On my latest trip to San Francisco, I stopped for lunch in a downtown deli. The sheer variety of food on offer is overwhelming and that’s exactly what happened to me. With five different types of bread and the same number of spreads to choose from before you even get to select the fillings, well, let’s just say I walked out of the shop in a sweat with a sandwich I didn’t really want.
Had my wife, who grew up there, been with me in the deli, she would have said, “Bob, you don’t like provolone, so don’t get it.”
Very many of us have ended up with a blend of financial products we don’t actually need or want for the same reasons; choosing one can be so complicated that the brain shuts down, or we don’t have the trusted friend to remind us what we really need.
Here are five ways to make your financial life simpler.
Many people think their investment properties provide a solid return but when they work out the net yield, which is the yield after expenses such as interest, insurance, Local Property Tax, maintenance, registration with the RTB and so on, they find it is very modest or indeed negative.
Even when they are making money over and above the mortgage repayment, the sheer hassle of dealing with tenants can outweigh the financial gain. Work out the net yields for all your properties and get rid of those that are not worth the hassle. Look at investing the proceeds of your sales in other asset classes so that your portfolio is not overly exposed to property.
How did you end up with four pensions? You worked in a couple of different places and each one had its own contributory pension. You may now be a company director with a director’s pension. If you ever put a lump sum into a pension, you probably have another pension account for that. Any idea why? It’s because of the way the industry is set up. Aside from all the paperwork you’re getting twice a year, you are paying annual management charges and other fees on each account. Rationalise them based on your circumstances and goals for retirement.
Here’s another financial product that is sold on a commission basis. Brokers selling life assurance are paid 180% of your first year’s premium by the insurance company for selling you a policy.
The older you get (and the closer to independence your dependents gets) the less your household needs in the event of your death. If you took your life assurance out more than ten years ago, review it. You could be paying for more than you need.
Stocks and shares
We often feel we should have stocks and shares in our portfolios. The thing is, they can be very risky, particularly if they are in just one or a handful of companies. Think about it, you are putting a large amount of trust in a CEO and board of directors. Institutional failure is a real possibility, even in a bank; ask anyone who invested for their retirement or children’s education in Anglo Irish Bank or AIB.
The only way I’d ever recommend investing in shares is to buy into a globally diversified fund consisting of hundreds of companies in diverse sectors in many countries. That is one of the most reliable ways to shield yourself against institutional, sectoral and national failure.
Too many ‘financial’ people feeding off your finances
Having too many advisers breeds complexity and confusion. This is how so many of us end up with bitty, messy finances. If you have an insurance guy, a guy from the bank and a pensions guy, how could you possibly be getting joined up advice?
Don’t feel guilty about cutting them loose. You have paid them well in the past through all the policies you’ve bought from them.
Look for an independent fee-based financial adviser. This is all about making things simpler and in order to achieve that, you need to have a trusted third party who can help you tease out what you really want.
After that, achieving it becomes a whole lot easier.
If you’d like to schedule a time to speak to me, get in touch here.