A cash account could be useful if you’re saving for goals that are less than five years away, as investment market volatility often means it’s not suitable for short-term time frames.

So, setting out what you want to achieve with your money could help you assess if investing or saving is the right option for you.

2. Create an emergency fund before you invest

9% of women said one of the reasons they didn’t invest was because they worried that they would need to withdraw money urgently. Taking steps to build a solid financial foundation could ease these concerns.

For some, that might mean adding money to an emergency fund so you have savings ready to dip into if you need to access money at short notice.

3. Get to grips with investment risk

All investments carry some level of risk. It can be a daunting prospect at first and the risk of losing your money could put you off investing. Indeed, almost 1 in 5 women who don’t invest said it was because the risk is “too high”.

While there is investment risk, the level varies. As a result, you can choose investments that have a risk profile that suits your situation and how comfortable you feel. Understanding your risk profile and that of different investments could give you confidence to take the plunge and start investing if you’ve been putting it off.

4. Take some time to learn how investing works

10% of women responding to the Aviva survey said investing was “too complicated” and 6% said they didn’t know where to start. Investing might seem complicated at first, but you can learn the basics and boost your financial confidence.

Essentially, when you invest, you buy an asset that you believe will increase in value over time. When you buy stocks or shares, you’re buying a small part of the company they are from. As investment markets can rise and fall, it’s often wise to take a long-term view when investing, such as a minimum of five years.

While you can choose individual assets to invest in, a fund removes some of the decision-making from investors. An investment fund pools your money with that of other investors to invest in a wide range of companies and other assets in line with its risk profile and criteria.

Another option is to work with a professional, like a financial planner, who could offer you tailored advice and answer questions you might have about investing.

5. Arrange a meeting with a financial planner

A financial planner will help you understand your wider circumstances and how your decisions could support your goals to create a financial plan that’s tailored to you. Part of your financial plan might include investing, and working with a financial planner could provide you with essential support if you’re nervous.

A financial planner could help you assess investment risk, explain why certain investments may be right for you, and even manage your investments on your behalf. If you want to benefit from investing but would like guidance or to take a hands-off approach, finding a financial planner to work with could be right for you.

If you’d like to arrange a meeting to find out how we could help you invest and create a financial plan, please get in touch.

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 investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

How to beat the potential harmful effects of “loss aversion” on your wealth

A man walking on a log.

“Loss aversion” is a type of bias that could affect how you manage your finances. It’s a concept that was developed by renowned psychologist Daniel Kahneman, who won a Nobel Prize for his influential work and sadly passed away in March 2024. To celebrate his life, read on to find out more about loss aversion and how it could impact you.

One of Kahneman’s main arguments is that people’s behaviours are rooted in decision-making. He noted that bias and heuristics – the mental shortcuts you make to solve problems – are important for making judgements quickly. However, the downside to quick decision-making is that errors can occur. One of the biases he defined was loss aversion.

Losses are more “painful” than gains

In 1979, Kahneman and his associate Amos Tversky coined the term “loss aversion” in a paper. They claimed: “The response to losses is stronger than the response to corresponding gains.”

In a study, Kahneman and Tversky asked participants if they’d rather have a:

A. 50% chance of winning 1,000 Israeli pounds and 50% chance of winning nothing

B. 100% chance of winning 450 Israeli pounds.

People were more likely to choose option B, despite the potential for larger returns if they chose A. The research found that loss aversion gets stronger as the stake or choice grows larger.

Further research highlighted that loss aversion could affect decision-making skills even when the risk of losing was very low. For example, participants were asked which option was more attractive:

A. A 33% chance of winning $1,500, a 66% chance of winning $1,400, and a 1% chance of winning $0.

B. Winning a guaranteed $920.

Even though option A only had a 1% chance of winning nothing – and the other outcomes were better than option B – loss aversion theory suggests that people are still more likely to choose option B as they think in terms of their current wealth rather than absolute payoffs.

The theory suggests that you’d feel losses more keenly than gains, which could affect how you manage your finances.

2 ways loss aversion could affect your investment decisions

There are many ways loss aversion might affect your decisions, particularly when you’re investing. Here are two examples.

1. Loss aversion may mean you’re more likely to react to investment volatility

If you want to avoid losses, you may be more likely to make knee-jerk decisions if markets experience volatility, whether it’s your investments that have fallen or the wider market. Snap judgements that are based on fear and other emotions could lead to decisions that aren’t right for you.

2. Loss aversion could mean you’re reluctant to let go of assets

In contrast to the first example, loss aversion could mean you hold on to assets even after it made sense to sell them as part of your wider investment strategy because you don’t want to make a loss. In some cases, it could mean the loss grows or that your overall portfolio is no longer aligned with your risk profile and goals.

How to reduce the effect of loss aversion on your financial decisions

Bias affects everyone when they’re making decisions. It can be useful if you need to make decisions quickly based on your previous experiences and information. Yet, when you want to make financial decisions based on logic, there are ways to reduce the effect loss aversion might be having.

  • Try to emotionally detach from your finances

It can be hard to limit the effect emotions have on your financial decisions. After all, your finances are likely to play an important role in how secure you feel and whether you’re able to reach your goals. Yet, not letting emotions rule your decisions could limit the impact of bias.

Avoiding reading the news, which might report on how markets are “soaring” or “tumbling” could help you reduce decisions that are based on emotions rather than facts. Similarly, while it might be tempting to check in on your investments every day, doing so less frequently could help you manage the emotional effects volatility can have.

