6 Verticals for Planning Your Financial FutureSubmitted by Alexander Consulting Group, LLC on June 30th, 2021
Back in March, I blogged about Financial Wellness – the ability to successfully manage money across your lifecycle and to plan and save for milestones, including retirement. There are 6 verticals that I believe are integral to planning your financial future and reaching financial wellness:
1. Investment Planning
2. Estate Planning
3. Retirement Planning
4. Insurance Planning
5. Cash Flow and Budget
6. Assistance to Loved Ones
Each vertical is important in its own right, so I’d like to take some time to explain each one. This month, we’ll talk about the first vertical, Investment Planning.
#1 - Investment Planning
If you’re new to investing your money, you’re probably just building a “portfolio” – a collection of diversified assets including stocks, bonds, cash, and other securities (often grouped in funds). Whether you bank and invest with one financial institution or multiple ones, think of all of your assets combined as your total portfolio.
Investment planning includes taking steps to ensure your money is working for you. That involves management and oversight. Some things that go into managing your investments are:
- Portfolio review
- Asset allocation
- Time horizon planning
- Withdrawal strategies
- Account aggregation
- Account monitoring
A portfolio review at least every year allows you and your advisor to evaluate investments and see if they are on target to accomplish your goals. The idea of a review is to rebalance your portfolio by buying or selling assets to achieve a targeted mix of investments, known as asset allocation.
Asset allocation is, in a nutshell, how your money is invested and why. The mix of stocks and bonds that make up your portfolio is determined by your investment goals and your risk tolerance. When you start working with a financial advisor, you typically get a series of questions to answer that help determine your goals and your tolerance for investing.
Time Horizon Planning
The stage of life you are in as well as the milestones you are planning (buying a home, saving for a child’s education, etc.) help determine your investments. That means your age and the number of earning years you have left help determine what you invest in. For example, when you’re young and starting your career, you probably have a long time for your investments to grow before you need them.
Conventional wisdom has it that during those early years, you can take some investment risks for potential high return (and have time to make up any losses). As you move toward retirement, when you likely will need to live off of assets, your investments are usually more conservative/less volatile.
“Withdrawal” is when you plan to sell or trade assets. The “strategy” is what you want to have in mind when you invest. It can be time-driven (you’re buying a home in two years), market driven (outside forces), or return driven (as cashing out an investment that exceeds anticipated returns or under-performs).
While you probably can set a withdrawal strategy in your financial app, the vast majority of individual investors don’t have the patience it takes to see their investments grow over time – sometimes to the long-term detriment of their portfolios.
Account aggregation is when you pull financial data into one central location, to create a comprehensive picture of your holdings and investments. Some companies like Fidelity and Vanguard (and others) automatically aggregate the accounts you have with them; that’s helpful if all your accounts are in one brokerage. It not, there are apps that will aggregate your financial data. Viewing your assets together gives you the opportunity to make investment planning decisions that are good for your entire portfolio.
People can obsessively monitor their investments by logging in to their aggregation app daily (and who doesn’t?!). But you also can hire a portfolio manager (part of your financial advisory team) to monitor your accounts and manage them actively or passively.
- Active management is continuous monitoring and frequent buying and selling in an effort to outperform a set benchmark or index (the S&P 500, Dow Jones Industrial Average, Nasdaq Composite, and many others). The goal is to attempt superior returns by taking greater risks, and the fees you pay will be higher than with passively managed portfolios.
- Passive management relies on asset allocation that imitates a specific index, with the intent to match that index’s performance over time. This may involve quarterly to yearly portfolio monitoring and reallocating assets as needed.
Successfully Planning Your Financial Future
If you are new to investing and have a 401(k) or other retirement plan through work, take the opportunity to ask questions of your company’s financial advisor and learn more – it’s your money!
Financial wellness depends on solid investment strategies to and throughout your retirement years. You may find it helpful to work with a knowledgeable, experienced financial planner.
If you’d like to consult with an individual financial planner, please contact me. Alexander Consulting’s philosophy is to encourage people to plan for lifelong security: financial, health, and social. We take a highly individualized and zealously researched approach to financial planning so that our clients are fully prepared for all of life’s challenges.
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Disclosure Library - All Items
All investing involves risk including loss of principal. No strategy assures success or protects against loss.