Pension paralysis

Saving not found to be a financial priority for UK workers

Worryingly, pension inertia is rife across the UK with many Britons failing to make saving for their old age a priority as they fall into a short-term saving trap. Saving for retirement is not looked upon as a priority until workers reach their 40s and 50s, according to new research involving a survey of 2,824 employees at medium and large private sector companies in the UK conducted by LifeSight, Willis Towers Watson’s UK DC master trust.

Instead, leisure and general household costs come up on top, with retirement saving ranked to be the seventh most important financial concern for employees in the UK. Additionally, the number of workers with financial concerns has jumped to 52% from the lower percentage of 46% in 2015, while retirement confidence 15 years after finishing work has fallen from 61% to 55% during that time.

Importance of retirement savings
As the younger generations are set to be in work longer than their predecessors, starting to save from an early age is extremely beneficial. For millennials especially, short-term goals are much more important than long-term savings, and so employers have the added difficulty of communicating the importance of retirement savings to them.
However, even with the ranking falling low on list of priorities, it was found that 67% of British workers consider retirement security important, a percentage found to be greater than that of the last two or three years.

Increased pressure on employers
It was also found that 69% save for retirement primarily through workplace pensions. The UK Government expects one million people to opt-out of workplace pension auto-enrolment in 2019. This means 27.5% of members opting out of auto enrolment by 2019, which would be a rise from 21.7% in 2018 and an estimated 10% today – totalling to 13 million people expected to be outside pension saving by then.

The research clearly indicates that employees are looking for their employers to take the lead with their retirement savings, using their workplace pension as their main means of saving. Even though this adds increased pressure on employers, making sure they are communicating effectively with their employees about the options available to them and the importance of long-term savings is a must.

PENSIONS ARE A LONG-TERM INVESTMENT.

THE RETIREMENT BENEFITS YOU RECEIVE FROM YOUR PENSION PLAN WILL DEPEND ON A NUMBER OF FACTORS INCLUDING THE VALUE OF YOUR PLAN WHEN YOU DECIDE TO TAKE YOUR BENEFITS, WHICH ISN’T GUARANTEED, AND CAN GO DOWN AS WELL AS UP.

THE VALUE OF YOUR PLAN COULD FALL BELOW THE AMOUNT(S) PAID IN.

Investing for Tomorrow’s Social Responsibility

If you aren’t already aware, it may not surprise you to know that Investing for Tomorrow are heavily involved with our local community. We sponsor more than one charity and even the local rugby team. Here’s a rundown of recent and upcoming events.

Overgate Hospice

We were very proud to be among the sponsors at the hospice’s annual summer garden party and even more so for their very first firewalk coming up on October 13.

Be sure to like our facebook page to stay updated on new events.

Halifax Rugby League Football Club

We’ve worked closely with the club for some time now and are really happy with the new warm up shirts for the Super8’s games.

Laurence Turner said:

“The club is incredibly important to the local community and we’re a company that is determined to be a positive local contributor wherever we can.”

WhiteKnights Yorkshire Blood Bikes

Our very own founder and managing partner, Laurence Turner volunteers with this local charity to provide free ‘out of hours’ transportation of blood and other vital supplies to the NHS and hospices throughout the region.

Laurence commented:

“I am thoroughly enjoying my volunteering with the Whiteknights and I’m looking forward to many more shifts to come. Juggling work with volunteering hasn’t been easy and in the heat it can be tricky to ride but it’s something I’m very committed to. Helping the charity is extremely important to me; It’s a very rewarding way to give back.”

Later retirement

Workers extend their careers for a multitude of reasons

When do you plan to retire? Saving for your retirement is a lifelong undertaking – and if you want to enjoy a comfortable retirement, you can’t start planning soon enough. The more you contribute to a pension now, the better chance you’ll have of that money growing and funding your retirement in later life.

But the proportion of UK employees who say they will work beyond the age of 65 has remained at three quarters (72%) for the second year running, significantly higher than in 2016 (67%) and 2015 (61%), according to latest research[1].

