When it came to developing Financial Mappers, my voice of authority was Leonardo da Vinci who said, ‘Simplicity is the Ultimate Sophistication’. The aim was to provide a powerful multipurpose modelling tool, with a range of detailed calculation parameters available, and also to make that tool simple and easy to use.
Here are some features of Financial Mappers that show it’s forecasting power, with the maintenance of simplicity:
1. Retention of previous calculation parameters
2. Easy-to-use modelling of alternative economic climates
3. Reporting of future figures in “Present Value”
1. Retention of previous calculation parameters
How often have you been frustrated when using a forecasting tool – to find when you want to change the parameters of your calculator, that you need to start from scratch again and re-enter all the data?
Financial Mappers remembers your previous parameters and allows you to return to them for comparison purposes, so this annoying re-entry is eliminated. You simply toggle your checkbox selections on or off, and re-select options from dropdown lists. When you return to a previously used selection, your previous related data is there for you to use.
2. Easy-to-use modelling of alternative economic climates
Once you have created your financial model, (we call it a “plan”) all you have to do is hit the right button in the Reports section and the information you want is displayed in a selection of topical reports. For example, if you are a serial property investor, you would review the 5-Year Loan Report which shows every aspect of all your loans over the next 5 years.
We all know that past performance is not a reliable indicator of future performance. So instead of using one long term average return, we can stress test the plan we have created, by activating either the historical data option or using modulators to view a range of outcomes.
Let’s take a look at the Economic Cycles tool. With this, you can apply each of the four included 10-year economic cycles to your plan. When this is switched on, Financial Mappers will apply four completely different sets of economic cycles to your plan.
Instead of using, say the default rate of the average return over 15 years, the program has a premade set of four 10-year cycles which use the year-by-year changes in income, capital growth and interest costs. These cycles are actual cycles that occurred between 1986 and 2011 and represent a period where either real estate or equities outperformed other asset classes, one where they both performed about the same and one where they both did really badly. This is intended to display a range of outcomes based on previous performance.
Who knows what the next ten years will bring? It may be a really prosperous time for investments or conversely, one of low returns. The resulting graph will give you an indication of a possible range of outcomes rather than one simple result.
3. Reporting of future figures in “Present Value
For most people who use forecasting or modelling calculators, a major headache is that the projected future figures do not make sense, because they have been increased due to inflation, and we therefore can’t relate to them. In Financial Mappers these future figures are referred to as Future Value. A clever feature of Financial Mappers that adds to its simplicity, is that with the click of one button, all the future figures are converted to what we call “Present Value”.
Present Value discounts the future figures, taking into account the Inflation Rate, to give you figures which are in ‘Today’s Dollar Value’. This means that the figures make quantitative sense as you view them right now.
For example, if your Superannuation Fund has projected that you will have $1,000,000 in 20 years’ time, you need to know the Inflation rate used in the calculation, because this will modify its Present value. If you are told you will have $1,000,000 in 20 years and the inflation rate between now and then is 2.5%, the actual value (buying power) of that million dollars in Today’s Dollar Value will be $610,270. If the inflation rate is 3%, the value will be reduced to $553,676. This means that with the higher inflation rate you are likely to have about $56,600 less to spend in your retirement.
Individuals and advisers need the power of financial modelling to produce accurate future scenarios, so that the very best financial decisions can be made. We also know that modelling needs to be easy to utilize, to create those future projections.
If you agree with Leonardo da Vinci, you’ll discover a valuable tool for powerful future planning.
Get started with your Financial Plan today!
Glenis Phillips, SF Fin – Designer of Financial Mappers
Disclaimer: Financial Mappers does not have an Australian Services License, does not offer financial planning advice, and does not recommend financial products.
