What’s my number?? – Making sense of Financial Planning

Financial Plan #2Dear Mr. Market:

Let’s be honest… the vast majority of hard working Americans have one question in common – Will I be able to retire?  The circumstances pertaining to each individual are as different and unique as the individual themselves. The one connecting point we all have however, is to know if we are going to be able to reach our goals, whatever they might be.

Have you seen some of the commercials where an actor asks you if you know how much you need to retire? Other commercials have people carrying around a huge cut-out of a random numbers …like $1,456,298 around with them.  What’s your magic retirement number? Where should an individual go to get their many questions answered?  With few guarantees how is anyone to know if they are on track to reach their goals?

There is certainly not a lack of financial planning services and products available to consumers today.  It can actually be a bit overwhelming and frustrating for the average person.  Any Financial Plan should be viewed as a guide or a benchmark, serving as a road map to the ultimate destination.  As with other financial service offerings there are many different elements that need to be taken into consideration. Let’s take a moment to look at some of the more important ones and put it in plain English using some common phrases we are all familiar with…..

“A Wolf in Sheep’s Clothing”

Any Financial Plan should be created with only the individual’s goals and best interest in mind.  Unfortunately it is far too common that the tables are turned and the advisor and/or the financial firm’s interests are the ones actually being served.  Are the recommendations oriented towards generating trading expenses and positioning proprietary products?  For example: once the plan is reviewed are you then presented with loaded mutual funds, annuities and insurance sales pitches?  A true financial plan should guide you somewhere… not sell you something.  90% of financial plans recommend life insurance and while this is often a necessary piece of your financial puzzle, a plan that is disguised as an annuity or insurance pitch is simply lining someone else’s pockets…not yours.

“You Get What You Pay For”

This famous quote certainly does not hold much water when it comes to financial plans.  Far too often investors can spend thousands of dollars on a plan that comes in a pretty three ring binder that quickly finds a place on a shelf only to never be revisited again.  There is no industry standard when it comes to the expenses associated with a Financial Plan.  Depending on the firm or advisor the fees can be a flat rate, hourly or even free.  Don’t be influenced into thinking that just because a plan is more expensive that it is a superior product.  The vast majority of the plans available are based on the same calculations and basic software that has been available to professionals for years.

“Bigger Is Not Always Better”

Don’t be fooled into thinking that a 100-page plan is superior to a 10-page report!  It might certainly use more paper but does it truly bring more value to the table?  Rather than focus on size look more closely to see if the plan can prove to be a guide for you to reach your goals.  Many plans will feature bright vibrant colors, pie charts, and tons of boilerplate or support material.  Stay focused on what you are looking for… a tool to help guide you and realize your goals.

“Talk Is Cheap!”

Any plan should be based on realistic and attainable results.  If you are presented with a plan that is based on a yearly performance of 12% every year going forward this is anything but realistic.  Take the time to know what your risk tolerance is and what type of returns can be expected with your target allocation.  Any Financial Professional should be able to assist you with this and tie it all together with a financial plan.  A plan based on unrealistic expectations will only guarantee failure and nothing more. Many planners also input numbers in a rearview mirror type of fashion to show you what they would have done for you when in fact that’s impossible to verify and not your current reality.

“Be True to Yourself”

Any financial plan should be based completely on your situation and future plans… and only yours!  A quality plan should begin with a comprehensive questionnaire or in depth conversation so that the advisor or firm understands what is most important to you.  If you have received a financial plan and it hasn’t prompted you to look at your financial house differently, you likely have wasted both time and money. It should be customized and not a cookie cutter type of approach.

“We Are Just Getting Started”

A financial plan should never be viewed as an ending point or conclusion.  A true financial plan is an ongoing process!  It is always evolving and changing; allowing for adjustments as your financial situation is never stagnant.  A plan should be reviewed periodically to ensure that you are on track to reach your financial goals.

The process of creating and implementing a Financial Plan should not be an overwhelming process.  Ultimately a plan should help remove questions and provide more answers, ensuring that you are on track to reach your goals.  Don’t get lost in the numbers or fancy spreadsheets – View a plan as you would a map on a long drive to a new destination.  It should provide you with a sense of direction.  If you find yourself with more questions or feeling pressure to take action perhaps the plan does not have your best interests in mind.

A quote by one of the more colorful people in sports history helps summarize our thoughts in creating a Financial Plan:

            “If you don’t know where you are going, you’ll end up someplace else.”

                                                                                                               – Yogi Berra

Financial Plan #1If you have any questions we would encourage you to contact us at your convenience.  You can reach us by completing the contact form below or by emailing us at: info@myportfolioguide.com . **Please write Financial Planning on the subject line.

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