By Nirdev Desai
As we approach the end of the current year and move into the next, many are reflecting on their achievements of the past 12 months and considering making new year’s resolutions to become even better versions of themselves in the year ahead. With the end of the tax year also just around the corner in February 2024, it is fitting to look at some practical tips that can help ensure that your financial goals come to fruition.
While it is always wise to take advantage of the tax benefits of a retirement annuity or a tax-free savings account before the end of the tax year, I’d like to focus on what else investors should be thinking of to ensure they derive the maximum benefits from investing in these products to ensure they are well placed to achieve their financial outcomes.
Current market conditions make even a seasoned investor nervous
In times when markets are volatile, it is natural to feel nervous, but with the right support and knowledge, you can navigate these investment environments successfully. Indeed, the adage that says that there is opportunity in adversity is abundantly true for investing, and the best way to ensure that you benefit from the markets is by investing for the appropriate amount of time, which invariably means you need to be prepared to encounter some market uncertainty on your investment journey. Investing for shorter periods is guaranteed to result in investors not realising the consistent, reliable returns they require. Even Warren Buffett, arguably the most respected investor alive today, acknowledges this.
Warren Buffett bought his first stocks at the age of 11, which he sold soon after they turned a profit. To this day, he regrets that decision, however, as they became a much more profitable investment later on. The experience did, however, teach him the critical lesson of patience. To give yourself the best chance of achieving your desired financial outcomes, you need to ensure your investment strategy is based on patience. Take the time to understand the minimum time frames required for various asset classes, make sure that your financial plans take appropriate advantage of each asset class’s characteristics, and have a strategy in place to manage your emotions as markets do what they frequently do in the short term – behave irrationally.
Start with the end in mind
The best way to apply sufficient patience is to start with your end objectives in mind. Establish your goals and the time frames over which you intend for these goals to play out. A good financial plan will include addressing a series of cash flows required at critical points, either as lump sums or regular withdrawals for each of these goals. Each of these terminal cash requirements becomes the time frame that allows investors to plan the appropriate exposure to growth assets and have the luxury of taking on the required patience to learn from Warren Buffett’s first investing mistake described above.
Revisit your retirement plan as needs and goals change
Life does not happen in a linear fashion, and circumstances change, which affects even the best laid plans. Making sure your financial plan is robust and resilient enough to achieve your goals while incorporating enough flexibility to cater for unplanned events, like emergency expenses, is key. For instance, most couples don’t plan on divorcing, yet many marriages do, unfortunately, end in divorce. Similarly, most people don’t expect to get retrenched, but in markets with threats of recession, this is a real possibility for many. Engaging with your financial planner regularly is critical to ensure that you are still focused on your plan and addressing the appropriate goals for the situation you find yourself in.
Speak to an adviser
A professional financial adviser will guide you in identifying gaps in your investment plans and formulating strategies on how to address them. They are also there to coach and guide you through the journey of achieving the benefits of a well-developed and executed financial plan. The best time to have started was yesterday, and the second-best time is today. Carpe diem!
* Desai is the head of sales at PSG Wealth.
PERSONAL FINANCE