Nearly half (47%) of those who say they expect to work beyond 65 will be older than 70 before they retire, up from 37% in 2017, while almost a fifth (17%) expect to be older than 75. Workers aged 35–44 are most likely to say they expect to retire after their 75th birthday (27%).

Employees working for longer
A series of economic factors are driving employees to work for longer. The rising cost of living is forcing over 20 million into later retirement[2]. In fact, nine in ten (90%) UK employees say that the rising cost of living is the main reason why they expect to work beyond 65, with 87% saying the same of poor returns on savings due to low interest rates.

Diverse set of workforce skills
Opinions remain divided about the UK’s ageing workforce as it brings a new set of challenges for workers to contend with. Over a third (36%) believe that an ageing workforce might mean that older workers will have to re-train or learn new skills to stay in work, while three in ten (30%) think it could make it harder for young people to move up the career ladder. But more than two fifths (41%) are positive that a mix of older and younger employees creates a workforce with a wider range of skills, which is beneficial for employees and employers alike.

Promoting older workplace employees
This comes as just 6% think the Government is helping to promote older workers, down from one in ten (11%) following last year’s announcement of an increase in the State Pension age[3]. So far, only 13% think that employers are encouraging older employees to stay in the workplace, and little more than a sixth (15%) believe that older people are appreciated and respected in the working environment.

Support for older workers in the workplace can come in many different forms, but often the simplest are the most effective. Nearly half of employees (45%) think flexible working or part-time opportunities are most important when it comes to supporting an ageing workforce. Out of those planning to work beyond State Pension age, 60% say that they would be more likely to work for an employer that offered health and well-being benefits.

Stigma surrounding older workers
The combination of an increase in the cost of living, poor returns on savings and inflation continues to impact the UK’s retirement plans. This is the second year in a row that the findings indicate that more than 70% of the country’s workforce expect to work beyond the age of 65, and there is no sign that this trend will slow down any time soon.
But even as an older workforce becomes more common, the stigma surrounding older workers is proving hard to shake. Employers now have the opportunity to capitalise on the skills of two or even three generations, but only if they address potential generational divides and the changing needs of their employees.

Source data:
[1] Research conducted by Canada Life using ONS Employment Figures, May 2018.
[2] Research conducted by Canada Life using ONS Employment Figures, May 2018.
[3] Proposed new timetable for State Pension age increases, 19 July 2017.

Seize the day – today

Make your vision a reality

Exactly how much you’ll need for a comfortable retirement will depend largely on your cost of living and lifestyle choices. For many people, retirement is about sun-soaked holidays, leisurely rounds of golf and that boat they’ve always coveted.

But retirement is not what it used to be, with more of us working longer to build up our decided retirement income. So it’s essential to reassess how much you’re saving into your pension if you want to make your own vision a reality. For many people, retirement may seem a long way off, and saving into a pension isn’t always a top priority.

But the simple truth is the earlier you start, the easier it will be. If you have less time to invest, then the amount of money that you have to save is likely to be higher to make sure your retirement planning is on track. We’ve provided some ideas to help improve and boost your savings for a more comfortable retirement.

Starting point for your retirement plan
Working out what pensions you already have should be a starting point for your retirement plan. Locate the latest statements you have for all your pensions, including from previous employers and personal pensions. You can also get a forecast of your state pension via www.gov.uk/check-state-pension.

You should be sent an annual statement for each of your pension schemes, including any employer-based arrangements and personal pension plans, even if you are no longer contributing to them. If you don’t have up-to-date statements, you can ask for these to be sent to you. You may also be able to access pension values online via your pension company/scheme website.

Valuing your pension
As well as telling you what your pension is worth now, annual statements will also detail what your pension might be worth at retirement. These forecasts (don’t think of them as anything more than rough estimates) will be based on a range of assumptions including investment growth and inflation between now and retirement.

