Six steps to manage your own wealth

There’s no getting around it, managing your wealth without professional help takes some work. But the reality is, while the services offered by professional wealth managers and financial advisers can be valuable, not everyone can afford them.

Last year, the Financial Conduct Authority (FCA) found that only 32% of financial advisers are prepared to work with people with less than £50,000 in investable assets. This means that, other than using a robo adviser - which give guidance rather than advice, anyway - many of us are left to go it alone.

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The complexity and jargon-heavy nature of the financial landscape can make this a challenge. But learning about what the wealth management process involves can get your financial future on firmer footing.

Plus, there are benefits to the DIY approach. Most notably you could save yourself a few quid in advice fees - though it could end up more expensive if you get things wrong.

To help you avoid this, here are six steps to get you going.

1. Find out what you want in life and make a plan

Let’s start by dispelling a couple of myths.

First, wealth management is not solely about making lots of money. If you get it right, that may indeed be an outcome, but it’s more about using your wealth in the most effective way to live the life you want both now and in the future.

Second, you don’t need to be rich to get started. Tucking away a small and affordable amount every month is all you need to kickstart the wealth-building process.

But before you start shovelling money into pensions and individual savings accounts (ISAs) - though this will rarely do your long-term future any harm - it’s important to take the time to think about the things you want to achieve.

This can be trickier than it sounds as some of your goals may be decades away. If you’re unsure where to start, then grab a sheet of paper, or even better open a Word document, and jot down the things you want to achieve by what age.

The more specific your goals, the better. For instance, no one really wants an ISA - what you want is to go on a round-the-world trip or buy your dream first home. An ISA is purely the mechanism that aims to get you there the fastest.

2. Knowledge is your friend

Clearly there is no substitute for an experienced wealth manager or financial planner, but learning some simple ways to build wealth and save tax can go a long way.

In short, you need to be confident and savvy enough to pick investments and wrappers that are suitable for each specific goal you have. A decent grasp of the UK pension and investment tax system will also come in handy.

If you are a fledging investor, it’s worth getting your head around some of the jargon. Learn about the main asset classes such as cash, shares and bonds, and the roles each play in portfolio construction; understand some of the rules and benefits of saving into a pension; and if you are nearing retirement, make sense of the differences between annuities and income drawdown.

Knowing more about this stuff will not only boost your confidence but give you the nous to swerve investments that are either unsuitable or could cause you financial harm.

It’s also key to recognise the relationship between risk and reward. Remember that anything you invest in has its risks, even cash. That’s because if the interest you earn is lower than inflation, the value of your money will be eroded in real terms. On the flip side, shares can be volatile, especially in the short term, so you might get back less than what you put in.

3. Gain a yardstick of where you are now

This step involves collecting lots of ‘hard facts’ about yourself. And in case you are wondering, yes, it can be a bit arduous.

Firing up Excel and making a spreadsheet might be your best bet here. The good news is, once it’s done, you’ll only need to refresh it once or twice a year, or after major life changes.

So, what should this spreadsheet include?

• Income and expenditure: getting familiar with what you earn and spend may identify any areas where you overspend and give you a ballpark figure about how much you can afford to save and invest.
• Assets and liabilities: this is essentially everything you own or owe from your home, mortgage, savings, investments, pensions, and outstanding credit cards.

Having a clear idea of where you are now will provide the foundation for how your portfolio is constructed. You will know what you have available in terms of lump sums and regular amounts, and bring to light any debts that you might want to pay off before investing.

If you are close to retirement, you will find out how much income you will need to meet outgoings once you stop working. As a rule of thumb, it’s always sensible to keep back six months’ expenditure in an easy-access cash account as a rainy-day fund.

4. Prioritise your goals and work out how to reach them

Now that you know what you want to achieve and what progress you’ve made so far, it’s time to burrow deeper into your financial goals and identify the shortfall you need to make up to get there.

The next step is to prioritise these goals. Stick the most important to you at the top of the list, but this doesn’t mean those lower down should be neglected. For instance, your immediate goal might be to buy your first home, but it’s also worth keeping at least one eye on your retirement. Otherwise, you could pass up free money from your employer, or miss out on some useful tax savings.

But ultimately, the thing to remember is that it’s your plan, so you get to decide what to prioritise.

5. Put the plan in place

At this point you should have enough clarity about your goals, where you are now, and what you can afford to put your plan into action.

This involves researching and identifying investments that combine suitability with tax efficiency. But not everything that trims your tax bill will be right for you, so choose wisely here. And making sure you are comfortable with and understand the risks involved, and paying attention to fees and charges, are both paramount.

Often the trickiest part can be knowing what to invest in.

When it comes to stocks and shares, do you prefer the simplicity and low cost of passive funds, which effectively track an index such as the FTSE 100? Or do you prefer active management, where a professional manager uses their skill to beat the index? This isn’t a binary choice - you can use a mixture of passive and active funds.

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Alternatively, do you feel confident enough to pick your own stocks with at least some of your portfolio?

Given there are thousands of stocks, funds, and investment trusts to choose from, the selection process can be dizzying.

If you’re stuck, looking for something simple and want the weight taken off your shoulders, ii’s Super 60 investment ideas can help you pick investments that are right for you. For those looking for a ready-made solution, ii’s model portfolios might do the trick. They come in both growth and income options to suit the goal you want to achieve.

6. Review where you are regularly...but avoid tinkering too much

Once your plan is in place, it can be easy to rest on your laurels and assume the hard work is done.

But life rarely pans out how we expect it to. Things change, often quickly - sometimes favourably and other times not.

That’s why it’s important to review your plan at least once a year. This will allow you to make the necessary changes to keep things on track and avoid any unwanted shocks down the line.

For example, if your investments aren’t performing as well as you hoped, you might want to increase what you save every month, adjust withdrawals if you’re in drawdown, or switch to other investments.

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What you should avoid is the temptation to constantly tinker with your portfolio to find short-term wins. This can be counterproductive. It’s typically best to let your investments do the work, and only change things with your long-term future in mind.

Being your own wealth manager isn’t a task to take lightly. And if you feel out your depth at any point, it’s probably best to see an expert.