Financial Planning

Retirement savings...
In order to prepare sufficiently for your ‘golden years’, you should understand the basic principles behind investing and managing your finances.
By Greg Bonner and Steve Blaker
Certified financial planners

If you haven’t spent the last 50 years in a Benedictine Monastery or closed order of nuns, it seems safe to assume that you and your friends have seen plenty of world crises, whether financial, political or geophysical. It is also evident that never before has the Australian retiree had such ready access to the kind of financial data (linked to such events) that can be downright frightening. Ignorance may not have been bliss, but at least it was blinkered and therefore less worrying. Retirement savings are, after all, not only dollars and cents - they represent many years of long hours, hard work and going without. So given that we are, again, on the brink of serious war, what points of generic advice come to the mind of a certified financial planner (CFP), when discussing retirement savings? I am most often confronted with needs relating to security, efficiency/performance and the costs involved. So let’s look at some key points:

Security: Security is the ‘eggs in one basket’ issue. If your portfolio is spread internationally as well as locally and encompassing different kinds of assets, then your level of safety is increased. If you have been astute enough to utilise investment managers with different investing styles; growth, value, style neutral etc, this adds to your level of capital security. Ideally, when focusing on risk management, investment managers or investment types should not correlate significantly in their performance statistics. In other words - not behave the same. So you must be willing to accept that at any time, a portion of your portfolio will not look good. This is more often an indicator of different investment specialist styles or different asset selection, rather than inefficiency and has the effect of smoothing out the ups and downs of the composite portfolio so that you, the investor, can sleep at night. There is, of course, no instant ‘magic’ formula to successful investing. Beware of anything that resembles it.

Performance/Efficiency: The most common request I hear is ‘I want strong performance without too much risk’. People vary enormously in their ability to handle the amount of volatility which is intrinsically associated with the desired rate of return. Experiencing a major downturn in the early years can be as traumatic as a motor accident. Of course such losses are on paper and need not be crystallised by cashing in listed securities or managed investments. However, it is far better to start conservatively (seek a lower total return) and increase the ante as you become more experienced. Whatever you do, you must give your portfolio time to work, often 5-7 years. Ruling out any managerial inefficiency, investing still takes time, discipline and knowledge. The longer your investment portfolio has been running, the less it will be affected by investment volatility. The most common mistake even for seasoned investors, is to judge the efficiency of a manager on the basis of short-term performance alone. Most research companies value qualitative factors such as skill, consistency and discipline of the investment team, as most significant and use performance for back testing only.

Chopping and changing between investment managers and listed securities is often disastrous as one can be effectively selling low and buying high. Owing to their differing approaches to asset selection and investment style biases, it is natural to see short term variances. It is healthier to interpret short term figures not as a trend but as a snapshot in time. Obviously, now and again investment managers do ‘lose the plot’ for one reason or another. You need expert advice to tell whether this is the case or whether a portion of the market is in a down cycle, or if other factors are applicable for example mergers and acquisitions as we have seen recently with Westpac, Rothschild/Sagitta and Bankers Trust.

Costings: In any arrangement you need to be aware of the value you receive for your money. If you do use a financial planner on an ongoing fee basis, you need to be sure that the advice you are receiving is also continued on an ongoing basis and that communication and information is consistent and accurate. If you’re happy to pay commission you need to be aware that it is the transaction that becomes important rather than the ongoing advice and service. That said, even costings can seem relatively less important when you find someone you trust and have confidence in their advice and expertise. Ultimately, even these few basics should get you moving along the road to ‘peace of mind’.

As Directors of Bonner Blaker Pty Limited, Steve and Greg have been in practice in Cherrybrook, located in the north-west of Sydney, for just over 10 years. They are also authorised representatives of Associated Planners Financial Services Ltd. Their own business has been built extensively through client referrals, focusing on building ongoing working relationships with professionally minded people. As certified financial planners they are acutely aware of the challenges and issues facing people considering, or already in, retirement.