How Much Is “Enough”? The Psychology Behind Financial Planning | with Stuart McDonald

"Show me your bank account, and I will show you what is important to you."

How do you answer the most profound question from your clients: How much is "enough" to live the lifestyle I want?

In the latest episode of Hoxton Life, Stuart McDonald (Regional Director at Hoxton Wealth) breaks down why true financial planning is about becoming an "expert in the client," not just a manager of assets. For many, the fear of running out of money leads to "hoarding" assets they'll never use, all because they haven't mapped out their version of enough.

During the conversation, Chris Ball and Stuart McDonald dive into the core pillars of Lifestyle Financial Planning:

The Psychology of Enough: Why the answer is subjective. It’s about reaching a "financial independence point" where you are finally free from the worry of making a wrong decision.

Discovery Beyond the Data: Stuart explains why his first question is often "What was money like growing up?" Understanding your history with money is the only way to align your current spending with your future values.

The Behavior Gap: We discuss why the "best" investment portfolio is a myth. The only portfolio that actually works is the one you can stick to when markets behave erratically.

Practical Levers: Identifying the specific changes you can make today to ensure you don’t just build wealth, but actually enjoy it.

Whether you are a financial professional looking to deepen your discovery process or someone seeking clarity on your own retirement path, this episode is a masterclass in behavioral finance.

Watch the full episode for a masterclass in lifestyle mapping, or listen now on Apple Podcasts and Spotify.

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Transcript

What Does “Enough” Really Mean

SPEAKER_00 0:00

This concept of enough is very subjective because there's a financial answer and there's a psychological answer, which is how much feels like enough. My first meeting with the final often say, look, this is about becoming an expert in you. Show me your bank account and I will show you what's important to you. We have to get to your financial independence point so that you're free of that worry to make a decision around these menu. One of the first questions I'll typically ask in this discovery process is what was money like growing up?

SPEAKER_01 0:25

It's times like this when the markets are behaving really erratically that you have a financial panel by your side to help you see through.

SPEAKER_00 0:32

We just encourage clients to ever worried with anything money related, email me, text me, call me, whatever. With all that, where does that spiral to? You have conversations with the wrong people, you stay in your own head about it, you listen to the news. The best portfolio is the one you can stick to.

SPEAKER_01 0:46

He'd never met anyone that could time the market, and he'd never met anyone that knew anyone that could time it. So thanks very much for being with us today, Stuart. Great uh to have you on uh the Hoxton Life uh podcast. So, to kick it off, can you share a moment during you know your tenure as a financial planner where you realize the importance of aligning someone's first financial plan and their assets with their personal goals and you know lifestyle goals that are important to them and what it actually means.

Discovering Lifestyle Financial Planning

SPEAKER_00 1:26

Yeah, sure. Uh well thanks for having me. And uh yeah, a topic that is uh you know close to my heart, really. So it's it's something I discovered must have been 12 years ago now, sort of early start of uh early years of my career, so a couple of years in, working in a sort of very traditional um family financial advice business. Always doing the right thing, but there was something missing for me, and it was a case of trying to discover what that was. So I went on a bit of a journey of discovery for myself and came across a guy called Paul Armson, who is uh is is one of the people that have shouted the loudest about what lifestyle financial planning is, effectively. And in a nutshell, all it is is is just a method of delivering great financial advice to changing the focus of the conversation. And when I first saw that as a young, impressionable financial advisor, my light came on in my mind and thought that's what I want to deliver. This is my method and my track of being able to get a client to live the life they want to live. And it gave me a bit of a roadmap to do that. Um so what lifestyle financial planning really is, is just a it's a shift in the focus of the conversation. You move it away from this idea, as you said, for products and uh investments and pensions or whatever it may be to the individual, their goals and objectives, which sounds simple and almost like a no-brainer. That's exactly what you should be doing. It just wasn't happening that much when I first started, and it still isn't happening a lot now. There's a small cohort of what you would call lifestyle financial planners or proper financial planners, as we we may call them, um, who do this work and put the client at the centre of it all. Um, and that's what we focus on here, isn't it? You know, in terms of helping clients achieve what's closest to their heart, you know, their goals, their objectives, um, and taking them on that journey. So you have to get to understand the client and understand the other side of that, which is their fears, doubts, and concerns as well, in order to do that properly.

SPEAKER_01 3:14

Because this whole point of how much is enough, yeah, you know, like how much do I need, it's really based, it's it's there's not kind of I think people get, you know, kind of the misconceptions that I need£2,000 in retirement. But if you want to go on 10 business class flight holidays a year,£2,000 a month is not going to be enough. Yeah, yeah. Likewise, you might want to live a really nice, plain, um, vanilla life, not huge amounts of excitement, and having the£10,000 a month income is is not what you need. Um, it might be that you want to retire early, it might be that you want to um be working for the rest of your life and could think of nothing worse than sitting at home doing nothing, as I think my wife would probably say is is something that I could uh I I can relate to. Um and I think that's that kind of concept that's coined, isn't it? Rich life. Like what is your rich life? Sure. And what does that actually mean for you? Yeah, and that's the first phase, isn't it, of this, which is really understanding. Great. Well, we'll get on to the how much do you need, yeah. But the first stage is what what is the ideal life that you want to live? So what kind of questions do you kind of ask people to help them get that in place, you know, that idea in their mind?

