New year financial resolutions
John Wasiliev
December 21, 2010 - 11:22AM
While the coming fortnight usually sees most people relax and enjoy the festive season, anyone who is taking a longer break could do worse that put some of this time towards a review of their investment strategy.
One reason why such reviews can be useful at this time of the year is because you can do something about a strategy that may not be going that well while there is still plenty of the financial year remaining.
The end of the calendar year is half way through a financial year so there is still six months of the 2010-11 financial year remaining. You can also come up with financial new year’s resolutions with the goal of implementing at least one that should improve your financial position.
For example you could make it a resolution that if you invest in shorter period term deposits that offer attractive returns that you still getting a good rate when the investment is rolled over. Banks have been known to invite investors to roll a deposit over for a 'similar term' without pointing out that same term does not necessarily mean the same higher interest rate.
Another thing you can do, suggests Elizabeth Moran, an analyst with fixed interest broker FIIG Securities, is reassess your appetite for taking risks with your money. Is it still the same as it was a year ago or have you become more pessimistic or optimistic?
Being more gloomy about the year ahead could suggest your tolerance for risk has lowered. Remaining optimistic on the other hand suggests you are happy with the present state of affairs. A question to ask is whether your state of mind is related to the state of your portfolio.
A useful strategy when conducting a review is to check your exposure to different types of investments – shares, property and income investments – and decide whether they are likely to satisfy your goals for the rest of the year.
Another consideration is to put any goals you have into perspective and maybe do things a bit differently.
A commentary in the current edition of the National Australia Bank's private wealth division’s newsletter highlights the importance of having goals. It also makes a very interesting observation about goals and investing.
It notes goals are often expressed with a single purpose in mind such as meeting certain future liabilities or expenses like paying for children’s education in 12 years’ time or retiring with a certain level of income at age But the reality is that people often have multiple goals with different time horizons as well as different priorities.
An alternative investment strategy is one that that recognises multiple goals, priorities and time horizons. It can involve having distinct investment portfolios for each goal with each portfolio evaluated on its ability to meet its objective.
Reflecting on the connection between an investment strategy and goals can be worthwhile at strategic times, such as the end of the calendar year, because it can be a period when people have the commodity many complain they are short of, namely the time to think about things. January is generally the quietest month of the year in financial markets, making it the most suitable time to spend considering your financial affairs.
By contrast, the end of the financial year around 30 June is often a rushed period. There is never a real break and most people are as busy in July and August as they are in May and June. At least over the Christmas-New Year summer holiday period, things do slow down to give you space to consider your financial future.
http://www.brisbanetimes.com.au/money/on-the-money/new-year-financial-resolutions-20101218-19172.html
It will bring financial pain to seven million home owners with floating interest rates who will see a jump of almost £200 on a typical monthly mortgage payment.
Charities have already warned that repossessions are likely to rise next year and the threat of a succession of quick interest rate rises will exacerbate their fears.
The Confederation of British Industry predicts that higher than anticipated rises in the cost of living will push the Bank of England (BoE) to begin increasing interest rates in the spring.
It predicted that the Bank base rate – the interest rate at which the BoE lends to other banks – will rise more than two percentage points by the end of 2012. Mortgage rates are expected to follow closely behind.
“Many households have been benefiting (from the low interest rates) in terms of mortgage payments, but that will start to turn over the next couple of years,” said Lai Wah Co, the CBI’s head of economic analysis.
The organisation predicts that the Consumer Prices Index, the Government’s preferred measure of inflation, will reach 3.8 per cent within the first three months of next year and that it will still be well above the Bank’s 2 per cent target two years from now. It currently stands at 3.3 per cent.
The CBI expects interest rates to climb from their record low level of just 0.5 per cent in the second quarter next year.
It forecasts rates will rise 0.25 percentage points each quarter before the pace doubles in the middle of 2012 to 0.5 point increases, taking the bank rate to 2.75 per cent by that year’s end.
Last week, the Bank of England warned in its Financial Stability Report that two thirds of borrowers are now on floating interest rate deals and the proportion is rising. At the height of the credit crisis in 2007, the proportion stood at less than half of all outstanding mortgages.
A 2.25 per cent rise in mortgage rates would see the monthly repayments on a typical £150,000 mortgage increase from £909 to £1096.
In another blow for home owners, economists predict that the average value of a home in Britain will lose 10 per cent of its value from their peak levels earlier this year to the end of 2011.
The house price gains seen at the beginning of this year have already been wiped out, according to Nationwide.
Britain’s biggest building society said the average price of a home dropped 0.3 per cent in November, the equivalent of almost £1,000 in a month, bringing the average price of a home to £163,398.
The CBI expects inflation as measured by the retail prices index – which includes more housing costs – will follow an even higher path than CPI, reaching 5 per cent at the start of next year.
The CBI said it had raised its quarterly forecasts to take into account the “persistent strength” of energy and commodity prices.
High inflation will put further pressure on households as people face higher prices and mortgage rates, but pay packets struggle to keep pace.
Tim Moore, an economist at research group Markit, said: “December brings to a close another difficult year for household finances. The UK economy looks to have avoided a double-dip recession in 2010, but there is little evidence that household finances have even begun to recover. People have seen their spending power gradually eroded by stubbornly high inflation throughout the year and little in the way of income growth to compensate for this.”
