Investing for Income
In our view there are only two reasons to invest in long term income paying financial assets (as proxies for wealth creation – profitable production) and land. One, for income in the future and two, for income now.
For income now or in the future, and before even beginning to think about investment planning, we all need to make some decisions about where we want to go and the choices we will have to make to get there. At one extreme there are those who will never consider the future, never have any real plan or goal as to where they want to be, both professionally and financially, in ten, twenty or thirty years time. At the other there are those who know exactly where they want to be, what they want to be doing and when. Between these extremes there are many grades of clarity, ambition and goal setting, this latter state probably applies to most of us.
Most of these ambitions and goals in some way involve money. As a lump sum to enable their purchase, as cash flow to enable their implementation or perhaps as an end in itself. Ultimately the only way to escape having nothing is to have enough. Clearly ‘nothing’ is not generally an option our clients would consider. The amount that is ‘enough’ will depend on our own personal preferences, needs and desires.
We all dream at one time or another of winning the lottery. Apart from giving us the wherewithal to buy what we want, what is really most people’s reason for wanting to win the lottery? We believe it is financial independence.
We define financial independence as having sufficient capital and/or income to give you the choice as to what you want to do. That is, the income from your investments will support you indefinitely. These numbers will be different for each of us. As the odds of winning the lottery are very poor the only realistic way for the vast majority of us to attain financial independence is through our own efforts. For example, by saving from income or by investing intelligently, or by building and selling a business or perhaps from an inheritance.
For income, now the questions are much easier to answer. Do I have enough savings and investments (not forgetting other income and entitlements) such that I can draw an income that will keep body and soul together, plus a little fun, and not run out until I do not need it anymore?
All of which is a long-winded way of explaining that investment planning does not take place in isolation. It is not, or should not be, something separate to the rest of our lives. To be successful, and efficient, it should be set against a background of clear and achievable goals. It should be part of a holistic financial planning process that allows for risk and capacity for loss and integrates with our personal and professional plans and ambitions. It should be disciplined and have clear simple targets.
In our experience the two biggest threats to the success of investment planning are a lack of planning and a lack of discipline.
Our job is therefore threefold.
- One to help you construct a realistic financial or investment plan
- Two to provide a discipline to the achievement of the plan
- Three to advise on and administer an efficient risk rated and successful investment strategy.
With these key factors achieved we can keep you on track towards your financial goals, and ultimately closer to attaining financial freedom.