SPEAKER_00 4:27

Yeah, great question. And this this concept of enough is very subjective, as you say. And it there's two answers. There's a financial answer, and we can give them the calculations and the withdrawal rates and all this kind of stuff that makes it sustainable to a certain age. Then there's the psychological answer, which is how much feels like enough for you. You know, people like to have cash in the bank, maybe sometimes too much cash in the bank, but it's a psychological need as opposed to a financial need. Yeah. You know? Um, and when it comes to living a rich life, you're absolutely right. You have to get under the surface level answers from clients. So, my first in my first meeting with a client, I'll often say, look, this is about becoming an expert in you. We know all the financial stuff. We've got lots of people who are very technically competent and understand this stuff inside out. So the money part of this, the technical calculations, that's the easy bit for us. It's the individual that we need to tailor it to and really understanding it under the skin of what those drivers are. So you ask a client, as you say, what are your bills? It's an easy answer. You know, two, three thousand pounds a month, whatever the number is, ten thousand, but however you however you live your life. The lifestyle question becomes a bit more tricky because it's then, okay, what level of holidays are you going? If you're playing golf, are you playing privately? Or are you, you know, it's it's a bit more detailed. Yeah. But fundamentally, what it's all about is your interaction with money. So your behavior and relationship with money. So that's where I start. So the first, one of the first questions I'll I'll typically ask in this discovery process is what was money like growing up? Yeah. Which may seem a little bit irrelevant when you come in to talk about your henchion assets. Um, and you do get the odd look every now and again. But I think when you yeah, when you start uncovering why you're asking these questions that may seem irrelevant, they become very relevant to what's going on next because our habits and our decision making around money is the key aspect to how successful you are likely to be moving forward. So your relationship and your interaction with money, it's formed very early on in your life. So typically before the age of seven or ten, depending on which studies you look at, you know, your relationship with money is is ultimately formed at that point. So it's all around your experiences, what was good, what was bad, what influences you had around you and family members and things like that, and throughout the rest of your life. We know that those things are gonna be so important to how we help that client achieve what they want to achieve next, because we need to meet them where they are, you know, and then uh tailor everything financially to that.

SPEAKER_01 6:46

Yeah, because if you've got you know, we typically find that if you had frugal parents, then you're typically going to be a bit more frugal yourself. Yeah. If you had parents that were fairly extravagant, then likely that you're gonna be fairly extravagant.

SPEAKER_02 6:58

Yeah.

SPEAKER_00 6:58

Um you could even go in the opposite direction. You know, you may have seen that extravagance end in uh, you know, uh tears. In tears, yeah, yeah, in the wrong way. And then you become fearful of being extravagant, or you become fearful of living the life you really want to live. Yeah. When we would look at it, you know, on paper going, there's everything you need there. Just go and do it. And we give them that confidence.

SPEAKER_01 7:20

And that's the whole point, it's helping people get to a position of freedom, isn't it? Like that this is what this is all about. It's not kind of like I'm going working my financial advisor and he's giving me one and a half percent or three percent extra than I could get myself. I mean, great, we will hopefully deliver that as well. Yeah, but really what it is is working with the kind to understand what's important to them and making sure that we get a real sense of you know what your driving factors are, and and that will enable us to help you, you know, calculate how much is enough. And what why why is that so important? Like what why why is it so important to understand how much is enough?

Defining A Rich Life Beyond Bills

SPEAKER_00 8:03

It gives you that that word freedom is important in this. So we talk about financial freedom. With financial independence, we tend to talk about because we don't want to end we don't want to aim at this arbitrary point of time where you stay pension start is a default retirement age. It's a nonsense, really. Yeah, we have to get to your financial independence point so that you're free of that worry to make a decision around how you spend your time. So everyone has the same amount to spend, as we always say, 168 hours a week. Yeah. So we want to focus on how you're spending that and making the money work for that. We also don't want to talk necessarily just about destination. Yeah, this is about okay, you're living your life now, and that'll be in two more, but you're not promised anything for the future. So what we need to do is adapt what you're doing now to make it work now. You know, I have young children, you know, there's there's there's pushes and pulls in your life all the time in terms of your time and and all that, and sometimes it's imbalanced. For me, living a rich life is time with them, yeah, you know, now. Um, and of course, you need the money to be able to do things to enjoy with them as well. So it's about that balance of what you need. Um, so we address it from both both of those angles. In certain circumstances, people have made that decision, and the life they're living now is in the rear view mirror and they want to move forward. Yeah. So a typical retirement conversation for argument's sake is I hate it now and I want to go. Yeah. Um, so we are we are looking more at the destination of where you're gonna be. Yeah, but then that next phase, that next journey that you go on. So this concept of retirement to retire or retreat needs to be changed. We're growing into a new phase of our life and we need to design it the way we want. And then giving clients the confidence to go and do that is the key. So all these questions early on is not just about us building trust and becoming an you know an expert in the client, it's about being able to stand there at the times when markets are doing what they're doing at the moment and say, carry on doing it. Yeah, don't cancel the holidays, don't hedge, just go and do it because it's gonna come back.

SPEAKER_01 9:57

And I think what you said there as well is it's it's important for people to realise that you don't start doing this when you're 55-60. Yeah. Like actually, people who do this really effectively start really early on. Yes. And realise that things can change because, like you said, no one knows what's around the corner, wherever you do should be flexible. But it's super important to make sure that you are taking this seriously and understanding what it means for you at different parts of life. Because there's different stages uh of life, isn't there?

SPEAKER_00 10:24

Definitely, definitely, and it's always relevant. It's just that the like you say, the drivers change as you get older. So having a plan as soon as possible, working on something that you have a clear track to run on, you have a a target in mind, however far away or you know, how however you break that target down to make it more tangible and real for you, the better. Because you know what what gets measured improves. So we just want to be doing this as early as possible with clients, really engaging them in this process. It's not just about okay, I'm a year away from retirement, what can we do? Yeah, you know, we want to be doing this two or three decades earlier. Ideally, we want to be engaging clients in their 30s and 40s and planning for live a great life now and make sure you're doing what you need to do. Because the lever on that, in terms of how much you need to do, is much less if you start earlier because you get compounding on your side, you get lots of things on your side, you have time, whereas a year out, there's not much you can really do.

Money Beliefs Formed In Childhood

SPEAKER_01 11:23

And it's the fear of the unknown, like a lot of people are really scared of retirement because they don't know. And like helping people quantify that unknown as early on as possible gives a lot of comfort because when you know, whether you have enough or not at that point is is regardless, but you know, yeah, yeah. And you know what you're aiming for, and you know where your shortfall is, if there is a shortfall or if there's a massive surplus, and you might be able to do it earlier, yeah. But until you until you've started the process, you you don't know. So, how do you assist people in determining the financial requirements for their desired life? What does that look like?

