Financial Planning

I just replyed to a couple of posts about this and decided to repost this in it's own thread.

Here you go:

You are the best person to invest your money. RK states that uneducated investors are dangerous so, get educated. An FP or Stockbroker is normally a glorified salesperson and some sell the "stock of the month" that gives them the best commission. Yes, if you are going to invest it is good to have a FP or broker to "assist" you. However, do not go to them and say "What should I invest in?" Use a team, when you invest talk with other brokers, CPA's, etc. to see how this investment will affect your overall plan. Investing is a systematic plan, not a product.

***Questions to see if a financial advisor can talk the talk***

Are you a CFP? If no, why not?
http://www.cfp.net/default.asp

Do you offer comprehensive financial and estate planning? As well as business continuation planning?

What is a 412(i) Plan. This is a alternative retirement account for S quadrant people.

http://www.neschooner.com/b_412i.htm

Have you ever done a 72(t) ruling for a client? This is withdrawing IRA funds prior to age 59 without tax penalty. http://www.72tinfo.com/moneymanager/content.asp?page_id=119

Do you offer Self Directed IRA's?
http://www.pensco.com/SelfDirected.asp

Have you ever done a Stretch IRA?
http://www.pensco.com/Stretch.asp

What type of investments do you personally own?

What type of Limited Partnerships, Hedge Funds do you offer?
Do you own positive cashflow real estate?

What are some good bear market strategies?

What is your experience with collars and straddle options?

Note: The websites listed above are for information only, I do not endorse the companies or know of their services.

***For Mutual Funds:***

What is a basic load and management fee for A shares? Why?

Are these funds actively managed or rebalanced yearly?

What type of discounts do you offer for bulk investments?

These will get you started. If a broker knows his stuff, he should be able to answer all of these without hesitation. You must also know the answers before asking the question.

***Financial Plans***

This is a question that comes up often on the "How...started" forum. So here is my best answer, everyone please fell free to add any additions.

As a Financial Planner I am somewhat biased on this subject. I have seen many people get ripped off by big name companies and Financial Advisors selling so called Financial Plans. Also do-it-yourself plans (suze ormand) often leave out a lot.

Heres my advice.

A good financial plan should state the following:

1. Your currrent financial statement, tax analysis, and net worth

2. Your current investments, insurance, estate plan, wills, etc.

3. Your surivivor needs for your family (insurance) and disability needs if you are
the breadwinner and become disabled

4. Your projected income needed to retire in future dollars, including inflation and taxes.

5. Depending on your age, a Long Term Care analysis.

6. An assett allocation model listing the types of investments suitable for your risk tolerance.

7. Recommendations for investments.

8. If you own a business, a business valuation summary and business plan

9. Depending on your estate size, a very good estate plan. I have seen many clients who think a "simple will" will do the trick. You can lose 80% of your net worth at death without a proper estate plan.

This is how a professional financial plan is done. It would cost you about $400 from a decent financial planner.

**Some stockbrokers, banks, financial advisors say that they do financial planning or they say they offer FREE Financial Plans. These are absolutely wothless. They are nothing but a cashflow analysis statement. They are really trying to sell you investments. The plan always comes first.

These are some of the best companies that offer financial plans for a good price: Waddell and Reed, American Express Financial and most Certified Financial Planners (They charge more). Note, I said that they offer good FINANCIAL PLANS, the investments that they want to recommend is a whole different subject.

Note: Most Financial Planners do not include real estate investments, only paper assets.

If you don't want to pay, try to find someone who uses the Financial Profiles software, it is ( in my opinion) the best in the business.

I also use a program called Wealth Forecasting which can run probabilties of your financial plan succeeding and can also list real estate income and real estate sales. Also look for plans with Monte Carlo simulations, these also give you probabilities of success.

Or even a simple spreadsheet will work at first!

This is just a starting plan, next you need to figure out short term, mid-term and long term goals. Put specific dates on when to accomplish these goals. Then decide which investment vehicle you will use to accomplish each goal. Break the goal down into action steps with dates from where you are now until your date to achieve the goal. Begin with an end in mind. Entrance and exit.

These should be looked at daily, or at least weekly. All the time tracking your progress. Put realistic time frames on your goals. (I.E. If you have no real estate experience, buying a 100 unit apartment complex in the next six months is not realistic.) Your first goal may be reading books on investing or real estate. Your second goal may be getting out of debt. etc, etc.

I call my plan the Fluid Financial Action Plan, becuase it's fluid and can change with my strategies, and it is an action plan to creat action. Taking action is the single most important step.

I also attach specific rewards to attaining goals.

*When I create a $1000 per month cashflow, I get a new set of Callaway Golf Clubs*
Then I would have a picture of some golf clubs, are you getting the picture?
I hope this helps people understand a financial plan and what it contains. I know that a lot of you out their probably have some other great ideas, please feel free to share them and how they help.

Sincerely,

Lance
< Message edited by PsyopRanger -- 1/19/2004 3:41:41 AM >