Published in Money Saver magazine.
Knowledge is power. When it comes to financial planning, not knowing enough can really hurt you in the long run. A good financial planner will educate their clients, showing the positives and negatives of every option they have and letting the client make an educated decision.
The most important fact to know about financial planning, which is often overlooked, is that it is based on many variables which change over time. These changes will affect your assets and the quality of your life. When variables (inflation, your capacity to save money, interest rates, the stock markets, etc…) change, your plan needs to change as well. Most people who have a financial plan never review it on a semi-annual or annual basis. After a couple of years, the plan is worthless.
Fees are another aspect that is overlooked. Potentially, there are many hidden fees in the various investments that are available. Commissions, trailing commissions, management fees, front-end fees, deferred sales charges, it can be very confusing and very expensive. You need to do your own research on this because there are many advisors who do not disclose the fees that the client must pay on a continuing basis.
Another key aspect of financial planning that you must know is your tolerance for risk. If you did not have investments during 2008-2009, it may be hard to know how you will react to the inevitable market fall. A financial planner must ask you questions that will give you a good idea of how tolerant you are to the ups and downs of the market.
Finally, avoid the trap that some investors fall into which is what I call, buy high and sell low. When the markets go down 20% and the media is saying “this time is different”, people start to panic, and many sell their investments. Then when the markets are flying, they go all in. Most advisors suggest not to sell anything when the markets are falling. I disagree. I wouldn’t sell my stocks in my portfolio, I would actually buy more stocks by selling some of my very safe investments. And buy stocks which are at a discount. This is “buy low”. When the markets are
at record level, as they are right now, I think it’s important to start selling SOME of your expensive equities to buy safer investments.
John Kalos, CFP,Fin.Pl. is an independent Certified Financial Planner with Ironshield Financial Planning. He is also the founder of “Confessions of an Ex-Banker” Podcast.
