Divorce Law Reform Aims To Reduce Conflict

Divorce laws look set to change, with the government planning to introduce reforms designed to reduce family conflict.

The proposals follow a public consultation, with family justice professionals and others voicing their support for reform.

It will mean an update to the 50-year old divorce laws, which have been shown to make the conflict worse between divorcing couples.

As part of the consultation, it was found that the current divorce system can reduce prospects for reconciliation, and can also damage relationships between parents and children, following the divorce.

Justice Secretary David Gauke said:

“Hostility and conflict between parents leave their mark on children and can damage their life chances.

“While we will always uphold the institution of marriage, it cannot be right that our outdated law creates or increases conflict between divorcing couples.

“So I have listened to calls for reform and firmly believe now is the right time to end this unnecessary blame game for good.”

Aidan Jones OBE, Chief Executive at relationship support charity, Relate said:

“This much-needed change to the law is good news for divorcing couples and particularly for any children involved.

“The outdated fault-based divorce system led parting couples to apportion blame, often resulting in increased animosity and making it harder for ex-partners to develop positive relationships as co-parents.

“As a large body of evidence shows, parental conflict is damaging to children’s wellbeing and chances in life, whether the parents are together or separated. It’s good that the government has listened and taken action on this, demonstrating commitment to reducing parental conflict.

“While divorce isn’t a decision that people tend to take lightly, we do support the extension of the minimum timeframe which will allow more time to reflect, give things another go if appropriate, and access support such as relationship counselling or mediation.”

Under current laws, divorce requires proof that a marriage has broken down irretrievably. It forces spouses to provide evidence of ‘unreasonable behaviour’ or years of separation, even where a mutual decision has been taken to part ways.

In practice, very few divorces are contested in the courts. But the ability to fight the divorce has been used by abusive partners to continue their own coercive and controlling behaviour.

This ability to contest a divorce is effectively removed under the new rules.

Under the new proposals, the government will remove these grounds for divorce, retaining the irretrievable breakdown of a marriage as the sole ground for divorce.

Instead of having to provide evidence of a ‘fact’ around behaviour or separation, divorcing couples will instead need to give a statement of irretrievable breakdown.

The existing two-stage legal process referred to as decree nisi and decree absolute, will remain in place.

There will also be a new option for a joint application for divorce. Each spouse will still be able to initiate the process on a sole basis.

One changes being introduced as part of the new proposals which could be unpopular is the introduction of a minimum timeframe of 6 months, from petition stage to final divorce.

There will be a minimum timeframe of 20 weeks from petition stage to decree nisi, and then 6 weeks from decree nisi to decree absolute.

This new minimum timescale reflects views in the consultation that couples ‘feel divorced’ when the court grants a provisional decree of divorce, the decree nisi.

Having a minimum timescale between petition and decree nisi is designed to give divorcing couples a meaningful period of reflection, during which time they have the opportunity to stop the process.

But where divorce is inevitable, the minimum timescale will better enable couples to reach agreement on practical arrangements for the future.

Courts will retain the power to expedite the process where appropriate. The new divorce legislation is expected to be introduced as soon as Parliamentary time allows.

If you are considering divorce, it’s essential to seek professional advice as early as possible in the process.

In addition to legal advice from an experienced family law professional, you should speak to a financial planner too so you can understand all of the personal finance implications and options.

Money Management Lingo – Cutting Through Financial Jargon

Doctors write prescriptions. Mechanics perform tune-ups. Lawyers prepare briefs. Financial advisers help you manage your money. Ultimately, it’s that simple. But like any other profession, we sometimes have a funny way of saying it.

Just as it’s good to know that Enter your PIN doesn’t mean you should jab a sharp object into your phone, understanding some of the “shoptalk” we use can help you manage your money more effectively, and hold more meaningful conversations with your adviser. Following are a few of the most common terms related to money management.

Assets

Your assets are like the organs that sustain your financial being and feed your financial worth. Cash is the consummate asset, because you can do just about anything you want with it. That said, cash is not expected to generate future income unless you invest it in other assets, such as stocks, bonds, commodities, real estate, and similar holdings.

Unit Trusts, OEICS and Exchange-Traded Funds

You might own some assets directly, such as shares, a rental property, or a gold bar. For efficient investing, it’s common to own shares of unit trusts, exchange-traded funds (ETFs) or similar structures, which in turn hold batches of these underlying assets on your behalf.

Fund Managers

Fund managers such as Dimensional Fund Advisors or Vanguard provide and manage the funds and ETFs in which you invest. Each manager typically offers a varied “family” of funds representing different batches of assets – such as funds for investing in domestic, international or emerging markets stocks; funds for investing in short-term bonds; funds for investing in Real Estate Investment Trusts; and so on.

