In downgrading the credit ratings of these 16 Spanish banks, Moody’s has also downgraded Santander UK. We blogged earlier this week about Kent County Council pulling their overnight deposits out of Santander UK.

The downgrades have been applied for a number of reasons, including a number of bad loans made by these banks to the property sector.

They have been made against a backdrop of Spain slipping back into recession and the threat of contagion as the fate of Greece as a member of the single currency hangs in the balance.

Investors were naturally spooked by the move.

Whilst the Spanish stockmarket opened down around 2%, it has since recovered. As I type this, the FTSE 100 is down another 1.4% at 5,262.

It appears that investors are seeking a safe-haven for their cash. The yield on 10-year German bonds fell to a record low of 1.399% this morning. The price of gold is up by 2.7% this morning, at $1,588/oz, shrugging off a recent correlation with risk assets.

Whilst what is currently happening in Europe shares many similarities with the start of the global financial crisis in 2008, the global banking sector at least appears to be a more robust position this time.

Other indicators, including the cost of banks lending each other money, do not suggest a crisis or any need to panic about access to savings. In any case, savers with deposits in UK authorised and regulated banks (including Santander UK) are protected by the Financial Services Compensation Scheme (FSCS) up to a level of £85,000 per person, per institution.

Commenting on the downgrade of Spanish banks by Moody’s, Tristan Cooper, who is Sovereign Debt Analyst at Fidelity Worldwide Investment, said this morning that it has been coming for some time but does represent unfortunate timing for Spain.

He also said, “With rumours of bank deposit withdrawals, Spain can ill-afford another blow to confidence. Once a bank run begins it is very hard to stop without a credible deposit guarantee. Given the fragile fiscal position of Spain, the ECB is under increasing pressure to step in to calm depositors’ nerves.”

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These big life events cost an average of £310,279 but Brits estimate the cost at only £178,140.

This results in a shortfall of £132,139 between expectations and reality.

The cost of raising a first child is the life event with the cost that most of us underestimate, to the tune of £92,000.

Whilst the average cost of raising a first child is £165,648, the average expected cost is £73,221.

University debt is another area where most of us dramatically underestimate the costs involved. The average cost of student debt is £43,500, against an average estimated cost of £9,541, a shortfall of £33,959.

Getting these estimated life event costs wrong can put a big hole in your financial plans.

One way to ensure a more accurate estimate is to work with a Financial Planner to establish a robust and regularly reviewed financial plan. This can result in more consideration being given to the numbers involved with major life events, as the Financial Planner will draw on their experience with multiple clients to inform accurate numbers.

What most people don’t want to experience is an unexpected shortfall between expectations and reality, particularly when it comes to significant capital expenditure and when this takes place in later life.

Find out more about our LifeWealth Design Financial Planning service

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Greece is scheduled to have another set of elections next month, Spain has seen its bond yields surge higher and the Bank of England has warned that the eurozone is “tearing itself apart”.

Taking stock of the situation, Andrew Wells, Fidelity’s Global Chief Investment Officer for Fixed Income, has provided a briefing note for advisers and investors.

Wells believes the real work in Europe begins now, as recent elections have concluded. He sees France as having the choice between being part of the “problem children” (including Italy, Spain and Greece) or being at the heart of Europe along with Germany.

Despite his socialist principles and election promises, will President Hollande really risk being sidelined in Europe and lumped in with the likes of Greece? Wells thinks Hollande will remain pro-growth but do so responsibly.

Wells believes that the situation in Greece is more dangerous.

The two main political parties in Greece have lost all support. It does not appear that Greece will receive the next tranche of funding from Europe as the $3bn of spending cuts they must make in the coming weeks simply will not happen.

The risk of a disorderly exit from the eurozone by Greece has dramatically increased. The markets no longer believe that Greek bonds will be repaid in full.

Wells says there is a 50:50 chance that Greece will exit the eurozone.

The political situation in Greece could develop very quickly, with public opinion driving the political agenda.

One possible outcome for Europe described by Wells is fiscal integration, with the harmonisation of taxation, fiscal policy and budgetary responsibility. That is not a quick fix and would also require public support, something that appears sorely lacking in some countries.

