The Clock and Compass Theory

I am often asked why I moved from Stockbroking into Financial Planning. In a sentence, it can be best explained by what I call ‘The Clock and Compass Theory’.

Imagine this.

You make a snap decision to drive from Sydney to Brisbane for the June long weekend. You estimate it’s a twelve hour trip so you find the nearest highway and get cracking. It’s 10am and your first goal is to reach Newcastle by 1pm.

But as the clock strikes one you find yourself staring straight at Parliament House…you’re in Canberra!

What on Earth happened?

The clock became more important than the compass. You didn’t have time to get the exact directions because you had to get moving.

Investors often do the same thing. They become so focused on the vehicle they forget about the map. It’s easy to do. I’ve done it myself. The lessons are also very valuable.

Here are some typical examples:

• A couple rush to buy an investment property (50/50) only to learn later on they should have put a higher percentage of the property in the higher income earners name.
• An employee puts their life insurance policy inside super for cashflow purposes without consider the tax consequences if a claim is made, which can be significant!
• An investor borrows money to purchase an asset but can’t claim the interest because it is non-income producing.
• A blended family writes a will without a Testamentary Trust leaving the estate exposed and easy to contest.
• A superannuant buys a property inside their SMSF using a limited recourse loan and then learns afterwards it’s a breach of ATO laws to renovate it.

That’s why the relationship between investments, super, insurance and tax is tricky. When you pick up one end of the stick you pick up the other. Every cause has an effect.

And that’s the advantage of Financial Planning over Stockbroking. You can put the strategy in place first (compass), before selecting the stocks (clock).

End of Financial Year

In the lead-up to the end of Financial Year, I will be focusing on some key principles which I believe are central to creating a financial plan. We’ll be putting first things first again.

Not surprisingly, the first and most important lesson is to put the compass before the clock. Get a true north direction on where you’re heading.

 

This information has been prepared without taking into account your objectives, financial situation or needs. Before making a decision based on this material, you should consider its appropriateness in regards to your objectives, financial situation or needs. You should seek advice about how the relevant laws impact on your particular circumstances. Suncow Wealth Pty Ltd is a Corporate Representative No.441116 of AFSL 393254.