For the last four or five decades, as long as Don has been around ;) the world of financial advice has revolved around investors taking a quiz, which results in a letter or number score, which then places the investor in a pre-determined box holding an inflexible portfolio that is very likely not suitable for the investor.
In our opinion, most of the time investors aren’t even put in the right box, and the end result is a portfolio of investments that have no chance of meeting any kind of goal for the future… if it has even been established.
note: “i want to retire one day” is not an actual goal, it is a statement.
While the quiz is generally mandatory, it is a fully out of context and mostly useless exercise.
We must first generate a realistic and achievable goal, then create a plan to ensure we can reach that goal.
once we have an understanding that goal requires multiple steps, we will have a good idea what is suitable and can then define how much risk is required to achieve that goal.
Understanding suitability is important, but so is understanding how much risk someone is willing to take to achieve their goals, and if that risk affects their timelines.
Here are the main pre-requisites for a successful goal oriented financial plan:
A holistic wealth, health and financial assessment: A suitability quiz, otherwise known as a ‘Know Your Client’ form (KYC) is a single component to understanding what an individual is made of. A deep and comprehensive dive into an individuals entire financial envelope is necessary in order to ascertain any steps visible in the short and medium term to achieve success in the future towards long term goals:
Items Required:Investments in liquid and non-liquid assets v. all liabilities
Life Insurance and Health Insurance needs
Tax shelter ability
Work experience, income and career trajectory
Family life
Hopes, wishes, dreams
Time Horizons: Once we have a relatively complete and filled in picture of who you are today, we can then begin to define what your long term goals ought to be, and would send you home with some homework.
The two conversations:
Step one:
We generally suggest an individual or couple sit down (90% of the time we are talking to couples) very soon after meeting to discuss financial planning for the first time, and have a frank and real discussion about where they are now, where they want to be and how they best think they can get there. Write everything down, no matter how minute, everything is important.
Step 2:
If you are so inclined, have a sip or two (or not) and brainstorm your hopes and dreams. No matter how wild they are, no matter how expensive or bizarre: WRITE THEM DOWN. From this we can begin to build a narrative. Click here to see what Darris wrote when he did this exercise for himself.Set a long term goal and begin navigation towards that goal: Now comes the hard part. Writing down your goals, your future hopes, and committing to a flexible program that can and ought to help you reach your target(s).
participate: Once you have a plan in place, participation is among the best keys to success. A proper portfolio of investments and insurance products are not going to function properly if they are left to collect dust. Think of these instruments as closed environment machines: they work great with a little love and care, but if you neglect them they are incredibly expensive to fix.
Lastly; no one should care more about your goals, hopes and dreams than you, show “future you” some love, you will eventually be happy you did.