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A fine time to give your finances a rethink.

The Credit Crunch. The Recession. Falling interest rates. Falling pension annuity rates. Rising repossessions. Just a few of the topics that we all too often hear about in the media. In the last 18 months, we are seeing economies face challenges not seen for 100 years or more, writes Simon Patterson of Newcastle law firm Dickinson Dees.

IN the UK, no asset class, apart from UK Government bonds, has produced a positive return over the last 12 months. We have seen equity markets fall by around 40% from their peak.

Interest rates fall to an all-time low of 0.5% and property values also drop significantly. Many questions remain on why our economy is in this situation, but investors must look to the future.

One of the sound principles of investment portfolio modelling is not to have all your eggs in one basket. Investing across different asset classes can help diversify your investment portfolio and consequently reduce the amount of investment risk.

A typical portfolio may include a spread between cash, government bonds, corporate bonds, equities, property, commodities and even alternative assets such as hedge funds. The amount of exposure to each asset class should depend on your underlying attitude to investment risk and also your objectives for your investment.

Agreeing and understanding your attitude to investment risk and also agreeing a target asset allocation benchmark with your investment adviser, in keeping with your risk profile, is a key step and one that should be regularly reviewed.

A further consequence of the economic downturn, and falling equity and property values, will result in a change in your weightings to each asset class that you are invested in.

Are they now out of kilter and do you now need to consider rebalancing your portfolio? Alongside a review of your exposure to each asset class, further consideration needs to be given to the tax treatment of each investment. As a general rule, ensure you make use of tax allowances such as your annual ISA allowance. By doing so, you can place assets into a wrapper where any gains made are not subject to capital gains tax.

There is no further income tax to pay on any dividends and any interest earned is received gross and not subject to income tax. For higher rate taxpayers, this can potentially save 40% income tax on the ISA monies each year.

The ISA allowance remains at pounds 7,200 for the current tax year, rising to pounds 10,200 from April 6 2010 (although for over 50'' s this rises to pounds 10,200 from October 6 2009).

If you do not wish to commit further funds, you could consider a Bed and ISA transaction, where an investment outside an ISA is sold and then repurchased within an ISA. This effectively moves assets from a taxable environment to a tax efficient environment.

Whether you obtain investment advice from stockbrokers, investment advisers, IFAs, your bank or a combination of the above, your advisers should be in touch with you regularly to keep you abreast of matters. They should aim to explain how the global situation is affecting your investments, your risk profile and also your exposure to each asset class.

Effective financial planning becomes more challenging the longer you leave it. So whether you are choosing to seek professional advice for the first time, or decide to book that long overdue legal and financial review, use the changes witnessed in the last 18 months as a prompt to tackle and improve your financial circumstances.

Simon Patterson is manager, financial planning group, Dickinson Dees Wealth Management Tel: (0191) 279 9651 Email:


TIME FOR A RETHINK Simon Patterson of Dickinson Dees.
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Copyright 2009 Gale, Cengage Learning. All rights reserved.

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Publication:The Journal (Newcastle, England)
Date:Jul 4, 2009
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