Daniel Cornish, chartered financial planner at Wealthwide, talks through how to act in the current financial markets.
With all the negative headlines about UK fiscal policy, inflation, interest and mortgage rate rises, stock market volatility and gilt prices falling, many dentists will have been watching in horror as the value of their investments has fallen, wiping out any growth from the last few years, and raising concerns about pensions and retirement.
The FTSE is down 10% year to date; the US Nasdaq has fallen further at 33% during the same period. In such times, we would look at the bond markets to provide some stability but the value of UK 10-year gilts slumped following the Chancellor’s announcement of unfunded tax cuts.
This in turn prompted the Bank of England to embark on a programme of buying up long dated gilts in order to head off a liquidity crisis among UK pension funds.
Impact on dentists
Many dentists may be tempted to cut their losses and pull their money out of the market, to avoid any further falls. Some may be worrying about whether they can retire when they wanted or planned.
Does a 10% drop mean you need to work another year or two beyond your current planned date or accept a lower standard of living in retirement? The recent inflation levels and higher costs of living just compound the effects of a falling market.
NHS Pension
Although NHS pensions are not directly affected by stock market volatility, for many members, the high level of inflation has created further annual allowance issues.
This is because of the way the growth in the scheme is calculated each year, resulting in an increased cost of ‘scheme pays’ where the NHS covers the tax liability for the member. This is a fairly complex area; the solution depends on a number of factors and I highly recommend taking professional advice
Timing the market?
Unless you have a crystal ball, it is simply not possible to time the market. In this case the horse has bolted and taking money out of the markets now could be a case of too little too late.
If you are a few years from retirement, then often the best thing is to sit tight and ride out the downturn. The evidence suggests that it is just not possible to disinvest your money and then time the right moment to invest back into the market.
Approaching retirement
If you are nearer retirement, you could re-evaluate your plans using new numbers based on the current values.
You can work out if you need to make compromises such as having to work for longer or plan to go on less expensive or fewer holidays in order to retire at the same time. This will help you have a clearer idea of what the market turmoil actually means for your personal situation.
How can financial planning help?
Financial planning can create accurate forecasts regarding your financial security over the next 20 to 30 years of your life. The process enables you to consider your income, inflation, tax rates, interest, your expenditure, and the impact different rates of investment returns can have on your future financial wellbeing.
Having an accurate financial plan should help you:
- See how the current market events impact your investments over the long term and how they may impact your retirement
- See if you can still retire when you want to in light of current events
- Decide when would be the best time to sell your practice
- Decide if you could put more into your investments to potentially benefit from future market recoveries
- Potentially alleviate any concerns you may have about current events by providing you with a clear understanding of your situation now and in the future.
You can learn more about financial planning here.
Manage money effectively
We have specialist Financial Planners who work exclusively with dentists and practice owners who can help you to be as informed as possible. They can use their specialist knowledge of the dental industry to ensure that your insurances represent good value for money, and how you can save money via being tax efficient in this high inflation environment.
If you’d like to learn more ways to manage your money effectively and get more certainty in these turbulent times, you can contact Wealthwide here www.wealthwide.co.uk or by email at [email protected].
Please be aware of the following investment risks:
- The value of your investment can go down as well as up and you may not get back the full amount invested
- When investing your capital is at risk
- Levels and bases of, and reliefs from taxation are subject to individual circumstances and may be subject to change
- The Financial Conduct Authority does not regulate taxation and trust advice.
