A financial plan should be based on YOUR circumstances, needs, and objectives

17 May 2019

When it comes to money, I’m a “set and forget” kind of guy.

If you have a good investment strategy in place, you should be able to forget about it and focus on other things that are more important in life.

I’d go a step further and say that one of the signs you have a good strategy is that you can set and forget. In fact, making regular changes is likely to be bad for you. As the maxim goes, “trading is hazardous to your wealth”.

Once your investments are in place, and you’re making regular contributions or withdrawals (depending on whether you’re accumulating or decumulating), the main thing that you should be keeping an eye on are your expenses.

This doesn’t mean that you should leave things going indefinitely. You need to review your situation. But you only need to do this every now and then.

For most people, you only need to review your circumstances:

  • periodically – in most cases, every 12 or 18 months, to make sure there’s nothing you’re overlooking and to ensure that the products you’re invested in are still appropriate; or
  • when your circumstances, needs, and objectives change.

Your circumstances will change. Your needs will change. And your goals will change.

When it’s obvious – for example, because you’ve received a windfall; you or a close family member had a major health issue; you’ve made a significant professional change; or you’ve made a decision such as to buy or sell a house or bach; it will pay to update your plan.

It’s important to review your circumstances periodically because your circumstances, needs, and goals will change, even if you don’t notice this change on a day-to-day level.

(This happens more regularly and profoundly than you might think. Several prominent psychologists phrased the term “the end of history illusion”, to refer to the fact that at any point in time we often feel we’re at the end of our personal evolution. However, even in our twilight years, our values and priorities change markedly. Another way of thinking about it is that we’re like frogs in boiling water: it’s easy to overlook gradual changes, and gradual changes add up over time.)

One thing you may have noticed in this article is that I haven’t talked about changing your plan in light of changes to external factors such as the whims of financial markets.

As I’ve discussed many times on this blog, my view is that you can’t predict what will happen with most investments.

If an investment strategy is suitable for you now, it should be suitable for you in six months time, no matter what has happened in the market. If, for example, you invest a portion of your assets in shares, you should do so with an awareness that they will go up in some time periods and down in others. These short-term variations shouldn’t change whether a plan is suitable for you.

The only thing that will stop the plan being suitable for you is if YOUR circumstances, needs, and objectives have changed. External factors are only relevant if they impact YOU.

Does your current financial plan (and you have a financial plan, whether you know it or not) reflect your current circumstances, needs, and objectives?

Please. Never forget. A financial plan should be based on YOUR circumstances, needs, and objectives.


financial plan, planning, strategy

About the author 

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

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