Overall, the risk of the whole eurozone collapsing is small because the consequences for the global economy would be so dire.

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Commenting on the publication of the report, Bank of England Governor Mervyn King explained that UK economic output has been broadly flat for the past 18 months.

The size of the UK economy remains 4% smaller than it was in 2008, before the onset of the global financial crisis. The economy is not expected to return to its pre-crisis size until 2014 at the earliest.

Whilst price inflation has fallen back from its peak last September, it remains stubbornly above the 2% government target for the Consumer Prices Index.

The Bank has published a weaker economic growth forecast than the one described in their February report.

They have cut their economic growth forecast for 2012 from 1.2% to 0.8%.

Perhaps most surprisingly from this report was the expectation from the Bank that the UK economy will experience a 0.5% decline as a result of lost productivity from the Queen’s Jubilee and London Olympics.

They predict a gradual recovery in economic output, with subdued domestic cost pressures allowing price inflation to fall once external pressures fade away.

A recent return to recession, following negative GDP in the final quarter of last year and first quarter of this year, was caused by higher than expected world commodity prices and tighter credit conditions. This second factor is influenced to some extent by the current troubles in the eurozone, with banks exposed to this sovereign debt crisis.

UK economic growth in the future will depend on higher consumption once take-home pay improves, more corporate investment and support from net trade. The Bank is assuming that interest rates will stay at their record low and the size of their asset purchase programme will remain unchanged.

The eurozone crisis is unsurprisingly identified as the biggest threat to the UK economy.

King has confirmed that the Bank is drawing up plans to deal with the break up of the single currency. This comment is likely to further spook investors who are already nervous about the continued membership of Greece and now Spain in the euro.

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These different share classes are used to include or exclude various charges.

There are three main charges for investors to consider. These are fund management, platform administration and advice.

By offering different share classes, fund managers can include one, two or three of these charges in the overall charge levied by the fund.

When the Retail Distribution Review (RDR) is fully implemented at the end of this year, commission can no longer be paid from retail investment funds. As a result, fund managers are starting to offer ‘RDR-ready’ share classes for their funds.

These new share classes are ‘clean’ in terms of commission and platform administration charges.

For a typical actively managed fund which has an annual management charge of 1.5%, the new ‘clean’ share class might charge 0.75%, purely for fund management costs. This represents the removal of a 0.25% charge for platform administration and 0.5% for adviser commission.

Depending on the approach taken by the individual fund manager, the new share class might exclude only adviser commission, reducing a 1.5% annual management charge to 1%.

Advisers such as Informed Choice who already operate with the modern remuneration method of adviser charging, ahead of this being introduced on a compulsory basis at the end of the year, have been using cash rebates.

Cash rebates work by refunding the platform administration and adviser commission charges from the fund annual management charge into the client cash account on a wrap platform.

Platform costs and any agreed advice fees are then charged on an explicit basis to the cash account.

This method of cash rebates means our clients see precisely what they are paying for fund management, platform administration and advice.

We understand that the FSA has an eye on removing the ability to operate on this cash rebates basis in the future, because some advisers have suggested to clients that it means platform and advice costs are ‘free’. There are always a few that spoil things for the many!

Once every fund offers a ‘clean’ share class, the need to use a system of cash rebates will be reduced. Until then, it is the best way to manage the costs of fund management, platform administration and advice within a single platform.

Moving from one share class to another within the same fund could, in some circumstances, result in a capital gains tax charge. Investors and their advisers will need to carefully plan any future transition from ‘bundled’ share classes including commission to ‘clean’ share classes excluding this cost of advice.

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Kent County Council has withdrawn £3m of overnight deposits from Santander UK following concerns about the financial strength of its Spanish parent.

With the eurozone sovereign debt crisis gathering momentum and some parts of the banking sector in Europe looking particularly fragile, was this a sensible move by Kent County Council?

Those with any exposure to Icelandic banks at the height of the global financial crisis will recognise these fears.

Whilst individual savers in UK authorised and regulated banks receive protection from the Financial Services Compensation Scheme (FSCS), this same protection would not apply to an entity the size of Kent County Council in the event of Santander UK going bust.

In any case, the limit of FSCS protection on a deposit account is £85,000 per institution per person. Keeping £3m on overnight deposit as an individual would be a very risky thing to do.

