I enjoyed school, but only when outside the classroom. I was more inspired by sporting activities. Fortunately, my school encouraged sports. I could binge on sports rather than science. At 17, after a weekend of rugby, hockey, and sometimes tennis, I could wake up pain-free. Not today. A young body recovers much quicker than a more “mature” one. Oh, to be 17 again. 

We are moving house soon, and our home currently looks like the place where boxes come to die! I have spent hours carrying boxes of books and other long-forgotten items. Ancient muscles reminded me of their existence. But setting expectations based on my 17-year-old physical abilities would be a mistake. I still enjoy sports, and while my head says yes, my body just laughs and falls over. It’s the recovery time I really have to consider. Previously it was hours or days, now it’s months. 

Realistic expectations are key anchor points when it comes to financial planning. Investment portfolios established with appropriate levels of equities and gilts/bonds are fine-tuned to maximise returns within a client’s risk-tolerance. For each asset allocation, we target a defined rate of return (based on long-term averages of over 60 years) – net of charges, fees, and inflation. This anchors our investment portfolio. While ships still move when anchored, their movements are constrained. Performance will vary around that figure, dependent on the level of risk. The higher the risk, the wider the likely performance drift. The lower the risk, there is more certainty and consequently a reduced drifting over time.  

Our cash flow models use these realistic long-term average expectations to plot the path to your anticipated outcome. It maps out real-time progress of your portfolio and ensures it stays in line with expectations.  

Just as recovery time is a consideration after exercise, financial recovery time is equally critical. If markets suffer severe falls there may be a significant period of recovery before growth can resume. Having your portfolio properly anchored using realistic expectations can ward off the extremes of markets exhibiting short-term volatility. 

A lifetime cash flow model and investment portfolio working in tandem, built around realistic expectations, is one of the most effective ways of enjoying a successful financial planning experience. We often have conversations with people who have approached us for a “second opinion”, having been disappointed by previous investment experiences. Here are some common observations: 

  • Finding a mismatch between expectations and results. Agreeing realistic expectations requires a thorough understanding of your aims and attitude to risk, matching the levels of risk and return required to achieve your goals.
  • Disappointment with past investment strategies. Using a proven, evidence-based investment philosophy avoids some of the pitfalls brought on by such strategies as the cult of the star fund manager, or media “best buy” investment speculation. 
  • Paying disproportionately high fees. We avoid high-cost funds. The frictional costs of some active funds, especially with high turnover of funds, can significantly impact performance over the long-term. 

We know physical recovery can be painful and take time to heal. It can mean medical treatment, physiotherapy, periods of incremental exercise, but most of all patience and discipline. Financial recovery can follow a similar pattern. It requires the same patience and discipline, access to ongoing coaching support, while all the time achieving a previously untapped level of financial and mental resilience.  

As Charles Darwin said, “It is not the strongest species that survive, nor the most intelligent, but the most responsive to change”.