Back to basics: what is financial planning?

A ‘foolproof’, get-rich-quick scheme, offering eye-watering returns, can appear tempting, particularly in times of economic uncertainty. 

But beware. These short-term gains are unlikely to pay off in the long term. The best way to achieve your financial goals is a disciplined approach. 

Every financial plan is different, but when we advise our clients, there are a few unifying principles every investor needs to remember:

Set your goals

Everything in your investment journey stems from your financial objectives. That’s why they’re likely to be the first thing you discuss with your financial planner.

Your goal could be investing for a comfortable retirement, or something closer at hand, like saving for your child’s education. It might also include setting money aside for a rainy-day fund.

Why is this stage so important? For one thing, defining your objectives means you can be clear on your time horizon. Whether you’re saving for the next 10 years, or the next several decades will have a big impact on what investment strategy is best for you. 

Setting your goals also determines other important aspects about your investment approach, such as whether your primary aim should be growing capital, or if you also need something that gives you a regular income.

And, importantly, goals-related investing also helps you keep your head. Knowing you’re on a path to reach your objectives makes it easier to avoid panic in times of short-term volatility, when markets are rising and falling sharply. 

Understand the risks 

Armed with your financial objectives, the next fundamental principle all investors need to have clear in their minds is their risk appetite.

Put simply, this is the maximum amount of risk you are prepared to take as an investor, before it outweighs the potential rewards on offer. This varies from one investor to the next and has a large bearing on what kind of strategy you choose. 

Portfolios that offer higher rates of growth are more likely to come with greater levels of risk. For example, smaller listed companies often grow faster than bigger corporations, but they may also be a riskier investment, as their owners don’t have the deep pockets to weather choppier economic waters. Government or corporate bonds, meanwhile, can be less volatile, but tend to offer investors lower returns. 

Diversify to optimize your portfolio

One of the most common and effective ways of managing risk is by having a well-balanced investment portfolio. This means looking for diversity and spreading how your money is invested. Essentially, it’s not putting all your eggs in one basket.

Good sources of diversification include holding different types of assets, such as bonds, equities (shares in listed companies), and other investments such as real estate. Your portfolio is also likely to spread the risk across different sectors (including ‘defensive’ sectors such as healthcare, or cyclical stocks such as technology) or location (seeking exposure in both developed and emerging markets).

Diversifying across different markets and asset classes can make a portfolio less susceptible to economic shocks, and gives you access to more growth possibilities.

Stick to your strategy – but check in

Many people checking their pension funds early in the pandemic might have had a shock, with many investments suffering losses. A few months on and it’s a very different story. One of the hardest things to do as an investor is sit tight. When things are looking uncertain, it can be tempting to change tack.

This is not always the right thing to do. Investing is about having a long-term focus, so it’s unwise to concentrate too much on the short-term ups and downs. 

As we’ve already said, a clear financial goal and confidence in your long-term strategy means you don’t have to panic. A disciplined approach stops you selling up because of a short-term dip (or holding on to a favoured stock for too long). You can ignore the day-to-day market ‘noise’ and focus on the bigger picture instead.

But this is important. Sticking to your strategy doesn’t mean never changing. Check in regularly on your portfolio. Is it performing as it should? Your financial objectives may also have changed too. 

Take advice from the experts

The good news is that nobody needs to do this alone. You don’t need detailed knowledge of every nook and cranny of your investment portfolios. 

The best advice … is ‘take advice’

As financial planners, we help you understand the options in front of you, assess your risk appetite and set out your long-term objectives. Our role at Central Investment is a trusted partner throughout your investment journey, keeping you on track to help you achieve your long-term financial goals.


A ‘foolproof’, get-rich-quick scheme, offering eye-watering returns, can appear tempting, particularly in times of economic uncertainty. 

But beware. These short-term gains are unlikely to pay off in the long term. The best way to achieve your financial goals is a disciplined approach.

Central Investment Services (Scotland) Ltd is Authorised and Regulated by the Financial Conduct Authority. Registered in Scotland No SCO54118. Registered Address: 33 Albyn Place, Aberdeen AB10 1YL

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