5 important questions to ask your financial planner about investing

Two people having a discussion over a desk.

If you want to grow your wealth to reach your financial goals, investing can be a great way to do so. With low interest rates and rising inflation, holding too much of your wealth in cash can lead to its value being eroded in real terms.

Of course, there can be a lot to think about when investing, which is why it’s important to be able to make informed decisions. If you want to build your wealth effectively and reach your financial goals, here are five important questions that you should ask your planner.

1. Should I worry about market volatility?

In recent months, the global stock markets have experienced a significant amount of volatility. From the outbreak of coronavirus in 2020 to the recent Russian invasion of Ukraine, major world events have caused uncertainty in many markets and spooked investors.

Due to this, it’s understandable that you might be worried about the value of your portfolio. You may even be tempted to withdraw your money to try to protect it.

However, one of the most important things to remember when investing is that it’s “time in the market” and not “timing the market” that typically leads to positive returns.

While short-term volatility might seem scary, in the long term any temporary falls will often be erased by the general upward trend of markets.

As hard as it may seem, when you encounter a difficult period, it’s often best to remain calm and ride it out. Read our previous article to find out about how making decisions based on emotion, rather than logic, can affect your progress towards your financial goals.

2. What is risk tolerance?

When investing, your tolerance to risk is one of the most important factors. To put it simply, there’s typically a correlation between the amount of risk you’re willing to take in the stock market and how large your potential returns may be.

For example, government bonds are considered one of the safest investments, but their returns are likely to be steadier and more modest than other asset classes.

One factor that can affect your risk tolerance is how long you are planning to invest for. If you have a longer investing horizon, you may feel you can afford to take greater risks with your investments and this could also help you enjoy higher returns.

3. Should I invest in a sustainable way?

In recent years, there has been a rise in interest in sustainable investing. This strategy can help to align your investments with your morals, as you can gain peace of mind to know that not only is your money growing, but it’s also making the world a better place while doing so.

As we discussed in a previous article, there can be many benefits to investing according to ethical principles. For example, according to the Financial Times, over the past decade, more than half of sustainable funds have outperformed their equivalent conventional counterparts.

While this may sound good, it’s important to remember that there is still some debate as to whether this strategy can reliably outperform in the long term. As such, you may find that it isn’t right for your needs.

This is why, if you’re considering sustainable investing, it can be useful to discuss this option with your planner first, so you can make an informed decision.

4. Will inflation affect my investments?

In recent months, there has been a sizeable spike in the rate of inflation. According to figures from the Office for National Statistics (ONS), the Consumer Price Index rose to 9% in the year to April 2022. As such, you may be concerned about how this will affect your portfolio.

To put it simply, a high rate of inflation reduces the real returns on your investments. Even if they may show a decent rate of growth, their value in real terms might not be increasing by as much as you may think.

With that in mind, to achieve higher returns, it may be necessary to raise your risk tolerance. This can help you to maintain your progress towards your financial goals, even during periods of high inflation.

Of course, as we mentioned earlier, exposing your wealth to greater risk isn’t a decision to be taken lightly. It’s always a good idea to discuss investment ideas with your planner, so you can decide what’s right for you, taking all your circumstances into account.

5. How is my portfolio diversified?

When building a robust portfolio, diversification of assets can be essential to protect your wealth during periods of economic volatility. Essentially, this is the practice of not putting all of your eggs into one basket!

Having a healthy variety of different asset types (such as bonds and equities) from a variety of sectors can help to protect you in the event of a market downturn. Even if a portion of your portfolio falls in value, this loss may be counteracted by growth in a different sector.

Diversifying your assets helps you to achieve more consistent outcomes, as well as lowering the risk of setbacks caused by market volatility.

If you want to know more about how we protect your portfolio from shocks through sensible diversification, get in touch and we’ll be happy to discuss your long-term strategy with you.

Get in touch

If you want to know more about how we can help you to invest more effectively, get in touch. Email enquiries@bowmorefp.com or call us on 01275 462 469.

Please note:

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Bowmore Financial Planning Ltd is authorised and regulated by the FCA.