The Only Two Numbers You Need To Know For Successful Planning

By John Kalos

I had an interesting conversation with my
neighbour a couple of weeks ago about how
complicated investing can be. He had done some
research and spoken to a broker about investing
an inheritance he had just received. He shared with me
some comments and terms that were used at the meeting.
Betas, Alphas, nominal GDP, standard deviation,
variance…

This would be fine if my neighbour was a
rocket scientist. But he’s not. He is a typical Canadian
with little knowledge about investing. This is the first
significant chunk of money that he has come across so
he has never had an opportunity to invest any kind of
money. He was confused and discouraged. He just wanted
to have someone explain what he should be doing with
this newfound money in a safe, conservative way.

Investment professionals tend to use language that is
complicated and most of the times, unnecessary.

They feel using fancy jargon makes them sound knowledgeable
and educated, like they know what they are talking about.

I don’t believe in complicating things. As a matter
of fact, if you want to be extremely successful with your
investments all you need to know is 2 numbers:
1. The rate of return (%) you need to earn,
on average, per year to meet your goals
(assuming you have some) and

2. How much money you need to save per
year.
That’s it. I promise!

There are many questions that need to be answered
before you can conclude what % you need to earn and
how much you need to save each year such as:
• What are your goals for your money?
• When will you need it?
What are ALL the sources of your future
income (pensions, rrsps, inheritances…)?
• How will future inflation affect you?
• How much money will you need per year
when you retire?
• How do you feel about the ups and downs
of the markets?

It’s not rocket science. A good financial planner can
you walk you through the questions that need to be
answered, in plain English. Once they go through these
questions with you, they should be able to find out what
rate of return you need to earn per year on your current
savings, and the amount of savings you will need to make
every year to fund your goal. Once this is figured out,
a planner should suggest a portfolio of investments that
has, in the past, given that rate of return with the least
amount of risk. The next step would to put the plan into
action by investing the money for you.
The final and most important step for successful
investing is the step that many advisors and investors
miss. Your portfolio needs to be reviewed and rebalanced
at least twice a year. This is necessary because your goals
and needs may have changed. The markets may have also
made moves that may make your portfolio more risky
than it needs to be.

It’s not hard at all to have a well thought-out plan to
make sure your money is working in a matter that’s best
suited for you. The first step should be to make sure your
financial planner speaks your language!

John Kalos , CFP,Fin.Pl. is an independent Certified Financial Planner and founder of Ironshield Financial Planning. He is also the founder of “Confessions of an Ex-Banker” Podcast.

You can reach John on his website

www.ironshield.ca/team/john-kalos-kalogriopoulos