No pain, no gain. Everyone knows that to become fitter and leaner, there is no way around a stringent exercise regime which will cost time, sweat, and yes, pain. However, the dictum does not apply to financial fitness. What seems impossible in the gym might be achievable for our financial health. Setting our saving targets to auto-pilot saves time and effort, and leaves us with more time to spend elsewhere, such as the gym. Here’s what to look out for when deciding to use the set-and-forget method of investment saving.
A common and smart way to put money from our income aside is to save a certain amount on a regular basis, say monthly or quarterly. Rather than transferring the money into a savings account it becomes more productive when invested in a diversified mix of assets. Regular and frequent investing has benefits in terms of risk-adjusted performance. Investments are averaged and diversified over time. Technology allows us to set the savings amounts and frequency at the beginning, and regular investments will be made automatically. Such a regular savings plan helps keep up the discipline that pays off over many years.
What about the time it takes to follow the markets and to decide where to invest? Technology takes care of that too. The crucial personal inputs are the circumstances of the investor: attitude towards risk, time horizon and need for liquidity. Digital wealth management solutions driven by the concept of wealthcare determine the optimal mix of investments for each individual customer. A bit like a personal trainer in the gym.
Wealthcare comes with further benefits for the customer.
Flexibility. The investor decides how much and how often to save. If she skips a month or two, or wants to pay a bit less, that’s not a problem.
Individuality. The investor gets a portfolio that’s right for her at that time. The investment corresponds to personal risk preferences and time horizon
Transparency. The investor knows exactly what’s in the portfolio at any time.
Investment control. When actual investments deviate from the model allocation, a rebalancing is automatically prompted. Portfolio adjustments don’t mean selling all investments but shifting only a fraction of the portfolio. Compared to traditional fund solutions, this approach may result in lower fees. Rather than holding the same investment fund for eternity (as in buy and forget), a set-and-forget approach maintains a dynamic portfolio. Importantly, the investor is always in control.
The power of a regular savings plan bears full fruit when it is integrated into an existing banking relationship. For the customer, it represents a frictionless solution from a single provider. Meanwhile the bank can create multiple touch points with its customer, leading to increased customer loyalty and pricing power. A regular savings plan is an effective tool to strengthen customer relationships and expand the assets by leveraging funds from consumer banking accounts previously considered too small for wealth management services. While customers’ investments are taken care of by technology, advisors can devote their resources to higher margin services and grow their asset base.