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Pitfalls on the Path to Financial Security
Financial security can mean many things: a comfortable retirement, a legacy for your children and grandchildren, a major gift for a charity you support. But as you and your financial advisor map out the road to these financial goals, it is important to avoid some common pitfalls:
At The Bensman Group, we can work with you to help you avoid these pitfalls and design a path toward the financial future you want. You can contact us at 847-572-0800 or firstname.lastname@example.org.
- Not having a holistic approach. You should share with your advisor not only your financial needs, but also what drives your life – things like your values, your life events, your dreams and your fears – because these can have a profound effect on how you set and meet your financial goals. You also should meet regularly with your advisor to discuss not only the performance of your investments, but also what is going on in your life. This allows you and your advisor to ensure that you remain pointed in the right direction.
- Not seeking independent advice. Not all advisors are completely on your side. Some advisors who work for larger brokers or banks might be pressured or incentivized to sell you investments that benefit them or their employer. An independent advisor is an advocate only for you.
- Not having – and reading – an Investment Policy Statement. An Investment Policy Statement, or IPS, is an agreement between you and your advisor. It spells out your investment goals and objectives, and it outlines the responsibilities of both you and your advisor. It is a living document; you can and should revisit it regularly and update it as your goals or life circumstances change.
- Having the wrong asset allocation. Numerous studies have shown that by far the most important factor in investment success is asset allocation. If your approach is too equity-heavy, you have to deal with the volatility of the equity market. But if your approach is too conservative, you might not get the level of return you need to meet your financial goals. Perhaps the most important thing you can do as an investor is to find an asset allocation with a balance of risk and aggressiveness with which you are comfortable, and then follow that allocation.
- Not having coordination between your advisor and other professionals such as your accountant, attorney, etc. Your financial plan has a significant impact on other life issues such as your estate, your tax burden, etc., and without coordination, all the professionals who help you manage your life are working in the dark.
- Not having performance reporting. You don’t want to know just how much your investments have risen – or fallen; you want to know how they have performed compared with other similar investments. Any reporting you get from your financial advisor should include this information.
- Not considering the tax implications of your investments. Your advisor should explain the potential advantages of things like harvesting losses for tax purposes or investing in tax-efficient investments. After all, it’s how much of your money you keep that really matters.
- Not considering insurance products such as variable and fixed annuities as part of your plan. Especially for risk-averse investors, annuities can provide some protection without eliminating all exposure to equities.