Investment Accounts

Investment accounts are “containers” for holding your funds and various types of individual assets. Accounts are typically “regular/taxable,” or “tax-advantaged,” with different tax treatments depending on the type of account. Taxable accounts are basically any accounts that are not subject to special tax treatment. Tax-advantaged accounts include structures such as ISAs and Pensions.

Custodian

Custodians hold your investment accounts on your behalf. They may also execute transactions upon your direction, such as adding or removing money into or out of your account, or buying or selling holdings within it. Your custodian also periodically reports account activities to you, typically monthly. Here at Oak Four, specific custodian(s) typically serve these essential roles, including submitting their independent reports directly to you for your review.

Note: We strongly recommend ensuring your financial adviser is never also your custodian. If your adviser is responsible for managing your investments AND they are the only source for reporting the results to you, it makes it too easy for the criminally minded to hide their malfeasance by sending you fake reports. Think Bernie Madoff.

Investable Assets

Investable assets are assets that are already part of, or readily available to add to your investment portfolio. Money currently “tied up” in your home, business or similar ventures is certainly of worth to you, but it’s not considered an investable asset when it’s already being used to fulfill other important roles. Future income from your career, the future sale of a business, or similar sources of expected income are not yet investable assets either – not until you’ve received the money, and set some of it aside for investing.

Your Investment Portfolio

Combine all your accounts containing all your investable assets (no matter what kind they are or where they’re held), and that’s your investment portfolio.

Assets Under Management

For some of your accounts, our services are twofold: We advise you on how to invest the assets within your total portfolio, plus we serve as a liaison with your custodian to facilitate account management – such as set-up, closure, transfers and trades. For these accounts, we include their assets in your Assets Under Management (AUM). For other accounts, such as your company pension, another provider may already be managing account transactions for you. We still include these assets in our ongoing advice, portfolio management, performance reports, and financial planning services. But they are typically excluded from your AUM totals.

Want To Know More?

Now that you’re getting the hang of some of our specialised lingo, what else can we answer for you? As a fiduciary adviser, responsible for serving investors’ highest financial interests, we consider it our privilege and duty to not only help you manage your money, but to help you actually understand what we’re talking about when we do.

#lingo #jargon #moneymanagement 

Asset Allocation – What is it and Why it Matters

Asset allocation. It’s so ingrained in how we manage our clients’ investment portfolios, we talk about it all the time. But what is it? What are assets, and what happens when you allocate them?

Asset Allocation: A Classy Subject
Big picture, an asset is anything beneficial you have or have coming to you. For our purposes, it’s anything of value in your investment portfolio. After bundling your investable assets into asset classes, we allocate, or assign, each asset class a particular role in your portfolio.

To offer an analogy, allocating your portfolio into different asset classes is similar to storing your clothes according to their roles (pants, shirts, shoes, etc.), instead of just leaving them in a big pile in your wardrobe. You may also further sort your wardrobe by style, so you can create ideal ensembles for your various purposes. Likewise, asset allocation helps us tailor your portfolio to best suit you – efficiently tilting your investments toward or away from various levels of market risks and expected returns. Your precise allocations are guided by your particular financial goals.

That’s it, really. If you stop reading here, you’ve already got the basics of asset allocation. Of course, given how much academic brainpower you’ll find behind these basics, there is a lot more we could cover. For now, let’s take a closer look at those asset classes.

Asset Classes, Defined
At the broadest level, asset classes typically include domestic, developed international, and emerging market versions of the following:

  • Equity/stocks (an ownership stake in a business)
  • Bonds/fixed income (a loan to a business or government)
  • Hard Assets (a stake in a tangible object such as commodities or real estate)
  • Cash or cash equivalents

Just as you can further sort your wardrobe by style, each broad asset class (except for cash) can be further subdivided based on a set of factors, or expected sources of return. For example:

  • Stocks can be classified by company size (small-, mid-, or large-cap), business metrics (value or growth), and a handful of other factors more recently identified.
  • Bonds can be classified by type (government, municipal or corporate), credit quality (high or low ratings), and term (short-, intermediate-, or long-term due dates).

We can then mix and match these various factors into a rich, but manageable collection of asset classes – such as international small-cap stocks, intermediate government bonds, and so on.

Generally speaking, the riskier the asset class, the higher return you can expect to earn by investing in it over the long haul.

Asset Allocation, Implemented
To convert plans into action, we turn to select fund managers with low-costs fund families that track our targeted asset classes as accurately as possible. Sometimes a fund tracks a popular index that tracks the asset class; other times, asset classes are tracked more directly. Either way, the approach lets us turn a collection of risk/reward “building blocks” into a tightly constructed portfolio, with asset allocations optimised to reflect your investment plans.

