The Art and Science of Investing
Over the last few months I have tried to explain the concept of real financial planning. Real financial planning is an ongoing process which helps you to identify the life that you wish to live and to make sure that your money will enable you to do so without worry. I have endeavoured to explain that some people already have enough, others might have enough at some point in the future while some will never have enough if they always spend too much. If there is a risk of running out of money in the future there are only three steps that can be taken to solve the problem. Firstly to earn more (by changing jobs or working to an older age), secondly by spending less and thirdly, by obtaining a better return on investments. In many cases, of course, the solution will be a combination of all three.
The investment industry in the UK is a very successful marketing machine. During an era of a declining print industry it is remarkable to see how much the financial sections of newspapers have expanded by. The reason for this success is, of course, because people do take note of advertising. Unlike FFP, the majority of the industry focuses on what sells and not on what works.
Unfortunately, very few investors know how to build an investment portfolio that will withstand the rigours of time and deliver the return that they need.
"To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insights, or inside information. What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework." This is my favourite quotation from the world’s most successful investor, Warren Buffett.
By utilising The Jars Strategy™ and The Investment Advantage™ FFP is able to create portfolios that enable investors to obtain the return that they need while, at the same time, not worrying unduly about the variations in returns. Investors are able to take the long-term view confident that any fluctuations are manageable.
By listening to years of (Nobel prize-winning) academic research FFP is able to build internationally diversified portfolios, with predictable long-term returns. We like to call the process The Art and Science of Investing.
One of the benefits of real financial planning is to be able to identify the rate of return that will be required to enable people to live the life they want to live.
Risk and return are related – they have to be, because no one in their right mind would take extra risk if there wasn’t at least the prospect of a better return. Real financial planning enables you to choose how much risk you wish to carry. Even if you are comfortable with high risk, it might be more reassuring to take less risk with your investments, especially if you don’t need the extra returns.
Do you know what rate of return you need to live the life you want?