Investor, do you know where you stand?

Your advisor’s job is to listen to your concerns and objectives. Do you want to provide financially for your children or grandchildren’s university education? Or is buying a property in Florida your main priority? By telling your advisor what you hope to gain, that person will be able to guide you along the best path to help you reach your goals. An advisor’s job, however, is not to make the decisions for you. He or she merely suggests what should be done. You are the decision maker. It’s important to have realistic goals. Perhaps you can’t afford to have a property in Florida just yet. That doesn’t mean you should give up the idea, you just have to work with what you have. Your advisor will be able to put you into investments that will have the potential to make enough money to get your Florida real estate.

For example, a married couple comes in for an initial consultation. They are in their 40s and say that they want to have $3 million in performing assets in five years. A look through their assets reveals that they currently have $1 million total. But that figure includes their house, the surrounding land, and some other land they own. Their investable assets total $400,000. In this case, it’s great that they had this goal, but while their net worth was very good for a couple their age, $3 million in performing assets in five years was just not realistic. In order for this to happen, they would need nearly a 50-percent return every year for the next five years. It wasn’t that the $3 million in performing assets was the unrealistic part; it was the time frame in which they wanted to work. Your advisor will help you decide what goals should be short term and which ones should be long term. Most importantly, though, he or she will continue to provide client service. This means that as your needs change, your advisor will change with you to make sure you are still on track to achieving whatever your goal may be. Anyone can sell you an investment product; it takes a committed financial advisor to provide ongoing client service to ensure that you are heading in the right direction.
Establishing A Financial Plan

Smart investors know that they must know where they are currently, what they want to accomplish, and they know that they need to have a game plan. A financial plan is just that: a financial road map. A sound plan should cover a broad range of topics that relate to your present security, as well as to your future well-being. It should include an analysis of your net worth, investable assets, commitment to goals, and a time frame. The successful plan is balanced, pinpoints your particular needs and goals, creates an integrated strategy to help meet them, and encompasses these six cornerstones:

Examine Your Present Situation
In order for your financial advisor to guide you along the path to achieving your goals, he or she needs to have a clear understanding of where you stand presently. This means figuring out your net worth and liquid net worth, examining your cash flow, and determining your cash reserves.
Cash reserves are a vital part of your financial well-being. For instance, let’s say you have $50,000 in your savings account and $3000 in your chequing account. You want to invest the $50,000 so that it potentially earns more than it does in a regular savings account. Now, I recommend keeping three to six months worth of expenses as a cash reserve. Therefore, if you find that your monthly expenses, after taxes, are $2000, then the $3000 in your chequing account isn’t going to cut it. You should have at least $6000 as a cash reserve. By analysing your current situation, your advisor may find ways to help you save money and reach your goals faster than you may have known. Redirecting some of your money could help you put money away for retirement, or achieve another goal, without it seeming like you are spending any more money than you currently are.

Have Adequate Protection
Protecting yourself from the unexpected is a vital element in financial planning. As time goes by, you change, and so do your protection needs. Having adequate protection means a number of things, such as providing for your family after your death or replacing earning power after a disability. Protection means insurance, and while many people dislike the thought of insurance, it is terribly important. Many of my clients are already retired and older. They don’t need any disability insurance since they aren’t working, and for many of them, life insurance really would be a waste of money. However, long-term care insurance is perfect. These are people who have multi-million-dollar net worth. To see all of their hard work, money, and possessions decimated by having to pay for medical care is sad and unnecessary. Many of my clients have opted to transfer the risk of paying for hospital care, rather than trying to self-insure or rely on family members. However, you may find that you don’t require any type of insurance. Protection analysis looks at the different types of insurance and the most economically efficient ways to manage the different types of risk.
(Continued next week)