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Investment Fundamentals Part 5: Your Financial Plan

So far in our investment fundamentals series, we’ve explored the history of investing; how important it is to save (so you have money to invest); how to invest efficiently in broad markets; and why to avoid chasing or fleeing rising or falling prices.

But there is more to the story. While investing is one of the most critical elements of long-term financial success, it can’t be done in isolation. In fact, the best results most often occur when investments are seated within a long-term financial plan.

A financial plan is an objective and quantifiable roadmap for those investments.  It outlines optimal navigation to your goals, given your specific scenario. Why take on more investment risk than you need if your plan works with a more conservative allocation? But adopting too conservative an allocation could cost you in retirement. A financial plan can give you the full lay of the land: knowing what your goals are, how much time you have to reach them and how comfortable you are with risk. There is more than one way to reach your finish line. Getting there with minimal injury and optimal fitness along the way is what a financial plan is designed to do for you.  It considers your personal profile and keeps you balanced between potential fear and greed extremes.

The Fear Trap

Let’s say you are afraid to lose money and invest in the most conservative offering available. For you, success is maintaining a consistent account balance month over month, or even year after year.  This may feel like success, but in the end. Your portfolio can fail you. You may not recognize the problem today, but it likely will be in the future when inflation erodes your future buying power. Realize, in retirement, withdrawals are more common than additions. Your assets will need to have grown sufficiently enough to support your needs without complete depletion of your holdings.

The Greed Trap

On the other hand, you may hang on too long. You actually fear missing out on the possibility of investing in the next big thing and are willing to take big losses that often come along with big wins. Or maybe you want one more day of reward, even when warning signs say to leave. During early years of accumulating a nest egg, there is less to risk. However, when there is more at stake and retirement draws near, that same approach can put your entire retirement on the chopping block.

In either case, it’s likely that you are measuring the wrong things and perhaps investing in a way that won’t serve your needs.

Some Key Elements in Your Financial Plan 

With your investments accounted for in the plan, let’s consider the elements of your life that should also be included in your financial plan.

Tax Strategy

If given the choice to pay more taxes or pay less taxes, you most likely would choose to pay less. With a robust tax strategy, you can often lower your overall tax liability by controlling the timing of financial events as well as mindfully donating to charity to support your passion and save on your tax bill. You can even improve your return on investment over time by placing the right assets in the right accounts. (1)

Debt Management

Some types of debt are better than others. When debt is included in a financial plan, it can change a drain on cash flow to a smart way to leverage money. A financial plan can help quantify debt that can be “good” like a mortgage, and debt that can be “bad” like a credit card balance.

Estate Funding Techniques

While no one likes to dwell on their mortality, a little organization can be one of the best gifts you leave to your heirs. Understanding which of your assets will be taxed and how when passing to heirs is critical to ensure your loved ones receive what you intend. Even simple mistakes can create huge tax bills, not to mention red tape and heartache.

Appropriate Protection

Insurance can be an important tool for protection and peace of mind. But like all good things, it should be used in moderation. As circumstances change, the need for insurance can change. The proper choices and ongoing review allow for income replacement, debt coverage, estate management and liability protection in years they are needed, and the option to avoid the expense when they are not beneficial to the plan.

The Bottom Line 

Your investment portfolio is certainly a key element, if not THE key element to future financial success, but it works best in concert with careful management of all the elements of your life that are accounted for in the financial plan. Imagine that you are the conductor, the financial plan is your symphony, and each element of the financial plan is a section of instruments. If you let the brass section play too loudly, or perform different music, the performance is ruined. Rather, if those horns play in complement with the other instruments, the performance can be world class.

Catch up on the other four parts of Investment Fundamentals here.


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Disclosure: The opinions expressed herein are those of SYM Financial Corporation (“SYM”) and are subject to change without notice. This material is not financial advice or an offer to sell any product. SYM reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. This blog is for informational purposes only and does not constitute investment, legal or tax advice and should not be used as a substitute for the advice of a professional legal or tax advisor. Information was obtained from third party sources which we believe to be reliable but are not guaranteed as to their accuracy or completeness. SYM is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about SYM including our investment strategies, fees, and objectives can be found in our ADV Part 2, which is available upon request.

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