This Personal Financial ‘Audit’ could Work Wonders for you in 2021

Who can tell what impact outlier events or new financial regulations could have on your finances in 2021? Yet there are things you can assess each year to ensure you take the right steps to stay on track, or as may be the case, to confirm that you don’t need to do anything at all.

Sensible housekeeping


Are you still meeting your objectives? If your long-term plans haven’t changed do you even need to tinker around the edges? It’s worth reviewing the progress of your financial goals every year to see if you are on the right path, or whether your course needs correcting. These planning tools may be useful to help you model for different scenarios and change variables so you can build a plan that best suits you.


Assessing your risk level


You need to take some risk for your investments to grow but as tempting as it may be to change your risk level when markets are either turbulent or exuberant, we always urge caution.


Changing your risk level could have a big impact on characteristics of your portfolio, potential returns, and your investment experience. We explore the implications in detail here and assess the conditions when it might be most appropriate to do so – and when taking no action is more suitable.


Make the most of tax-free allowances, and rule changes


While you are likely familiar with the powerful effect of pensions and ISAs it is worth assessing the nuances of these tax wrappers and the other allowances which may apply to you, too.


An ISA lets you build up a sizable tax-free pot over the years, but ensuring your whole family makes the most of their ISA allowances can yield quite an extraordinary sum. Here we take a look at the considerable benefits for a family of four.


Pension rules often change and it’s not always possible to keep up to date. From April 2020, for example, many individuals have benefited from increases to the income limits used in calculating a tapered annual allowance. This article details the pensions annual allowance and shows you how much better off you could be. 


Take better control


Maximising your tax-free benefits is just one of the factors you can control when investing. The others include how much you pay in fees, staying invested and being suitably diversified.


Like many aspects of investing the choice is up to you, but you can see how much you could miss out on if you don’t take these factors into account – and under your control.


Even if you are retiring in 10 years, for example, paying 1% less in fees can make a significant difference to your future.  


- Consider a 55-year old investing £500,000 into a pension with a traditional wealth manager. They contribute £1,000 a month until age 65 after which they start to withdraw an annual retirement income of £28,000, adjusted for 2% inflation each year. With investment growth assumed to be 5%, and paying all-in costs of 1.65%, their retirement income lasts until age 95.


- By paying 1% less a year in fees with a firm such as Netwealth, and with the same growth, contributions and withdrawals, their pension pot would still be worth over £600,000 at age 95, leaving a sizeable fund for their estate planning or gifting considerations.



Source: Netwealth.

Simulated future performance numbers should not be relied upon as an indicator of future performance.


Move from cash to being invested


Of course, uncertainty or inertia (and other reasons which underlie inaction) may predispose you to not investing at all, or at least sufficiently. And if you haven’t invested for a while, you may be hesitant to get started.


We highlight some of the critical reasons for investing, and show you why being invested – rather than holding your assets in the implied safety of a savings account – is a much better way to safeguard the security of your finances over the long term.


Adapting to changes


As 2020 and many other years have shown it is not possible to predict events which may be transformative or disrupt how we live, interact and invest. Nor is it useful to speculate too much about new initiatives – a wealth tax, for example – which may or may not occur, but it is sensible to be aware of what could potentially impact your circumstances.


Paying attention to the factors above in 2021 could go a long way towards ensuring your finances are on a firm footing. Our team of advisers and professional investors are always monitoring for potential events and new regulations to help you maintain that solid ground.


So please feel free to contact us any time to help you ensure that your financial goals are on track.


Please note, the value of your investments can go down as well as up.

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