Do Your Financial Risks Change Over Time?

By
Jeff Motske, CFP®
April 17, 2019
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“Don’t invest and forget.” This is a common sentiment that advisors try to communicate to their clients. We understand the importance of having a solid financial plan, but the plan doesn’t serve you if you set it and then don’t check in with it for years. A financial plan is a living and breathing document. As your life changes, so should your plan because those life changes can cause changes in your goals and your risks.

As you start your adult life, risks are generally low, and timeframes are typically long. You may be single, you may be renting. Should you hit some rough times, not that much may be rocked. This also applies to your investments. If there is a market shake-up, you have plenty of time to wait for the market to correct itself. Therefore, this is the time to be aggressive on your way to financial independence.

However, as your life changes, so does your risk. Perhaps you get married and start a family. Perhaps you buy a house or maybe you start a business. Suddenly, there is more at stake, there is more to lose. Additionally, while there is more at stake, there is less time. There is less time to save, less time to recoup any losses. These changes undoubtedly influence our decisions and our behavior in the market.

This change in risk isn’t done with the flip of a switch. Everyone’s life is different, hitting different life milestones at different times, starting to work towards financial independence at different places and having different goals to work towards. Therefore, computing risk, can be a gradual and complicated process. Working with a financial advisor can help you know when and how to change your risk so that you can steadily work towards the future and protect what you have today.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

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By
Mike Loo, MBA
March 1, 2018

Over the course of working with so many individuals and families, I’ve found that many people think financial planning, investing, and retirement planning are a sprint to the finish line. While on paper, maxing out your 401(k) each year and building an all-stock portfolio for maximum growth potential seems like a good plan, fast and big investing can actually slow down your progress to your goals. Let’s look at why.

The Dangers of Little Liquidity I always enjoy working with enthusiastic young couples who want to do everything in their power to reach their desired retirement. However, in the process of focusing on their long-term retirement goals, they neglect their short-term needs.

For many of my clients in their 20s and 30s, I may recommend contributing enough to their 401(k) to get the employer match, if one is offered, and contribute some of their paycheck to build an emergency fund and savings. This can help them avoid focusing so much on their long-term retirement goals that they neglect their short-term goals, from buying a house to paying off student loan debt. I generally recommend that my clients build a reserve fund that can cover three to six months’ worth of living expenses.

Dipping Your Toes In Versus Diving Head First

I said it earlier but I’ll say it again; investing and financial planning is a marathon, not a sprint. I’d much rather be the tortoise—slow yet steady and consistent—than the hare—fast yet unpredictable—when it comes to my investing strategy.

One of the more underrated strategies for financial security is making consistent and periodic contributions to your portfolio over a long period of time. As I mentioned earlier, younger individuals and families may not have the income yet to max out their 401(k), but they can make consistent contributions and increase them over time as their income increases. Like the tortoise, saving for retirement and other long-term goals is all about perseverance and consistency, even if it is at a slower pace.

It’s easy to let emotions get in the way, and many investors fall prey to the newest investment strategy that claims a higher return on investment. But the fact of the matter is, there is no controlling or predicting the market. I tell my clients that instead of focusing on what they can’t control, it’s helpful to focus on what they can control: the capital they invest.

Whether the markets are high or low, consistent contributions can have a powerful long-term effect. Additionally, maintaining a well-diversified portfolio and rebalancing if needed each year can help ensure your portfolio matches the appropriate level of risk you’re willing to take. Adhering to this motto and disciplined strategy can help you avoid the common trap investors fall into: buying high and selling low, and chasing high returns.

The Risks of Aggressive Investing

Too often, financial advisors tell young individuals in their 20s and 30s to keep close to 100% of their portfolio in stocks. The theory is that young investors have decades to ride out volatility and make up for any lost returns. While this may work for some individuals, I’ve had a number of younger clients who don’t feel comfortable taking such risks, even if they have decades to try to make up for losses.

Investing entirely in stocks isn’t necessarily the way to go, even if it makes sense on paper. It’s nearly impossible to entirely remove emotions from investing. Too often, I’ve seen investors give up when their portfolio takes a big hit. They lose motivation to keep investing, and they struggle to keep their eyes on the finish line of their long-term goals.

