Dutifully watching the World Cup with my son last night, I was amazed as always when up popped a chirpy Betfair ad in the breaks, showing us all how gambling could make us happier, healthier people with whiter teeth. Most investment groups have given up on TV advertising because it’s hard to be jolly after 30 seconds of dire warnings about how investing could ruin your life. It’s easier to peddle gambling than it is to talk about investing.
Cash ain’t King
We live in a world when the regulator’s (understandable) fear of people getting burned by investments has contributed to a cash-heavy environment where many consumers are perfectly wrong rather than approximately right. Yes, cash won’t give you any nasty shocks, but it’s not going to get you very far either. People agonise and procrastinate over when and what to buy in the stock market when actually just getting going with a low-cost simple FTSE All-Share tracker fund or a diversified ‘multi-asset’ fund such as Vanguard’s LifeStrategy or HSBC’s Global Strategy is very likely better than twiddling your thumbs in cash for years. Have a look at 4 multi-asset fund ranges we think are decent here. Or check out what a robo adviser can do.
Yesterday the FCA published a report which looked into retirement savings and particularly drawdown. This is just a pension where you keep ‘skin in the game’ – you keep your money invested in the stock market and take out chunks of money as income when you need it.
Trouble is, lots of people are hitting 55, taking the 25% of tax-free cash you can take from your pension, getting all excited about that lump sum, and just converting to a drawdown pension with whoever they happen to have the account with. Paying more than they need to. And about one-third of people are leaving it all in cash. This is awful! This is like eating some cucumber to prepare for an 8 hour road race. Cash is no longer King. And especially not for the long-term. It’s more like some lowly Baron.
Are you cash heavy?
Most financial planners will suggest we should have 3-6 months’ income in easy access cash. The rainy day stuff. And then it’s down to timeframes. If you’re saving for something with a 2-3 year window, don’t go near shares. If you are pureeing pears for bubby and have a cash Junior ISA for the next 18 years, that isn’t very sensible. How much cash are you sitting on? The average cash balance in DIY portfolios is over 12%. This is high. Is that strategy? Or apathy? Or “waiting for the crash?” I have an ongoing dialogue with someone who has been calling the crash for the last 4 years. He’ll get his day on the telly when it finally happens but his attempts to time the market have cost him.
There are a range of choices today when it comes to pensions in drawdown – some are like Ryan Air (pay for everything you do) and others like the British Airways of old (mostly all-inclusive). People are paying between 0.4% and 1.6% in charges for drawdown. I think there’s no need to pay more than about 1.25% a year all-in. That’s for admin fees and the funds you use. In the future annual charges will need to be disclosed as a single figure. Praise be. Have a look at our Best Buys pages.
There are many things I think we can do without a financial adviser. Chipping in to an ISA can be done alone. But pensions and drawdown remain complex. And financial planning can be hugely beneficial and save us from expensive mistakes. If you want to get financial advice, you should pay between about £125 and £250 an hour depending on where you live and who you see. Ongoing advice costs (now separated from any product sales) will be about 0.5% to 1%. As for qualification, the letters CFP (Chartered Financial Planner) do indicate a high level of competence and are typically a stamp of quality. Unbiased and Vouched For will indicate advisers in your area. This article will share more thoughts on finding an adviser.