Over the last year the value of our pensions, endowments, ISAs, and other investments has plunged. Things were bad before September’s terrorist attack on America. Since then, uncertainty and fear have made them much worse. At times like these what should we do with our money to try to protect our families for the future?
Reduce debt
If jobs become less secure, income declines, or the prices of essentials rise sharply you do not want to be saddled with debt. If you cannot pay it all off, look for your most expensive debt – normally that high interest plastic card – and set up a plan to get rid of it over as few months as possible. Bank loans or hire purchase deals usually have a penalty for paying off early, so stick with them but don’t take on more.
Cut your mortgage costs
If you have not yet changed your mortgage to a cheaper one, do it soon and lock into low interest rates – you could save £1000 a year.
Stick with your pension
Pensions are long-term savings. Although share prices have plunged over the last year, most experts still believe shares are the best way to obtain growth in your savings in the long-term. But check the charges are 1% or less and spread your risk - perhaps by taking two or three separate plans with different pension providers.
Keep some cash
Cash is good in times of emergency and in the best accounts you can earn well over 5% a year. Avoid tax on the interest by putting up to £3000 into a cash ISA, if you do not already have one. Some experts say in uncertain times we should keep 40%-50% or our savings in cash.
Spread your investments
After cash, consider some lower risk investments. Corporate Bonds are IOUs from companies which offer good, fixed returns. If you want to put money into the stock market, feed it in a bit each month. If share prices rise, you have bought them cheaply. If they fall, you buy them cheaply later.
All these tips are good sense anyway. And if the light at the end of the tunnel does not go out, you will be well placed to take advantage of the recovery.
Money Box looks each week at how to protect our family finances as the world situation unfolds. Radio 4 Saturdays at noon repeated Sunday at 9pm
20-26 October 2001
e-mail Paul Lewis on paul@paullewis.co.uk