SPRING 2022

Personal finance myth-busters

Like many areas of life, personal finance has its own set of myths. Spring is a good time to reset and clear up some persistent misunderstandings.

A few weeks of volatility do not define future investment performance, which should have a perspective  measured in years.

Myth 1: Maybe past performance is a reliable indicator of future performance

The sort of sudden, sharp falls in investment values such as those seen due to the war in Ukraine can turn normal assumptions upside down. Turbulent markets and dire headlines can make the future investment outlook appear unavoidably grim. However, the past is not a wholly reliable indicator of the future. A few weeks of volatility do not define future performance, which should have a long term perspective measured in years.

Myth 2: I don’t need a will as everything will automatically pass to my other half

If you are not married or in a civil partnership, then only property you own jointly (as joint tenants) will pass to your partner. The rules of intestacy, which vary between the UK’s four constituent parts, do not automatically confer everything to the surviving spouse or civil partner.

Myth 3: I don’t need a cash reserve as I can always borrow

While borrowing is easy today, financial conditions can change. Mark Twain’s remark that a banker is someone who lends you his umbrella when the sun is shining but wants it back when the rain begins has more than an element of truth. The greater your need for cash, the less willing lenders may be to supply it.

Myth 4: You can never lose money buying residential property

The notion that house prices never fall was behind the global financial crisis of 2007/8. In the UK, average house prices fell by over a fifth between October 2007 and February 2009. They did not regain their 2007 peak until May 2014.

Before you succumb to anything that might turn out to be a financial myth, make sure you seek out expert  advice. As we know, relying on unverified assumptions can be costly.

The value of tax reliefs depends on your individual circumstances. Tax laws can change. The Financial Conduct Authority does not regulate tax advice or will writing.

In this issue:

» The only way is up: handling inflation
» The cost of the frozen tax landscape
» Declare your side hustle
» Gifting from income
» Are you saving in the right ISA?
» Who gets to choose when you retire?
» Tax loophole closing on second homes
» News round up