The most important job you have, is being your own financial adviser

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You’re one of my favorite people – because you’re reading my stuff – but as much as I love you, I don’t care about your wealth as much as you do. Financial advisers or advisors, I never know the difference, are paid to help you look after your money. But I bet they care about their own wealth more than yours, and I’m certain that you care about your own wealth more than they do.

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That is why it’s so important for you to be your own financial adviser.

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How to be your own Financial Adviser

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There are a few things that a decent financial adviser will do when first sitting down with a client. I know, I used to be one.

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What do you want to achieve?

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Always best to start with the goal in mind. So perhaps you’re looking to save for a house purchase, what deposit will you need? Or maybe you’re looking at saving for retirement, in which case how much do you want to get each month to live off?

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Once you’ve got a goal in mind, then you move on to the next stage.

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What time frame are you looking to achieve it in?

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This is where everyone gets a bit stupid. Of course you want £4m in the next 6 months, but let’s throw in a pinch of reality here hey? This is where financial advisers can sometimes be seen as boring feckers, but it’s a critical factor.

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£200 per month invested at 8% return per year for 10 years gives you around £36,000.

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The same amount but invested for 50 years gives you £1.5million.

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So depending on what your goal is, this might dictate your time frame.

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What level of risk are you willing to take on?

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Now the old theory was the higher the risk, the higher the reward. And while it’s kind of true, it’s not the full picture. You can have fairly good and consistent returns without needing to go mental with high risk investments.

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But if we take the very broad categories of :

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• Zero risk, I’d cry like a baby if I lost money

• Some risk, I really would rather avoid taking any losses in the pursuit of gains

• Medium risk, I accept in order to make a decent return I might make some losses along the way

• High risk, I will do anything for the highest possible return and can handle the consequences

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This is how the industry splits people up and decides how much money to invest in which asset class. Now and the biggest mistake I see people making is putting themselves in the wrong category. Bit like Mike Tyson said, “Everybody got a plan until they get punched in the face”.

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Everyone thinks they can accept the high volatility that comes with higher returning assets, until they experience a 30% drop in their investments. Then they cry and sell everything, so they never have to experience it again.

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As your own financial adviser you need to decide what level of risk you’re willing to take on, and be realistic, and then find the asset allocation that meets your criteria.

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How much money do you have?

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If you want to have £250,000 and you already have £240,000 then it’s going to be pretty quick and easy to get an extra £10k.

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If you want £75,000 and you have £0… probably going to be a bit harder. If you’re shooting for £4.75m and have £12.48… it might take a while.

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You need to work out how much you have available for your investing goal. Perhaps you’re saving for a house AND retirement, then how much do you want to put into each pot? How much can you save each month towards this goal? And what level of risk are you willing to take with each investment fund?

Don’t just think of it as one sum of money that you’re trying to turn into another sum. Break it down by goal, timeframe and risk.

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Conclusion

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It’s absolutely necessary for you to be your own financial adviser, because nobody else cares about your wealth as much as you do.

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That’s not to say you’re on your own in this fun and slightly confusing game though. You can still use traditional advisers to help fill in the gaps of your knowledge, but by rocking up and asking them the right questions, you’ll at least be getting pointed in the right direction.

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If you need help learning about your options, then you can Google the shit out of things, you can read my book here or you can go a step further and look at how you can Make Money Your Bitch and learn pretty much everything you need to know to create a risk adjusted balanced portfolio (which is a fancy way of saying – a bunch of investments that works for you).