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Would you like to become wealthier in 2017? You are in good company. We asked FT staff, columnists and experts to tell us about their financial new year’s resolutions, and their revelations could well inspire you to change the way you manage your money in the coming year.
Covering investments, pensions, property, saving and taxation, our wise sages also share how they plan to end their bad spending habits, give more of their money to charity and nail that promotion and pay rise in the coming year.
We asked them to tell us about the financial decisions they’re resolving to tackle themselves in 2017, or something they have already done, and think the rest of us should consider as we plan for the year ahead.
Splash out on a hot tub
Merryn Somerset Webb, FT Money columnist
My new year resolution is very simple . . . to spend more money.
Running your finances is about finding a balance between your standard of living in the present and in the future. Save too little, and you are prioritising the present too much. Save too much and the reverse applies.
I tend to be guilty of the latter: I worry about the future more than I allow myself to enjoy the present. So this year, I resolve to redress that balance. I’m buying a new city car and getting that hot tub.
Consider cashing in your final salary pension
Martin Wolf, the FT’s chief economics commentator
Merryn Somerset Webb recently wrote “If I had a final salary pension, I’d cash it in now”. I agree. At current ultra-low interest rates, the transfer value of a defined benefit pension has become significantly overvalued. It seems sensible to take advantage of that fact. I have done so.
Could that be the wrong decision? Yes. But I would have to live to be close to a hundred and the pre-tax real returns on investments would have to be zero — or less — over decades. If the latter were to be true, capitalism would truly be dead. Moreover, if capitalism were dead, would the sponsoring company be able to meet its pension liabilities, in any case?
Get a transfer valuation
Baroness Ros Altmann, former pension minister
A few weeks ago, when interest rates nosedived again after Brexit, I obtained quotes for transfer values from my old defined benefit (final salary) pensions. I have decided to action a couple of these transfers to move the money into my defined contribution personal pension scheme.
The cash equivalent transfer values are so attractive and the freedoms for personal pensions now make DC pensions far more user-friendly than ever before. I don’t mind giving up some final salary, guaranteed pension income in exchange for what seems a very good value offer. And these DB pensions were built in the 1980s, before inflation-linking was added.
Having some money that I could use either for social care needs later on, or keep invested to hopefully grow over the next 20 years, is attractive to me. I am still working, but my scheme pension ages are 60 and would allow me to take the income now which I don’t need. So I feel 2017 will be an opportune time to transfer. We may never see such good transfer values again.
Invest less like a numpty
Matthew Vincent, the FT’s new Lombard columnist
Among the many obligations I feel my new role brings is one I’m certain to struggle with: investing less like a numpty in 2017, while eschewing (for code of conduct reasons) the only asset class I vaguely know about — UK companies.
To that end, I plan to exit two of my existing equity holdings:
1) A relatively high-charging and underperforming global growth fund (I know, I know).
2) Shares in a London-listed US education group that once owned a business newspaper (if its share price ever recovers to the level at which FT Money editor Claer Barrett cleverly sold out).
I will then reinvest the meagre proceeds in two 2016 trends I am persuaded will continue. The first is the re-rating of emerging markets equities, to a price/earnings ratio nearer their historical norm. I am relying on Research Affiliates’ data-driven conclusion that emerging market assets are still relatively cheap. It notes that, earlier this year, bearishness towards Brazil, Russia, Poland, and Turkey pushed the Shiller p/e (that’s the price to ten-year average earnings) of the MSCI Emerging Markets Index below 10 times. This has never happened before.
Even with a 19 per cent recovery in prices since then, the multiple is only 11.2 times. To put that in perspective, the index traded on 13 times 10-year earnings at the height of the financial crisis. Research Affiliates’ forecasting model says this indicates a 10-year real return of 7.5 per cent a year. Time for a cheap tracker fund?
