To put it bluntly, if you don’t know what you need for what you want to achieve, you are unlikely to get there.
This is where your family financial planning is very important.
For most of us, this is probably a number we need to achieve so that we can retire with some confidence and comfort in such a turbulent world.
Set a Goal: For most of us, our numbers are what we need to achieve to enable us to retire with some confidence and comfort in such a turbulent world.
This number may scare investors in the beginning, but that’s why we need to get started as soon as possible.
To give you some idea, if you could get a 5 percent return (both on income and capital growth), say, £500,000, that would give £25,000.
Not a huge amount to live for, but at least it can give you a goal to work for.
income or capital?
Many people will try to talk to you about returns and capital growth and it often turns out to be confusing. I like to look at ‘total return’, which is dividends and capital growth put together.
This is because you can easily establish how long it will take to double your money – sensibly – and what goal you should be looking to achieve.
a ‘magic’ number
It’s 72! Overall 5 per cent return on your portfolio in the past one year was not unusual and could be as high as 7 per cent for some.
Now if we divide 72 by 7 percent, you will get 10.28.
This will actually tell you that your money will double every 10.28 years.
Putting this as a short ‘ready reckoner’ will give you an idea of what your money can do for you – for example, a return of 5 percent would take 14.4 years and a similar 10 percent would take 7.2 years. .
Starting with family?
Let’s say your grandparents left you £25,000 in their will.
If it is invested with a total return of 7 percent, then after 50 years you will have some £800,000 (and after 60 then £1,600,000!) 40,000.
Is it too late for many of us?
In fact most of us are living longer, and of course the rest of your family will still be there.
This is a simple number but hopefully it will give you more confidence in finances and less fear about your family’s financial future.
I haven’t mentioned any tax breaks that might also help and we should look at these for another week.