The tail end of Hurricane Gonzalo hit the UK yesterday. Images of people holding onto their hats as rain and high winds battered the coast lines filled our screens. There was travel disruption for thousands of commuters and worse for one or two unfortunate individuals
Few people enjoy extremes. Highs and lows disrupt the rhythm of everyday life and shake our security. It makes some people worry, change plans or even make decisions they later regret.
When it comes to financial planning, the fears of highs and lows are why many are fearful of investing and often leave their savings held in cash. Cash savings struggle to match inflation, but for some the security of having nothing, is better than the prospect of having to weather the storm of stock market fluctuations.
Just as Hurricanes are categorised in terms of their strength, risk and severity, so too are investments.
You can choose to take a cautious, low risk approach to investing your money, with the aim to provide a better return than cash saving. Or, you can take a very high risk based approach, with the aim of producing much higher returns. The point is that if a hurricane were to hit the world of stock markets, you should only ever be invested up to the point where you could comfortably sit and enjoy the rain.
Financial planning focuses on your goals and dreams. What level of exposure to risk will get you there? Often, clients are prepared to take more risk than they actually need to reach their goals. On other occasions they might need to look at other ideas to help them achieve their goals and dreams with an acceptable level of risk. For example, I often get asked, “when can I retire and know I won’t run out of money?” Retirement planning in this way let’s us look at other options such as saving more now, spending less, retiring a year or two later if necessary or reducing work in stages rather than simply walking away one day.
Good financial planning is all about helping you achieve a fulfilled life whilst being prepared for the unexpected. To be saving for the future, to not take unnecessary risk and have made decisions that are considered, balanced and appropriate.
