Our clients are hugely diverse; they have different goals, different timeframes and different approaches to managing their capital. But there are some fundamentals which are true for all, and one of these is the need for liquidity, or more simply put, access to cash.
But the question is how much.
Too little and that tax bill or the school fees start to loom ominously on the horizon; too much, and while you are protected from short-term financial shocks, both personally and economically, inflation is eroding the real value of your wealth.
There’s no magic number, and the amount of cash you choose to hold will depend on a number of factors, including your personal circumstances, planned expenditure and your appetite for risk. What is clear, however, is that while cash is a vital asset class, like any asset class you don’t want to go overweight unintentionally. It’s important to have a strategy.
More than most, barristers understand the importance of managing cash flow. Taking into account management of aged debtor and anticipated fees, and keeping cash on instant access to cover emergencies, it is a case of matching cash to short-term expenditure and ‘layering’ liquidity with either notice accounts or fixed term deposits. For larger amounts, speak to your adviser about bespoke deposits such as those timed to mature when that tax bill falls due.
Cash savers have been poorly rewarded for a while now with rates remaining low, and for a long time inflation was also barely above zero, however it has since come back with a vengeance – although it should be noted that it did drop back to 2.7% from 3.1% in November. CPI is, of course, only one indicator of inflation and not always the most relevant and you may find the true inflation figure of the services and goods you are accessing is significantly higher. School fees for example, have increased more than 70% since 2004 while dinner at La Tour D’Argent in Paris increased 19% last year.
Now that you’ve decided how much to keep in cash, it’s time to think about how your excess cash (income or lump sum) can work for you to provide inflation-beating returns. It’s important to be honest about your knowledge, experience and the time you can give to managing this. Research shows that investors who take financial advice before investing their money made substantially more than those who invest on their own and a good adviser will take the time to understand what you’re looking to achieve and help you develop a plan that supports your short, medium and long- term goals.
Structuring is key and we would recommend that you consider the necessary protections – life assurance, critical illness, an up-to-date will – before taking the plunge into the world of investing. Tax efficiency is also key and there are numerous vehicles to use depending on your individual circumstances, but pensions and ISAs can be a good place to start as well as offshore bonds, VCT, EIS and SEIS schemes and your CGT allowance. If your partner is in a lower tax bracket than you, there can be advantages to gifting assets.
Diversification also plays an important role in balancing your risk. Just as you are looking at diversifying beyond cash, different assets respond differently to changing market conditions. If you are investing for the long term (at least five years), ensuring you allocate your assets across a range of asset classes can provide a level of protection from sudden and unexpected market movements, so if part of your portfolio is poorly affected another may benefit.
So cash cannot be underestimated. It not only provides a level of security in case the roof falls in, and offers peace of mind during turbulent market conditions, it also creates flexibility allowing you to take advantage of market opportunities should the chance arise. However, it cannot rule alone.
Arbuthnot Latham is a boutique private bank focused on working in partnership with you to help you achieve your financial goals. We believe in a truly tailored personal experience that adapts over time to support your wealth journey. We offer private and commercial banking, comprehensive wealth planning and an investment management service.
Our dedicated team are on hand to assist you. Please contact either Adam Patten or Jeanette High.
Adam Patten, Senior Private Banker
020 7012 2523
Jeanette High, Private Banker
020 7012 2651
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 Consumer Price Index
 Telegraph 3rd May 2017
 Forbes 18 October 2017
 Telegraph 15 February 2018