Woodruff Financial Planning blog

I turned on the news this morning to see a happy couple in front of the TV cameras having won a huge jackpot on the Euromillions.  This turned my thoughts back to a previous post on Sudden Wealth, which would probably describe the situation of the lucky winners today.

A psychologist was commenting on the effects of such a life-changing event, and in particular focused on issues of how the couple’s life would be different in many ways.  Obviously, most of their financial windfall will be positive, but he was cautionary about how the money would need to be managed, both from a financial planning perspective, and from an emotional standpoint too.

We think that people need to think about their financial goals at all points of their lives, but at times of sudden wealth financial strain can be quite severe.

For many people, this will not be as drastic as a huge lotto win.  But there are many other situations which can bring about a life-changing influx of money.  With this money comes the need to manage your finances.

Think about the following situations:

Sale of a business
You would hope to sell your business for a suitable sum, which after tax would help provide you with enough money to achieve your financial lifestyle needs.  No doubt you would need financial advice on when to actually sell (i.e. when you have enough to retire), but also how to manage the capital to generate a suitable income.

Inheritance
You may come into a significant sum of money which would need management both for capital and/or income.  It can be tempting to spend the windfall, when some sound financial planning will set you on a secure financial future. See our inheritance tax section on our website.

Divorce
This comes with issues for both sides.  Both parties will need to plan how their finances have changed, perhaps making up lost pension benefits or buying a new home.  Of course, if you receive pension benefits from your former spouse as part of the divorce you will need help to manage these new assets. See our leaflet on pensions and divorce.

Critical illness
If you have managed to claim on a critical illness policy then your life will have changed dramatically.  You will probably have a serious and debilitating condition, and would likely have to give up work.  The policy may have been set up to simply pay off the mortgage, but you might have also provided further benefits to help give you an income and/or make alterations to your home.  In any case, you would probably want to have some ongoing advice to ensure that this resource is best used.

Ultimate high earners
In this category might be sports stars or entertainers, who get paid significant sums for their talents; alternatively, directors or city workers might also receive bonuses as part of their package.  For some, they might want to seek a financial planner to help them organise their finances into a sound footing to avert the times ahead when the high income might dry up.

Thinking about those lucky Euromillions winners, I would say 3 things:

1. You should probably avoid the lotto – It could be you, but statistically, it probably won’t;
2. If I won the lottery, I definitely wouldn’t appear on TV spraying champagne everywhere;
3. I also wouldn’t be saying that my life would not change. With a sudden windfall, everything changes, and this needs careful management both from a financial and an emotional perspective.

Click here to download out leaflet on sudden wealth.  You may also be interested in our core services, which aim to help you plan your finances and manage your money.

5 ways To measure risk in investment portfolios: http://viigo.im/2fQH

This is an interesting article which explains some of the technical measures which we can use to assess risk in your investment portfolios.  If you are just looking at past performance you could find yourself taking excess risk with you money, or worse, paying for fund management from a closest tracker fund.

Get your free investment or pension portfolio review: http://bit.ly/4NEFvG.

We are offering a trial to allow you to investigate the basic performance of your pension or investment portfolio. Contact us to give us the details of your investment funds, and we will produce a basic analysis of your portfolio to give you an idea of how it is doing.

If you are reading this, then you probably have a sizable amount invested in investments or pensions.  Most people do some research when they set up their investments (and this applies to most advisers too!).  However, many (most) investments are rarely reviewed.

If you think about it, if you have many thousands of pounds invested you really should be keeping a strategic eye on this money (after all your financial security depends on it).  If you bought a car for £20,000 wouldn’t you get it serviced each year? The alternative is to expect something to go wrong in the future, probably when you most need that money.  Well, your investments or pensions could/should end up being much more valuable than you car, but when was the last time you reviewed them?

What should you look to review with your investments?

• You should be able to know the rough value of your holdings at any point
• You should understand the level of risk you are prepared to take, and the likely positive and negative outcomes this may generate;
• Where your money is invested, and what this means for you;
• When to make strategic changes to your portfolio;
• Know when to switch out of funds;
• Know what the investment and income outlook is for your investment.

We don’t think you need to look at things daily, but you should look at things at least annually.  Failure to do so could mean that you end up taking more risk than you meant to, and could end up leaving you with a nasty shock at a later date.

If you have an adviser, ask yourself how often they sit down with you and explain all of the above to you.  If the answer is that they do not, then perhaps you should think about changing your adviser!

How do we help clients with this?
We offer our Portfolio Management Service, which aims to help clients manage risks with their money, and to maximise returns on their investments.

Aviva, one of the largest insurance companies in the UK has announced the bonus rates for existing and new holders of their with profits fund.  This will be at 2.75% for the coming year (the same as last year).

We are not fans of with profits policies since they are very difficult to value, understand, and often come with exit penalties which clients did not expect.  We do not recommend with profits plans for our clients.  The reason for bringing up this issue is that holders of this and similar funds will have a very modest growth for the coming year.  Compare this to the average UK stockmarket fund last year, which generated 30.39% growth.  Now, with profits managers will point out that they were probably offering positive growth when unit linked funds were losing money.  However, our concern is that these funds will probably have poor growth prospects going forward.

After all, if you were offered 2.75% growth on an investment, why not keep it safer and with easier access in a bank account?

We can help you to analyse your with profits policies, and work out whether you may be better off by switching to a new portfolio to match your risk profile.  See our portfolio management service.