There is a substantial body of information available to investors, much of which can be contradictory and misleading. Having a financial plan that you are accountable to, whilst ensuring you regularly review your finances with a professional adviser, will help you navigate the world of investments and soundly prepare you for your future.
This series aims to shed light on some of the key aspects of financial planning for clients. By considering aspects of wealth management from inflation to the effects of the media; it is evidenced that having a financial plan will help benefit your financial future. Whether you currently have a financial adviser or not, the points discussed will provide you with ideas on how to implement a financial plan and particularly some aspects to focus on.
1: The stock market rewards the patient.
“Genius is eternal patience” – Michelangelo
The virtue of patience is arguably one of the requisite qualities that segregates successful investors from the rest of the pack. By being patient, riding out the daily price movements, you will be in the best mindset to achieve your financial plan.
2: Inflation: Friend, foe or both?
Inflation is one of the macroeconomic factors that individual investors rarely consider when planning their futures, one of the many benefits of seeking professional advice.
It affects the cost of daily groceries, the rates underlying mortgages and interest earned on cash deposits. Ensuring your financial plan and investment objectives consider inflation and its impact on capital buying power over time, is vital.
3: Best long-term returns come from quality company investments (equities).
The most successful investors buy good quality companies. Historically the best long-term returns come from exposure to equity investments. Having exposure to companies that reinvest in themselves, rather than spending all profits as dividends, allows your equity share to begin to work as a form of compound returns.
4: Automate your savings or fail to save enough.
Pay yourself first! Ensuring that, of the income you earn, you are the primary beneficiary is an important mental aspect of saving regularly. It is not a reduction in your disposable income, it is a contribution to your financial future!
5: Financial Plan updates are paramount; a portfolio is not a plan and outperformance is not a goal.
Having a living, breathing, adaptable financial plan is becoming of pivotal value to clients, especially with global migration and cross-border investment becoming so much a part of the norm for investors. The financial plan determines everything involved in your finances, from
investment risk tolerance, asset allocation and affordability; to protection, taxation and income aspirations.
It is important to understand where the value is truly generated; ensuring that everything revolves around you! An investment portfolio is not a financial plan, it is a tool to help you achieve your objectives. An insurance wrapper, trust solution or savings plan are the same; tools to assist you in achieving your goals.
6: The media does not care about your financial future.
When creating your financial plan, having set your goals/objectives, it is essential to focus on those goals. Media information on daily market movements will not help you secure financial stability in later life; planning, with your adviser, a suitable investment strategy will.
7: Financial success stems from disciplined behaviour.
This statement has been mentioned already, reiterating the importance of discipline in your finances. However, self-discipline is an art few have mastered – many find it helpful to have accountability to someone or something, for example an adviser.
By ensuring your set your goals and aspirations properly, target investment exposure and the rate of savings to support these goals and adapting the plan to meet changes in your life, the probability of your plan succeeding exponentially increases.
8: The news prefers negativity; how does today’s news impact your plan in 30 years?
Investing is not a short-term plan. Entering investment markets should be viewed by clients as a medium to long-term commitment to bettering their financial futures. When establishing your plan, it is imperative to ensure that you are accommodating any changes in your circumstances through emergency funds provision. If your investment horizon is 5-10 years, the effects of today’s news have even less probability of determining the suc cess of your financial plan.
9: Taxation; could be your greatest expense.
“In this world nothing can be said to be certain, except death and taxes” – Benjamin Franklin
Historically the saying goes; “The biggest expense of your life will be your home”. Well maybe that is correct if you infer an expense to be a singular transaction. The reality is that for many of our clients’ taxation is, or will become, the biggest expense in their lives.
There are plenty of recognised financial tools that can be used to reduce tax liabilities for individuals and their families, some more complicated than others. Tailoring your financial plan to benefit from reduced or deferred taxation opportunities can provide a healthier environment for capital accumulation.
10: Never forget commandment one.
The value of an investment will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than you invested.
The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances. You are advised to seek independent tax advice from suitably qualified professionals before making any decision as to the tax implications of any investment.
This article is a general communication being provided for informational purpose only. It should not be relied upon as financial advice and it does not constitute a recommendation, an offer or solicitation. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. All information presented herein is considered to be accurate at the time of production, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted.