Financial planning and cars are analogous.
The various components of a car – engine, chassis, transmission, brakes and steering complement each other.
The various components of a financial plan – investment strategy, products, tax planning, cash flow forecasting and objectives also complement each other.
If any one of them is missing or deficient the car / financial plan will simply not get down the road in the way it should, or at all.
A major component in a car is the engine. For a financial plan this is the investment strategy.
Ninety-nine times out of a hundred when you look at the engine in your car everything seems to be as it should. It’s the same with your investment strategy.
However, we know that engines need regular attention. Without it they soon lose performance. Oil, belts, spark plugs, filters all need regular attention to maintain performance. Look a little closer and you will often find that your engine would benefit from this or that being cleaned, topped up, replaced or tightened.
If you look at your investment strategy it probably seems to be in order too. But look a little closer and you will almost certainly find it’s not running at its optimum. You could be paying too much, be invested in the wrong areas or any number of other things could be off.
If your car is a Ford Focus a quick check and top up, followed by a full service every couple of years is probably enough. This is you and your investment strategy in your 20s and 30s.
If you have a Porsche 911 Turbo, you will want to be doing more than that. First, because you want to feel all of that horsepower all of the time (otherwise why spend a very considerable sum on the car?) and secondly, not doing so can lead to eye wateringly large service and repair bills down the line.
The Porsche is akin to being an investor in your 40s or older – when your investment strategy matters like never before.
Are you giving your engine the attention it needs?