The Origin of Asset Allocation
Who decides which asset classes to use, based on which market factors? To be honest, there is no universal consensus on THE correct answer to this complex and ever-evolving equation. As evidence-based practitioners, we turn to ongoing academic enquiry, professional collaboration, and our own analysis. Our goal is to identify allocations that seem to best explain how to achieve different outcomes with different portfolios. As such, we look for robust results that have:

  • Been replicated across global markets
  • Been repeated across multiple, peer-reviewed academic studies
  • Lasted through various market conditions
  • Actually worked, not just in theory, but as investable solutions, where real-life trading costs and other frictions apply

Asset Allocation in Action
As we learn more, sometimes we can improve on past assumptions, even as the underlying tenets of asset allocation remain our dependable guide. Bottom line, by employing sensible, evidence-based asset allocation to reflect your unique financial goals (including your timelines and risk tolerances), you should be much better positioned to achieve those goals over time.

Asset allocation also offers a disciplined approach for staying on course toward your own goals through ever-volatile markets. This is more important than most people realise. As Dimensional Fund Advisor’s David Booth has observed, “Where people get killed is getting in and out of investments. They get halfway into something, lose confidence, and then try something else. It’s important to have a philosophy.”

So, now that you’re more familiar with asset allocation, we hope you’ll agree: Properly tailored, it’s a fitting strategy for any investor seeking to earn long-term market returns. Please let us know if we can tell you more.

Six Financial Best Practices for 2019

So, are you ready to get ahead for 2019? Here are six financial best practices for the year ahead. Pick a few of them or take on the entire list. Either way, you’ll be that much further ahead by the time 2020 rolls around.

  1. Do nothing. If you have a well-built investment portfolio in place, guided by a relevant investment plan, your best move in hyperactive markets is to let that plan be your guide. That often means doing nothing new with your holdings. We list investment inaction as a top priority, because “nothing” can be one of the hardest things to (not) do when the rest of the market is in perpetual motion!
  2. Double down on your planning. That said, a “do nothing” approach to turbulent markets hinges on having that relevant plan in place, guiding your appropriately structured portfolio. A fresh new year can be a great time to tend to your investment plan – or create one, if you’ve not yet done so. Have any of your personal goals changed, or will they soon? How might this impact your investment mix? Have market conditions put your portfolio ahead of or behind schedule? Are you unsure where you stand to begin with? It’s time well-spent to periodically ensure your plan remains relevant to you and your personal circumstances.
  3. Prepare for the unknown with a rainy-day fund. Time will tell whether 2019 markets are friendly, foul, or (if it’s a typical year) an unsettling mix of both. Having enough liquid, rainy-day reserves to tide you through any rough patches is a best practice no matter what lies ahead. Knowing your near-term spending needs are covered should help with both the practical and emotional challenges involved in leaving the rest of your portfolio fully invested as planned, even if the markets take a turn for the worse.
  4. Redirect your energy to contributing financial factors. While you’re busy staying the course with your investments, you can redirect your attention to any number of related financial and advanced planning activities. While you don’t necessarily need to act on everything at once, it’s worth reviewing your financial landscape approximately annually, and identifying areas in need of attention. Maybe you’ve got a debt load you’d like to reduce, or an estate plan that’s no longer relevant. Perhaps it’s been too long since you’ve reviewed your insurance line-up, or you’d like to revisit your philanthropic goals in the context of the latest tax laws. Refreshing any or all of these items is likely to contribute more to your financial success than will fussing over the stock market’s daily gyrations.
  5. Perform a cybersecurity audit. Protecting yourself against cybercriminals is another excellent use of your time. With the new year, consider revisiting a few basic, protective steps, such as: changing key passwords on your most sensitive login accounts; reviewing your credit reports. Especially with child identity theft on the rise, these actions apply to your entire household. Unfortunately, even minor children are now at heightened risk.
  6. Have “that money talk” with your kids, your parents, or both. Speaking of your kids, when is the last time you’ve held any conversations about your family wealth? It’s never too soon to begin preparing your minor children for a financially literate adulthood. As they mature, their financial independence rarely happens by accident, with additional in-depth conversations in order. Then, as you and your parents age, you and your kids must prepare to step in and assist if dementia, disability or death take their tolls. There also can be ongoing conversations related to any legacy you’d like to leave as a family. For all these considerations and more, an annual “money talk” can be critical to successful outcomes.

So, there you have it: Six creative ways to bolster your financial well-being while the stock market does whatever it will in the year ahead. While this list is by no means exhaustive, we hope you’ll find it an approachable number to take on … with two critical caveats.

First, we’ve got a bonus “financial best practice” to add to the list:

Above all else, remember what your money is for.  Money is meant to fund your moments of meaning.

So, be it resolved for the year ahead: Next time you find your stomach tightening at the latest frightening or exciting financial news, tune it out. Walk away. Go do something you love, with those whose company you cherish. Circling back to our first call to inaction, not only will this feel better, it’s likely to be better for your financial well-being.

Second, we recognise that each of these “easy” best practices aren’t always so easy to implement. We could readily write pages and pages on how to tackle each one.

But instead of writing about them, we’d love to help you do them. At Oak Four, we work with families every day and over the years to convert their dreams into plans, and their plans into achievements. We hope you’ll be in touch in the new year, so we can do the same for you.