My second hunch is that there will be increased demand for infrastructure debt financing, as US and UK leaders leave it to private money to meet their populist promises. I am relying on the sheer number of mentions of the word “infrastructure” in the US election campaign for this to come good. Barings notes that president-elect Donald Trump has proposed $1tn of new investment in US infrastructure with a focus on private capital — and therefore foresees “attractive risk-adjusted returns globally in senior debt investments, in both bond and bank formats.” It says investors already want their fixed-income portfolio allocations moved “into infrastructure debt.” Now, it’s just a question of deciding which bonds and which banks.
End your hoarding habits
Paul Lewis, presenter Money Box, BBC Radio 4
There are two ways to be richer. Increase your income or cut your expenses. So how about a plan for 2017 that does both?
I speak now to those of you who, like me, have stuff in storage. Who would have thought 10 years ago that renting out small, dark, unheated, industrial spaces would be so lucrative? In my area, storage space costs as much per square foot as renting a flat.
Look at it this way. What is your stuff in storage worth? Probably about as much as it costs to rent the space for a couple of months, tops. So every month after that is a waste of money. Will you ever really repatriate it into your home? No. Homes get smaller; families get bigger. It’s a law of nature.
Make a plan to sell anything that someone else might be foolish enough to buy — that Subbuteo table is surely worth a tenner? Put in on eBay or Gumtree. Then freecycle or charity shop the rest — yes, including that old lamp you always liked.
So make 2017 the year of de-storing. Make a few quid. Cut your outgoings. It is so liberating.
Don’t get hung up on predictions
Terry Smith, chief executive of Fundsmith
My new year resolution is to continue ignoring commentators and “analysts” who publish views on macro events and attempt to advise how you should invest based upon them.
In 2016, all of the mainstream media and polling organisations failed to predict the outcome of the Brexit referendum or the US presidential campaign. Yet this spectacular failure has not stopped them telling us what the economic and investment implications will be. The fact is that no one can predict the outcome of all the macro events which may affect markets — Brexit, China, Korea, the Middle East, oil, Trump to name those which spring to mind.
Even if you could predict what will happen it would not help as a) you would be hard-pressed to say when, and getting the timing of an event wrong is sometimes as dangerous to your wealth as getting the event wrong; and b) you would need to know what the market already expects in order to know how it will react. And then there are the true unknowns — the event which may have most effect may be one which no one realises may occur. I will stick to investing in a way which ignores these unknowns.
Find out if your pension is in a default fund
Claer Barrett, FT Money editor
My biggest financial achievement in 2016 (other than selling my Pearson shares a week before a profit warning) was managing to consolidate my two defined contribution pension pots. This was surprisingly complicated, and took six months — but I hope to reap the benefits in time, as the charges from my new pension provider are lower, and the range of funds I can access is greater.
At first, my new pension contributions went into something called a “default fund” — a vanilla, low-risk basket of investments considered to suit the vast majority of workplace savers. Is your company pension held in one of these? If you don’t know, the answer could well be “yes”.
It is not necessarily bad news — but different providers all have different “default” settings. Make it your resolution to find out what is included — and what’s not. For example, my own default fund had barely any exposure to emerging markets (which as a 39-year-old, is a risk I’m prepared to take with some of the funds in my pot) and was too heavily weighted towards bonds for my liking. But I wasn’t prepared to take any chances. My company pension will form the bedrock of my retirement savings, so I spent some time with my financial adviser discussing what the right route was for me — as well as probing the fee structures on different funds.
Limit your bond exposure
Paul Killik, founder, Killik & Co
Investors should resolve to be wary of bonds in 2017, particularly open-ended bond funds and only hold individual bonds of short duration.
Be long of US equities as we go into the new year, particularly financials, but note that tech also looks interesting after a period of underperformance.
James Pickford, FT Money deputy editor
Finding a mortgage is typically the most important financial decision a homeowner will make; no list of annual financial resolutions would therefore be complete without an admonition to ensure borrowers are getting the best available deal in a constantly moving market.
