We’ve written before about the importance of a very planned approach to retirement. Having a healthy pension fund is what springs to mind for all of us in this regard – of course this is very important, as having access to financial resources will help you to ensure that you can enjoy your retirement and live it on your own terms.Continue Reading –
Lots of factors are currently creating a great deal of uncertainty for investors; markets have been a bit jittery after such a strong performance in 2019, USA and Iran are causing a lot of tension in the Middle East and Brexit is finally happening. The picture is quite daunting for investors today.
So what do you do?
Well the answer is probably, not very much! Let us explain…Continue Reading –
How has this happened? Surely we can’t already be facing into a new decade! Many of us remember fondly the big party we were at on New Year’s Eve as we entered the new century – and all the worries about the Y2K bug that was going to bring the end to many IT systems across the globe. We’re coming up to the 20th anniversary of that now…
Time just relentlessly marches on. It never changes pace and before we know it, another year or another decade has slipped by. As we entered the current decade, the world was struggling to emerge from the deepest economic crash in a generation. Many people in Ireland had lost their jobs, had lost a lot of money in investments – particularly in property ventures and bank shares and were really struggling under enormous piles of debt. Many were simply hanging on at that stage.
The last decade has been a period of re-birth for many, but certainly not all people in Ireland. Personal debt issues have reduced, but this is still an enormous issue unfortunately for many people. Investments and pension funds have made up lot of ground over the last 10 year with the S&P500 returning on average 10% p.a. over the period.
Probably the single biggest positive change that we have seen in the financial advice community in recent years is the realisation that financial success comes from long-term strategic planning, as opposed to short-term bets. You don’t hear as often any more the stories of the latest and greatest property opportunities in far flung places in order to make a quick buck.
So what can you learn from the last 10 years that will help you plan better for the 2020s?
Keep a long-term perspective
Successful financial planning tends not to be achieved by short-term tactical decisions, instead the route to success is by working closely with a financial planning expert, understanding your long-term goals and objectives and then devising a bespoke plan based on your unique circumstances to help you achieve your goals. Once a plan is built around this longer-term perspective and you are committed to staying the course, you are significantly increasing your chances of overcoming all of the slings and arrows of investment markets that are thrown at you along the way.
There’s nothing new in this one… but diversification is still an important element of investing today. One thing we learned in the previous decade is that there certainly is no such thing as a “sure bet” – think of all the unfortunate Anglo Irish Bank investors and indeed also that particular bank’s staff, where many had their wealth, investments and their incomes tied to a single company. We saw people wiped out by the property crash as their debts did not disappear along with their property portfolios. The key is to be diversified – across asset classes, sectors and geographies.
Timing markets is a fool’s game
A lot of people accept both of the above two principles. But still, they believe that they can eke out a little more return on their money by taking short-term bets that the market is about to decline or increase. Don’t do this – trying to time markets is simply folly. Every study and piece of research that we see tells us that the greatest destroyer of value in an investment portfolio is often the tinkering of the investor him/herself. Yes of course you will get some calls right. But more often than not, you will not exit the market at the top or buy in at the bottom. Markets track an upward path over the long-term – let them travel their course and live with the ups and downs along the way.
Don’t forget the short-term too
This is not at odds with having a long-term strategy. We simply advocate that you don’t tie all of your wealth up in illiquid long-term assets. Because we don’t know what’s around the corner – possibly an illness, a job loss, a sudden desire to take time out of work or wanting to help a family member or a friend. Always maintain a short-term emergency fund that you can tap into immediately as needed.
Hopefully you are entering the 2020s in better financial shape and with greater financial confidence than you did in the last decade. We would love to help you to build your plan and then maybe you can enter the 2030s that much closer to financial freedom.
In today’s era of consumerism on a grand scale, it can be hard to maintain a clear and constant perspective about the value of money. Many of us muddle along, surviving, making mistakes and getting by. However this is no example to give to the next generation who are likely to pick up on our behaviours and habits. Instead we need to carefully teach our children about how to act responsibly with money and to give them the best chance of building positive financial habits for life.
