Money myth number 1: Money is safe in the bank
Banks have a reputation for being a risk-free place to park your savings but just how safe is your money in the bank? The 2008 financial crisis showed us that banks are as fallible as any other company. Northern Rock Building Society would almost certainly have gone under, and savers would have lost money, without a £37billion bailout from the UK government. While many countries operation compensation schemes like the UK’s Financial Services Compensation Scheme (FSCS), which guarantees up to £85,000 per person per bank if a bank goes under, financial institutions in certain countries will be more precarious than others.
That said, a bank going bankrupt is not the biggest threat to your bank deposits. That dubious honour goes to inflation, and it has been a real risk in recent years as interest rates have languished at historical lows. If your savings are earning a rate of interest which is lower than the rate of inflation, you are losing money in real terms and your spending power is diminishing.
Those who subscribe to the cash bias may believe that they are being sensible with their money but in fact they are losing out on potential return on their savings. In its 2017 ‘Saving Better’, report, British thinktank The Social Market Foundation attempted to put a figure on the lost earnings of risk-averse savers. It estimated that by sticking to the perceived safety of savings accounts, rather than investing in the markets, British savers missed out on a mind-boggling £90bn over five years.
Our advice: Keep enough in the bank for your regular outgoings and an emergency fund and invest the rest of your savings into alternative, carefully-selected investments which will earn you a better return.
Money myth number 2: The stock market is too risky
Of course, the stock market can be risky – the risks are signposted loud and clear when you make any kind of legitimate investment. However, given that when it comes to money, there is nowhere you can put it that is risk-free, investing in stocks the right way is one of the best and most reliable ways to grow your wealth.
The right way involves managing risk in order to attain investment success over the long term. Risk mitigation strategies include:
- Ensuring you assess your tolerance to risk carefully and invest accordingly
- Choosing investments that match your risk profile
- Diversifying your investments across different assets, countries and industries
- Reviewing your investments regularly to check that they are on track
- Taking a long-term approach to investing
- Avoiding trying to time the markets
Our advice: Consult a professional financial adviser who will take a holistic approach to your financial planning. They will have the expertise to help you define goals and navigate each of the bullet points above to ensure that risk management is an integral part of your long-term investment strategy.
Money myth number 3: Only wealthy people need a financial adviser
Leaving aside the fact that wealthy is a subjective concept, do you believe that wealthy people are the only ones who need to think about retirement? Do the super rich have a monopoly on further education for their kids? Are the well-off the only ones who want to ensure their loved ones are looked after when they are no longer around?
The answer to all these questions is, of course, no.
If you want to be financially comfortable in retirement, plan to send your children to university, put in place life insurance to protect your loved ones if you die or organise your financial affairs so that you pay as little inheritance tax as possible, you will benefit from working with a professional financial adviser.
Our advice: Whatever your income and financial situation, to maximise the potential of your savings and investments and ensure that your wealth is adequately protected, a financial adviser is a must. If you are an expatriate living in Asia, our team of advisers have a wealth of experience dealing with clients who have the same goals and concerns as you.
If you want to earn a better return on your savings while mitigating risk, contact us and let us put you in touch with an Infinity adviser near you.
A leading provider of expat financial services and wealth management services across Asia.