Financial Planning Priorities at a Time of Uncertainty.

What you should be thinking about during lockdown.
Apr 09, 2020 by Gary Jefferies

Patience is all important:

  • With your family.
  • With the world working a bit slower than normal.
  • With your money.

At Panoramic, most of us have lived and worked through the 1987 crash, the 2000 Dot-com bubble and The Financial Crash of 2008 and you come out the other side both stronger and wiser for it. What we are all experiencing currently is emotionally draining which emphasizes the importance of patience. This is fundamental with a long-term plan as it continues, and the future is exciting.

“History doesn't repeat itself, but it often rhymes”, Mark Twain.

What to Keep in Place

Stability, in a time of instability is crucial.

Insurance

With those thoughts on stability, it leads me back onto insurance.

Although it isn’t exciting, ensuring that you keep paying premiums on insurance policies provides that stability for now and for when normality returns. Spending habits have quickly changed for everyone and there has been a realisation that our essential spending is less than thought whilst proving our non-essential lifestyles are the expensive part.

Investments

As Financial Planners, we understand how human behaviour drives us to react against pain points such as volatility within the stock market which we are currently experiencing. This instinct leads us to the instinct that we want to sell as the price of stocks and shares falls but this is the worst action we can take. By selling at the market’s lowest point, solidifies your financial loss. However, if we do nothing but be patient, time will give the opportunity for recovery. Once market stability has returned, our instinct would to be to want to ‘buy in’ again but this is a sure-fire way to buy at the peak, which could double the negative impact of attempting to time the market.

  • Now would seem to be an advantageous buying time especially if holding some cash that are needed as equities have been heavily discounted due to Covid-19.
  • For existing investments that make up part of a long-term strategy, unless your time horizons have changed, it would be best to sit tight and be patient. Equity markets reflect future earnings and at some point, these will return (as will sentiment) and equity values should reflect that.
  • We will see also likely to have a significant number of Government Bonds in the near future with prevailing low interest rates which should ensure inflation is avoided though there is a possibility for inflation in the future.

Duncan Fry, Chairman of Panoramic’s Investment Committee:

“It is without doubt that our monetary and fiscal policies are much more advanced than they were in the 1920’s and 1930’s. Thus, we should avoid some of the disastrous recessions of the past. It is true that Governments have a “buy now, pay later” attitude and inflation is not a current problem. There are various policies that can be applied once this pandemic is over in order to cap inflation, although interest rates can hardly be reduced much further.”

Actions to consider taking now:

Bolster Your Emergency Fund:

We often hear about the need for an emergency fund and it should be between 3- and 6-months expenditure to get you through any unexpected rainy days. It would appear that the monsoon season is now upon us and this is a time that many of us may need to rely on the emergency fund for a few months. Once we are out the other side, people may look to ensure this fund is consistently topped up where possible, as its’ importance has become all too apparent.

First Steps on to a Financial Plan:

In between home schooling efforts and baking more banana bread, you may find yourself with some spare time on your hands. This time could prove to be invaluable at not only giving yourself something to do other than watch another repeat of ‘Only Fools and Horses’ it offers the opportunity to take the first steps towards a financial plan.

The best way of starting a financial plan is to break down income and expenditure, the more detail the better. Then, through the use of Cash Flow Planning we can determine how well prepared for the future you are financially. Whilst the financial side of planning is crucial, what you do with it in terms of aspirations and goals is more important. We can demonstrate how to approach various scenarios whether it be retirement, sending your children to public school or taking the once in a lifetime holiday.

The scenario above shows the current at age 60. The future forecasting assumes no action is taken and shows the future position if the client continues as they currently are.

This illustration shows a much better future position for the same client if they implemented our advice.

Reviewing your spending habits will enable you to decide what you need to continue to pay for or what could be cut or reduced. This would include credit card spending as it may be possible to find lower interest rates on these.

It may be best to cease any standing orders that save cash (excluding emergency funds) if you are looking to invest at this time. If investing for the medium to long term, Stocks and Shares are likely to leave you better off than purely into cash. This is subject to your attitude to risk and capacity for loss.

Further thoughts to consider:

Following the Government’s announcements regarding the possibility of mortgage holidays, if you have been affected by Covid-19 it may be worth contacting your existing mortgage lender to see whether it would be beneficial.

A mortgage holiday isn’t a green light to cancel the direct debit but is a period of time that can last for up to 3 months where you do not make the monthly payment. Although in the short term it will bolster your cashflow it results in your mortgage term being extended by the same length of time taken. If the loan remains past retirement age in the new circumstances, there could be an increased scrutiny on affordability.

Whilst many lenders have changed their criteria dramatically, with some even pulling out of the market entirely, Re-Mortgages will offer the opportunity to ensure you are on the best deal possible.

A slightly more severe route to explore is whether those with Capital and Repayment mortgages could be transferred to an interest only loan. This would only be advisable should there be sufficient repayment strategies in place to pay the loan off when it finishes.

Not necessities but nice to have:

You could look to invest should you be lucky enough to be sitting on large levels of cash.

Maintaining your standard of living is a priority but if you can continue pension contributions it would be for the best but can be suspended to solidify your current financial position.

With humanity being forced to take a back seat, we are seeing nature come back. Whether it is the clear water beginning to flow back through Venice, mountain goats taking over a town in Wales or pollution levels down by 60% in some UK cities we are seeing a reversal of the impact from humans. This may stir up further conversations surrounding Environmental, Social and Governance (ESG). Through investing in ESG, individuals can be confident that their money isn’t contributing towards certain areas often seen to cause these issues in the first place.

Contact us today and let us help with your financial journey

If you prefer to call us, please dial 01892 559555 or if you wish, email: journey@panoramicwealth.co.uk with your enquiry.