It is the Means in the cycle from creation to manifestation - it is the science supporting the art. Now, during a global life and money emergency, is a good time to start helping clients build a financial future with no worries.
Everybody wants to look forward to a financial future with no worries and look back with no regrets.
The best way to do that is to build them a powerful cashflow model to show the financial architecture supporting the future life. Never has that been truer than today, in these uncertain times.
What assumptions are at the heart of a robust model? What assumptions will deliver a future with no worries and no regrets? What assumptions are a reasonable and reasoned place to start when building a robust plan?
We all know a forecast needs regularly updating, but where is a good place to start, which has been reasoned, is reasonable and robust?
Firstly, start with a growth rate of 5% per annum on investments before charges, which is in line with the FCA stipulation for intermediate growth (as set out in COB 13 Annex 2) and which is a robust long term assumption for a mixed multi-asset portfolio across a range of volatilities.
Second - plan for the longer term: ONS statistics show that an average person has an average life expectancy of age 87-89, with a 3-10 % chance of reaching 100. (Office of National Statistics, 2020): plan out to age 99. Limit the downside.
And finally, build in some inflation proofing by making a sensible assumption for inflation. Using inflation increases of 2.5% per annum, which exceeds Bank of England inflationary targets of 2% and the Consumer Prices Index (CPI) 12-month rate, which was 1.7% in February 2020, down from 1.8% in January (Office of National Statistics, 2020) would seem to be a reasonable starting point? The higher you go, the stronger your plan.
Given these robust and cautious assumptions your initial starting plan begins to look sustainable. It has some reasonable and reasoned assumptions behind it and should fit inside every GAME Plan appendix.
It’s a great place to start.
Now more than ever is a great time to make sure your clients are living with no worries and no regrets.