However, there are certain habits and practices that denote financial health and work in favour of personal wealth, whatever the time of life we are going through. The sources consulted by Finect explain that in personal finances can not miss aspects such as personal knowledge (what level of risk is willing to assume?), the objectives that the individual wants to achieve or how to meet them over time (with regular contributions and diversifying).
“The first thing to do, regardless of age, is to profile the person according to their level of risk and ask them about the time horizon of their investment,” warns Eduardo Suárez, financial advisor at Mapfre Gestión Patrimonial. Going from saver to investor, assuming some risk (more in an environment of zero or negative rates and high inflation) or channeling savings with regular contributions are other keys pointed out by this advisor. “Always in a very diversified way and accompanied by a certified financial advisor,” says Pere Font, wealth advisor at AXA Exclusiv.
Francisco Martínez, financial advisor at Andbank, says: “The most important financial habits, regardless of age, are planning, and the discipline with which planning is applied. The saver must go through different stages, which begin with drawing up a comprehensive financial plan that details expected income and known expenses (as well as extraordinary ones). The next step is to “consider the investment of savings taking into account all the intended objectives”. The time horizon, along with the financial situation and risk tolerance, mark the profile with which to build an investment strategy that we must monitor over time, says Martinez.
MiCappital also gives priority to the term of the investment, above the age at the time of investing. “We have many cases of young clients who, although they have a very long life time horizon, their goal is to be able to put down the down payment on a home in less than 5 years,” explains Borja Nieto, co-founder of MiCappital. “While there are older people who already have a property and invest thinking about monetizing savings in the current account, in addition to leaving the largest amount to their children,” he adds.
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A young person
Eduardo Suárez points out that in “the first stage of your working life the level of income is low, so the ability to save is minimal. The objectives are normally short term: buying a flat, changing a car, a trip or something. However, the Mapfre advisor says that these goals can vary and focus, for example, to start preparing for retirement: “The recommendation is to assume a high component of risk, since you will have many more years to work your money and thus take advantage of the great benefits of compound interest (reinvestment of interest to your capital)”.
Carlos Gonzalez, director of investor relations at Cobas Asset Management, also highlights the opportunities that “the magic of compound interest” can bring to young adults’ capital. “It’s very rewarding to see the evolution of your wealth over the years,” he adds. Also, this stage is a good time to take advantage of long-term financial opportunities and understand the importance of patience, “key to success for any investment,” emphasize from Cobas AM.
Pere Font is in favor of allocating a portion of the first income to savings: “Not less than 10%, investing this according to our profile and age. In any case, early ages usually allow us to take quite a lot of risk, thanks to the longer time frame of young people, says the AXA Exclusiv advisor.
A middle-aged person
The level of income is already higher than in the previous stage and life goals differ. Many of these people will have children, so they should consider making a savings plan for them with a view to studying at university, says Suárez. According to the advisor, the importance of creating a savings fund to complement retirement is also growing, “so that there is not much loss of purchasing power when a person retires”.
Carlos González makes two points about financial planning in the middle ages. Firstly, “never make investment decisions based on past performance”. In other words, whenever possible, evaluate the investment strategy of the manager to whom you entrust your personal savings. The second is to understand that “volatility is not risk,” explains the head of Cobas AM. The distortions in the markets are opportune moments to find “good deals at very attractive prices”.
Retirement is coming
The final stretch to retirement involves protecting wealth, which usually becomes the priority at older ages, say the experts consulted. “As retirement approaches, portfolio risk should be reduced as long as retirement well-being depends on accumulated wealth. Therefore, the general rule of thumb is to reduce risk the older you get,” says Francisco Martínez. However, this is not a golden rule: “It is not always applicable and will depend on the financial situation,” says the Andbank advisor.
Managers add a habit that can not miss in preparing for retirement: the rescue of financial products. “It is important to have good advice on the redemption of the pension plan for taxation and the ideal would be to redeem it in the form of income,” suggests Eduardo Suarez, who warns that with the reduction of expenses opens an opportunity to get returns on savings with investment alternatives.
Cobas AM stresses that the priority of preserving savings discourages betting on assets such as equities: “If you are not willing to see your assets reduced by more than 15% temporarily, it is better not to invest in equities. In addition, the moments before retirement are a time to get rid of an investment that “does not let you sleep, literally,” adds Carlos Gonzalez. “We will start with a maximum risk that we will reduce as we approach the time to dispose of the saved and invested assets,” says Pere Font as a recipe for financial success.