After more than 10 years in financial services, I've discovered the three financial decisions that families make which are structural time bombs even when they think they're being "responsible."

Case study 1

My client came to me after her divorce. Her husband used to do all the planning for them. Now she needs to look after herself. She told me she set aside a sizeable monthly commitment every month for her investments. These investments originally were supposed to be jointly shared with her spouse for their mid term goals. Now she is fully paying for them. She is now keen to invest her CPF which is still untouched.

I listened to her story. Told her I don't operate by randomly investing excess funds of my clients. We needed to look at her entire portfolio and work out a strategy based on a goal-based framework known as my flagship Goals-to-Reality Approach (GTR Approach). This way, we know what is the direction and goal we are working towards.

After reviewing her portfolio, she is heavily invested but severely lacking in protection coverage. In fact, she doesn't have any. I explained to her that all her investments were at risk if health issues arise. She paled.

Given that a lot of her funds were committed long term, her available resources to get herself covered would stretch her thin. This is something she could have avoided if she was informed of her gaps prior to investing.

1st Common Financial Mistake

Making long term commitments without factoring in downside risk

People are usually interested in growing their wealth, not interested in insuring themselves. Insurance is seen as a cost but investing is seen as a way to make more money. However, if people only do one and not the other, there's a risk that health issues arise before they have accumulated a sizeable portfolio to self insure. In such instances, their entire wealth building portfolio and other liabilities taken up like housing would be at risk. If they have kids or dependents, the family is also affected.

The biggest issue of this blindspot is committing too much towards long duration commitments like housing, investments and not factoring in excess funds for these protection needs. Now insurance will appear to be even more expensive due to the lack of purchasing power.

Case Study 2

My client who is running a 7 figure business first reached out to find out what investing solutions she can consider. She builds her wealth through her business and property so she is unfamiliar with other forms of financial instruments and would like to know more.

As usual, I told her I don't operate by recommending random financial solutions to clients. We need to start with a portfolio review, followed by our flagship GTR Approach. She sent me her portfolio and I saw something very interesting.

She has a very small coverage on critical illness and totally no coverage for early critical illness. Her kids on the other hand has more coverage than her. She is also paying more premiums for her kids insurance than her own. When I questioned her about it, she told me after her kids were born, as a loving parent who wants the best for her kids, she bought everything her financial consultant told her they needed. She wasn't interested to review her own coverage and didn't understand what these insurances covered.

After I explained how their household finances might be affected if she could not work, her hands flew to her chest holding her heart. She wanted to get insured immediately and she is probably the most decisive client I have had in 7 years as a financial consultant. With proper planning, her coverage exceeded her kids' coverage by many times and her family can still function even if she can't operate her 7 figure business for a while.

2nd Common Financial Mistake

Heavily insuring children while under-insuring parent

Most parents love their kids a lot. Just like my client, they usually will buy the best for their kids up to what they can afford. If they could really afford it, they will buy everything recommended. However, they often neglect their own coverage needs forgetting that their kids are their dependents and they are the breadwinners. It is more essential to insure the parents sufficiently so that there will be provision when something unforeseen like illness or death happens.

Think about it. If a sudden death occurs like the death of Tipsy Collective co-founder, what will happen to the household expenses and dependents? Will the family still have the same quality of life? According to news online, he has 2 kids with his wife.

Case Study 3

I can never forget this lesson I had when I first started out in financial services. I was working as a personal banker advising clients on wealth management. I met this guy in his late 60s and he told me very firmly he did not want investments.

Back then as a young banker, I passionately thought he just didn't understand the instrument. Dividend investing was a thing at that time and a lot of retiree clients loved it. So I enthusiastically tried to explain to him and what he said next stopped me in my speech. I never forgot the lesson.

"My original retirement plan was 8 years ago. All my money was invested in the US stock market. It was doing well until the Lehman Brothers incident happen. Just nice, that was the year I wanted to retire. All my stock prices dropped so much I delayed my retirement by 8 years. Now I have sold all my stocks and taken out my retirement funds. I only want safe, prinicipal guaranteed products."

A quick check of the S&P500 price drop in 2008 reflected a steep >50% drop. That means if the client has $2,000,000 invested, he would have lost more than $1million. If I were him, I would delay my retirement too.

3rd Common Financial Mistake

Having an inbalanced portfolio in high risk instruments

The S&P500 is currently outperforming many markets. It is an index which Warren Buffett said he would keep his funds invested to take care of his wife when he is not around. Yet too much of anything is not ideal. Warren Buffett invests without an end timeline. Most of us have end goals. We need to factor in sequence of return risks as a result.

Thus, it is ideal to have a balanced portfolio. This means having exposure to instruments that are for wealth preservation as well as instruments that are for wealth accumulation. These don't serve the same purpose.

Read relevant article: Are you confusing wealth preservation tools as wealth accumulation tools?

3 mistakes to avoid

3 financial landmines that can structurally derail your financial portfolios:

1. Investing before Safety: Investing in long big ticket commitments before securing your downside risk

2. Backwards Protection: Insuring dependents better than providers (the kid doesn't pay rent)

3. All-In Investing: Focusing too much on returns without factoring risk when even Warren Buffett first rule is Don't Lose Money

Financial planning is not just about growing wealth. Most of us just wants to maintain our quality of life while striving for a better life. This means taking care of downside risk while also working on improving our lives.

This intentional process is the Goals to Reality Approach (GTR Approach) I carry into every client conversation today. This is how we create certainty and confidence while walking our clients through major irreversible decisions.

If you want to also be hand-held through our flagship GTR Approach to create a balance portfolio that gets you safely to your goals, feel free to reach me by dropping me a message.

Be sure to share the article if you feel this information is helpful. You will enable a lot more people to learn about holistic financial planning.

About Janice 

I specialize in identifying and eliminating structural retirement risks for high-income professionals who already think they’re doing enough.

Clients look for me primarily to outsource their retirement planning needs so that they can focus on other aspects of life that interests them. Many of whom are very good in earning their incomes in their respective professions and wish to ensure their monies continue to work harder while they focus on what they are good at. Refer to client testimonials here.

You can reach me at 94313076 or my social media accounts on Linkedin and Instagram.

Disclaimer: The content created are based on my personal opinions and may not be representative to everyone or any organisation. If you have any doubts or queries pertaining to insurance or investment, please seek professional advice from a trusted adviser in an official setting. You may also reach out to me if you do not have a present adviser using the message box under 'Let's Talk'.