The upsides of building wealth slowly

The upsides of building wealth slowly

Maybe it’s a stage in life that you get to, when eventually you recognise that building wealth for most people is a pursuit that happens over many years, indeed decades. And most importantly, that it’s perfectly acceptable to build wealth slowly.

Certainly when we’re much younger – in our teens and twenties – the idea of quick riches is very alluring. The constant barrage of people on TikTok and Instagram who have “made it” at a very young age can drive heightened levels of envy. If they can do it, why can’t I?

But as we get older, we start to understand that for every successful and overpaid sports star and celebrity, thousands have been unsuccessful in their pursuit of riches by this route. That’s not to say that talented people shouldn’t have dreams and go for it, and ultimately be well rewarded. Because good luck to them! But it’s a very tough road on which many people flounder.

And then we see lots of incredibly wealthy people who made their riches by building up and eventually selling some or all of their businesses. Again, these people should only be applauded, as they may well have taken an idea, not listened to the naysayers and then put their heart and soul into building their successful enterprise. Well done to them, they deserve everything that they have achieved.

And then there are the others, who hit lucky. They got in (and out) of some risky asset class at just the right times and made their fortune that way. Of course, in their eyes, there was no luck involved – it was all down to their savvy investment decisions. We know that for every one person who timed markets perfectly, there are so many more who got it very badly wrong.

But the likelihood is, all of these people paid a price in some way along the road to success. The price may have been the significant time spent in a laser like fashion in their pursuit of success. Or indeed the significant risks they took along the way by being exposed to a single asset.

There is another way.

The alternative is – to build your wealth up slowly. While you may not get the opportunity to tell the world about your exceptional talent or investment wisdom, there are many upsides to it.

People who build their riches through sporting achievements or indeed building businesses use enormous amounts of one of life’s most precious resources in doing so – their time. Building your wealth slowly through structured financial planning and wise investment decisions does not use lots of time, leaving it available for you to use as you want. You may be replacing the road to quick riches with time spent with your family, being home in the evenings to eat dinner with the kids and getting to support them at those precious football matches.

We’ll also never leave you sitting there, sweating about the prospects of some investment bet that you took. Because we’ll never suggest you take the roulette approach and invest all your money on a single share or some volatile asset class. You might not get rich overnight, that will take more time. But your family will always be secure, irrespective of how markets perform. We think you should celebrate these facts, spending time living your life to the full and never putting it all at risk.

Hats off to the successful people. But hats off too to those people who took the alternative path of living life to the full. There’s a lot to be said for being driven by the life you want and not the public acclaim of riches.

The power of a regular review.

You might be wondering if you need to bother reviewing your financial plan every year. After all, if we've already done the hard work of setting it up, why tinker with it? Here’s the simple truth: the world changes, life changes, and so must your financial plan. Skipping your annual financial review is a bit like ignoring an engine light on your car’s dashboard—it might not seem urgent until it's too late. Let's consider why these reviews are crucial and how they can keep you on track to achieving your financial goals.

The Ever-Changing Economic Landscape

The economic environment is anything but static. Interest rates fluctuate, inflation rates vary, and economic growth can stall or surge without much warning. These shifts can have a profound impact on your financial goals. For instance, a rise in interest rates might make it more expensive to borrow money, affecting your plans for buying a home or expanding your business. Conversely, a robust economic environment might mean your investments are performing well, potentially allowing you to reach your financial goals sooner than expected. Annual reviews help you adapt your financial strategy to these economic changes, ensuring that your plan remains effective and relevant.

Market Volatility and Investment Performance

The financial markets can be unpredictable and often do not perform in line with the assumptions made when we first crafted your plan. For example, if the stock market takes a downturn, the value of your investments might decrease, which could delay your retirement or other financial goals. On the other hand, a booming market could boost your investment portfolio, providing opportunities to invest in other areas or achieve your goals earlier. Regular reviews allow you to assess whether your current investment strategy is still appropriate or if adjustments are needed, such as rebalancing your portfolio to align with your original asset allocation or risk tolerance.

Changes in Your Risk Tolerance

Risk tolerance is not a constant—it evolves with your age, financial situation, and personal experiences. Early in your career, you might be more willing to take risks for higher returns. As you approach retirement, you might prefer preserving capital over seeking high returns. Regular financial reviews provide an opportunity to reassess your risk tolerance and ensure your investment choices reflect your current comfort level with risk. This adjustment helps safeguard your investments against unwanted risks and aligns your portfolio with your life stage.

Life’s Significant Events

Life is full of surprises and significant events that can alter your financial landscape. Major life changes such as marriage, the birth of a child, a career change, the changing fortunes in your own business or the onset of a health issue necessitate adjustments to your financial plans. For instance, the arrival of a new family member may increase your expenses or change your goals, such as saving for education. Similarly, a new job or a promotion might increase your income, allowing you to save more or pay off debt faster. An annual review ensures that your financial plan accommodates these changes, keeping your financial goals achievable despite life’s unpredictability.