SPEAKER_00 12:06

Yeah, so the the aspect is we start where we are now. So if you ask somebody what do you want, not many people know a defined answer. Yeah. Um well, they might give you an arbitrary figure, which is oh, five grand. Yeah, exactly. Not much thought, off the cuff, all that kind of stuff. As I said earlier, we know what our bills are typically, they come out every month. Unfortunately, we we get to know exactly what they are. Um, and it's the other stuff that they care about, it's the lifestyle part, right? Some people don't know as well, huh? Yeah, true. So, what would you do in that situation? I would avoid anything that makes it easy for you to find out what they are, and I'd go old school with it and I'd say live with it for a while, get into your bank statements, take some time to go through it line by line. Yeah, there's something about taking ownership of that, something about actually physically writing it down. You've sat with hundreds of clients, how many times do they come back and go, God, what are we spending? You know, it didn't realise, you know. So, and it's just because they've done the exercise for the first time at a.

SPEAKER_01 12:59

And there's that kind of age-old saying, which is you're saying to me, um, you're saying to me saving for your retirement is important, you're saying to me your kids' education is important, yet your bank account says something completely different to me. Show me show me your bank account and I will show you what's important to you.

SPEAKER_00 13:16

Yeah, exactly that. And it's an eye-opener for people because you know, we ask them to sort of financially undress as financial advisors. We we get into the detail, you know, and that's an uncomfortable topic as British people. Yeah, you know, it's almost like the last taboo is don't talk about money. Yeah, you know. So when we sit in it in this environment, people aren't particularly comfortable with it, which is why it's so important to build that trust with with people to know that one, it's confidential, and two, we're here to help you. Yeah, we're not here to judge you. So if you're spending where you shouldn't be spending for your goals, we're just have a conversation about that effectively. So you're not gonna be on the naughty step. You're not gonna be on the naughty step, exactly. Yeah, we're not gonna be talking about in the office. So, you know, in terms of in terms of helping them with that, it's it's very much a you know a modular approach. We sit down and have multiple meetings and we hold the client's hand through this process. It's not go and do it, work it out yourself, but that's what we're here for, you know?

SPEAKER_01 14:12

So we start off with an expense spreadsheet, basically, and help them understand what your expense is now, what you want them to be in what we would say active retirement, sure, and what you want them to be in later retirement. So that's your kind of expenses, and that's the boring stuff. Yeah. And we need to figure that out because we need to we need to actually know what is costing you to live. True. And then you get into more of the fun stuff, don't you? Exactly. Yeah, and that's the stuff that people that light people up.

SPEAKER_00 14:38

So what's on the bucket list? Yeah, and what's on your bucket list? Yeah, yeah, good question. Um, yeah, like say for me, it's it's right now, it's the immediate future is is the balance with the family and making sure I'm I'm there, I'm around, I'm dad as well as you know, as everything else. And it's a simple thing. I'm not me personally, I'm not flashy, I'm you know, wearing an Apple Watch, driving all, you know, I'm not I'm not into Ferraris and Rolux, it's not it's not for me. Um that's not necessarily that it shouldn't shouldn't be for anybody else, you know, it's just not not really my thing. Um travel, time with the family. That's that's the thing that gives me a rich life, really. Um staying healthy um is is another side of it as well. Often overlooked and brought up in these conversations is if you're you can plan for everything you want, but like you say, if you're not living a healthy lifestyle realistic. If you don't have your health, then the rest of it goes. You can have goes. You can have a million problems, can't you? Until you have a health problem, then you have one. 100%. You know, so it's it's one of those. So it's it's just about for me, balance and and time with the family right now. But and those are the themes that always crop up with clientele. Yeah, you know, time with family, travel, bit of freedom, health.

SPEAKER_01 15:47

And then track travel, it's you when you start talking about that, it's okay, well, like where do you actually want to travel to? Yeah. Uh, what does traveling mean for you? Is it backpacking um and staying in hostels? Is it staying in seven-star resorts, in you know, just on beaches? Is it skiing? Like, what gets you out of bed? Or what do you really, really want to do? Yeah. And I think when you when people can start thinking about that, then you really can start to help them paint the picture with lots of colour and start getting the detail on.

Freedom, Independence And Time Choices

SPEAKER_00 16:16

Yeah, exactly. And you know, it's um the more detail the better. The reason we have these regular check-ins is because we can only really plan for the next 12 months. Yeah. You know, we can say, yes, as a general idea, we'd like to be able to spend at this level because we feel that would give us a good lifestyle. But year on year we sit down, okay, so what's on the bucket list this year? And we get as granular as we can with it. How much is it costing? You know, we've got four holidays of spoken to a client last week, four cruisers this year. Love cruises, four cruises this year, um, and that's just what they love, and that that is pretty much the the core of what their their lifestyle looks like. There's not much else to it, um, but that's what that's what sort of lights them up and that's what they want to spend their money on. So we just need to make sure that it's budgeted, and then we get into, like you say, the calculation side of it, which I say is that's kind of the easy bit for us, isn't it? You know, in terms of we know this number equates to that income and it's sustainable based on these parameters. That's the techie boring stuff we do behind the scenes, but we use a bit of software to sort of deliver this back to clients in a digestible way. Yeah. Clients come to us with all these files and bits of paper and trying to get their head around this concept, and we show them in graphical or pictorial way a representation of their life. Yeah. You know, their financial life. And they go, Okay, yeah, I get it now. You know?

SPEAKER_01 17:30

And of course, I mean they could use the Hoxton Wealth app. Of course. They all have access to with Wealth Flow to start in that process, which we'll come on to in a bit. But yeah, there's plenty of tools. And I mean, we even give that one away for free. Yeah. So you don't even have to be a client of Hoxton to use the basic cash flow modeling, which I don't really like the name of too much. I think people are like, what's that? But the the Wealth Flow app to uh to help plan the flow of their of their wealth over time. What what are the what are the main What are the main mindsets or psychological barriers, I suppose, is probably the best word or way to describe it that people typically have when they're looking at when they're looking at this.

