Do you know your financial net worth? This is a question that we put to our clients before a financial review – and often it is not that easily answered. It can mean resorting to filing cabinets or kitchen drawers to dust-off old pension polices, cash deposit statements, loan, insurance and investment documents.
So what might you be unearthing and how can they help to build the bigger picture?
- Old investments and share certificates – you may be unsure of their value or you may be in receipt of dividend cheques which you never get around to lodging in the bank. Often these investments can be incorporated into a diversified portfolio, where dividend income can be paid directly and where you can view the value of your investments online on a daily basis.
- A number of pension policies and/or deferred pensions – again you may not be sure of their current value, or how to manage them efficiently. Having the full picture of your retirement assets makes it easier to consider and review the size of the annual pension contributions you should be making, along with the optimum retirement age for which you should be planning. It will help to maximise any tax-free lump sums and the most suitable investment strategies to meet your retirement goals.
- Cash deposits – you may have surplus cash deposits earning zero or negative interest rates. With such low returns on cash deposits, there are many alternative investment strategies for surplus deposits.
- Investment Funds – often a client may not know which asset classes their fund has invested in or in some cases the risk associated with the investment. You may have invested in an old SSIA but not yet encashed, you may have an old policy with a life and pensions company, or a pension policy that you don’t monitor. It could be the case that the investment risk of the funds may not match your particular risk profile, or that the investment itself may be performing poorly.
You may also be dreaming of taking a big trip or planning to help your children buy a house. With a financial review, it is often these opportunities which become evident. Getting the balance right between how much to spend and invest can be difficult. You may be actively enjoying early stage retirement but cautious of spending too much. It’s important to consider how much income you need in retirement to support and maintain your lifestyle and then to find the balance of fulfilling your aspirations without the fear of running out of money or leaving too much behind.
So How Does a Financial Review Work?
We start by getting a firm handle on your short and long-term goals, your needs and wants versus your dreams and wishes. We review your existing assets and liabilities with you. You may have multiple goals with different time horizons attached.
Establishing your attitude to risk, capacity for loss, and investment time horizon, allows us to design the most appropriate investment strategy for you. It is not uncommon to manage more than one investment strategy based on your short & long-term goals. Think of it as bucket investing, separating your investments into short, medium & long-term strategies. Bucket 1 might be to fund a short-term goal such as college fund or house deposit for children, Bucket 2 might be to fund retirement, Bucket 3 might be aspirational or to pass on wealth to children etc. Each bucket will have its own risk profile, time horizon and investment strategy.
You will also need to consider when you may need to access your funds. Generally, the longer your money remains invested the greater the potential for growth as market trends and fluctuations tend to smooth out over time. Investing for short term gains can be risky. Easy access to your investments is an important consideration when deciding the most suitable option to meet your objectives. By establishing the time horizon for your investment, you can potentially avoid the panic that comes with short term market fluctuations and volatility.
Why Consider A Financial Review?
Like many individuals, reviewing our finances is something many of us put on the long finger. We often deal with our finances on a reactive basis; when a policy expires, when there is a downturn in financial markets, when we need funds for an emergency or milestone event.
A financial review helps you to be proactive about your finances by setting goals and planning for the various stages of your life. It is not exclusive to high net worth clients or clients close to retirement, it is relevant throughout your working life. Financial goals can change due to illness, or during periods of economic uncertainty and volatility for example. Your finances should be reviewed regularly to ensure you are on the path to achieving your goals and to adjust any investment strategies where needed.
Carmel Dowd is Financial Planning Consultant with Cantor Fitzgerald and forms part of the Discretionary management team.
To speak with a Portfolio Manager or Account Executive, please phone the Cantor Fitzgerald dealing desk on 01 633 3633.