With this in mind, FE Trustnet asked two advisers for five major considerations investors need to take into account when putting their financial plans in order. Objectives
The first thing clients need to factor into their plan is their investment goals, according to Danny Cox (pictured right), head of advice at Hargreaves Lansdown.
"Investors need to determine what they want to get from life and clarify what their objectives are," he said. "Getting someone to understand their objectives is a key part of the financial planning process."
"There are hard facts and soft facts about your investment profile, and the skill of a financial planner is to help people uncover the soft facts about their financial plan."
Capital preservation
Alistair Cunningham, director at Wingate Financial Planning, says capital preservation is “key”, particularly for investors who are at or near the point of retirement.
"Inflation is currently quite high, so capital preservation is more complex than just sticking money in the bank," he explained.
Cunningham recommends investors consider a variety of asset classes that offer both higher returns than cash and a reasonable level of protection for your assets.
He advises investing in the high-quality varieties of debt, equities and commercial property, all of which have defensive characteristics that can shore up your portfolio in times of extreme volatility.
Diversification
Spreading the risk exposure across a variety of asset classes is vital in order to protect the capital in your portfolio against market turmoil.
Cunningham points out "no single investment type will do well in all market conditions".
"Diversification can reduce your overall returns, but it will help you to preserve capital," he explained.
Tax
Cunningham says investors need to factor in the use of tax allowances through wrappers such as ISAs and offshore bonds.
"If we can avoid tax it effectively increases the total return, and if you are a 40 to 50 per cent taxpayer, that’s worth a big slug," he explained.
Cox adds tax is important to the financial planning process because it can take a large chunk out of total returns if not handled properly.
It’s not all about making sacrifices
After making a plan and putting your money to work, Cunningham says you shouldn’t be afraid to spend some of your capital each year.
"If we’re putting together a 30-year plan for clients, we can effectively split that into 30 one-year chunks and every year you spend some of that," he continued.
"Obviously, that’s part of the plan."
Cox adds: "The period in the five years leading up to retirement is critical in terms of the financial decisions you make."
He says investors need to think about converting their pension and investments from growth-oriented structures into income-paying models.
"This is always much easier if you’re planning ahead," he finished.