‘Get rich quick’ as a description of the promise of fast financial gains dates back more than 130 years according to the Oxford English Dictionary. Slightly more recent is the century-old Ponzi scheme, peddled for its supposed high rate of return based on a so-called low-risk investment.

Similar schemes have been doing the rounds for generations. It’s easy to see why impatient investors might buy into the idea of sowing financial seeds that could rapidly reap big rewards.

Our younger clients in particular often take a short-term view. This is understandable in the context of retirement seeming so far away; a general lack of financial education; a boom in cryptocurrency attracting this audience by delivering substantial, albeit volatile, returns; and the need to access capital quickly when it’s harder than ever to get on the property ladder.

But if something looks too good to be true that’s probably because it isn’t. Getting advice from a wealth management expert who will align a long-term financial plan to your personal goals is vital. And experts will almost always tell you that slow and steady wins the race.

If advice is inaccessible, then building financial literacy skills – a key mission for ADL Estate Planning – will help the younger generation manage their finances more effectively.

Take some time to spread your risk

In most of our conversations with clients it’s clear they’ve grasped the volatility and potentially big losses associated with a short-term wealth management strategy. The greater the potential reward, the higher the risk associated with the investment. An expectation of rapid gain should always be balanced with acceptance of possible quick decline.

On the flip side, there’s a widespread understanding that when wealth is nurtured carefully and steadily over a longer period of time, the returns are worth waiting for.

We always start by seeking to understand the client’s unique goals. If that includes a desire to get rich quick we’ll educate them on what good investing looks like. It may seem more boring! But it will protect them against the unpredictable rollercoaster ride of short-term investments.

First and foremost, our advice to clients is to make a plan that will probably run for several decades; throughout their career, during their retirement, and for future generations, covering many life events. It might mean making a mental leap to identify their future needs but taking a focus on the end goals, then working backwards, to ensure their finances will perform well over time. This also helps us predict the level of potential gains and map out when the funds will become available to use.

Investment choices and cashflow models

The other key ingredient of taking the long-term view is sensible investment – and that involves closely considering how to spread risk. Whereas a get rich quick scheme might focus fully on a single investment opportunity, which could go badly wrong and lead to heavy losses, long-term wealth management is underpinned by diversification.

By that, we mean a financial plan that allocates the individual’s funds into a global portfolio, spanning a range of sectors, geographies and asset classes. Unlike investing in a single stock or instrument, if one element of the diversified portfolio came under pressure losses would be minimised – rather than the entire investment being wiped out in one go.

There are plenty of tax wrappers allowing someone to hold a variety of investment funds on the market, which provide an opportunity to gain a steady stream of income over time:

  • ISAs
  • Pension (55-plus)
  • Investment bonds
  • General investment accounts

Cashflow planning with a wealth management expert can identify the best way to invest in some or all of these types of tax wrappers. The underlying investment can be predominantly equities; or fixed income; or a mix of both. It largely depends on the individual’s attitude to risk and when they intend to withdraw funds.

Staying focused on your future finances

Most importantly, we pay close attention to the potential size of the person’s pot when they die. While that might sound morbid it’s fundamental to successful financial planning.

In building cashflow models we assume someone will die aged 100 (currently 12 years higher than average life expectancy). We also factor in 5%pa growth on investments, 2%pa interest rates and 2.5%pa inflation for the purposes of modelling. This helps to identify whether the person would run out of money and exhaust all liquid assets before hitting 100, or die with assets remaining.

Ideally, when someone dies they’ll leave a legacy. Of course, this brings inheritance tax considerations into the equation; but the client’s needs are the first priority and tax planning can follow.

Just as a keen gardener would plant seeds and wait patiently for them to flourish, the investor can stand back and see their long-term wealth management plan begin to reap rewards.

We stay in regular contact with clients and suggest holding annual or regular reviews to ensure the strategy remains sustainable in the long term. This is vital, as personal needs and goals always change over time – so the plan should have some flexibility too.

The review includes a brief overview of current market trends and the investment’s performance. But the fact is, we have no control over short-term market forces. That’s why fixing your eyes on the horizon remains the best way to create a secure financial future.

To discuss your wealth management needs and long-term financial planning book a free e-consultation today.

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