Most people know by now that they ought to be investing. It’s been drummed into them from all sides for years, so that bit has sunk in. The part that’s still fuzzy for a lot of people is what a decent investment plan actually looks like, compared with just holding a couple of funds and crossing their fingers.
Having investments and having a proper plan for them are two very different things. Sorting the first one is pretty easy. The second means sitting down and being straight with yourself about how long you’ve got, how much risk you can stomach, where you stand on tax and what you actually want the money to do for you. That’s usually the point where people lose interest and just leave everything sat in whatever default fund their workplace pension picked for them.
The Bit People Usually Avoid
Risk gets misunderstood all the time in personal finance. It isn’t hard to get your head round, but nobody wants to think about it until they’re forced to. Hearing that your portfolio has dropped 20% in three months feels nothing like being asked how you’d cope if it happened one day. When markets are calm, people tend to think they can handle loads of risk, and then when things get choppy they find out they can’t handle anywhere near as much as they thought.
A good plan makes you have that awkward chat at the start. You work out, before anything goes wrong, how much up and down you can live with without panicking and selling the lot, like plenty of people did in February 2020. Lots of them then missed nearly all of the bounce back that followed.
You also need to be realistic about how long you’re investing for. Someone who’s 34 and saving for retirement is in a totally different spot to someone who’s 58 and doing the same. A mix of investments that suits one of them could be completely wrong for the other, but it’s surprising how many people end up with more or less the same portfolio whatever stage of life they’re at.
Tax Efficiency Isn’t Optional
Tax is the thing that tends to get left out when people chat about investing over a drink. It’s hardly thrilling stuff, but it’s one of the places where having a proper adviser rather than going it alone can really add up over the years. ISAs, SIPPs, capital gains allowances and dividend thresholds aren’t obscure bits of small print. They’re real levers that change how much of your return you get to hang on to.
The yearly ISA allowance in the UK is £20,000, and loads of people with a fair amount saved outside tax-friendly wrappers are basically handing money away every single year. It’s not normally down to laziness. More often nobody ever told them it mattered, or they just assumed somebody else was keeping an eye on it.
That’s where something like Fairstone investment planning comes in handy, especially if your money situation has got more tangled over the years. An inheritance, selling a business or simply building up a decent pot spread across a few different accounts can make the tax side a lot harder to keep on top of unless there’s some proper structure in place.
The Ongoing Bit That Most Plans Forget
Planning your investments isn’t something you do once and forget about. The industry probably doesn’t make enough of that, since setting everything up is the shiny part. Rebalancing, checking in once a year and tweaking things when life throws something at you is the boring stuff, but it’s what makes the real difference years down the line.
Say you’re in your early 40s and you put 60% in shares and 40% in bonds. Five years on, shares have done really well, and without you lifting a finger the split now looks more like 75/25. So now you’ve got more risk than you signed up for. Leave it alone long enough and the whole reason you set the plan up that way in the first place goes out of the window.
Your life moves on as well. A divorce, an inheritance, a change of job or a new baby should all really prompt a look at your plan, but most people never get round to it unless somebody nudges them.
Knowing When to Get Help
There’s nothing embarrassing about admitting investment planning is tricky enough to need a professional’s input. Doing it yourself works well for some people in some situations, but there are loads of cases where what you pay for advice is easily covered by the mistakes it saves you from. And the mistakes here are usually pricey ones.
If you’ve been getting by without a clear plan, or your investments have grown to the point where you’re not really sure what you’ve got or whether it all fits together, it’s probably time to have that conversation properly instead of kicking it down the road for another year.