Ever heard of "asset allocation"?
I'd guess not, in most cases, so forgive me the marketing speak. The subject in hand is one of the most important, yet overlooked, elements in personal finance.
The principle behind asset allocation is simple: you stash cash, no matter how much or little you have, in lots of different vehicles - a property, pension, regular savings account, cash and equity individual savings accounts (ISAs), investment bonds, shares or even a current account.
The benefits should be immediately obvious: by spreading your cash across such a broad range of investment baskets, there's less risk to you than if all your eggs were in just one or two, and greater opportunity for diverse returns.
The strategy really pays off the longer you stick to it. Over a working life, you should see more than enough economic cycles to let you take the rough with the smooth and reap the financial rewards.
Despite the advantages, however, nowhere near enough of us have adopted the practice.
Yet another survey from the financial services industry last week highlighted the tendency of Britons to use any spare income they find themselves with to invest in home improvements. Owning a "buy-to-let" property was also cited as the "next big thing" for many aspiring investors. Putting surplus disposable income into any of the mainstream alternatives mentioned above ranked way down the list.
Our national obsession with owning property is nothing new, but the zeal with which we focus on this to the exclusion of all else borders on the dangerous.
Many workers say they plan to "downsize" when they get older. But the risks here are great: a sudden dip or even crash in the market before you retire could wipe thousands of pounds off the value of your property. And even if that doesn't happen, prices for desirable smaller homes may by that time have rocketed in proportion to any growth in your own property - so you don't end up with as much spare cash as you'd envisaged.
Far better to concentrate on building up other assets to create a more stable financial future.
The tax breaks on pension plans remain second to none, especially if you get help from an employer. As little as £20 a month invested in a UK tracker fund over a lifetime could turn into a proper nest-egg; and an emergency savings fund is always a cheaper way to pay for a new boiler, say, or roof repairs than borrowing the money.
It could be argued that asset allocation is little more than common sense, so why do far too many of us seem unaware of this?
Lack of financial education is to blame, as is the commission-based nature of much independent financial "advice".
Blame could also be directed at the rather dull name, so why not give asset allocation a rebrand? Suggestions for an alternative name can be sent to the email address below. A bottle of champagne for the winner.
What a shame to see the Council of Mortgage Lenders bellyaching about the inclusion of mortgage payment protection insurance (MPPI) in an investigation by the Competition Commission.
The last word on the matter should go to the Office of Fair Trading. Its report, published last Wed-nesday, pulled no punches: "Some of the features may be less marked for MPPI [compared with insurance sold with loans and credit cards, but] they still exist and the evidence points to a need for MPPI to be examined further."
Let the Competition Commission do its job; who knows, perhaps MPPI will be held up as the future for all similar products? I doubt the Council of Mortgage Lenders would then whinge quite so virulently.Reuse content