The mistakes investors make are surprisingly common; with a little prior knowledge and research they are easily avoided. To help you make informed decisions and remain financial secure in the future, here is what you should be avoiding…
Falling victim to a scam
It’s a hot topic right now, so much so that the Financial Conduct Authority (FCA) have launched a TV advertising campaign warning against pension scams. They are becoming increasingly sophisticated thanks to the high values involved; it’s worth their time and investment for the potential ‘return’ they receive on your lifetime savings.
The best thing you can do is be proactive. In every circumstance, avoid cold callers and reject unsolicited offers. Other contact methods include email, by post or a seminar event held. Often scams have focussed around transferring Defined Benefit (otherwise known as Final Salary) pensions into high risk, exotic-sounding investments such as cryptocurrencies. Even the FCA’s dedicated ScamSmart site quotes; “But if it sounds too good to be true, it probably is.”
Specifically, fraudsters will often:
- In the first instance, offer a ‘free pension review’
- Apply pressure to decide quickly, offering a bonus or discount if you invest before a particular date or saying the opportunity is only available for a short period of time
- Downplay risks; they might say you will own actual assets you can sell to make back any losses or use legal jargon to suggest the investment is safer than it is
- Promise ‘too good to be true’ investment returns
- Say that the offer is exclusive, and they are only making the opportunity available to you
The Financial Services Compensation Scheme (FSCS) have paid out a whopping £112m for Self-Invested Personal Pension related claims in 2017/18, an increase of 7% on the previous year. The situation is getting worse; there are more victims. Figures from Action Fraud show that on average affected retirees lost £91,000 each in 2017. Some have lost significantly more.
There are limits to the amount of compensation the FSCS will pay; it will depend on the basis of your claim and they only cover financial loss. For investments and pensions the maximum level of compensation is £50,000 per person.
In 2017/18 there were an astonishing 6,360 claims made; 5,800 of which were upheld with an average amount paid out of £26,793. Don’t end up one of these statistics, keep your whit’s about you and engage a reputable firm.
When con artists are avoided, and financial planning is done properly, there are five steps to help secure financial security:
1. Don’t think short term
Investing for the short-term simply won’t give investments the opportunity to grow. This is particularly important if your goal is long-term; such as planning for retirement.
Investment markets do fluctuate, but history shows that, given time, they will recover.
2. Don’t put all your eggs in one basket
The adage remains as relevant as ever! A diverse portfolio spreads risk and will help build a secure financial future. Let’s be frank; diversification will not guarantee gains, but it will minimise risk.
3. Past performance isn’t a future expectation
Just because your portfolio or a particular investment fund has done well in the past is no indication of its future success. Fund managers change, as do markets and stock performance.
There is no guarantee history will repeat itself; thorough research is the only alleviating factor.
4. Accept risk and expect volatility
Investment risk is inevitable, you cannot achieve returns without it. What you must do, or rather what your financial planner must do, is understand and manage your tolerance to risk and ensure you are never exposed to more than you feel comfortable with.
Under all circumstances, try to avoid making emotionally-driven decisions. When your investments drop (and they may well, temporarily), withdrawing your investment and ‘locking in’ a loss is possibly the worst decision you can make.
5. Don’t neglect your investments
They will need regular reviews, primarily to ensure they remain within your risk tolerance and are performing as expected. This can be a laborious and technical exercise, which is why even the especially financially savvy outsource management to dedicated professionals.
The value of great advice
We understand that the financial world can be a daunting place and that getting reliable advice needs the right Financial Planner for your circumstances. As a firm of Independent planners, we at BlueSKY have no obligation to any one product or provider. Furthermore, our firm and advisers are Chartered; the ‘gold standard’ of financial planning and positions us amongst the UK’s leading practices.
You can be confident that you will receive the best possible advice, service and support. Our team are friendly, personable and work with you. To help make your complex investment decisions simple, call us on 01189 876655.