If mortgage interest rates were low at the start of the year, they sank even further in 2016 as competition between lenders reached new levels of intensity. Some big lenders cut rates on fixed term loans by as much as 0.62 percentage points over the year, according to financial website Moneyfacts.co.uk.
As the year ended, though, borrowing costs for banks began to rise and there were hints that mortgage rates may have hit bottom, giving added urgency to any borrower considering locking in a good deal. Lenders began pushing up rates on longer term deals such as five- or ten-year fixed-rate loans, but the biggest move came from HSBC, which withdrew its market-leading two-year fixed rate mortgage at 0.99 per cent.
Mortgage brokers took the end of the dominant “sub-1 per cent” rate as a sign of things to come, and expect more lenders to follow suit with higher rates on tracker and fixed-rate deals. There may not be a better time to cast an eye over the health of your home loan.
Organise a lasting power of attorney
Lindsay Cook, FT Money’s Money Mentor columnist
A new year is a time of reckoning for anyone entering Shakespeare’s sixth age. I am not quite at the “lean and slippered pantaloon” stage but I am determined to make this the year when I plan for the future before I enter second childishness and mere oblivion.
Last year, I tried and failed to organise lasting power of attorney for my husband and me. I called a local solicitor’s practice and asked for them talk us through the options so that if either of us became gaga, the other (or one of our sons) could take care of finances, health, welfare and property affairs. Obligingly, the solicitor did not call me back and I forgot to follow it up, thus proving the need for a back-up plan.
This time, I am determined to see it through. Only when you are fit and well can you think dispassionately about what you would like to happen. We will discuss the feasibility of hiring a cook or housekeeper in years to come.
It is not only the elderly who should think about putting their affairs in order. My sons are among the two-thirds of adults who have not made a will. So I can think of an easy resolution for them, too.
Learn how to use a stop loss
Lord John Lee, FT Money’s Small Caps columnist
All investors make a bad call from time to time, and show a loss within their portfolio. How one handles that loss is of considerable importance. I now adopt a strict 20 per cent “stop loss” policy: when a share I have bought is down by this much, it has to be sold unless there are compelling reasons to do otherwise or there has been a major fall in the market overall. This policy served me well recently.
Having bought shipbroker Braemar Shipping around the turn of the year at £4.30 and £4.50, attracted by its high yield and low debt, in August a very depressing trading statement sent the shares plunging. Having almost triggered my 20 per cent rule, out they went at £3.50 — the best price that I could then get. It was painful at the time, but with Braemar now trading around £2.80 it was clearly the right move.
But it is not only for financial reasons that one should take the loss speedily; retaining a lossmaking share in your portfolio is depressing and inhibiting. Every time you look at the portfolio or hear the company’s name mentioned it pricks, and saps your confidence. I have long believed that the key to successful investment is the avoidance of losses — a 20 per cent stop loss rule plays a very important part within this philosophy.
Take a punt on a property in Europe
David Stevenson, FT Money’s Adventurous Investor columnist
Mortgage rates in the eurozone, especially on long-term fixes, have crashed to the floor. Many moons ago (five years to be exact) I scraped together enough money to put a deposit down on a flat high up in the Alps, helped along by the obligatory euro mortgage.
I recently had to remortgage, and was astonished to discover that I had been granted a 20-year fixed rate for not much more than 2 per cent by my French bank. This prompted me to muse idly on the appeal of buying something else in Europe (maybe Spain) at these ridiculously low rates.
Assuming a long-term interest rate of 2.5 per cent repaid over 20 years, the property could be regarded as a long-term savings plan. A £100,000 (€120,000) mortgage accompanied by say £50,000 deposit (giving you a loan-to-value ratio of around 66 per cent) would cost you £530 a month for the next few decades according to my back-of-the-fag-packet calculations.
Obviously, exchange rates — and property prices — will fluctuate. But in the end, you’ll hopefully be sitting on a property worth more than £150,000. Be aware that continental lenders have tougher lending criteria (maximum loan-to-values of 60 per cent are not uncommon) and they will carefully scrutinise your earnings. But if you can squeeze through this process and have a decent deposit, all you need is for the pound to strengthen a bit more against the euro.