The Santander spokesman on the radio this morning did a good job of describing the ring-fencing of the UK bank, with its Spanish parent unable to access the mostly UK assets in the event of financial difficulties.

If the eurozone debt crisis does manage to trigger another global banking crisis, we feel that savers are better informed this time round.

Hopefully the media would also present a more balanced view of the situation, pointing out FSCS protection levels and reassuring the vast majority of savers with balances under £85,000, rather than stoking fears by televising queues outside bank branches.

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Shares in banks were hit the hardest, as investors fear their exposure to European sovereign debt.

The FTSE 100 index of leading UK company shares closed down 2% lower, with worse performances in Germany, Spain and France.

This current Greek tragedy is nothing new.

Investor sentiment is driving stock market performance despite full knowledge for many months that the Greek people are resolutely against austerity measures.

Rather than unwind the eurozone sovereign debt crisis in an orderly fashion, politicians have instead chosen to defer the problems. Perhaps this is due to a recognition that the exit of Greece from the euro is simply too expensive.

Of course this is not all about Greece.

The current political uncertainty in Greece has coincided with a general slow down in the process of global economic recovery. Oil has fallen quite sharply in value as a result, with Brent crude falling from $128 a barrel in March to $110 today.

Investors who are prepared to take a long-term view could benefit from this period of negative investor sentiment.

Whilst we do not advocate any attempt to time markets, there appears to be good value in many of the global stock markets at current levels. The FTSE 100 in particular is trading well below its historic long-term valuation levels.

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Bank of England Governor Sir Mervyn King is expected to signal on Wednesday that the Bank Rate will remain at a level around its record low until at least the end of next year.

The publication of the latest quarterly inflation report from the Bank of England is also expected to cut economic growth forecasts, again.

It is expected that the Bank will warn people to “brace for higher than expected inflation” over the medium term.

The predictions come from IHS Global Insight who are expecting to see the usual dispiriting mix of reduced growth but higher inflation expectations.

We agree with these forecasts – for lower growth, higher inflation and low interest rates – and believe that it is important to position financial plans accordingly.

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Global stocks experienced a mixed performance on Friday as investors focused on consumer confidence rather than the $2bn of trading losses at JPMorgan.

Over a year the FTSE 100 has fallen from 5,976.00, a fall of 400.48 points or -6.70%.

£1 is currently worth $1.60700 US or €1.24390 Euros.

Brent Crude Oil Futures is currently priced at $112.19/barrel. Gold is $1,583.00/ounce and Silver is $28.58/ounce.

The UK Bank Rate is 0.5% and CPI inflation was 3.6% for the year to March 2012.

He was commenting on the fall in the price of gold to under $1,600 an ounce, coinciding with a more general fall in the value of risk assets.

To date this year, gold has become more closely correlated with equities; rising in value in the first two months of the year as equity markets have risen and falling since then as equities have fallen.

For investors who purchased gold as a ‘hedge’ against falling equity prices, this closer correlation will be disappointing.

John Ventre describes how “the crowded trade” could be causing this increased correlation between gold and risk assets.

Lots of investors own gold but the market for this asset remains very small. He points out that all of the gold in the world can be held in a 68x68x68ft cube.

Whilst there is no precise definition of the crowded trade, it generally describes a situation where a large number of investors share a similar sentiment and there is a heavy presence of short-term investors (‘speculators’ rather than ‘investors’). Those that invest in gold tend to be passionate about the investment, often lacking fundamental reasons for the allocation.

Circumstances like this are likely to amplify volatility and therefore risk.

As investors in risk assets (equities) suffer losses, the downward pressure on the price of gold is higher as they seek to retreat from this asset.

Ventre concluded that he continues to see gold as a bad investment, because it earns nothing and cannot grow. We share this view of gold as a bad investment.

Many investors are already indirectly exposed to gold through their equity holdings, with mining and other commodity stocks making up a big part of the largest companies in the UK.

Investing directly in gold can easily result in overexposure and greater risks than many investors are prepared to take. With this emerging correlation between equities and gold, perhaps some of the allure of this precious metal will begin to fade?

Photo credit: Flickr/Martin Deutsch