We’ve set out a few areas that you might like to talk to them about as they begin their lifelong relationship with money.
1. Establish a savings routine
This can start as soon as children start to receive pocket money. Encouraging them not to spend it all as they receive it and instead to save for a bigger treat to be bought every few weeks or months can set in place the benefits of delayed but ultimately greater rewards. We all know the benefits as we’ve got older of saving for holidays and cars instead of borrowing and paying back far more than the actual cost.
2. Look after the pennies and the pounds will look after themselves
Another old saying that many of our parents used but it’s also one well worth remembering and passing on to our children. This tip is all about small amounts eventually making a big difference, teaching children the value of not getting complacent and wasting what seem like insignificant amounts of money to them.
3. Understand debt
Borrowing money is a part of life and often makes good financial sense. Getting a mortgage to buy a home or even a loan for a car are often necessary. However borrowing money simply to support a lifestyle you cannot afford is a recipe for disaster.
Credit cards can feel cool to children! That is until they get their bill and suddenly realise the rates of interest being charged… Children should be taught about the dangers of credit cards in particular and loans in general, and that they are only suitable as part of a structured financial plan.
4. Share your own war stories
Unfortunately we’ve all made financial mistakes over the years. Maybe too much property in the boom, maybe we didn’t get proper independent financial advice early enough in our lives. Tell your children about lessons you’ve learned and how they can learn from them, and avoid making the same mistakes as you.
5. Don’t be afraid to haggle
Your children need to understand that they have real buying power in relation to a lot of the products and services that they purchase. They offer the potential of being very long-term customers, the types that brands really want to attract. So whether they are opening a bank account, booking a hotel, getting car insurance, buying a car, some electronics or even just clothes, they should get into the habit of making sure they get the best price by a bit of good old-fashioned haggling.
6. Plan your financial future
This is probably the most important lesson of them all… Financial planning shouldn’t start when people hit their forties and start worrying about retirement. Financial planning should start at a very young age; when children are thinking about all the things they want, but can’t afford! Choices have to be made, careful decisions need to be taken and a plan needs to be put in place to manage their limited resources to achieve the maximum effect and/or enjoyment.
7. Fund your pension early
Every 10 years earlier that you start a pension, your fund approximately doubles. So children need to be taught that pensions are not for old people! They are for savvy young people who have planned their financial futures and who want to make their financial objectives throughout life easier to achieve.
8. Get cover while it’s cheap and accessible
Life assurance, income protection and other such products are much cheaper and easier to get (younger people are healthier, underwriters take a more benign approach) so young people should get cover in place early. They should look potentially at convertible policies that they can maintain cover on, into the future. These could be very valuable, particularly if they are unfortunate to suffer from ill health as they get older.
As part of our work with clients, one really important element of an overall financial plan is retirement planning. Of course, it happens quite often that clients are some way along this journey before we come into contact with them.
What we see sometimes leaves a lot to be desired… Some people think they are well on the road to a comfortable retirement. However when we investigate, we don’t see a plan, we simply see a lot of policies. These clients often don’t know what they have – they know they have “bits and pieces” of pensions and are assuming that they all add up to a satisfactory picture. Quite often, this is not in fact the case.
Sometimes of course, having lots of different policies makes perfect sense. That is, when it is part of a planned retirement strategy where it is beneficial to have multiple policies. A client may have multiple sources of income for example, each requiring a different approach. Or a client may have a specific drawdown strategy that is easily facilitated by more than one policy. Sometimes it makes sense in order to pursue a specific investment strategy.
On the other hand, we come across situations where people have multiple policies with no strategy behind them. This happens because they forget about some benefits previously built up or maybe where they get advice from multiple sources and end up with multiple policies as a result.
It always makes sense to get solid advice about your overall retirement plans, and for us to establish whether the range of policies that you have are actually serving you well. While not always the case, we often find that some consolidation of policies makes sense.
So why might you consider consolidating some of your pension policies together?