Brexit: How to Navigate Financial Market Volatility

As the old Chinese curse has it: “May you live in interesting times”. With Brexit negotiations ongoing, it’s certainly interesting times in British politics, with likely consequences for investment markets.

There’s still a great deal of uncertainty over the outcome of Brexit. The anticipated ‘decisive vote’ has been postponed, for now, so Theresa May can seek more reassurances around the Irish border backstop.

We’ve also had confirmation from the European Court of Justice that the UK can unilaterally withdrew its Article 50 notice and effectively cancel Brexit, without seeking approval from other EU countries.

We can’t know for sure what is going to happen next.

One possible scenario is a lost vote in the House of Commons followed by the resignation of Theresa May, and then a new leadership election within the Conservative Party; possibly even a General Election in the New Year.

We do know that investment markets dislike uncertainty.

As we move ever closer to the 29th March departure date, that uncertainty only grows.

With global stock markets already displaying some volatility in recent months, due to US and China trade war and, more recently, inverted yield curve in the US, that growing uncertainty could result in greater volatility, market corrections and (understandably) nervous investors.

Despite this uncertainty and its potential impact on investment portfolios, we’re clear about how we will navigate any choppy investment market conditions ahead.

In simple terms, our approach towards investment advice and management remains unchanged.

Here’s why.

The portfolios we recommend for clients are well diversified. This means that we don’t recommend putting all of your eggs in one basket, instead spreading portfolios across several investment asset classes, sectors and themes.

This diversification is a really important aspect of risk management when investing money.

From the perspective of any Brexit induced volatility, diversification means our clients are not overly exposed to investment assets which are most likely to respond to domestic turmoil.

It means that, when the newspapers and newsreaders are screaming about billions of pounds being wiped off the value of the FTSE 100, this is only one small part of your investment portfolio.

In recent years, this diversification within the portfolios we recommend and manage has moved further from the UK to include a higher proportion of global assets.

Thinking about the UK equity holdings within client portfolios, there’s an interesting consequence of the high proportion of overseas earnings from FTSE 100 companies, for example.

In the aftermath of the Brexit referendum, many investors were surprised to witness the FTSE 100 rise by more than 10% in three months.

During this time, the weakness of Pound Sterling was boosting the profits of FTSE 100 companies with overseas earnings. Around 70% of FTSE 100 earnings come from outside of the UK, making a weak Pound Sterling beneficial for these companies.

I’m not suggesting that a Brexit meltdown leading to a collapse in the Pound will have the same positive impact on UK equities next time, but it’s worth keeping in mind that things aren’t always as simple as they first seem when it comes to investing money.

Our approach towards investment advice and management also remains unchanged because our clients are long-term investors.

Any increased volatility we experience over the coming days, weeks and months will likely be short-term, having little meaningful impact on the long-term performance of portfolios.

One exception could be where clients are making withdrawals from their portfolios in retirement. But in this case, we allocate a sufficient amount to cash in order to avoid needing to draw down from invested assets during periods of extreme market correction.

We’re staying the course because we know that attempting to time the investment markets is futile.

When markets are volatile, there’s always a temptation to try and sell before they have fallen to the bottom and then buy again before they rise to the top.

Nobody can do this consistently well. The more likely outcome is selling low before buying high. Do this enough times and you can cause some serious harm to your wealth.

With all of this said, we understand that it can be unpleasant to watch investment market volatility and experience falls in the value of your portfolio.

Regardless of how often we remind investors that volatility is a normal part of the long-term investing journey, our heart is bound to overrule our head on occasion, especially when the media does their level best to sensationalize what is going on.

If you’re feeling nervous about investment markets in the wake of the Brexit news this week, talk to us.

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The Vital Role of Rebalancing Your Portfolio

If there is a universal investment ideal, it is this: Every investor wants to buy low and sell high. What if we told you there is a disciplined process for doing just that, and staying on track toward your personal goals while you’re at it? Guess what? There is. It’s called rebalancing.

Rebalancing: How It Works

Imagine it’s the first day of your investment experience. As you create your new portfolio, it’s best if you do so according to a personalised plan that prescribes how much weight you want to give to each asset class. So much to stocks, so much to bonds … and so on. Assigning these weights is called asset allocation.

Then time passes. As the markets shift around, your investments stray from their original allocations. That means you’re no longer invested according to plan, even if you’ve done nothing at all; you’re now taking on higher or lower market risks and expected rewards than you originally intended. Unless your plans have changed, your portfolio needs some attention.

This is what rebalancing is for: to shift your assets back to their intended, long-term allocations.