Donate your spare change
Caroline Fiennes, FT Money’s How to Give It columnist
This was the year that my household discovered Marie Kondo, the queen of tidying up.
Her books made me realise that foreign coins and notes lurking in my desk — from Bulgaria, Nigeria, Thailand and everywhere else — were unlikely to get spent any time soon.
So when I went through an airport last week, all of these relics from my ancient travels went into Oxfam’s multicurrency donation box in neatly labelled envelopes. I recommend you do the same: more resource for Oxfam, and less clutter for you.
Spoil your grandchildren
Ken Fisher, founder and chairman of Fisher Investments
In 2017 I’ll redo all of my estate planning documents.
I’ll study where I could flee to in the US or UK if my state of residence (Washington) goes to hell in a handbasket (which I’d hate, but it may well in the next few years).
I will also extend the duration of my minimal debt securities for expected falling long-term interest rates; buy an Italian bank; and overspend on over-spoiling my grandchildren.
Resolve to shop around
John Redwood, FT Money columnist
This year, I am going to use the internet to compare shop prices more. We saw inflation move up a bit in December but so far the retailers have done a good job keeping prices down.
I want to reward the ones who are best at buying well, offsetting the commodity price and currency pressures to give us cheaper prices. Going online is the best way of comparing prices (if you haven’t tried out CamelCamelCamel, the Amazon price tracking website, do give it a go).
I still like going to stores to see the goods, when I have the time, so I can see what it looks and feels like for real. It should also mean I buy more goods from the UK. I want to see our shops switch more from imports to home production, given the boost they would get from the fall in the pound.
Start a Lifetime Isa
Aime Williams, FT Money’s Millennial Money columnist
As a millennial, our biggest problem with saving (or even investing, for that matter) is that there’s not much left over at the end of the month. But April’s new Lifetime Isa for the under-40s is well worth considering.
The under-40s can save up to £4,000 a year, and the government will give us free money in the form of a 25 per cent bonus, worth up to £1,000, so long as the money is used to buy a first property or fund retirement. Property is my goal.
There are some important rules — the property has to be worth less than £450,000 — and if you take cash out for any other reason before age 60, there is a 25 per cent exit penalty on withdrawals. Nevertheless, I will be putting all of my excess money into this, because it offers the highest return on cash. I don’t want to take any equity risk, as I don’t intend on using this pot to save for the long-term.
One criticism of the Lisa has been that it will encourage people to abandon their workplace pension schemes, which have the benefit of employer contributions and tax relief (also known as more free money). I won’t be doing that — I like having two separate pots for two separate purposes, I wouldn’t want my long-term retirement savings to be in cash, and if I save carefully, I will get a bonus from using both schemes.
Cut your inheritance tax bill
Danny Cox, chartered financial planner at Hargreaves Lansdown
One of my new year resolutions is to transfer the ownership of my house into joint names with my wife to take advantage of the new main residence nil-rate band from April 2017.
This new allowance gradually increases the potential for passing assets on to others up to the value of £1m on the second death over the next four years.
The main residence nil-rate band starts at £100,000 and rises to £175,000 by 2020 and is in addition to the standard nil-rate band of £325,000. Transferring the property to joint names will cost a couple of hundred pounds and will immediately save my beneficiaries £40,000 in inheritance tax, rising to £70,000 by 2020.
Take the 10 per cent charity challenge
Jason Butler, FT Money’s The Wealth Man columnist
I’m going to increase donations to my Charitable Aid Foundation Account to 10 per cent of my annual income and ensure that these funds are distributed to a range of charities supporting UK and overseas causes.
I also intend to invest 10 per cent of my liquid capital into a spread of social impact investments, that focus on supporting UK community projects which help people help themselves, for example ex-offenders and young adults leaving the care system.