It’s easier to plan
Building a solid retirement plan begins with your aspirations and objectives in life, and then specifically focusing in on those later in life. Once you decide what your desired retirement looks like, we can help you identify the financial goals to achieve that desired retirement. We can see how much you need to save, the best structures to use and the optimal investment approach.
Once all of this is clear, we decide what is best for you in terms of policies going forwards. It’s not about what you have, we’re interested in what you need now. If having all of your existing pensions in place makes perfect sense – great! If not though, we’ll suggest a better approach that may mean consolidating some of your pensions. It all comes back to the plan.
Isn’t this a lot better than simply blindly saving money with “bits of pensions” all over the place and no end goal in sight?
A more structured investment approach
Another reason for consolidating some pensions together is to achieve a better, or easier to manage, investment approach. Once we identify the very best investment strategy to help you achieve your retirement goals, this then needs to be activated within your pension policies. It also requires ongoing monitoring, rebalancing of the asset allocation from time to time and sometimes some other tweaking. This can become very cumbersome when there are too many policies. Consolidation of policies can result in a more agile investment approach.
More cost effective
This is not always the case, but will always be considered by us when carrying out our due diligence into different potential pension plans on your behalf. Sometimes less policies can be more effective, where structures have the following features,
- Higher entry investment allocations for higher amounts
- Lower recurring charges over a certain asset threshold
- Flat per policy / account charges
Your retirement savings are your money. While some charges will always feature, it is our job to ensure you hold on to as much of your money as possible for yourself!
These are a few headline reasons as to why it might make sense to consolidate your pensions together. To our mind though, it’s all about the plan. Get the retirement goals clear and then get the financial plan right. The pension policies are then simply a means to an end – achieving the plan. Whether that’s easier achieved with one policy or loads of them, that’s our job to tell you.
Is it time for you to empty all those policies out of the drawer and come and see us, and let us build a structured retirement plan for you?
Let’s be honest, everyone in Dublin and most people around the country (at least outside Kerry) thought the Dubs had the All Ireland won before the first match. Of course they were going to win, sure hadn’t they won it for the last four years! Uninformed people were saying this without considering or even knowing anything about the quality of the Kerry team. Then Jonny Cooper of Dublin got sent off and the whole picture changed, with the Dubs very happy to escape with a draw and go again the second day. While they went on to win, they were lucky to get that second chance. It showed that recent history (the previous 4 All Irelands) doesn’t determine the future and that one small factor can change everything. We see it in sport all of the time – the past is the past, and its not always a good guide to the future.
The same rules apply in business. It’s very dangerous to base decisions only on what happened recently, which is known as recency bias. It is the phenomenon where people recall and give more credence to very recent events, as opposed to events from the more distant past or indeed other tried and trusted bases for making decisions. And often there is no rhyme or reason as to why recent events are in any way more credible.
It’s in the world of investing that we quite regularly see recency bias rearing its head, often with very damaging consequences. Some investors make tactical investment decisions based on how the market has been performing recently, rather than considering the fundamentals of a market. As a result, these investors tend to think that a bull run will continue forever and that they should pile in “because the market has been racing ahead”. Bear markets tend to get forgotten about during a good run in the markets. Of course, we know from experience that past performance is not a guide to future performance – but sometimes it is hard to convince investors otherwise… Think of all the Irish investors who were overweight in property and Irish bank share in the early 2000’s, because these had been such good performers in the previous years. They saw their wealth wiped out, largely due to their recency biases.
We help our clients guard against recency bias. We plot uncertainties into your financial plan, challenge your assumptions and biases and show a range of different potential outcomes, rather than a single one based on recent events. As a result, we help you plan for every scenario, irrespective of whether your assumptions based on recent events actually come to pass or not. We ensure your plans are not derailed by recency bias.
Using our expertise, we can demonstrate how a continuing bull run will impact your financial plan. But we can also quickly and easily demonstrate how a dip in markets will also affect you. Considering both scenarios brings a greater level of validity to the actual investment assumptions that are ultimately used.
