Forget get-rich quick schemes

Do you enjoy sitting at your computer, trying to figure out which mutual fund is the best option for you? Chances are, you don’t. Today, there are so many different types of mutual funds, stocks, bonds, and investment choices, that it would make your head spin. An advisor’s job is to sort through all these choices and match specific investment vehicles with your goals, needs, and time frame. Whether you are investing for the long term or short term will determine what kind of product your money should be invested in. You don’t want your money tied up in an illiquid investment if you are planning to use the money in the next couple of years.

Before investing any money, it’s important that you communicate to your advisor how much risk you want to take. An advisor should assess risk tolerance through a risk tolerance quiz. Many people will tell you that  they are aggressive risk takers. Sure, we all are when the market is soaring to new highs and everyone is making money, but not many people are aggressive when the market starts to come back down, people are losing money, and stocks are hitting all-time lows. The truly aggressive people are the ones who are buying when the market is low. Many people want to become more conservative at that time. It’s human nature. That’s why they should be quizzed. Once they are scored as conservative, moderately conservative, moderate, moderately aggressive, or aggressive, an advisor  can suggest investment vehicles that match up with their risk factors. It’s the quiz that helps determine the mix of investments so that the clients can concentrate more on their lives, rather than worrying about the market’s performance.

Tax planning
Proper tax planning can be a powerful element in protecting and building your wealth. Financial planning can help identify the impact that taxes will have on you in the future. While advisors can’t predict tax increases or decreases, they  will have a good idea of how to minimise the taxes you pay, both now and in the future. There are a number of different tax-exempt and tax-deferred investments you can buy that will help reduce your tax burden. The income paid on investments in certain tax-deferred products, like deferred annuities and universal life insurance, is not immediately taxable. Unlike tax-exempt income, tax deferment simply postpones the payment of taxes until receipt of this income at a later date. This helps reduce your tax bill in that by the time you receive the income from these investments, you may possibly be in a lower tax bracket, thus reducing the tax due.
 
Retirement planning
It’s never too late to start planning and saving for your retirement. If you have already begun, it will be helpful to review what you have achieved so far and what you need to do to get you to your retirement goal. If you have already retired, you will want to look at allocating your resources so that they may provide income for your entire retirement. Initially, you and your advisor should consider how much money you think you will need to live the kind of retirement you want. Into that equation, you will need to factor in any pension benefits you are planning to receive. Your financial plan will tell you if there is an additional need for income, and at what age you should be able to retire. From this plan, you will also know what additional savings are needed, if any. Since we can’t predict what the stock market will do, it’s important to update your plan fairly regularly, especially once you get close to retirement. Knowing your financial situation in regard to your retirement is essential to achieving the kind of retirement you desire. It’s better to know sooner rather than later what you need to do to make sure that you can live the way you want.

Retirement planning also addresses any job changes you have had or are planning to have. If you think you will be leaving your job, or already have, you will have to make a decision about what to do with your retirement benefits from that employer. Since for many people this is the largest amount of money they have handled, it’s essential to consult with your advisor, who will help you choose the right investment vehicles and tax strategies for your retirement money. Your financial plan will address your specific concerns and help you pave the road to a successful retirement.

Estate planning
You may be thinking that you don’t need any type of estate planning because you don’t have that much money. If that’s the case, then you would be mistaken. Estate planning isn’t just for the extremely wealthy. It’s important for you to know what will be available to your heirs when your estate is settled. Additionally, you want to make sure that estate transfer costs and estate taxes are as low as possible. Estate planning is a highly specialised area that your financial plan will cover. Your advisor will help you plan to ensure that there is enough estate liquidity to meet estate settlement costs, as well as address any other key estate planning concerns.

Is a financial plan really worth it?
People neglect financial planning for a number of reasons. Feeling that they have insufficient assets or income is one reason. Another is that people feel that their finances are already taken care of, or are in good shape. While that may be true, everyone can benefit from hiring a financial advisor and having a plan. However, humans tend to procrastinate, often putting things off so long that it becomes too late. Plus, planning encompasses certain life experiences that may be unpleasant. While planning for retirement may be a positive experience, planning for a disability or death might not be. Then there is the financial cost of planning. Professional financial planners charge a fee for their services. All of these factors can be deterrents to planning.

While planning for uncertain events, such as unemployment, a disability, or hospital care, may be uncomfortable, certainly planning for these events would be preferable to not being prepared for these occurrences. Being caught off guard could then cause the rest of your financial world to go into a tailspin. However, planning and being prepared for such events would make their happening less stressful. Think about it. If you were injured and unable to work, wouldn’t you like to know that you will have money coming in because you purchased disability insurance for yourself? Death is an eventuality that we all must face. If you want to leave as much of your estate to your heirs as possible, it’s necessary to plan. This way, you will have an idea of what will go to your heirs and what will go to the government in estate taxes. Failure to plan may cause your heirs to fall behind and lose some of their inheritance to the State.

What if I don’t do any financial planning?
In addition to the possible situations of not being prepared when a disability occurs, or when a death happens, there are other costs of not doing any planning. Failure to plan may result in higher than necessary income, gift, and estate taxes. There may not be enough money for further education or retirement. You may find yourself unprotected in the event that there is a car accident, unemployment, disability, a prolonged hospital stay etc. Perhaps the most devastating cost of not planning is the loss of your personal goals and objectives. How many times have you heard someone say that they wanted to retire at age 55 but were stuck in a job that they hated until 60 or 62? That’s seven years later than they wanted! Not planning can cause you to work longer than anticipated. Having an advisor and having him prepare a financial plan for you will help keep you on track to meeting your goals. However, this is just the beginning. Your plan and advisor won’t instantly make you more money, nor will they show you any get-rich quick schemes. Things like that just don’t work.