A Rebalancing Illustration

To illustrate, imagine you (or your adviser) has planned for your portfolio to be exposed to the stock and bond markets in a 50/50 mix. If stocks outperform bonds, you end up with too many stocks relative to bonds, until you’re no longer at your intended, balanced blend. To rebalance your portfolio, you can sell some of the now-overweight stocks, and use the proceeds to buy bonds that have become underrepresented, until you’re back at or near your desired mix. Another strategy is to use any new money you are adding to your portfolio anyway, to buy more of whatever is underweight at the time.

Either way, did you catch what just happened? Not only are you keeping your portfolio on track toward your goals, but you’re buying low (underweight holdings) and selling high (overweight holdings). Better yet, the trades are not a matter of random guesswork or emotional reactions. The feat is accomplished according to your carefully crafted, customised plan.

Portfolio Balancing: A Closer Look

We’ve now shared a simple rebalancing illustration. In reality, rebalancing is more complicated, because asset allocation is completed on several levels. First, we suggest balancing your stocks versus bonds, reflecting your need to take on market risk in exchange for expected returns. Then we typically divide these assets among stock and bond subcategories, again according to your unique financial goals. For example, you can assign percentages of your stocks to small- vs. large-company and value vs. growth firms, and further divide these among international, U.S., and/or emerging markets.

One reason for these relatively precise allocations is to maximise your exposure to the right amount of expected market premiums for your personal goals, while minimising the market risks involved by diversifying those risks around the globe and across sources of returns that don’t always move in tandem with one another. We, and the fund managers we typically turn to for building our portfolios are guided by these tenets of evidence-based investing.

Striking a Rebalancing Balance

Rebalancing using evidence-based investment strategies is integral to helping you succeed as an investor. But like any power tool, it should be used with care and understanding.

It’s scary to do in real time. Everyone understands the logic of buying low and selling high. But when it’s time to rebalance, your emotions make it easier said than done. To illustrate, consider these real-life scenarios.

  • When markets are down: Bad times in the market can represent good times for rebalancing. But that means you must sell some of your assets that have been doing okay and buy the unpopular ones. The financial crisis of 2007–2009 is a good example. To rebalance then, you had to sell some of your safe-harbor holdings and buy stocks, even as popular opinion was screaming that stocks were dead. Of course history has shown otherwise; those who did rebalance were best positioned to capture available returns during the subsequent recovery. But at the time, it represented a huge leap of faith in the academic evidence indicating that our capital markets would probably prevail.
  • When markets are up. An exuberant market can be another rebalancing opportunity – and another challenge – as you must sell some of your high flyers (selling high) and rebalance into the lonesome losers (buying low). At the time, this can feel counterintuitive. But disciplined rebalancing offers a rational approach to securing some of your past gains, managing your future risk exposure, and remaining invested as planned, for capturing future expected gains over the long-run.

Costs must be considered. Besides combatting your emotions, there are practical concerns. If trading were free, you could rebalance your portfolio daily with precision. In reality, trading incurs fees and potential tax liabilities. To achieve a reasonable middle ground, it’s best to have guidelines for when and how to cost-effectively rebalance. If you’d like to know more, we’re happy to discuss the guidelines we employ for our own rebalancing strategies.

The Rebalancing Take-Home

Rebalancing using evidence-based investment strategies makes a great deal of sense once you understand the basics. It offers objective guidelines and a clear process to help you remain on course toward your personal goals in rocky markets. It ensures you are buying low and selling high along the way. What’s not to like about that?

At the same time, rebalancing your globally diversified portfolio requires informed management, to ensure it’s being integrated consistently and cost effectively. An objective adviser also can help prevent your emotions from interfering with your reason as you implement a rebalancing plan. Helping clients periodically employ efficient portfolio rebalancing is another way Oak Four seeks to add value to the investment experience.

Misperceptions About Market Corrections: Are You Prepared?

If you enjoy fine literature, we recommend all of Warren Buffett’s annual Berkshire Hathaway shareholder letters, dating back to 1965. While financial reports are rarely the stuff from which dreams are made, Buffett’s way with words never ceases to impress. His 2016 letter was no exception, including this powerful insight about market downturns:

“During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy.”

This actually is a good time to talk about scary markets, since we haven’t experienced a severe one in a while.

For example, the CBOE Volatility Index (VIX), aka, “the uncertainty index,” is a generally accepted gauge of how confident (or not) investors are that the market is going to be volatile (or not) during the next little while. The lower the number, the smoother the presumed ride … although, as usual, there are no guarantees the markets will actually do as they’re told.

As of August 8th, the VIX was hovering in the range of 10–37, year to date. To put this in context, the VIX peaked at about 60 during the bear market of 2007–2009. You’d have to go back just over a decade to witness similar periods of relative calm.

What should we make of these numbers? Scanning financial news, you’ll find the usual range of attempted interpretations: “We are worried about …” “Economic indicators suggest that …” “Geopolitical events are likely to …” and so on.

What else is new? While it’s highly unlikely the VIX will remain this calm forever, nobody can predict when it might turn, or why or how dramatically it may spike back up when it does. As always, we counsel against shifting your portfolio in reaction to near-term forecasts. This includes prognostications of perceived volatility, or lack thereof.

