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10 PRINCIPLES TO CONSIDER WHEN LOOKING FOR FINANCIAL ADVICE

10 PRINCIPLES TO CONSIDER WHEN LOOKING FOR FINANCIAL ADVICE

Warren Buffett, unofficial investment guru to many in America, is often asked what is his secret to financial success: His answer is usually the same – ‘Rule No.1: Never lose money – Rule No.2: Never forget rule No.1’!

There is of course a serious message in this response, and although some of the following basic principles may seem obvious, as with many obvious things in life, they are also often easily forgotten. There is, however, one first principle of over-riding importance:

Principle 1 – Clearly Establish a written plan, a set of individual objectives

Planning has long been recognised as a key tool to achieving success in any field. However, whilst most of us will plan in our professional lives as a matter of course, how many of us take the time to plan financially in our personal lives? Holistic Financial Planning is a process whereby investment decisions are made, not in isolation, but in the context of a clearly defined current position and with a set of future financial objectives, as an important starting point.

Principle 2 – Consider existing investments

What use can be made of my existing investments? Most expats will have an investment ‘history’, whether in investments, pensions, insurances or residential property. You need to determine how they fit into your current circumstances and future goals and objectives, and their continued relevance to your new situation.   

Principle 3 – Analyse employer & estate pension benefits

Equally, it is important to determine what benefits you are likely to receive from your current employer pension scheme and state retirement benefits? However good an employer’s pension package may be, on its own, it will rarely allow you to continue living in the lifestyle to which you may have become accustomed in Switzerland.  By careful analysis of current and projected benefits, it is possible to calculate in advance what your pension arrangements are likely to be, and by planning ahead, avoid what may otherwise be an unexpected and unwelcome drop in income and standard of living in retirement.

Principle 4 – Review your finances regularly

So what happens if my objectives or circumstances change? Since the only constant in life is change, and since each stage of life requires a different set of solutions, regular review is essential as this gives an opportunity for changes in your objectives or circumstances to be noted, and your plan of action altered accordingly.

Principle 5 – Determine your attitude to investment risk

Ask yourself – “am I going to be comfortable with the volatility of the investments made?” It is essential to accurately determine your attitude to investment risk, not just in relation to individual investments but also in the context of an overall portfolio risk, including existing savings, insurances, capital investments, property and pensions.

Principle 6 – Seek value for money

Whilst it is often true that the greatest charge you can incur is underperformance, you should always seek full and detailed costs for all recommendations and proposals. Of course, one of the best ways of getting good value is to find the right investment in the first place and this is far more likely to happen when care has been taken to analyse your needs in detail, before arriving at a solution.

Principle 7 – Consider your time frame for investing

Investors should consider carefully how to manage what Tolstoy called “the two most powerful warriors” – patience and time – in order to get the most out of their investments. It is often said that the greatest diluter of risk is time. An investor in global equity markets who had a 6 month time frame in September 2008 could have lost up to 50% of his capital if selling in March 2009, whereas an investor who did not have to sell in March 2009 would have made significant gains in the years since.

Principle 8 – Diversify investments

What investments should I select, and, with which financial institution? Whilst this will always differ for each client, the changes in the financial markets during the last ten years should have taught us many lessons, the principal one of which is, the importance of diversification of asset types, never relying solely, on any one asset class.

Principle 9 – Avoid currency risk

What currency should I use?  This is a key question and one of the greatest potential areas of risk for a private investor.  The general rule is to work to a base currency – to have a significant portion of your assets in the currency of the country (or countries) to which you plan to retire or where you plan to use your capital.

Principle 10 – Take professional independent financial advice

It has long been accepted that an independent financial adviser can offer much greater value than a tied advisor. But why is this and what extra value can they add? The simplest answer to this is objectivity. Sound financial advice, requires a high degree of impartiality and lack of emotion in the process of setting and monitoring your objectives, and can be hard to achieve on your own. Furthermore, there are so many investment opportunities of variable quality that the flow of information may simply be too much – and a sort of ‘Paralysis by Analysis’ can occur.    An independent adviser who offers whole of market coverage is not committed to a narrow range of companies or products, and can research the market for you and arrive at a list of quality, financially sound, investments.

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