The charitable donations will give me higher rate income tax relief and lower capital gains tax by expanding my basic rate income tax band — plus, the charities will be able to reclaim basic rate income tax relief on the grossed-up contribution.
The social impact investments (SITR) will give me income tax relief of up to 30 per cent of the amount invested and the ability to defer (or obtain repayment) of tax on capital gains I have made in the previous three years. The SITR investment will also be exempt from inheritance tax after two years.
Sort our your savings
Sarah Saunders, personal tax expert, RSM
I resolve to move my long term savings out of the low interest rate accounts they have slipped into, and to access higher returns (such as they are).
Given the paltry returns on offer from cash Isas and savings accounts, I will look at Premium Bonds. Part of National Savings & Investments, you can hold up to £50,000 and returns are also tax free — so for a higher rate taxpayer the effective return is not bad.
You have ready access to your funds if needed. Winning also feels much more fun than getting interest and there is always the very faint possibility of the £1m jackpot.
Control your spending
Polly Mackenzie, director of the Money and Mental Health Policy Institute
This year I want to spend deliberately — not on impulse, and not because I fall prey to all the marketing emails, deals and offers I get deluged with.
At the charity I work for, we’ve uncovered quite how damaging impulse spending can be, especially for people with mental health problems, who can get sucked into a spiral of guilt and debt when they spend what they can’t afford.
But I think we’ve all stared at an online shopping delivery and wondered: what on earth was I thinking? Well, no more. I’ll be unsubscribing from every marketing email I get, and bundling any that get through straight into my spam folder. And I’ll find some software for my computer to stop me from indulging in online shopping while I’m at work.
If you get divorced, do it with dignity
Marilyn Stowe, divorce specialist at Stowe Family Law
I hope that more divorcing couples will first deal with the emotional fall out at their own pace if there isn’t an urgent need to proceed.
A common mistake made at the beginning of the divorce process is blindly trying to get it over, without thinking of the consequences. When clients come to me, I generally steer them away from this by gently urging them to take a breath and think hard about what their future will look like in a year or more.
Plan accordingly, get financial disclosure, don’t cut corners and above all, have confidence in the future. Some people can be so anxious to do a deal that they are prepared to accept what they’re told without properly checking it with their own legal team.
Get a financial adviser
Sir Steve Webb, head of policy, Royal London
My financial resolution for 2017 can be summarised in four words — get a financial adviser. For many years my personal finances were pretty simple, and being a member of a good final salary pension scheme can lull you into a false sense of security. But as I have got older and now have a mix of defined benefit and defined contribution pension rights, plus the needs of other family members to think about, I think it’s time I actually got some expert advice.
As the former pensions minister, I like to think I know my way reasonably well around the system, but the constant change to things like annual and lifetime limits for pension tax relief means that a little learning can be a dangerous thing and can lead to expensive mistakes.
It is often commented that many of us would willingly pay the fees needed to hire a legal expert to help write a will or a property professional to help sell a house, but somehow securing the services of a financial adviser never quite seems to fit in that category. So my goal for 2017 is to put that right.
Prepare for a rate rise
Gavin Oldham, founder and owner of Share Radio
I’d urge readers to think about rising interest rates in 2017. We’ve already seen an interest rate rise in the US this month, and I suspect the Bank of England will probably follow that lead at some point next year.
With that backdrop, it makes sense to reduce any debts you may have by as much as you can. Paying off debt will only get harder when interest rates go up.
On the savings side, if you have money you don’t need for at least five years, then think seriously about the stock market. Don’t feel you can only invest via funds. Picking individual stocks may boost your returns and can be good fun.
You can glean a lot of useful intelligence on companies from the your own life and experiences. If you like a product, then that’s a good starting point for further research. And make sure you use a stockbroker that charges flat rate administration fees — no point in handing over a percentage of your profits.
Above all else, take control of your finances. Reduce your debts and boost your savings — you can do it!
