As to this month’s column, why not consider some of the themes emerging currently from world financial events. You don’t need a specific question right now...everybody’s asking the same thing. In fact it strikes me that the headline has to be: “What the hell do I do next!” - or words to that effect!

If people are asking you specific questions on what they should do right now, it’s the making of a great article. Plus it backs up the guide you’re doing – it might be nice to point to it...using real experiences will help the piece...without mentioning names, of course..

This month the Editor hasn’t given me a specific question to answer, but following a conversation about the big issue of the moment, has asked me to comment on the current financial situation, how it is affecting investors and what advice I am giving them.

The guide that accompanies this month’s Moneyworks goes into a lot more detail about the build up to the current financial situation and the possible outcome, but with this article I will comment on some ‘real life’ queries that I have received over the past few weeks, and the advice given.

I have received numerous queries from clients, which I find encouraging as it proves that they are showing an interest in their saving and retirement planning and are aware that the world’s financial situation will have an effect on their investments.

Generally the queries relate to what impact the current situation is having on their investment, should they be adjusting their contributions, should they be moving their money elsewhere or should they encash their savings.

The first point, the effect on their investments has unfortunately been negative in most cases. To put some perspective on the numbers, at the time of writing this, the FTSE-100 is down around 38% this year, the Dow Jones down 33%, the Nikkei down 44%, and the Sensex down 49%.  Oil is down 53% in the last 5 months alone and Gold is down 22% from its all time high. Generally I advise my clients to contribute into a well diversified portfolio that invests into a wide variety of funds, with the general idea that there is no excessive exposure to any one area, which should reduce the effect of any one area falling in value.

The recent market conditions could be described as the ‘perfect storm’ of the financial world, where virtually every sector from cash, bonds, equities and commodities have been hit by the current conditions. However these sectors will recover at different times and this will then show on valuations.

The second query is whether to adjust contributions either up or down, or whether to stop them completely. I would never advise against increasing contributions, as long as they remain affordable.  If most people are completely honest, they are probably not saving enough for their future. If clients are asking my advice as to whether to reduce or even stop their contributions, my advice is simple – don’t do it.

The conversation generally goes along the lines of “I want to stop my savings”. To which I would ask why? “Because the market has fallen”. So you want to stop investing when the market has fallen and you are able to buy units for a reduced price? Most people usually agree that now is probably a better time to be buying, and accept that while their previous contributions are showing a loss, when the market eventually recovers, which it eventually will, you will have more units to grow and improve your saving return. And if you still aren’t convinced, I think it is worth quoting Mr Warren Buffett, ranked by Forbes as the richest man in the world earlier this year and arguably the world’s most successful investor – “Be fearful when others are greedy, and be greedy when others are fearful”. And most certainly, fear is now widespread, gripping even seasoned investors. Businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.’

It is often worth while re-examining why you started saving in the first place. Was it for your retirement or for your children’s education? Are these events still going to happen? Generally they are, so the reason for saving is still valid. Obviously it is never good to see values of your investment fall, but they are only paper losses, and will only become real when you actually surrender your plan and take your money out.

Finally should investors consider any changes to where their contributions are being invested? It is always worth reviewing where your money is being invested, and whether there are any better opportunities to take advantage of. At the moment I am generally advising clients to stay invested in equities, for the reasons given above. If you redirect now into cash for example, there is every chance you will miss a significant percentage of any market recovery.

As with all aspects of your financial affairs, you should regularly review your financial situation to make sure it continues to reflect your wishes and requirements. As always we at Acuma welcome your questions and enquiries directly so please do not hesitate to contact us if you would like to discuss this or any other issue in more detail.