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Impact to Planning – How much is really needed for the future?

Working with a financial planner will not offer the benefit of a crystal ball, but it does offer a different view of working with your finances, how to consider your future and the possible different scenario outcomes.

businessman holding increasing graph in crystal ball

by
Richard Elliott

in Features

21.04.2020

Imagine if you had a crystal ball, would that not make life so much easier. You could easily navigate through the journey of life, knowing what is ahead of you, you would know exactly when any problems would be encountered, and there would be no need for a sat nav on your travel from A to B because you would know in advance where all the traffic and issues would be and you simply navigate knowing full well from where you start and where to finish.

However, the reality of life is somewhat different, without the benefit of knowing in advance the issues or the problems that might be encountered in the journey of life, what do you do?

Different scenarios

For example, you could start work at age 21,  intending to retire at age 60. However, at 21 you really don’t know what might lie ahead, how your career path may progress, when you may meet any future partner and if or when you have a family. All of these life events are unknown at the outset.

What happens if you are 40,  married with 2 children and your career is established and progressing.  This position in life may have allowed you to put plans in place for the future, you have a house, savings and are growing your pension in preparation for your retirement.

Or, maybe you are a little older and your children have now left home and at university. Whilst you are supporting your children’s education, it may not be possible to save as much, which could affect your future, maybe the prospect of retiring at age 60 now looks less likely; alternatively, your investments have done well and everything seems perfectly on track.

Coronavirus: covid-19

Then along comes coronavirus COVID-19 a global pandemic, it is fair to say that you would have never expected something like this to happen. What do you do?

Everything was going so well, for years you were able to put money into your mortgage, save and your investments looked as though they could only ever really go up in value. Albeit knowing, that investments on occasion tend to wobble and maybe go down for a while, but in general terms, the trend seemed to be upward.

You hear on the news that at least 1 person has died in the UK from this new virus, but you think nothing of it, fast forward 3 months and now more than 12,000 have died in the UK and investments are significantly down in value, with the world around you in lockdown and you hope you are one of the lucky ones to continue working from home.

So, what is next, how do you possibly cope with this, how do you possibly ensure you get back on track for the future? Were you even on track in the first place? What will your job prospects now be for the future, will your children ever now get a job, have you saved enough money and do you really wish to keep investing your money in the uncertain world of the stock market? Surely there must be a way to have more clarity for the future and to understand what your options are.

Crystal ball?

Working with a financial planner will not offer the benefit of a crystal ball, but it does offer a different view of working with your finances, how to consider your future and the possible different scenario outcomes. This ultimately allows you to have an understanding of where you are now and how the future might look, which helps you to navigate the uncertainty of the ups and downs of the stock market.

With the spread of the coronavirus driving a slump in global markets, we are now seeing a sell-off of equities and an increase in the use of safer assets such as bonds and cash reserves. For many, this will mean selling when the market is down and crystallising losses. This is perhaps a timely reminder of one of the key values of having a fiduciary, such as an adviser, to stave off knee jerk reactions. For over 10 years now we have enjoyed a bull market delivering strong returns to even some of the most sub-optimal investment portfolios. The importance of an appropriate asset allocation that is diversified both geographically and across asset class (shares, bonds, gilts, property, commodities etc) cannot be understated. It is when the market collapses that we see the wheat separated from the chaff.

Regularly rebalancing to this asset allocation may sound counter-intuitive as you are selling down well-performing assets and buying up those not performing so well. However, this means you are often selling at a high and buying in at a low whilst maintaining the risk and reward profile that is acceptable to you.

Having a financial planner goes far beyond investment considerations. They explore every aspect of your financial world, taking everything into account to create a financial plan that works for you. Whether it be in tax legislation and ensuring the right tax pots are used and funded correctly, or the drawdown strategy from those pots along with cash flow planning to determine what is affordable. Whether it's changing in rules that create new solutions to financial problems and vice versa, or whether it's behavioural coaching to stave off poor decisions, there are a plethora of complexities a person may be unaware they are unaware of and therefore will not act or act appropriately.

In conclusion, having a financial plan provides solutions that will work for you as your priorities change over the years and you go through different life events.

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