personal finance, personal wealth
Setting aside for life after retirement is fraught with risks and opportunities. The business of wealth management needs a keen understanding of both. Image Credit: Pixabay

With longer lifespans and rising global uncertainty, it has never been more important to make the right financial decisions. Across fast-growing economies, people are improving their lives and growing in affluence - but their version of success far outstrips that of previous generations.

A recent study into this group of “wealth creators” by Standard Chartered revealed a universal challenge: people’s wealth expectancy (total net wealth at age 60 in 2019 prices) does not match their aspirations. The result - six out of 10 people in a sample size of 10,000 across 10 markets are facing a wealth expectancy gap of 50 per cent or more.

Many people believe that putting aside money regularly will help them reach the magic number. Sadly, when they do the math as they near retirement, their savings might not add up and by then it’s often too late. They could live another 30 years post-retirement and not have enough to sustain the lifestyles they expect.

Unfortunately, not everyone has the information they need to make their money work harder and generate good returns. This means they could miss out on the potential benefit of a structured wealth management plan to offer a better chance of meeting their aspirations in time.

The earlier we start making good financial decisions, the easier it is to avoid a wealth shortfall. But the huge number of wealth management solutions offered by many different providers adds confusion. And then there’s the natural fear of market volatility and the risk that comes with it.

Cutting through

Fortunately, there are ways to cut through the clutter. Successful wealth management can be drilled down to overcoming three main challenges:

* Access to advice and information

We live in a world of information overload and its difficult to ascertain which source to trust. The first step in better decision-making is to get personalised, objective investment advice to understand how to achieve your financial aspirations.

Technology has made it much easier to access an expert. You can now even chat to an advisor online or link up via video call.

Our “Wealth Expectancy” report shows that only 30 per cent of wealth creators currently benefit from online guidance from click-to-chat financial advisors - so there are untapped ways technology can help wealth creators reach their aspirations.

Once an individual identifies the goals they want to achieve: buying a home, funding children’s education and eventually a comfortable retirement, an advisor can help them decide what products and solutions can help them achieve their goals, on time.

Investing is unavoidable if you want to grow your wealth; the trick is taking risks that you are comfortable with. Again, an expert advisor can help people better understand their risk appetite and decide a portfolio allocation with the right risk mix.

* Access to wealth management solutions

To many, investing seems complex and time-intensive. Fortunately, technology again comes to the rescue. With many providers now offering mobile and online access, it’s now a lot simpler and more transparent to invest, without reams of complex paperwork. It also allows you to invest in real-time, so you can take advantage of opportunities as they arise.

* Beating biases

Whether you’re a novice or far along in your investment journey, its important to understand yourself as an individual and what cognitive biases may prevent you from making the best decisions for your investment portfolio.

Researchers have identified more than 180 cognitive biases, some of which could prevent us from making optimal decision on our investments. Consider for instance the “familiarity/home bias”.

Comfort factor

You may only be investing in something you are familiar with as it gives you a certain level of comfort, whereas something else – bonds in a new sector or market perhaps – could potentially give you better returns.

Another common bias is “herd mentality”. When the market dips, investors may be tempted to follow the many people who dump stock, even though it may in some situations be better to hold on and ride out the volatility.

Or you may blindly follow the majority and put your money where everyone else is, rather than doing your own research.

The earlier people start making sound financial decisions, the closer they will get to bridging the gap between expectancy and aspiration to meet their goals and achieve their ideal retirement. The key lesson: when making financial decisions, use an expert as a sounding board; choose solutions that are aligned to your risk profile and goals; and try to understand how you can overcome the biases that may stand between you and success.

- Sonny Zulu is Head of Retail Banking at Standard Chartered Bank, UAE.