We can also help you manage any potential recency bias in other areas of your life – maybe your employment situation or your health. This is important for us with the client who says, “My company has been growing in recent years and I couldn’t tell you when I was last sick”! People can think they are bulletproof, based on recent experiences. We are happy to have the “What if” conversation about the impact on your plan if you were to be involved in an accident or to get sick. You can then see the real impact of these events on your financial plan. Maybe your experience in recent weeks / months / years is not enough…
Recency bias is a very real threat to building a sturdy financial plan and achieving the outcomes that you want. Yes it’s worth keeping an eye on what happened in the past. But it’s what will happen in the future that will now determine if you will achieve your goals and objectives in life.
We came across a quote recently that has really got us thinking, as it hit home on one of the most important aspects of financial planning. The quote is, “Money always moves when life is in transition”.
The reason the quote had such an impact is because it makes financial planning real. When some people think about financial planning, they think only of life assurance, income protection, pensions and investments. This is a mistake, as these are simply products that are sometimes used to enable a financial plan to be implemented. Financial planning itself is about helping you to identify what you want to do with your life, and then devising a plan to help you financially achieve that life. Yes, we might suggest that some products as mentioned above are used – but these are simply vehicles to help you achieve your goals.
And when we talk about your financial goals, we’re not talking about some random figures such as, “My goal is to have €800,000 in my pension plan when I retire”. Because that means nothing… It’s far more important to know what you want your money to do for you. When you know what you want your money to do, you can then put a price on these events. Your financial plan is then about generating enough money to enable these events to become a reality.
All our lives go through a series of “transitions”
While of course we can trace life events (or instead call them transitions) right back to birth, for the sake of financial planning we can start with transitioning from being a student to working, and then progressing through life. Transitions are those significant life events that cause a relatively significant change in your life. Each of these changes will have a fundamental impact on your financial situation and include the likes of,
- A new job: Usually this will result in an income increase (hopefully!) and probably a change in your employee benefits.
- Marriage: A very significant financial change where you and your better half marry your fortunes together. Also now your financial goals and needs substantially change.
- Moving House: A new home usually results in new debt and changed regular expenditure.
- Children: Apart from the obvious immediate costs, your attention will soon turn to increased living costs and future education costs etc.
- Retirement: A significant financial event as the income tap turns off and it’s time to live off savings.
- Death: This could be your own death or the death of your spouse or parent. Each of these events will have a significant financial impact.
- Other events: And then there are lots of other possible events – buying a holiday home, a significant gift for children, the world tour, winning the lotto or maybe a divorce! Whatever it might be, there will be a significant financial impact.
The point to remember is that every time there’s an event, money moves. Think about it. The question is, who is going to help you financially plan though these transitions?
We passionately believe that we are best placed to help you financially manage your way through these transitions. Yes, you will need a solicitor when buying a house, or an accountant when selling your business. But because we focus on your financial picture for all of your life and not just a single point in time, we can help you plan strategically for all of life’s transitions.
We’ll help you to capture all of these goals, desires and events in your financial timeline. We’ll then help you to draw up a financial battle plan to achieve the life you want. So, when you actually come to that major life event, your financial situation is an enabler rather than a problem.
Of course, we don’t ignore the positive impact of products – investments, pensions and protection products. They may well be needed to achieve some of these events, but they are simply vehicles to drive the plan. The real value that we can bring is helping you to live your life, to move your money wisely in preparation for and during each of the transitions throughout your life.
So, focus on the events that are important in your life. And then let us help you achieve them to the full.
We carry out a lot of research throughout the year, whether it’s attending conferences and seminars, meeting investment managers and product providers and also carrying out desk-based research. Inevitably from time to time, our reading pile gets a little higher! However this is now a great time of year to make real inroads into that reading.
When scanning through some recent research, we reviewed again two particular articles that we’ve shared with you previously. Both of them are worthy of further comment and while the overall topic of each of them is different, they both in fact finish with similar conclusions.
