A savings and investment strategy for 2010

I usually start the first column of a new year with a variation on a theme: get your finances in order. This year, I think we can all take that as a given. Now that we are nearly 18 months into the great recession, or the Irish depression if you prefer, there are few individuals or families that haven't been affected by near-record unemployment, tax cuts and falling income or working hours. The lower cost of living at minus 6.5% for 2009 has not affected everyone consistently, of course. Mostly it has benefited people with mortgages or renters, who have seen their monthly repayments fall dramatically. The consequence of the deflating of nearly everyone's wages and asset values (such as property and pension funds) means that most of us have cut back on spending, and where possible, reduced debt and increased savings. Many have reduced their housing, food, insurance and utility costs already and have cut down drastically on discretionary spending. People who never had an annual budget have created one, and are sticking to it. This is a process that will continue, not just here, but in most other heavily indebted countries until debts are paid and spending becomes affordable again. Since the days of loose credit are over; the banks are borrowing at 5.6% to lend out mortgages at 3.5% and need to pay off their own debts before they extend any lending to us, and our household debt ratio remains frighteningly high at c175% of disposable income, it could be a long time before the consumer part of the consumer economy is resurrected. The most recent savings surveys, undertaken by both PostBank and NIB, show that while the number of people saving is increasing, the amount being saved per saver may not be as high as it was, say, a year ago. The reason is obvious: lower incomes means that more people need, at times, to dip into their savings to make ends meet. That is something we're likely to see more of in 2010 as the effect of long-term unemployment among the c230,000 who lost their jobs in 2009 comes into play and means-tested Jobseeker Allowance (JA) replaces Jobseeker Benefit. (JA, as opposed to JB, takes into account any savings such as redundancy payments and spouse or partner's incomes.) What to do... For those people who have savings, amounting to tens of billions of euro, the question now is what to do with this money. Financial advisors and reliable economists that this column has spoken to recently, including independent advisors Eddie Hobbs, Vincent Digby, Mark Westlake, Rory Gillen and Friends First chief economist Jim Power have different views about the state of the Irish and global economy but they certainly share one abiding view: that in light of the enormous (and still growing) national debt, we need to lower our expectations for levels of incomes, property prices and significant equity growth. None of the above believe there is any sign of recovery in housing markets; instead there is still some way to go in price deflation. Hobbs and Westlake, of Goldcore Wealth Management are more adamant than the others that there is a serious, impending inflationary risk building up in the global economy and strongly advise their clients against large cash holdings (they recommend a portion of cash be converted to gold and other precious metals). Advisors Vincent Digby of Impartial.ie and Rory Gillen, of investoRcentre.com recommend diverse portfolios, especially for the longer term, with Gillen recommending careful value-based stock and fund picking based on tried and tested technical formulas that aim to eliminate much of the risk associated with the markets. Next week, this column will look at some of their specific saving and investing recommendations, but until then, if you have any interest in maximising your savings and securing your existing wealth, another theme the advisors all prioritise for 2010, you should at least do the following: - prepare a schedule of all your personal and household earnings; - estimate your outgoings, include taxation and occupational deductions as carefully as possibly, including your debt - list your assets: the value of your family home and other property, savings accounts, pension funds, shares and investment funds, land, rental or other non-PAYE income. - Prepare a schedule of other less assets; cars, antiques, jewellery, valuable lifestock, collectibles... Without a clear picture of your assets and outgoings and of course about your expectations and the amount of risk you are prepared to take with your money any investment or wealth protection decisions will be badly informed. And being badly informed is just one of the reasons why so many people's finances or portfolios are such a mess and why 2010 should be the year to take proper action to try and get them back in the black. For all your banking and insurance needs, check out Postbank at your local post office or LoCall 1890-303040.