Get the ball rolling on your investment goals
In their 1996 book The Millionaire Next Door, Thomas Stanley and William Danko outline seven characteristics of truly wealthy people.
Surprisingly, those characteristics aren't things like "inherited wealth, have a six-figure salary or are great investors. Instead, many of them focus on developing better money habits that contribute to a financially sound lifestyle.
But good habits are hard to stick with – it takes a great deal of discipline, motivation, and self-control to develop and follow through with them. Involving a financial adviser through regular meetings to discuss your financial goals and progress can also be a big help.
If you're new to investing or want a second opinion, an independent financial adviser can be an excellent resource for getting you on the right track to your goals.
Once you have a date and time booked to discuss your investment goals, you've taken that important first step. Suppose you're ready to get started right away, great. If not, consider your meeting as an opportunity to explore your options and ask questions.
Be prepared. Sit down for a few minutes before your appointment to think about your investment goals and needs, and review your overall financial health.
But when it comes to investing, a bit of sound advice is spread your money around – that is, diversify your investments. Diversification protects you from losing all your assets in a market swoon. The sharp movements in the market in 2020 are proof that putting all your eggs in one basket is a risky strategy.
But to diversify appropriately, one needs to know what kind of investments to buy, how much money to put into each one, and how to diversify within a particular investment category. For example, investments in each of the below categories behave differently.
Stocks help your portfolio grow
Globally diversified asset class funds provide growth and help maintain buying power in an increasingly globalised world
Bonds bring in income
Brick and mortar like rental properties provide a hedge against inflation and may rise when stocks fall
Cash gives you and your portfolio security and stability
Risk profiling in financial planning aims to not only determine the financial risk you can take but also to determine key factors like:
What are you hoping to achieve with your investments?
Are you saving towards a particular goal, for example, funding your retirement, or aiming to build wealth?
What risk is required for you to reach your investment goals in the desired time frame?
Personal finances have many layers to them, and it can be hard for you to make financial decisions when there are so many options out there. But having a financial plan will help you find clear actions to take to put you in the best possible financial position. And when a trusted adviser spells out what things need to be done, it is much easier to act confidently.
Financial planning may sound formal and serious, but in fact, it doesn't have to be complicated, and the real benefit comes from simply sitting down and doing it. Be it reviewing your Kiwisaver or your Trust's asset management under the new Trusts Act 2019 which comes into force on 30 January 2021. A financial adviser's job is to keep the plan simple, cost-effective and consistent.
Bruce Jenks is an Authorised Financial Advisers at Stewart Group, a Hawke's Bay-based CEFEX certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver solutions.
The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from an Authorised Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
