Understanding how the mind can help or hinder investment success is a topic seldom considered by an investor. At FFP we believe it is an essential part of investment planning.
Human Beings are very Social Animals
After a decade of almost uninterrupted stock market growth throughout the world, 2018 saw significant declines in most markets around the world. The volatility has continued in the first week of 2019. Indeed, in its annual report issued in January, the World Bank is forecasting a significant slowdown in the world’s economy. Faced with this scenario, how should a prudent investor react
Dieting and Investing
We want to be rich and we want to be thin, so it’s not surprising that two of the world’s most successful industries are those that cater to those two aspirations.
But take a closer look and you’ll find that the diet and investment industries have far more in common than you might have thought.
Setting Financial Goals
As we begin the New Year, many of us start thinking about the year ahead and setting goals for the future. Regardless of what age you are, you are likely to have some short and long term personal financial goals. Setting tangible and realistic goals, following them, and tracking your progress is the key to being successful and achieving those goals.
Planning for Christmas
It’s that time of year again, one minute we’re enjoying the sunshine and our summer holidays and then before we know it, Halloween has been and gone and the shelves are filling up ready for Christmas.
Recent Market Volatility
Up until the beginning of this year we had experienced relative calm in the world markets. Between January and April this year and again as I write this early in October, the increase in volatility in the stock market has resulted in renewed anxiety for many investors.
The Honest Truth
There are few bigger priorities for people today than investing for the future. The rising cost of health and education, soaring house prices, longer life expectancy and the increasing strain on welfare budgets means it is vital that everyone does what they can to remain financially independent for the rest of their lives.
The path to success in many areas of life is paved with continual hard work, intense activity, and a day-to-day focus on results. However, for many investors who adopt this approach to managing their wealth, that can be turned upside down.
An Enduring Investment Philosophy
Investing is a long-term endeavour. Indeed, people will spend decades pursuing their financial goals. But being an investor can be complicated, challenging, frustrating, and sometimes frightening. This is exactly why, as David Booth says, it is important to have an investment philosophy you can stick with, one that can help you stay the course.
The Seven Principles for Investment Success
1. Clear Goals – an understanding of how much money you need to live the life you want to live in the future.
2. Asset Allocation – the proportion of shares that you hold to bonds is the most important driver of returns.
3. Regular Rebalancing – making sure that your portfolio does not become riskier than you had intended.
What is a financial planner worth to you or your family?
I speak to many different people of different ages and at different stages in their lives. I have noticed that there appears to be a common trend that life is getting busier and busier and there are always so many things to deal with and decisions to make.
An important component of a sound lifelong investment strategy – the Art and Science of Investing as we call it – relates to total return versus income investing.
Historically, investors holding a diversified portfolio of shares and bonds could quite easily generate a healthy income from their investments. Not anymore. With yields on low-risk government bonds at historic lows and likely to stay that way, how can the income conundrum be addressed?
The number of retirees is rising rapidly; many investors have both taxable and non-taxable investments and recent budget changes have increased the financial options open to the recently retired. Significant extra value can be obtained by ensuring that post-retirement spending is undertaken as tax-efficiently as possible.
Tuning out the Noise
For investors, it can be easy to feel overwhelmed by the relentless stream of news about markets. Being bombarded with data and headlines presented as impactful to your financial well-being can evoke strong emotional responses from even the most experienced investors. Headlines from the ”lost decade” (1) can help illustrate several periods that may have led market participants to question their approach.
School and University Fees
At this time of year many parents are preparing for the next chapter in their children’s lives, whether it’s starting school in September or heading off to University. Private School fees and University fees are increasing at a faster rate than inflation and for many people the cost of putting your child through school and university is a daunting one!
The average cost for a day pupil is in the region of £18,000 per annum and over £30,000 for a boarder. Source: Independent Schools Council
Although this looks frightening, especially if you have more than one child, with sensible planning it can be achievable without ending up with a huge mortgage or stopping the family holidays for the next 15 years.
"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."
These words are spoken by Warren Buffett, probably the world’s most successful investor.
Gravel Road Investing
Owners of all-purpose motor vehicles often appreciate their cars most when they leave smooth city freeways for rough gravel country roads. In investment, highly diversified portfolios can provide similar reassurance.
In blue skies and open roads, flimsy city cars might cruise along just as well as sturdier sports utility vehicles. But the real test of the vehicle occurs when the road and weather conditions deteriorate.