Shifting Goals and Priorities

As you journey through life, your goals and priorities are bound to shift. Perhaps you initially set out with the headline objective of buying a first home or even a bigger house, but now you're more interested in acting on your creative idea and want to put any spare cash to use in starting a business. Or maybe you’ve achieved your goal of setting up a college fund for your children and now want to focus on retirement planning. Whatever the case, regular reviews give you a chance to realign your financial strategies with your evolving goals. This ensures that your financial resources are being directed toward what’s most important to you now, not what was important five or ten years ago.

Embracing regular financial reviews is about committing to the planning process, not just setting a plan and forgetting about it. This process involves ongoing adjustments and fine-tuning, which are essential for dealing with the complexities of financial management. A plan that is frequently reviewed and updated is more resilient and more likely to succeed because it adapts to new information and circumstances. Think of it as dynamic tuning for your financial engine, ensuring optimal performance no matter what lies on the road ahead.

In essence, an annual review is your opportunity to take control of your financial journey, regardless of the twists and turns of life and the economy. It’s about making proactive adjustments to ensure that your financial plan remains a true reflection of your current life situation, goals, and the economic landscape. By committing to this annual exercise, you ensure that your financial strategy is not just a static document but a living framework that grows and evolves with you. Remember, staying engaged with your financial plan through regular reviews is not just good practice - it’s essential for navigating the uncertainties of life and securing your financial future.

Retirement - there's more to think about than money.

When you think of retirement, what comes to mind? Is it those extra rounds of golf, spending a few months each year basking in the sun, and relishing quality time with your grandkids? Or do you find yourself worrying about your pension funding, fearing it might not be sufficient to cover all your dreams and aspirations?

As financial advisers, we understand the crucial role we play in alleviating these financial worries. Our daily mission is to help clients build robust pension funds that enable them to live their retirement years on their own terms. However, our commitment goes beyond just finances. We believe in helping you adopt a holistic view of retirement, ensuring you thrive in all aspects of this significant life phase.

Let's assume that together we've successfully addressed the financial side, ensuring you have the means to enjoy your retirement fully. What else should you consider?

Be aware of your partner’s space

Imagine waking up on the first day of your retirement. There's no alarm clock; you wake up at your leisure. Your spouse, who may have been at home full-time, continues with their usual routine. How do you fit into this new dynamic?

The transition requires careful consideration. Avoid assuming that everything changes just because you’re now around more. Your partner may cherish their routine and prefer minimal disruption. At the same time, they need to understand the significant shift in your life and the potential struggle you might face in establishing a new routine, encompassing both individual and shared activities.

Communication is key. Discuss your expectations, respect each other’s space, and collaboratively plan your days. This mutual understanding will make the transition smoother and more enjoyable for both of you.

Avoid empty, long days

Retirement brings a significant increase in free time. Your working day, often including commute time, might have occupied 11 or 12 hours daily. Now, you need to find fulfilling ways to fill these hours. Will you play golf, take up a new hobby, or engage in volunteer work? Perhaps you’ll finally visit all those places you’ve longed to see.

Planning is essential. Fill your days with activities that interest you and promote a sense of accomplishment. Keeping your mind and body active is crucial. Avoid the trap of monotonous days spent napping in front of the TV. Instead, pursue hobbies, volunteer, travel, or study. A well-structured plan will make your days fulfilling and enjoyable.

Look after your health – mental and physical

During your working years, the simple routine of getting up and going to work contributed to your overall health. Now, with more free time, it’s vital to maintain and even increase your focus on healthy habits. Incorporate regular physical exercise into your routine, whether it’s taking brisk walks or visiting the gym. Many gyms offer fitness programs tailored for seniors, ensuring your activities are safe and effective.

Physical exercise benefits your mental health as well. It boosts your mood and keeps you feeling good about yourself. Stay mentally sharp by engaging in activities like reading, solving puzzles, or learning new skills. Social interaction is also crucial—spend time with friends, join clubs, and participate in community events.

With more time available, you can also pay greater attention to your diet. Take the opportunity to prepare healthy meals from fresh ingredients. Transform cooking into a hobby, experimenting with new recipes and enjoying the process of creating nutritious dishes.

You still have a lot to offer

Retirement can sometimes bring a perceived loss of value. In your working years, your company and colleagues relied on you, providing a sense of purpose. Now, you might feel this is gone. However, your value extends far beyond paid work.

Your experience, expertise, and time are invaluable. You can continue to contribute meaningfully through volunteer work, coaching, or mentoring. Choose areas that interest you, work on your terms, and at times that suit you. This approach not only allows you to give back but also provides a profound sense of satisfaction and fulfilment.

Having your finances in order is undeniably crucial for a happy and satisfying retirement. However, it’s the non-financial aspects that truly enhance your quality of life. Cultivate a balanced approach that includes meaningful activities, maintaining your health, and nurturing your relationships. By doing so, you can enjoy a fulfilling and vibrant retirement, living life to the fullest for many years to come.