Whether you have inherited money, received a divorce settlement, sold your business or been handed a generous bonus, the dilemma is often, what do I do with all this money?
Landing a windfall can bring with it all kinds of feelings and emotions, not always one of joy at your newfound riches. Many business owners, for instance, will have dreamt of what they would do with their life-changing cash windfall but then find themselves overwhelmed by the reality. ‘Sudden wealth syndrome’, as it is called, can leave many feeling isolated or overburdened, while an inheritance, which involves a loved one passing away can be an incredibly difficult time for all. When emotions run high, you may need to buy yourself some time.
With wealth comes an element of responsibility to preserve it and even grow further in the future and this is where Weatherbys can help.
Building a financial plan
Regardless of how you have inherited your windfall, a financial plan will help you and it’s core should be a cash flow forecast. Not only will a clear cash flow plan help you to save and eventually spend your money in the most tax-efficient manner, but it will also help you answer an important question: how long will it last?
As part of any cash flow plan, we would always recommend that you have some cash at your disposal. Everyone’s circumstances are different of course, but we suggest you have an emergency wealth pot of typically three months of expenditure up to whatever allows you to sleep at night in a deposit account that you can access readily.
Buying reflection time
Besides a safety cash pot, there are other reasons why people who have landed a financial windfall may want to sit on cash. It buys them valuable time and provides them with liquidity (they can get their hands on their cash quickly), security of capital and flexibility. For example, going through a divorce can be a stressful and emotional experience yet it comes with financial ramifications. Beware those who want you to act swiftly – take the time to consider your options.
Taking advice around your cash deposits reduces the risk of making hasty or ill-informed decisions. With any windfall, there could be tax implications, while it may be beneficial to review existing debt arrangements. Again, investing in cash can be a short-term strategy that ties you over until you are clear on how you want your financial future to pan out.
Higher interest rates…but for how long?
Cash’s crown may have slipped during years of ultra-low interest rates that followed the financial crisis, but those days are over. In recent years, the Bank of England has been raising rates to combat rising inflation, and today, the Base Rate stands at 5.25 per cent compared to 0.25 per cent at the end of 2021. Subsequently, the rates on many deposit accounts have risen considerably and although consensus suggests that interest rates may have peaked, now is the perfect time to review your cash deposits to ensure you are making the most of the 2,000 per cent rise in Base Rate since its all-time low.
Deposit accounts with flexibility
We offer a range of deposit accounts from instant access to loyalty savers’ (that typically pay higher rates of interest). Depending on your circumstances, we can lend you money using your deposit account as security if you need access to your cash before the notice period matures. We review our deposit rates frequently to ensure they provide a fair return to both our savers and borrowers – for example, our 250-day notice account currently pays 5.1 per cent AER.
Security is key
Security is very important for depositors, particularly those with cash savings that exceed the Financial Services Compensation Scheme’s protection limit of £85,000. It’s why we maintain a strong balance sheet with a conservative loan-to-deposit ratio, which means we have far greater levels of deposits than we do outstanding loans. The majority of any surplus cash on our balance sheet is held with the Bank of England and can be accessed instantly.
Cash alternatives
Cash used as a short-term strategy is an attractive option but cash is not necessarily king, especially during periods of high inflation because it loses value over time eroding its purchasing power. Investors looking to preserve the purchasing power of their wealth may need to be prepared to take on some risk – and be comfortable seeing the value of their money fluctuate. This still leaves them the conundrum of where to invest in an uncertain environment.
We believe the best way to invest is straightforwardly, agnostically and by getting value for money. We can help our clients manage their core wealth by accessing global stock markets at the lowest possible cost. We are advocates of soundly engineered portfolios constructed using low-cost global tracker funds. No tactical tilts, no exotic assets and no management fees – just simplicity and transparency. Our global tracker portfolios (GTPs) are globally diversified and carefully constructed to provide you with just such a solution.
Another cash alternative is investing in gilts. Gilts are one of the safest forms of investment because they are issued by the UK government and they are currently offering potentially attractive yields (net of tax). The Weatherbys Gilt Portfolio is a low-risk alternative to term deposits and could have a role to play in your financial plans, particularly if you need access to some of your money within the next two years.
Case study one
Jennifer was recently divorced from her husband of more than 20 years. Having received a significant settlement, Jennifer needed to generate a level of income to maintain her and her family’s lifestyle for the foreseeable future. Although she had saved some money in some ISAs, she would not describe herself as a sophisticated investor.
We helped Jennifer first to build her understanding and confidence in financial decision-making before making any recommendations. Using tax-efficient financial solutions, we structured her divorce settlement to not only meet her ongoing needs but also to include an investment portfolio with the potential to grow over time, taking a moderate level of risk. Through our ongoing personal relationship with Jennifer, we will review her financial position regularly and modify our plan should her personal and family situation change.
Case study two
Having built a successful IT business over two decades, John decided to accept an offer from a larger rival through a trade sale. He hadn’t been expecting to sell at this stage but reckoned that such offers don’t come around too often. Although he was very happy with the sale, he was unsure what his next ‘career’ move would be but had designs to retrain in another line of work in the healthcare sector. Security for his family was a priority, as was paying a tax bill due in 2025, but he was unsure about making financial decisions without first understanding what he might be investing in and why.
Placing his money for the short term in a range of deposits, John then undertook a programme of financial education. Subsequently, John decided against investing large sums into property, preferring instead to invest in a diversified portfolio that would generate a certain income stream and give him peace of mind. With that in place, John had the time to retrain for a second career without any financial worries lingering in the background.
Get in touch
We offer a range of deposit accounts to help you manage your money over the short, medium and long term. No matter how complex your needs are, your Private Banker will work with you to identify the most suitable accounts and, if required, create a deposit portfolio that best fits your requirements.
Important information
Please note, the value of investments can go down as well as up, and you may get back less than you originally invested.