Getting (back) on track - The best part of my job…

The past few years have been difficult for many of us financially.  Job losses, market corrections, real estate foreclosures, recession, economic upheaval around the world, ongoing market volatility, etc have reduced retirement fund balances for many people, and put their “retirement” as they imagined it in question.   Occasionally people ask me if this climate makes it difficult to grow a financial planning practice.  The answer is a “yes, and no”. [read article]

Yes, current market conditions and uncertainty leave many people’s confidence battered into inactivity.  They see the talking heads on the financial news and the myriad of opinions and outlooks and they don’t even want to think about the market or their retirement, much less putting MORE money at risk in this environment. 

But then there are those that either use this as a wakeup call to get to work on getting their financial house in order, or they see recent downturns as an opportunity to gain additional ground as the market recovers.  They are the ones that truly “get it” when it comes to financial planning.  They are confident in their future, because the made the effort to plan it out.  Sure the past few years may have been a setback, but at least now they know what they need to do to get back on track.   When people I meet on the street ask me for advice as a finance guy, this is what I tell them. 

1.     Get a handle on your current position – use current value of your home, your 401(k), your savings, and your brokerage accounts, as well as vehicles and any expensive toys.  Then do the same with your liabilities: mortgage balance, credit cards, student loans, etc. 

2.     Get a handle on your spending habits – The more you know about where it all goes, the better you will be at knowing how much more you can realistically save or perhaps redirect towards paying down debt to catch back up to your retirement dreams faster. 

3.     Review your overall investment portfolio and concentrate on diversification and high quality investments.  Work with a professional and do your homework.  Avoid making any purchase based on a “hot tip” from your brother (in-law), neighbor, college roommate, etc… 

4.     Repeat - Once the plan is in place you aren’t done.  Meet with your Personal Financial Planner regularly to measure the impact of any life changes(marriage, births, death of a family member, job change, home purchase/sale, retirement goals, etc), and make sure that your investments still match your target allocation as the market changes. 

5.     Realize that time is on your side. - Keep enough liquidity in “safe” money that is not exposed to stock market fluctuations for near term needs, i.e. cash, money market, government bonds.  The rest should be invested for the long term in a well-diversified portfolio

6.     Tune out repetitive negative noise - If you hear the same bad market news 5 times in a day, it doesn’t make it 5 times worse; it just means it’s a slow news day.  Turn off the TV and go clean the gutters, then you can say you accomplished something meaningful today.  When in doubt, see #5.

So the best part of my job?  Regardless if it is a new client or one that I have worked with for several years, when we go through this process, after we consider all of the various assumptions in their plan, and run multiple scenarios to “stress test” their plan, and we can say with a degree of confidence that YES, they can eventually retire and live the kind of life they hope for; that look of relief/contentment/ satisfaction on the client is almost magic. 

All the best for a safe, healthy, prosperous 2013.

John

John Davidson, CPA, CFP ®

KylesHill Group LLC

[email protected]