SPEAKER_00 18:12

God, where do we start? Um that's the big topic, isn't it, really? Um psychological bias is the the call sometimes as well. All the bias really is is um just your brain's way to shortcut decision making. You know, it's it's they're there to keep us safe. These biases have been ingrained in us as we've evolved as human beings. But how that interacts with money doesn't always end in in the right way. So um herd mentality for one is is a common one. So being part of the herd in uh in caveman times was a was a safety thing, right? It was a saber-toothed tiger over there, herd here, we're safe. So when you see news and um general trends of things going on, our instinct is to join the trend, you know, not be left out on our own. Um markets, that's dangerous. Yeah, you know, markets are moving, you know, to downwards at the moment with everything that's going on in the US. Um, so what does that mean? What does that mean to our financial plan? What does that mean to our life? You know, and the fear starts, then the loss aversion kicks in, you know. And it's so what is loss aversion then? So this this fear of loss, effectively, that's what it is. You want to avoid that feeling of loss, you know. That if we were to lose£10, it feels two or three times worse than it ever does making£10. Yeah. You know, so that's just again another ingrained thing and another bias for us to deal with.

SPEAKER_01 19:30

Why do you think people are like that?

Start Early And Measure What Matters

SPEAKER_00 19:32

It's a really good question. I think it you know it must it must hark back to our early, you know, uh evolution, basically as human beings, because it must be something to do with that um that fear, like I say, with the herd mentality of being on your own and and and sort of standing out from the crowd. Um, you know, nobody wants to lose money. And when you when you're in retirement or active retirement, particularly, first thing you do is link that loss to your life. Yeah. You start thinking about all the things. You've planned for, not just the lifestyle stuff, but then you go to yeah, where's it gone overnight? Of course, you're going to be worried and fearful. Yeah. You know, again, but that's why we're here. We have a thought out plan here. We knew this was going to happen. We just didn't know when it was going to happen. Yeah. You know, and that's the nature of market. So the more education we can give to clients on that stuff as we go. And as we were talking about yesterday, all the touch points and the and the context around what's going on in the world, you know, our investment team are great at that. As financial planners, we communicate that well to clients. The goal being that don't jump off the track at the wrong time. Yeah. You know, so stay on your track. It's all baked into the cake, it's all baked into the plan. We we knew this was going to happen, it's going to happen again. Just stay the course.

SPEAKER_01 20:43

Yeah. You know? Yeah. Very rarely jumping and selling absolutely everything is the is the right decision. And like you said, if you've got a good financial plan in place, these things are already taken into account. The trouble is, is no one can predict it. Yeah. You know, you don't know. I mean, we've had three bear markets over the past five years. Yeah. Um, we normally have one every six or seven. Yeah. Um, you know, we are living in very volatile times, and we're likely to be definitely for the next four years whilst tr uh whilst uh Mr. Donald Trump is at the helm as well. Yeah. But that doesn't mean that all of your plans and your well thought out uh strategies go to go to the wall. It just means that you now need discipline more than ever. And actually working with a good financial planner can make a big difference on that.

SPEAKER_00 21:31

Absolutely. Look, we we charge fees for our service and we're worth our money in these in these periods of time more than ever. Because you're only a couple of bad mistakes away, but a couple of bad decisions away from losing a significant amount of money when you're an investor. So, you know, I think Fidelity did a study of the top 10 self-invested accounts. I don't know the specifics, but it was over a 20-year period, they looked at all the self-directed accounts, uh, investors who just ran their own money. And something like seven of them, when they went to look at the top 10, were dead. So crazy. Just because they no one knew the account was there, it was a siloed account, nobody acted on anything, they just left it invested, you know. So I don't think the other three had forgotten about their accounts. It was something like something along those lines. But the the moral of the story being is you know, set, forget, look out the window, enjoy your life. You know, don't try and be too clever with your investments in terms of moving it because invariably you're wrong a lot of the time.

SPEAKER_01 22:28

Um and it's bad investors panic and make rash decisions. Good investors generally sit on their hands and don't do anything. And great investors lean into the volatility and see it as an opportunity, which actually a lot of the times it can be. And if you've got a well-structured portfolio that is taking into account all the stuff that we're talking about, then it you know, then then it should it shouldn't be a problem.

SPEAKER_00 22:53

Um I've seen that shift in client conversations over the last seven or eight years. Yeah. So really leaning into this concept of lifestyle financial planning and understanding markets. Clients who used to go at times like this call me and go, what do we do? Shall we do something? I'm worried. Have we got enough? And now going, shall we deploy some of this spare cash? And as much as again, we don't want to get into this speculation of short term, that shift is showing me that they are understanding what's most important. So definitely this idea of when it was COVID last, it was like, okay, the world's closed down. This has never happened before. But most of these things have never happened before, it's just a different flavour of of what's you know, world. And they're they're gonna happen again.

From Guesswork To Real Numbers

SPEAKER_01 23:34

Yeah. They're like maybe not those exact things, but you can you cannot predict. You could not predict when someone flew a plane into the twin towers. You couldn't predict that there was going to be a world health pandemic. Um, you know, there's there's lots of unknowns and uh and issues. Um okay, so look, we so we've talked a bit around all right, well, the first stages is really understanding what you're looking to spend, what does a rich life mean for you, so you can, you know, you can start to get a good feel of how much income you need, because this is what it boils down to. So I need this amount of income. Yeah. Yeah. Then the next stage is kind of addressing some of the misconceptions and the and the psychological shifts that you need to make. The next stage is all right, great. Well, I know how much income I need. I'm okay with you know psychologically processing this and trying to take the ups and the downs, and I'm committed to doing this and I see the benefit of doing it. So, what tools, because you mentioned this earlier, and we would talked about the the we talked about wealth flow, but now how do you put this into a format that somebody can actually understand and they can see what's happening?

SPEAKER_00 24:41

Yeah, you have to be as simple as possible with this stuff because it's a complicated topic. Yeah. Uh we're in a hyper complex tax system. Obviously, we're a global advisory business as well, so they might have multiple jurisdictions of those things as well. So the technology that we use here, as you mentioned, Wealth Flow, the app, it gives you visibility on your finances across the board. So you're not sitting there pulling disparate parts of your finances into one big pile of paper and trying to do a spreadsheet. Yeah. You know, we need some sophisticated tech to draw this together. We need to account for things like tax, we need to account for things like inflation over time and growth rates. You need something to pull it all together and present it back. So we do use some cash flow modeling tools that, you know, aside from Welfare as well, yeah. Um, which we use because we can get really granular into a lot of scenario planning. So giving us sort of insight into okay, how much is enough? How much income can I spend? So if you're not spending, if you you project to spend£5,000 a month, as you say, you can run a scenario to say, well, give me my sort of guardrails in terms of what my my sort of top end is. So, okay, maybe you can spend six and a half a month, and that's still sustainable. Yeah. And again, that point of sustainability will be in the individual to the client. So are you trying to get to a point where you have a legacy to give at the end? Yeah. Or are you trying to run down your money? Are you in this in the ski camp of spending the kids' inheritance? You know, so it's all down to what is individual to that person, to what is kicked back. But this tool is effectively just a visual chart to be able to show you where your money's heading. Yeah. Now, it's built on a bunch of conservative assumptions. And again, we own that with clients up front. We don't know where markets are going. Yeah. So we use a very cautious growth rate. Yeah. We use a sort of overly aggressive inflation rate to make it look worse than it's gonna potentially be, just so that we're not sitting there going, yeah, it's okay, go on, sail off into retirement. Oh, you've run out of money in 10 years. Not ideal. Yeah.

SPEAKER_01 26:28

So no, it's not. And I think that I think it's important to make sure that we do model those assumptions out in different formats. Yeah. And I think the thing I like with Wellflow is that we can actually give it to clients so they can play around with those assumptions and they could themselves they go, well, why don't you get any growth? Yeah. What does that look like? What if inflation goes to four percent per annum on average over the longer run?

SPEAKER_00 26:49

And that's the really unique thing about wealth flow itself is that it's it's in the clients' hands, isn't it? Yeah, it's in their app. So the tool we use kind of has to be run by a financial advisor because you have all the things you need to understand to make it work. When you have a welfare, you can get a snapshot right there. Yeah. It's in your pocket as well on an app.

Tools, Apps And Visual Planning

SPEAKER_01 27:05

Exactly. And you can pay of it any time, which is great. And it's that kind of high-level understanding, which is key to then when we go, you know, some of the more complex tools that we would use, where, like you said, we can get super grandeur. Yeah, you have an understanding of how that's kind of working already, um, which which which is which is generally really easy. But there's another stage we've missed out as well, which is right, so we've got the um we've got the uh expenses or the income that I need to cover off my expenses to live my rich life. I'm talking now that I um I'm talking now about the uh the behaviours that I need to have to make sure that I don't cannibalise all this hub work that we're gonna do. I've got this lovely tool in front of me, but the first one of the first things we need to do is understand the starting position, isn't it? Yeah, which is the balance sheet if you're an accountant, but most of you won't be. So, you know, it's your net worth statement. Yeah, and this is all of your assets that you have that you will use to fund this income. It's no point in putting your house that you're gonna live in in there because it's not gonna give you any income. Um, that is dead money for for want of a better word, unless you're gonna use it to downsize later and we can we can look at taking that into account. Yeah, but you have your assets that would typically be your bank accounts, it would typically be your general investment or your brokerage accounts, your retirement accounts, your UK pensions, your 401ks or your IRAs if you're if you're from the US. Sure. And we get this nice picture of well, these are the assets, and then we take away the liabilities, so the things that are sucking against that. Yeah. So if you've got uh an um investment property and you've got a mortgage against it, we'll deduct it. Sure. If and if you might have a load of credit card debt, we'd of course probably tell you to pay that off first before saving anymore. Um, but you know, we need to factor all that stuff in as well, and that gives us this starting point, doesn't it? It does. It does.

SPEAKER_00 28:52

It's it's a bit like if you were gonna go and see a PT, yeah, they want to assess where you are right now. So it's the awkward thing of jumping on the scales and uh getting the uh fat calipers out, what you know, off. Yeah, take measure and the calipers come out, don't they? And everyone cringes. But um, you know, you've got to get to a point where you know where you are to know you know what's reasonable in terms of where you're headed. So we can set these and we encourage clients to set the you know the big audacious goals. We want them to be, you know, um optimistic about them uh and and sort of ambitious about what they want to do with their life. We don't want them to live a you know a life, you don't want a hedge of the lifestyle. Yeah, you know, we want to encourage them, but we also need to make sure that we are being realistic to a point. You know, if you're starting with your negative 500k and debt, when you look at your uh you know, your net worth position, you ain't gonna retire next year on two million unless there's a lottery win or a business sale or something behind the scenes we don't know about. So um that real granular understanding of where you start right now is something we obviously do for clients, as you say. There's a few there's the few methods in which we can do, and obviously using the app is a has been really useful for us in terms of clients being able to just directly link their accounts and give us access straight away in terms of an understanding. So yeah, it's a it's a huge part, and and we need to know what we're doing in that space and know how those assets interact with each other. So, as you say, US assets for argument's sake and UK, different tax jurisdictions, where are you living? And impacts how much you're gonna see in your back pocket, how much you're gonna spend effectively. Um, different types of pension schemes, different types of assets, different tax levels on property. If you were to sell it, there's capital gains tax. If you keep it, you've still got this mortgage that you can't pay off. You know, it's all about the trade-offs at that point, man. Yeah. So you take this picture, you you draw the picture you want, yeah, and you bridge the gap. Yeah. Effectively. That's that's the crux of it. The more time we have to bridge that gap, the more resource we have to put into it, the more commitment we have from clients. And fundamentally, the better the client behaviour, financial behaviour around following the strategy that we give them, the much better outcome is going to be positive and what they want. Yeah. You know, so it sometimes is that clients expect the investments to do the heavy lifting or the returns. It's down to them. They take responsibility for your contributions to the do the heavy lifting. You know, don't rely on 12% a year for the rest of your life because it's not guaranteed. Yeah. You know, so it's those sorts of things that we try to instill in clients, but it doesn't happen overnight. It's a transition. You know, you you've got it, you've got a lifetime of behaviours and beliefs that we now need to unpack and re-establish the right stuff.

