The long game: Avoid risky get rich schemes with wealth management planning

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We’re all familiar with get rich quick opportunities: a promise of making a fast fortune that often seems too good to be true, but many people buy into anyway.

Ponzi schemes, pyramid schemes; whatever the description, these investment programmes carry huge risk, even if it isn’t readily apparent.

The term ‘get rich quick’ dates back more than 130 years according to the Oxford English Dictionary. Slightly more recent is the century-old Ponzi scheme, peddled for its supposed high rate of return based on a so-called low-risk investment.

Latterly, you may be aware of the proliferation of schemes proclaiming that anyone can build a property portfolio, and gain certification for doing so in double-quick time.

It’s understandable that eager investors can fall into this trap. Younger clients in particular often take a short-term view. This is driven by the idea of retirement seeming so far away; a general lack of financial education; a boom in cryptocurrency attracting this audience by delivering substantial, albeit volatile, returns; and the need to access capital quickly when it’s harder than ever to get on the property ladder.

Against this backdrop, getting advice from a wealth management expert who will align a long-term financial plan to your personal goals is vital. And experts will almost always tell you that slow and steady wins the race.

If advice is inaccessible, then building financial literacy skills – one of our key missions – will help people manage their finances more effectively.

Aligning goals with long-term investment

In most conversations I have with investors it’s clear they understand the volatility and potentially big losses associated with a short-term wealth management strategy.

There’s also widespread grasp of the counterpoint that when wealth grows carefully and steadily over a longer period, the returns are worth waiting for.

Recognising an investor’s unique goals from the outset is imperative. If that includes a desire to get rich quick we’ll educate them on what good investing looks like. It sounds boring – but it will stop them having to experience the rollercoaster ride of a short-term investment strategy.

All of this takes a great deal of patience and a long-term mindset.

Any wealth management plan will likely last for several decades. Putting this in place means firstly focussing on end goals, then working backwards, to ensure your finances perform well over time.

Getting your wealth management plan right

Sensible investment is vital to successful wealth management. This involves closely considering how to spread risk. Whereas a get rich quick scheme might concentrate on a single investment opportunity, which could go badly wrong and lead to heavy losses, long-term wealth management flourishes through diversification.

By that, I mean a financial plan that allocates the individual’s funds into a global portfolio, spanning a range of sectors, geographies and asset classes. Unlike investing in a single stock or instrument, if one element of the diversified portfolio came under pressure losses would be minimised – rather than the entire investment being wiped out in one go.

There are plenty of tax wrappers allowing someone to hold a variety of investment funds on the market, which provide an opportunity to gain a steady stream of income over time:

Pension (55-plus)
Investment bonds
General investment accounts

The underlying investment can be predominantly equities; or fixed income; or a mix of both. It largely depends on the individual’s attitude to risk and when they intend to withdraw funds – something else a well-crafted financial plan will indicate.

Putting your finances on a firm footing

Starting at the end also means paying great attention to the wealth you are expected to hold when you die.

In building cashflow models we assume someone will die aged 100 (currently 12 years higher than average life expectancy). We also factor in 5%pa growth on investments, 2%pa interest rates and 2.5%pa inflation for the purposes of modelling. This helps to identify whether the person would run out of money and exhaust all liquid assets before hitting 100, or die with assets remaining.

Ideally, when someone dies they’ll leave a legacy. This brings inheritance tax considerations into the equation; but the client’s needs are the first priority and tax planning can follow.

Of course, personal needs and goals always change over time. The plan therefore needs to offer a level of flexibility, with regular financial reviews taking place.

Follow all of the steps I’ve outlined above and you’ll stay on a firm financial footing for the long term, rather than risking your wealth in pursuit of short-term gains that might never materialise.

Just as a keen gardener would plant seeds and wait patiently for them to flourish, you can stand back and see your long-term wealth management plan begin to reap rewards.

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