Instead, let’s use the relative calm as a perfect time to do a reality check on what scary markets really represent, and how to manage them when they occur.

How well-prepared are you today, in anticipation of tomorrow’s market downturns?

This brings us back to Buffett’s words of wisdom. Contrary to common perception, scary markets can actually be your friend. Some of your best returns are delivered in their immediate aftermath and, as Buffett suggests, there may be some “bargain” buying opportunities. BUT, you have to be there to benefit, which is why personal fear becomes your enemy if you panic and flee during the downturns.

So, how can we prepare? Instead of fussing over when the next market downturn may or may not occur, here are some great questions to consider:

Market Returns — Are you taking on enough stock market risk in your portfolio to capture a measure of expected returns when they occur (often unpredictably and without warning)?

Market Risks — Are you fortifying your exposure to market risks and expected returns with enough lower-risk holdings, so you won’t fall prey to your fears the next time markets tumble?

Personal Goals — Have you assessed whether your current portfolio mix is optimised to achieve your personal goals? Speaking of goals, have yours changed, warranting portfolio adjustments?

Personal Risk Tolerance — Have you been through past bear markets? If you discovered you’re not the risk-taker you thought you were (or, conversely, you sailed through with relative ease), does your current portfolio mix of safer/riskier holdings accurately reflect what you learned?

Actual Analytics — Have you carefully considered what a 30% or so market downturn would mean to you in real pounds and pence? Yes, it could happen. If it did, and you feel you’d be unlikely to hold firm with your current holdings, additional preparation may be warranted.

In short, you can prepare for the next down market by having a well-planned portfolio in place today — one you can stick with through thick and thin. Neither too “hot” nor too “cold,” your portfolio should be just right for you. It should reflect your financial goals. It should be structured to capture an appropriate measure of expected returns during good times, and allow you to effectively manage your personal fears throughout.

When is the last time you’ve thought about your portfolio from this perspective? If it’s been a while — or never — let’s talk. Because there’s never a better time than today to ensure you are well-prepared for tomorrow.

Life is Short…so live well

“I have some bad news for you, you only have between 5–10 years left to live. The good news is that you won’t be ill, the bad news is that you‘ll have no notice of the day of your death. What will you with the time you have left”? “Would you change your life and if so, how would you do it?”

“I’d probably not work as much. I’d spend more time with my kids and I’d make sure everything is well organised so my family don’t need to worry. Oh, and I’d probably travel more too”.

I hear responses to the initially posed question a lot. But I don’t always see people take the actions that are consistent with what they are telling me.

We intuitively know life is (relatively) short and we know it’s certainly not a dress rehearsal, so why do we put off the things that are so important to us?

I think one of the answers is to do with how we perceive time. If we see someone throwing money away, we call that person crazy. This bothers us, in part, because money has value. Wasting it seems absurd. And yet we see others — and ourselves — throw away something far more valuable every day: Time.

Unlike the predictable reaction we have to someone throwing away money, we fail to think of the person who wastes time as crazy. And yet time is a truly finite, expendable resource: The amount we get is uncertain but surely limited. It’s even more insane to waste than money — we can’t make any more when it runs out!

So how can we re-centre ourselves to enable us to live better during our one and only precious life?

Questions are the answer

The question I use* (seen at the start of this post) is certainly a good start. It can help us think about our own mortality and therefore focus on what’s really important.

From my own personal experience, its better to have an objective, third party asking you the questions and getting you to think outside your natural thought processes and biases.

Last year, I hired a personal coach. What I noticed is that she didn’t tell me what to do. She just asked great questions and then asked more great questions. And then she listened, fed back what she had heard and let that sink in.

For me, this was invaluable and helped me refocus my efforts on the daily tasks that would improve my life and business over time. Not overnight, but incremental change over longer periods.

She also helped me see things from different perspectives. People who’d already achieved what I wanted to achieve. People older and wiser and even people who had a short time left to live.

Bronnie Ware is an Australian nurse who spent several years working in palliative care, caring for patients in the last 12 weeks of their lives. She recorded their dying epiphanies in a blog called Regrets of the Dying, which gathered so much attention that she put her observations into a book called The Top Five Regrets of the Dying.

Ware writes of the phenomenal clarity of vision that people gain at the end of their lives, and how we might learn from their wisdom. “When questioned about any regrets they had or anything they would do differently,” she says, “common themes surfaced again and again.”

Here are the top five regrets of the dying, as witnessed by Ware:

1. I wish I’d had the courage to live a life true to myself, not the life others expected of me.

“This was the most common regret of all. When people realise that their life is almost over and look back clearly on it, it is easy to see how many dreams have gone unfulfilled. Most people had not honoured even a half of their dreams and had to die knowing that it was due to choices they had made, or not made. Health brings a freedom very few realise, until they no longer have it.”

