Third Deadly Money Mistake Not Reviewing Your Investments and Tax

The third deadly money mistake is where people fail to regularly review their pensions, investments, and tax position.

1^st Rule in Management – “Anything that is not managed will deteriorate”.

• If you do not check your tyres, water, oil levels, your car with eventually become unroadworthy or indeed illegal and unsafe.
• If you do not time your boiled eggs and watch your toast, the eggs will hard boil and your ‘soldiers’ will be burnt.

This is the same for our finances.  Economies move in cycles, stock markets change, interest rates vary, and the government is continually looking for ways to tax the ‘lowest hanging fruit’ to generate the greatest revenue from the widest possible audience.  If you do not regularly review your investments and taxation position, how can you possibly plan for retirement or mitigate tax to ensure that more of your hard earned money stays in your pocket?

For example:  FTSE 100 Index

• 2000 – year high at 6,930
• 2003 – year low at 3,287
• 2007 – year high at 6,732
• 2009 – year low at 3,512
• 2013 – year high at 6,840
• 2016 – year low at 5,536
• 2018 – year high at 7,877
• 2020 – year low at 4,993
• 2023 – year high at 8,047

The above demonstrates that if you ignore your money, it will never grow.

• If you invested in FTSE 100 at the wrong time in millennium year 2000 at 6,930, you would not have made any real profit until 2018 when FTSE went above this and hit 7,877.  That’s 18 years before breaking even and then in profit.
• If you invested in FTSE 100 at the wrong time in 2013 at 6,840, you would not have made any real profit until 2018 when FTSE went above this and hit 7,877.  That’s 5 years before breaking even and then in profit.
• If you had invested in FTSE 100 in Spring 2023 at 8,047, you will be currently in a loss-making position at 7,587 (09/08/23) i.e., -5.71%.

We are not trying to time the market here; we are talking about regularly reviewing your finances to make fund adjustments to reflect that markets at the time and move between positive and negative sectors.

Interest Rate Reviews

During Covid-19 lockdown periods, we warned everyone to plan for higher inflation and higher interest rates.  We told our regular viewers that £500bn of government debt (paying for covid-19) would need to be repaid and the only way to do this was to stimulate inflation which devalues debt before it is due to be repaid.  At 5% pa inflation, compounded over 10 years, that’s a 62% devaluation in the £ i.e., a 62% devaluation in the real time cost to repay the debt.

We warned you then of increased prices, costs of living and increased interest rates and to think about fixing again (even if you had early exit penalties on your existing deal).  We personally reviewed and planned for this and remortgaged a year early in April 2022 with a minor exit penalty on the old deal to secure 2.23% pa fixed for another 5 years until 2028.  An £700 penalty to fix at 2.23% pa compared to rates now for the same deal at 6.07% pa.  For example, on £100,000 15-year repayment mortgage, the cost for us is now £654.15 pm.  If we had left the remortgage until now at 6.07% pa, the monthly repayment would now be £847.64 pm.  That’s a saving of £193.49 pm or £2,321.88 pa or over a 5-year deal, a saving of £11,609.40.  All for an £700 early redemption fee.  Without reviewing our own finances, that would never have happened.

Taxation Reviews

You may have seen or heard us use the term “Use it or lose it”.  Every year, we have personal allowances, pension tax relief allowances, capital gains tax allowances, inheritance tax gifting allowances and more.  HMRC and the government rely on your personal inertia i.e., doing nothing and not using your allowances meaning you pay higher taxes that you needed to.  If you don’t use your allowances or plan early, you will pay more tax than you need to.  The Spring Budget of 2023 has bought this more into focus, with CGT annual allowance falling this year to £6,000 (2023/24) from £12,300 (2022/23) and down again next year to £3,000 (2024/25).   Dividend allowance has also reduced from £2,000 (2022/23) to £1,000 this year (2023/24) and down again to £500 (2024/25).

Conclusion

Your money is your future, it may be complex, but it is worth doing and with professional advice it could make or save you money with regular reviews. 

2^nd Rule in Management – “Measure everything of significance.  Anything that is measured and watched improves”.

Take a look at our Money MOT services – An Initial Review followed then by Bronze, Silver, Gold or Platinum Service.  Read: Money MOT and Shop (Fees): Review Plans  and Money MOT

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