Crafting a Financial Roadmap:
- Goals: Start by defining your financial objectives. What are you actually trying to accomplish? What are your values? What makes you tick? Do you aspire to retire early, fund your children’s education, pay off debt early, leave a legacy for future generations? These goals form the foundation of your wealth strategy.
- Risk Tolerance Assessment: Understanding your risk tolerance is an important component but simply filling out an online questionnaire to determine your portfolio is missing the mark. Instead, an analysis should be done on whether your portfolio is in alignment with your long-term goals. You may have zero appetite for risk which would put your portfolio into cash/CDs, but that could mean you run out of money in 10 years. How does that sound? On the opposite end, you may be taking far too much risk. It’s important to understand when you’ve won the game. When you have enough, there isn’t much benefit to taking on additional risk.
- Diversification: Can you make more money by investing and focusing on one thing? Sure. You can also lose a lot more this way too. You want to be invested in a way that you aren’t going to get crushed by one thing. For example, the NASDAQ index was down significantly in 2022, while The DOW index weathered the storm better. In addition, real estate and other assets classes can be added to the portfolio to have more uncorrelated assets – meaning if one goes down it doesn’t affect the other asset classes.
- Tax Efficiency: As discussed in the story above, taxes are likely your biggest expense. Pretty much every financial decision you make at this point should be looked at from the lens of how this impacts my taxes.
Regular Review and Adjustments:
- Life Changes: Marriage, parenthood, career shifts, the sale of a business and other life events can alter your plan. Regular reviews allow you to align your plan with these changes.
- Market Fluctuations: The financial markets are always changing. Regularly reviewing your investments allows you to make adjustments that can capitalize on taxes, potential opportunities for greater growth, and mitigate risks. Just set it and forget it, while helpful from the standpoint of not constantly tinkering with your portfolio, could be leaving return and risk on the table.
- Estate Planning Updates: As your wealth and family evolves, updating your estate plan is necessary as you are likely to have different views/wishes as you progress.
- Goal Reassessment: Your goals may evolve over time. Wanting to purchase a 2nd home? That requires a shift in your investment strategy.
Remember, the key to holistic wealth planning is coordinating your life into one cohesive plan. You may be focusing on one piece of the puzzle and lose sight of the bigger picture. Be sure to consider all of the potential unintended consequences before making a big decision.
The views depicted in this material are for information purposes only. They should not be considered specific advice or recommendations for any individual.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor.
Asset allocation is an investment strategy that will not guarantee a profit or protect you from loss.
All investing involves risk, including the possible loss of principal. There is no assurance that any investment strategy will be successful.
The examples presented in this piece are for illustrative purposes only and should not be deemed a representation of past or future results.
A diversified portfolio does not assure a profit or protect against loss in a declining market.
Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing.
