Five pieces of financial advice you should probably ignore*.
Nowadays, with the onset of the web, 24-hour news and endless social media channels, it seems everyone has an opinion on any subject you can think of. Don’t get me wrong, I like people with opinions but to take comments and regurgitate them without consideration for context gets my goat.
Next time you’re in a busy environment, in a train carriage, a bar, a restaurant or even at a family get together, just prick your ears up. Christmas is a spectacular time for this. The work environment though, is probably the worst. A range of ages at various stages of their lives, all with a different emphasis on what’s important, yet most advice, particularly around money, seems to be accepted as definitive, regardless of circumstances.
I’m not suggesting you shouldn’t listen to others about money but listening and treating that advice as suitable for yourself is a different matter entirely.
Below are five pieces of advice you should probably ignore:
1) You shouldn’t have all your eggs in one basket.
I hear this a lot. When it comes to investing, I would agree but it is such a general saying. For example, holding money in a wrap account (a vehicle that holds together various types of investments such as NISA’s, pensions, shares etc) delivers significant economies of scale. The more money you hold in a wrap account then, typically, the lower the fees.
Yet, some like to spread their investments around, meaning they do not have a co-ordinated approach and then pay higher fees for the privilege!
2) The Government offers tax advantageous savings so it must be good.
I overheard a cracking conversation at the golf club the other day. Sounds nosey of me but it was loud enough to be heard clearly. The group concerned all convinced themselves that Premium Bonds were for them – the best place to hold their money. All were below the state retirement age. I didn’t intervene but, when you consider the average return for Premium Bonds over a year is currently 1.35%, I did wonder why they were so pleased with this probability.
I get that Premium Bonds are tax-free and, of course, you are in with the chance of winning the £1million jackpot. My issue is placing too much money in Premium Bonds. According to NS&I, the odds of winning a prize with each £1 bond stands at 26,000 to one!
3) Pay your mortgage off as soon as you can.
This is a classic and, of course, is understandable. Most of us have been brought up with this mantra. Not surprising really, with inflation being so high in the 70’s and the memory of interest rates hitting 16% in the early 90’s!
If you are self employed, a business owner or over the age of 50, then it is more difficult than ever to get mortgage finance. Why then pay this mortgage off, especially when interest rates are at such low levels? Obviously, it depends on individual circumstances, but, the mantra doesn’t suit all scenarios.
We come across lots of people who are paying off their mortgage as quickly as possible but we can often demonstrate how higher rate tax payers, with some smart advice and planning, can create tax savings, which can more than cover their mortgage payments. Think about it; the government helping you repay your mortgage!
4) It is dodgy placing money in offshore funds.
There has been a lot of press coverage regarding the likes of Jimmy Carr and, more recently, premier league footballers. There is nothing wrong with planning to mitigate one’s tax liabilities but tax avoidance is illegal. There were many unregulated schemes recommended, often by unregulated advisers, which have come unstuck.
There is nothing wrong with placing money in offshore funds, as long as they are declared. Offshore investments do not pay tax at source and are effectively a parking lot for money until it is decided how and when the money should be used. Bringing money onshore will generally trigger a tax payment but, if brought back at an appropriate time, such tax may be limited.
5) You want to invest in a property rather than a pension.
I hear this all the time. I understand the sentiment and, as an owner of a second property myself, I get the reasoning. There is capital growth potential and, of course, rental returns. You can see what you own.
There are issues, however, many around costs and tax. Similar considerations perhaps to pensions and both are now fair game as the government seeks to raise higher tax revenues.
Thought for the day then…
With parameters changing at a pace, pension freedoms being a prime example, it is more important than ever before to carefully consider your options with qualified professional advisors who can build a plan tailored to you and your circumstances.
Listen to what people have to say, by all means. Understand their motive and background but, most importantly, don’t be a lemming. Amateur advice has its place but is no substitute for professional advice in an ever-changing world.
*This communication is not to be read as giving specific financial advice, which will only be provided following a detailed analysis of individual requirements.