It is important to consider the effect of inflation because, over time, this can significantly reduce the spending power of your pension.

Cost of your lifestyle
Whether your pension will be enough to pay for the retirement you want will depend on the savings pot you amass, as well as the cost of your lifestyle when you retire.
Working out what income you will need in retirement may not be straightforward, however. Your life in retirement will be different from your working life; some costs may go up, while others will reduce.

You may spend more on holidays and leisure (especially in the earlier years of retirement), but your housing costs may be lower. While you may no longer have the costs of bringing up children, you may still want to help them financially, and there could be grandchildren to think of. In your later retirement years, you could have care costs. The traditional rule of thumb has been a target pension income of two thirds of your salary.

Know your magic number
Having accounted for the State Pension and any defined benefit scheme pension, you need to calculate how much money you will need to save to produce the remainder of your target income. This can depend on factors such as the age you want to retire, income yields available on investments, how much prices rise during your retirement and how long you live for – and how much you have put aside already.

If you contribute through a workplace pension, your employer will also contribute on your behalf, and you could qualify for National Insurance savings using a so-called ‘salary sacrifice’ arrangement. Employer top-ups in particular can significantly increase the value of your pension contributions, so it is worth checking that you are making the most of any workplace generosity offered.

It’s also important to be aware that there is a limit on the size of overall pension savings you can accumulate – currently £1.03 million (for 2018/19, and rising annually in line with inflation) – without facing a hefty tax charge of up to 55% on the excess.

This Lifetime Allowance (LTA) for pensions could also be a challenge for people whose retirement savings are currently less than £1 million, as well as individuals with sizeable final salary pension entitlements. Investment growth and ongoing contributions could lead to your breaching the LTA in future.

Alternative wealth opportunities
Pensions are not the only way to save for retirement. Tax-efficient Individual Savings Accounts (ISAs) are a popular savings option, while many people see property – particularly in the form of buy-to-let – as their retirement nest egg.

Timing is everything
Pension freedoms have now given retirees considerable flexibility over how they draw an income or withdraw lump sums from their accumulated retirement savings. Pension savings can be accessed from age 55. You no longer have to purchase an annuity – an income stream for life – and you can choose how much income you take and when to take it.

You could take your whole pension fund as cash in one go – with 25% being tax-free and the rest taxable. Other options include taking a lump sum now, with further withdrawals when you want, or an ongoing regular income (via so-called drawdown or an annuity). However, the danger of these pension freedoms is that people withdraw too much money too quickly and risk running out of money before they die.

It is also possible to pass on your pension savings completely free of tax. So, as well as being a tax-efficient way to invest, pensions can be a very useful way to reduce Inheritance Tax bills.

Seize the day – today
Too many people fail to seriously consider how they are going to manage financially in retirement until they are about to retire. It is only then that they discover that their pension is not on target to meet their retirement aspirations.

When you are living a busy life, it can be difficult to find time to consider your long-term plans. Your mortgage or your children’s education might be more immediate financial priorities; your career or running your business can make more pressing demands on your time. However, getting your pension on track as soon as possible could save you and your family a financial headache later on.

Another reason to take advantage of existing pension tax breaks is that there is no guarantee they will be there in the future. The Government has already cut the annual allowance to £40,000 – and as little as £10,000 for very high earners – while reducing the lifetime allowance from its £1.8 million peak in 2011/12. Higher-rate Income Tax relief on contributions could be next, so it makes sense to make the most of what’s on offer now.

A PENSION IS A LONG-TERM INVESTMENT.

THE FUND VALUE MAY FLUCTUATE AND CAN GO DOWN, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

PENSIONS ARE NOT NORMALLY ACCESSIBLE UNTIL AGE 55. YOUR PENSION INCOME COULD ALSO BE AFFECTED BY INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS. THE TAX IMPLICATIONS OF PENSION WITHDRAWALS WILL BE BASED ON YOUR INDIVIDUAL CIRCUMSTANCES, TAX LEGISLATION AND REGULATION, WHICH ARE SUBJECT TO CHANGE IN THE FUTURE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.

