The Challenge of Living a Life of Security and Dignity in an unchartered world 

The COVID-19 pandemic has caused two years of dramatic economic and social disruption that have presented unique challenges. Tough times need tough people so the world can emerge stronger. More so in the field of finance and investments, where there is much uncertainty and volatility. Market volatility – be its stock prices, interest rates, or even liquidity – can create a lot of pressure.

Warren Buffett famously said that “only when the tide goes out do you discover who’s been swimming naked.” There is a need for professionals with strong subject knowledge, a good grasp of current market realities, and, above all, strong business ethics.

In this reality, we are finding that there is a tremendous need for international financial and investing advice and access to a methodology backed by academic research that we can all trust.

The Academic process backed by research and implemented by qualified professionals has six components. They are financial management, asset management, risk management, tax planning, retirement planning, and estate planning.

Financial Management 

The purpose of Financial Management is to understand the client, their income and expenses, assets, and liabilities, and to identify strategies and techniques to optimize short – and midterm cash flows, assets, and liabilities. 

Asset Management 

An investment management strategy provides the framework for investment decisions. It ensures that the decision-making process concerning the management of your portfolio is consistent, even when unexpected market fluctuations tempt distraction. The development of an effective investment management strategy is the basis for building a family’s future. 

Risk Management (Profiling) and Stress Testing 

The “Risk Profile” is an evaluation of an individual’s willingness, capacity, and ability to take on risks. A risk profile theoretically, therefore, is important for determining a proper investment asset allocation for a portfolio

Controversially, it is accepted that if an individual expresses a desire for the highest possible return and is willing to endure large swings in the value of the account to achieve it – this person would have a high willingness to take on risk and is a risk seeker. However is it really clear to the investor that the risk the investor is taking is not achieving a high return over time with volatility in the process, but actually taking on the risk that he will in high probability expose himself to the possibility of losing all his money. 

The use of scenario techniques enables stress scenarios (what-if scenarios, for example, what if the dollar loses 20% of its value, what if there is a crisis in the stock market, etc). In addition to realistic economic performance scenarios to be factored into decision making. Scenario-based asset allocation can therefore be an effective tool for constructing stress-resilient portfolios

While risk profiling and scenario management are very important the priority is to work on the individuality of investors and their specific life goals, dreams, values, and aspirations and align the asset allocation accordingly. 

Tax Planning

The principles of tax planning form an integral part of any wealth-building strategy. The overall objective is to structure clients’ affairs to legally minimize the tax they must pay. They can accomplish this by adhering to what we call the 4D’s of taxation: deduct, defer, diminish, and divide. 

  1. Deduct – maximize all tax deductions and credits. 
  2. Defer – defer paying tax if possible. A tax dollar deferred is often a dollar saved. 
  3. Diminish – position investments in investment vehicles, which attract the least amount of tax, having full regard for your risk tolerance and asset allocation strategy. 
  4. Divide – split income among family members to the maximum degree possible while considering other personal objectives. 

Retirement Planning

Retirement planning is planning for the day we stop accumulating assets and start living of the assets we have accumulated. 

By identifying all sources of income and all expenses and recognizing the timing of each, you can locate in any year when the client will have a shortfall (more expenses than income). In those shortfall years, the monies invested can be used to cover these shortfalls. These controllable variables include: 

  • Controlling expenses as much as possible. 
  • Reducing taxes 
  • Improving the rate of return on the investment portfolio by changing investment strategy 
  • Reducing or eliminating one or more of your goals in the future if need be. 

By making one or more of these changes, the client can go from a shortfall to a surplus. When you have a surplus (identified as an “Estate”) it means that you would achieve all your goals and objectives, with something left over at the end of your planning horizon 

Estate Planning 

There are four principles of estate planning that are fundamental:

Principle #1: Provide for your own needs for life – ensure that your personal lifestyle needs are provided for so that you don’t have to ever worry about running out of money. 

Principle #2: Safeguarding your estate to the maximum extent possible – by building an investment strategy that can sustain your lifestyle. 

Principle #3: protect your estate from the erosion caused by taxes and other expenses. 

Principle #4: distribute your estate in an orderly fashion. 

In addition to these principles, you have some specific concerns that must be taken into consideration to ensure that your estate planning strategy fulfills your personal goals and objectives. 

When financial uncertainty strikes as it has today, many consumers take a cautious approach to manage their money and they need a methodology they can trust to grow and flourish. When you cannot trust the market to work for you in any scenario, you need a methodology and a professional who cares. 

About the Author
Dan Dobry was the founder and a director of the GlobalNET Investment House, he was one of the founders of the Union of Financial Planners in Israel (UFPI) and served as the first Chairman and President of UFPI. Dan was the Global Council Representative for Israel for the Global Community (FPSB) from 2012 - 2018 and was a member of the Committee for Standards and Qualifications for the European Union (SQC) until December 2021.
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