Is a New Year with No Fear Possible?
While most professionals in tax and financial fields have been concentrating on year-end matters, individuals are focused on the new year and what it may bring. Looking ahead in a post-recession 2011, it is vital to understand how and why a financial adviser can be beneficial for you. Recent indicators have raised expectations for growth in 2011, and although there remains a sense of uncertainty and hesitation when it comes to investment, now is the best time to put your finances in order. With this in mind, here are a few things to consider before initiating a conversation about your finances.
Identify what your goals are and why you need a financial plan. Personal and business financial planning is the process of addressing your fiscal concerns in the context of your overall situation. Often termed an “umbrella” process, several elements are considered when developing a portfolio, including education, tax, retirement, estate and risk management. The plan is based on your current financial affairs; therefore it is imperative to comprehend how and why you are saving your money and what you expect from a plan. Without initially recognizing what you want to achieve before creating a portfolio, you may invest your assets too aggressively and risk a great deal more than if you had first prepared a long-term plan. Before you determine your route, you need to know where you are going!
Understand what the role of your financial planner or wealth manager is. One of an adviser’s roles is to help identify your financial goals and objectives, prioritize what steps need to be taken and determine solutions to ensure you achieve the desired results. Advisers can help identify your risk tolerance, time horizon, tax sensitivity and asset allocation. A principal concern for an adviser is to put the reality of your goals into perspective, and subsequently guide you through the process of properly readying you for the future.
Once you have created a financial plan, know it backwards and forwards and stay disciplined with it. Your portfolio is created with long-term goals in mind. Conditions in the economy and capital markets are constantly changing due to various factors such as earnings, unemployment rate, politics, inflation and global matters. These factors can create short term volatility. An essential fact to remember is that your portfolio is based on the long-term. Focus “down the road” and not on the current, short-term market volatility. You should resist the urge to reinvest or sell your stocks and bonds each time the market dips or reaches a new high. This could derail your long term plan.
Realize that there will be complications and steady communication with your adviser is necessary. Technology today provides us a vast array of channels to collect and share news. From television to the Internet, we are being bombarded with new information everyday. This makes it difficult to not react to headlines, especially during challenging and turbulent times. Due to the nature of our economy, you will encounter several and, often times, complex issues regarding your portfolio. When you become aware of a new issue, don’t be impulsive in your response. Bring issues to your adviser’s attention so he or she can determine an appropriate course of action. Accordingly, you should meet or talk with your adviser on a frequent basis to review the current state of your portfolio and, if necessary, rebalance the plan back to its original target.
Don’t make creating and sticking to your plan complicated; keep it simple. Because of volatile markets, high interest rates and increasing costs of living, financial planning may seem like a daunting and challenging task. One of the key things to keep in mind is that this is not a job or chore, it’s a long-term mission to help prepare you for the future. 
Ed Warren is a partner in RubinBrown's Tax Consulting, Wealth Management and Professional Services Groups in Kansas City.
P | 913.499.4410
E | ed.warren@rubinbrown.com
Return to Ingram's January 2011