There’s an old saying which goes something like “If you keep doing what you‘ve always done, you‘ll keep getting what you‘ve always gotten.” This makes us speculate about the real essence of how to plan for the future, because there is no doubt that the future is likely to look very different to the past.
By implication if we look at the past – or even the present – to dictate our future choices, we will probably come unstuck.
There are so many aspects to this which are worthy of consideration, we have selected just a few examples for this article.
Firstly, change is rarely immediate. The nature of change, the sort which will affect our finances, is liable to be slow. This is the drip, drip affect. For example, reports this week identify that a child born today on Friday will live (on average) a day longer than a child born on the Monday of the same week. Life expectancy is increasing for new born children by one day, every four days.
Today there are 42 dependents for every 100 people in the UK. This will increase to 70 by 2050.
Both of the above statistics represent change that is gradual, not immediate, but at the same time changes which are dramatic over relatively short time periods.
Secondly, more specifically in finance terms, think of the shifting patterns of the economic picture. 25 years ago interest rates were considerably higher than today. It is only one generation ago that interest rates were in double digit territory. Anyone in that period predicting a future where interest rates would become negligible would have been considered a whacko.
This means, today, anyone suggesting that in ten years property price levels may be half of today’s values or that interest rates might again reach double digit levels would be “out of kilter” with most mainstream thinking or projections. The problem is that changes, of this sort, are not only slow to manifest but also entirely unpredictable.
Thirdly, social aspects are subject to change. Think of the Britain (and the World) we inhabit today. Twitter, remarkably, was just ten years old a few weeks ago. Eleven years ago Twitter did not exist. The NHS statistics are breathtakingly different, the number of people now being accommodated by the NHS and the nature of the treatments, the age and the whole way the NHS operates are different.
The political environment changes. The UK government has expanded its debt by around £1 trillion in the past ten years, a burden for the taxpayer (or future taxpayers) with huge implications to how our society and economy will be structured in the future. This expansion of government debt, if looked at in any one year, is unspectacular, probably insignificant, but over a few years the drip, drip affect represents meaningful and truly impactful change.
As suggested, the range, variety and extent of the changes going on around us are immense. They are also likely to make the future look very different to the past.
In Financial Planning terms this means the sensible financial approach has to be one which has a series of critical component parts. Any viable Financial Plan must have at its core a huge respect for how different the future might be. For example a 60 year old retiring today would be foolish to expect interest rates to remain as they are today and to plan accordingly. That 60 year old, in reasonable health, could easily live to 100. They should be thinking of a 40 year plan, and it would not be unreasonable to think that in this period, things could change a lot. How unstuck would that individual be if they planned for near zero interest rates only to find in ten years interest rates (for reasons unknown today) are back up to double digits levels?
Anyone using and investing into real assets to underpin their financial futures should be very wary that the future could be very different; how would your finances cope with a reduction in property values of 50% in the next 10/20 years. Can’t happen? Won’t happen? Don’t bet on it – and this is what some people are doing, for example, when they say things like “my property is my pension.”
Likewise, shares – they always go up, don’t they? No is the answer. They should do over time, all things being equal, but they can go sideways or down – for very long periods. Just look at Japan.
What happens to real asset values in the UK as the baby boomers withdraw their money from these asset areas to fund their retirements? Who knows? But it wouldn’t be the biggest leap of the imagination to see trouble for real asset prices in the future.
We have no idea what is going to happen, nobody really does, and anyone who professes to know is a chancer (at best!).
What we do know is that serious change is happening, not necessarily change which is easy to ‘see’, but real meaningful change nonetheless. And what this means to those of you engaged in thinking about your finances is you need a Financial Plan which is flexible, is stress-tested against all of this change and can be made to work in an ever-changing world.
You need a Plan which will work in all seasons.
This is what we do, at Penguin Wealth, we are experienced and qualified Financial Planners. We help our clients plan for their futures, always with the highest regard for the drip, drip changing nature of the World around us.