Saving and Spending Habits
Do you know how much you save or spend each year?
It’s easy to get caught up in the hustle and bustle of daily life from work commitments to family responsibilities, leaving little time for a close analysis of our financial habits.
I believe the foundation of sound financial planning begins with a clear understanding and grasp of one fundamental aspect: your saving and spending habits.
Haunted by Market Fears
As Halloween approaches, it reminds me of the haunting fears many individuals face when considering investing or managing a large sum of money whether it’s your hard earned pension fund or the inheritance you’ve just received.
The financial markets, with their unpredictable nature and the unhelpful noise of the media, can seem like a haunted house filled with fright and unexpected twists and turns. This fear is not unfounded; the specter of market volatility can spook even the most seasoned investors.
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 the cost of University are increasing year on year and for many people the cost of putting your child through school and university is a daunting one!
The best advice anyone can give is to plan! Start planning early, the earlier you begin planning the easier it will be.
Marginal Gains
It’s been another great summer of sport and with the Olympics in Paris starting, it will be interesting to see who wins gold and writes their name in the record books.
Whilst watching and reading all about the successful teams or individuals this year, there is a common theme, which has been the importance of marginal gains and the impact these can have on performance.
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It all adds up!
Compounding is one of the most powerful forces in the world. Just ask Albert Einstein, who’s said to have called it the “eighth wonder.” The seemingly small decisions we make everyday gain power over time. That’s why it’s important to take the long view and come up with a plan—in both wellness and investing—that creates momentum in the direction of our goals. Don’t squander the power of time when you can recruit it to work in your favour.
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Navigating the Financial Fireworks of Market Turbulence
Every year, as autumn paints the sky in hues of red and gold, families and friends gather to celebrate the enchanting Firework Night. In many ways, the volatility of investments in the financial market can be compared to these dazzling displays of pyrotechnics. Just like the unpredictable patterns and bursts of fireworks, the world of investments can be both mesmerising and tumultuous. Investors, akin to spectators, need to remain vigilant and prepared for the unexpected twists and turns that come their way.
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April Showers - Similar to Investing
April does have more showers than other months, regardless of where you are in the country. During the month of April, a band of strong winds, known as the jet stream, moves northwards. This changes the air pressure and leads to an explosion of cumulus clouds — the type of clouds that create rain showers. It is very difficult to predict exactly where and when showers will occur, and how long they will last – should you take your umbrella or your sun hat!
It's a similar story with investment markets
How to Financially plan for your child’s wedding
February is known for being the month dedicated to and all about love and romance. When we fall in love, marry and have children, the thought of them marrying one day in the future is often far away from our thoughts.
However, with the average cost of a wedding in the UK currently standing at close to £20,000 and adding honeymoon and hen/stag parties, anything up to £30,000, it is well worth planning towards this cost when your children are actually born.
From little acorns……
I was out for a run a few weeks ago, enjoying the view of Sherborne Castle and whilst stretching some very tired limbs, I was fortunate enough to watch a squirrel collect an acorn and bury it only yards away from me. Comically, it then very carefully, delicately and precisely covered up the burial site with two freshly fallen leaves (which promptly blew away only a few seconds later).
Squirrels don’t eat every acorn that they come across; they bury them to be retrieved at a later point when food may have become scarce.
Facing the Challenge
The Bank of England has just announced an increase of 0.5% to the base rate, the biggest interest rate rise since 1995. Similar policies have been adopted by the US Federal Reserve as well as the European Central Bank.
In May, the Bank of England predicted that inflation, currently around 9%, would be as high as 11% by the end of the year. That forecast has now been raised to 13.3%. A severe recession is expected. Clearly we live in challenging times. How should investors react?
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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 year on year and for many people the cost of putting your child through school and university is a daunting one!
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Learning by Mistakes
Investing is, at the best of times, an uncertain activity. As people are fully aware that the value of investments can fall as well as rise, it is often a great worry when considering making an investment. Clearly we all wish to avoid the possibility of loss wherever possible.
Don’t panic, Captain Mainwaring!
These immortal words, from Lance Corporal (to give him his correct rank) Jones in the sitcom Dad’s Army, are very wise words in the world of investing.
As this article is written, stock markets across the world are panicking, recording significant falls and due to interest rate rises and concerns about inflation, the bond investors are also experiencing capital losses since the start of the year. What should I do, I hear you say? Don’t panic!! Corporal Jones spoke very wise words.
