I attended a seminar recently and a very interesting question was posed for suggested inclusion in client meetings and in questionnaires. It was simply “what is the money actually for?”

A simple enough question, but one which I suspect many people may not have a simple answer to.

Money is a strange thing and it makes us behave in very peculiar ways.

It is also a very emotional thing, despite the fact that human emotion (generally speaking) leads to poor financial decision making.

You see, we often meet people who have accumulated very significant wealth. I do wonder however if people really know what the money is for.

Very often we meet people who are still working in jobs they dislike because ‘they need to’.

When we look at the numbers however we often get a different story. On occasion we find people have actually worked for too long. This is fine if you love your job, but how would you feel if you worked for 3 years longer than you needed to in a job you hated?

When we ask what the money is for, many people will say financial security, despite the fact that they don’t really have any definition for what ‘financial security’ really means.

While I fully appreciate the benefit of the emotional comfort money can bring (in fact, I did my masters dissertation on this very subject), I fear that just saying ‘financial security’ is a very easy way to avoid doing some of the thinking to truly define what is required to achieve this fabled thing called ‘financial security’.

As with the vast majority of money related goals, it is usually possible to put a number on this. We just have to do the thinking work first. For some people, financial security means having enough money to live on for 6 months – pretty easy to define. Multiply monthly expenses by 6 and there you have it.

For others, financial security might be having enough money to live on for the rest of their lives. A much more complex calculation, but with the right maths, we can still get there. Granted, you would need to build in some assumptions and you would most likely wish to add a large contingency pot on top of the final number, but the point is you still arrive at a number.

When we run the numbers in this way, we often find that people have significantly more than they need for whatever goals that they wish to achieve (financial security included) and so at this point we come back to a slightly re-worded version of the question; ‘what is the excess money actually for?’

My conclusion, is that most people don’t know. They have worked very hard to accumulate a pool of assets, but perhaps not then thought about what to do with any excess funds over and above their own needs.

This is where the conversation often turns to lifetime gifting or philanthropy – two things which have been shown to deliver the very greatest levels of satisfaction, but which people often shy away from out of fear of running out of money.

With the right planning beforehand, this needn’t be a concern and this opens up possibly the greatest and most noble thing any of us can do with our money – help others!

I wrote last week about the market volatility we had seen and the importance of keeping a level head during times like these.

In that post, written in the midst of large market falls, I encouraged investors to keep calm and carry on. I also mentioned the potentially damaging effects of missing just the best 10 days of market growth within a 15 year period.

Although last week ended at a low ebb for the markets, things quickly started to recover on Monday and have continued to do so this week.

For those people who think that they can time the market, they would have needed to correctly predict on Tuesday the circa 7% falls that would transpire on Wednesday and Thursday. I have seen no evidence anywhere online of anyone making those kinds of predictions.

They would have also had to be brave enough to go back in late on Friday, just in time to catch the gains that have been made this week.

Especially when looking at the US market, I suspect history will confirm that some of the days this week will feature in the ‘top 10’ days list in years to come. If you are out of the market even for just these few days, you risk cutting your total return in half.

Unless you have a crystal ball, I would contend that no one would have made the decisions required to prosper in the markets over the past 10 days.

This leave us with the only reliable option – to remaining invested throughout. This means we capture all of those best 10 days. Yes, we have to accept some temporary volatility along the way. But that is all that it is – temporary volatility.

Please don’t let something as normal and expected as a bit of market volatility throw your financial plans off course.

I was chatting with a client the other day about the potential implications of a hard Brexit, soft Brexit, medium rare Brexit and about any other incarnation of Brexit you can imagine.

Despite all of the white papers and policy discussions, the divisions between the very people supposed to be making the negotiations with the EU suggest that we have a very long way to go before a deal becomes ‘clear’.

Our conversation turned to the timing of investments and specifically, “should I invest money now because a ‘bad Brexit’ (which in the context of the markets is supposedly a hard Bredit) could cause havoc for stock markets”.

As the conversation evolved, I realised that my response to the question was pretty much the same response I give to anyone who is worried about some sort of ‘market event’.

Granted, Brexit might be a fairly major event in the grand scheme of things (or perhaps it wont – we really don’t know), but the principles are still the same.

My response went something like:

1. There will always, and I mean always, be some sort of potential future event to cause potential upset on the stock market.

Before Brexit we had Trump, before Trump we had a million other things we could have been worrying about.

There will always be a reason not to invest. The human brain loves not making a decision, it loves to procrastinate. The problem is that there is always something on the horizon that could be the next big disaster which gives us a perfect excuse to put off taking action.

After Brexit is complete, there will be something else – mark my words!

2. Even when these supposedly disastrous events do happen, the effect on the stock market is often negligible or is in fact the complete opposite to what is expected.

Using Trumps election and the Brexit vote as perfect examples, both were predicted to cause financial meltdown and havoc if they became reality and indeed they did, for about 2 days!

After this incredibly short period of time, markets continued their march upwards and have gone on to break records on a seemingly weekly basis ever since.

Had you taken all of your money out of the market on the day before the Brexit vote, when would you have put it back in?

I strongly suspect that you would not have pressed the ‘buy’ button again after those 2 days steep falls and indeed, anecdotally, those who did this are still sitting in cash, waiting for the right moment to invest, having lost out on 20+ per cent growth in the mean time.

3. Finally, all of the above is trying to predict the future, when I certainly can’t do. If anyone can, please let me know (I think we could make a lot of money together).

As such, making these timing decisions is like flipping a coin – there is no way of know which way things will turn and in the short term markets move in almost random directions.

So … back to the point … what should someone do if they are thinking of investing and they are worried about a big event triggering a crash. Our suggestion here is always the same:

1. If you are transferring money from one investment to another, then you should do so as quickly as possible and with the minimum time possible out of the market.
2. If you are investing a significant sum of new cash, it generally makes sense to divide this up into 5 or so tranches and invest the tranches over a period of time. So if you wanted to invest £500,000, perhaps divide this into 5 and invest £100,000 per month over 5 months.

This staggered approach minimises the potential for a big crash to upset your whole investment and in fact it could turn it into an opportunity. Lets say that the market falls 20% after you have invested your first 2 tranches. Well – you can now buy the rest of your investment at a 20% discount on what you paid before – fantastic!

Now of course, this strategy can also work against you – if the marker rises by 20% after 2 tranches, you should have invested the lot on day 1!

But all of this assumes you can predict the future and you can’t. What we achieve by investing over a period of time is that we reduce the risk of buying at a very high or very low point – we average out and in an impossible to predict world, I will take the average every time.