INVESTING | August 31, 2017 10:36

7-step action plan to grow your wealth - and your garden!

EDINBURGH — How do you make the most of your finances so that you can grow your wealth? The days of buy and hold are dead, says independent financial adviser Dawn Ridler. She recommends using a botanical analogy as a way to keep your wealth portfolio in shape. Green-fingered Ridler highlights ways to trim back the debris and get your plants – and your money – working harder for you in this fresh look at how to undertake an annual portfolio review that achieves the best results. – Jackie Cameron

By Dawn Ridler*

Over time overgrown plants and dead wood will accumulate in your garden, and if ignored can kill off everything around it. It doesn't matter how carefully things were planned at the start unless that plan is revisited and maintained, you can end up with a weed filled jungle that is almost impossible to get back into shape. Spring cleaning is not about throwing everything out, it's about pruning, splitting, composting so that it will look better in the future. So... Using this botanical analogy, what can you do about your wealth portfolio?

Pruning: This is the cutting back of plants so that you get a better flush in the next year. Just like you should prune roses and fruit trees every year, so should your wealth portfolio be examined and trimmed every year to maximise its potential. Wealth is what is left when you have consumed your income - the simple Wealth Equation. The Consumption side of the Wealth Equation is where you need to prune. Use your banking software or a free app like 22seven to see where you need to prune. Everyone is going to be different so it is difficult for me to say what is important or not. If you're not sure, list all your expenses for a month then put a priority rating of 1 to 5 next to them, the order that you'd drop them if you absolutely had to, with 1 being the most important. Put everything there including your mortgage, car payment, medical aid. Some people would rather eat baked beans for a month than drop their DSTV subscription for example.

Pinching out. This is the mini-pruning of shoots so that the plant will bush out and produce many more flowers or fruit - increasing your 'harvest'. Fuchsias are an excellent example of this. Pinching out effectively delays the flowering or fruiting of the plant - delayed gratification for the greater good. Take a topiary for example, getting a pleasing shape depends on knowing what you want it to eventually look like (an objective), and having the patience to keep controlling it until you get there. If you want to increase your harvest you need to have as many points of diversity as possible, so that if one branch dies, the other branches can pick up the slack. All portfolios should have an objective: What are you going to use the investment for and when? This timeline will dictate how you should treat the investment, and how important it is to preserve the capital. Probably the biggest capital accumulation you're going to need to make is for your retirement, but how big this pot needs to be will depend on what you want your retirement to look like (in present value terms). This calculation is far too important to 'wing it', get professional help.

Compost and Fertilise: Over the year plants deplete nutrients out of the soil to produce leaves, flowers and fruit, if you want them to keep on producing you need to compost and fertilise. Your wealth portfolio is no different. You can compost it 'organically' with interest and dividends that are ploughed back into the portfolio - or inorganically by adding to the portfolio with new, man-made (you-made) contributions. Most of you probably already contribute to some sort of investment every month, but what do you do with your bonuses? Why not commit to putting 50% of that bonus into investment. You could also do this with other little windfalls like Insure cash payments or other loyalty program paybacks. The free app Stash# will also make it easy for you to get that money out of your pocket before it burns a hole.

Burn: When you're clearing a garden and have to cut back diseased plants, they can't be put into the compost without perpetuating the problem in future years, so they really should be burned. This applies to things like rust on roses, or mildew. There will be policies, shares or investments that have low value, or are contaminating your portfolio and should be liquidated and the money used elsewhere. This can be emotionally difficult. You may feel some loyalty to the broker, for example. Investments do not have emotions. They don't care if they were given to you by a favourite aunt or if you're deeply disappointed with their performance and want to give them a chance to prove themselves. If there is something else out there that is showing better long term potential, sell the rubbish and use that money for something new.

Mulch: In the garden mulching has numerous uses. It reduces evaporation, cuts out the light so weeds can't grow and eventually aerates the soil. This is also a useful way to recycle plant material like autumn leaves, peanut or other shells or bits of bark. Mulching your portfolio is no different. You need to hedge against risk for events like premature death or income interruptions, and until such a time as you have built up the capital to mitigate this, life/ disability/ dread disease cover is a sensible way to do this. It is not 'for life' but just while you're accumulating your wealth. Mulch usually has little long term nutritional value, and likewise don't try and make your life insurance kill two birds with one stone with promises of 'giving you all your premiums back after 15 claim-free years'. Don't mix risk cover with investment, it isn't 'free' nor is it cheap, and often it's nasty. Allocate your limited funds with a clear objective.

Split: Bulbs, rhizomes and clumping plants (like daylilies or agapanthus), if they have been properly nurtured over a few years, can be split into numerous additional plants. If you leave the clump too long, it will get crowded, deplete the nutrients and slowly produce less and less. Parts of your wealth portfolio act exactly the same. Things change - Commodities have been in the doldrums for years and REITS (Real Estate Investment Trusts) are taking strain. Interest and bonds don't grow, they produce yield which can be reinvested or consumed. Stock values grow (and shrink). Sure, you can leave your investment portfolio where it is for years and years without touching it, but change happens, sometimes permanently. What was awesome 10 years ago, might be dead in the water today. Don't think that abdicating from your portfolio for years is 'passive investing'. It isn't. The philosophy of 'buy and hold' went out of the window at the turn of the century.

Spray: When you've cleaned up the garden, finished the pruning and splitting, you need to make sure that some of those nasties don't come back - and there are plenty of eco-friendly alternatives that can be used without contaminating your environment. Mitigating the risk of pests eroding your wealth portfolio is a grudge, but very important, purchase. Make sure that one event doesn't wipe out decades of savings. Medical risk is one such nasty - a car crash or heart attack can bankrupt you if you want more than government care. Life cover only needs to be in place until your dependents are off your hands and your retirement pot is full. Paying into a life cover as a 'legacy' for your children is nice, but a far more valuable gift for your children is never having to depend on them financially. One of the best ways to stop pests eroding your portfolio is to watch it carefully, helped by a trusted advisor.

Action: Reviewing your wealth portfolio should be done at least once a year. It helps if you're organized (you are welcome to contact me for my free Red File Organisational System.) Get help so that you don't throw the babe's breath out with the beetles. Don't just invest willy-nilly, have clear objectives and timelines. The earlier in your career you think about what your retirement is going to look like and how to make that happen, the better the chances of making that come true.

Dawn Ridler is an Independent Financial Advisor with extensive experience in both financial advisory and business. Her unusual combination of an MBA, BSc and CFP ® has evolved into an 'ecological' and holistic approach to advisory, which she has tagged 'Wealth Ecology' in her company, Kerenga.

This article is published here on with the kind permission of Dawn Ridler. Copyright: Dawn Ridler

Also by Dawn Ridler: How to take the emotion out of investing