Your
approach to building wealth should be built around your goals & values.
Just what is “comprehensive financial planning?” As
you invest and save for retirement, you will no doubt hear or read about it –
but what does that phrase really mean? Just what does comprehensive financial
planning entail, and why do knowledgeable investors request this kind of
approach?
While the phrase
may seem ambiguous to some, it can be simply defined.
Comprehensive financial planning is about building wealth through a
process, not a product.
Financial
products are everywhere, and simply putting money into an investment is not a
gateway to getting rich, nor a solution to your financial issues.
Comprehensive financial planning is holistic.
It is about more than “money”. A comprehensive financial plan is not only built
around your goals, but also around your core values. What matters most to you
in life? How does your wealth relate to that? What should your wealth help you
accomplish? What could it accomplish for others?
Comprehensive financial planning considers the entirety of your
financial life. Your assets, your liabilities, your
taxes, your income, your business – these aspects of your financial life are
never isolated from each other. Occasionally or frequently, they interrelate.
Comprehensive financial planning recognizes this interrelation and takes a
systematic, integrated approach toward improving your financial situation.
Comprehensive financial planning is long-range.
It presents a strategy for the accumulation, maintenance and eventual
distribution of your wealth, in a written plan to be implemented and fine-tuned
over time.
What makes this kind of planning so necessary? If you aim to build
and preserve wealth, you must play “defense” as well as “offense.” Too
many people see building wealth only in terms of investing – you invest, you
“make money,” and that is how you become rich.
That is only a
small part of the story. The rich carefully plan to minimize their taxes and
debts, and adjust their wealth accumulation and wealth preservation tactics in
accordance with their personal risk tolerance and changing market climates.
Basing decisions on a plan prevents destructive behaviors when markets
turn unstable. Impulsive decision-making is what leads many
investors to buy high and sell low. Buying and selling in reaction to
short-term volatility is a day trading mentality. On the whole, investors lose
ground by buying and selling too actively. The Boston-based investment research
firm Dalbar found that from 1994-2013, the average retail investor earned 5% a
year compared to the 9% average return for U.S. equities – and chasing the return
would be a major reason for that difference. A comprehensive financial plan –
and its long-range vision – helps to discourage this sort of behavior. At the
same time, the plan – and the financial professional(s) who helped create it –
can encourage the investor to stay the course.1
A comprehensive financial plan is a
collaboration & results in an ongoing relationship. Since the plan is goal-based and values-rooted, both
the investor and the financial professional involved have spent considerable
time on its articulation. There are shared responsibilities between them. Trust
strengthens as they live up to and follow through on those responsibilities.
That continuing engagement promotes commitment and a view of success.
Think of a comprehensive financial plan as your compass.
Accordingly, the financial professional who works with you to craft and refine
the plan can serve as your navigator on the journey toward your goals.
The plan
provides not only direction, but also an integrated strategy to try and better
your overall financial life over time. As the years go by, this approach may do
more than “make money” for you – it may help you to build and retain lifelong
wealth.
This material was prepared by MarketingPro,
Inc., and does not necessarily represent the views of the presenting party, nor
their affiliates. This information has been derived from sources believed to be
accurate. Please note - investing involves risk, and past performance is no
guarantee of future results. The publisher is not engaged in rendering legal,
accounting or other professional services. If assistance is needed, the reader
is advised to engage the services of a competent professional. This information
should not be construed as investment, tax or legal advice and may not be
relied on for the purpose of avoiding any Federal tax penalty. This is neither
a solicitation nor recommendation to purchase or sell any investment or
insurance product or service, and should not be relied upon as such. All
indices are unmanaged and are not illustrative of any particular investment.
12102015-WR-1485
Citations.
1 - fool.com/investing/general/2015/03/22/3-common-mistakes-that-cost-investors-dearly.aspx
[3/22/15]