Building blocks of financial planning:
Start saving -- the sooner the better!
investing and earning interest on your money as early in life
as possible--the results are amazing. The classic example is
the 25-year old who invests $250 a month in an account at
8.5%, compounded monthly. By the time that 25-year old reaches
age 65, savings have mounted up to a million dollars!
The key to that savings success was "regularity," investment
of a specific amount on a specific schedule. Such discipline
was rewarded with a good-sized nest egg! But don't make the
mistake of not beginning a savings program just because you
are already over age 25. Start one no matter what your stage
in life and you'll be pleasantly surprised to see how your
efforts can pay off after just a few years of compound
It is never too late to start saving!
Watch your investment mix. Planning involves
finding the right blend of investment choices--a concept
called "asset allocation." Your blend should depend not only
on the financial goals you have chosen but on your stage of
life and your tolerance to risk. For example, a young person
just starting out may consider investing a large portion of
funds aggressively to get a higher return. As that person
reaches retirement age, however, he/she would probably want to
shift a bigger portion to something that offers greater
security like bonds or government-insured savings.
Diversification can help keep your portfolio on
an even keel. It means spreading your investments over a broad
range of investments media. Diversifying is wise no matter how
much you invest--it adds balance to a portfolio by opening up
the opportunity for stability for a gain in one market to
counteract a downturn in another. Remember inflation will take
a toll. Plan your investment strategy with inflation in mind.
Even when the inflation rate is low, it causes savings to lose
purchasing power over a period of time. When you factor
inflation into some so-called "safe" investments (which are
usually low-yield), you may find that, over the long haul, the
ones you thought were doing all right are really costing you
more than you're gaining on them.
Don't forget tax planning as you look at
investment strategies. Most invested funds will eventually
lead to payment of taxes--e.g., those tax-deferred annuities,
IRAs, etc., will eventually be withdrawn and become taxable.
But even a small amount of planning can help you find every
legal way possible to lower Uncle Sam's bite from your
What's your risk tolerance?
It's a fact of life that some investments are
much more risky than others. When you begin your financial
planning you need to come to terms with your risk comfort
level. Naturally, you don't want your investments to keep you
awake nights while you worry about what's going to happen to
them tomorrow. If you're worried about risk, your goal should
be finding that "comfort zone" which will allow growth without
a high degree of volatility. Some people, for example, aren't
comfortable with stock funds where values can fluctuate quite
widely in the short-term--yet these funds may offer a good
deal of potential for growth over time.
The plan should be adjustable.
Changing circumstances are also a certainty!
Your financial plan may need to be adjusted somewhat when your
situation is changed by events like: Marriage; Divorce; A
birth or death in the family; A job change; Entry into a new
business; A home purchase or sale; Retirement.
Beware of locking up funds permanently--leave room in any plan
for some flexibility that allows you to maneuver and switch
investment vehicles if necessary. Give your plan a regular
tune-up. For a financial plan to accomplish what you intend,
it needs attention and care. Checking up on investment
performance goes hand-in-hand with the flexibility issue
raised by changing circumstances. Regardless of whether
circumstances have changed, the plan needs regular "health"
check-ups every few months to make sure it's on track.
Getting help with financial planning
With all the intricacies of financial markets,
you may want to consider getting advice from a professional
before launching out on a plan. The professionals in our
office are well-qualified to help. We're trained to help find
answers to questions like: Is there a best way to look for
high returns on your investments? How can you manage risk? How
should you divide your portfolio between stocks, bonds and
cash savings? What are the best ways to handle inflation? Is
there any way to reduce taxes on investment income? How long
should you stick with a particular investment? Please don't
hesitate to call with your own questions and to find out about
the many services we offer!
Planning ahead for your finances
With the number of savings strategies being
publicized these days, you'd think that planning ahead for
retirement would be a fairly simple job. To the contrary,
however, many investors are finding themselves uncertain that
they will be able to find a strategy which will allow them to
build adequately to meet long-term financial goals. In the
"good, old days", the picture seemed simpler--people ended
their 30-year career with assurance that a pension and social
security were waiting to provide them with a fairly
comfortable retirement. Contrast this with today when people
are faced with reports of a wobbly future for the social
security system and pessimistic stories about the stability of
retirement plans (both privately-funded and employer-sponsored
Planning for your financial future doesn't have to be
surrounded by mystery and perplexity. Accepting the planning
challenge with realistic expectations and taking an overall
long-term approach to finding investment solutions can help
you immensely as you move toward attaining financial goals.
This information highlights a few of the general principles and
strategies which have traditionally been the foundation of
sound financial planning; they are designed to help you
weather the ups and downs of a changing economic climate.
The purpose of this information is to provide
current information on tax, financial and business
developments. It suggests general tax planning ideas that may
be appropriate in certain situations. The information and
opinions are generalizations and may not apply to all
taxpayers; it is important that you seek appropriate advice
before implementing any of the ideas suggested.