In my last article I endeavoured to explain the difference between “real financial planners” and those financial advisers that use the same phrase, but are not financial planners.

I explained that the starting point for a real financial planner is to identify where you are now and where you want to get to at some point in the future. This is the crucial step that gives meaning to any investment decision. Sadly, it is the step that most investors fail to take.

Without this knowledge, without identifying the rate of return that you actually need, how can anyone realistically decide the type of investment that is suitable for them? All financial advisers are obliged to identify a client’s “risk profile” or “attitude to risk”. Without identifying the rate of return that is needed to achieve your future goals you may end up taking significantly more risk than is actually required. Of course, the opposite can be true as well; that you don’t take enough risk to achieve your goals.

A “real financial planner” will begin with the end in mind. They will thoroughly crunch the numbers to identify what’s going to happen to your financial bucket, using conservative and prudent assumptions – all discussed and agreed with you, of course.

Your goal, like many people, might be to ensure that you can live the life you want without ever running out of money. If real financial planning identified that you only required a real rate of return on your invested capital of just 2%, would you still chase higher returns? While some people would, there are many who would prefer to have less risk (and fewer sleepless nights) knowing that a lower return would still provide the security to get on with life without worrying. A low-cost, low-risk, well diversified, tax efficient portfolio can be designed to give you what you want: financial security and peace of mind.

There is, of course, nothing wrong with risk provided you understand it. There is nothing wrong with risk provided you can stomach the bad years as well as the good. Knowledge is key. A real financial planner will help you to make the decisions that will be good for you.

A real financial planner will help you to gather together all of the pieces of your financial jigsaw and rearrange them so that you can achieve your future goals – in other words, put together the various pieces to match the picture.

January 2022