As the popular saying goes, ‘The only thing that is constant in life is change’. Is your current financial plan up-to-date to account new changes?
Financial planning is, and always will be an ongoing process. After all, your financial focus has changed according to the different stages of your life. Once it was your education, or saving up for your first mortgage. Now it may be your children’s education or a comfortable retirement.
Because change is both unavoidable and unpredictable, there is no such thing as a comprehensive, one-size-fits-all financial plan that will stay relevant throughout your whole life.
Indeed, financial planning is ‘a comprehensive evaluation of an investor’s current and future financial state by using currently known variables to predict future cash flows, asset values and withdrawal plans’. (x).
Regardless whether you are doing all your financial planning yourself, or using the services of certified financial professionals, you should be aware of new trends so you can make educated, informed decisions about your finances.
What should be included in your financial planning?
According to one source, your financial plan should include your current net worth (here’s how to calculate), your tax liabilities (seek advice from a tax professional), your asset allocation, and your future retirement and estate plans. All of these information will be combined with your asset growth trajectory to determine whether you are making progress to achieve your financial goal.
In the best case scenario, you might find that you don’t have to change anything – you’re on track to reach your financial goal. However, if you have not updated your financial plan in a while, you might find that you need to make many changes to salvage your financial progress.
Regularly updating your financial planning is similar to regularly balancing your car tyres. Do it often and your path will continue straight. Do it rarely and you’ll find yourself off-course.
Investing Trends of Finance Professionals
Surveying the current investing trends is an important aspect of financial planning. Specifically, wouldn’t it be great if we can have insight into financial professionals’ investment recommendations?
Fortunately, we can share the answer to that question, based from the results of ‘2015 Trends in Investing Survey: Where Financial Advisers are Investing Now‘.
The results of this survey can greatly help you to limit your current risks and maximise your wealth, especially if you are doing your own financial planning.
Financial Planning Trend #1: Exchange-Traded Funds (ETFs) Surpassed Mutual Funds in Popularity
Once upon a time, most certified finance professionals will recommend mutual funds as an investment vehicle. According to the survey results, taken from 303 online financial advisors (97% of them CFP™-certified), exchange-traded funds (ETFs) has steadily gained popularity since 2006 and finally surpassed mutual funds in 2015 – ‘81% of financial advisors currently use or recommend ETFs with their clients’. Mutual funds (non-wrap) was still a close second at 78%. There is a strong indication that this trend will continue.
Financial Planning Trend #2: Smart Beta Concept is Increasing in Popularity
Smart beta is a relatively new concept in the financial world. It is defined as ‘a set of investment strategies that emphasize the use of alternative index construction rules to traditional market capitalization based indices’ and emphasizes ‘capturing investment factors or market inefficiencies in a rules-based and transparent way’ (x)
The usage of smart beta is still relatively small – currently, only ‘22% of advisors have used smart beta ETFs with clients in the last 12 months (since March 2014). Only 14% of advisors say that their use and recommendation of smart beta increased (in the last 12 months), but a whopping 60% of advisors did not answer whether they will use or recommend smart beta in the future – it is clear that smart beta is still in its early adoption phase.
Financial Planning Trend #3: Financial advisors are Moving Away from Annuities
58% of financial advisors used to recommend variable annuities to clients in 2006/2008. 49% of financial advisors also recommended fixed annuities to clients in 2010. The percentage is now down to 38% and 28%, respectively. If your portfolio is mainly made up of annuities, you might consider seeking advice from your financial advisor.
Did any of these investment trends surprise you? Please take the above financial planning knowledge with a pinch of salt – after all, your specific financial situation might be unique. That said, we will always advocate regular check and balance of your financial plan. Here’s to the best financial health you can achieve!