Think about extending your lease
Leonora Walters, personal finance editor, investors Chronicle
Do you own a leasehold property? How many years remain on your lease? If it is getting close to 80 years, this could have a serious impact on its value.
If your lease slips below 70 years, most buyers will struggle to get a mortgage. Your could sell at a discount to a cash buyer. Or the buyer’s solicitor might demand you extend the lease before they buy — making you do this as fast as possible and possibly not as cost effectively.
Even if you are not planning to sell your flat in the immediate future, you should not delay — the shorter the length of the existing lease, the more expensive it is to extend. And be aware — it can be a long and expensive procedure. The ultimate price depends on factors including the property’s value, the existing lease length and ground rent, and your negotiations.
For example, the actual cost of the lease extension could cost around £10,000 for a small flat, but professional fees (for a solicitor and a surveyor) could add a further £5,000 to £10,000 to the price.
Make a financial plan
Jayne-Anne Gadhia, chief executive, Virgin Money
Clear goals and a plan can offer peace of mind and open up exciting opportunities. Assuming you have paid off your debts, getting or maintaining the habit of setting money aside is important. Then, when you are in a position to invest, think hard about asset allocation and don’t invest in anything you don’t understand.
Buying shares in a company you don’t understand is risky. And if you don’t have the time or the inclination to study individual companies, there’s no shame in buying and holding an index tracking fund. In fact, I believe that’s the best strategy for most investors. So pay down debt. Then get the savings habit and invest wisely in stuff you understand. Repeat.
Get a promotion — and a pay rise
Lorna Fitzsimons, chief executive and co-founder of The Pipeline
January is the time when many of us resolve to get a promotion and a pay rise, so my advice to you for 2017 is give up believing in osmosis.
Why? Too many people in the workplace — and sadly, women are the biggest culprits — believe that news of their talents and hard work will be registered by some great all-seeing eye.
You might have worked tirelessly to win that account or sale, but did you talk to your colleagues about what you did? Do you know what your special skills or talents are? Can you talk about it — and do you? If not, how do you expect your current line manager or company to see it?
Only you can take charge of your destiny at work. My advice is to define your key skills for others (I believe everyone is good at three things) and set a three-year career goal. When you are in the interview seat, what do you want to be able to say to the panel? Once you have this information ask to see your chief executive, departmental director or human resources director and ask for their help in achieving this goal. People will want to help you — but you need to take a deep breath and ask.
Get started as an investor
Iona Bain, author of “Spare Change”
My resolution as a 28-year-old is to get started as an investor — I have capital to spare, I don’t need it in the short term and even if interest rates on savings accounts rise, I want to make my money work as hard as possible.
My first task is to find the best platform for a stocks and shares Isa. Finding a cheap one is easy; choosing the right one for my needs is harder. There is a raft of contenders, all with different pricing and charging structures, so I have to know how much I am likely to be investing over time and how often I want to trade.
Most platforms have an annual fee, which could be a flat rate or levied as a percentage of your investments, plus a dealing charge. You will need to weigh up which model is the most cost-effective. The platform charges are on top of the fees that funds themselves charge — but some platforms can give you cheaper access to the most popular funds. And different platforms give you access to different kinds of investments (for example, not all will give you access to shares in individual companies).
And the second part of my resolution? Deciding what to invest in. I’m going to focus on investment trusts for now, because they have a number of good features (an independent board and a genuine long-term focus, to name just two).
Be ready for uncertainty
Keith Richards, chief executive, Personal Finance Society
My key resolution for 2017 will be to review the implications of political uncertainty on my long-term financial planning. And I know I will not be alone.
In the days following the Brexit vote, Personal Finance Society members told me that huge numbers of clients had contacted their advisers to ascertain clarity over the implications on their personal finances.
As Donald Trump prepares to take office in January and our government kicks off negotiations over the UK’s exit from the EU, 2017 provides a landscape of further uncertainty.
There has rarely been a better time to assess one’s personal finances. It is in times like these that, the old maxim “failing to plan is planning to fail” comes to mind.