Behavioural Bias And Market Nerves

SPEAKER_01 31:29

And it's and it's much easier to do that earlier on. Yes. It's much easier to teach a new dog new tricks than an old dog new tricks. Yes, as the saying goes. And it's it's really important that people do look at this on a regular basis as well. Not just because life changes, but also to know whether you're on track or whether you're not. And like you said, there's levers that you can pull. So let's have a look at the levers that you can pull. Well, one of them is age. So if you wanted to retire when you're 55 and there's a 200,000 pound gap or half a million pound gap, it might be you have to wait till you're 60 or maybe even 65.

SPEAKER_02 32:05

Yeah.

SPEAKER_01 32:06

But knowing that when you're 40 is much better than knowing that when you're 54 and you want to retire the next year. The other one, like you said, is how much you can actually contribute to it. So that's one of the second levers, which is how much can I actually put in? Yeah. Which normally boils down to what sacrifice am I willing to give up today to fund tomorrow? Exactly. And some people are super cool with that. Yeah. And they're like, Yeah, do you know I'm I can see the benefit, I'm happy to look 10 years down the road. Other people are like, definitely not. I live for the moment, I'm not sacrificing today for tomorrow.

SPEAKER_00 32:38

Absolutely. The the delaying gratification is is you know, falls on the the client behaviour camp, is you know, it moves the needle massively. These things you mentioned move the needle. We can directly impact the alcohol, spend less, contribute more, delay gratification, you know, it's these things. There's obviously a spectrum on that. Yeah. So if you're fisshering money on things that you can call in, that's a fairly easy win. Yes. If you are living, you know, paycheck to paycheck, if you like, and and those things aren't, you know, you're being very frugal still. You know, you've gotta you've gotta be realistic about what what you can extend. Yeah. And you know, that there's probably more of the the more difficult conversations, you know, if you have children or your mortgage to pay, roof over your head, like well, life's expensive at the moment, you know, so it's it's not always that straightforward. So um, yeah, you can you can move those you can move those levers. If you pull on the investment returns lever, it doesn't necessarily do anything.

SPEAKER_01 33:34

Doesn't necessarily do anything, but let's talk a bit about investments because I think this again is where we have fallen into a bit of a trap with 60, 40 portfolios, 75, 25. And you know, what we mean by that is that you put a bit in equities and you put a bit of fixed income. Sure. And actually, I think that you know, one of the things that we look at is some assets historically have done much better over the longer term. Yep. So let's take equities, sure, for instance, they've done much better than fixed income, and they've done way both of them have done way better than cash. Yeah. But that doesn't mean that you shouldn't have anything in cash or anything in fixed income. Yeah. And by fixed income we mean things like bonds. Sure. Um you know, but actually earlier on when you're in your early 20s, it makes a lot of sense, if you especially if the saving is for later to have a lot in equities, yeah. Develop market equities, sure. S P 500 trackers, footy 100 trackers, MSCI World trackers, whatever it might be. And I'm that obviously none of this is personalized investment advice, and you should always seek the advice of a professional before making any investment decisions. But that can that that can have a big impact, massive.

SPEAKER_00 34:46

And being really cautious on that early on is gonna really impact you as well. It is massively, and I think again, back to the education piece, we have to reframe what the risk aspect is. Yeah, because what is risk? Yeah, age old question, right? You've got to unpack it a little bit. And again, you've got to make it personal. Like the risk to a individual an individual is very different to another. If you could be in the same investment portfolio, and the and the differences are you spend more than you, so effectively you have something called sequence risk associated with you drawing on your money. Yeah. So if markets are falling, you're drawing on it, you're making it exponentially worse. You might be, it might not be able to recover somebody else who's not spending from it. That same level of volatility to the negative is not a problem. Yeah. Because they don't touch it. So their risk in the exact same portfolio is very different. So you're absolutely right. Accumulators should be in highly volatile, um, globally diversified equity portfolio is typically again no investment device there, but um, it's that reframing piece is that if you're buying into that every month, you're actually getting the opposite of that sequence risk. You're buying in at cheaper prices. Yeah. Investments are the only thing that people sell when they're on sale. Yeah. You know, they don't buy them. So accumulators should, if they're paying into their pension race every month or whatever it may be, it's great time to be buying. Perfect time. Perfect time. The market's just dropped 10 or 15%. Okay. You're buying the same amount of units for 10 or 15% less.

Discipline Beats Timing The Market

SPEAKER_01 36:06

And risk, I think, is also interesting because a lot of people say, well, the r it's the risk of me losing it all. And actually, very rarely with what we would invest in as financial planners, yeah, that there's a very low risk. I mean, there's always a risk, but there is a very, very low risk of you actually losing it all. If you're investing in the SP 500 and it goes to zero, there is more problems in the world than what has happened with the investment. Yeah, exactly. I can I can almost guarantee that. If the top 500 companies in them in the most powerful nation um in the world have gone to zero, we're in, you know, we've probably got zombies walking round outside or something like that. You're not that concerned about about your pension idea. Exactly. And you're fighting over food. Exactly. So what it really means to me, risk is risk is like how comfortable am I when this stuff is happening?

