Saving by investing is a possibility – not a paradox

Frank Cochran

If you're struggling to keep your head above water during these testing economic times, then you need to take a closer look at your financial portfolio, writes Frank Cochran

The property scene has been inundated with advice on how to avoid the worst of the recession and it hasn't slowed down as the nadir hits its lowest point. But how much of this advice focuses up on legal loopholes, fine-print and strategies that don't make sense? Sometimes it's easier to look closer to home.  

Step 1 – Invest wisely
Top investors worldwide will tell you that you should never follow the crowd when investing. Indeed history has shown that when markets are in decline that has proved to be the time when you should be buying not selling. The view being that as long as you buy good quality stock backed with sound financial information and strong management then the funds you buy will be cheaper now than they are likely to be in the future. All too often the easiest time to encourage people to back equities is when there has been a prolonged rally in prices, logic tells us that you have already missed the boat and more dangerously you are also nearer to buying into an asset that is more likely to fall than to rise.

Step 2 – Lifestyle and spending habits
Look at your lifestyle and spending habits. If cash flow becomes restricted there are things which you will struggle to stop paying, mortgages, leases, life insurance policies, motor insurances and further life essentials. However there are a number of ways you can reduce your outgoings when times get tough. If your mortgage payments are too high, talk to the lender and consider going onto a longer repayment schedule, or if things are really bad go interest only for six to 12 months, you are not considered as going into arrears if you are able to meet the monthly interest payments, some mortgage companies allow you to have mortgage repayment holidays, examine all the avenues, but above all else keep paying the interest.

Step 3 – Pension schemes
If you have a pension scheme and your scheme allows and you are over 50 years old you can apply to take the tax free cash from your pension. In most cases this can be up to as much as 25 percent of the total fund value (each case will need to be viewed on its own merits) you need to remember though that taking the tax free cash will reduce your pension entitlement at normal retirement date. If it’s a case of lose your home or lose your tax free cash entitlement then the answer is obvious.

Step 4 – Life insurance policies
Consider re-broking your life insurance policies, if you have policies which you have held for some time you may be surprised to see that the rates for life insurance have come down considerably. You need to review your costs and needs analysis for this type of cover about every two to three years as rates are changing an your need for cover may diminish as you get older causing you to pay too much for the cover or indeed you may be paying for cover you simply don’t need.

Step 5 – Build your wealth portfolio
If you are sitting on lump sums of cash in bank and building society accounts earning one or two percent per annum, you need to ask yourself why? At these sorts of interest rates you are simply investing for convenience and not profit. There are thousands of absolutely excellent investment products on the market that will give you the potential to earn much higher rates of return than you can get from your conventional High Street sources. If you go with the alternative National Savings products like Index linked bonds and the like remember that inflation is in negative territory so how much do you think these are going to pay you. Go and see a qualified independent wealth manager and get proper advice.

For further information about Celebrity Financial Planning and to speak to someone about planning your financial future please visit celebrityfinancialplanning.co.uk.