Achieving Economic Viability

Our biggest passion at DB Wood is the journey of developing, growing and protecting the wealth of our clients. In this blog, we reflect on key factors that, in our experience, have a significant impact on an individual’s long term economic viability.

It is worth pointing out that our feedback here is subjective. Everyone has their own unique financial position, and, whilst there are natural overlaps from one client to the next, planning needs to be bespoke to each individual or family unit.

When looking at the factors that help to shape an individual’s economic position, our experience points to a basket containing a good portion of the following components; luck, measured risk, hard work, effective communication, diversification, and crucially, time.

So where does luck come in? Well, I’m pretty sure if I were born in a small village in the Ivory Coast, my chances of ending up at a quality University in the UK and pursuing a financial education would be reduced by a crazy percentage. Similarly, an average accountant in Silicon Valley will build wealth much more easily than an outstanding accountant in Bolton (no offence to Bolton).

Interestingly, if you leave university into a recession, you are statistically proven to be 10 years behind financially compared to a peer group whose start point was married with greater economic momentum (Professor Scott Galloway). We can’t control this of course, so again it’s an example of how luck or timing can make a significant difference. There are some controllables though, such as where we live. Our children also have some control over where they study, which is largely dependent on study results. In addition, whether they choose an education that supports a field of work where employment rates are high would make a difference. For clients with children, if they are ambitious to build an economically viable future, they should choose their playing field thinking about this bigger picture. That said, it is not all controllable, with some of the foundations that support that economic future, such as where you grow up and the time you join the work force, being down to the good fortune or not.

Number two was hard work, which I think is naturally one we all understand. There is absolutely nothing I have seen in my career thus far, which says that economic sustainability is achieved without this factor. It is also true that nothing that is worth having comes without a price. Talent without hard work does not provide a sustainable long-term reward. Talent must sit on top of hard work. Period.

At DB Wood our team are privileged in so much that many of our clients have had exceptional careers and/or have run or are running exceptional business. But from my experience, during their careers most if not all have had failures. Failure and mistakes help shape success provided they are recognised and understood. Anything that offers substantial rewards comes with risk, and a high likelihood of failure. If success is the best thing, failing/quitting fast is the next best thing. Also, keep in mind that the market is bigger than any individual, and most of your success/failure is not your fault. Don’t take it for granted when things work though be willing to forgive yourself when they don’t. Again, I’m not disputing the importance of perseverance. Quitting isn’t the opposite of persevering. Dyson’s 5,126 failed prototypes were only possible because after each one, he shrugged, learned what he could, and put it aside to try again. That’s 5,126 little quits.

Failure regulates your approach to understanding Measured Risk. That is, understanding that the risks taken are worth taking based on the expected outcome, and then committing the time and the work to drive the right result. In investment terms, the stock market generally provides the best returns, though the journey can be painful, so to play that game you need to understand the risks and have the time and the patience (hard work), to wait for the reward. Here a number of our components are playing a key role to driving the right outcome. Importantly though, it is important to understand if you need that return in the first place to create your sustainability. Alternatively, you may be able to back the risk with your investments or economic decision making and have a smoother journey. This is a great example of Measured Risk taking.

Effective Communication pulls much of our key components together. I’d always recommend young people to stop and ask a question, seek the counsel of someone whose been there, or has experience. Don’t be afraid to ask. The most successful people socially and in business tend to be effective communicators. Being able to provide good verbal context to an objective helps to build effective teams, and in combination with hard work and time, combined with measured risk taking builds a great platform for success.

Time and Diversification are my last two. Time goes slowly said no one!

There’s no time like the present, so if I’m talking to a young person, whose about to start work, my recommendation would be to speak to their employer to see if there’s a share save scheme, or any form of savings scheme where the employer or the government will add money to it or match your contribution

I’m starting as early as I can and I need an understanding of what’s available where maybe I can get a matched contribution. That’s a 25% or 100% return from day one. Compounding does the rest with 7.2% annualised growth doubling your capital in 10 years. Sit and hold. Time goes quickly.

Finally, if I’m giving one piece of advice to someone whose already made their money, its diversification. If you are at the point where you have enough capital to deliver your objectives, then you must diversify. Don’t have more than 5% of your liquid wealth in more than one instrument. That way you preserve and sustain, and if you know that a 5% annualised return can achieve your financial objectives, then firstly that’s a fantastic outcome, and secondly, you have built a sustainable financial future, irrespective of your forward timeline.

So altogether that’s our basket of ingredients to achieve economic viability – a dose of luck, a lot of hard work, some measured risk taking and effective communication, all over a long period of time, and then finally when you’ve built that wealth, diversify it to keep it. Its easier to say than to achieve, though hopefully it’s a helpful framework.