Setting priorities

By Alex Fowler

While every investor may think he treats himself as the number one priority with his personal investments, local and international research proves that sadly this is not the case. It amazes me how little work is applied by very successful farmers and business people when it comes to investment decisions following the sale of their long-term business. The same situation applies when a long-serving employee or professional closes the office door for the last time and heads into retirement.

The long term costs of inefficiencies
Compelling research shows that the majority of these newly retired investors, with substantial investments, will run out of cash flow within 16 to 20 years. This result will naturally be disastrous for many widows who are now living into their 90s and even achieving their 100-year milestones.

Worst examples of financial inefficiencies
• Trusting bank advice and placing significant amounts of capital in low interest bearing deposits, which after allowing for taxation and inflation, give no real return.
• Secondly, when investing in growth assets, never having the ability to measure financial efficiencies on a risk, return and cost perspective. Research shows this alone costs investors 4-5% per year. Readers should understand that a 4% inefficiency with $1million can cost in excess of $700,000 over 10 years.

Reason for these experiences
My own observations show me that most individuals who have spent a lifetime developing the skills to succeed in their business, simply wish to start enjoying their retirement with their families and travel. The last thing they want to concentrate on is learning new financial skills that are essential in order to develop confidence in future outcomes. It is worth mentioning, they often find it difficult to find somebody they trust, so they feel comfortable with well advertised brand names.

What is the answer?
We all know that there is no success in life without some effort. We see this in managing a family, educating children, business, sport and even making marriage successful. Achieving long-term financial security is no different – it takes some constructive effort.

The good news
There is no need to go back to school to spend years learning a new skill. Some excellent books are available which give investors an idea of the essential basics including how to achieve successful financial solutions and make investment service providers more accountable. Two I recommend are:
• The Investment Answer – Learn to manage your money and protect your financial future – only 85 pages. Daniel C. Goldie & Gordon S Murray. Publisher Business Plus, Hachette Book Group
• The Wealth Solution – Published by Loring Ward.

Published 1 February 2012