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A Guide to Financial Planning - PDF
Financial Basics Checklist - HTML | Printable PDF
Investment Strategies - HTML | Printable PDF
Asset Allocation, Why is it important? - HTML | Printable PDF
FINANCIAL BASICS CHECKLIST | Printable PDF
by Janet Tyler Johnson
 Will
Trusts (if needed)
Pre-nuptial agreement (if needed)
Health Care Power of Attorney
Financial Power of Attorney
Disability Insurance
Life Insurance
Auto Insurance
Homeowners Insurance (including replacement of dwelling and contents)
Long Term Care
Business Insurance (if a business owner)
Emergency Fund
Safe Deposit Box or Fireproof Safe
Online or Manual Tracking System for Cash Flow
Backup system for computer documents, family photos on computer, etc.
Record of all important policy numbers, passwords, etc.
Statement of final wishes or directives for family to follow
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INVESTMENT STRATEGIES | Printable PDF
by Janet Tyler Johnson
Most of us today own some kind of investments. Whether it’s a 401k plan, or IRA rollovers from prior employee retirement plans, or after-tax investments through savings of our own or inherited money, we have more need today than ever to understand how we can best manage our money. Whether you hire someone to help you with your investment management needs or decide to handle your investments yourself the following information can prove to be very helpful.
The key to successful money management is focusing on what you earn after all fees and costs to invest, after taxes in taxable accounts, and after inflation. You’ve probably heard the saying, “it’s not what you earn, it’s what you keep”. So let’s take each of these one at a time.
First, fees and costs of investing: every investment out there has some type of cost associated with it. For example, all mutual funds or sub-accounts (which are mutual fund-type investments in annuities and some retirement plans) have what is known as an expense ratio. An expense ratio is the amount the company charges to cover their marketing and management expenses. The average mutual fund charges about 1.4% per year. International funds tend to have higher expense ratios while bond funds tend to have lower expense ratios. You should be looking for funds that have lower than average expense ratios for their category whenever possible. If you are investing in stocks or exchange traded funds, there are commission costs to look at. While these can look insignificant when taken separately, if you are making regular purchases or moving money from one investment to another often, the commission costs can really add up. In any type of investment there are costs. Some are not as easy to find as others, but there are always costs. If you don’t find it easy to determine what the costs are for your investments, know that some costs come right off the top of either the amount you invest or what you earn on that investment. A Certified Financial Planner® professional can help you determine what your cost of investing has been.
Another important point is that if you do hire someone to help you with your investments, make sure you get a very clear disclosure of how and what they are getting paid. Ask this professional if they are a fiduciary. By law, a fiduciary is bound to put your interests before their own.
Whether it’s taxes, investment costs, or professional fees, all these costs can really make a difference in your bottom line over time. In fact, over 20-30 years it can mean hundreds of thousands of dollars. Here’s an example: if you are saving $400 per month for 30 years, at 8% interest you would end up with $567,045. At 9% interest, just 1% more per year over that 30 year period, you would end up with $685,752. The difference is $118,707. Do you want that $118,707 in your pocket or someone elses?
Taxes are another area to pay attention to. Many investment professionals today ignore the impact that taxes have on your after-tax investments. If you have investment accounts where you are saving after-tax dollars (not in a retirement plan or IRA), or have inherited money, you need to know the impact that selling investments will have prior to the sale. This does not mean that taxes alone drive all your investment decisions, but it does mean that you need to be aware of the tax ramifications when selling investments. Investment professionals who pay attention to the impact of taxes try to offset gains you take through the year by selling other investments you own that you may have a loss on. For example, if you sell $10,000 worth of a taxable investment (i.e. mutual fund, stock or bond) and you paid $5,000 for it, you will owe taxes on the $5,000 profit. If, before the end of that same tax year, you sell off a $5000 investment that you paid $10,000 for, giving you a $5,000 loss, you can use that $5,000 loss to offset the $5,000 gain on the other investment. Of course, this is just an example and it isn’t always possible to eliminate all gains, but every dollar you pay to Uncle Sam is a dollar out of your pocket that you won’t get back.
Inflation is another thing to keep your eye on. I always speak to a client about what their portfolio has earned OVER inflation. Inflation is the measurement of how much more something costs today than it did yesterday, or this year vs. last year. If you earn 9% on your portfolio in a given year, but inflation is 3%, then your actual growth is 6%. Historically the stock market has returned about 11.5% and inflation has averaged almost 3.5%, meaning the average growth in the stock market historically has been around 8%. Making sure you beat inflation, especially when your retirement dollars are invested more conservatively, ensures your purchasing power.
After all, if you invest in a money market fund that pays 2% and inflation is at 3%, you are losing 1% per year on your purchasing power.
In summary, you really need to be aware of what is going on with your investment accounts. Hopefully this article gives you some ideas on questions to ask yourself or any professional you are working with to ensure you are getting all the growth you can on your investments. If you don’t have the time or desire to understand your investments at this level of detail, work with a professional that you trust. Make sure that professional discloses all of their charges and the total costs involved of anything they are recommending, and if they will not, or you don’t think you are getting the whole story, work with someone else. You work too hard for your money not to get the best possible care for it!
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ASSET ALLOCATION | Printable PDF
by Janet Tyler Johnson
“Asset Allocation” is a term that defines the way you divide your assets between various asset classes such as stocks, bonds and cash. Why is this important? Well, academics have studied the effects of various asset allocations on your total return and have concluded that over 90% of the return you earn on your investments is determined by your asset allocation.
Let me give you an example. If you earned 10% on your investments last year, over 90% of that 10% (9%) came from how much you had invested in stocks, how much in bonds and how much in cash. Not how much in this fund or that fund, or how much in this stock vs that stock, but rather how much you had in the asset class itself.
What is the appropriate asset allocation for you? Well, that depends. How many years do you think you’ll be invested? How much risk are you willing to take? How much growth do you need on your investments in order to achieve your goals? How much of your money should be invested overseas? How much in large companies? How much in small companies? How much in real estate?
If you are 30 years old today, and will work until at least age 65, you have 35 years for your money to grow before you need to start taking money out. In this example you can afford to take on more risk with a 35 year time horizon than a 55 year old with a 10 year time horizon. Of course, in both cases, the majority of your money will be invested past age 65 (since you don’t take out all your money at retirement) so your time horizon is really longer than that stated.
It’s important that you work with an investment advisor (preferably a Certified Financial Planner® professional) who can help you make the best possible asset allocation decision based on your individual circumstances. It’s not a decision that should be made lightly as it will impact your performance year in and year out. It can mean the difference between reaching your financial goals…………or not!
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