“wealthcheck” for early career professionals

wealthcheck for early career professionals
By your late 30’s, your decisions may have significantly shaped your financial future

In a previous article, “ ‘wealthcheck’ and retirement preparedness”, we used the “wealthcheck” framework to compare the financial vulnerability of two, apparently similarly placed, pre-retirees. We also claimed that the framework was just as applicable to assessing the financial soundness of early accumulators.

To demonstrate, this article compares the situation of two (fictitious) couples, the Blacks and the Whites, who are both successful young professionals and 27 years away from their nominated retirements. While retirement seems a long way off, the “wealthcheck” framework reveals that financial decisions made at this stage of life can significantly limit future financial flexibility and, perhaps, make you unnecessarily vulnerable to financial disappointment.

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How much investment risk can you bear?

How much investment risk can you bear?
Your allocation to growth assets is a key measure of investment risk

In our previous article in our series on the Personal Financial Dashboard – a graphic format that succinctly captures the journey to, arrival at and maintenance of financial independence – we discussed the need to be tax aware when investing. Financial independence is harder to achieve if there is an unnecessarily large tax leakage.

But tax shouldn’t be the overriding factor when making investment decisions. Rather, the primary focus should be on risk and related return. The Personal Financial Dashboard includes two charts which look at key aspects of investment risk management i.e.:

  1.  the Growth  Asset Allocation Ratio (Chart 5); and
  2. the Diversification Ratio (Chart 6).

In this article we focus on the Growth Asset Allocation Ratio (“GAAR”). The Diversification Ratio is discussed in our next article.

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Are your investments held tax effectively?

Are your investments held tax effectively?
The Tax Effectiveness Ratio is a guide to investment tax efficiency

Each of the previous articles in our series on the Personal Financial Dashboard – a graphic format that succinctly captures the journey to, arrival at and maintenance of financial independence – referred to net investment wealth. The first examined its change over time, the second its proportion of total wealth (the “Investment Wealth Ratio” (“IWR”) and the third in terms of the number of years of desired lifetime spending it would support (the “Retirement Expenditure Multiple” (“REM”)).

But regardless of the apparent adequacy of the amount of your net investment wealth, to increase the chances of both becoming and remaining financially independent there are some investment related practices and behaviours that are better than others. A critical one, that is the subject of this article, is to invest so that you don’t pay more tax than is necessary.

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Financial planning as lifetime wealth management

Financial planning as lifetime wealth management“Living for today” has future consequences

We often hear people say that they don’t plan too much for the future. They’d rather live for today, as they argue you don’t know what’s going to happen tomorrow. And many of these people spend today as if there isn’t going to be a tomorrow.

Also, it’s not unusual for parents of Gen Y children, who are in their late 20’s or even early thirties, still living at home or travelling the world, saving very little, to suggest that times are different now. They are unconcerned that their adult children aren’t settling down and focusing on their desired futures, because that’s the “new normal”.

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Should Gen X ever desert the share market?

Should Gen X ever desert the share market?Gen Xers should be rejoicing

An article in “The New York Times” of 29 May 2012 titled “Younger Investors Jaded About the Stock Market, Survey Finds”, reported that a survey commissioned by Charles Schwab & Company revealed:

“About a third of Americans aged 18-34 said they planned to pull money out of the stock market and were most likely to “sit on the sidelines” in the next six months”.

The gist of the article was that young adults had been scarred by the stock market performance of the past 4-5 years and, accordingly, were reluctant to take investment risk. We would expect to find that Australian Gen Xers have a similar attitude.

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