I find airports boring places and yet fascinating at the same time. I hate waiting… for anything. I’m afraid I have been suckered into the modern expectation that everything is available immediately… on demand. Including my flight! And yet, all these hundreds of people are milling around. I can’t help wondering where they are going and why. It reminds me of a line I read once. “There are those that travel, and there are those that are going somewhere”. Those that travel are doing so rather randomly. Those that are going somewhere have a destination. A purpose. There is a parallel I think with financial planning and particularly investment management.I think many investors “travel” when they would do better to have a “destination”. The problem with traveling randomly in the investment world is a lack of discipline or a desired outcome, which means the result is random and we are more likely to be dragged off course along the way. We have all seen advertisements in the press with headline rates that leap out from the page. How tempting it is to look at those rates and make a decision to invest “because that return is better than the one I have achieved from my existing investments in the last year”. Alternatively, we are tempted to make an investment decision because there are tax advantages. Such tax advantages become so important that we feel they are more valuable than the investment itself (see my thoughts on ISAs)
Often, we find ourselves some time in the future, wondering why we made the investment, and then making another set of random decisions based on the short term headline rates or tax commentary of the time. Have you ever made an investment and then forgotten why you did it, or changed your mind part way through?
For me, as a financial planner, the definition of a good investment is one that achieves the objective you have set for it. In other words, set a “destination” for this money. Determine what the money is for, what the timescale is, how much money is needed to satisfy the objective and what return is needed to achieve it, and even better, how will you feel about having achieved it? Once all of these factors have been decided, it will be much easier to understand what type of asset (or mix of assets) is appropriate for the investment, and then what type of tax planning vehicle might be suitable to ‘hold it in’.
A typical journey for an investment traveler might involve a series of short term decisions, visiting various assets, fairly randomly, based on ‘flavour of the month’ views. However, following the latest investment trends is not a successful way to invest. It is proven not to work. Indeed, there is a stronger argument to do the opposite!.
With a financial plan, we are able to design a journey, to decide when we want to arrive at a particular destination and measure what is needed to get there. This discipline allows us to construct an investment solution that is designed to specifically meet that objective. And once on the journey, we should not be dissuaded by external financial marketing that is presented through the media to distract us. And finally, we should be patient, and allow the plan to develop (this goes against today’s desire for “on demand” and is a lesson I am still learning personally!). A good financial planner will help you to see the destination (if it’s not clear already) and guide you there with a clear itinerary. It’s called a financial plan.