Opinion: Investing in good financial advice will pay dividends
- Credit: Getty Images/iStockphoto
Sandwiched between a convenience store that was once a courthouse at one end and a small off-licence at the other, the remaining retail outlets on our village high street resemble most others across the land.
There’s a large butcher’s shop, a Post Office, a restaurant, small café, ladies’ clothes shop, hairdresser, a haberdashery selling cushions and similar stuff and a newsagent. Most were closed last Saturday morning, shutters down, looking bleak and unloved as I ambled in to one of those displaying an ‘open’ sign to collect the day’s papers and shoot the breeze with Bill, the newsagent.
“I see Tony is finally retiring,” said Bill, referring to a huge sign taking up most of his next-door neighbour’s main window declaring its occupant’s imminent retirement. Tony, the butcher, has been a high street fixture for more than half a century, a lovely chap who happens to make the best sausages you will ever taste.
Will someone take over a shop of that size and keep it as a family butchers, I wondered? It seems unlikely, especially as it transpires that Tony has already sold the property but not his business, effectively removing the probability of buying a few pounds of porkers for the summer barbeque.
What will happen to the rest of the high street is difficult to say, even when our collective liberty has finally been restored in late June. Most shop owners are hoping for an extended consumer blow-out, which seems feasible.
According to figures published by HMRC earlier this week, around 17% of adults have seen their finances improve during the pandemic as the result of a combination of working from home and not being able to go out.
In January alone, the amount deposited into savings accounts by households (£18.5 billion) was more than four times higher than the monthly average of £4.8 billion in the six months before the pandemic began. Unfortunately, however, savers are receiving an average of just 0.42% on their money after the Bank of England base rate fell to 0.1%, the lowest ever.
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Much has been made of the ‘wall of money’ built by UK savers over the past 12 months and it’s reasonable to assume that a sizeable proportion of these funds will be spent once normality returns. However, an equally colossal sum will be saved and invested as people undertake a prolonged (and ongoing) period of post-pandemic financial planning.
But where will they invest? In a recently-vacated butcher’s shop on a quiet village high street? If that doesn’t appeal, how about investing in companies such as airlines whose shares have taken a hammering over the past year? The investment adage ‘buy when there’s blood on the streets’, attributed to Baron Rothschild following the Battle of Waterloo, may roll blandly off the tongue, but it takes a brave person to execute those instructions with his or her own money.
Besides, our investment habits are determined as much by our age as the size of our bankroll.
For example, people in their twenties or thirties have the luxury of knowing that time is on their side; they can afford to take a longer-term approach to investing, which means they can also afford to take more risk. Granted, returns from riskier propositions are often choppier and less predictable, but over time, if returns are re-invested, younger investors can reap enormous benefits.
This approach undergoes a subtle change when permanent commitments, to marriage and children, are made, usually when we’re in our thirties and forties. Experts maintain that investments should continue to have a bias towards shares and equity-based funds, but it’s also a time to consider cash or fixed interest investments should interest rates justify it.
Investment time horizons begin to shorten for people in their fifties and sixties. Pre-pandemic, a traditional investment strategy involved reducing exposure to more volatile assets and moving into safer areas such as gilts and bonds.
Today, however, implementing such a strategy could prove costly, particularly if inflation is allowed to gallop upwards unchecked and interest rates remain anchored at historically low levels . The impact of this nightmare scenario would not augur well for bondholders who would effectively be losing a couple of percentage points of value every year.
This begs the question: do traditional safe havens still exist? Well, there’s always gold, but even the yellow metal’s value has been under threat recently. In early January, for example, gold was valued at £1,434 an ounce; as I write, the price has slumped by 14%, to £1,228. However, exactly five years’ ago, an ounce of gold cost £987, making today’s value 24% higher.
To conclude: people who have recently salted away additional savings, a proportion of which they would now like to invest, should use some of those savings to pay for independent financial advice. It could prove the most valuable investment of all.
THE WEEK IN NUMBERS
- 260,000 - According to Investors’ Chronicle, an estimated 260,000 savers effectively increased the rate at which they pay income tax by dipping into their pensions during the pandemic. Savers who do this trigger cuts their annual allowance.
- 50 - Around fifty staff at online used car seller Cazoo will become millionaires when the company lists on the New York stock exchange. Alex Chesterman, who set the business up in Corby just 18 months ago, will see his stake valued at £1.3 billion.
- Minus £1.50 - Savers who put money into cash ISAs have suffered the worst year on record as returns averaged just 0.63%. Inflation over the same period was 0.78% which means that £1,000 saved in a cash ISA last April has lost £1.50 in real terms.
How long will your retirement pot last?
Read Peter Sharkey’s blog exclusively at www.moneymapp.com/blog