Financial Objectives/Goals…….sounds great but what do they really mean?
When the Wealth Management team in Invesco have financial planning conversations with you, we introduce you to our pretty sophisticated WealthPlan process. This starts with a conversation about your financial objectives and goals. Often the focus of this conversation is not what you might expect…
We find that some clients come with pre-conceived ideas of what their goals might be. These are usually described to us in monetary terms, for example we might hear “I want to have €2million in my pension fund” or “I want to achieve an average return of 6% p.a. on my money”.
Both of these are perfectly legitimate goals, but often we have to question the relevance of them. When you pick a monetary figure of say €2million, what will be different if you end up with €1.5million, or even €2.5million? When you stand back and think about it, these are simply pretty large numbers
Think of your money as simply an enabler
Instead we like to look at money a bit differently. While of course money is an asset, we prefer to see it as working capital – an enabler that allows you to live a certain lifestyle. It’s this desired lifestyle that we are particularly interested in. Where do you want to live when you’re older – will you stay in your current house and/or maybe do you want to buy a place in the sun for the winter months? When will that be, and what will your estimated “running costs” be when you retire and stop earning? Where does long-term care fit in much later in life and what are your objectives in terms of wealth transfer to your loved ones? We even want to know things like how often you like to change your car and other significant purchases you might be planning.
Once we know what your desired future life looks like, we can then effectively put a price on this. And then we can have a really useful conversation about your potential to achieve that life that you want. Maybe you need to save more now or review your investment approach. Maybe you need to work a little longer than you anticipated. Surprisingly often, we have those lovely conversations where we can demonstrate to clients that their desired future life is already in the bag and they can stop working - today! We can demonstrate important choices that you can then consider in order to achieve the future life you want.
Below is an example of what your future cashflow will look like, planning for the costs of your major life milestones:
You want to have enough money, no matter what happens
This is where it all pretty much starts and ends. You want certainty about your financial future and don’t want to be worrying about money, either now or in the future. In some ways it actually doesn’t really matter how much money you will have, instead you will get comfort and confidence by knowing that you will have enough money to fully live the life that you want to lead.
This is why at the outset of our WealthPlan process, we spend that time asking you to dream about what you want your future life to look like. Because when you can identify the life that you want, we can then identify the financial resources needed to achieve that life. Those financial resources become the goal, because they are enough for you to live life on your terms.
If only life was that simple…
We believe that if we can demonstrate and ensure that you’ll have enough money to live life on your terms, then we’ll have done a good job. But we also recognise that you’ll have other objectives along the way, and of course we address these too. These might include,
- Decisions around investing surplus cash or paying down debt.
- Being prepared for short-term shocks such as temporary income loss
- Being prepared for unexpected significant impacts to your plan such as illness, accident or death
- Preparing your legacy
And of course we will use all of our research capabilities, expertise and access to market-leading solutions to design the optimal investment strategy for you. But this will be done with a view to ensuring you can live the life you want, as opposed to a headline and somewhat meaningless rate of return.
And then everything changes
As sure as eggs are eggs, something quickly changes! Maybe a new job, meteoric growth in your business or a new addition to the family. Or maybe there is some negative change to your circumstances.
Changes might require you to reassess your goals in life, and so your WealthPlan changes – your new “enough” might look different. For this reason, we place critical importance on regular progress meetings with you, to ensure that you can live the life that you want.
If you would like to find more about how Invesco can help you to live the life that you want, please contact me at firstname.lastname@example.org or at 021 480 8041, or contact your Invesco consultant.
By John Lucey
John has over 20 years’ experience in the Irish pension industry having previously worked with Coyle Hamilton Willis and Irish Life. John is an Associate of both the Irish Institute of Pensions Managers and the Pensions Management Institute.