Five-step guide to investing for senior executives

Capital Asset Management, Financial Chaos, Business Woman, Senior Executive

This is a 5-step guide to investing. It assumes you have already taken care of any outstanding debt and have insured yourself against possible misfortunes (e.g. being too ill to work, suffering from a catastrophic or critical illness, and death). Once these things have been taken care of, then you can begin to think about investing.

Step 1 – Where are you going?

The first thing you need to do when embarking on any journey is to decide where you are going. If you know you want to go somewhere, you could simply get in your car and drive – but to get where you want, you should consider the following questions.

  1. do you have enough fuel, a safe car and the quickest route to get to your destination?
  2. how will you know if you’ve even got to where you need/want to be?
  3. having made no plan, what if you get lost?

Having a clear idea of where you want to go, who you want to be, and what you want your life to look and feel like will make all remaining steps in this process a whole lot easier. This first step may sound easy, but beware – how much thought have you given to these questions in the past and how certain are you of the answers?

When it comes to investing, knowing how much you need to save and how much risk (if any) you are willing and able to take is going to make life much easier. In summary, you need to know where you are going and how much it’s going to cost.

Step 2 – Get a good investment strategy

A well-structured investment strategy is essential for all seasons. You need some equities (the world’s most successful companies) for when times are good, and you need some bonds (loans to governments and companies) for when times are bad.

Then you will have a portfolio that performs well in most circumstances. Having a 50/50 split between these assets might seem like a sensible approach. There are, however, more good years in investing than bad, so sway things ever so slightly in favour of equities to something like a 60/40 split.

It is also important to consider, however, whether this is the right portfolio for you. Will the chosen asset mix give you the excitement and growth you need to achieve your dreams, or will it keep you awake at night in a cold sweat?

Once you have your overall asset mix figured out, then you need some underlying investments. This can raise additional questions: Which companies do you invest in? Which type of bond?

Here, diversification is key. You want your fingers in as many pies as possible. Then if one of these underlying investments goes sour, you’ve got your others to fall back on. Fortunately, it is not too difficult in today’s world to build a portfolio that has access to thousands of companies and high-quality bonds from all over the world.

Lastly, beware costs and charges. When it comes to your investments and where they are held, you want your costs to be as low as possible. You need to make sure the wealth managers you are using do not extract excessive costs and fees from your money.

Step 3 – Stick to it

Once you have your investment plan in place, you must be disciplined and learn to control your emotions. The main things you need to do are:

  • Rebalance your portfolio annually (remember that equity/bond split) –watch this video
  • Review the research – is your ‘buy the whole market’ approach still the best? Have computers taken over the world and are now capable of yielding market-beating returns? You need to ensure you are keeping abreast of the latest research.
  • Use your allowances (see Step 4)
  • Don’t panic

Don’t watch your portfolio decrease in value and sell everything in a panic. Investments always fluctuate in value – sometimes by a lot – but as long as you’ve only taken the risk you can afford then you’re still going to end up where you need to be. This is where emotion and discipline will be fighting for your attention; you must stay level-headed and remember your strategy.

Don’t get distracted by bright shiny things; whether it’s bitcoin, gold, fast cars, crowdfunding, or an Alpaca farm – just stick to the plan. These things could make you a lot of money, but in reality, this is about as likely as winning £1 million on the lottery.

Step 4 – Make use of your allowances

You need to know how much you need to invest. You need to know which asset classes to invest in. You also need to know which investments and funds to invest in.

Do you use a pension? An ISA? Premium Bonds? Something else?

It’s crucial to ensure you are making use of as many allowances as possible. This includes your pension allowanceISA allowance, capital gains tax allowance, income tax allowancesmarried couples’ allowancesdividend allowance etc.

You need to do to this each year.

Step 5 – Get a financial planner

If this looks too complex and time-consuming then you need professional help. Find a Chartered Financial Planner who can take the strain and do it for you. They will be well worth the investment.

After a 10-hour day, the last thing you need is to come home and spend more time doing your finances.

With the advent of the internet, pretty much anything is possible – but would you study medicine and biology on the internet to perform your own surgery? Would you study building, plumbing, plastering, and electronics to build your own house?

You could possibly do these things, if not for one thing – time. Hiring a chartered financial planner is like having a personal trainer for your finances. Their role is to keep you on track, make sure you have a plan in place and ensure that the plan is robust. They help you review the plan and confirm that there is a plan B for all eventualities. They make plans for you, for your partner, and for your children.

The last thing you need after doing your day job is to learn how to do another job, so delegate this process and carry on with what you do best – living life to the full.

If you are a busy professional and need some guidance, contact us today to arrange a meeting.

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