While certain aspects of financial management will always remain constant, there’s no doubt that changes in technology and culture have created new complexities.
On one hand, advances in financial technology have made many aspects of money management easier than ever before. We can now use our phones to send money to a family member’s bank account in seconds — at any time from any location. If you want an app that helps track all your expenses while generating useful information about your behavior, there are hundreds of options.
On the other hand, the financial ecosystem has also grown more complex than ever before. Even the most experienced investors often struggle to explain crypto currencies, or NFTs, or blockchain technology. DeFi, or decentralized finance, is a game-changer with wide-ranging implications that many financial experts are just beginning to grasp.
Most importantly, more people than ever before are now aware of the realities of growing wealth — and the crucial value of owning property or stocks to protect wealth from the long-term effects of inflation.
If you’re trying to get a head start on financial planning for 2022, here are a few tips to get you started on the right track.
Get Some Advice
Financial markets have become so bloated with investment options that even many investors are confused about what’s worth investing in and what carries too much risk.
That’s why a wealth manager without those biases is more important than ever. A good wealth manager can help guide you through the conflicting opinions out there and arrive at investment and funding strategies that are right for you and your portfolio.
The current macro environment has made it more difficult for people to find the right balance between risk and returns. Add to that the rising regulatory challenges and the growing costs of risk, and you have even more challenges to overcome. However, with the right person helping, these are just another set of obstacles toward financial independence.
A wealth manager that is also a financial planner can help you make far more effective decisions by changing your thinking to long-term. Long-term thinking can make these difficult decisions clear.
For example, periods of 20 years or more, the stock market is more predictable and has a lower standard deviation (after inflation) than fixed income. Short-term thinkers consider investment fluctuation as risk, but stocks have reliably recovered in history. Long-term thinkers see that inflation eats fixed income. A 30-year bond today pays about 1.5% when inflation is at least 2%. You should expect your money invested in fixed income to buy less 30 years from now than today.
Long-term risk is the risk of not achieving the return you need for the future you want, which is likely to be 6-8%/year. It is clear that crypto currencies are high risk long-term, since there is no way to know their long-term future growth. The stock market fluctuates, like cryptos, but has had reliably high returns over the long-term in history.
Take Advantage of Advisory Platforms
In just the last few years, technology has once again transformed the marketplace and how we interact with it.
Investors are now embracing newer and easy-to-use platforms that allow investments to be made in just a few seconds on your smartphone. The infrastructure of wealth management is being digitized faster than ever, resulting in new incentives for companies and investors at the vanguard of new technology.
Today’s wealth managers should allow you to make investments online, sign nearly all forms online, view performance online, and have in-depth financial meetings online.
Or as Outlook India put it: “Collaborating with wealth tech providers can help the traditional wealth advisory firms expand their capabilities and enhance digitalization faster and in a cost-effective manner.”
Planning With Goals
Investors and wealth managers now act more conscientious about making specific goals and planning accordingly.
These goals can be short-term, like saving for a vacation to Thailand or buying a new television, or they can be long-term, like saving for a down payment on a house, paying for college, or retirement. Smart wealth management strategies must include these goals and how to meet them.
Financial blogger and fee-for-service financial planner Ed Rempel says it’s important to have an “interactive financial plan” that answers important questions, like:
- When can I retire with the lifestyle I want?
- How much do I need to have to retire confidently?
“Look at many life options,” Ed Rempel said in a recent blog post. A financial planner with an “interactive financial plan” can show you the effect on the life you can afford in the future of many different life choices that you make now. “It is the only way for you to get exactly what you want out of life.”
All conversations between clients and their advisors should include concerns about long-term goals, even decades before a client’s potential retirement.
The 21st century has created both new challenges and new opportunities for those interested in managing their money with intelligence and care. Keep working at it. You can achieve the financial independence you want.