I am currently doing a lot of planning work with clients whose financial situations have changed greatly in the last year. As part of this process, I’ve taken a little bit of time to stop and reflect on some of the changes to their lives in general, how these might impact their future and how these changes feed through into their financial plans. I’ve noticed a number of themes emerging.
We are resilient as a species, but we are very dependent on each other
We’ve had a global pandemic, but the human race has come together to fight it as best we can. We’ve seen scientists across the world building an understanding of Covid and numerous drug companies creating the all-important vaccines. As individuals, we’ve realised that we’re only as strong as those around us. Where people refuse to wear masks, don’t socially distance and ignore health guidelines, we all pay the price.
The recovery of our economies is going to take similar resilience, collaboration and the best economic minds. Hopefully as economies recover and thrive again, the stock markets will also push on, to the benefit of your pension funds and investments.
Some have been impacted more than others
This is a sad fact of the pandemic, but there is no doubt that some people have been significantly impacted, while others have been relatively untouched. It has sometimes seemed a bit of a lottery as to how different people have been affected in terms of health, career, job security and financial impact.
As a result there is no “one size fits all” solution for people’s financial plans. With some clients it’s a case of continuing to grow. For others, a review of goals and ambitions is needed, accompanied by a tweaking of their plan. For people badly impacted in the past year, I’ve had to fundamentally review their plans and plot a new course of them. Every plan is different.
Uncertainty is an uncomfortable dimension of life
Covid has wreaked a trail of uncertainty; will I get Covid / Long Covid, how sick will I get, when can I visit my parents again, when can I go on holidays, when will I be able to reopen my business, what happens when the support schemes end etc. For most of these questions, there is no definitive question, so we muddle along as best we can.
However you might not have the luxury of just muddling along when it comes to your finances, and this demonstrates the importance of a robust financial plan that has been tested for unexpected events. We call these “What If” scenarios. When completing a lifestyle financial plan with our clients, I look at a range of scenarios and put in place solutions in case they should come to pass. Plans don’t remove uncertainty, but they definitely help you manage it.
Our health is the single most important factor in our lives
No surprise here, particularly after the last year. But we all used to rather blithely say that “your health is your wealth” without thinking too much about it or unless ill health had visited your family. Now we know how true this is, and that factors such as career or money fall quite far behind.
From a financial perspective, I have seen first-hand the importance of having adequate financial protection in place, whether this is Specified Illness Cover or Income Protection. They may appear to be unnecessary or a luxury purchase… until your health fails you and you need the financial support.
Control what you can control
You’ve no control over the path of the virus or the behaviours of others. You can only influence the factors that you control – taking the necessary health precautions and your own attitude to staying safe.
Likewise with your financial plan, you can control the amount of risk that you take, your investment time frames, your spending habits and a number of other important levers. You’ve no control over the markets, changes to tax rates and the broader economic backdrop. Focus on the factors that you can control and make this central to your financial plan.
This includes your financial behaviours, which have been all-important over the last 12 months. The last year has been a rollercoaster, with the market dropping sharply by more than 30% in Quarter 1 2020, before rising by more than 70% over the rest of the year. We saw the importance of leaving your emotions at the door, not succumbing to fear and not panicking as the market fell. Those who did, paid a heavy price in missing the recovery. We also saw in recent months many investors falling victims to greed as they piled into Tesla and GameStop at inopportune times. Build a robust plan, commit to it and shut out the short-term noise.
The last year will live in our memories forever. Use these memories to build a brighter financial future for yourself and your family.