Thinkpiece

01 Mar Thinkpiece

In this update:

• Attention to detail
• On timeliness

Welcome to this financial planning update. Here we share some views on various topical points relating to financial planning.

Attention to detail

 
Clearly, building and sustaining wealth is only going to be possible with healthy investment returns. What has been illustrated in last month’s Thinkpiece were specific rates of return per annum. Of course, in the real world, investment returns are never linear.

Whilst investment returns may have a long-term average, on a day-to-day and year-by-year basis they will vary considerably. This is perfectly normal.

For those that are accumulating funds for later life, at times when markets are distressed, this can assist us considerably. In this case there is the opportunity to continue to contribute every month to purchase some of the best businesses in the world within your portfolio at discount prices! These are the real opportunities, but you will never see this case made in the media who at the time will have graphs showing declining stock lines and pictures of Wall Street traders with their heads in their hands. Don’t listen to it.

I read quite frequently that ‘this fund manager or that fund manager’ will never beat their underlying index and that we should just simply buy a portfolio of index tracking funds. That may be suitable for some. I could not comment on the appropriateness of this.

I will leave those that wish to debate the merits of active versus passive (index) fund management, to do so if that is what they wish.

My experience time and again shows me that paying close attention to the careful selection of fund managers investing into a broad sector of quality companies across the entire investing spectrum, reviewed on at least an annual basis and adjusted and recalibrated accordingly, is a recipe for success.

Of course, one has to know which investments to include and which to exclude. This is the role of a professional financial adviser and whilst I hear of people who undertake their own investment management, I say good luck to you, for you will need it.

If investing is your hobby, find another hobby!

The key benefit that our firm has in investing money on behalf of people is that we are not swayed by emotions and we can dispassionately formulate an appropriate and diverse strategy. Investing one’s own money leaves us ‘being unable to see the wood for the trees’ and we are unaware of our own biases with such a process.

On Timeliness

 
Financial advice, and that includes investment advice, unless otherwise stated, is developed and designed to be implemented at the time that it is presented.

If one has developed a relationship with a trusted financial planner and has received advice, very often that advice needs to be implemented straightaway. Postponing the implementation of such advice can result in the benefits of it being reduced considerably. It may also be necessary, depending on the circumstances, to completely redraft that advice to remain current, at additional expense.

It is the neglect of timely repair that makes rebuilding necessary.

Richard Whately

 
Advice should be laid out so that the benefits and disadvantages are clearly explained, allowing you to make an informed decision. Of course, if you have doubts about the advice that you have received, and you’re spoken to your adviser to understand the advice in more detail and you still have doubts, then you would need to examine whether you truly trust your adviser and the processes they have for developing and delivering the advice to meet your objectives.

Well-developed investment advice will be constructed in order to position your funds appropriately within the current business cycle, using investments that are determined to best deliver one’s objectives in the prevailing conditions.

If one delays the implementation of advice designed with this in mind, and the business cycle has moved on, then the advice will no longer be relevant to the present business cycle we find ourselves in. The investments that have been selected may well need to be modified to the changing business environment.

The Business Cycle

This isn’t just applicable to investment advice of course.

For example, the government regularly develops legislation that changes how your money works.

These changes can often appear subtle and inconsequential, but without careful examination we can become unstuck, only to find this out many years later, after which we have potentially financially disadvantaged ourselves.

We must therefore ensure that anything we do is apt and appropriate for the current rules and legislative environment.

Summary

• Take professional advice to construct a suitable investment portfolio.
• Have a soundly constructed financial plan in conjunction with your chosen trusted financial planner.
• Implement your plan on time!
• Regularly review your plan with said adviser.

A goal without a plan is just a wish.

Antoine de Saint-Exupery, French writer (1900 – 1944)

If you’ve not yet put in place a sound financial plan and you’d like to know more, please feel free to contact us on
01626 305318 or via email here.

Best wishes from all at Stover Financial Planners!

The views expressed are not to be taken as financial advice. Professional advice should be sought before proceeding.