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Invest in Planning First

By Iain Wishart of Wishart Wealth Management

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WE'RE not all as lucky as Nigel Page and Justine Laycock, who won £56 million on the Euromillions lottery last week. They trumped Les Scadding, who won a mere £45.5m in November last year, making him the UK's then biggest lottery winner. At the time, various financial institutions and fund managers were asked by the media what lucky Les should do with such a sum.

Five of the six respondents went into great detail regarding what funds and shares they would pick. Some even mentioned "asset allocation" and "getting the balance right though diversification.

Only one correspondent, Justin Urquhart Stewart of Seven Investment Management, mirrored my own thoughts, which were: "Don't plan to invest, invest in planning."

A good place to start would be to ask the investor:

  • How much of the £45.5 million do you actually need?
  • What are your dreams, goals and ambitions?
  • Have you thought about the life you want to live now and in the future?
  • What do you like to spend your money on?

Only after careful analysis of these lifestyle areas should any financial planning/advice be delivered and, lastly, investment take place. A common management phrase is "start with the end in mind" and with financial planning, it is certainly logical.

Few of us will ever have such a sum to invest, but there is an important lesson regarding the real truth about money for all of us here – no matter how much we have to invest.

By answering the lifestyle questions first, it is then easier to piece together the route map of your future to determine (among other things) what your current investments, pension and protection plans need look like. Financial planning, therefore, can be seen as a process in which we start with describing in as much detail as possible what we want to achieve.

Many sellers of financial products are happy to sell a fund to you without asking the most important questions first. This approach can lead to clients ending up in inappropriate investments, often taking on too much or not enough risk to realise their goals.

Before making any investment, we recommend that firstly these basic financial planning principles should be followed:

  • Clear debts – they erode wealth. Start with expensive debt first.
  • Manage risks – Make provision for death and disability. Protect, then invest.
  • Be tax efficient – use allowances first.
  • Decide on a funding strategy – and make it a habit.
  • Decide how much investment risk is appropriate – too much or too little render goals futile.
  • Review – goals will go off-course if financial plans are not regularly reviewed.

Not all financial advisers have the necessary skills to be able to carry out true financial planning. A good place to start is with an Institute of Financial Planning - Certified Financial Planner CM (CFPCM).

You should ensure they offer lifestyle financial planning to include full professional cashflow modelling preferably using specialist software such as Truth or Voyant.

Alternatively, you could buy this week's winning fund, or you may be better sticking six numbers on this week's lottery and crossing your fingers.

  • Last Updated: 19 February 2010 8:58 PM
  • Source: The Scotsman
  • Location: Edinburgh
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