As economies around the world start to cautiously emerge from their various states of lockdown, people are also stepping back into the light albeit gingerly and carefully. Some shops and services are open for business again, others have a while to wait still. Some activities that involve mass gatherings such as sports events and concerts face a quite uncertain future for some time to come.Continue Reading –
A recent phone conversation with a client triggered this article, as we were discussing the volatility in markets over the last few months. This was a relatively easy conversation, as this particular client has a very measured view to managing her pension fund and her investments. She doesn’t make rash decisions, she maintains a long-term perspective and doesn’t fret over every movement in the markets.Continue Reading –
Experience in the life assurance industry shows that most life assurance policies are taken out by people in their 30’s, 40’s and to a lesser extent in their 50’s. There is a very low uptake of life assurance by people in their 20’s who simply think they don’t need it.
We believe that it’s time to look again at this line of logic, and we ask you to consider why we believe it makes sense to get cover in place sooner rather than later.Continue Reading –
A marriage breakup is usually a traumatic time. Very significant life decisions are needed about custody of children and access arrangements, and where each party will live. Often relations between the parties become quite fraught… and then financial arrangements need to be agreed.Continue Reading –
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.
We’d like to share a story with you that originated back in 1963 when published by the German writer, Heinrich Böll. It’s a very short story, but perfectly captures one of the key messages that we stress with our clients.
The message is that while the amount of money you have or build up for the future is important, it is far more important to know the life that you want to lead and to have enough money to live that life. Otherwise, what’s the “right” amount of money to have, how much is “enough” for you? Is it €500,000, €5 million or €50 million? These are simply numbers.
Instead, it is far better to identify the life that you want lead – where you want to live, how long you want to work for, what you want to be able to do and buy in the future and how much money you want to be able to give / leave to loved ones. Once you are clear on these important life choices, we can then help you put a price on this life that you want. That is the right amount of money for you, as that is enough to do everything that you want.
See below – the Mexican fisherman is very clear about how much is “enough”.
“The Mexican Fisherman”
An American investment banker was at the pier of a small coastal Mexican village when a small boat with just one fisherman docked. Inside the small boat were several large fin tuna. The American complimented the Mexican on the quality of his fish and asked how long it took to catch them.
The Mexican replied, “Only a little while.”
The American then asked why he didn’t stay out longer and catch more fish.
The Mexican said he had enough to support his family’s immediate needs.
The American then asked, “But what do you do with the rest of your time?”
The Mexican fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife, Maria, stroll into the village each evening where I sip wine and play guitar with my amigos. I have a full and busy life.”
The American scoffed. “I am a Harvard MBA and could help you. You should spend more time fishing and with the proceeds, buy a bigger boat, and with the proceeds from the bigger boat, you could buy several boats. Eventually, you would have a fleet of fishing boats. Instead of selling your catch to a middleman, you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to Mexico City, then LA and eventually NYC, where you will run your expanding enterprise.”
The Mexican fisherman asked, “But how long will this take?”
To which the American replied, “Fifteen to twenty years.”
“But what then?”
The American laughed and said that’s the best part. “When the time is right, you would announce an IPO and sell your company stock to the public and become very rich; you would make millions.”
“Millions?” asked the fisherman. “Then what?”
The American said, “Then you would retire. Move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evening, sip wine, and play guitar with your amigos!”
Now we’re not suggesting that everyone gives up work and goes fishing! After all, the Mexican fisherman doesn’t have much of a safety net here in case anything goes wrong – what if he gets sick or his boat sinks or what happens when he gets too old to go fishing? But his starting point is good, he knows the life he wants.
This is what we want for you. We want to help you to identify the life that you want and to then put a plan in place to ensure you achieve it, under all scenarios.
What does your future life look like?
Well there is no exhaustive list for this one – there really are so many potential factors that can influence your investment returns. When you ask a professional investor, they will often jump to factors such as the economy, sentiment and interest rates. All very relevant factors.
Some factors of course have bigger impacts than others. So, we’re going to set out below the factors that we see as potentially having the biggest impacts, focusing on the factors that you have some control over – either yourself or more likely with some assistance from us.
This is not an exhaustive list and these factors are not necessarily in order, however we’ll start with the factor that (maybe surprisingly to you) tends to have the biggest impact on investor returns.
Are you surprised by this one? This factor definitely has the single biggest impact on investment performance. How many investors around the world panicked at the end of last year after the S&P 500 index fell 14% in the last quarter of 2018, and moved their portfolios to “safer ground”? Thousands if not millions of investors did – and they all then missed the 11% bounce in the first 2 months of 2019.
We see this all the time… fear in falling markets and people selling as assets get cheaper, and greed in rising markets with investors then piling in and buying expensive assets. The key is to have a clear investment strategy… and to then stick to it.
Time impacts investments in a number of ways. First of all, the earlier you can start investing allows the magic of compounding of investment returns to get to work. The longer you then invest allows this compounding to really deliver over time. This is one of the big reasons why we encourage people to take a medium to long timeframe with their investments. Also markets can be quite volatile over short periods of time, so investments held for longer periods tend to exhibit lower volatility than those held for shorter periods – another advantage of longer term investing.
Finally you will often hear us say that trying to guess the best time to either enter or exit markets is folly – none of us have a crystal ball. The key is to have a structured plan for your investments, and to then stick to the plan.
The choices that are made between different asset classes can have a significant impact on your investment – whether you are invested in equities, property, bonds or cash etc. or how much you should have in each of these asset classes. After all, the greatest stock selector in the world will have little impact on your investment returns if only 10% of your money is in equities… Asset allocation is an important driver of investment returns, and is a factor that we spend a lot of time considering when building investment portfolios.
“Star” fund managers get a lot of media attention, but their impact in reality on the returns of investors is actually relatively small. Yes they can positively impact the return on a portfolio, but this impact is quite a bit lower than most of the other factors that are mentioned. Out-performance in stock selection is also a hard one to anticipate as past performance is not a guide to future performance. Just because one investment house outperformed in recent years is not very meaningful… Understanding an investment manager’s philosophy and strategy is a far better guide than recent performance when choosing a fund manager.
Investment Costs & Tax
There are a number of factors that create a drag on investment returns that must be managed carefully. You should be satisfied that you are minimising the potential tax impact on your investments, and that any charges and expenses applied to your investment are competitive. Costs matter – you must ensure that you are receiving value for these costs. We are always happy to chat though the charges that apply to any investments, and also the different tax strategies that can potentially be deployed.
These are just some of the factors that will impact the returns on your investments, and over which you have some control. We will always look to bring your focus back to the plan – what you are trying to achieve, the investment strategy put in place to get you there and to keep you focused on that. This is the best way to grow your investments and to minimise any negative impacts.