Invest your time in the things you can control

After a turbulent 18 months, we are thankfully slowly starting to see life return to ‘normal’ as restrictions ease, travel resumes, and schools and offices begin to fill. For many, this time has been an unsettling period and the thought of moving towards pre-pandemic normalcy seems frightening. This fear is common, however, the best advice is to try to overcome these feelings and be prepared.

We have all become accustomed to the additional requirements needed for a simple visit to the shops or a trip away such as masks, hand sanitiser and vaccination certificates. A similar planning approach should be taken with your finances. Many of you will have heard the following phrase before “fail to prepare, prepare to fail”. A financial plan will instigate and drive all the right decisions with respect to the structures and investment portfolio to suit your needs in a timely manner. The plan will provide a platform for all the heavy lifting on your behalf so you can focus your time on the items that really matter to you.

1. Define your goals

A financial plan aims to do just that! It begins with defining what you can control such as your financial goals. This can be a difficult process and is often based on your best guess as to what things you would like to do in the future. A trade-off exists between aspiration and reality. A financial plan will help you to set out and prioritise your goals by developing a roadmap to achieve them.

2. Devise your investment approach

Once you have defined your goals and have a plan in place to reach them, the next important step is to assign you with a suitable investment approach. For example, cash and bonds might be suitable for short-term goals while for longer-term goals, growth assets are more appropriate to develop and protect the real value of your portfolio. One of the main benefits of taking the time to devise a suitable investment approach, is that it allows you to dismiss any day-to-day noise with the knowledge that you will only have market exposure to meet longer-term needs. If markets do fall, you can rest easy in the comfort that you will have time for your assets to recover before you need to draw on them.

For many, financial goals have changed following the disruption of the last 18 months. The havoc caused by COVID-19 was unprecedented, impacting many areas of our lives significantly. Many of us have had to shift and alter the plans we made for retirement and future expenditure. However, your financial plan is a living document, so any changes impacting you and your lifestyle can be easily incorporated to ensure any adjustments are reflected, and you remain on track. Your Adviser will review and monitor the situation with you on a regular basis.

3. Putting the right structures in place 

While investment returns are important, having the right structures in place can be just as, if not more, valuable in the long term. Pensions are a perfect example of this as there are multiple benefits to funding a pension. Such benefits include receiving tax relief on your contributions, tax-free investment growth, a tax-free lump sum, and an income stream in retirement. For almost every client that we work with, whether they are a business owner, self employed or a professional, pensions can be a tax efficient way to extract excess cash from a company. Pensions are, however, often underutilised. This can be seen in our case study meaning many are missing out on a very effective source of returns.

Figure 1: Goals, Plans, Investments, Repeat

Table 1: The following table highlights the key differences between Joe & Mark’s financial situation at 60 - keeping in mind that Mark is taking a taxable lump sum

4. The next steps

Consolidating and reviewing your pensions to ensure they are the most suitable for your personal circumstances is a good first step to taking pensions more seriously. The next step is maximising your contributions (personally or from your employer) where possible in the most efficient way. While a frantic rush in the run up to the income tax deadline is commonplace, regular contributions could avoid this last-minute hassle while you would also avail of the investment benefit and phased market entry through spreading your contributions over a 12-month period.

Where valuations may be higher in recent times, you may find your accumulated pensions are approaching the Standard Fund Threshold of €2 million or your Personal Fund Threshold. At Davy, our team of financial planners and specialists can help you put suitable strategies in place such as early retirement or split retirement depending on your circumstances to help manage any potential excess tax that may apply.

A conversation with your Davy Adviser can provide enough information for them to begin to draft or update your financial plan. You may be required to start making regular pension contributions and the adviser may give you the option of reviewing your pension investment strategy at various intervals, ensuring it fits with your retirement objectives.

However, pensions are just one of the many tax efficient structures that may form a key part of your plan. Our financial plans ensure holistic financial planning and wealth management advice is provided to enable you to meet all your goals.