It has never been easier to manage your own money. Online platforms, and a wealth of information at the touch of a button, mean that investments are accessible for everyone.

Often, investments alone do not make a financial plan. A clear strategy is needed to navigate the options and help make those important decisions. It is only when you can link your financial decisions to your personal values and important goals that the path becomes clear.

You might need some help to get you started and make sure you stay on track. A good financial adviser will look at your situation holistically and ensure that your goals and objectives are at the centre of any recommendations.


Clear Goals


The first step is to understand exactly what you would like to achieve, for example:

  • A comfortable retirement
  • Saving towards a first home or a larger property for a growing family
  • Capital growth from your hard-earnt savings over the long term

Most people have an idea of their desired lifestyle, but this is often vague and doesn’t correspond to the actions taken.

A tangible goal includes target dates and amounts, and is ideally written down. You can change your goals as often as you like and add more as you progress. The important thing is to have something real to aim for. Otherwise, how will you know if things are going to plan?


Addressing Risks


Once you have your goals laid out, you may be ready to start working towards them. But slow down, as it’s also important to think about all the things that could unravel your plan before you really get started. No one likes to think about the worst happening, but taking the time to address potential disasters now can save a great deal of hardship and stress later on.

A financial adviser can help you quantify the risks and implement a strategy for dealing with them, for example:

  • An emergency fund ensures you can cover unexpected bills or short periods out of work without going into debt or dipping into investments. Ideally, this should cover at least 3-6 months’ regular expenditure in most cases.
  • Income protection and critical illness cover can make life easier if you are unable to work due to disability or a critical illness.
  • A Power of Attorney ensures that you have some one you trust ready to make important decisions around your finances and welfare if you become incapacitated.
  • Life cover can pay out a lump sum to your loved ones in the event of your death.
  • Writing your Will means that your estate can be distributed according to your wishes if you die.

It’s worth dealing with these risks early on in the planning process, as this frees up time and resources later to deal with the more exciting aspects.


Realistic Assumptions


Now that your goals are clear and risks are mitigated as far as possible, it’s time to start planning.

We cannot predict the future, but you can make some educated guesses to create your own cashflow plan. This involves plugging in a series of numbers, some of which are known, for example:

  • Income
  • Expenditure
  • Assets
  • Liabilities
  • Your age
  • Your goals

Other numbers are not yet known, so we need to make assumptions, for example:

  • Life expectancy
  • Inflation
  • Investment returns
  • How your income and expenditure will change over your lifetime

It’s best to make conservative assumptions, so if you think you will live until age 85, you should extend your cashflow plan to age 100. If you think you will achieve investment returns of 7%, assume 5%. This means that you are more likely to achieve, and even exceed your goals.


A Sensible Investment Plan


While assumptions are useful for planning purposes, your investments are unlikely to achieve the same return every year and in difficult market times they might even lose money over a period of time.

Investing to achieve your goals can make your decisions much easier. Rather than chasing high returns and following stock tips, you can follow a tried and tested long-term strategy.

A financial adviser can help you create an investment plan which:

  • Holds a wide range of assets so that your portfolio is diversified.
  • Is aligned with your goals and your ability to take risks.
  • Maximise investment performance within your tolerance for risk.
  • Aims to invest for the long-term.
  • Is evidence-based and does not attempt to time the market.

This helps to filter out the noise and combat investor biases, to give you the best chance of investing successfully.


Making the most of Tax Allowances


The main purpose of financial planning is not to save tax. However, there are number of tax allowances and exemptions that can save you money and help to progress your financial plan.

For example, if you are a UK resident and tax-payer:

  • Investing tax-free by using your ISA allowance (currently £20,000) every year.
  • Using your capital gains exemption (£12,300 for 2021/2022) to avoid investment gains building up and becoming taxable later.
  • Structuring your income and assets to maximise the personal allowance, savings allowance, and dividend allowance.
  • Undertaking joint planning so that spouses make the most efficient use of these allowances.

A financial adviser will help you to make the most of these advantages in the context of your wider plan. Please note, many of these do not apply to Isle of Man residents and tax-payers, who would often turn to a pension scheme for tax advantages – should that suit their needs.


Understanding Pensions


Pensions are one of the more complex investment options, and yet everyone is encouraged to have one. Many people accumulate several pensions over their working life, and may not always be clear on how their regular contributions translate to their future lifestyle in retirement.

A financial adviser can help you:

  • Work out the most appropriate contribution level to help you reach your future goals.
  • Make the most of tax relief, particularly if you are a higher earner.
  • Use your pension to efficiently extract profits if you own a business.
  • Avoid tax penalties by paying too much into your pension.
  • Decide on the most appropriate provider and investment choice for your pension.
  • Maximise your investment performance in line with your attitude to risk.
  • Structure your benefits tax-efficiently when it is time to retire.
  • Establish how your pension should be treated in the event of your death.


Value for Money


As well as selecting the most suitable investments and tax wrappers, a financial adviser will also consider the companies you hold your money with.

If you have existing investments, this will involve a thorough review of the features, fund choice and charges.

Sometimes you can save money, simplify your situation, or improve flexibility by moving some of your investments, or consolidating them.

An adviser will look at all of the options and recommend the most suitable provider for your investments.


A Strategy for Income and Withdrawals


Eventually, you will want to take money out of your investments, whether this is to fund your retirement or achieve one of your other goals.

It is arguably more important than ever to take financial advice at this point in your life.

The benefits of this are:

  • The withdrawals can be taken from the most efficient assets first. For example, it is usually better to run down cash (leaving an emergency reserve) before you touch your pension.
  • Funds can be sold in plenty of time, avoiding the need to encash assets during a market downturn.
  • You can take withdrawals from multiple sources to make the most of any tax allowances.
  • You can avoid triggering unexpected tax liabilities.
  • Withdrawals can be planned at a sustainable level.


Leaving a Legacy


Once your own goals are fully funded, you may want to think about what you would like to leave behind for your loved ones.

This must be carefully balanced with maintaining your own lifestyle (including any care costs if required).

A financial adviser will consider:

  • How your Will interacts with your financial plan
  • Any charitable aspirations you may have
  • Lifetime gifts (regular and ad hoc) where appropriate for UK customers

A strong estate plan ensures that more of your money goes to your intended recipients in line with your wishes.


Staying on Track


As time goes on, things change. Your circumstances will evolve and reality will diverge from the assumptions originally made.

This is why regular reviews are so important. A financial plan is not a singular, stationary thing that you can use as a roadmap for the rest of your life. It is a living entity that needs regular attention, otherwise in five or ten years’ time, it may no longer be relevant.

An ongoing relationship with a financial adviser offers the following benefits:

  • Your plan can be adapted as your circumstances change.
  • Tax rules and legislation changes can be taken into account.
  • Assumptions can be re-set and adjusted.
  • Any investment choices can be revised if needed.
  • If your plan drifts off-track, catching this early usually means that only small tweaks are needed to correct your course.
  • You have someone with whom you can discuss important decisions.
  • It can keep you accountable and help maintain good financial habits.

Even confident investors with a good understanding of can benefit from financial advice, as this can add structure, discipline, and maximise your strategies. This means you can focus and free up time for the things that are most important to you.

Please don’t hesitate to contact a member of the team if you would like to find out more about your investment options.

The information provided on the pages, blogs and articles contained within this website are solely for information purposes only and do not constitute financial advice. Professional advice should always be sought from a financial adviser.

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