ACCESSING PENSION BENEFITS EARLY MAY IMPACT ON LEVELS OF RETIREMENT INCOME AND IS NOT SUITABLE FOR EVERYONE. YOU SHOULD SEEK ADVICE TO UNDERSTAND YOUR OPTIONS AT RETIREMENT.

Should I stay or should I go now?

Key aspects that influence retirement decisions

Whatever you want to do when you retire, the better prepared you are, the more rewarding it will be. It’s important to assess the key aspects that will influence your retirement, as the decisions you make can have a real impact on your savings. There are some important considerations to think about.

Timing
Drawing savings too early is likely to result in lower returns and/or lower lifetime income
Drawing savings later may not result in higher returns – this depends on how you invest and use your savings

Capital requirements
Many people withdraw capital from their pension savings not because they ‘need’ it but because they can, and they end up just retaining it in a less tax-efficient environment
Meeting income needs from capital could be extremely efficient – it may even be necessary

Income requirements
There are choices to make between generating income now versus providing for your future
You may also continue earning some income during retirement through paid work, business ventures or even lucrative hobbies
Your income needs are likely to vary over time, and some expenses are fixed while others are variable. Most critically, long-term care can prove expensive
Your income preferences are also key – having a known stable income source may be preferable to having a higher but less stable income
Generating surplus income is inefficient from a tax perspective

Attitude to risk
This is the trade-off between relative safety (which you may choose out of concern) and taking risk (which you may choose with an aim of achieving growth). Your attitude may also change as you accumulate wealth (because you have more to lose) and as you get older (because you have less time to recover if your investments fall in value). But risk is never completely eroded – even with cash or an annuity.

You also need to ask yourself some of the following questions:

What is my life expectancy, and how much money will I need to achieve my retirement plans?
How could my income and capital needs change in the future?
Do I have an effective plan to leave a financial legacy?
How much money would my spouse/partner need if I die before them?
How might I protect against the effect of inflation?

Generation still taxed

Numbers nearly double in the last two decades

With so much choice on offer, and with frequent rule changes and distinct tax benefits to consider, finding the right vehicle for your retirement planning is essential.

Add to this the number of taxpaying pensioners nearly doubling over the last two decades, and with talk of also requiring pensioners to pay National Insurance on any earnings or even on pensions, the older population may start thinking of themselves as ‘Generation still taxed’.

Detailed figures
The analysis[1] shows that between the mid-1990s and the mid-2010s, the number of taxpayers over the age of 65 nearly doubled from 3.32 million in 1995/96 to 6.49 million in 2015/16, the last year for which detailed figures are available. It is estimated that the number has broadly stabilised since then and stands at around 6.37 million in 2018/19.
The data covered every local authority in the UK and provided separate information for men and women. The data relates to the 6.87 million taxpayers over State Pension age in 2015/16 and includes around 400,000 women over State Pension age but under the age of 65.

Employment income
Amongst the 6.87 million taxpaying pensioners, the average annual tax bill is £3,522. For the 3.87 million men, the average bill is £4,341; for the 3 million women, the average is £2,467. More than a quarter of taxpaying pensioners are still in paid work – 1.5 million have employment income, and 0.5 million have income from self-employment.

The total amount of Income Tax paid by pensioners in 2015/16 was around £24 billion. Of this, around £21 billion came from England, £1.7 billion from Scotland, £0.8 billion from Wales and £0.4 billion from Northern Ireland.

Local authorities
The five local authorities with the highest total tax bill by pensioners were Surrey (£961 million), Hampshire (£763 million), Essex (£756 million), Greater Manchester (£646 million) and Kent (£645 million). This means that pensioners in Surrey are paying more in Income Tax than pensioners across the whole of Wales.
When planning for retirement, it is vital to remember that the tax office will still want a slice of your income, which reinforces the need to put aside enough to secure a decent standard of living, even after the taxman has had his slice.

