One of my clients is a retired Surgeon and we’ve been working together since 2005.
I’ve been by his side through the financial crisis, Brexit, the pandemic and now we’re facing new challenges thanks to the energy crisis, war in Ukraine and rising cost of living.
Despite several economic, political and social challenges, my client has managed to build a considerable amount of wealth over the last 17 years.
This wealth has provided them with freedom and flexibility.
He’s enjoying a comfortable retirement, although he still does some work. And he’s able to support his family in ways many parents could only dream off.
He’s on track to achieving all the lifelong goals he set out when we began working together.
Just one thing stands in his way. The constant desire to chase the next big thing.
The fear of missing out
My client has always had an active interest in finance and alongside working with me, he runs his own separate trading portfolio.
Some of the short-term investments he’s made have performed well.
Others have resulted in losses. Some complete losses.
At one stage, he fell victim to a scam and lost a moderate amount of money.
Meanwhile, ticking over quietly in the background, has been the ISA that I have managed.
Using low-cost tracker funds, his annualised ISA return has been around 7% each year. That’s after all the fees.
On the face of it, the ISA might seem uninspiring.
You won’t become a millionaire overnight thanks to a stocks and shares ISA. But a tax free millionaire he is.
And when you read success stories from Tesla millionaires, who bought shares for $25 each in 2013, you might think to yourself: ‘What if I can find the next big thing?’ Maybe that’s my shortcut?
Stellar investments look obvious in hindsight. But in reality, you’re looking at a series of Euromillions tickets. And you only have a 1 in 139,838,160 chance of winning the top Euro lottery prize. Life looks very simple with hindsight.
Weighing up the risks versus reward
It may not sound like it, but I understand where people are coming from when they start looking into opportunities that excite them. It’s my job to listen to their reasons and try to encourage them think rationally. And I always approach each investment idea with an open mind and apply the metrics I have learned professionally and, even more useful, the 18 years of lived investment experience.
It’s about thinking with your head, rather than your heart.
For example, with this particular client, we’ve recently been discussing a Venture Capital Trusts (VCT) investment that’ll save inheritance tax (IHT). This is one of the more credible ideas.
While this type of investment can bring tax breaks to those with a new UK-based start-up, there are risks involved. You’ve got to weigh up the benefit of saving 40% tax with the possibility that there may be capital losses. Big ones.
A safer and more straightforward way to save IHT might be to give money to children and grandchildren.
If you do this and live a further seven years, those gifts won’t be factored into your estate when you die.
Are you snoozing? Successful investing and tax planning is not exciting. But it works. Keep it simple.
There’s always someone waiting in the wings to sell you something
It can be hard to escape all the articles, social media posts and podcasts promoting cryptocurrency and NFTs.
With everyone from reality TV stars to Elon Musk promoting these mysterious new investment opportunities, it’s easy to be swayed.
For thousands of years, people have tried to sell things to one another. The worst part is that buying the thing doesn’t make the pressure go away. There’s always a fresher, more exciting version around the corner.
It doesn’t just apply to finance:
"Thanks for booking your flight with us. Would you like to skip the queues, increase your leg room, or add champagne?"
"Here's your new car. I'll be back in three years to sell you a new one."
If you’re financially comfortable, it can be tempting to say ‘yes’ to everything. After all, you can afford it, right?
The problem is, you can end up spending money on things that don’t really matter to you and forgetting the reason you’re working with a financial planner in the first place…
Sticking to the plan
One of the first things I do with a new client is create a thorough financial plan for the future. That’s what our WealthMap service is all about.
With my Surgeon client, the plan was to achieve a fair return for a given level of risk. He wanted me to help him make his hard-earned income grow at a greater rate than inflation. He told me he wanted to live a happy life and care for those around him.
Do cryptocurrencies and NFTs fall in line with this plan? I’m not so sure.
And if people are really honest with themselves, for all the new-age hype, cryptocurrency was never about helping the world’s poor. It was about making people richer than they already were. Be honest, if that’s the goal.
That’s why I like to remind my client: “This is working. It continues to work. It's been working for decades now. Let’s resist the temptation to change it in some way because it's in our nature to tinker. If it aint broke…"
This is counterintuitive to most other walks of life. This desire to meddle, to tweak, and see if you can improve the status quo is admired. Every sportsperson is looking for the extra 1%. Every good business owner wants to try to do things differently – they look for innovation, alternatives that will deliver better efficiency. But with investing, this approach goes against the grain.
With investing, those shiny new offerings that promise a brighter future won’t get you very far. It doesn’t apply to this domain.
When you look at a 17-year-old portfolio, hopefully, it’s easy to see the benefits of sticking with tried, tested – and somewhat boring – long-term investment plan.
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