Investing in your future: 5 simple steps to breaking old habits
Look after the pennies and the pounds will look after themselves - so goes the expression. The past five years have been turbulent and many people have chosen to hunker down, keep their assets in lower-risk places and weather the storm. As a consequence, it could be a few years since you last reviewed your net worth, where your income is coming from, and how well you are set up.
On the upside, financial models, technologies and tools have seen a great deal of innovation across the same period, giving you new options for where you put your money, how you manage it and the costs you need to incur. This is all well and good, but the result could be that your assets are not working as hard as they could be, which in turn may translate into you missing out on potential returns.
As winter turns to spring, and for the sake of a relatively small amount of effort, what can you do to make your money work harder in 2016?
1. Know what assets you have, where and why.
When was the last time you gathered everything to do with your assets into one place, on to that figurative single sheet of paper? If you did, you might find some investments are no longer working for you, for example if they have already matured or the account no longer gives interest.
Also, given that some time may have passed since you last pulled everything together, some fundamentals may have changed in terms of your family or employment status, your working age or health, or indeed, your personal disposition to financial risk.
The market has changed fundamentally over the past five years, as no doubt has your own situation.
2. Brush up on what's possible today.
Ready to dive in? While it can appear impossible to keep up with change, now is a good time to take a snapshot of what's possible. Changes in legislation can quickly impact where you should put your money - pension rules have changed profoundly in recent years (and continue to do so), as have tax breaks on buy-to-let property.
Meanwhile, new financial technology providers are creating new ways of investing (such as peer-to-peer investment and lending, from the likes of Seedrs and Zopa) and opportunities to save on fees for brokerage and management (for example using investment trusts). So get some background research under your belt on what is now available.
3. Break with old habits
Time to put your thinking cap on. As you take a strong cup of coffee and brainstorm what makes the most sense for your future investments, you should consider your portfolio as broadly as possible - your salary, your house and mortgage, your insurance policies, your assets, loans and payments.
Take each and make sure it is working for you as it should, for example checking payment terms on loans, or reviewing insurance premiums with a comparison site such as GoCompare. There's no point, for example, working overtime, if you have no time left to properly manage your portfolio of shares and trusts, therefore losing potential gains. It could be the most important few hours you ever spend!
4. Embrace change: increase returns, cut fees
As you put your investment plan together, you can revisit pensions, government backed schemes such as EIS and SEIS, and other innovative models to make your savings work harder. With interest rates so low you don't have to be a financial expert to improve on what banks are currently offering!
Of course it is worth making the most of good advice, either online or face to face but recognise that advisors and brokers will charge for their services, one way or another - while many financial fees are more transparent, some (such as in foreign payments) remain obscured behind misleading 0% rates. Give online self-service tools a try, as you may find them easier than you thought - freemarketFX, for example, cuts commissions to a flat rate so you know exactly what you are getting.
5. This is just the beginning: review and keep up!
As you sit back and think how that exercise wasn't so hard, see it as a first step into the future. Good financial management is about keeping your eye on the ball, as small market changes can make or break the viability of long term investments .
With new options continuing to appear, it is worth building regular reviews into your investment approach. Keep learning and be prepared to change - who knows what might be round the corner, as technologies such as blockchain start to have an impact?
Sticking with the status quo might benefit banks, scheme owners and brokers, but potentially at your expense. Above all, don't be daunted by taking control of your portfolio: you might find that a small amount of well-placed effort will not only bring increased returns, but you could also have some fun in the process!
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