A penny saved is a penny earned

29 June 2020

You only live once they say, so is there any point in saving for a rainy day?

Well, those who have been splashing cash without a care in the world, may now be wishing they had been living for the future as well as living for the moment as we navigate our way through a global pandemic.

In terms of money matters, there are two types of people – those with the ‘I need to save money’ attitude and others taking the ‘you only live once’ approach. 

There will have been lessons learned in the past few months and regrets of spending days gone by but if ever there could be no better time to review your financial situation.

No-one could have predicted the world literally shutting down for months resulting in furlough and job losses but Aberdeen based financial advisor, Neil Shelton, of Focus Financial Planning, part of SBP Accountants and Tax Advisors, claims the pandemic could kickstart more people to safeguard for the future.

He recommends that people should have at least three to six months salary set aside in savings as a ‘just in case’ safety net and choose a savings account that offers quick access to the cash.  Only after building up an emergency fund should people then start thinking about further investments.

With many people opting for a mortgage holiday, another investment for the future would be to increase mortgage payments once we are in recovery, as if you can pay a little bit more, borrowers can pay it off quicker, pay less interest and build equity.

Of course, mortgages are going to be even more difficult to secure now as lenders will be setting the bar much higher, especially for new home buyers as there will be additional concern over a potential drop in property value, leading to negative equity, and furlough concerns will likely lead to more stress tests and perhaps higher deposits.

Although pension pots will have been affected over the last few months, they are still a good investment for the future because as the markets recover, pensions will also recover so keep paying into them and pay extra if you can.  However, those worst hit recently will be people who are about to retire and the best advice is to delay retirement, if possible, to allow your pot to build up again. 

On a more positive note, share prices of many high quality companies are undervalued and this presents a great opportunity to invest in value stocks for the long term.   Yes, the lockdown coupled with the oil price resulted in a massive downward spiral but by the end of April it had picked up and May was a fantastic month for the stock market globally.

Travel firms, hotels, holiday companies and airlines are all currently lowered in value but will likely see a surge when things start to move again and some oil companies have seen value plummet, including Shell which dropped by 30%.  They will increase in value again but that may take up to five years so ideal for long term investors.

Interestingly, the vegan food fad has gone out of favour during the lockdown with more people flooding back to comfort foods, as an example we have seen the value of Greggs increase, and not due to their vegan sausage roll!

For new investors, spread the risk and don’t be tempted to opt for the high risk, red or black, win or lose approach, a well-diversified portfolio is definitely the best option, so a mix of equities including UK and international shares, government and corporate bonds, property and cash.

Why?  Well, everything that goes up must go down.  In January this year investment statements were high but in the last couple of months portfolios have dropped by 25-30%, however they are already seeing a recovery.  If people are worried about current investments, Mr Shelton is encouraging investors not to panic and, if they don’t need the money, leave it where it is for the time being and review once the market settles.

More market turbulence is predicted before the end of the year so a cautious approach would be recommended and a full review of your financial situation.

A great quote to bear in mind during these turbulent times, “All days are not the same, save for a rainy day. When you don’t work, savings will work for you”.  So, learn lessons from the past and build a nest egg for the future.