Road to Nowhere

Have you ever jumped into your car, started the engine and just driven aimlessly, with no thought of where you are headed? No, I thought not. It is amazing, however, how many people take this approach with their investment portfolio. This will often involve huge sums of money that have taken many years of hard work and disciplined saving to accumulate.

Without a clear objective or idea of what you are trying to achieve, it is very difficult to bring meaning to your money. When faced with the question, “What are you trying to achieve?” common answers include ‘Growth’, ‘Income’ or even ‘Outperformance’. This is why it is important for us as financial planners to reframe the question and talk in terms of aspirations, goals, dreams, beliefs and visions.

In the past, many financial advisers have concentrated their efforts and time on the money and not enough on their clients and their real fears and burning questions. Questions like, ‘What do I need to do to ensure that I never run out of money?’, ‘How much do I need to earn, save or sell my business for to give me what I want out of life?’, ‘When can I afford to stop doing the things that have become a drag and start doing things I really enjoy?’, ‘What do I need to do to ensure that my family are totally financially secure whatever happens?’ and perhaps the biggest question of all: ‘How much is enough?’

Our job as financial advisers is to help clients to get and keep the life they want. To inspire them to do the things that inspire them, to do the things they want to do, before it’s too late. Our job is to help clients identify, achieve and maintain their desired lifestyle, whatever happens.

People don’t really want financial products or investments. They never have. And never will. They want the peace of mind and security of knowing where they are heading financially, and knowing what they need to do to secure their desired lifestyle. That’s the only thing that people want. Lifestyle. It’s what they’ve worked hard for and it’s what they want to keep.

Lifestyle is different for everybody. Some have a big lifestyle. Some have a little lifestyle. Some have a lifestyle that includes gifting to good causes, or leaving a legacy. It’s all about lifestyle. Big lifestyle, big Number. Little lifestyle, little Number. Our job, therefore, is to help clients understand their Number; the amount they need to keep living the life they want. Once they understand their Number, through proper financial planning, our job is to help them accumulate it, manage it, protect it and most importantly, enjoy it! Before it’s too late.

We can calculate an individual’s Number through the careful use of cash flow modelling. By projecting forward an individual’s assets, income and expenditure we can build an accurate picture of the future and bring their money to life. From a financial planning perspective, we see it as a way of presenting an individual’s current financial situation in graphical form and seeing how it might unfold in the future.

Once we have established the current situation, we can then start to compare this with the stated goals and objectives. People generally fall into one of three categories:

  • The ‘Haven’t got enoughs’,
  • The ‘Got too muchs’ and the,
  • ‘Got just the right amount – but I don’t know its’.

Trying to provide financial planning advice without the use of cash flow modelling is virtually impossible. It is simply guesswork.

Only once we have been through financial planning and cash flow modelling, do we start to talk about the money. An investment portfolio is simply a tool, or the funding media with which an individual will attempt to achieve their financial planning and lifestyle objectives.

Once the plan is in place, we can then turn our attention to the money and investments. The ‘Not enoughs’ will either need to invest more or take more risk. The ‘Too muchs’ may be able to reduce risk on their portfolio and spend more or give assets away to avoid inheritance tax. The ‘Just rights’ just need to know about the peace of mind that comes with knowing about their finances. This can only be done after establishing a comprehensive financial plan.

You may want to consider combining the skills of a financial planner with those of your investment manager. Mixed together, in the right order, the results can be powerful and life changing