Source data:
[1] Royal London Freedom of Information Act request – data for 2015/16 for taxpayers over pension age, broken down for each local authority in the UK and for men and women separately. Data gives the number of pensioner taxpayers in each area and how much tax they pay. It also shows how many have income from self-employment, employment, pensions, property and other sources.

Looking to the future

Taking the steps now to prepare yourself for retirement

With increasing numbers of people working past traditional retirement ages[1], stopping work can seem a long way off, especially for younger people. But it’s the dream of an early retirement that keeps many people going through the daily work grind.

Fantasies of a round-the-world cruise, sundowners on a seaside terrace or writing a best-selling novel can make work endurable. The good news for many is that the dream of an early retirement is being realised[2], with nearly two thirds (60%) of those stopping work this year doing so before their expected State Pension age or company pension retirement date.

Escape the daily grind
It appears that those planning to escape the daily grind early feel the most comfortable when it comes to their financial situation in retirement – with over half (56%) saying they feel financially well prepared, compared with 49% of those working towards their expected retirement date. That’s reflected in the numbers taking financial advice – 68% of early retirees are seeking professional advice compared with 60% of those working until their projected retirement age.

The opportunities that retirement brings are limitless, with travelling or spending long periods abroad high on many people’s wish lists. The average age of those retiring early is 57, and early retirees are planning to make the most of their free time – over a third (37%) plan to take up a new hobby or sport, 27% will start voluntary or charity work, and nearly a fifth (17%) are planning a long-term holiday or gap year.

Meeting your life goals
But early retirement also can bring with it the challenges of meeting your life goals, such as funding a child’s education and their wedding, along with bearing household expenses long after you’ve retired because of increasing life expectancy.

To retire earlier requires planning, discipline and paying close attention to your savings and investments. But the sacrifices and extra effort are worth it to enable you to have more opportunities to spend time with the people you care about.

Reasons to start saving for retirement early

You’ll prepare in a more relaxed way
Saving for 30 years instead of 10 means you can put away less money each month and reach the same target. It’ll also mean you have cash left over to spend on yourself in the meantime.

Earn more thanks to compound interest
If you start saving today, you’ll earn more because interest payments build up – every interest payment you receive starts earning corresponding interest itself right away.

You will enjoy greater peace of mind
Putting in place a plan for your retirement means you can start looking forward to a more comfortable retirement. You’ll feel more confident about life after work knowing things are taken care of from a financial perspective.

You could retire earlier
If you manage your wealth and retirement planning wisely, you might find you’re ready to retire younger than you’d imagined. Give yourself more time for the things you’ve always dreamed of doing.

Plan when you have more disposable income
It’s normally the case that you have more disposable income from your twenties into your early forties. Later in life, you may find that you have more responsibilities – children’s education and mortgage payments, for example – and find it harder to put money into your retirement fund every month. Start early while you have extra funds. τ

Source data:
[1] https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/employmentandemployeetypes/articles/fivefactsaboutolderpeopleatwork/2016 -10-01
[2] Research Plus conducted an independent online survey for Prudential between
29 November and 11 December 2017 among 9,896 non-retired UK adults aged 45+, including 1,000 planning to retire in 2018.

Investing in your child’s future

Without planning ahead, the cost can be a huge money sink

While many parents value the standard of education offered by independent schools or universities, the costs can be daunting. However, with careful planning, it may be possible to avoid a huge outstanding student loan or tax burden.

A good education will give your children or grandchildren the best start in life. With more parents choosing to opt out of state schools and educate their children privately, plus some children continuing their education into their early twenties, the costs can carry on for many years.

Financial sacrifice
The overall cost for just one child can end up being about the same as buying an average home in the UK. That’s a massive financial sacrifice for many parents, leading them to wonder if it’s better to pay for their child’s education or save the money to help them onto the property ladder later in life. In any case, without planning ahead, the cost can be a huge money sink or lead to further borrowing. Since 2004, private school fees have increased by 70% – at a much faster rate than inflation and UK salary growth.

