This week, John Rennie talks about building a balanced investment portfolio and how to complain if you don’t get the service you deserve with your rights as a consumer.

• HowToComplain.com
• ConsumerDirect.gov.uk
• Consumer Rights
• Balanced investment portfolio strategy

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One thing you will always hear financial advisors talking about is a ‘balanced investment portfolio’.

But for most of us, our investment planning is piecemeal … that’s if we plan at all. You’ve probably got a bank current account, perhaps pay into a pension, and maybe have some cash in a savings account.

You might have some stocks and shares and own a property – or at least you’re getting towards it, by having a mortgage on one.

But a balanced portfolio is important. That’s because we all want our savings to be safe … but we also want them to grow.

The conundrum is that the SAFER your investment, the less likely it is to make you money. So we all need to take risks to get rich.

But don’t panic. That’s where a BALANCED portfolio comes in. We want to build a portfolio that gives you growth AND a secure nest egg for retirement.

Traditionally there are four asset classes: cash, fixed interest bonds, property and shares (or equities as they are known).

Cash is the safest, then bonds, next property with shares the riskiest. A portfolio needs a spread across these classes, so let’s understand what they are.

Firstly, cash isn’t just the notes burning a hole in your wallet. That, you may argue, is the safest of all.

It earns no interest though, so the old fashioned policy of sticking your savings under the pillow would actually see your wealth steadily eroded by inflation.

Cash generally means money invested in banks and building societies. It’s safe – banks don’t tend to go bust in the UK – but the returns are small.

And if you’ve got a lot of cash in a non-interest bearing current account then you might as well have it under the pillow.

Even interest bearing accounts are not much good if the interest paid is less than the rate of inflation.

Next we have fixed interest bonds. These are generally government bonds, issued by governments the world over to raise cash for public spending.

UK Government  bonds are called Gilts. You’re effectively lending money to HM Government, which guarantees to pay you back on a set date.

The price of bonds DOES move up and down, but they’re generally seen as a safe haven for cash, as Governments tend not to go bust. As the holder you receive regular interest payments, and you’ll get better returns than from a deposit account.

Companies also issue bonds, though these aren’t considered quite as safe as Govt bonds … the upside to we investors of course is that they then have to pay HIGHER interest to attract us to buy.

You can buy or sell bonds and the price varies – just like shares. They are though considered a safer way to invest in a company than buying equities.

Moving along, we have property. One of the problems of the ever rising UK real estate market is that property has become seen as risk free.

That’s because peaks and troughs in property markets generally happen over the long term.

In a rising market, such as the UK has seen over the past decade or more, people forget that prices also go down.

Nonetheless, property is an essential part of a balanced portfolio … providing you understand you’re in it for the long term.

If you buy your own home you’ll get capital growth, and if you go for buy to let you may get regular income too.

Finally we have equities, the riskiest of all, with the stock market and its listed companies rising and falling on an hourly basis.

China is a boom stock market just now, and a company share price might increase by a factor of 10 over a year, but it would be a brave and foolhardy person who put all their money into that one company.

The key is to find a financial advisor who will help you build a balance of investments.

Even within that portfolio, you will be highly unlikely to invest directly in company shares.

Instead you’ll be putting your money into Investment Funds, which will buy a balance of shares across the market … just like you, the fund is spreading the risk.

You should also look at reducing your risk as you get older. Most advisors will suggest more exposure to risky shares in your 20s and 30s as you are trying to build wealth. Then, when things do fall, you’ve more opportunity to make your money back.

Then, as you approach retirement, switch more of your cash into solid bonds and cash … and of course wait for that pension to kick in.

Remember that though there is a ‘cooling off’ period with buying financial products the same doesn’t apply to that CD or book you bought.

Unless it’s faulty, it’s entirely up to the retailer whether they refund your money. Always keep proof of purchase.

This is another time it’s good to buy items on your credit card by the way. If goods are faulty, your credit card receipt will act as proof.

And if the item cost more than £100, you can usually claim the cost of a faulty product back from the credit card company.

The UK Govt has a very handy site at consumerdirect.gov.uk, which fills you in on your rights as a consumer.

It talks you through the complaints process whether you’re doing it by phone, letter or email.

The trick here is to create a ‘win win’ situation – shouting abuse at the receptionist is rarely an effective tactic!

Nobody likes getting shoddy service when they’ve paid for stuff. But many people find it difficult to complain.

A brilliant website, www.howtocomplain.com, takes the heat out of things – with links to government departments and private companies.

You fill in a form and your complaint is automatically generated and passed forward. And nobody has to get into a shouting match on the phone. A brilliant and effective idea.

This week, John Rennie talks about constructing a budget that will help you live within your means. And he has tips on making the most of your savings and ensuring the banks aren’t ripping you off.