Stick or Twist?
Despite nearly two years of living with the consequences of Covid, by the time 2022 began many of the world’s stock markets had reached the highest levels ever seen.
For the first time in nearly 3 decades, the western world is now seeing soaring inflation. And it’s not just energy – it’s having an impact on nearly everything.
Emotional Behaviour
Sadly, world events have been at the forefront of our minds over the past couple of months and we are seeing in the media the impact and devastation of war and the suffering in Ukraine. Our newspapers and media are also highlighting the affect of high inflation with the cost of electric rocketing and the cost of re-fuelling our cars at the petrol station at an all time high. Added to this we have the real possibility of an increase in interest rates which will put a smile on the face of savers but worries for those people with mortgages.
Patience
Investing is a risky business. After all, no one in their right mind would take a risk if there wasn’t at least a prospect of them being better off at the end of it. There are, however, ways to reduce some elements of risk. Diversifying across different asset classes reduces risk because, for example, when the value of shares are falling it is often the case that other asset classes (such as fixed-interest investments) are rising in value. But it doesn’t avoid risk entirely as there may be periods when both asset classes fall in value.
The Jars Strategy
To invest successfully over a lifetime does not require a stratospheric IQ,’ says Warren Buffett. ‘What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.’
How much risk do you need?
In Andrew’s last article he endeavoured to explain the difference between “real financial planners” and those financial advisers that use the same phrase, but are not financial planners.
He 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.
Things you can control and things you can’t
In most endeavours, there are things you can control and things you can't. That's true in life. That's true in business. That's true with investing. The good news about investing is that markets have rewarded investors over the long term. But over the short term—as anyone who has paid attention to markets knows—markets go up and markets go down. Mark thought it would be helpful to share some observations about the investment business and what it takes to have a good experience.
The Power of Compound Interest
In this article Andrew explains why it makes sense to invest in shares rather than holding everything in cash. Many people are scared of investing in shares because we know that the value goes down as well as up.
A Winner’s Game
In many of Andrew’s monthly articles he makes reference to having a real investment strategy when investing money. Most readers would agree that they do not have a well thought out detailed investment strategy. An investment strategy incorporates many different aspects.
Principles for Investment Success
Successful investing hinges on many factors. Some can't be controlled – the returns of the markets, for example. But others can be. By following these four principles you can focus on the factors within your control, which can be an effective way to achieve long-term results.
The Realistic Optimist
I’ve recently been reading about a concept known as optimism bias: a concept that can sometimes be a leading cause of bad forecasts, bad decisions and confused people. It often arises from underestimating how bad things can be in the short run and how good they can be in the longer run. This article looks at what a realistic optimist is.
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Pound Cost Averaging
In last month’s article, I explained an alternative method of making investments into the stock market where fear of a possible downturn is at the forefront of an investor’s mind. Rather than investing all their money on one specific date, the money could be ‘phased’ into the market over a period of time (12 months in the example) – an approach called Pound Cost Averaging (PCA). Which of these two approaches offers the best return?
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A One-Off
Many of my preceding articles extol the benefits of stock market investing over the longer term. One common fear, even among experienced investors, is that markets may fall very soon after making an investment. While experienced investors understand that markets fall as well as rise, no one wants to see their money fall in value – let alone soon after investing it.
A Transformed Investor’s Reaction to Coronavirus
Investing for the long term
The Rebound
As I write this article we are now into our fifth month of living with a pandemic. Initially the world’s stock markets reacted with understandable panic – prices in the world’s quoted companies fell by around 30% in the period from mid-February to mid March. To my mind this was entirely understandable as many businesses were prevented from operating and therefore moving from profitability to loss.
A portfolio for all seasons
Someone once told me that “if it’s false and bad it’s news and if it’s true and good it isn’t”. While that assertion might be pushing it a bit, I think it illustrates a truism of our 24-hour media-driven world, namely that unsubstantiated and negative stories dominate the news.
Saving for your future is often easier said than done!
It is widely known and psychologically accepted that human beings can be very short sighted and find it difficult to see their future selves.
Imagine your own life and what it might look like in 10 years’ time? Will you still be working in the same job, will the children be leaving for University or will you be enjoying your retirement and spending time with grandchildren?
But perhaps more importantly, what would you like it to look like?
