Making an investment plan
Planning to plan

The great John Lennon once asked “how can I go forward when I don’t know which way I’m facing” Investors should also be asking themselves this question as well.

Once upon a time, a husband and wife came to my office. They carried with them a large folder which was filled with papers and assorted documents.

After the perfunctory pleasantries, standard for a new client/adviser meeting, they embarked on a particularly detailed description of their financial position.  As I recall, it went something like this.

They had, in addition to owning their home, three investment properties, all of which were negatively geared. A share portfolio comprising various Government floats as well as selections from the mining, banking, and retail sectors. A varied array of cash investments, some in term deposits and the rest at call.

They had four superannuation funds with the possibility of another two, presuming they could find the paperwork.  

And finally, just for good measure, they also produced a spread sheet of their salaries, three years of group certificates and a complete list of their insurance policies. 

So, after listening patiently for what seemed like an eternity, my prospective clients finally arrived at the crux of the meeting, and asked

 “We just want to know if we are doing the right thing.”   

Now, I must say their question was quite a common one, as I was often asked for consideration of someone’s financial situation. But this time it was being asked by a couple who obviously had the ability to amass a formidable asset base.

Yet here they were, asking me if they were doing the right thing? Amazingly (well to me anyway) they didn’t have the slightest inkling of why they were investing? It was obvious they hadn’t prepared any investment goals whatsoever.

Was their effort for retirement? Was it for the purpose of creating a supplement to their work income? Or maybe even to create a financial base for the next generation of their family. None of these it would seem, as they were obviously leaving it up to me to be the judge of their success.

Make a plan before investing
Some financial advice – Plan

Now to be fair, further questioning did reveal their intentions to retire in 5 years and these investments were obviously to allow that to occur. However with a goal of early retirement, their assets had been woefully selected for that purpose.

Their investment properties still required mortgage payments for the next 10 years rather than their 5-year retirement horizon. How were these to be funded? Additionally, they held a share portfolio that was a ‘hotchpotch’ of companies, some of which didn’t pay dividends, and which spanned the complete spectrum of investment risk.

It seemed that none of their investment choices were even selected with retirement as the purpose. Rather, they had just latched onto investment opportunities, thinking they were building an asset base suitable for providing retirement income.

Of course these people were in my office to seek advice, but unfortunately, they were seeking it far too late. The ‘horse had bolted’ in their case and they needed to either rearrange their current affairs or live with the outcomes.

And the mistake they made quite simply was not having a plan to guide their investment decision making. It is important to remember that investing is a strategy rather than a goal. It is used to achieve a predetermined outcome. If there is no desired outcome for the investment then there is no point in going through all the rigmarole and risks associated with doing it.

So rule number one, when you embark on your investment program; always start with a plan. If you need some ideas, take a look here

Thanks for reading, I look forward to seeing you again. Homepage

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