The true cost of inaction

Not taking a proactive approach to your finances can be an expensive business. The longer you wait, the more it could cost you.

What could waiting cost you?

Waiting to invest, putting off your pension, leaving funds as cash: you maybe waiting for the ‘right time’, but you could be losing out significantly on future wealth.

See why an ‘I’ll sort it out later’ approach can become an expensive decision.

Pinnacle Adviser Laurent McClintock explains why time can be one of the most valuable assets in financial planning.

With every ten years you delay, you could potentially be wiping out half of your fund’s growth with every ten years you wait.

Give your money time to benefit from compounding returns

The earlier money is invested, the longer it has the opportunity to grow through the power of compound investing.

See the example below someone starting to invest £200 a month at either age 20, 30 or 40 years old,, and the very different outcomes.

Estimated fund at age 68:

STARTING AT AGE 20

£725,000

STARTING AT AGE 30

£387,000

STARTING AT AGE 40

£193,000

This is the cost of losing time to compound growth, and not the cost of contributing more each month.

Based on £200 invested each month increasing by 2.5% a year, return 5% a year, compounded monthly, after charges. These figures are examples only and are not guaranteed. They are not minimum or maximum amounts. What you get back depends on how your investment grows and estimated fund size by age 68 the tax treatment of the investment. You could get back more or less than this.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested. An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society. However, please bear in mind that over the long-term inflation will erode the purchasing power of your capital.

What could your LifePlan reveal about your future?

Tom and Jack

Who puts in more, but who ends up with more wealth at 65?

This example shows that you could be earning exactly the same as a colleague. But it’s what you do with your surplus income that could make the biggest difference to your future lifestyle.

Tom starts saving at 35 and invests £5,000 a year for 30 years. By age 65, the example shows:

£449,449

Jack starts at 25, invests £5,000 a year for just 12 years – and then stops completely at 37. By age 65, the example shows:

£511,534

18 fewer years of contributions. Around £62,000 more at age 65.

These numbers assume a 6% interest rate, compounded annually. Balances shown are approximate based on deposits made at the beginning of the year. These figures are examples only and are not guaranteed. They are not minimum or maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.

Still thinking it's okay to wait for when life calms down?

What is the cost of delaying investing?

The biggest cost can be time. The longer your money is invested, the longer it has the opportunity to benefit from compound growth.

As the example above illustrates, investing £200 a month from age 20 could potentially build a fund of around £725,000 by age 68, compared with around £387,000 when starting at 30 and £193,000 when starting at 40, based on the assumptions shown.

Starting earlier doesn’t remove investment risk, but waiting means giving your money less time to work.

Is it ever too late to start investing?

There is no single age when it becomes “too late”. What matters is whether investing is appropriate for your circumstances, objectives, timescale and attitude to risk.

You can’t change when you started. You can change what you do next.

Should I invest now or wait for markets to fall?

Trying to predict the perfect time to invest is extremely difficult. Markets rise and fall, and waiting for a better moment can mean missing periods of growth.

Investment is variable and can go down as well as up. You could get back less than you invested.

Rather than trying to time the market, your decision should be based on your goals, circumstances, investment timescale and the level of risk you are comfortable taking.

I’m earning well. How much of my surplus income should I invest?

A good income creates an opportunity, but earning more doesn’t automatically mean building more wealth.

The right amount to invest will depend on your expenditure, emergency savings, short-term commitments and longer-term goals. Financial planning can help you identify genuine surplus income and decide how much could be put to work without compromising the lifestyle you want today.

How do I know if I’m on track for retirement?

Start with the retirement you actually want, rather than an arbitrary pension figure. When would you like to stop working? What would you like to spend? What income and assets will you have available?

Pinnacle LifePlan can bring these together and model different scenarios, helping you see whether you’re on track and what could happen if you retire earlier, spend more, invest more – or do nothing for another five years.

What financial planning decisions shouldn’t I keep putting off?

Some decisions become harder to address when they’re repeatedly postponed. These could include investing surplus income, reviewing pensions, checking family protection, planning for retirement, making or updating a will, and considering how and when you want to pass wealth to your family.

The value of advice: +2% per year

According to independent analysis the value of professional financial advice amounts to an additional 2% per year.

This is based on comparing annual returns for St. James’s Place clients against those who managed their own investments. The research by Numis Securities, which covered all clients’ SJP pension investments, found that between June 2010 and June 2020 the average growth achieved was 7.7% pa. By comparison, the same exercise for pension clients of a large firm where investments usually make their own investment decisions achieved an average of 5.5% pa over the same period.

What does this really mean?

£100,000 invested under the guidance of an expert Financial Adviser at the start of the period would now be worth on average £210,000 by the end*.

£100,000 invested by a non-advised client on average grew to £171,000 over the ten years. This analysis didn’t include any tax benefits from advice. Past performance is not indicative of future performance.

*Numis Securities Research, Sept 2020

Redefining Wealth

Pinnacle is one of the largest wealth management practices in the UK, attributing its success to a larger than average client support team; advanced financial modelling software known as Pinnacle LifePlan; and a rigorous internal programme that attracts and continually develops the top Advisers in the industry.

Over 100 Pinnacle service specialists support our Advisers and their 6,500+ clients, managing over £1.4 billion of funds under management.