Private school fees continue to rise much faster than inflation or average earnings, making it more important than ever for parents considering taking this route to plan ahead.

What to consider

Expect fees to rise – on average around 3.5% a year – Inflation, growth in salaries and increased amount of interest from wealthy families in Asia and Russia wanting to send their children to English boarding schools, mean that private education fees may continue to grow.

Don’t assume the cost will end at fees – School uniforms and regular school trips all add up. There will be extra-curricular activities like art, drama, music, and sport to absorb as well.

Boarding can be more than double the cost of day school – By deciding not to board, annual savings of around £15,000 annually per child can be made. So, consider the location of the school, and consider whether it is feasible to commute every day or weigh up the advantages of relocating close to the chosen school.

Mixing private education with state education – Many parents are now delaying private education until secondary school to reduce the cost to below £100,000.
Planning for and researching the right school is often the exciting element, particularly when Open Days allow tours of delightful schools in bucolic surroundings. The hard work starts when analysing how the long-term annual costs are going to be paid for.

Suggestions on how to manage the costs:

Start planning early – put simply, the financial planning can’t start early enough, even to the extent of allocating money before any children are born. Simply paying school fee costs from current income or capital removes the ability to benefit from the 8th wonder of the world (according to Einstein), which is the magic of compounding returns.

Advance schemes – if you can afford to pay for several years in advance, you may be able to get yourself a good deal from the school. Some schools offer to put that lump sum in low-risk investments – and because of their charitable status, they’ll avoid paying capital gains tax on any returns they make. In exchange for pre-payment, a fee discount will be offered by the school. There are terms and conditions and strings attached, but this is worth investigating.

Bank of grandparents – grandparents may want to consider helping to pay for grandchildren’s school fees or additional extras such as schoolbooks, trips and uniforms. If grandparents do have the capacity to help financially, this could mean that a useful by-product could be a reduction in their own Inheritance Tax liability, along with the joy of the gift.

Discounts and scholarships – although discounts aren’t always publicised and can sometimes be discretionary, it costs nothing to ask. A lot of private schools are willing to provide discounts for enrolling multiple children or even paying fees by monthly direct debit. Always ask about any scholarships or bursaries your child might be eligible for. According to the Independent Schools’ Council, a third of children educated at a private school now receive some sort of help with fees.

Good alternative option
Private education is not a feasible option for every family, and with an excellent selection of state schools on offer, it doesn’t have to be the only good option. There are many other ways to invest in your child’s future. For example, if you invested the money you would have spent on day school fees for a full 14 years on your child’s behalf, you could provide a sum that could be used to potentially fund university, buy them a house, learn a new skill or set up their own business.

Have you considered whether you or a relative may need to enter residential care or a nursing home in the future?

Most will have considered a pension for the end of their working life, but this is an additional expense that many overlook. Care home bills alone can eat up £50,000 a year and who knows how long you might need to reside there. Specialist care for dementia patients is likely to be higher.

Whether you opt for a part or full-time carer in your home or move into a specialist residence, it’s not likely to be cheap. Your local authority may be able to cover some of the costs, if you are eligible, but may limit your choices. Eligibility will be decided based on whether you have savings or property, to specific limits, as well as pension income. It also depends on the type of care required.

Gifts

Gifts can be made throughout your life, in order to reduce assets, but not in lump sums to avoid paying care fees. You could fall foul of the rules if you rely on this idea.

Portfolio

So how do you make the most of any available investments and income? Investing for Tomorrow can help you to restructure your portfolio to generate an income stream to help cover funding gaps. You may also need to face the reality that your wealth will be spent on your future care rather than being left to your family or charity.

Power of Attorney

As you grow older, it is a good idea to prepare a power of attorney (POA) and to discuss your finances with your relatives so that they are aware of your wishes should you be unable to action them yourself. This safeguard ensures that your chosen appointee must act in your best interest, not in theirs.