Incorporating investments, like bonds, that offer lower returns and lower risk, may help you feel more confident in your portfolio and avoid the rollercoaster of emotions if your portfolio takes a hit during a downturn.

Next Steps

Like the tortoise and the hare, fast investments don’t mean you’ll reach the finish line first. While it can be difficult, it’s important to tune out the noise of the media and focus instead on what strategies make sense for your unique situation, risk tolerance, and short and long-term goals. While not as exciting, I believe slow and steady can win the race, and without as many speed bumps along the way.

As an independent financial advisor, my mission is to make a meaningful impact on the lives of my clients and the people they love. I help families make informed decisions with their money and pursue a strong financial future. If you’re interested in learning more about balancing your short and long-term goals, I encourage you to reach out to me. Call my office at (949) 221-8105 x 2128, or email me at michael.loo@lpl.com.

By
Windus Fernandez Brinkkord, AIF®, CEPA
February 22, 2018

You just realized you need a budget. Whether it's because you'd like to be saving more money, you plan on investing in a retirement plan, or you want to straighten out your current finances, you know that having a reliable budget would make your life easier.

Creating a budget for the first time can be one of the most overwhelming experiences, especially when you're just starting to look critically at your financial situation.

Take a deep breath and don't stress out! There are just a few simple steps that you can take to reach a reliable, stable budget. I have some excellent pieces of advice that I give to all my clients, family members, friends, and even neighbors. Let me guide you on this financial journey.

Ready to get started?

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Step One: Track all of your expenses

The first step to getting figuring out your finances is to figure out what you have been spending. Print your bank statements for the last three months and categorize each item in your statement on to a new spreadsheet. The Federal Trade Commission has a convenient website www.consumer.gov suggests categorizing every expense, including:

  • Car Expenses
  • Food
  • Clothing Expenses
  • Insurance
  • Credit Card Payments
  • Misc. Expenses
  • Entertainment/Going Out
  • School/Business Expense

Once you have your spending history, review your daily, weekly, and monthly expenses. Looking at the big picture and the tiny details all in one place can help you make small changes that have significant impacts on your finances. Reviewing all of this information lets you easily formulate your budget for next month without the hassle of digging through your bank statements.

Step Two: Set realistic goals

Start with a small, short-term goal. Set one finance goal to obtain over three months and use smaller milestones to meet the finish line you set for yourself. Use each week to reassess your goal and make adjustments as needed. When the goal is achieved, make another, and another, and another. Goals may require modifications, but it's an excellent way to set yourself up for financial success. You'll have something to be proud of every time you pass a milestone. And when the goal is reached? Reward yourself with something—that's still in your budget, of course.

Step Three: Make adjustments

I can't stress this enough—once the budget is set, don't be afraid to readjust as needed. There is no shame in making necessary changes to your budget. Situations change all the time, and nothing has to be concrete. Flexibility is key. Being rigid can make things harder for you and your family if something unexpected comes up and you need to spend more in one category than previously thought. Adjust smartly, not just because you want to splurge on a new gadget or pair of shoes.

Step Four: Never stop reviewing your budget

As I said in step three, adjustments are necessary. While you should remain flexible, if you notice that month after month, week after week, your budget seems to need changes, it's time to review. Reviewing your budget monthly will put your mind at ease if everything is going according to plan or allow you to see what hiccups caused you to veer off-course. Remember, no budget is perfect, and we all have to work towards a happy, balanced budget.

This is just a beginner's toolkit that can help you keep your budget in good health. These are my starting points that seeks to help you get to your financial happy place. There's no need to stress anymore. You don’t have to be perfect. I’ve seen too many people give up on budgeting because they made one mistake and got mad at themselves.  Give yourself the grace to be human.  As long as you are making more good decisions than bad ones over a long period of time, you can work towards getting to where get to where you want to be. You have a roadmap, and you can make your finances a priority quickly with just four simple steps.

Get Started on Your Financial Life Plan Today