If you’re a client approaching retirement, or you’ve already accessed a chunk of your nest egg, you might suddenly find yourself surrounded by potential investment opportunities.
You start noticing ads in the newspaper promising returns of up to 12% on whisky. There’s a pile of flyers at your door. When you pick them up, one in particular catches your eye: ‘Start your property portfolio today with just £60k’. Everywhere you turn, someone, somewhere, is trying to get you to part with your money.
And this is on top of the allure of 6% interest rates on cash, which is distracting many clients from their plans.
These ‘exciting’ investments might seem like a scam, but they’re perfectly legal. So we have our work cut out for us to explain why these offers might not be as promising as they seem, and that it really is best to stick to the knitting.
Whisky investments: beyond the hype
Whisky investment has gained attention recently, partly due to the astonishing success stories where rare casks have sold for millions. The allure of annual returns ranging from 8% to 12% is undeniable. Additionally, the promise of owning a tangible asset with free storage and insurance, along with the absence of capital gains tax, is enticing.
However, what these advertisements and success stories often omit is the lack of regulation in the whisky investment industry. In the event of a mishap or fraudulent activity, the chances of recovering investments are minimal. Investing in whisky can potentially jeopardise decades of hard work and financial planning.
The absence of regulatory bodies, such as the Financial Conduct Authority makes it challenging to ascertain the true value of investments. Some platforms will offer the opportunity to invest in the rarest and most expensive whisky, only for the cask to be filled with something you’d find in your nearest Bargain Booze outlet. Others will offer guaranteed returns, only for casks to sell for far less than promised. In some cases, clients might find themselves investing in casks that don’t even exist.
What they don’t tell you about property investments
Likewise, the allure of property is understandable, especially when clients see the value of their own homes skyrocket. They may even be kicking themselves for not building a property empire sooner.
It’s no wonder, then, that so many companies are encouraging people to invest in property. All they need to do is point to the huge growth the market has seen over the last 20 and 30 years.
However, it's crucial to educate clients about the changing landscape of property investments. Thanks to a series of regulatory changes, being a landlord isn’t what it used to be. Reduced tax relief on buy-to-let mortgages and stamp duty surcharges have impacted the profitability of being a landlord. Furthermore, proposed policy changes, such as Michael Gove’s elimination of 'no fault' evictions, add to the challenges landlords face.
While some landlords still manage to generate profits, it's imperative to emphasise the importance of comprehensive financial planning before venturing into property investment. Even if the potential returns seem attractive, the time and effort required to manage a property portfolio should be weighed against the demands of the stock market.
Investing isn’t supposed to be fun!
I tell my clients that whether a flyer’s been pushed through their door, or they’ve spotted an ad in the newspaper, they should think of these promises as little more than a tip off from a stranger down the pub.
These advertisers don’t know them, their lifestyle, their family situation or their goals. They don’t know how their existing investments are performing or how much progress they’ve made. They can’t possibly make a recommendation that’s right for them; it’s a far cry from a financial plan.
I acknowledge – as I’m sure you’re all doing at the moment – that I understand why they might be getting itchy feet. Their investments may well have been underperforming in recent years; property and whisky might seem like the perfect antidote — not to mention they’re more exciting, tangible and easy to understand than stocks and bonds.
But since when did investing have to be fun? In the long run, the most boring investments tend to be the safest and most reliable. Perhaps it’s time we separated the two.
We focus on optimising a client’s portfolio, so they can focus on optimising their life. If they have a passion for whisky or property, they can always indulge in a leisurely weekend getaway and a whisky tasting experience. It’s far better to leave that excitement to other pursuits and let us stick to the ‘mundanity’ of the plan.