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Ten steps for successful investment planning

by
01 September 2015, at 1:00am

DYLAN JENKINS presents a number of commonsense but often overlooked tips to keep a sensible savings plan on track, which especially in view of impending retirement should be adhered to

HOW to maximise investment success is a much-debated topic. There are countless “how to” books and financial blogs offering different insights and magic recipes for success. As a result, I find many people suffer from information overload and decide to abandon even starting the process.

In this article I provide my 10 key tips on how to maximise success when investing. These are simple, time-tested pointers that, if adhered to, will maximise your potential to succeed – although obviously nothing can ever be guaranteed. They are predominantly geared towards long-term saving for one’s retirement but could equally well apply to any clearly-defined investment objective.

1. Have a plan

Nobody plans to fail, but plenty of people fail to plan. While this is a much used cliché, unfortunately it is true! Planning is crucial to having a successful outcome to any given situation. Footballers don’t win the Premiership just by turning up – they put in months and months of preparation and the planning that goes into the execution of the winning club’s strategy demonstrates the importance of having a plan.

2. Don’t delay. Start today

If you don’t save, you’ll never reach your goal. It sounds obvious, but some people would rather spend than save. If your employer gives you the opportunity to become a member of a pension scheme, enrolling in the plan is a great way to put your savings on autopilot. Simply sign up for the plan and contributions will be automatically deducted from your payroll, increasing your savings and decreasing your immediate tax liability.

If your employer offers to match your contributions up to a certain percentage then, assuming it is affordable, be sure to contribute enough to get the full match. Finding the cash to stash may be a challenge, particularly when you’re young, but don’t let that stop you from pursuing future riches.

3. Get real...returns

Studies have shown that the majority of the returns generated by an investment are dictated by the asset allocation decision.

If you are looking to grow your wealth over time, simply investing in low risk bonds isn’t likely to get the job done and inflation can take a big chunk out of your savings.

Investing in equities entails more risk, but is also statistically likely to lead to greater returns. For many of us, it’s a risk we have to take if we want to see our wealth grow; especially if it forms part of a long-term savings objective.

Asset allocation strategies can help you learn how to make picking the right mix of assets the core of your investment strategy. It is important that you seek independent financial advice before making any investment choices and an independent financial adviser (IFA) is ideally placed to help you make these decisions.

4. Prepare for rainy days

Part of long-term planning involves accepting the idea that setbacks will occur – anything from falls in the stock market to unexpected bills. If you are not prepared, these setbacks can put a stop to your savings efforts. While you can’t avoid all the bumps in the road, you can prepare in advance to mitigate the damage they can do.

5. Save more, save often

Generally your income should rise as time passes. You might change jobs and hopefully you will achieve pay rises – you could get married and become a two-income family.

Every time more cash comes into your pocket, you should increase the amount you save. The key to reaching your goal as quickly as possible is to save as much as you can. The more money that goes into your pension fund, the more comfortable your retirement years will be.

6. Watch your spending

Children, holidays, cars and all life’s other expenses take a big chunk out of your salary. To maximise your savings you need to minimise your spending. Put aside the temptation to buy that new sound system you have had your eye on!

Buying a home you can afford and living a lifestyle that is within your means and not funded by credit cards are necessities if you want to boost your retirement savings.

7. Monitor your portfolio

There’s no need to obsess over every movement in the stock markets. Instead, check your retirement fund regularly and make a point of putting time in your diary to meet with your IFA to have this discussion. It might be the case that you have to rebalance the assets in your portfolio to keep your plan on track and your IFA can help you with this assessment.

8. Maximise your contributions

You may find, as you get older, that your outgoings decrease and your incomings increase, so the amount that you can contribute to a pension plan increases. Take advantage of this opportunity and make sure you maximise the amount you are putting into your plan. Remember: a pension is one of the most tax-effective ways of saving, so don’t let this chance to save pass you by.

9. Review, review, review

The closer you get to retirement the more important it will be to see if your retirement plan is still on track. This may necessitate meeting with your adviser on a more regular basis, maybe every three or six months. When you are so close to retiring it does not make sense to neglect what will probably be your most important asset after your home.

10. Have patience and stick to the plan

“Get-rich quick” schemes are usually just that – schemes! The magical power of compounding takes time, so invest early, invest often and accept that the road to riches is often long and slow.

With that in mind, the sooner you get started, the better your odds of achieving your goals. As the noted philosopher Jean-Jacques Rousseau once said, “Patience is bitter, but its fruit is sweet.”

While these 10 steps can serve as a useful guide to help you plan for your retirement, it is important that you always seek independent financial advice when looking at your retirement planning needs.