Six steps to protect your money during financial and political turbulence

The drama engulfing Westminster this week is just the latest in a long line of crises that have been unfolding rapidly and unpredictably across the world for months. At times of volatility and uncertainty, it can be difficult to know what to do. Fortunately, there are six steps you can take in any period of upheaval to protect your finances.

1.    Don’t be tempted into anything rash

We’re hardwired to react to threats, so it can be tempting to feel that in the face of so many different unknown quantities, we need to do something. There will be steps we want to take to protect our finances, but the litmus test is to check whether you would have considered something if it wasn’t for the latest upset. If your investment portfolio was right for you yesterday, there’s every chance it’s right for you today too – even if it has dropped in value.

2.    Make sure there’s balance in your portfolio

This doesn’t mean everyone should sit tight and do nothing. Recent market volatility may have exposed that you have too much of your portfolio concentrated in certain markets or assets. This can be the case if you haven’t rebalanced your portfolio recently, or if you haven’t considered your objectives or reviewed whether your portfolio matches your needs for a while. Beware of making massive wholesale changes at a time of volatility, but it can make sense to carry out the necessary tweaks.

3.    Have enough of a safety net in retirement

When the markets suffer a setback, anyone with time on their side and a diversified portfolio can be confident that over the long term, they will be able to take advantage of market growth. If you’re planning to draw an income from your pension in retirement, you need to build a strategy that gives you this luxury. The best way to do this is to hold enough cash to cover one to three years’ worth of essential expenses. That way, if markets fall, you can draw an income from your savings for a period, so you’re not forced to sell assets when markets are down. Then when markets recover, you’re in a position to top up your savings again.

4.    Assess your savings strategy

The rise in rate expectations is likely to mean competitive fixed rate savings deals will be more plentiful. It’s important not to base your savings approach solely on rate chasing, but the emergence of higher rates could make this a rewarding time to check you have the right accounts.

While you’re of working age you typically need enough cash to cover three to six months’ worth of essential spending in an easy access account. Another rule of thumb is to ensure you have money for any planned expenses over the next five years in cash or other lower risk assets. However, not all of this needs to be in easy access savings. Now is a great time to consider whether slices of it can be tied up for specific periods for a guaranteed rate while there are some great deals around.

5.    Hedge your bets with your mortgage

When gilt yields rise, fixed rate mortgages tend to get more expensive – because they’re reflecting the fact the market expects rates to be higher in future. It means there’s a risk that mortgages could get more expensive again. Anyone coming up for a remortgage in the next six months might consider taking steps to hedge their bets.

Mortgage companies will let you lock in a rate four to six months before your deal ends. If rates fall after you have agreed a deal, you can still shop around elsewhere, but if they rise, you’ll have locked in a competitive rate.

6.    Invest regularly

Some people will try to buy market dips. The trouble with that strategy is you can only really identify the best time to have invested once it has passed. An alternative option is to set up regular investments, so you drip feed money into the market every month. It means you’ll be investing some of your money when markets are lower, and then benefitting from the recovery.