As the federal government’s stimulus recovery efforts begin to take shape, you may be asking yourself, “How can I create a financial recovery of my own?” The key is taking charge of your personal finances. Whether the markets are going up, down or sideways, there are steps you can take toward achieving your future goals. Here are seven steps for taking control of your finances and putting yourself back in the driver’s seat.
Revisit. In times of personal, emotional or family crises, we often revisit what’s most important to us. The current recession and bear market present the same opportunity. Find some quiet time, set aside your financial worries for a few minutes and ask yourself, “What are my biggest priorities in life?” “What have I been called to do?” “What goals are most essential to my well-being and that of my family?” Revisiting your personal values will often create clarity in your financial values.
Reset. The world has changed, and we need to reset our investment expectations accordingly. Creating more realistic performance goals will help you feel more in control of your future. You may need to ask yourself, “What’s my current tolerance for financial risk?” “How can I make up for any potential shortfalls in my financial plan?” “What’s the ideal asset allocation for my portfolio in a volatile market?” Resetting your investment expectations will help you begin to create a workable financial plan—one that’s sustainable for the long term.
Reengage. A recent study reports 86 percent of high net worth individuals are dissatisfied with their current wealth manager and would like to find a new one. Lack of communication, poor planning and inadequate risk management are common complaints. If you’re unhappy with your current advisory relationship, ask the people you trust the most to help you look for a new wealth manager. If you have a favorite CPA, attorney or estate planner whose opinion you’ve come to depend on over the years, ask that professional for recommendations. By reengaging with your network of friends, family and trusted advisers, you’re more likely to get quality introductions to a new wealth manager. You may need to interview several candidates to find someone you feel is aligned with your goals and interests. Making a fresh start can help you put your financial plan back on track.
Refine. If you’re looking for a new investment professional, take some time to refine your criteria. A true wealth manager does more than just manage money. The most successful wealth managers will bring together a team of experts who work together to help you achieve your goals. In addition to investment consulting, an experienced wealth manager can help you create a tax-efficient portfolio, consider estate planning concerns when making investment decisions, ensure you have appropriate insurance coverage and help you explore any charitable interests you may have. A good wealth manager acts as the chief financial officer for you and your family.
Refresh. Whether you decide to work with a new wealth manager or maintain an existing relationship, there’s never been a better time to refresh your investment strategy. Ask your wealth manager to create an investment policy statement (IPS) for your portfolio. An IPS is a set of written guidelines that spells out your investment objectives, preferences and tolerance for risk. If you already have an IPS, schedule an appointment with your wealth manager to review and update your document in light of recent market events. By putting your goals in writing, you’ll have a better chance of achieving your long-term objectives and “staying the course” when markets become rocky.
Rebalance. Once you’ve refreshed your written investment policy, you may need to rebalance your portfolio to maintain your target asset allocation. Your wealth manager should consult with your CPA before buying or selling any securities to ensure that rebalancing happens in a tax-efficient manner. That’s why it’s important to work with a wealth manager who coordinates the efforts of the team of experts working together on your behalf. Your portfolio should be rebalanced at least once a year, and often more frequently, depending on market conditions.
Renew. Finally, take a deep breath and exhale slowly. Let out all the stress of the previous year. By taking proactive steps to take control of your finances, you’re more likely to feel confident about the future. Remember, it takes time for markets to recover and for investment strategies to bear fruit. Now that you’ve put your financial house in order, don’t let the short-term “noise” from newspaper and television headlines interfere with your long-term vision. Renew your confidence in your wealth management plan.
There are many things in life—and the financial markets—we can’t control. For example, we can’t control stock prices, interest rates or economic cycles. But you can control your asset allocation, your exposure to risk and your spending and saving habits. In addition, a good wealth manager can help you create a team of financial experts who have your best interests in mind at all times. By making active decisions about how you’ll manage your finances, you’ll reawaken your enthusiasm for the future.
Bruce Raabe specializes in creating comprehensive wealth management plans that help his clients navigate the financial uncertainties that often accompany significant life events—including marriage, divorce and retirement. You can contact him at Collins & Company in Larkspur, (415) 925-4000, braabe@collins-co.com or www.collins-co.com.
