A-E-I-O-You And Sometimes “Why?"

Financial planning is like riding a subway. You should know your destination, understand the ride is bumpy with moments of ambushed darkness, firmly grip the overhead handrails, and recognize you are surrounded by unfamiliar others. An educated traveler accepts the variables and chooses to utilize the convenient public transportation anyway.

As you plan for your financial future, whether you set goals for next month, next year, or next decade, choices will be made to meet with your unique circumstances. It is important to understand all investment and planning alternatives with the associated risks. Depending on your particular route, the ride may sometimes be unsettling, yet the focus should be placed on your desired goals.

A key component in addressing the desired outcome of any financial future is to understand your options and thus develop an appropriate course of action. The multitude of options at your disposal can be as confusing as a bowl of alphabet soup. Letters commingle with one another to form illogical and unrecognizable words. Stop the swirling chaos and isolate the vowels. The vowels will assist you in developing a strong understanding of important financial planning concepts.

“A” is for asset allocation. Also known as diversification, asset allocation is arguably one of the most important aspects of a strong financial plan. By manipulating the division of certain asset groups including stocks, bonds, and cash, an investor attempts to reduce volatility and increase the portfolio’s overall rate of return. Asset allocation suggests the type of investment you choose is more important than the time you buy it. Remember, success may depend on “time in” the market and not “timing” the market. In the short term, you may be incorrect with one investment while another outperforms your expectations. Concentration should be placed on the long term aspects of your strategy.

Different investments tend to form distinct cycles of growth and retraction. You will inevitably notice the correlation between certain groups may be negative or positive. Some move in the same direction while others move in an opposite direction. Thus, you control the amount of risk in your portfolio by introducing various types of investments. Finally, different stages of life may dictate your allocations as you progress from a risky portfolio of potential growth to one of less risk and preservation of principal.

“E” is for estate planning. Estate planning is a present day concern for many people and should be addressed in great detail by all, regardless of your financial status. It is the outline of an estate for the intended and orderly attainment, administration, and disposition of a person’s continuous financial objectives.

Proper planning addresses the issues of estate taxes, transfers of assets, charitable intentions, wills, trusts, business successions, living wills, and medical directives. The complete list of estate planning objectives is extensive and you should contact the appropriate legal and financial professionals for appropriate direction.

Undoubtedly, everyone knows of the recent issues with Terri Schiavo, the Florida woman faced with a persistent vegetative state for the last fifteen years. In 1990, Terri Schiavo suffered from a speculated cardiac arrest leading to her eventual dependence on a feeding tube. Unable to care for herself, Terri Schiavo’s situation sparked a whirlwind of fierce debates. Earlier this year, under Florida court orders, her gastric feeding tube was removed and Terri Schiavo died of dehydration on March 31st. Opinions of her condition varied from a treatable state of consciousness to an irreversible capacity of unconsciousness. Much of this issue could have been avoided with a living will and/or a durable power of attorney for health care. A living will is a legal document that establishes particular medical conditions in which the person chooses to use life sustaining treatments. This document relieves others from making difficult decisions when issues are blurred. With a durable power of attorney for health care, the legal document appoints the person to make health care decisions on behalf of another. Terri Schiavo did not have either and thus her husband, Michael Schiavo, became her legal guardian. The case illustrates the importance of estate planning even for a person in his/her late twenties.

“I” is for insurance. Often times estate planning cannot be discussed without the topic of insurance or risk management. Most people view homeowners, automobile, health and life insurance as necessary. Yet, there are types of insurance vehicles overlooked or avoided such as disability and long term care insurance. Avoid procrastination and discuss all aspects of insurance planning with you financial planner.

“O” is for ownership. Uncontrollable debt will destroy your net worth. To make your first million quickly, it takes years of equitable planning. Debt control should be a focal point. By reducing and ultimately eliminating debt obligations, you will be freed from many restraints. With this freedom comes the ability to save more and develop greater financial independence. Address the issues of debt and watch your restraints disappear.

“YOU” is all about placing yourself, and your family, at the top of the priority list. Educating yourself and your family will ultimately allow for better conversations between you and your financial planner. A better education means you have the ability to sort through the fluff provided by investment gurus and the market itself. With proper knowledge of the investment and financial vehicles available, you will ultimately develop confidence.

“WHY” is for the unpredictable and irrational circumstances we all face. An investor may question the market and its volatile nature. Market risk is a constant and sometimes parts of the portfolio make illogical moves. Know that the bigger picture is one of discipline and concentration. When the lights of short-term failure flicker, do not coward like a monetary cockroach.

In a bowl of alphabet soup, recognizable words may form accidentally. Your financial betterment will not take shape accidentally. Financial planning is a learnable process and knowing your vowels will assist you in developing a proficient financial plan. Keep in mind (A)sset allocation, (E)state planning, (I)nsurance, (O)wnership, YOU, and sometimes “WHY?” to have a rewarding future for you and your family.