Liquidity, Longevity and Legacy – The Three Ls of Financial Planning

What are the three L’s of financial planning and wealth management

They are Liquidity, Longevity and Legacy. They are all about the time horizons of your financial objectives and a way of matching your assets to your future liabilities

The way to visualise is to consider three different buckets for your money.

Bucket one is Liquidity – this is about the availability of funds in the short term. Here, we are looking at;

Liabilities you have in the next five years.

Plans that require the flexibility to dip into these funds. For example, if you are looking to save up to buy a deposit on a house, or you need money to set up a business or any major purchase in the short term.

Reserves for emergencies. For example, when you are out of work, illness etc.

There is only one type of asset in this bucket and it’s cash – which actually is paying you a reasonable return at the moment.

Bucket 2 is Longevity – This is money that you are going to need later in your life and ultimately which you are going to spend over your lifetime. It could be for school fees, but it’s mostly for when you decide that you don’t want to work anymore – you can call this retirement, financial independence but it’s ultimately money that is going to replace your earned income.

The time horizon for this bucket is anything from 10 to 40 years.

Inflation here can be your enemy so you want a good global diversified portfolio that will beat inflation but tailored to how comfortable you are with the ups and downs of the market (also known as your risk appetite). Working with an adviser can help you understand and navigate the market, and be with you during stressful market periods, as we saw during Covid.

Bucket 3 is Legacy – Now a lot of you may not have reached this stage yet, and not have enough for this bucket, but with good financial advice, you could. Your legacy money is money that can be passed to your loved ones or even causes you care about. Money for your children and even your eventual grandchildren. Money that really makes a difference in people’s lives.

Here you have a really long-term horizon, and you can afford to be more aggressive in your investment choices, whilst being mindful of inheritance tax and how to minimize it.

So these are the three L buckets. It takes a combined view of all and a juggle of your priorities to achieve the right balance.

  • This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
  • The value of investments may go down as well as up and you may get back less than you invest.
  • Past performance is not a reliable indicator of future performance.

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