If you are worried about your retirement provisions, the state of financial institutions, and the financial future of your loved ones then you are not alone. In fact, you are typical of today’s investor. In the spirit of solidarity HealthWealthLove.com have compiled a list of the most common financial concerns and expert advice on how to address these issues.
1. The here and now
One in five people in the UK would rather have £200 now than £400 in four months time, according to a survey by the Money Advice Service (MAS). The Government-backed body also found that one quarter of the population say they would rather live for today than plan for tomorrow. The economic downturn is said to be the root cause of this “live for now” culture. Resulting in more than 12 million Britons saying they have no savings.
Those who do save, take a short term approach to saving. 46 per cent of people surveyed by investment manager, Blackrock, said they were saving for a rainy day. 38 per cent of people prefer to invest for the short-term (one to three years), and 31 per cent are saving for a holiday.
In the US, 47 per cent of investors were holding onto cash largely ‘in case of an emergency’, suggesting they are not investing for their long-term needs. And over 90 per cent of investors in the US, said it was important to them to have enough cash holdings to emergencies.
Set a weekly goal of saving a small amount of money that you would otherwise spend on a non-essential. If you find that you can manage comfortably, increase that weekly amount. Do not keep this small amount in your wallet as you will invariably spend it. Instead put it into a jar or piggy bank or a real bank.
Use saving accounts, cash ISAs and saving bonds, as these allow easy access to cash, but give you a better rate of return than stuffing money under your mattress. Cash ISAs and saving bonds are easy to do DIY using comparison sites and tables. For the UK, a good unbiased table is provided by the Money Advice Service (MAS).
2. The financial future of loved ones
The latest UBS Investor Watch found that the second largest concern for US investors was the financial welfare of their loved ones, especially their children and elderly relatives. The survey found that a significant number of investors (four in five) are providing substantial financial help to relatives.
A survey by Saga, the over 50’s service provider, found that three million parents in the UK still have adult children living at home. The average age of these ‘failed fledglings’ is 27, and one in seven are reported to be 31-40.
Meanwhile, inheritance and retirement funds are being decreased significantly by the cost of health or social care for elderly relatives. Research by NFU Mutual, reported in the Telegraph, concluded that as many as three quarters of people who go into residential care might eventually sell their homes to pay for it. Whilst two million elderly people have had to use their savings to pay for care over the past five years.
Some experts advice tough love with adult children, forcing them to stand on their own two feet will prevent them from being a financial drain. However with the employment rate for graduates and young adults low your children’s ability to be financially independent is hindered by the current economic climate. Allowing your children free rent in the family home rather than footing the bill for them to have their own place will certainly reduce the financial drain. Just do not make home too cosy or they will never leave.
In France and Italy where older generations move in with their children the financial drain of residential care and the loss of inheritance is reduced. Reportedly, half of France’s population and two thirds of Italy’s population prioritise and plan to care for their elderly. In fact there are financial gains to a multi-generational household those who are working do not have to pay for outside child care, and the older generations save on household bills and, in time, social care.
3. Lack of trust in financial institutions
Only five per cent of people in the UK claim to trust the financial service industry, according to the latest Blackrock Investor Horizons Survey. Whilst over 50 per cent of investors say they would rather trust family and friends for financial advice.
This attitude is not unique to the UK. A worldwide study by CFA Institute and Edelman Investor Trust found that only 53 per cent of investors in the US, UK, Hong Kong, Canada,and Australia trust investment firms to do what is right. Whilst a Deloitte Center for Financial Services study found that only 15 per cent of people polled in the US trusted financial advisers.
Getting financial advice from a reputable, knowledgable, certified adviser is the best way to ensure a secure financial future. Anyone can call themselves a financial adviser but few are, so the best thing is to check they belong to a certified regulatory body.
In the UK the Financial Conduct Authority [FCA] regulates firms and financial advisers. By choosing a regulated adviser you are also entitled free access to the Financial Service Compensation Scheme [FSCS]. The FSCS pays out compensation to investors if their financial adviser or firm is unable to pay eligible claims. On the FCA website you can find out whether a firm or adviser is registered by going to the following link:
In the US, where no legal restrictions exist on financial advising, there are nearly 176,000 people who claim to be “financial advisers” according to the Bureau of Labor Statistics. However only 58,000 of those are certified by the Certified Financial Planner Board of Standards. So if choosing an advisers in the US look for CFP credentials. Go to http://www.cfp.net to find a CFP professional in your area.
4. Risk adverse
Blackrock Investor Horizons Survey found that in the UK, less than 1 in 5 investors are willing to take higher risks in order to achieve higher returns. Whilst US investors have not forgotten the significant losses they suffered in 2008 crisis.
According to the USB report US “investors with large cash holdings use cash as a way to reduce their overall risk level, find cash important because they know they are extremely unlikely to lose it, and generally find peace of mind in holding a great deal of cash.”
Experts at Blackrock say that in today’s world of low yield and low interest rates, investors have to go further than before. “We believe that real returns can be found, in particular through high quality equities which pay regular dividends, corporate bonds or multi-asset solutions investing across a number of different asset classes.”
The important thing is to do your research, recognize if your financial plan is beyond your capabilities to manage alone, and take advice from a certified, and independent adviser.
5. Pensions and retirement
The Financial Times recently reported the findings of a recent study by the University of Pennsylvania. The study found that investors and employers in the US struggle to understand retirement investments. Many people are “naive” when it comes to selecting a suitable 401k plan, the study said.
Despite high expectations for retirement funds, the reality is very low or non-existent retirement investments.The average expectation for retirement income in the UK is £27,000 annually, according to the Blackrock. However in reality the average annual income of single pensioners is £13,200 today.
The key to a good pension, 401K or retirement fund is starting early, educating yourself, and building it up by making the biggest installments you can afford.
In the UK, where concerns over the viability of the state pension has been growing, the new auto-enrollment pensions is a way of ensuring that you have a better nest egg than the traditional state pension. Any working individual over the age of 22 who earns more than £9,440 a year is eligible for auto-enrollment. You pay a minimum of 0.8 per cent of your qualifying earnings, your employer contributes a minimum of 1 per cent and the government 0.2 per cent. Starting young is key. The earlier you start, the bigger the lump sum when you come to retire.
For more information on Auto-enrollment pensions, workplace and personal pensions in the UK go to https://www.gov.uk/workplace-pensions
Like the UK, the US Congress is concerned that employees are not saving enough for their retirement. So they have authorized automatic enrolment into a 401k plan with 3 per cent of pay being put into the plan. But this 3 per cent is not enough to ensure a comfortable retirement so you may want to consider increasing your contribution. A good option for getting the most out of your nest egg is the Roth 401K. A Roth 401K involves trading a tax break today for a tax break in retirement.
The finance advice magazine Kiplinger has further advice on increasing your 401k.