Financial Planning Tips

Good advice never goes out of style.

Things to do:

• Have a financial plan showing where you want to be and how you will get there.
• Develop an investment policy statement describing how you will make investment decisions to help prevent you from making emotionally-charged investment decisions.
• Whenever possible, invest often. Consider a systematic investment plan. This forces dollar-cost averaging.
• Work with a financial professional who is compensated to provide objective advice, not an advisor who's paid to sell products.
• Identify your risk tolerance before the next market drop, and have an asset allocation targeting that risk tolerance.
• Be truly diversified including large, mid, small, international, growth, and value stocks in you portfolio. Invest in corporate bonds, government bonds and international bonds.
• Make your asset allocation more conservative as you approach retirement.
• Rebalance your portfolio at least annually.
• Meet with your financial advisor at least every six months.
• Review and update your financial plan and estate documents at least annually.
• Have some liquidity in your portfolio. Having cash available will reduce your need to sell securities when their values are depleted.
• Take full advantage of the employer match on your 401k. Remember the match is part of your compensation.
  
• Understand the risk/return history and expectations for all your investments.
• Monitor how and how much your investment advisor is compensated.
• WORK WITH A FIDUCIARY - since they are obligated to act in your best interest.

Things not to do:

• Let emotion get the best of you.
• Necessarily trust your financial advisor. Make him or her earn that trust.
• Trust "financial advisors" that encourage you to leverage your home, or push annuity products without mentioning the costs of such products.
• Be enticed by new, short-term investment strategies.
• Work with a financial planner who isn't financially motivated to constantly serve you.
• Neglect estate planning.
• Invest in things you don't understand such as gold, commodities, and options.
• Pay high investment fees or commissions.
• Seek advice from "financial professionals" who work with a limited range of products, such as insurance or annuity salesmen.
• Seek advice from friends and family who are not financial professionals.
• Invest for the long-term without an established emergency fund (3-6 months of expenses).
• Use short-term investments for long-term goals, or vice versa.

The Presidential Election and the Stock Market

As the election comes to an end many investors are reconsidering their portfolio allocations for the coming months. Some investors are looking at the election as an opportunity to re-enter the market with money they have had on the sideline. I was recently asked if the election usually provides a buying opportunity.

You may be surprised to know that it doesn't really matter. Over the short-term the market tends to be driven by the emotions of fear and greed. When people are optimistic, they tend to buy into the market causing prices to rise. When people are pessimistic, they tend to sell out of the market causing prices to fall. Additionally, when people are uncertain they tend to stay where they are or sell, but investors rarely buy during periods of uncertainty.

Since the period preceding the election is usually one of uncertainty, throughout history the market has frequently declined leading up to Election Day. Conversely, after the election the market tends to experience a bounce once it's been determined who will be in charge over the next four years. However, when the initial enthusiasm fades investors once again focus on company fundamentals which ultimately determine the direction of the market.

The direction of the market has been the subject of a great deal of debate. A recent TD Ameritrade poll found most Americans remain pessimistic about the future of stocks.

• "Americans say they do not anticipate a stock market recovery in near future (within six months) and one in five people (20 percent) indicate they think it will be one year or longer before the stock market will be higher."

It's important to remember that over the long-term the market doesn't move on emotion it moves on company earnings. There are great companies growing their earnings in spite of the economy. If you are looking for long-term investments, you should focus on strong companies that will grow their earnings over the next 20-years, rather than who will win the White House. So don't fret over the day-to-day value of your 529 Accounts, 401(k) accounts, or other longer-term investments.