The weekend papers are always an excellent source of personal finance stories. With so many papers to read and so many stories to digest, here is our pick of the five most important personal finance stories this weekend.
1 – Why a ‘five-star’ travel insurance rating is worthless
This story in the Guardian on Saturday describes the Financial Ombudsman Service ruling in favour of Natwest when a travel insurance policy linked to their £240 a year Advantage Private account did not cover the failure of a scheduled airline.
The moral of this tale is to always read the small print rather than rely on ratings from external agencies. If you want specific insurance cover, make sure that it exists and never assume you have comprehensive cover because of the way in which a policy has been marketed. This applies not only to travel insurance but to any type of insurance, including income replacement insurance and critical illness cover.
There are also lessons here for investors who look to fund ratings agencies for guidance on picking suitable investment funds. The author of this story mentions that ratings agencies are usually paid by the providers they rate. This does little for impartiality. Do your own research, or pay an independent financial adviser to do it on your behalf.
2 – Top investment themes for the next 10 years
The Sunday Times asked a number of experts for their investment predictions in 2010 in this article. There were several sensible suggestions, including emerging economies, healthcare and agriculture.
As we get closer to the start of a new year, expect to see more predictions like this, all supported by perfectly logical and reasonable arguments. But take each and every one with a pinch of salt.
Nobody, not even these investment experts, knows with any certainty what a specific investment asset class will do over the next twelve months. We can certainly take educated guesses, but it would be an incredibly risky investment strategy to put all of your eggs in one basket. Instead, remain diversified and consider increasing the weighting of a particular asset class if you have confidence it will do well in the short term.
3 – Should your home be your retirement plan?
Chiara Cavaglieri writes in the Independent on Sunday about why now might be the time to give up on the idea of your property as your pension.
This story comes off the back of research from LV=, something we blogged about here. Whilst there are several good reasons for including the value of your property within your retirement plans, there are also a number of drawbacks.
4 – Comparison sites are ‘misleading’
Consumer Affairs Editor Harry Wallop write in the Telegraph about the very commercial nature of price comparison websites, something which can result in the very best deals on savings accounts and loans being made less prominent in search results. He explains that these sites are likely to give more prominence to those providers willing to pay them a commission when website visitors click through to open accounts.
Whilst price comparison websites like to make you think they are a consumer champion, in reality they are businesses and some have less than transparent policies when it comes to coverage or the commercial deals they have created with a limited range of providers.
For these reasons, it is important to use more than one price comparison site before making a decision and if you want to ensure complete impartiality then make sure you engage with an independent financial adviser to seek personal advice on the most suitable course of action.
5 – Advisers ‘fail consumers’ on ETFs
FT Weekend carried a story warning that some financial advisers are failing their clients by never recommending low-cost Exchange Traded Funds (ETFs). It explains that ETFs are unpopular with most advisers as the products did not pay commission.
A similar accusation has been levelled at financial advisers in the past in respect of Investment Trusts, another type of non-commission generating investment fund. In both cases, there are more important reasons than the lack of commission why advisers might not be recommending them.
As a firm of fee-charging financial planners, ETFs are certainly within our basket of available investment tools when we make recommendations to clients. We tend to favour them where they offer immediate and low cost access to efficient investment markets, including US equities. They are less appropriate in diverse markets such as European equities where we prefer a more active approach to avoid unwanted exposure to underperforming sectors.