SPEAKER_02 36:51

Yeah.

SPEAKER_01 36:52

So Trump's come out, brought loading other new tariffs out against the whole of the world, let's say. Um, how did you react during that time? How did you act during COVID when the markets fell? How did you react in 22 when Russia invaded Ukraine? Like, was you sitting there in sweats, in beds, you know, kind of not being able to move, like waking up in the middle of the night, panicking? That to me would suggest that you're cautious in nature. Yeah. And actually, realistically, you probably need to really look at whether investing is for you, sure, because the volatility, like what we're talking about is providing comfort and uh uh comfort and you know, peace of mind uh on give on your financial future.

SPEAKER_02 37:40

Yeah.

SPEAKER_01 37:40

If because of what you invested in is not providing you with that peace of mind or that comfort, you're you know, you're you're gonna be all over the place along the way anyway. It's not gonna be fun. Exactly. And yeah, so so like that that that to me is what risk is and what people should focus on is like how how how how do you feel when these things are happening? Because actually it might mean that you have to have way more saved up um and you have to be way more conservative because you will make panic rubbish decisions which will completely kibosh all the work that you're doing anyway.

SPEAKER_00 38:12

Exactly. And you know, I heard this a long time ago, and I I speak to clients about this a lot is the the best portfolio is the one you can stick to. Yeah. So if you are having those 3 AM moments regularly, you know, we're probably having the opposite effect than we'd like. We're not giving you the confidence to live your life, we're giving you nothing but fear and doubt and concern. So we need to change something. And this again is back to this regular touch point we have. And you know, from our point of view, we know when these things happen, these these fears are going on in people's minds, however much we train them and and give them the education and the experience they have. You still have those moments. 100%. So we just we just become more proactive with our conversations. We just get on the front foot with clients. We we know there's a subset of our clients who are prone to being more concerned about markets. Yeah, it's a phone call from us. Definitely. It's a shall we have a coffee and just give you a bit of context, you know. Whatever it is, we we as advisors should be doing that. It's our responsibility because if we can encourage clients to be invested in something that typically their risk profile might not suggest, or that if left to their own devices they wouldn't do, it's our job to keep them in, you know, it's our job to make sure they don't fall off the track at the wrong time, um, and and then they get the outcome they need to live the life. Because it's that age old issue of, well, I don't have the capacity for cash. We talk about this idea of capacity for loss a lot in our world, don't we? In terms of how much can you let it drop by before it affects your lifestyle, however temporary that drop may be. Um we don't often talk about capacity for cash. So there's the risk of being too cautious as well. There's the risk of leaving all your money in an asset that isn't going to give you a return, meaning you are going to run out early. It's almost a guarantee. Yeah. Whereas by taking the aspect of a little bit of volatility risk, you're offsetting that cost of inflation over time to giving you the the life you want back. So again, you're just looking at your trade-offs. Where does your Venn diagram of risk overlap in the middle? That's pretty much where you should sit. And our job is to continue to assess that in line with their plan. Keep them on track. Definitely.

Risk, Capacity And Cash Buffers

SPEAKER_01 40:13

And again, getting back to periods of volatility, a good financial plan or in a good portfolio should have a subsection of it covered off for what's happening now. So I know that you need£100,000 a year, is what you're saying. Yeah. We've mapped that out. And you know, you are quite a cautious person. We've got to make this money last. It's, you know, it's it's early on in your retirement. You want to leave a legacy to your kids. So, okay, so what we're going to do is we're going to leave three to five years of income in casual cash alternatives. Yeah. And if we're still in a negative situation five years down the line, again, a lot has gone wrong. We know that I think it's the average bear market lasts for 14 months. Um so you know, we we need to we need to put things in place to protect against it. And one of them is not having a sell down during uh during during a during a bad time. And we can do that by having things in the portfolio, short-dated US Treasury, short-dated UK guilds that can provide you still with a return. Maybe the same as you would get potentially of equities over the longer run. Um, but it provides you with the comfort that if if you do you do still want to live your life, which most people do, even though markets are behaving erratically, yeah. You're not, you know, you're not sitting there panicking, you're you're worried. And again, that's the freedom part of being able to being able to do it.

SPEAKER_00 41:37

Yeah, and if we can provide one thing, peace of mind would be the thing. Right. So again, we can sit and talk about this mathematically and say what's the best possible return you can get. Yeah. And we just go to likely a well-diversed, well, well-diversified equity portfolio, right? Yeah. Um simple, it's not that complicated. And but then you've got the emotional asset class as well of you know the the bonds. You've got the emotional asset class of cash. And you know, you need those things um for short term anyway. You need you need to hold a cash reserve, but you need to be able to psychologically lean on something in these in these moments, as you say.

SPEAKER_01 42:14

Yeah.

SPEAKER_00 42:14

And that's what that does. Yeah. It fills that gap and it just adds to that peace of mind.

SPEAKER_01 42:18

Yeah, it's definitely um you definitely need a nice wide range of assets in your portfolio for sure. And they're the kind of and they're the kind of three um three main levers that we can really that that we can really tug on. Um so we've talked about no, we've talked about the strategy, we've talked about the levers that we can pull if there's shortfalls, we've got this number that we know that we need to get to now that isn't that is enough.

SPEAKER_02 42:47

Yeah.

SPEAKER_01 42:48

And we know where and we know we know what that is. How do you ensure that clients are motivated or continue to be motivated? Because like most people, it's like, oh, I've got I'm this January, you know, with news resolutions, I'm gonna do this, this, and this. And in January you all start off really well. But it's in, I think it's is April or March is when most people kind of give up these resolutions. They're like, they're they're just like completely kibosh, they're done. So, how do you make sure that people stay engaged and motivated throughout the process?

