As with anything there are myths, stories and old wives tales in respect of financial issues but what are they and what is the reality?
In this article I cover several of the common myths and explain the reality of the situation.
1. Property is always the safest investment
Quite simply it is not always the safest investment. As with any asset class, the value of property can fall as well as rise – just ask anyone who has ever been in negative equity.
People like property as they can see it, touch it and it is relatively straightforward to understand, but there are no guarantees regarding value or growth.
We all need somewhere to live that we own – eventually – but it isn’t necessary to own property before anything else. Property is costly. Consider the large deposit required, the mortgage costs, interest payments, ongoing maintenance and insurance fees. People forget all of these when calculating the profits they have made.
This doesn’t mean you shouldn’t own a home. Just be aware that your house should be looked at as an expense, not an investment. It’s just a place to live.
2. I’m too young to think about retirement
Unless you are below 20, in which case you are unlikely to be reading this article, then you aren’t! Retirement often brings to mind being old, but you are simply planning for your own future. The sooner you start putting money away the better off you will be. And the less it will actually cost you in the long term.
It is never too early to start saving as you will have short, medium and long-term goals. Just avoid very long-term savings plans as circumstances change and these can be inflexible.
On the flip side – it’s never too late to plan your finances.
3. Gold is always a safe haven
As with property, gold is tangible and easier to understand than many other investments, but gold prices are volatile.
At the time of publishing this article the price of gold was $1,083 per troy ounce. Two years ago it was $1,290 and five years ago $1,368. Safe havens for investors do not show the level of volatility that we have seen in gold markets over the past 10 years.
4. My house is my pension
If that is the case where do you propose to live if you are using the value of your house to fund your retirement? This makes no sense at all unless you happen to own a very expensive property outright and are intending to downsize substantially to release capital. The average family home will not allow for that.
You need to have assets other than one property in order to provide for your future. Several properties might do it, but a spread of asset classes is better and reduces overall risk.
5. I don’t have enough money to start investing
Everyone has to start somewhere. Whilst you may need to be able to put away a reasonable amount every month for an investment account, you can always start with money in a bank account. Once that builds up you can look at longer term investments.
6. A bank is the best place for your money
For the short term yes, for the long term no, although we all need to have an emergency cash fund. In the current low interest rate environment savings accounts actually cause you to lose money over time as the interest payable does not keep pace with the effect of inflation.
This myth dates from times when interest rates were steadily high and people could leave money in the bank and get a hefty return. This is no longer true.
7. Your children will be taken away if your husband dies
I’ve heard this said a few times by expats who have heard some horror stories but this is most definitely not the case. The UAE authorities will only put a child in government care if parents are unable to look after them, either due to death or being ill or injured in hospital and this is only for a child’s safety on a temporary basis.
8. I’m too young for life insurance
You may be young, but you’re probably not immortal.
As soon as there is someone who depends on you financially, you need life insurance. That may be a spouse or friend who you share a mortgage with, a spouse who is financially reliant on you, or children – anyone who would struggle for money as a result of your death.
According to a UK survey a few years ago, 27% of parents think they are too young to have life insurance, despite being old enough to have children! Simple life cover is not expensive and could make the world of difference in a worst case scenario.
Contact me if you want details and costs.
9. You should get out of falling stock markets
When stock markets go down, it is not necessarily right to sell, especially as by the time most people are able to take any action they have already lost out. Panic selling is rarely a good idea. Unless you need the cash in the short term, it’s usually better to hang in there until markets pick up again.
Stock market falls can be a good time to invest. Many seasoned investors consider a decline in the market to be a sales opportunity and take advantage of this to pick up some funds and stocks that are only experiencing a temporary dip.
10. I don’t need a will as I want everything to go to my husband/wife
On the contrary, if you die without making a will, your spouse is quite likely to end up having to share your estate with other family members. You will have little say as to who will get your money, investments, home and you also don’t get a say as to who would look after your children should you both die.
Assets in the UAE would also be subject to Sharia law if no steps are taken.
11. Everyone needs a QROPS or a SIPP
These stand for Qualifying Recognised Overseas Pension Scheme and Self Invested Personal Pension, schemes that are available to expats with UK pension arrangements. Certainly everyone needs to make provision for their retirement but you need to take qualified and professional advice on the right option for you.
A transfer out of a UK pension plan into an alternative arrangement will suit some people but not everyone and it’s very much a case of proceed with caution as the wrong advice could land you with high charges and a big tax bill.
12. If I don’t have enough money to retire, I’ll carry on working
A good theory but will you have the option to do so? Technology moves on, many places don’t want older employees and can insist on retirement, or your health may not be good enough to continue working. In the UAE it is extremely difficult to get a residency visa after age 65.
Wouldn’t it be better to have a choice at that stage of your life? Money, that is, savings and investments, gives you those choices.
Just because a belief is commonly held or widespread, it doesn’t mean that it’s true. Now you have the facts you can start planning for your financial future and take steps to protect your family.
Contact me at firstname.lastname@example.org for more information or for assistance with your personal financial planning.