At the start of any New Year, people tend to take stock and make plans for the future – holidays, family matters, house moves, cars. A financial review also makes sense at this time.
A few weeks in to 2017 and after last year’s surprises – Brexit, Trump etc – we are potentially at the start of another rollercoaster year, events wise. This week alone saw Prime Minister Theresa May clarify what Brexit means – and this led to the FTSE100 dipping from its new record high, whilst sterling rallied to produce its strongest daily gain since 2008. Earlier in the week, the Governor of the Bank of England stated that interest rates could well move this year – either up or down. And of course the week ended with the inauguration of Donald Trump as US president. The rest of the year promises even more major events and more surprises.
As an investor, it is easy to get sucked in to trying to forecast or second guess events and their outcomes. But as Niels Bohr, the leading Danish physicist, once said “prediction is very difficult, especially about the future”. What you need to do instead is to stand back and take an objective and long-term view, whilst in the short-term look to address the basics to keep your financial plan on track.
So what can you do at this time of year to achieve that? Just a few simple things to start with really.
Firstly, be sensible with your cash. You should make sure you have enough cash to meet both short-term spending needs and as an emergency fund. The real value of cash obviously does not keep pace with the rate of inflation, so do hold cash, but not too much.
Secondly, and particularly after last year’s events, you should look to review and if necessary rebalance your portfolio. Your portfolio may well have skewed towards holdings that have grown faster than the rest, so you should look to realign your portfolio in line with your asset allocation.
Thirdly, use your tax allowances where possible. As well as the annual tax free capital gains allowance of £11,100, there is a dividend allowance of £5,000 and a savings tax allowance generally of up to £1,000. This is on top of the annual Isa allowance – £15,240 in the current year but rising to £20,000 pa from 06 April 2017.
Fourthly, make sure your retirement plans are on track and that you max out on your pension contributions before the end of the financial year, if you can. Also review any old style or poorly performing pension plans and consolidate them if necessary.
Finally, if you are unsure what to do, get some professional financial advice. Some of the above issues are complex and a second opinion can often be invaluable.
For help with your financial planning or a financial review, contact Kellands.