7 Steps for Financial Success

7 Steps for Financial Success

The markets have been very volatile recently. Consequently, I thought it would be a good time to post a reminder of 7 strategies which have been proven to deliver financial success.

1. Have a Plan

Having a plan for financial success gives you several advantages. The result is more likely to be positive. Detrimental emotion-based knee-jerk reactions are less likely to occur.  A plan should consider what you would do in certain situations. If you know you get nervous when markets go down have a strategy in place to deal with this bias. Our internal biases are often detrimental to our own self-interest. A simple letter to yourself reminding you of the long-term plan is an effective strategy. Remind yourself you knew values can fall as well as rise. The investment carries an acceptable level of risk for you. You may also include limits on where you will invest based on cultural or ethical beliefs.

2. Know Why You Are Investing

This is closely linked to having a plan which is your strategy. But this is the goal, the end game, what you want to achieve from your efforts. Reminding yourself of the goal on a regular basis is important. The more real the goal is the more useful it will be to you. Being able to ‘see’ the goal in high definition will help you through moments of doubt and frustration. So spend time focusing on your goal, imagine what it will be like to have achieved it.

3. Remain Disciplined

Financial success does not occur by accident, it is achieved through sustained effort and discipline. If you have planned and have a clear vision remaining disciplined should be easier. When building capital there are sometimes when you would prefer not to invest but you know you should. Having the discipline to maintain your plan, even when times are tough will be of great benefit when investing.

4. Watch Charges

The charges for financial services are much more transparent than they used to be. However, there is still much that could be done in this area. You should have a clear understanding of the charges associated with any investment before you invest. This allows you to see what you are paying for and how much it costs. Those who achieve financial success always have an eye on the charges they are paying. Cheap is not always good but neither is expensive. There are often several layers of charges, so make sure you know them all. You also have the opportunity to compare the costs of services. However, it is important to make sure you are comparing similar services. Ideally, you would not buy services which you do not need as this only increases your costs, which eat into your returns. For example, if you are happy making your own investment decisions, don’t buy a product which builds in the cost of advice into the charging structure.

5. Invest for the Long Term

All investments should be considered as a medium to long term commitment. Few professional advisers would recommend an investment in ‘risk’ assets (those which can go up and down in value) for a period of less than 5 years. If you think you may need the money within this time frame or your goal is less than 5 years in the future, you would be taking a considerable risk by investing in risk assets rather than holding cash. This is because of the returns earned need to be greater than the return on cash, the charges associated with investment and you need to be rewarded substantially for the extra risk taken which is far from guaranteed. Investing for the longer term gives you time to build a buffer to protect your original capital and to recover losses should they occur.

6. Diversify

I know many of you will know of the famous, possibly apocryphal, quote from multi-billionaire investor Warren Buffett where he is supposed to have said, you should keep all of your eggs in one basket and focus on that basket. Whilst this may work for Warren, as he is one of the most successful investors of all time, diversification is safer and has fewer surprises. No one has managed to consistently forecast which asset type will be the most successful from one year to the next, not even Warren. Therefore a diversified portfolio will smooth your returns over the long term as you benefit a little by having a bit invested in the right asset each year.

7. Review

You may have a plan, a goal, be highly disciplined with a close eye on charges but your investments do not operate in a vacuum. Those who achieve financial success watch for changes in their circumstances and the global economy. It is therefore important to regularly review your investment, at least once a year. Over time you will invest a lot of money in the portfolio and therefore you owe it to yourself to spend time and effort to make sure it remains appropriate to your circumstances.

So that’s all seven. They may look simple but putting them into practice and maintaining them over long periods of time is far from easy.

I hope you found the above useful, please let me know if you have any comments or questions.


Stuart Porter - Expat Financial Advisor UAE
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