  • Create speed bumps to slow down

Emotional decisions are more likely to happen in response to a particular event. For loss aversion, you might decide to sell investments after hearing in the news that a “crash” is coming, or after your investments have experienced a dip.

Often, a bit of time to think gives you a chance to reassess your initial decisions and removes some of the bias that may have been influencing you. So, creating speed bumps to slow you down might be useful. For instance, making yourself wait two days before actioning any changes to your investments may provide the space you need to think logically.

There will still be times when you decide acting on information is right for you. A speed bump might mean you feel more confident about the decision because you’ve given it extra thought.

  • Look at the bigger picture

When you’re investing, it’s likely the value of your assets will fall at some point. Looking at the wider picture could help you put the losses into perspective and consider how to respond.

Let’s say a particular stock has fallen by 10% in a week. No one wants to see that when they review their investments, but how has it performed over the long term? If that stock has delivered consistent growth over several years, you may still have made a gain over the long term, and its value could bounce back.

In addition, how has the value of that stock performed in relation to other assets you hold? Gains in other areas might help to balance it out and mean that, overall, your wealth hasn’t fallen.

  • Work with a financial planner

Working with a finance professional may help you better understand when bias is affecting your decisions. Having someone with a different perspective who understands your circumstances and goals may be valuable. They could highlight when you’d benefit from taking a step back and considering alternative options.

Please contact us if you’d like to arrange a meeting with a financial planner. We can discuss how we could support your goals and work with you to create a tailored 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 value of your investments (and any income from them) 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.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

4 compelling reasons you might want to consolidate your pension

A woman reviewing some paperwork at home.

It’s been more than a decade since auto-enrolment was introduced, and now most workers automatically become members of their employer’s pension scheme. While more people saving for retirement is excellent news, it could mean you end up juggling multiple pots.

One option is to transfer one pension to another, known as “consolidation”. It’s usually simple to do and there are many reasons why you might want to transfer a pension. However, there are also some potential drawbacks that you may wish to weigh up first.

Here are four compelling reasons you might want to transfer one pension to another.

1. It could make it easier to keep track of your savings during your working life

With each job potentially providing you with a pension, the number of pots you might need to manage could become overwhelming during your working life. Indeed, according to Zippia, the average person has 12 different jobs in their lifetime.

Keeping track of several pensions can be difficult. Not only could it make calculating if you’re on track for retirement challenging, but it may be easier to “lose” some of your savings too. According to Aviva, there could be as many as 2.8 million lost pensions in the UK, with a combined value of £26.6 billion.

Consolidating your pension could make handling your retirement plans easier during your working life.

2. Fewer pensions could make creating a retirement income simpler

Similarly, managing multiple pensions in retirement could also be complicated. If you’re juggling several pots, you might need to consider how to spread withdrawals across them and regularly review how the value of each one has changed to ensure withdrawals are sustainable.

Transferring your pensions could make the decisions you make once you retire simpler and your finances easier to manage throughout the next stage of your life.

3. Pension consolidation could reduce the fees you pay overall

Usually, you’ll pay a fee to your pension provider for running your pension scheme and investing on your behalf. This may be a set amount or a percentage of your total pension pot.

Fees vary between providers, so it may be worth reviewing how much you’re paying each pension scheme and considering if transferring could reduce the overall cost. Lower fees mean more of your contributions will be invested for your retirement, which could help your savings grow at a faster pace.

4. You could transfer your retirement savings to a scheme that is performing well

Typically, your pension is invested with the aim of delivering long-term growth. So, transferring your money to a scheme that has investment options that suit your needs or perform well could deliver a boost to the value of your pension over the long term.

When you’re reviewing the performance of your pension, remember to focus on the long term. Short-term market movements may affect the value of your pension, but over a longer time frame markets have, historically, delivered returns.

3 essential reasons you might choose not to transfer your pension

While there might be a good case for transferring your pension, there are reasons not to do so too. Here are three reasons you may decide to leave your retirement savings with your current pension scheme.

1. You have a defined benefit (DB) pension

A DB pension, also known as a “final salary pension”, would provide you with a guaranteed income from your retirement date for the rest of your life to create long-term security. They are often generous, and it usually doesn’t make financial sense to transfer out of a DB pension.

You will normally need to receive specialist financial advice to transfer out of a DB pension to ensure you understand the benefits you’d be losing.

Transferring out of a DB scheme is unlikely to be in the best interests of or be suitable for most people.

2. Your pension provides additional benefits

When you transfer out of a pension, you’d lose any additional benefits that come with it. So, it might be worth reviewing what your pension offers and whether benefits could be valuable to you.

For example, your pension could allow you to access your savings earlier, which might be useful if you want to retire sooner, or provide a guaranteed annuity rate when you start to take an income from it.

3. Withdrawing from small pension pots could be useful

Having several smaller pension pots might be useful if you want to access some of your savings and continue to contribute. “Small pots” are usually defined as a pension with a value of less than £10,000.

In some cases, you might be able to withdraw money from a small pot without triggering the Money Purchase Annual Allowance, which would reduce the amount you can tax-efficiently contribute to a pension in 2024/25 to just £10,000, compared to the usual £60,000.

Considering your retirement plans and reviewing each pension before you decide to transfer it to another scheme could help you decide if consolidation is right for you.

You should also note that transferring your pension may come with a fee. Make sure you understand the potential cost before you proceed.

Contact us to arrange a meeting to discuss your pension and retirement

If you’re thinking about consolidating your pensions and would like to understand if it’s the right decision for you, please get in touch. We can provide tailored advice about your retirement plan and how you could turn goals into a reality.

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 not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.