In the previous post, we looked at how to go from goals to actions and the benefits of a 40,000 foot view. This time, we'll look at what you need to do.
Everything You Need to DO
1. Keep Actions Focused but Fluid
What I mean by this is that the actions we take need not to be diverted in the short term, and certainly not by the sorts of things we can’t control. But they may need to be adjusted in light of the long-term view.
Working back from our goals to establish actions today means we know what we have to do, and the variables, such as growth targets we have assumed, give us the parameters to work within. We use those to say, “To get from A to B, I need to put C aside. Assuming X% growth rate.”
The long-term perspective gained from 40,000 feet also means we can see the prize on the horizon. That should inspire us to be laser-focussed in the here and now. We can see the result and we know what we need to do.
As we progress along the journey, we may need to reassess things like growth rates used for projections, or we’re not comfortable with the level of volatility in our current investments. As a result, our actions today may need to change, as we see things from a higher level as we go forwards.
We need the 40,000-foot perspective to check our overall trajectory and adjust course where necessary. We mustn’t be wedded to our action points determined at the outset. We’ve come to them now in an intelligent way, made assumptions and looked ahead to work backwards to what to do now, but our high-level perspective may mean they need to be changed. We need to be prepared to hold them lightly and adjust where necessary.
2. Set Actions as if Nothing Will Ever Change
While our 40,000 foot perspective will allow us to make changes as we go along, because of our overview, it should also provide us with some reassurance that we should actually very rarely need to make changes: we need to set our actions so they can change, while accepting that they probably rarely will.
The best example for this is in determining your investment approach. Your goal might be to achieve financial independence by a certain date. To do that, you need to amass, say, half a million quid between now and then. To get there, you need to save so much a month now and increase it by so much each year. You also need to invest to aim for your desired level of return.
What are the variables here? The first is your level of savings – you can control that and adjust as necessary. Why might you need to adjust? Well, in light of the performance of your portfolio, most likely. If the portfolio doesn’t perform quite as you’d like, you may need to increase your savings level to compensate.
You could adjust your portfolio, saying, “The numbers are now not stacking up, so I need to take more risk to get there.” However, there’s a danger in that. It’s a far less robust approach to tweak the figures to get to your goal, because you can’t control future performance.
You can control your savings rate, but tweaking your investments to try to make the sums work and get a higher return to hit your target offers no guarantee that things will be better post-tweak. It may be worse! But you can adjust your savings rate, and we do know to the penny what the impact will be.
Goals are MT – they have a Measurable sum of money attached to them and a Timescale. From there you can work out, using the tools we looked at in the last chapter, what you need to save in order to meet your goal, with an assumed level of investment return and assumed inflation rate. Set your investment approach with a view to hitting that desired return and assume it’ll never change.
If, at review, you find out you’re off-track, then you can make an adjustment to your savings rate or to your timescale to make the numbers stack up again. Another example is to make decisions about things like tax-wrapper choice based on the rules today.
Don’t put off saving into a Lifetime ISA in case it’s withdrawn one day. It might be, but something else will be offered and you don’t want to have missed out on the benefits of the LISA in the meantime.
Similarly, as I mentioned in the previous post, you may consider change what you’re doing now with your lifetime Allowance in light of the issues you may have in 20 years’ time. You can, but you need to be nimble. When we’re determining actions based on our future goals, we can now that the landscape for things like wrapper choice and investment approach probably won’t change much over time.