The Weekly Advertiser Horsham

Financial resilience

- Focus

Resilience is the ability to quickly recover from setbacks, and while setbacks can come in many forms, most of them will have a financial component.

So what can you do to build financial resilience?

Expect the unexpected

Rarely do we get advance warning that something bad is about to happen to us, so the time to develop your resilience strategy is now.

And while we don’t know the specifics, we can anticipate events that would throw finances into disarray.

A house burning down or a car being stolen. Not being able to work due to illness or injury. The death of a breadwinne­r or caregiver.

With some idea of the type of threat we face, we may be able to insure against some of them.

If you have taken out any type of insurance policy, you’ve already made a start on your resilience plan.

Create buffers

You can’t insure against every possibilit­y, but you can build financial buffers.

This might be a savings account that you earmark as your emergency fund that you contribute to each pay day.

If your home loan offers a redraw facility, you can also create a buffer by getting ahead on your mortgage repayments.

Buffers can be particular­ly important for retirees drawing a pension from their super fund.

Redeeming growth assets for cash in order to make pension payments during a market downturn can lead to a depletion of capital and reduction in how long the money will last.

By maintainin­g a cash buffer of, say, two year’s worth of pension payments, redemption­s of growth assets can be deferred, giving time for the market to recover.

Cut costs

The internet abounds with tips on how to cut costs and save money.

In difficult economic times, cost cutting can help you maintain your financial buffers and important insurances.

A key to cost cutting is tracking your income and expenditur­e and yes, that means doing a budget. Find the right budgeting app for you and this chore could actually be fun.

Invest in quality

There are many companies out there that have long track records of consistent­ly pumping out profits and dividends.

They may not be as exciting as the latest techno fad stocks but when markets get the jitters, these blue chip companies are more likely to maintain their value than the newcomers.

This is important. The more volatile a portfolio the more likely an investor is to sell down into a declining market.

This turns paper losses into real ones, depriving the investor the opportunit­y to ride the market back up again.

The other key tool in creating resilient portfolios is diversific­ation.

Buying a range of investment­s — both within and across the major asset classes — is a fundamenta­l strategy for managing portfolio volatility.

With a well-diversifie­d portfolio of quality assets, there is less need to regularly buy and sell individual investment­s.

Unnecessar­y trading can create ‘tax drag’ where the realisatio­n of even a marginal capital gain triggers a capital gains tax event and consequent reduction in portfolio value.

Take advice

Building financial resilience can be a complicate­d process requiring an understand­ing of a range of issues that need to be balanced against one another and prioritise­d.

Your financial planner is ideally placed to assist you in developing your own, personalis­ed plan for financial resilience. • The informatio­n provided in this article is general in nature only and does not constitute personal financial advice.

 ?? With Robert Goudie CFP Graddipfp Consortium Private Wealth ??
With Robert Goudie CFP Graddipfp Consortium Private Wealth

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