A New Year – New Year Resolutions?

We often spend New Year with friends, inevitable the conversation turns to what your New Year Resolution is. The problem with New Year Resolutions is that in many cases they are made without any thought or plan and that is why over 78% of people who set New Year Resolutions fail and often failure is within the first four weeks of setting them.

Over Christmas I was given a book by Bear Grylls which talks about his life and in particular how he climbed Mount Everest at the age of 23. At the time the cost of joining an expedition to Mount Everest was around £60,000. However, no amount of money guaranteed success. In fact climbing Mount Everest is like playing Russian roulette.

The mountain throws up all sorts of challenges and can result in death. Even reaching the summit does not guarantee that you will return alive.

This is perhaps extreme but when we consider New Year Resolutions we should consider that we have a mountain to climb with an end goal, and when we achieve that goal we need to consider what we are going to do next.

Attempting to climb Everest requires planning and preparation and although fitness plays a key part the mental preparation is an equally important aspect.

RDR has changed the landscape of financial services, at this stage we can only guess what the changes will be like but in five years’ time it will be very clear. Of course there is inevitable talk about how the internet means that more and more people will adopt a DIY approach to investing. In fact Hargreaves Lansdown predicted that over 84% of investors will go without advice.

I have argued that there is a place for advice and DIY investors but to assume that RDR means that more people will go down the DIY route is dangerous. Just because information is more readily available doesn’t mean people can make their own decisions.

Climbing Everest is not about reading lots of information on the internet, it is about raising money, it is about getting the right equipment; it is about fitness and mental agility but most of all it is about the team around you - experienced Sherpas who help guide you to the top of the mountain. But even after all of this you are not guaranteed success. I have very little evidence to support this but I suspect that very few if anyone doesn’t look to have a team around them before they attempt to climb Everest.

So when I consider a New Year’s Resolution the one thing I do each year is look at my financial plan for the past twelve months and look forward to the next twelve months. My financial plan has many threads. Firstly there is our family budget which we monitor on an almost daily basis because ultimately if we can control our outgoings then we can get to the second part. The second part is about our financial plan and goals. We have three goals, firstly to build a short term savings pot, the second an emergency pot in case of for example unemployment and finally a third pot which is our retirement savings.

When we built the plan we sat down and discussed what we wanted to achieve and set our goals. We then worked out timescales to deliver the different goals. Over the last twelve months like climbing Everest there have been things that have happened which we didn’t expect and that has meant we have had to tweak the plan to achieve our goals.

As a result of the plan we have been able to select the right investment vehicles to deliver the goals and the right investments. With the investments we have an investment diary particularly for shares; we have target prices when we will sell the investments if they achieve a high price or low price. For funds we look to understand the philosophy behind the fund and the investment style.

Effectively we aim to take emotion out of investing by not chasing last year’s winners, the latest fads and equally not panicking when everyone else is running for cover.

The point is this, this is not a New Year’s Resolution this is about having a goal, we know that to reach the summit will take time and we know that unexpected events will happen but constantly reviewing and adjusting will help us achieve that goal. The danger with promoting the ease of DIY investing is that the focus is on cost and ease and not about planning, ultimately without any plan many people will fail and be disappointed.

So if you have a financial plan and budget review it, and if you don’t then put one in place and make it part of what you do. If this is complex, or just something you don’t have time to do then seek advice it is likely to be money well spent.