During a recent boxing match that we watched, we heard the trainer saying, “protect yourself at all times!” This got us thinking that the same advice could be given from a financial perspective. So, with that in mind, we’re going to explain why this advice is important to you, but using a financial planning view.
The sentence protect yourself at all times could have a very wide interpretation. But when it comes to financial planning, it simply means that you can’t be under any illusions of what you should be doing – you need to have a clear plan and you need to be protecting yourself at all times, thinking about what could go wrong and when. This will avoid panic at times of market volatility, for example.
That said, protecting yourself at all times doesn’t mean your moves should be all about the defence and completely ignore the offence. Just like in the boxing ring, if you stand around doing nothing but protecting yourself, you’re never going to win.
If you never throw a punch, you can’t expect to get ahead (and yes, we are still talking about boxing!)
As people get closer to retirement, there’s a common assumption that they should start ‘playing it safe’ when it comes to their investments. And all too often, this sees people move all their investments into cash and bonds – and not left in shares. Unfortunately, this is playing it too safe – and protecting themselves too much. It also means that their money will hardly grow, which is the equivalent of standing in the ring and only protecting yourself.
Of course, proper training is important so that you know the right actions to take and know that you won’t panic. During times of volatility, people do tend to panic – and it’s the worst thing they can do. We always warn our clients that their super and investments will drop due to volatility – but that the best course of action is to stay calm and hang onto the shares rather than trying to sell.
While you should protect yourself at all times, you should also make sure you leave gas in the tank. So often we see people who are earning good money, often as a double income, and straight away they go and buy two new luxury cars simply because they can afford the weekly repayments in that moment. They literally spend their entire paychecks each fortnight. It’s easy to do – but you should always leave some money for the hard times. As we have recently found out, they do happen!
Have a plan, throw some punches, but don’t take too many risks at once. It’s about balance.
So, to sum up:
As Mike Tyson says: everyone has a plan until they get punched in the face.
Always have a financial plan – and then stick to it.