Here at UHY Haines Norton we are often asked about wider personal financial planning issues as our clients start to think about their transition into retirement. Authorised Financial Adviser (AFA) Simon Stredder from Hassan & Associates will address some of these issues along with financial issues affecting business owners and others who are thinking about retirement.

A key assumption of classical economics is that we humans are rational creatures. This has recently been turned on its head by studies of actual human behaviour. The research suggests that while we tend to make small decisions rationally (like which pen to buy), our limbic brain – the seat of our emotions – tends to take over when we are faced with big decisions (like how to invest life savings). As a result we are inclined to rush into wealth-destroying decisions based on fear and greed rather than calm consideration and research.

Retirement Planning picThe extent to which this affects us is revealed by research we’ve referred to before by US-based Dalbar. Their research compares returns from the US share market with what people who invested in US share funds actually got. Dalbar’s control click on latest report shows that in the 20 years to December 2014, US shares averaged 9.9% per annum (enough to turn $100k into $655k). But the average investor in US share funds over that period got just 5.2% per annum (enough to turn $100k into $275k). The biggest reason for this massive shortfall was that the average investor only stayed in the market for 3 to 4 years. And typically they got in – and out – at the wrong times.

The best way to protect your investments against uncertain markets is to diversify.

A respected economist was once asked what would happen to interest rates. The immediate answer was a confident ‘They will rise by 2 percent.’ But when the questioner followed up with ‘When?’ the economist replied just as quickly: ‘Oh I couldn’t tell you that, and they may fall first.’

This story reminds us that no one can see into the future. Because of this the important thing when designing or managing an investment portfolio is do what you can to make it ready for whatever may happen. This usually means spreading your investments around. Trying to predict next year’s great investment idea is folly. This ‘patchwork’ diagram from investment researcher Morningstar shows this clearly. It ranks the performance of different investment sectors every year between 1990 and 2014.

Retirement Planning pic 2A well-diversified portfolio combines investments from a range of different sectors. When executed properly this can reduce risk (volatility) without reducing expected returns.

This information is general in nature and not intended as personalised financial advice. If you would like to discuss your financial options in more detail please contact Simon Stredder from Hassan & Associates at Disclosure statements are freely available on request or a copy may be downloaded from our website at