Review your plans in light of changes
The Budget ushered in changes to the personal finance landscape that may have ramifications for years, but some of the effects may also not be felt for years. The new levels of capital gains tax, for example, have already been enacted. The level for basic rate taxpayers has moved from 10% to 18% and from 20% to 24% for higher and additional rate taxpayers.
This change may have impacted you, and you may have responded, or you may be considering what to do now and would value financial advice.
The rules around pensions have also changed. From April 2027, unused pension funds will no longer be considered outside the scope of inheritance tax (IHT). Whereas, prior to this point, pensions were an effective estate planning vehicle and way of passing on wealth to the next generation without being held up by probate or suffering a 40% IHT charge.
From April 2027, this will no longer be the case and therefore many people will need to review their plans to ensure they are well placed to navigate this change. It will affect all those who exceed their IHT allowance (known as the ‘nil-rate band’), currently set at £325,000 for individuals, which incidentally is frozen until 2030.
After the Budget, we wrote about why you should assess your pension options, which you may find useful – and if you have more specific queries regarding your personal circumstances please get in touch.
Ensure you are appropriately invested
When investing it is important to be appropriately diversified to deal with multiple potential outcomes and opportunities. Being diversified in itself is not enough – a mixture of various UK shares, for example, is unlikely to provide the variety and nuance that modern investors need to protect and grow their portfolios.
A portfolio should ideally invest in a number of different asset classes with different drivers of risk and return – such as stocks, bonds, commodities – in a variety of sectors, across multiple locations worldwide. It should be able to adapt to structural changes to society, the economy and the investment environment.
So it needs to be flexible, but also super-efficient – you shouldn’t have to pay through the nose to achieve your investment goals. And if you are paying more than you should that will affect your returns now, and the value of your future investment pot.
There are many moving parts to an optimised portfolio. As well as developed world stocks and bonds, you should also consider emerging market potential – for example it may be worth overcoming the noise to understand the opportunities in China. It’s crucial, too, to manage the impact of currency fluctuations on your investments as these can materially affect portfolios. Key policy decisions that different nations make can cause currency changes that affect investors throughout the world.
Getting all of these factors in sync can be complex and require a considerable time investment – which is why many investors choose an efficient wealth manager to make these decisions on their behalf.
Don’t sit on the sidelines
When stock markets decline after a difficult year, investors can take fright and seek the perceived security of bank account or other cash savings. This happened recently: 2022 was challenging for investors, and many sought refuge in accounts that paid a decent return (especially compared to recent history).
However, if you are investing for the long term, through a pension or for other goals, cash savings are unlikely to be ideal to help you achieve your targets – mainly because of the attritional effects of inflation. And do note: 2022 was followed by two buoyant years where diversified investors would have benefited greatly by staying the course.
This steadfastness, and commitment to staying invested through thick and thin, has been proven to be a much better option than holding high cash levels over time. We illustrate the divergence in this article, which could also help people make more informed decisions if they are thinking about how they should respond as interest rates fall.
Assess if you are still on track to meet your goals
Predicting how your finances could evolve is crucial to help you make the right decisions now and improve your outcome if you are potentially falling short. Cash flow modelling builds a model of your financial position over time, considering inflows and outflows – and factors in variables such as inflation and investment returns – to assess how you can achieve your goals.
It can be invaluable to help you answer the questions that matter, and to respond if you need to adapt. For example, many individuals may now be compelled to reassess their plans in light of the announced changes to inheritance tax. Should you save more to meet your targets of passing on money to loved ones? Or will you have to devise a different strategy such as giving money sooner?
Cash flow modelling – a central pillar of effective financial planning – can give you remarkable financial clarity and vital insights to help you overcome the challenges you face.
Consider a Financial Planning ‘MOT’
You may not need full advice if you already have a financial plan in place, although you might want to see if you are still on track for a secure future. A Financial Planning ‘MOT’ can help you to plug any gaps, ensure your money is working as hard as it could, and avoid common pitfalls you may not know about that could cost you dearly.
Powerful tools help you to visualise how your wealth could grow, and personalised information – including a 30-minute guidance call with an expert adviser – allow you to better understand how your choices could impact your financial outcome.
You can sign up for a Financial Planning ‘MOT’ here.
Whatever steps you take next, building financial resilience can help you thrive in all seasons. Please get in touch if you have any queries, and if you want to find out more about how to better protect your financial health.
Please note, the value of your investments can go down as well as up.
Netwealth offers advice restricted solely to our services. We do not consider the whole of the market, nor offer advice in relation to tax compliance, insurance products, or the transfer of defined benefit pensions.