The Art and Science of Investing
As I write this article the world’s stock markets are experiencing significant volatility. Markets fell by as much as nearly 5% in one day, but recovering the next. Television and newspapers (we are told that good news doesn’t sell) are full of doom and gloom, reporting a global “sell-off” of shares. Sadly, evidence tells us that many ordinary investors also panic during such periods, invariably damaging their wealth. Our message comes from Dad’s Army; after all, it was Corporal Jones who said “don’t panic, Captain Mainwaring”.
End of Tax Year Planning
The end of the 2017/18 tax year is fast approaching and it’s your last chance to take full advantage of your tax free allowances and exemptions. The list below will help you take advantage of some of these and remember they must be used on or before the 5th April 2018.
Budgeting for a better lifestyle
Many people will have started the year thinking about their money and asking themselves questions like, did we spend too much on Christmas? Where does all our money go? How can we start saving money? We really need to start thinking about our future and how will we ever afford to stop work?
Real Financial Planning
At its simplest, Real Financial Planning is identifying how much money you really need for the rest of your life and then identifying the steps that need to be taken to make sure that your money will last as long as you! The fact is the majority of people have no idea where they are heading financially. They may have assets, investments, and/or high levels of income, but most people have no idea what it all means, or what sort of financial future awaits them.
Prediction season is upon us
I’m glad I’m not a financial media pundit whose job requires making predictions on the outcomes of major world events.
In recent times, from the Brexit referendum, to the US presidential vote, to general elections in Australia, the Netherlands, France and the UK, the record of many media and market pundits, pollsters and self-appointed ‘gurus’ has not been particularly distinguished.
Sailing into the Future
Most of us will start the year with some New Year’s resolutions. I’m sure that getting healthier by going to the gym is probably highest on most people’s lists but financial goals are also a popular choice. Whether it’s saving for something important, reducing credit card debt or being more careful about what we spend.
Lessons for the Next Crisis
It is now the 10-year anniversary of when, in early October 2007, the S&P 500 Index hit what was its highest point before losing more than half its value over the next year and a half during the global financial crisis.
Why costs are so important
We all know that Christmas is probably the most expensive time of the year and it’s important to keep a track on all your expenditure.
When we plan to buy anything in this internet age, from a children’s toy to the Christmas turkey, making a price comparison is easy to achieve; a Google search or a visit to a price comparison website and Bob’s your uncle.
When it comes to investing, gaining meaningful insight into the real cost is not quite so simple yet it’s so important to any investor.
The Financial Gym
The Art and Science of Investing enables an investment strategy to be built that will dovetail with your financial plan as well as the degree of comfort that you have with financial risk. The aim is to make a successful outcome more likely than would otherwise be the case. It is often about building and maintaining a strategy that allows the accumulation of wealth through patience and discipline.
Do you feel financially well organised?
Many people that come to see us have been busy living life, buying houses, bringing up the children, changing jobs and then suddenly find themselves with numerous bank and savings accounts, ISAs, life assurance policies and Pensions.
How easy is it to stick to a plan?
It’s often said that the secret of success in achieving a goal or plan is “stickability”, a person's ability to persevere with something; staying power. But success also depends on having goals or plans you can actually stick with. Managing that tension is what a good coach, mentor or adviser does.
The Art and Science of Investing
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.
A special word to small sized business owners…
If you run your own business, either as the sole owner, or as a partner or co-director, you have an incredible opportunity that should be maximised.
You have an asset that could help you accumulate enough money to live the life you want.
My question for you, as a small business owner, is have you built into your services or products the cost of your future?
The Just Right’s
Many people do have just the right amount of money for the rest of their life. But the trouble is, they just don’t know it! They have no idea what’s going to happen to their bucket, because no one has ever shown them. So they still stress and worry about money. They invest in all the wrong places. They take too much risk, which of course ruins their peace of mind and possibly erodes their capital.
Does this sound familiar?
The Magic of Compound Returns
“Those who understand compound interest are destined to collect it.
Those who don’t are doomed to pay it.“
So, what is compound interest?
Albert Einstein, well known for being smarter than the average bear, once called compound interest “the greatest mathematical discovery of all time”. But you don’t need to be as intelligent as Einstein to understand compound interest. In fact, it is a very simple concept.
Investment Strategy Tolerance
In effect, investors are often largely on their own when it comes to financial advice. The good news? There are great advisers out there. But the bad news is that it can be hard to tell the good from the bad, even when you are already a client.
These five questions will reveal the good advisers. If you can answer ‘yes’ to all five questions, you have found an adviser with good process who acts in your interests, and one you can trust.