I’ve finally got round to speaking with a financial advisor.
I told the advisor that my goal was to work toward financial antifragility. For obvious reasons.
He knew the concept of antifragility and was very amenable to the idea, but, naturally, he had his ‘tried and tested methodology’ which he has been using with clients for a number of years. There was some overlap and some important insights that I’ll share here.
In essence, we’re going to start by reducing my current fragility, which goes back to the question of ‘figure out what could bankrupt you and work backwards from there’.
Insights and key areas …
Bankruptcy / ruin
There were a number of things that could bankrupt me (health, theft, fire etc) and there are financial products one can take to ‘transfer the risk’ for a price.
Basic Admin
There are also administrative things I hadn’t thought of in case the worst happens: ‘power of attorney’, access to partner’s bank accounts, etc. Most of these only need to be done once and updated.
Saving for the future
Regarding pensions, we had different views. I had done some calculations and concluded that: based on my current pension contributions, there was no point adding more than the legal minimum (4%) because the expected return in 30 years minus the inflation would be less than taking the money now (even after tax) and using the money for investment. I’ll aim to do this caluclation again, but the financial investor was much more in favour of ramping up the ‘pension pot’. I’m not convinced.
One in the hand is worth two in the bush, as they say and so it’s important that the money taken now (instead of in a pension) is indeed invested and not spent on increased living costs.
We both agreed that most pension firms shouldn’t be trusted or relied upon.
Managing your pensions
I also mentioned that many of my father’s friends had seen their pensions decimated in the last financial crisis. His response was that those people probably didn’t engage with their pensions – they just let the pensions funds do whatever they wanted. Here we agreed, that it was better to have control of our pensions. He advised looking at SIPPs (Self Invested Personal Pensions). My next step is to transfer my existing pension to a SIPP so that I have control over it.
Rainy day fund
There’s a typical £5000 figure banded about as a ‘rainy day fund’. I don’t know what it’s based on and neither did he. I wonder if it’s outdated. I agree there should be some liquid finance. I’m going to calculate this based on 9 months of living at current prices, and see what figure comes up. I think it’s more than £5k.
Current outgoings
I’ve started monitoring my own personal finances every couple months. All this electronic payments makes it easy for me (and banks and their advertisers) to see what I’m spending money on.
Key insight
One key insight was that I can ‘no longer think of myself as an individual’ – I’m now a family unit. Whilst I’ve been part of a family unit for almost five years, I had never thought about it in financial terms. This was a crucial paradigm shift for me. The risks I take as an individual male are not the same as what a family man can take. It took me a while to recognise and internalise this. Very pleased to have made this connection though.
Investments
I still need to sort everything out, but I see this community as a perfect opportunity to discuss investment ideas and even pooling resources together as leverage. He made combined financial investment with colleagues / friends twenty years ago which have since brought a healthy return for him.
Is it worthwhile?
I think for a fee, it’s certainly worth getting some advice. Whilst I’m not going to take all of his advice, there are many legal and administrative things that I don’t know about and don’t have the time to read about. In that respect, his fee is saving me time. I’m keen to keep my own ‘skin in the game’ so that I can take control of my finances and keep learning.
Actions
- sort out the boring financial admin stuff one-by-one
- move pension to SIPP
- figure out what could ruin me
- consider any financial investments that may ‘transfer’ the risk of ruin
- lock some liquid asset into a rainy day fund