The first piece that we wish to discuss is from Dalbar, who are a world renowned and independent expert for evaluating, auditing. and rating business practices, customer performance, product quality and service. The research that caught our eye from them is, “U.S. Investors Lost Twice As Much As The S&P 500 In 2018”.
The second piece is a superb infographic called “The Anatomy of a Market Correction” from Visual Capitalist.
So what have we learned?
First of all, the basic tenet of the Dalbar study is that investor behaviour has the single biggest negative impact on investment returns over time. Investors who continue to dabble with their funds usually end up seriously undermining the performance of them. This happens largely as a result of bad timing in entering and exiting markets. The last paragraph says it all, “year after year, the firm has found that investors are often their own worst enemy, failing to exercise the necessary discipline to capture the benefits markets can provide over longer time horizons, while succumbing to short-term strategies such as market timing or performance chasing as they did in 2018”. We see it time and time again – trying to time markets is simply folly.
The market correction research has a different focus. It examines the regular ups and downs of markets, with market corrections typically happening about once per year, with the impact of them felt on average for over 70 days. What happens then? Worried investors believe a full bull market (greater than 20% decline) is on the way and exit the market. But only 14% of corrections between 1980 – 2018 resulted in a full bear market, the rest were just blips on the radar. So investor behaviour gets in the way again…
The final section of the infographic is very interesting, comparing 3 investors, one who times the market perfectly, another who doesn’t try and time the market and a third who times it wrong each time. It’s not surprising that the third investor significantly lags behind the others in terms of returns. However what is surprising is the very small gap between an investor with perfect timing and one who doesn’t try and time it at all. It shows very little reward for market timing, which we’ve also seen is extremely difficult to get right!
So what have we learned overall? We take four lessons away from these pieces of research,
- Timing markets is folly and is not significantly rewarded even when you get it right
- Taking a long-term approach and relying on the efficiency of markets is usually the best strategy
- The key is to understand your goals and build your strategy around them, get your asset allocation right and then let markets get to work
- Accept there will be bear markets along the way
Follow these thoughts and you’re more than likely improving your prospects of investment success.
Traditionally the role of a financial adviser has been to help you grow your financial resources. This has evolved significantly in more recent times into a much broader role, as financial planners have developed the skills and the tools to provide a lot more value than this. Sitting at the heart of what we do now is helping you to identify the life that you want to live, and then through careful financial planning, guiding you on your financial journey to ensure you achieve your goals and dreams.
We believe that as part of helping you to identify the life you want to lead, it makes sense to think far beyond the traditional boundaries that might have existed. Yes your financial plan should include goals such as when you want to retire, where you want to live and how you will transfer money effectively to your loved ones. Each of these takes careful planning and sound investment of your resources. But we believe wise investment goes far beyond investing in funds, shares and other assets. You cannot only invest in financial assets, as the most important investment is in yourself.
Here are a few areas that we believe you should invest in, most of which should also find their way into your financial plan. These are in no particular order as some will be more important than others to different people.
This is a pretty obvious one, but takes an investment of time, commitment and sometimes money. Staying healthy significantly improves your quality of life, but isn’t always easy. Eating the right food often takes a bit more effort and self-control, as does having a healthy social life!
Getting enough exercise is really important. For some people this is simply about walking the dog or going for a run. Others like more structure, a bit of competition and more interaction with other people. If this is what you want, join that gym, tennis club or golf club. Talk to us about what works for you so that we build all health related expenses into your financial plan. Maintaining both your physical and mental health will have a very positive long-term impact on your financial plan.
Your learning and skills
Just because you may have that university degree or other qualification in your pocket, it doesn’t mean your time for learning is over. Continuous learning and personal development will keep you sharper, more capable to face challenges in your life and will broaden your thinking and horizons. Sometimes this means reading more – reading books as opposed to only scanning through social media feeds.
Also it may take a more significant investment of time and money. Are you going to go back to college to finally do that degree you always regretted not pursuing? Or in the same vein, is there a series of short courses that you’re finally going to undertake to improve your skills? Maybe you could use technology better, enabling you to be more efficient at work – this could be learning how to use social media effectively or indeed brushing up your skills with Excel. Now might be the time to make these part of your life plan, and to also build them into your financial plan.
