The cost of delay

Let your savings snowball

Making an early start is the most important factor in saving for the future.

Saving for the future can often come well down the list of financial priorities, behind paying off debts, paying a mortgage and financing a child’s education. However, the longer you put it off, the more you’ll miss out on the power of compounding returns.

Einstein reportedly stated: “Compound interest is the eighth wonder of the world. He who understands it, earns it... he who doesn’t... pays it.” Most people appreciate the importance of paying off debts to avoid the interest rolling up. But the power of the compounding concept is often overlooked by those who need to create wealth for the future.

The secret of investing success lies in the way that investment returns themselves generate further gains. Reinvesting any income generated, rather than paying it out, means that returns in the next period are earned on the invested sum plus the previously accumulated income. It’s very much like a snowball effect: once it’s rolling, the more snow it collects and the bigger it gets.

Reinvesting dividends paid from company shares provides a powerful example of how compounding can boost investors’ total return. Figures from Barclays show that a notional £100 invested directly into UK shares at the end of 1945 would now be worth £10,933 in nominal terms, without the income reinvested; but would have grown to £238,690 if the dividends had been reinvested in more shares.1 However, past performance is not indicative of future performance.

The chart below illustrates just how much difference compounding could make when someone starts saving earlier. Daisy starts saving £200 a month when she is 25; Ken saves £400 a month from the age of 45. In total, they both save £96,000 by the age of 65. However, assuming an illustrative growth rate of 5%, Daisy ends up with almost twice as much as Ken due to 20 extra years of compounding returns.

Of course, these figures are examples only. The level of returns in both scenarios cannot be guaranteed and would depend on the performance of the underlying investments. They do not take into account the impact of charges and taxation which would also reduce the value of an investment.

Younger generations may nowadays face even greater financial challenges, but they have got time on their side. That’s why it also makes sense for families thinking about intergenerational planning to help children and younger adults make an early start by saving money through Junior ISAs, ISAs and pensions.

If you are telling yourself that you will put aside money for tomorrow ‘when I can afford to’ or ‘when I’m making more money’, you risk leaving it too late. But by getting into the savings habit earlier, committing to a plan and giving your money the chance to grow, a more secure financial future remains within reach.

Source: St James Place

How much does financial advice cost?

Our service is FREE for the initial consultation

If appropriate, and after agreement of need and value to the individual, the Financial Adviser will then offer to work on a charged basis in one of a few ways. For example: 

● An hourly rate - This will vary based on the advice provided and will be agreed up-front

● A small percentage - With ongoing investment management, you may be charged a percentage of the overall value

● Fixed fee - For a fixed fee for one-off services such as transferring a pension or buying an annuity

● Commission - This may apply to products such as insurance or mortgages. 

Your adviser will discuss with you in detail the likely costs whichever route you choose to take and they will not commence work on your behalf until you have agreed what would be best for you.

Financial advice can benefit customers by £40,000

New research shows those customers who receive financial advice can be better off on average by £40,000.

We've sponsored a research project with the International Longevity Centre – UK (ILC-UK) to produce ‘The Value of Financial Advice’ report. This independent report demonstrates that customers who take financial advice can on average be £40,000 better off than those who don’t take advice.

The report analysed data between specific time periods across a range of different individual and household assets in Great Britain and examines the impact of financial advice on two groups; those who are ‘affluent’ and those who are ‘just getting by’.

The ‘affluent’ group has been identified as those who are more likely to have degrees, be part of a couple and a homeowner. Whereas the ‘just getting by’, are more likely to have lower levels of educational attainment, to be single, divorced or widowed and rent a property. Here’s some of the findings from the report:

When the ‘affluent’ group received financial advice on average they accumulated:

• £12,363 (17%) more in liquid financial assets

• £30,882 (16%) more in pension wealth

• A total of £43,245 more,than those who were also deemed to still be affluent but didn’t receive any financial advice

The report also identified that 6.7% of this group were more likely to save and 9.7% were more likely to invest in the equity market compared to those that didn’t receive financial advice.

Whereas, those within the ‘just getting by’ group who did received advice, on average accumulated:

• £14,036 (39%) more in liquid financial assets

• £25,859 (29%) more in pension wealth

• A total of £39,895 more, than those who were also in this group and didn’t receive financial advice

This time round 9.7% of this group were more likely to save and 10.8% were more likely to invest in the equity market that the equivalent of those who were in this group but didn’t receive any financial advice.

Here’s what Steve Webb our Director of Policy, had to say about the report:

“This powerful research shows for the first time the very real return to obtaining expert financial advice. What is most striking is that the proportionate impact is largest for those on more modest incomes. Financial advice need not be the preserve of the better off but can make a real difference to the quality of life in retirement of people on lower incomes as well. The evidence shows that when people take advice they are overwhelmingly satisfied and benefit as a result. More needs therefore to be done to overcome the barriers to advice.”