• Money Saving Expert budget planning

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Everyone should have a budget. If you’re in debt it will help you get out of it. And if you’re not in debt it will make your money go further and allow you to reach financial independence that bit quicker.

The problem these days is that people have so many outgoings, direct debits, loan agreements and the rest, that they often don’t really know how much they are spending each month.

In fact, many people are not even aware that they are spending more than they earn each month … until it’s too late.

Be aware … constructing a budget ISN’T quick. It could take you the best part of a day. But that’s half the point, as it will make you REALLY focus on your spending.

First, you need a good budget planner. While you can buy software such as Microsoft Money or Personal Accountz, we wouldn’t bother. In fact there’s your first saving.

If you’re using a Windows PC then you have the Excel spreadsheet on your computer, which is all you need. We’re going to itemise all your spending and Excel offers you the greatest flexibility.

Alternatively, go to moneysavingexpert.com and search for ‘budget planning’. There’s a very good spreadsheet planner there, which you can import into Excel. It DOES have 90 or so categories.

Once you’ve pulled it into Excel you can delete some, or add others as you need.

Strike a balance here. You don’t want a separate category for chewing gum or biscuits … but you ALSO don’t want a huge entry saying ‘sundries’.

The problem most of us have is that we don’t KNOW where a huge part of our monthly spend goes. Categorising your spending is a very good discipline.

You are going to need to get ALL your expenditure together here. Three months bank and credit card statements should allow you to see what your average spend on petrol, insurance, cash withdrawals, food, right down to daily lunches.

You may find that ‘CASH’ comprises a large part of your spend. The more you can switch to debit or credit cards the better … as you will then have itemised spending on your bank and credit card statements.

Watch out for exceptional spending. Take your statements from March, April and May and you’re going to be missing out the big spends on Christmas and Summer holidays. You can either average these over the year or add them to your expenses as ‘one offs’.

Another thing to beware of is double counting. You may have got £100 out of the bank and spent it on the week’s groceries. Don’t log the £100 under both ‘cash’ AND ‘food’ or you’ll be counting that £100 twice. Again, this is where putting purchases on plastic can help you budget.

Also, ensure you aren’t counting your credit card or loan repayments as well as the meal, car or sofa they went to finance, as again you’ll be double counting.

The other side of the column is how much you earn of course. Again, not quite as simple as it sounds. We want NET income here – so that’s after tax and national insurance. Do you earn any interest from investments? Have you included Child Benefit, any gifts or annuities you receive?

Once you’re confident you’ve got EVERYTHING in that budget you do the simple but deadly sum.

In the immortal words of Mr Micawber. “Annual income £20 pounds, annual expenditure £19, 19 and sixpence, result happiness. Annual income £20, annual expenditure £20 and sixpence, result misery.”

Of course our finances are a bit more complex than they were in Charles Dickens’s day. But the good news is that serious belt tightening isn’t necessary just yet.

Just LOOKING at your figures should suggest areas that you can painlessly cut away.

Do you really need Sky for TV you never watch, or a gym subscription that you never use? Can you take a packed lunch everyday instead of nipping out to the deli?

You may discover direct debits that are still paying out each month for insurance you had forgotten you had.

There will hardly be an area where you can’t save. Switch your gas, electricity, phone and internet to a cheaper provider.

Look for a cheaper mobile phone tariff. Shift to a interest free credit card, or a cheaper mortgage or loan deal.

And if you’re paying interest on your credit card each month but still saving money each month then it’s a FALSE economy as you’re CERTAINLY paying more interest on the card than you’re earning on the savings.

Dip into your savings and pay off the credit card debt. Most of us can make significant savings before we even look at cutting out the luxuries.

If you have any savings that you don’t need to dig into for ready cash to the highest rate accounts you can.

Switch to notice accounts that demand 30 days or more to remove your money – accounts that tie up your cash will inevitably pay higher interest, and they make it harder for you to raid the piggy bank!

And use your ISA allowance to invest up to your tax free allowance, otherwise you pay tax on any interest you earn.

Don’t assume that, just because you were lured in by a high rate, that that rate still applies.

Banks constantly downgrade the rate on premium accounts. They assume (quite rightly) that most of us are simply too lazy to check.

Considering there are millions of moribund bank and building society accounts in the UK, they’re not wrong.

Be the exception. Dig out that passbook or statement, ring the bank and demand the top rate.

Banks always entice new savers with high headline interest rates, but those eye poppingly attractive accounts are inevitably subsidised by other savers on lower rates.

If you’ve held an account with a bank for a year or more, you certainly WON’T be getting the best deal.

Find out the interest rate you’re earning on your account, find out the rate your bank is offering to new savers, and demand to switch.

If they say ‘no’ (and this is most unlikely) then simply take your savings elsewhere.