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Clarke Nicklin Financial Planning

'protecting your wealth and helping your investments grow'

Month

May 2017

A little today, a lot tomorrow – Managing investing risk during turbulent markets

A common mistake some investors make is not diversifying their portfolio enough. To make sure investments are spread across different asset classes, it could contain a blend of equities, bonds, cash and property to benefit from their changing investment cycles.

Market timing

One of the biggest dilemmas some investors face is market timing. Jumping in and out of markets on a regular basis not only requires constant monitoring of daily events but also requires expertise to act on such events.

Many investors invest in lump sums, whether it’s a few thousand hurriedly put into an Individual Savings Account (ISA) before the end of the tax year or an annual bonus or similar payment. Another approach, however, is to invest smaller amounts regularly.

Volatile times

This can be achieved by drip-feeding lump sums into the market as opposed to investing it all in one go. In fact, during volatile times, this strategy allows one to benefit from what is known as ‘pound-cost averaging’. So how does it work?

The concept involves investing on a regular basis, and most funds whether they are Open-ended Investments Companies (OEICs) or investment trusts are available through regular savings plans (such as ISA schemes) allowing you to invest on a monthly basis.

‘Pound-cost averaging’

• It’s a good habit to get into that helps you develop discipline as a saver
• It can help you stay focused on your long-term goals, as instead of seeing the value of your portfolio change dramatically, it ideally grows steadily over time
• You reduce your chances of making a mistake trying to time the markets (i.e. investing all your money when prices are high and then seeing prices fall in the ensuing volatility). Instead, you invest the same amount of money monthly – when prices are low, you will acquire more units for your money, and when prices are high you will receive fewer. Over time, this can reduce risk and provide more stable returns.

Meeting your aims

This can also be a good way to invest when you’re just starting out, and you may be less likely to have a large lump sum at your disposal. But whatever your circumstances, goals or financial aspirations, you can be confident that we have the know-how to help you meet your aims. That applies today, tomorrow and for the years ahead, which is ideal when you’re thinking about building up wealth through regular, continued investments.

INFORMATION IS BASED ON OUR CURRENT UNDERSTANDING OF TAXATION LEGISLATION AND REGULATIONS. ANY LEVELS AND BASES OF, AND RELIEFS FROM, TAXATION ARE SUBJECT TO CHANGE.

THE VALUE OF INVESTMENTS AND INCOME FROM THEM MAY GO DOWN. YOU MAY NOT GET BACK THE ORIGINAL AMOUNT INVESTED.

PAST PERFORMANCE IS NOT A RELIABLE INDICATOR OF FUTURE PERFORMANCE.

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Planning financially for long-term sickness

How would you pay the bills if you were sick or accidentally injured and couldn’t work? According to research by Unum and Personnel Today, just 12% of employers support their staff for more than a year if they’re off sick from work.

Given the low level of state benefits available, everyone of working age should consider Income Protection (IP). IP is an insurance policy that pays out if you’re unable to work due to injury or illness and will usually pay out until retirement, death or your return to work, although short-term IP policies are now available at a lower cost. IP doesn’t usually pay out if you’re made redundant but will often provide ‘back to work’ help if you’re off sick. But when Which? asked the public, just 9% said they have some form of IP, compared with 41% who have life insurance and 16% who have private medical insurance (PMI).

Too ill or disabled to work

As research published by insurer Zurich highlights, only one in five of us in the UK have IP cover in the event of becoming too ill or disabled to work. This is despite the fact that as many as 42% have experienced income loss in their working lives due to serious illness.

Should the worst happen?

In the absence of cover, just under half expect to rely on savings should the worst happen. Just under a quarter also report having savings to last them just one month in such a scenario, while 21% say they have enough to last them up to three months.

Income loss in the event of illness

Nearly half of UK respondents also reported being willing to accept a better benefits package including IP benefits rather than higher wages, suggesting a greater role for employers in helping to protect their employees’ financial well-being.

Growing challenge for individuals and families

The IP gap is a growing challenge for individuals, families and society as a whole. For a family, the impact of the main breadwinner not being able to work through illness or disability can be devastating, with financial hardship resulting in the loss of the family home for those worst hit.

A protection policy every working adult in the UK should consider is the very one most of us don’t have – income protection.

Smooth out your investment planning

If you are looking for a sustainable medium to long term investment approach then a smoothed investment plan may be worth exploring.

Scott Herbert Partner and Independent Financial Planner, Clarke Nicklin Financial Planning discusses the benefits of smoothed funds.

He comments ‘Put simply it is investing in a range of assets such as equities, bonds, cash and property. When the returns are particularly good a portion is put aside for when they take a downturn and when markets are down then growth from years of upside are added giving a potential smoothed investment growth.

‘We all know that stock markets and other investments can go up and down. These movements can be quite extreme and understandably this can deter some people from investing. Smoothed investing can provide cautious/balanced investors an opportunity to invest without the volatility normally linked to UK and overseas stock markets.

Ensure you speak to a qualified Independent Financial Advisor who will ensue you are informed fully of any risks before you make the decision to invest.

Our team are offering a free hour consultation for anyone interested to offer practical advice on the subject. If you would like further information, please contact Katha@cnfp.co.uk or call 0161 495 4700.

Whilst smoothed investments are designed to provide a smooth growth rate, the value of investments and income from them may go down and you may not get back the original amount invested. Past performance is not a reliable indicator of future performance.

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