Source: Royal London

What is attitude to risk? (ATR)

Everyone has a different attitude to risk and their attitude to risk may/will vary over their lifetime, most of us becoming more risk adverse as we get older. In simple terms on a scale of 1 to 10, if 1 is putting your money in a tin box under your bed then typically Australian mining shares would be 10. Although there is always a risk to the tin box!

Choosing the right investments means balancing how much you are prepared to lose with how much you hope to earn.

This means understanding risk and your attitude to risk – how much risk you are prepared to take with your money and assets in a particular time-frame.

This can be affected by many factors, including your personal situation, age, goals and the current economic climate.

Where have you heard about attitude to risk?

If you talk to a financial adviser they should ask you about how much risk you are prepared to take with your money. You may also find questions about attitude to risk on investment applications forms or online investment platforms.

What you need to know about attitude to risk...

Usually, the higher the risk you are willing to take, the higher the potential returns could be – but equally, the higher the risk of losing your money too.

Low risk investments are likely to offer lower rewards, but have less risk attached too. You have to choose the options you are comfortable with.

Your attitude to risk can of course change over time. You might become much less risk averse if you came into a big sum of money, for example, or much more risk averse if you start to have a family and need to think about securing your children's future too.

Stay safe from pension fraud

Anyone with a pension pot could end up falling victim to pension fraud. You don’t have to be retired or even near retirement – scammers can target you at any age with attractive-sounding offers or investments and trick you into handing over your life savings. The chances of becoming a target are relatively small, but frauds are becoming more sophisticated and harder to spot, so it pays to be vigilant.

By being aware of the risks and taking simple precautions, you can protect yourself and your loved ones from these frauds and scams. Watch out for these warning signs.

Signs that it’s (probably) a pension scam

Somebody contacts you

Real advisers don’t hawk around for trade, so if it’s a cold call, text message or a knock at your door, it’s almost certainly a scam. A clever fraudster might claim to be returning your call, in the hope that you’ve recently contacted a legitimate service or adviser. Always check that an adviser is registered with the Financial Conduct Authority (FCA) or call 0800 111 6768, and call them yourself on the number given on the FCA’s website – not any number the cold caller gives you.

A caller may also claim to be from a government service such as Pension Wise or the Department for Work and Pensions, or something with a similar sounding name. These government services will never call you first, so don’t be fooled.

If you want to call an caller back to verify that it’s really an adviser, do so on a different phone from the one you used to answer their call.

They offer you access to your pension pot before age 55

This is an easy one. Except in very special circumstances (e.g. you are in very poor health) you cannot access your pension before you reach 55. Therefore anyone offering this is asking you to break the law, so by definition they are already a criminal. Just say no. You could also report them to the FCA or to Action Fraud (see below).

They try to hurry you into a decision

A classic trick by rogue traders everywhere is to say a deal is about to expire, so you have to get in quick. This is partly to make sure you don’t have time to hire a bona-fide adviser who could see through their bogus offer.

Couriers are involved

One notorious technique is to cold-call a potential victim, pressure them to sign up for a scheme, and then send round the papers to sign via a courier who does not know anything about the arrangement (and so cannot answer questions). Never sign anything you don’t fully understand or aren’t fully comfortable with. Search for an independent financial adviser to go through any paperwork in detail.

They are hard to contact

Make sure you have a full postal address and landline telephone number for them, and do your best to verify both are genuine. If all you have is a website, mobile number and/or PO box address, be very suspicious. It’s also a bad sign if you find it hard to call a firm back for any reason.

The scheme they are offering sounds convoluted or exclusive

Most genuine investments are surprisingly straightforward. If someone offers you surprisingly high returns, tax ‘loopholes’ or special overseas investments, be extremely wary. Similarly, don’t put all your eggs in one basket – a genuine adviser will always recommend diversifying your portfolio.

They use certain giveaway phrases

A scam will often be disguised under phrases such as ‘pension loans’, ‘upfront cash’, ‘one-off pension investments’ or ‘free pension reviews’. Genuine financial advisers do offer free pension checks – you can find them here. Generally, avoid any offer that sounds too good to be true – you will almost certainly lose money, not gain it.

Finally, there is always the possibility of encountering a scam that no-one has seen before. You can find more anti-fraud tips at the UK Care Guide. The best protection against being caught out by a new fraud is only ever to use an FCA-regulated financial adviser whom you have engaged yourself.

What to do if you suspect a scam

If you think you have been the victim or the target of a scam, you can call the FCA free on 0800 111 6768. If you may have already lost money to a fraudster, contact Action Fraud on 0300 123 2040 or visit www.actionfraud.police.uk.