2. I wish I hadn’t worked so hard.

“This came from every male patient that I nursed. They missed their children’s youth and their partner’s companionship. Women also spoke of this regret, but as most were from an older generation, many of the female patients had not been breadwinners. All of the men I nursed deeply regretted spending so much of their lives on the treadmill of a work existence.

3. I wish I’d had the courage to express my feelings.

“Many people suppressed their feelings in order to keep peace with others. As a result, they settled for a mediocre existence and never became who they were truly capable of becoming. Many developed illnesses relating to the bitterness and resentment they carried as a result.”

4. I wish I had stayed in touch with my friends.

“Often they would not truly realise the full benefits of old friends until their dying weeks and it was not always possible to track them down. Many had become so caught up in their own lives that they had let golden friendships slip by over the years. There were many deep regrets about not giving friendships the time and effort that they deserved. Everyone misses their friends when they are dying.”

5. I wish that I had let myself be happier.

“This is a surprisingly common one. Many did not realise until the end that happiness is a choice. They had stayed stuck in old patterns and habits. The so-called ‘comfort’ of familiarity overflowed into their emotions, as well as their physical lives. Fear of change had them pretending to others, and to their selves, that they were content, when deep within, they longed to laugh properly and have silliness in their life again.”

By seeing life from a different perspective and realising that our time is incredibly short in the grand scheme of things, we can start to think about ways to enhance the quality of our lives by focussing on the things that really matter.

Money decisions can feel incredibly difficult too. Especially when you are making a decision about the future which is largely unknown. Our human tendency is to go for things that give immediate gratification, so when it comes to choosing to save, invest or spend now, we go for the latter.

However, when we are clear on our intentions and we have someone fighting our corner — for me it was my coach — we can increase the probability of making better long term decisions and perhaps live life more on our terms rather than what we think we should be doing.

I’ll leave you with one more question to ponder, which hopefully will help you focus on what matters most and therefore what steps you must take NOW to accomplish those things;

What’s your greatest regret so far, and what will you set out to achieve or change before you die?

*The question at the top of this post came from George Kinder. Internationally recognised as the father of the Life Planning movement, the Harvard-educated Kinder is the founder of the Kinder Institute of Life Planning.

Creating financial independence….

The dilemma for anyone looking to secure their financial future.

We all face a unique set of challenges in securing our own financial future. While we are working and our earnings are regular and possibly increasing, many of us will undoubtedly find that our outgoings and spending also increase. In short, our mortgage is larger, our car is more expensive, we go on more expensive holidays and in general spend an awful lot more on things than we did before.

Of course, everything is great while the money comes in. You may feel that you deserve to treat yourself for all the hours of hard work. But what if it all stopped tomorrow or, more importantly, what if you wanted it to stop but were afraid of losing your status? Building your career is one thing, but building your assets to create financial independence further down the line is equally important, even if you don’t think you need to right now. If you’re not creating financial independence now you could end up needing to work longer than you wanted to, or you’ll have to make some drastic lifestyle changes. It may not seem important now, but we promise you it will be and sooner than you think.

We’ve heard many stories over the years about high flyers who’ve achieved considerable success in their careers wanting to leave and change to something completely different. Some of the more savvy ones had thought ahead, making provisions along the way, so could easily leave the job they were in. Others who adopted the “work hard and play hard” mentality often found themselves having to stay in the job, continuing to work long after they wanted to. Thinking about planning your finances for your future when you’re busy is often the last thing on your mind, but it is possible to do both.

So how do you secure your financial future?

Simple: spend less than you earn!

You then capture a portion of your income and direct it to productive assets — the kind of assets that will generate capital growth over time. Rather than buying yet more stuff for the house or going out for another expensive meal every month, use your money to create real security and choice in the future.

This “throw some of it over the wall” method of consistently taking some of your earnings and putting them into a plan will help you create financial security and independence for when you need it.

This will probably make perfect sense to you and you may be forgiven for thinking that you could just take this advice and get on with it yourself. So how difficult can it be to sort your own finances?

The key point to consider here is objectivity. It is extremely hard for people to be objective about their own finances. You might not realise it but most of the decisions you have ever made about your money will have involved emotion. Which is why it’s essential to find someone who can look at your finances objectively, without emotion or bias.

The ‘Real’ Financial Adviser Solution

Being busy with our careers and our families usually means we don’t leave much time to organise our finances, so the temptation might be to turn to someone you know at work or someone in the family. These may seem like quick fixes, but to obtain real financial independence requires much more expertise than they may at first glance be able to offer. If you want to secure your financial future, you need a highly trained and unbiased professional with an approach that doesn’t only include financial aspects such as estate planning, tax planning and investments etc., but also looks at your life goals. These people are known as independent financial planners. The difference with independent financial planners is that they do not look at short-term gain, but instead will put together a custom plan for the long term. They will also help tackle any financial issues that arise on your journey to become financially independent in the future.

