Individual Wealth Management for Young Professionals

At some point we all will take our finances seriously, it’s just that some have this realisation earlier than others. Young professionals may not think of themselves as the target audience of a wealth manager, but this is far from true. Young professionals are finding it harder to get on the housing ladder than the previous generation, all whilst living through a pandemic, soaring inflation, and lacklustre wage growth.

In this article, we will cover some of the reasons why young professionals are absolutely the ones most in need of wealth management guidance.

Retirement Planning

Many people see retirement planning as something for people who are closer to retirement; when it’s on the horizon. However, this is too little too late, and the reason behind that is compounding returns.

By investing this year, the returns we receive now can be invested next year, and so on. This means that our returns should have an exponential quality to them in the long run. In other words, delaying one year’s worth of investments is actually forgoing decades of compounded growth that this could have had - so there’s no time to wait.

Of course, besides the motivation for starting our retirement planning early, it’s difficult to know where to begin. It’s not as simple as making investments earlier on, but also taking into consideration the tax we pay over our lifetime and how this is impacted by pensions and ISAs.

Short-term Goals and Lifestyle

Of course, we can’t totally sacrifice our short-term goals in favour of retirement planning - this is where wealth managers really prove their worth. We can all read Reddit and watch Youtube videos on how best to build up a generic portfolio for retirement and it may suffice, but it won’t be bespoke enough to account for our short-term goals as well.

It’s the 20-30s where we are the most likely to have complex lives and many things going on. For example, saving up for cars, weddings, house deposits and introducing dependents into the world, along with constantly changing living circumstances and lifestyle habits.

This is where goal-setting and taking the right actions are difficult, in balancing our short-term needs with our financial goals. Unfortunately, we cannot rely on dipping into our long-term investments to pay for upcoming expenditures, like a house deposit. Not only could this derail our retirement plan, but it may mean being forced to sell investments during a market downturn.

A wealth manager can help give us an idea of how big our emergency fund should be given our current income, outgoings, and short-term goals. Opportunity cost means it’s tricky to strike the right balance.

Risk and Mistakes

Another huge factor in our decision-making when managing money is our risk appetite. Many young professionals have a very big appetite for risk because they have many years left until retirement, so short-term losses can be recouped in income. However, many young professionals often decrease their risk appetite when dealing with a wealth manager because the long-term potential for more conservative investments is clearly communicated.

One of the biggest things we have to concede as a young professional is that we aren’t experienced enough to beat the market. Most people don’t regardless of age (evidence below), but older investors usually have been through these mistakes in thinking. Whilst failure is often dubbed as being the best way of learning, it’s surely better to avoid them by placing your trust in a wealth manager.

Saving Time and Stress

It’s not just money that’s important - many of us use holiday families and indulging life itself as motivation to save money. Many young professionals are amongst the hardest workers in the workforce, working some of the longest hours. In 2019, Statista reported the 22-29 age group was working more hours than any other age group.

Working our way up the career ladder can take its toll along with having young children means we need to take our free time seriously. As many of you may have realised when getting into investing, it can be quite consuming. Because it would be negligent to make solo investments without a good understanding of investing, many spend their weekends reading about markets, techniques, and tips.

Even though a wealth manager may only be offering advice (not full on control over transactions), it’s kind of like partial outsourcing of your financial decisions. But when it comes to time and stress, it begins to look closer to full outsourcing.

It’s not just the time it takes to research a fund/asset before making an investment or financial decision, but the monitoring and stressing over it. This all diminishes when working with advisors, who reassure you not to panic or sell during a temporary crash, for example.

This could save hundreds of hours a year. Whilst many discover that investing is enjoyable and a hobby, ultimately it’s not a healthy hobby to have - it shouldn’t be enjoyable. Any leisurely emotion you’re getting out of solo investing is clouding your perspective and decisions, making it harder to be rational. Fortunately, we can pick our hobbies, and the first thing an advisor will recommend is that gambling and leisurely investing is going to obstruct your financial goals.

This is also the case due to activity. Those who enjoy investing are more likely to be active, because all that energy spent reading will want to be manifested by making investments.

This comes back to the idea that most people do not beat the market. The only way to beat the market is through active investing, yet 94% of pros underperform such benchmarks over a 20-year period. The more active you are, the more you’re fighting against taxes, fees, and human emotion.

How active or passive your wealth manager advises your investments to be is up to them. But the key here is to transfer financial decisions away from being a hobby and towards being a tool that helps achieve goals - which a wealth manager can help with.