If We Knew Then . . .

Greetings, Noble Readers of Whistler-shire. Firstly, an update on my column from the last issue. My friend’s Macmillan Cancer nurse (wonderful people) contacted his mortgage lender, on his behalf, and advised them of his circumstances. His mortgage was approaching the end of its term, and he had been forced to spend his savings – with which he intended to redeem the loan – on other essential expenses. They have agreed to extend his mortgage, on an interest-only basis, allowing time for his treatment, and in the fullness of time, a change to Equity Release. Should things not go as well as hoped, the value of his property is significantly higher than the outstanding debt. A great weight off his mind, he can concentrate now on getting well.

On to the main story. A client asked me, in passing, whether she should be taking more risk with her pension fund.  This is a highly individual decision for anyone, and should always be made in the light of one’s specific circumstances. Her boss then advised her that all the employees in the scheme had their contributions invested in the same fund, irrespective of their individual situations. It transpired that this fund – on a risk rating of 1 to 10 – was a little under 2. Now, this may be perfectly suitable for a scheme member who has accrued gains in the scheme, and wants to reduce their exposure to equity markets and, thereby, reduce the overall risk of losing what they have gained. It is completely wrong, though, for an employee who may have forty years or more left to build up their pension pot. In any long-term investment strategy, it is essential to have an exposure to the share markets of the world. We live in a low interest rate environment and one in which inflation is creeping up. Some may say that interest rates will be rising too, and that is eminently possible, but I doubt that they will rise to the levels we have seen in the past; far from it. High interest rates are invariably used to combat increasing inflation, the arch-enemy of our savings and investments. Good quality equity investments have, since they first existed, been the saviour of our long-term finances – pretty much the only safe way to get a real return on our money. I am excluding the physical ownership of property from this statement, as I regard that as primarily providing a home, rather than for its investment potential. Anyway, it is something that is difficult to do by just small monthly contributions, and may be illiquid in times of falling prices.

If you have a ‘Defined Contribution’ pension scheme, ask your administrator or advisor to check the funds into which your money is being invested, and make sure that they fall in line with your attitude to risk, and your potential investment term. Remember, time is a great risk-reducer. I had been in the business less than two years, when ‘Black Monday’ struck on 19 October 1987. I thought the world would fall apart! In hindsight, what I should have done, was to raise every penny I had (and borrow any I didn’t have) to invest in good quality investment funds. At the beginning of 1987 the FTSE100 stood at 1679. It lost all of the year’s gains, plus a bit, falling to 1629 at the depth of the troubled markets. At the end of the year, it was 1713, and now stands around 7300. All that growth, plus the potential for increasing dividends; time is indeed a great healer!       

David Foot


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