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Are you paying too much on your investments?

By Jeremy Ferguson - Topics: Investment objectives, Investment portfolios, Investment Risk, Investments, Spain
This article is published on: 19th July 2022

Paying too much for something is never a good idea!

Unless you have been spending all your time either on the beach or playing golf, it would be almost impossible not to have seen what´s been happening in the financial world at the moment.

Stock markets have had their worst start to a year in 50 years. Almost every day all you see and hear is doom and gloom about rising inflation, rising food prices, rising fuel prices, rising interest rates, supply chain issues, falling consumer confidence. And on and on it goes.

As usual with such issues, it can affect retirees who live here the most, as their Pensions and Investments are normally exposed to the stock markets and various other investment instruments, pretty much all of which are falling at the moment. How much worse can it get? Who knows.. When will it recover? Who Knows.. How long will it take to make up for all of my losses this year? Who knows…!

Nobody does, and looking at history can give a good indication as to the likely answers, but as I keep saying, this could well be history in the making, as opposed to history repeating itself.

Looking at history can help calm the nerves and add perspective. Over the last 150 years there have been 13 major stock market crashes. In 1877 markets fell by 33%, in 1970 they fell by 25% and again in 1974 by 39%. The latest memorable events were the financial crisis of 2008 which resulted in losses of 49% and the Covid lockdown period, which again resulted in heavy losses.

Taking the median of all of these 15 events, an average fall of 33% has taken on average of around 2 years to recover. So, although I have said this may well be history in the making, what we can all be sure of is that things will eventually get better. It’s just a question of how quickly, and that again is an unknown. The speed of recoveries is always quite impressive. Many people miss the fact that if you lose 50% on something, that something has to double in value to return to where you were.

Paying too much for something is never a good idea!

One thing I do know though, is that if you have Pensions and Investments which are expensive, trying to reduce the costs incurred is one thing that will have an immediate positive effect on your returns, and can have an incredibly positive effect on the long-term returns.

Something else that is also relevant to costs, is the type of investments retirees are in. One of the first things to assess when I meet a client is what risk they are prepared to take with their investments. Typically, (as most are retired), I think being driven by caution (or fear) rather than greed is paramount, meaning a client should typically be very concerned about protecting their capital, and therefore their investments should be at the lower end of the risk scale.

Therefore, it makes perfect sense if you are looking to achieve a certain annual return that reducing the annual costs as best you can will mean you can take less risk to achieve your objectives, and therefore see better capital protection.

Many people are coming to me asking if we can take a look at their existing arrangements, and very often we are able to offer a solution to reduce the costs and achieve a more suitable strategy in view of where we find ourselves.

In these times of rising costs, every penny helps, and very often just talking through situations like this and having someone to listen to your worries can be a great help, so if you would like a quick chat in confidence about your financial situation, please get in touch.

Article by Jeremy Ferguson

If you are based in the Marbella area you can contact Jeremy at: jeremy.ferguson@spectrum-ifa.com for more information. If you are based in another area within Europe, please complete the form below and we will put a local adviser in touch with you.

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