5 ways to ensure you get the most from a financial review

As we head into another new year, it’s the ideal time to carry out a financial review. This can provide an opportunity to consider your existing strategy and ensure it’s in line with your aims.

You can also address any underperforming investments and potential threats to your wealth, such as inflation or not being as tax-efficient as possible.

If you want to take stock of your finances, you might be asking yourself: “what do I need to include in a financial review?” If so, discover five key areas you need to consider.

1. Inflation-proof your wealth

The Office for National Statistics recently revealed that inflation stood at 5.1% in November 2021, the highest rate for 10 years. Inflation is the rising cost of living, which means your money could lose value in real terms, as £100 in the future is likely to buy you less than it would today.

Interest rates are predicted to rise in 2022, which could help inflation-proof your money. That said, the media has reported that interest rates are likely to remain significantly below inflation.

One way to protect your money might be to invest, as over the long term, stocks and shares typically offer greater growth potential than savings. This is backed up by the 2019 Barclays Equity Gilt Study, which tracked the nominal performance of £100 invested in cash, bonds or equities between 1899 and 2019.

It found that £100 invested in cash in 1899 would be worth just over £20,000 in 2019, yet if the money had been put into stocks and shares, it would have been worth around £2.7 million.

2. Check your pension is on track

Regularly checking the value of your pension and the income it might provide in retirement is key to good financial planning. Not only can you see if your retirement fund is underperforming more quickly, but you can also take action earlier to get it back on track.

Speaking to a financial planner is always a good idea, as they can confirm how your pension is performing and provide options if it’s falling short of your goals.

They can also make sure you are maximising the tax relief you receive on contributions. According to the Telegraph, 80% of higher-rate taxpayers don’t claim all of their pension tax relief, meaning they are collectively missing out on an estimated £810 million of unclaimed tax relief each year!

Reviewing your pension – or wider investments – might also be an ideal opportunity to consider switching your pension to sustainable funds. Today these are better known as “Environmental, Social and Governance” (ESG) funds, and according to Pension Age, could be extremely effective in tackling climate change.

Whereas investing with a conscience historically meant reduced growth potential, this need not be the case nowadays. A financial planner could help confirm whether switching your pension is right for you, and ensure any ESG fund you’re considering provides the level of growth potential you’re looking for.

3. Make sure you’re taking the right level of risk

While exposing your investments and pensions to too much risk can be harmful to your wealth, so can not exposing them to enough. This is because the riskier funds within them typically provide the growth, meaning too little risk could cause underperformance.

A financial planner could help you to understand how much risk is right for you and your circumstances. This could help ensure your investments or pensions are exposed to as much growth potential as possible, while maintaining a level of risk that’s acceptable to you.

4. Protect your lifestyle if the unexpected happens

Protecting your income is all too often missed during financial reviews, and yet it’s vital.

While your employer may continue to pay your salary if you are diagnosed with an illness, they are not obliged to do so. If you do not have another source of income, you may have to rely on savings and other assets to support yourself financially.

If these then run out, you might not be able to meet your mortgage repayments or pension contributions, which could put your home and long-term financial security at risk.

The good news is that you can protect your earnings if you’re diagnosed with an illness and cannot work. Income protection could provide a tax-free amount every month that would allow you to meet your financial commitments and maintain your lifestyle both now and in the future.

5. Ensure you’re as tax-efficient as possible

Making use of all the tax breaks available to you could save you money both now and in the future. Not only could you use allowances to reduce your exposure to Capital Gains Tax (CGT), Dividend Tax and Income Tax, but you could also reduce your exposure to future taxation, such as Inheritance Tax.

This could save you significant amounts over the long term.

Another way to be as tax-efficient as possible is to use all of your ISA allowance. As ISAs are not liable to CGT or Income Tax, ensuring you put as much money into them as possible can be a shrewd move.

In 2021/22, you can put a total of £20,000 into ISAs, whether that’s in cash, stocks and shares or a mixture of both. Remember that you cannot carry forward unused ISA allowance to the next tax year.

A financial planner can help

If you are wondering “what do I need to include in a financial review?”, speaking with a financial planner could help. They can ensure the review covers every aspect of your wealth to protect it from the unexpected, maximise growth potential, and make sure it’s as tax-efficient as possible.

Get in touch

If you would like to carry out a financial review or discuss your wealth or pension more generally, please email me at a.douglass@grosvenorconsultancy.co.uk or call my office on 01793 766 123. Alternatively, call my mobile on 07525 177 046.

While I offer high standards of service and will work with you to ensure any plan is right for you, I’m also a busy mum, so work Mondays and Tuesdays only.

Please note

This article is for information only. Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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