The Guide Top Ten - Eking it out during the downturn

Published on Friday 1 August 2008 19:47

EACH week The Scotsman gives you a top ten guide to pertinent financial issues. This week, Kevin Garfagnini, senior financial planning manager at Mazars Scotland, offers his tips on how to manage your savings and investments during periods of economic turbulence.

1 CASH IN ON CASH

When it comes to interest rates on savings, especially regular savings accounts, the disparity between the best and worst rates is significant.

This is especially the case for regular savings, where you can now achieve up to 10 per cent gross return, rates we have not witnessed for a number of years.

2 INVEST TAX-FREE

Individual Savings Accounts pay attractive cash rates tax-free. National Savings & Investments products, especially index-linked savings, are increasingly attractive against a background of increasing food and energy costs.

Also bear in mind that a period of economic and market downturn can be the perfect opportunity to buy investments when the market and, consequently, prices are low.

3 MAXIMISE TAX ALLOWANCES

If you're in a household where the main breadwinner pays higher-rate tax and the other partner is either a basic or non-taxpayer, ensure that savings and investments that are not tax-free are in the name of the lower taxpaying individual.

4 ACT YOUR AGE

If you are over 65 you get an additional personal allowance, which can be eroded by investment income if this takes your total income above 21,800. Capital investment bonds can provide a source of funds without affecting your age allowance.

5 THINK LONG TERM

Continue to invest in pensions regardless of economic conditions as, depending on your tax rate, you will receive either an additional 20 per cent or 40 per cent tax relief on the investment, making pensions highly attractive long-term options. As you can invest in cash funds, there is no need to take any investment risk. A relatively brief downturn should not have an impact on long-term planning.

6 DIVERSIFY

Do not keep all your investment eggs in one basket. Consider a combination of the various asset classes, the main ones being cash, equities, fixed-interest and property, while alternative investments can also be included.

Diversification reduces your exposure to risk and protects your overall portfolio in difficult times.

7 RISK ASSESSMENT

Look at the level of risk you have taken with your investment. Is that approach to risk still relevant to your requirements? Can you meet your needs by taking less risk?

For example, why invest in equities if your needs can be met by cash returns, especially if retirement is imminent?

Ensure that you are taking no more risk than is necessary to meet your specific requirements.

8 BE VIGILANT

Monitor your investments in terms of performance and charges. Increased charges directly affect the performance, so ensure your investments are charged competitively.

9 CONSIDER DEBT

A debt could be viewed as a negative saving or investment. What rates are you paying on mortgages, credit cards, store cards and so on?

Can they be improved upon? Can they be consolidated to pay one lesser cost on a monthly basis?

10 PROTECT YOURSELF

While insurance polices such as income or mortgage protection are not directly savings or investments, they do protect against the erosion of such assets should your employment circumstances be at risk during a downturn period.

In that sense, they can prove to be a particularly astute long-term investment.