Protect What’s Important, Then Put Your Finances in Cruise Control

I qualified 10 years ago as a Certified Financial Planner™ as part of the first group in Ireland to do so.  I’m 19 years a Qualified Financial Advisor.  I’ve just looked back at a broad cross section of the clients I’ve assisted over that time period, looking at trends in the way I advise and for similarities across various scenarios.

I started my career at the tail end of the dotcom crisis, worked through the global financial crisis and now have journeyed through the norm-shattering Covid 19 era.  No doubt, there have been some significant ups and downs throughout my career so far!  Yet, throughout the various ebbs and flows I’ve noticed that for many people, the message I need to deliver has been remarkably similar.

Yes, everyone has different nuances to their situation, but for the most part, this is the typical scenario:

• I have a certain amount of savings, pensions and investments
• I have a family and/or have people that I care about, and would like to look after them financially
• There are things I would like to do with my spare time and life in general
• Life gets in the way, at times, and I don’t have any clear way in my head to streamline all of the above

Of course, there is occasionally a cohort where the person is in a particularly difficult financial situation due to a health scare or perhaps severe financial mismanagement – so I don’t for one second make light of those.  But such scenarios are reasonably rare.

It’s tempting for me to say, then, that my one simple message will be the golden nugget for today that will unlock the secrets of financial planning!  But it won’t.  What my message might do however, is start a thought process that will help give things a priority order in your head, allowing you to ask yourself the right questions.

Here goes the simple message…

1. Determine what your short-term fears and requirements are – such as paying the bills, having a rainy day fund for emergencies, having appropriate insurances (life, health etc). Your regular income and your rainy-day bank account should cover the cost of, and allocation to, these.  Reduce the fear via being organised.
2. Determine your medium-term needs and aspirations – a plan to move house, send the kids to college, make gifts to children, or travel the world. These will vary depending on your stage in life but a different, slightly more involved, saving or investment strategy will apply.
3. ….with the result that everything else can fall into long term. And long term saving/money management is great.  Why is it great?  Because we can allow ourselves to get less bogged down in concerns about short term shocks in the economy, stock markets, property markets etc.  We can stop feeling we need to watch the news! (at least the need to watch it in case we miss something that might damage our long term financial well being). We can relax a bit and take heed of the commonly held wisdom that we can benefit from better compound returns if we take a longer-term view.  Better compound returns mean a better outcome for each of us as we get older.  Who cares if a portfolio falls in value next year, I don’t need the money for 15 years!

There’s no escaping the fact that the increasing bombardment of our brains by newsflow and social media means that we have a heightened awareness of global news now.  The financial markets are increasingly volatile, thankfully with more good days than bad, but they make people jittery.

Therefore, now more than ever, we need to be sure what bucket our money falls into.  Then we can decide (yes - decide!) whether to be jittery or not.  Because we don’t need to worry about short term volatility if we are thinking about our long-term bucket.

As savers and investors, we can exert more control over our own requirements and management of our associated pots of money, and start having a clear vision for what we want our money to do for us.  If we get that bit right, we can make sure our short-to-medium term concerns are addressed appropriately - typically via a lower-risk portfolio.  With the balance - we can simply put things in cruise control, turn up the music and reap the profound rewards of long-term investing.

Eamon Dwyer CFP®

Senior Financial Planning Consultant

edwyer@invesco.ie