Today’s wealth-creation journey requires more than just the basics of risk and return, but looking to leverage your interests into unique financial opportunities.
Amid the rise of ethical and ESG investing, asking the right questions about wealth creation often means asking about more than just risk and return.
Crystal Wealth Partners director Louise Lakomy explained that newcomers to investing need to shift their focus away from generic queries about risk and return.
While markets can go up and down, Ms Lakomy said that needs that your wealth-creation journey seeks to satisfy tend to be more of a constant.
Rather than trying to target some sort of average or abstract level of income, she recommended thinking more about what your own target retirement needs look like before you plot out how you plan to achieve it.
“Our focus is on understanding clients’ needs and objectives and helping them to achieve these,” she said.
As a financial adviser, Ms Lakomy said that her goal is to ensure that a client’s desired income is maintained no matter what the risk-return profile looks like, so the questions that establish that target are usually the ones worth asking.
“Liquidity management is also important and managing market cycles, so cash is available when our clients need it, and we are not having to sell a stock or managed fund at the bottom of the market to fund a client’s cash flow needs,” she explained.
Ms Lakomy said that the recent rise of interest in ethical investing has seen clients become more interested in trying to make a difference in addition to trying to make money.
“Clients are becoming more aware of our environment and wanting to make a difference in the world,” she said.
Despite this uptick, she emphasised that returns still matter to most investors.
“At the end of the day, people seeking financial advice are looking to reach a financial goal — financial returns are important, even for the most ethical investor,” she said.
And just like the regular wealth-creation journey, Ms Lakomy said that ethical investors need to start by asking the right questions.
She explained that helping clients learn to cut through the noise and develop a portfolio that reflects their own values starts with a deeper conversation on just what those values are. She invited prospective investors to ask themselves what their goals are.
Are they looking to screen out investments based on their involvement in controversial areas, or are they looking to make a tangible impact on a given issue?
Ms Lakomy said that being an ethical, impact or responsible investor often means being an active one.
“Individual preferences change over time, so adapting portfolios to manage these changes year-on-year is critical,” she explained.
Investors need to be prepared to adapt as business performance and ethical investment priorities change.
“It is vital to track both individual companies and the broader investment universe,” she said.
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Article reproduced from nestegg