Lessons for investors from the COVID crisis
Over the last 10 weeks or so the world’s stock markets have crashed and, surprisingly, partially recovered despite the terrible disruption and ever increasing death toll. Daily market returns have ranged from -12% to +9.6% (S&P 500).
The economic shutdown is likely to have unpleasant consequences. However, this experience provides valuable lessons for investors.
Faith
The following is an extract from FFP’s 2nd Covid–19 bulletin sent to clients on 30th March 2020.
As I write this note, over 25% of the world is in some sort of lockdown. Many of us are scared. Many of us are fearful for ourselves, for our families and for the vulnerable.
Emotional Behaviour
As I write this article the world stock markets are making the headlines again with most of the developed markets experiencing substantial falls since the end of February.
Volatility is not just a recent phenomenon. We have been through a period of low market volatility and relatively good stock market returns in recent years. This has in fact been out of the ordinary, but it is easy to become accustomed to these market conditions and increase your holdings considering them to be the new ‘normal’.
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Don’t panic, Captain Mainwaring!
These immortal words, from Lance Corporal (to give him his correct rank) Jones in the sitcom Dad’s Army, are very wise words in the world of investing.
As I write this article the world is in fear of coronavirus and stock markets across the world are panicking, recording significant falls not seen since the financial crisis in 2008. What should I do, I hear you say? Don’t panic!! Corporal Jones spoke very wise words.
The Miracle of Compound Interest Part Two
Last month I wrote about The Miracle of Compound Interest and how it could be genuinely life changing. I now wish to put the flesh on the bone, so to speak.
The Miracle of Compound Interest
Compound Interest is a simple enough concept, but it can be genuinely life-changing. In this article we take a closer look at compound interest and how it works.
Things you can control and things you can’t
In most endeavours, there are things you can control and things you can't. That's true in life. That's true in business. That's true with investing. The good news about investing is that markets have rewarded investors over the long term. But over the short term—as anyone who has paid attention to markets knows—markets go up and markets go down. I thought it would be helpful to share some observations about the investment business and what it takes to have a good experience.
The Rollercoaster of Stockmarket Investing
When people act as though the sky is falling, it’s helpful to remember that volatility is normal and there are simple things you can do to pursue a better investment experience.
Investment opportunities exist all around the globe
In last months article titled Global Investment opportunities we attempted to demonstrate the randomness of returns on a country to country basis. Does any country seem to follow a pattern that gives clues about its future performance? This month we reveal the answers.
It’s not as scary as you might have heard
If there’s something that can put quite a bit of fear in each of us and I’m not talking about witches and zombies at Halloween, it’s the idea and possibility of losing money… and a lot of it.
We all work hard for our money each month and all have a certain level of expenses. Some of us will be trying to save for something special, some will be trying to grow the amount of money we have over time and others will be trying to make their money last as long as they can.
Global Investment Opportunities
Across more than 40 countries, there are over 15,000 publicly traded companies. If you listen to the news, however, some countries may seem like better places to invest than others, based on how their economies and stock markets are doing at the time. Fluctuations in performance from year to year only add to the complexity, providing little useful information about future returns.
Winning Games
Andrew Fort writes this article after watching a thrilling second-round Wimbledon tennis match: Rafael Nadal versus Nick Kyrgios. It reminded him of an investment book by Charles D. Ellis called Winning the Loser’s Game: Timeless Strategies for Successful Investing, itself based partly on a book entitled Extraordinary Tennis for the Ordinary Tennis Player.
Which Way I ought to go from here?
Whilst reading the story of Alice in Wonderland this short exchange between Alice and The Cheshire Cat resonated with how I try and help clients think of their investments differently and build personal financial plans for them and their family.
Key Questions for Long Term Investors - Part 3
Will making frequent changes to your portfolio help you achieve investment success? It’s tough, if not impossible, to know which market segments will out perform from period to period.
Key Questions for Long Term Investors - Part 2
Financial markets have rewarded long-term investors. People expect a positive return on the capital they invest, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation. Instead of fighting markets, let them work for you.
Key Questions for Long-Term Investors - Part 1
Asking the right questions and following a few key principles can improve your odds of long-term investment success.
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.
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”.
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.
Behavioural Finance
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.
Behavioural Finance
"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.
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.
Total Return
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 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.
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.
Being Successful
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.
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.
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.
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.
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
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.
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.
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.
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