Assets

It’s also important to consider all of your assets. Sites like mylostaccount can be useful in finding forgotten accounts. Property should be valued for letting purposes as well as sales. Equity release is also an option for those who are able to remain in their own home.

Insurance

Unfortunately, insurance policies are no longer available to pay for care unless you already have one. Instead you can buy an Immediate Needs or Care Fees Annuity (INA) where, in exchange for a capital lump sum, the annuitant will receive a monthly payment for as long as they survive. The advantage here is that an INA will continue to pay out no matter how long you or your relative live.

Investments

If you are comfortable investing, a stock market portfolio is also a possibility to generate both an income and capital gains. However, managing a portfolio to pay care home fees could mean following a different set of rules to the ones you use to run your own portfolio due to shorter timescales. Taxes and exemptions must also be considered.

Nobody likes the idea of getting old and not being able to adequately look after themselves or their family. Taking steps now could remove added financial burdens from many already tough decisions. For example, a POA can be made online.

Do feel free to get in touch with our planners should you need more information or help with any of the above.

t: 01422 349 131
e: info@iftwm.com

Cultivating the art of patience

Sticking with a long-term commitment to your investments

The longer you’re prepared to stay invested, the greater the chance your investments will yield positive returns. That means holding your investments for no less than five years, but preferably much longer. During any long-term investment period, it is vital not to be distracted by the daily performance of individual investments. Instead, stay focused on the bigger picture.

Putting your money into the market
Success in the stock market is all about time and patience. But it’s understandable that when you put your money into the market, you will be tempted to check up on how your investments are performing on a regular basis – and in our technology-driven age, you can monitor them 24/7.
Seeing investment prices fall, sometimes with alarming speed, can be enough to spook even the most experienced of investors. But remember that the reasons why you identified a particular fund or share as a sound investment in the first place should hopefully not have changed. The fall could just be down to market conditions as much as anything the individual company or fund manager has done, and in many cases, given enough time, investments should hopefully recover their value.

Leave your emotions to one side
However, at the same time, it is essential to leave your emotions to one side, because on occasion there could be a good reason to sell. Just because something appeared to be a good investment a year ago doesn’t mean it will be going forward.

Developing the art of patience will help keep you focused on your goals. Whatever happens in the markets, in all probability your reasons for investing won’t have changed.

Some investors develop their own exit strategy knowing in advance how far an investment’s value must fall or rise before they will consider selling. Such a plan can enable investors to ride out short-term market corrections and movements.

Help smoothing out your returns
Bear in mind, too, the benefits of so-called ‘pound-cost averaging’ during periods of market volatility. Essentially, if you are investing on a regular basis, your contributions will buy more shares when prices are low and less when they are expensive. Over the long run, this should help smooth out your returns, though there is no guarantee of this.

Too much tinkering not only undermines your investment aims but will also ratchet up the costs. Every time you buy or sell an investment, there’s a charge – sometimes several will be incurred. Investors can easily overlook the reality that by making even small adjustments, the charges can start eroding any profits earned.

Rebalancing your portfolio’s risk profile
As a result, for many investors, it’s best not to develop a regular buy-and-sell habit. And remember, no one knows which days will turn out to be the best trading ones – and by being out of the market, you could miss them.

For all investors, there will come a time when the portfolio needs to be rebalanced. A major reason for a realignment is when the actual allocation of your assets – be that shares, government bonds, corporate bonds or cash – no longer matches your risk profile.

Keeping your investments appropriately diversified
Alternatively, it may be because your investment horizons have shortened. Perhaps, for example, your retirement date is getting closer. These are solid reasons for selling some assets and buying new ones to keep your investments appropriately diversified. Any period of active portfolio management should be a process of change, which is both well planned and well executed.

It may be tempting to spend any income generated by your investments, but if you don’t need it in the short term, why not plough it back into your portfolio? This will increase the number of shares you own. And, of course, a bigger shareholding means more dividend payments next time around.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.