Another year has passed, and what an eventful one it has been. 2008 has been a year of highs, with record oil and commodity prices, followed by the lows following the near collapse of the banking system. The year began with the possible threat of a downturn as the US sub prime issue was starting to build as the realisation dawned on the world that it was much, much bigger than previously believed.

The first big effects were seen in February when the world’s stockmarkets had their first major fall. Markets then moved sideways for a few months. In the meantime commodity prices were racing to all time highs with oil reaching $147 a barrel in July.

The situation came to a head in September, when the full extent of the sub prime issues became apparent, and the world’s markets fell dramatically, with a number of the major banks teetering on the edge of collapse, and of course Lehman Brothers going into administration.

What has followed is a huge injection of government cash into the banks to keep them operating. While this has been going on, commodity prices have fallen to 2/3rds of their highs, property prices have also fallen, and companies have started making staff redundant as their business slows down.

The huge sums of money that have been lent to the banks were meant to do a number of things, firstly to keep them trading but also to restart the lending process. Banks typically lend money to each other, but since this situation has unfolded, the problem has been compounded by the banks not trusting each other and so not lending to each other.

So what does this all mean for the general public and their financial planning? In the short term it probably means some pain – this will obviously be dependent on personal circumstances, such as keeping your job and a roof over your head.  However, without meaning to be flippant, it is worth remembering that both of these issues are always a potential threat, it is just that in the current climate they are more prominent in people’s thoughts.

Regardless of the financial climate the basics of financial planning, the safety nets, need to be in place. The ‘what if’ scenarios are just as likely to happen now than at any other time. Whatever the economic climate, medical insurance should be considered, while life assurance and income protection are also part of the basics of a complete financial plan.

The area that will have been hit hardest by the year’s events is investments, whether lump sum or regular savings. Typically the last three to four years of growth has been wiped out.  This is obviously hard to stomach, especially for lump sum investments, where the only advice I can offer it to sit tight, and regularly review where your money is invested.

The same is true for regular savings, but there is actually some benefit in the current conditions for regular savings. By drip feeding your money into the markets on a regular basis, you will benefit from dollar cost averaging, which is often quoted, but does actually work as long as you keep saving. The regular contribution is able to buy lots more units now that a year ago, and so when the markets recover, the fund values will also recover.

It is also worth remembering why you are saving. Is it for retirement or school fees or another particular reason? These goals are still valid, and still need to met. If you stop now, or indeed do not start saving, you are guaranteed to fail in meeting your objectives.

So looking ahead into 2009, what does the crystal ball predict? It will be a year of consolidation and restructuring, I think the credit system will take time to re-build and for confidence to return to the markets, just getting through may be seen as a success.

However opportunities will arise, I believe the emerging markets will recover fastest as they still have the same fundamental drive to grow as before, and I believe commodities will also recover, after all, there is only a finite amount of material that can be found and used.

Once the banks start lending again, the interest rates are at record lows in most parts of the world – although not in the Middle East yet, which will eventually allow the housing market to recover, as people will be able to buy property at low prices with very low interest rates.

And with a new president in the USA, hopefully Mr Obama will be able to use the goodwill and hope that he brought with his election to drive the US and then the world economy forward.

The New Year is as good a time as any to review your financial affairs, to make sure what you have in place 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.