The ‘real’ financial planner relationship

Like any relationship, the one with your financial planner cannot be one-sided and will require input from both. A good planner will take the time to really get to know your values, interests and aspirations. This may seem a little intrusive, but if you are to allow someone to help you determine you and your family’s future then they need to build up an accurate picture of you. Although they will be helping you to determine the needs and goals for you and your family’s long-term wealth, the ultimate big decisions will still be yours. They are there to help you make the right ones without having to second-guess yourself.

You would think that finding the right financial planner would be easy; after all, aren’t they all offering pretty much the same advice? However, given that they need to get to know your values it’s crucial you find someone who matches them. Equally as important is finding someone who looks at things with a long- term perspective.

For example, going to someone who is up on how the stock markets did today is probably not the right person for you.

Working with your financial planner

When you have made your decision, the process of getting to know you can start and a good financial planner will have a tried-and-tested process which they take you through. This usually includes a series of meetings to get to know you, establish your long-term goals and put a plan in place to achieve what’s most important to you. The process might look a bit like this;

Getting-to-know-you meeting — gathering facts, discovering your current situation, defining your investment goals

Your Financial Roadmap meeting — presenting your personalised financial plan

Agreement meeting — agreeing the investment plan, formalising a working agreement

Follow-up meeting — reviewing paperwork and progress

Regular progress meetings — initial 3-month review of progress of wealth management plan and then every 6–12 months thereafter

1. Getting-to-know-you meeting

During the initial meeting the wealth advisor will take time to gather as much information from you as possible. As stated, as well as finding out all the facts about your finances, a good financial planner will also put together a picture of where you are now financially and help you establish where you want to be in the future. By getting to know you and developing a relationship they are better placed to help you achieve your goals. Here are some of the things they will cover:

About you

· Values and goals

· Family and relationships

· Current assets and investments

· What time-sensitive plans do you have/want

· Rate of return goals

· Any relevant contacts, e.g. solicitor, accountant etc.

About your financial planner

· How your financial planner works

· The stages involved

· Understanding risk

2. Investment Plan Meeting

Prior to presenting the investment plan your financial planner will need to gather all the information together, conduct the necessary research on your behalf and prepare an analysis of your finances. This is then used to put together a plan with realistic recommendations that will meet your long-term objectives. During the meeting, the plan will then be presented and together you can discuss each area of recommendation. You will then be given time to review the proposed plan, so you can make sure this is right for you.

3. Mutual Commitment Meeting

Once you have had a chance to look over the plan and make a decision on whether or not you want to continue, then a further meeting will be held to confirm you are happy to move forward. The main purpose is effectively to formalise the relationship so that your financial planner and their team can make the first steps towards implementing the investment plan.

4. Follow-up Meeting

Shortly after implementation, your financial planner will arrange a further meeting to go over all the paperwork and should also organise this into a physical folder or digitally based document vault for you. Here, you will also be able to ask any questions that may have arisen from the last meeting.

5. Regular Progress Meetings

Around 3 months into the process, it’s then time to meet up again and review progress. This initial meeting will focus on making sure all the paperwork is in order as well as discussing progress towards the investment plan. From here on in, the progress meetings will then move to either twice a year or once a year.

Let Your Financial Planner be Your Pilot

Although it can seem slightly disconcerting to leave your financial planner alone to get on with the job in hand, it’s important you allow them to do their job. This can sometimes be hard as it’s all too easy to be worried about what’s happening in the stock market and not be tempted to respond. However, a long-term investment programme is all about having a defined and disciplined plan so it’s important not to react with emotion and instead allow your financial planner to guide you through. In this sense they can act more like a financial coach to prevent you from second-guessing your investment plan and keep you focused on your long-term objectives. By letting them be your pilot, instead of trying to steer this yourself, you’ll spend less time and energy worrying about your plan and more time to relax with those closest to you.

About Kevin Wood

Kevin Wood is a director and financial planner at Oak Four Limited, a values based financial planning company in the UK. He entered financial services at a relatively young age and has spent considerable time over the years researching tools and strategies that work for his clients. Importantly, along the way he’s also discovered what doesn’t work.

Many of his clients share a common thread in that, although they were fairly well versed in their own finances, they couldn’t seem to achieve what they wanted under their own steam. Put simply, they found that when they tried looking into things for themselves it took longer than anticipated or required a deeper analysis than they were equipped for. Most people will also miss opportunities to make or save money due to the complexity surrounding the financial services arena.

Kevin gets to know his clients and their situation thoroughly, so he can help them put together the right plan for them. He also identifies the specific knowledge required to achieve their goals and provides the necessary resources to facilitate their decisions. He has a Diploma in Financial Planning and is continually striving towards further academic achievements that will enhance his expertise. When not helping clients, he enjoys spending time with his wife and three boys, reading about psychology and keeping fit.

Image credit to Carl Richards @behaviorgap

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