New Investors: Steps to Realise Your Financial Goals

Starting out on your financial journey can be daunting. By breaking it down into simple steps, it becomes easier to understand how to protect your income while building wealth and working towards long-term financial freedom. 

Analyse your circumstances and set your objectives 

Before you do anything, consider your financial objectives. What are your long-term goals? What are your priorities? Where are you right now in terms of income, debt, cash flow and lifestyle habits and where do you want to be? Plotting out a plan is the first step on your financial journey and should form the basis of your investment strategy.  

Set a budget and start tackling short-term debt 

The only way to live within your means, cover all expenses and still be able to save for the future is by setting a budget and sticking to it. Financial discipline leads to effective money management and you will quickly see when you are deviating from your goals or living beyond your means. Be honest with yourself. As you start your journey, identify where you are ‘wasting’ money and make a plan to curb that. Get rid of short-term debt like clothing accounts and credit cards – they cost a fortune in interest and service fees. The wisest thing you can do is to pay off the balance in full as quickly as possible. 

Evaluate your comfort with risk 

In investment planning, assessing risk helps you understand your attitude to risk, what steps may be taken to mitigate risk and, through specific ratios, the upside reward compared to the risk profile. All investments involve some degree of risk and the reward for taking on risk is the potential for a greater investment return. At Carrick, we balance three traits to ensure that we recommend and implement the correct investment strategy for you. These traits include: 

• Risk tolerance – the level of risk you are emotionally comfortable with; 
• Risk required – this relates to the risk required to meet your goals considering your financial resources available; and 
• Risk capacity – the level of risk you can afford to take. 

Appoint an independent advisor 

An investment plan, risk and reward, clarity on financial objectives … all of this can be daunting to a new investor. It’s important to consider the services of a financial advisor who can guide you through the process and help you stay on course. In choosing a financial advisor, look for dedication to client service and qualifications, preferably someone with local and offshore expertise. An experienced advisor will be able to help you during market fluctuations, avoiding often detrimental knee-jerk reactions, and achieve the greatest degree of stability and growth.  

Consider a mix of investments 

One of the key tools to minimise investment risk is a diversified portfolio: spreading your investments across asset classes, geographies, currencies and industries is one of the few time-tested strategies for investors with long-term financial goals. Ask your financial advisor to explain all the options to you, such as equities, pension plans, savings plans, money markets and foreign exchange, investing in property, the different asset classes, tax efficient investment, getting past short-term volatility with a long-term investment horizon, and diversifying your investment to hedge against shocks.

Set up a retirement fund 

Carrick understands wealth management, savings plans, the simple power of compound interest, and the destructive power of inflation. “Too often, people are caught up in the “now” and at some point, their hope slips into fear, and that inevitably leads to inaction,” says Anthony Palmer, Group Commercial Director. “That’s why your retirement must be a plan, not a hope.” 

The general rule of thumb is that you’ll need to be able to replace 75% of your income to retire comfortably (this is assuming you’ve paid off your home loan and other large debts by then, meaning your monthly expenses will be lower). However, keep in mind that medical expenses tend to increase after retirement. 

Create an emergency fund 

If there’s anything we have learnt during the pandemic, it’s that we don’t want to be caught by nasty surprises. Save a realistic amount in an accessible short-term account for things like an unexpected car service; and try to save up three to six months’ salary to cover lost income in case you lose your job or get retrenched. 

Draft a will 

A legally valid will should be the cornerstone document of your estate planning as part of preserving your wealth for your beneficiaries and ensuring it is distributed fairly to them. 

Monitor regularly 

The benefit of having a financial advisor is that they are constantly reviewing their clients’ portfolios to ensure proactive steps are taken to adapt to changing circumstances and conditions. Once you’ve implemented your strategy and started on your financial journey, ensure you meet regularly with your advisor to review it and stay on course. This includes regularly updating risk and insurance policies as circumstances change.