Is your regular investing strategy still appropriate?

Regular direct debit investment offers two unique though linked benefits. On the one hand, it encourages discipline because each monthly payment no longer requires conscious thought but rather occurs automatically and covertly. However, regular monthly investing allows investors to ride market cycles by using “pound-cost averaging,” where each investment is made at a different price, so that it all averages out and you are less concerned about potentially timing the market. 

But are individuals saving enough even in light of growing inflation? This is because, if greater inflation is sustained, your investing goal—be it a comfortable retirement or a wedding—may end up costing more than you originally anticipated.

This leaves you with three main options: decrease your expectations with more achievable targets, put in more hours at the office, or maintain your present goals while increasing your regular current payments (if you are able to) to ensure that you can continue paying for them in the future.

Sample of a wedding fund

Consider a straightforward opportunity to illustrate what we mean. Imagine a father setting up money for a future wedding of a son or daughter. They know that the average cost of a wedding is about £17,0002, but they want to be able to afford it if it occurs. This would require saving £250 each month for five years, assuming an average yearly investment return of 5%.

However, after seeing how the inflation wind is blowing for a year, they conclude that just to be safe, £25,000 is probably a more realistic aim for their wedding budget. The reason is that anything that isn’t utilized might always be a lovely wedding gift.

Example of a retirement fund

Another hypothetical situation involves a 54-year-old who plans to retire at 62 and has £200,000 saved for his or her pension. They believe they can almost treble this fund in the meantime by setting aside an extra £1,600 each month3 in both their job pension and self-invested personal pension (SIPP).

They feel it’s not enough and would rather strive for double their retirement income, however, alarmed by the growing expense of living. According to their calculations, the amount will be closer to what they would require to preserve their purchasing power in terms of today’s money or after inflation has been taken into account.

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by Rachel Buscall

by Rachel Buscall

Co-Founder & Managing Director at New Capital Link. Having started her career in the financial sector, Rachel demonstrated a natural flair for entrepreneurship.

New Capital Link

Alternative investment specialists offering structured opportunities across the UK & Overseas.

New Capital Link is a boutique London-based introducer that offers unique UK & global investment opportunities worldwide.

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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

If the business offering this investment fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies. 

Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay you back as agreed, you could earn less money than expected or nothing at all. A higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.

These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

The business offering this investment is not regulated by the FCA. Protection from the Financial Services Compensation Scheme (FSCS) only considers claims against failed regulated firms. Learn more about FSCS protection here. https://www.fscs.org.uk/what-we-cover/investments/ or

Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here. https://www.fscs.org.uk/check/investment-protection-checker/

The Financial Ombudsman Service (FOS) will not be able to consider complaints related to this firm or Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it. Learn more about FOS protection here. https://www.financial-ombudsman.org.uk/consumers

3. You are unlikely to get your money back quickly

This type of business could face cash-flow problems that delay interest payments. It could also fail altogether and be unable to repay investors their money. 

You are unlikely to be able to cash in your investment early by selling it. You are usually locked in until the business has paid you back over the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

This investment has a complex structure based on other risky investments. A business that raises money like this lends it to, or invests it in, other businesses or property. This makes it difficult for the investor to know where their money is going.

This makes it difficult to predict how risky the investment is, but it will most likely be high.

You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. 

A good rule of thumb is not to invest more than 10% of your money in high-risk investments. https://www.fca.org.uk/investsmart/5-questions-ask-you-invest

If you are interested in learning more about how to protect yourself, visit the FCA’s website here: https://www.fca.org.uk/investsmart

For further information about minibonds, visit the FCA’s website here.https://www.fca.org.uk/consumers/mini-bonds