Did you think it was time for complex numerical analysis? Wrong!
To complete your savings plan you have to split your savings, now and ongoing, between cash and shares. How do you do that?
There is no right answer: risk/reward trade-off is a personal, emotional decision and not an analytical one. But there is a right answer for you. Here are some ways to help you find it.
First understand that this is not a piece of homework you spend a week on to get the right answer. Think of it like managing your health – a mixture of habits, homework, beliefs, actions, acceptance of advice, rejection of advice and luck – all of which modify as you past through life’s stages. Except this is about financial health, not personal health.
It’s a process that is continuous – it is finding out about yourself and finding out about investment and putting the two together. It should continue for the rest of your life – or at the very least until the day you settle into a post-retirement routine. It’s wealth management instead of health management.
How do you do this? We have a few suggestions, not in any particular order:
- Learn early what it feels like to own a risk investment. Open a brokerage account, put your first £1,000 into it, buy a cheap tracker (follow the link if you like), maybe a few shares in a business you know. This is not financially sensible in isolation. But it’s not investing that you are doing here. It is learning.
- Make a very rough estimate of your savings each year until a key date you are looking towards (retirement, maybe, or kids off your hands). Have a look at it once a year over a G&T with your life partner. What has changed? What could go wrong? How would you react to misfortune?
- Start to look at how the planned savings are building up. Over a different G&T at a different time.
- Play with investment returns, good and bad.
- Talk with your friends. Listen very hard to those who know and love you. Be particularly wary of those who think they know what they are talking about or who think they have slick solutions.
There is no rush. You can take years over this if you want. Learn, adapt, repeat.
Revisit your mortgage
There is one refinement you must make before we allow you to move on. It may not be sensible for you to invest in cash in preference to repaying your mortgage (if your mortgage terms allow it). So, if necessary, you should revisit the mortgage repayment decision we encouraged you to take earlier and cycle again through the asset allocation decision. Repaying your Mortgage
So now you do not have a plan, you have something better than that...
..... you have a process. Let's be clear. The steps we have taken you through exclude 90% of the material and/or advice about financial matters that you will read in the press or self-help books. But it will provide a perfectly adequate process of financial management that will allow you to get on with your life.
You still need a bit of help on execution - how to buy shares, for example. That's the last subject in Simple Investing:
|Do it!:||Simple Execution|
........or you might want to peep at some ways to do even better:
|Doing even better:||Next Simple Steps|