The Six Steps to Successful Wealth Creation

About the author:

Terri Bradford
Author name:
By Terri Bradford
Job title:
Head of Wealth Management
Date posted:
07 September 2021, 8:00 AM

Financial planning is an important process in helping you achieve financial success. It is a process of defining financial goals and tailoring solutions to help you reach those goals. With the right advice and a patient investment approach achieving financial success can be relatively simple.

One way to financial success is to set out a plan - and stick to it. To show you how, we’ve outlined the six key steps to kickstart your plan.

Step #1 - Ask for professional advice

Perhaps the best financial advice you will ever receive is to seek expert advice. A professional financial adviser is accredited and trained in the areas of financial planning, investment, superannuation, retirement and insurance planning. Why leave it to chance? Your financial future is too important.

Step #2 - Define your financial goals

Before you make any financial decisions you need to make your goals realistic and very clear. Ask yourself what you want to achieve. Are you saving for your first house? Your children’s education? Are you trying to build up a retirement nest egg? Or are you trying to invest that nest egg to provide an income in your retirement?

Perhaps you’re working towards a number of these goals. The more specific you can make your financial goals and objectives, the more powerful they will become and the more likely you will be to achieve them.

It’s also important to remember that as your personal circumstances and needs change, your financial goals may also change. So it is very important to do a ‘reality check’ on your goals every few years.

Step #3 - Decide on a suitable timeframe to achieve your goals

Once you’ve decided what you want to achieve the next key to successful planning is to establish some very clear and realistic timeframes within which you expect to achieve your financial goals.

Exactly when do you want to buy a house? Or when do you want to retire? Perhaps more than any other factor, the time over which you intend to invest will determine which investments are right for you.

Step #4 - Agree on an appropriate financial strategy or strategies

Your financial adviser will review and analyse all of the information you have provided in Steps 2 & 3 in order to come up with appropriate strategies that will help you achieve your goals.

Working with you, your adviser will develop a plan that will get you started on the road to financial success.

Step #5 - Select appropriate assets for investment and implement your plan

Asset allocation is the process of building a portfolio with a mix of assets that will meet your personal and financial objectives. The decisions you make (with the help of your adviser) about how much to invest in each asset class will largely determine the long-term risk and return potential of your investments.

The aim of the asset allocation process is to establish how much of your money needs to be invested in each asset class to achieve a level of risk and return that is suited to your timeframe and financial priorities. The proportions you decide to invest in each asset class becomes your ‘benchmark portfolio’.

What are the main asset classes?

There are four main classes of assets in which you can invest:

  • cash
  • fixed interest/bonds
  • property and shares.

The asset classes that are more volatile in the short term (e.g. shares and property) have usually outperformed the less volatile asset classes (e.g. fixed interest and cash) over the long term (7 or more years).

Unfortunately, there is probably no such thing as a low risk, high return investment. This is the risk/reward trade-off and it’s the core of the investment conundrum - higher volatility is the ‘price’ you have to pay if you want higher long-term returns.

The objective of the asset allocation process is to maximise long-term returns for a given level of short-term volatility.

Your investment horizon and risk profile

To determine the right investment or mix of investments for you, you need to establish whether or not (and to what extent) your aversion to risk outweighs your appetite for reward. The answer to that question is known as your ‘risk profile’. Your risk profile will depend to some extent on your personality and priorities.

However, a more important factor is the length of time you intend to invest, because the volatility of any investment is reduced when returns are averaged out over a greater number of years. Time effectively reduces volatility, so the right investment for you largely depends on your investment timeframe or ‘investment horizon’

Once you are happy with your financial plan and/or investment portfolio your adviser will help you implement the recommendations.

Step #6 - Review your plan regularly

You need to make sure your financial plan stays on track, and your investment strategy is in line with your risk profile and objectives.

As mentioned in Step 2 your personal circumstances may change or your goals may vary over time. For this reason it is important your financial situation is reviewed regularly to capture any such changes.

Relative movements in the market for the various asset classes will change the mix of assets in your portfolio over time. Your allocation to some assets will grow or shrink relative to the others.

When this happens, you may want to ‘rebalance’ your portfolio, either by selling the assets that are outperforming or buying more in assets that are underperforming. This may sound strange but what you are doing is maintaining your original asset allocation and sticking to your benchmark portfolio.

The best person to help you review your plan is your adviser.

ASIC (Australian Securities & Investment Commission) is urging people to make a positive start to their finances by taking small steps to improve their financial position. This could be as simple as starting a budget.

Their ‘MoneySmart’ website states, “A smart investor takes time to understand the basic principles of investing, then develops, and sticks to, a sound investment plan.“

Whatever the time of year use the opportunities available to you to think about your financial position and what you can do to improve it or build upon it. Use the six basic steps outlined above and kickstart your financial plan.

Find out more

If you would like access or more information, please contact your adviser or nearest Morgans office.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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