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Are you cash heavy?

29/07/2018

Are you cash heavy?

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.

Fees

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. 

Advice

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.

 

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    Nick | Surrey | 16/01/2019 | 1

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    Phoebe Smith's Response

  • Hello, I really enjoy your website and find it useful and concise. My question is, what is meant by long term savings? I am 54, so what should I consider to be an appropriate time frame for any investment I make, that could supply the best results?

    Jennifer | Essex | 16/01/2019 | 1

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  • From my retirement I received a lump sum of money and a monthly pension. I have £100,000 that I do not need for the foreseeable future... One of my main concerns with Financial Advisers are their costs... All I want is simply to see this money grow to its potential, sensibly and above inflation... Therefore my next thoughts are Stocks and Shares ISAs... My only concerns here are the current Brexit problems - I saw the FTSE drop this past week. I cannot find any information out there to assist with my decision making if this is certainly a good time to invest... I am aware that I can place £20,000 for this year. Come April 2019 I place another £20,000 and so on until the £100,000 has been utilised. Do I have to place it into the same fund or can I choose another different fund with a different company?... Please can you help to ease some of this burden, which has proved an awful part of my retirement and made me frightened to spend any money.

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  • I’ve been investing in Nutmeg’s Risk 10 profile for three years which helped my deposit for my house. I am now wondering whether to use Nutmeg again, or should I use LifeStrategy for my £1000 per month? Is there a difference between Vanguard's LifeStrategy option and let’s say a well known robo adviser like Nutmeg? I am still a beginner and would like to keep things simple, but happy to take risk and prepared to leave my investments for a long time.

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  • I was lucky enough to inherit a significant sum from my father... currently in Alliance trust platform in 10 investment trusts. They have delivered well in the last 20 years. But they are UK equity based. And highly risky. Do you offer a sanity check service for confused individuals like myself? I don’t know what to do...

    Paul | Berkshire | 12/11/2018 | 2

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  • I am 25 and starting to seriously financially plan out my future. I would really welcome a 'sense check' on my thinking as well as some help on which investment choices to make. My goals are: To invest for 15 years - my risk appetite is very high (i.e. I could afford to lose all my money). Goal 1 - More Important: To have an investment pot of £1,500,000. Goal 2 - Less Important: To be mortgage free. My plan is: 1) Open an annual Stocks and Shares ISA each of the next 15 years. 2) Open Share trading/dealing account. 3) Reduce my mortgage term to 6 years by 2025. I appreciate the above is a lot to go though, but I'd welcome any help and guidance.

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  • The recent Metro article which Holly participated in has really inspired me and made me think that investing in shares is something which I would like to do. Unfortunately I am completely thrown about where to start. I would be grateful for any advice you could pass my way. Realistically, I would only have about 2k to invest, so any tips would be gratefully received.

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  • Any advice for two young people trying to get themselves a home? My girlfriend and I are saving for a house together. Currently house prices in our area are a ridiculous £300k. The max we can get from banks is about £220k, meaning somehow saving up a whopping £80k deposit. This would take us about 8 years (and house prices are increasing faster than we're saving!) That's not to mention solicitors fees, stamp duty, the cost of moving, furnishing the house, white goods, and any repairs or renovations. It all just seems impossible!!

    Joe | Buckinghamshire | 23/08/2018 | 0

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    DB | UK | 24/07/2018 | 6

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  • I hope you can help. I recently consolidated two modest pensions into a SIPP in readiness to start UPFLS drawdown in May (2018). Whilst I was hoping for growth in my investments I wasn’t expecting it to rocket and now find I could well be looking at exceeding the lifetime allowance, possibly even before my first annual drawdown in May, and I’m unsure what, if anything, I should do.

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  • What are the differences between income and accumulation income funds? How do you declare income reinvested in a fund on your tax return?

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  • Can you recommend some very basic books for a 69-year-old widow who is now having to manage her money? Thanks

    Martha | 12/04/2018 | 0

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  • I am post-divorce with a good settlement which I have only partially invested. Are there any courses you can recommend? I have sat in a number of meetings with accountants and financial advisers feeling somewhat patronised! I am sure that there are plenty of women in a similar position to me (aged 55!).

    Ellie | 14/03/2018 | 3

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  • How can I find a good financial adviser?

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  • We have four grandchildren (2 English living in UK, and 2 Irish living in Eire). We have decided to start savings plans for their futures. Their ages are 18yrs, 11yrs, 8yrs and 4yrs respectively. My age is 75yrs, and my wife is a little older. What should we do, please?

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  • My mother is 84 and has around £35,000 in cash, realised when she moved to a smaller house. She would like to invest it and draw income that would be slightly higher than the natural yield - say around £2,000. What is the best vehicle for that please?

    Ed | SXE | 18/09/2017 | 4

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  • I have just sold my house and have a significant sum of money I want to invest. I may want to draw some income but also want to achieve capital growth. Are there funds that aim to achieve both or should I just invest for growth and draw money as I need to for income?

    Jon | SRY | 13/09/2017 | 1

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  • I have a delightful 12 year old daughter and she has just opened her first bank account. I am dreadful with money but I would like to know what I should teach her so that she does not pick up my bad financial habits. Do you have some top tips of things to teach our children so they are wise and responsible with money please?

    Louise | Greater London | 11/09/2017 | 1

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  • I am interested in the Fund piece that Holly refers to in today's Money Supplement in the ST’s with 'Lindsell Train Global Equity'. I am looking for a fund for myself (54 yrs old) but also my son (19 yrs old). Is this fund suitable for either of us with an investment strategy of 10 years +.

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  • I am looking for a fund for myself (54 yrs old) but also my son (19 yrs old). Is this fund suitable for either of us with an investment strategy of 10 years +.

    | 29/05/2018 | 3

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    R | Greater London | 29/05/2018 | 1

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  • Given the recent poor performance in Woodford Equity Income, do you think I should sell it or wait for the fund to recover?

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