As I sit to pen my latest snapshot of the financial services industry, the FTSE100 stands at a fraction over 6500, having dropped over 10% from the previous high, and then recovered the greater part of that loss. That means that the index has pretty much doubled, since the troubled times of credit crunches, bank failures, bail-outs, and the ensuing market crash(es). Over the 25 years or so that I have been in the Financial Services industry, markets have been ‘interesting’ to say the least. I had only been in the job about a year when Black Monday befell the London Stock Exchange on October 1987. One thing I have learned, is that markets will go up, and they will go down. This may not seem an earth-shattering revelation, but it is vital to remember. So is “saving is for the short term, and investing is for the long.” The longer, the better.
Booms and crashes will come and go, but it is interesting to note that £100 invested in 1945, would be worth £8,000 now. Pretty good eh? But if you added the average dividend into that figure, the total return would be in excess of £140,000! I realise that the current value of that original £100 investment would be considerably greater, due to inflation, but nonetheless, the power of a long-term buy and hold strategy is demonstrated particularly well.
Sadly, some 300,000 people a year are diagnosed with cancer, and the same number are affected by strokes at any one time. Every 2 minutes, a British adult dies of heart disease, and 1 in 5 men and 1 in 6 women now aged 40, will suffer from cancer, heart attack or other critical illness, before reaching State Retirement age. Each day hundreds of people in the UK are made redundant and of these, 50% of men and 35% of women will be likely to remain unemployed for more than six months. Both self-employed and employed are equally liable to a severe loss of income due to a family bereavement, prolonged sickness or accidents. In the past, we could rely upon State Benefits to protect us from the risks of redundancy by paying major expenses, ie mortgage payments, to avoid financial hardship, but changing legislation has radically reduced this over the last several years. State Benefits are payable, but they only relate to the interest element of mortgage repayments and not the capital, or to associated insurances. Money is tight for many people, and the risk of losing your home through repayment default is evident.
Moreover, if you have a partner who works for more than 16 hours per week, you will not be entitled to any help with mortgage costs, and if you have savings greater than £16,000 no help is forthcoming. This figure is reduced for other benefits. Limited assistance is available for those with savings below these figures.
It is human nature to believe that “it won’t happen to me”, but for many this is untrue. Sadly, nationally, we insure our cars, houses and furniture better than we do our families and ourselves. I do not wish to be a doom-monger, but it is important to remember that, before attending to saving, investing and pension planning, one should ensure that any relevant protection plans are in place.
Categories: Money Matters