A Staycation Financial Review
Financial Adviser Paul McCormick on why this summer is an ideal time to review your pensions, investments and life insurance.
With the Guernsey summer in full swing, this is usually the time of year when people tend to prioritise getting outdoors and enjoying all the Bailiwick has to offer during the holiday season, rather than talking to their adviser about their finances. In addition, we typically spend a couple of weeks ‘off the rock’ for a well-earned change of scene. This year of course the latter won’t be possible and we are being encouraged to enjoy a ‘staycation’; whether that be a few nights in a local hotel or a making a trip to one of the islands in our Bailiwick bubble.
Although the health and wellbeing of the community remains everyone’s priority, it is important that we fathom how the Pandemic may have affected us financially. So with everyone on-island and with a little more time on our hands, having completed all the DIY tasks and tidied the garden during the lockdown, the summer seems like a good time to review your financial plans.
With that in mind, here are my top tips for reviewing three important areas of your financial set up:
Financial markets have seen the greatest single shock in living memory, and whilst there has been a significant recovery, volatility is expected to remain. It is important to understand how your investments have fared during this period and what the outlook is for the future.
If you rely on income from your investment portfolio (including from your pension), how will it be generated in a world of low interest rates and corporate earnings in retreat? Many income portfolios use Fixed Interest securities such as government and corporate bonds to provide the income requirement but yields have been under pressure for some time now. There is much talk about a move to equities to provide this, however this raises other questions about risk and the future reliability of dividend payments to shareholders. Banks and energy companies used to be the stalwarts of such dividend distributions but this is no longer the case.
One potential financial outcome of the Pandemic is inflation due to supply chain disruption and repatriation of jobs from low-cost countries like China. If you have excess capital on deposit, you are likely to be more exposed to inflation risk in future as rising prices reduce the buying power of your liquid assets. Considering a well-diversified alternative to try and improve returns above inflation is likely to be more important than ever.
Accumulation - If you are still working and saving up for your retirement fund, now would be a good time to check its current and projected value. This can tell if you are on target to achieve the sum you will need to live on in retirement. Are you contributing enough? Can you afford to increase contributions or could you make use of a pause in contributions if your income has reduced during the Pandemic? Are you taking advantage of tax benefits for pensions while they are still available?
As with investments it is also important to review the asset allocation and risk profile from time to time to ensure that your money is invested in the most suitable way to meet your objectives.
Taking benefits - If you are already receiving benefits from your pension scheme and this is by drawdown (usually from a Guernsey Retirement Annuity Trust Scheme - RATS), rather than through an annuity, it would be prudent to check that the income levels meet your current requirements. Payments are generally flexible from a RATS, so could these be reduced if you have sufficient income or cash reserves already, or do they need to be increased if you require more?
Long Term Insurance - Life Insurance, Critical Illness & Income Protection
These protect us financially against death, serious illness or injury if we have a mortgage to pay or young children to raise. They are often taken out when we are young and tend to get forgotten about over the years. As our lives evolve over time, be that through marriage, divorce, bereavement or more simply by children growing up and leaving home, so our needs change in this area.
Whatever the event, it is important to review your long-term insurance products from time to time to ensure their suitability and now is an ideal time to do so.
So as we all get used to the new normal way of life that we’ve found ourselves in, it is important that we make sure that the financial products and services that support us through life are still fit for purpose. This applies to them not only being suitable now, but just as importantly in the future, whatever that looks like. With a bit more time to ourselves and with more time spent in the islands this summer, now is the perfect time to get re-acquainted with your adviser.
For a financial review please contact email@example.com or by telephone on 700155.
Past performance is not a guide to future returns. Please note that the value of your investments can go down as well as up and you could get back less than your original investment.
The information and views expressed in this blog is for general information purposes only and is provided by Gower Financial Services Limited ("Gower", "we"). While we endeavour to keep the information up to date and accurate, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the blog for any purpose.
The blog is based on the opinions of Gower and therefore does not reflect the ideas, ideologies, or points of view of any organisation with which Gower is, and may in the future potentially be affiliated with.
This blog does not constitute investment or financial advice or a representation that any investment strategy or service is suitable or appropriate to your individual circumstances.
Gower will not be liable for any loss or damage including without limitation, indirect or consequential loss or damage, or any loss or damage whatsoever arising from loss of data or profits arising out of, or in connection with, the use of the information contained within this blog.
Gower Financial Services Ltd is licensed and regulated by The Guernsey Financial Services Commission. Company registration number 37312 and has its registered office at Suite E3, Sarnia House, East Building, Le Truchot, St Peter Port, Guernsey, GY1 4EN.