"K.I.S.S" - Keep It Simple, Stupid. If only: the language of financial advice seems perpetually caught in a fog of obfuscation, double meanings and jargon.
Why though? It does NOT have to be this way. Solid financial planning is NOT rocket science. Rocket science is rocket science, as this clip demonstrates.
So I am all for anything that encourages a simpler approach, viz the report the Cass Business School has just published damning the vast majority of investment fund managers.
For investors, the take-out from the Cass report is to remember to “K.I.S.S.”, to keep it simple.
Unfortunately, many people and institutions in financial services seem keen to perpetuate the myth that dispensing financial advice is akin to rocket science.
This, dear reader, is complete and utter horrocks.
Proper financial planning has four simple constituents.
1) Have A Plan
Think about what you want from your life. Then have an educated guess at what this lifestyle will cost, for the rest of your days. Finally, work out how you are going to fund this (petrifyingly enormous) amount. In other words, work out your “Number”.
2) Stick To Plain Vanilla
Boring, mainstream financial products: for most people, that is all they need to use to achieve their life goals. Think ISAs, collective funds, personal pensions. Really, that is probably all you need. If you speak to an adviser who blinds you with rocket science about some "can't fail" product or investment, remember what Mr Einstein said: "If you can't explain it simply, you don't understand it well enough."
And, for my sake, punch such an adviser on the nose: When these "can't fail" products do fail, it is Muggins here who picks up the bill.
As the Cass research shows, there is little to gain from trying to identify the next star manager. But there is lots to lose, in terms of cost, missing market gains, poor stock decisions and so forth. Make sure your adviser has a stated, methodological investment philosophy. And make sure your adviser invests his money where he wants you to stick yours.
4) Stick To The Plan
This is the toughie. A place where emotions enter stage left and reason scarpers stage right. Where there will always be reasons to save less, to spend more: you needed that gadget, this holiday, those Global kitchen knives (highly recommend these beauties, BTW).
As well, there will be nasty periods when your investments plummet in value - guaranteed. You will wobble, maybe lose your resolve and consider scrapping your plan, vowing never to enter “the markets” again.
You need to “Stick To The Plan” when all about you are losing theirs, to butcher the metaphor. Constantly review your plan. Hone it: The plan must remain relevant to your life, your experiences, your desires, your goals.