Portfolio Design For Peace Of Mind

SPEAKER_00 43:17

Yeah, it's it's really, really important that we have an ongoing service with clients, we have an ongoing touch point. So, we'll typically say to clients, as a bare minimum, we need to be sitting down at least every 12 months. Um it's great to hear sometimes clients sit down and go, I'm looking forward to my therapy session or whatever it may be. And that's a great compliment because they they come to get that shot in the arm, they come to get the confidence again because during the year we may have had a few conversations around whatever's going on in the life, whether they've gone in markets or wherever it may be. Um, but there's nothing like sitting down, rebasing your plan, planning your next 12 months, seeing it all going the way you want it to go to go, okay, I can go again, I can do a few more months, you know. Because we're human beings, that's what happens. You know, you get in your mind on something, you watch the news, it's never positive, you know. So you you you become a victim of your that sort of negative self-talk again. And sometimes you just need that rebasing and that conversation with somebody who knows your situation really well. So I'd just say that we're always available to clients to speak to. We're proactive with our reviews, we're proactive with things that they need to change that's personal to them. And we just act as that sounding board, you know, for people when they just got that thing, just get it out and talk to you. And they get off the end of the phone 10 minutes later, banks feel better. Yeah, that's all they needed, you know. So without that, where does that spiral to? You have conversations with the wrong people, you stay in your own head about it, you listen to the news. You go to your mate down the pub who's, you know, just done something brilliant, apparently, called to him, you know, that you should be doing or you're missing out on or whatever, you know. And they all just start firing away these triggers, and you're like, okay, oh god, what do we do? Worry, you know? So yeah, we just encourage clients to ever worry with anything money related, at the end of that phone, email me, text me, call me, whatever. You know, we'll we'll we're always available to do that. 100%.

SPEAKER_01 45:02

Yeah. It's the times, like you said at the moment, where we actually add the most value. Yeah. Uh where having a financial planner by your side is is key. It's the mo it's the mornings when you don't, you know, if you're training for any kind of uh event or whatever it might be, or you know, fitness goal, it's the days that you don't want to get out of bed and go to the gym. That it's really important that you've got the trainer, and it's times like this when the markets are behaving really erratically that you have a financial planner by your side to help you see through. Because we know that we know and we've been here that as if it history repeats itself. And I think that that I think is it Peter Lynch or is it no, sorry? It's John Templeton uh who basically says the four most expensive words that investors say is it's different this time.

SPEAKER_00 45:49

Yeah, yeah, yeah. Um, you know, it's not I think it's Nick Murray who's um says the foremost that we say is uh this too shall pass. Yeah, you know, so to be that sort of sanguine voice in this period of like sort of uh uncertainty is really really key. And you know, there's a reason behind it as well. We're not just saying, I'll just stay invested and that's fine. The best trading days in markets typically follow the worst. Yeah, you know, and you there's again another study where you miss over 30 years, something like the best 60 trading days, you go from a 10% average return to next to nothing. Yeah, and those days are about to happen, don't miss them.

SPEAKER_01 46:21

And the problem is no one knows when they are. Yeah, you cannot predict, no matter how good you are. No, I think it was John Bogle who said uh in his 55 years of uh investing, so that's the founder of Vanguard. He'd never met anyone that could time the market, and he'd never met anyone that knew anyone that could time the market, you know, and that's that's uh if that's a pretty famous investor. I mean, even Warren Buffett doesn't profess to time in the market. You have a look at all these super successful investors, yeah. They're not sitting there going, Oh, you do this, you jump in at this point, you jump out at that point, you get back in, you do that, you know. No, no, no, no, no, no. It's invested for the longer run.

SPEAKER_00 46:55

It is, and and look, we we're in a very unique age of social media as well, yeah. Yeah, where there's these uh influencers, isn't there, everywhere who, you know, basically know next to nothing most of the time, or give you some terrible advice.

SPEAKER_01 47:06

Celebrity normally, isn't it?

SPEAKER_00 47:08

Yeah, and it's look, it's great, okay. Well, this is what I did in hindsight, and uh okay, great, you know, and uh that's great, and and look, I'm not there's gonna be people out there who can do this successfully. It's finding the needle in the haystack, though, isn't it? And and we just we don't subscribe to that approach, yeah. You know, as you say, with financial planners, we can add the value there by doing all these things that we're in control of. Markets just isn't one of them. We just now have to interact with the market and how it will behave over time. Yeah. Um, that's important.

SPEAKER_01 47:35

Awesome. So, what steps uh can listeners take today to start aligning their finances with their desired lifestyle then, Stuart?

SPEAKER_00 47:44

Yeah, so I think getting to know where you're at right now, doing a bit of a um an audit in terms of where you're at is a good exercise. If you can do this on your own, speak to a financial planner as another, have a conversation and a coffee, see who you're comfortable speaking to. Because if you can get somebody professional on your side, you're gonna know all these shortcuts. Yeah, you've got to find the right financial planner for you, somebody who's gonna talk to you in this way that we're talking today, not just focus on okay, let's have an investment account, let's do you know, some insurance, whatever. That's down the road. You know, get your plan in place. Um, and start educating yourself. You know, read some read some books on on you know, we've mentioned a few people today, Nick Murray, uh, John Bogle, all these people, they they talk a lot of sense in this world, they've done a lot of uh good things. Um Psychology of Money by Morgan Housel is a good one to read as well, if you want to just get into it and get an understanding of how to be a good investor, behave like a good investor. Um, like I say, and and if people want to speak to us, that's what we're here for. We're open to conversations to help people, that's what we're that's what we're here to do.

Staying Motivated With Regular Reviews

SPEAKER_01 48:43

Awesome. So I hope that answered your question of how do I know if I have enough uh and I can live the lifestyle that I want to, because enough is really dependent upon you, it's dependent upon what the kind of lifestyle that you want to live and mapping that out, and as Stuart's kindly said and and helped us with is understanding what that means for you initially, levers that you can pull to help you get there, uh, and then making sure you understand with with where you do want to end up. But that that can change as well. So I hope you found that useful. If if you do want to get in touch with us, clients.services at hoxtonwealth.com is the best place to do it, and we'll be only too happy to help. Thanks very much for listening, and I hope you found it useful.