In our last newsletter, we wrote about what's important financially for people in their 30s. We got quite a few comments about this piece and some requests to set out the financial priorities for people in their 40s. So here goes...

Keep control of your lifestyle

For a lot of people as they enter their forties, the financial pressure starts to ease a bit. As a result of career progression and increased earnings, the bills (in particular the mortgage repayments) don’t look quite so daunting any more. And this is when people’s lifestyles can run out of control. Rather than putting their increased wealth to good use, they simply grow their lifestyle until this becomes the new “norm”. And as a result, that hard earned extra income ends up delivering zero impact to your long-term financial health. Put that extra wealth to good use. 

Stay vigilant with debt

Debt costs have been very low in recent years, with base interest rates around the 0% mark. However this situation won't remain forever. One of the challenges caused by low interest rates is that people can become a little complacent about debt, thinking it will always be cheap. Be very prudent about taking on new debt, and stress-test your finances carefully against the impact of rising interest rates. Do you really need to take on debt for home improvements, or for a fancy new car? Does it make more sense to save first and spend later?

Think carefully about home improvements

We’ve seen a number of examples of people with the back broken on their mortgage, and then deciding that it’s time to almost re-build the house. The rationale is usually around higher income levels making this possible, and also because the kids need more space – don’t they? This may well make sense, just be clear that the it’s hard to recoup money spent on your house as it usually isn’t fully reflected in future valuations. Also think past the next 5-10 years – will you want a bigger house when the kids decide it’s time to move on? Yes, make your house more comfortable and enjoyable to live in, but don't spend money unnecessarily on it. 

How's your emergency fund?

Maybe you were very forward-thinking years ago, listened to the advice and built a nice “rainy day” fund. Now’s the time to take a good, hard look at it. A fund built up a few years ago may be quite inadequate today. Do you need to add to this to cover your current level of expenses?

These are the golden years for building a nice lifestyle in retirement

These are often the critical years for retirement savings. You now have the financial firepower to really accelerate your retirement funding, and you also still have the time on your side to benefit from the magic of future compound interest. So make these years the high impact years in your retirement savings. Look to avail as much as possible of the generous tax reliefs on offer for pension contributions. 

How are your parents' finances?

One big challenge facing families today is the multi-generational impact on financial plans, it’s not enough to plan solely for your own future. Quite often, we see parents playing an important role in helping their children with significant deposits to enable them to get on the home ownership ladder or to remain in full-time education for longer than might have been expected. And as we see older people living longer and having more complex and expensive care needs later in life, the burden of financing this support can sometimes fall on the family. Does your financial plan take account of these costs?

It might be time to consider starting to transfer your wealth

Depending on your specific financial situation, now might well be the time to really start looking at the future transfer of your wealth. If you have significant assets to pass on eventually and as we've outlined in our other article this month, these can be seriously eroded by our penal inheritance tax environment. Planning for this a long time in advance will allow us to develop financial strategies that will enable you to significantly reduce this tax burden, ensuring your assets go mainly to your loved ones and not to the taxman. 

Your 40s are hopefully great years... Manage them wisely and you can establish a really strong financial foundation for the rest of your life.  

We’ve seen quite a lot of volatility in investment markets in recent months which is expected to continue for the foreseeable future. The awful war in Ukraine is ongoing, global energy and food markets are in turmoil, Covid is still lingering, the US & China are having their differences over trade and Brexit issues remain unresolved.

However volatility is a feature of investment markets that doesn’t merit panic and short-term tactical decisions. Time and again we see that investor behaviour is often a significant reason for investment outcomes not being achieved. So we’ve set out a few thoughts on some of the personal actions you can take that will help you achieve the outcomes that you want.

Keep a long term view

Your investment plan was constructed for a medium to long term timeframe. Now is not the time to forget about this. Taking short-term decisions based on short term factors runs a serious risk of undermining your carefully constructed portfolio. It should be expected and accepted that the value of your investments will go up and down in line with markets in the short term. Looking at the value of your investments too frequently can increase anxiety levels, as you see the amounts fluctuate. So resist that temptation, and focus on your progress towards your long-term goals.

Judge success against your own objectives

We’ve all heard the local bore droning on in the pub about his/her latest investment success and how insightful he/she is. What you don’t tend to hear from them are the other investment losses that they might have suffered.  Even where other people may be achieving investment successes without being insufferable about them, it’s worth always remembering that their objectives are likely to be very different to yours, and as a result their portfolio may bear little resemblance to yours. For example, they may be happy have a lot more risk in their portfolio.

Don’t judge yourself against others. Instead ensure that you’re crystal clear about your own objectives and that you have the right portfolio to achieve them. That’s all you need to concern yourself with.

Don’t try and time markets

We sometimes still get the call from a client that goes something like this, “I know my investment horizon has 8/10/20 years to run and that my portfolio is constructed with that in mind, but I really think markets are going to keep falling because of (insert whatever you want here). I think it makes sense to get out of the market just for a while”.

Trying to time markets is folly. Success comes from time in the market. The problem when you get out of the market is deciding when to go back in... Time after time, investors get this timing wrong and end up missing significant growth as markets quickly recover from a short-term and temporary setback.

Keep saving

We stress this one to all of our clients, wherever they are on their financial journey. While the amount you save will invariably increase and decrease in line with your need to save and indeed your capacity for saving, we recommend that this is one tap that should never be turned off completely. Saving is a habit, and once you stop it can be very hard to get going again. Small amounts matter too, so never think that they won’t make a difference over the long term.

Shut out the noise

This is probably the hardest behaviour to practice, with the blaring 24/7 news cycle all around us. It’s impossible to escape the views of a constant stream of experts / analysts / doomsayers offering their opinion on where markets are going next. These views can be unsettling as you consider the impact their forecasts will have on your financial plans.

But their views are just that, their views. And their thinking is usually a reaction to a short term factor in the economic or investment environment. While at the same time, your plan is a long term one that will go through many different investment cycles. Shut out the noise, don’t react to every article you read and trust your own plan. Of course keeping this under review is a critical part of achieving your objectives, but do this in a structured and planned way instead of as a reaction to noise.

It can be hard sometimes to stay focused on the long term and not react to short term factors. But doing this is a key element to achieving your objectives.