Your partner in life
You share so much with your partner in life. Your hopes and dreams, your worries and challenges. They hear about your issues today and your perspectives about the future. They know you better than anyone else and are central to your life. So why would you not invest in them?
Of course investing in your life partner means many things. Giving them your time, your love, your listening, your best support and advice. Having their back every step of the way and helping them grow as a person. If you have children together, helping each other be the best parents you can be. It also means spending time together, doing the things you love doing as a couple. It is not unusual to see holidays, weekends away, an entertainment budget and babysitting costs appearing in a financial plan! Are they in yours?
Your passions in life
What is it that really makes you feel alive? For some people it is travelling to far-flung places, for others it’s classic cars or motorbikes and for others again it is getting involved in a charity, organisation or a club. If money is stopping you from enjoying whatever your own passion is, talk to us. Let us see if we can help you achieve it, either today or in the future through better management of your finances.
We all get just one life to lead. As your financial planner, we know the important role that money plays in helping you lead the life you want. Of course we will use our skills and expertise to help you make wise decisions and best use of your financial resources at all times. However this life starts with you and what is important to you, so investing in yourself should be a central feature of your plan.
As part of our financial planning conversations with you, we always bring the attention around to subjects that are not easy to think about – a serious illness or death visiting a family member or indeed yourself. We all naturally don’t want to spend too long thinking about this, but unfortunately for us to do our job properly it’s a subject that we simply must contemplate.
The reason for this is because we’ve seen the cost of not thinking about it. We can all picture the devastation, grief and loss that accompanies a death or serious illness. However we’ve also seen at first hand the catastrophic financial consequences that can follow. We’ve seen families losing their total income and the enormous financial impacts of a serious illness where home adaptations and specialist care services are needed. We’ve seen family members becoming carers because there are no alternatives.
So we spend time considering the best financial products to protect you in these circumstances – the ones that work best for you, have the most appropriate benefits and that are available at the lowest cost. All these are important considerations.
But the most important consideration is what happens when you claim.
For this reason, we were very interested to examine Irish Life’s recent claims statistics, which give some insight into trends in this area.
Irish Life paid out on average €5.75 million every week for a total of 7,900 claims during 2018. This came to €299m over the year. When you dig a little deeper into the figures, there are some very interesting findings.
Living benefits made up the lion’s share
Lots of people think only about pay-outs on death when they hear of protection claims. In fact 72% of the total number of Irish Life’s claims in 2018 were for living benefits – lump sums for specified illnesses and regular payments for being unable to work due to illness or accident. Life assurance claims made up the balance – 28% of the total number of claims for a not insignificant amount of €119m.
Cancer is the No. 1 cause of claims
Cancer is the big issue. 2 in 3 specified illness claims were for cancer, followed by heart conditions in a distant second. Cancer also accounted for 45% of life assurance claims. Irish Life saw the level of claims rise for cancer in 2018 – up 8% for specified illness claims and 14% for life assurance claims.
The gender differences are interesting
Women remain under-insured for life assurance – only one in three life assurance claims were for women. This is a statistic that we as an industry are determined to tackle.
In terms of living benefits though, almost 75% of income protection claims were for women, who also on average claim at a younger age than men. The specified illness claims figures are more gender neutral, with 54% of the claims for men. But within this there were some interesting gender differences,
- 75% of claims for women were for malignant cancer
- There were four times more claims by men for diagnosed heart related conditions
- There were three times more claims by men for strokes.
We think the learning from this is that while women are more aware of and financially protect themselves against getting ill, more needs to be done to raise awareness of the need for women to financially protect their loved ones against their death.
Claims are what count. Having that certainty that if such an event is visited upon you, the key is to know that financial pressures will not be added to the problem. While we hope that you never have cause to claim for a living benefit, and that any death claim by you is in the very distant future, we want to ensure you have the right cover in place to protect you and your family. Please give us a call and we will happily discuss your financial protection needs.