Simply investing is easy. Planning a financial strategy is another ballgame
Q: I’ve heard that investing is not that hard — do you agree?
A: I am frequently amused by a website for doctors that has a message board/forum where questions are asked and answered by the many participants. There are questions of amazing complexity answered by many participants who probably don’t have the wisdom to do so.
A frequent discussion relates that investments are “easy” and don’t require guidance. Indeed, there is a plethora of information and “apps” and accounts at various brokerages that could make investing “easy” and inexpensive. Each has its own pros and cons, but most provided a simple asset allocation that might do just fine over the long run.
But the individuals doing it themselves must have made the choice to use one of the “easy” systems. They must understand how much they need to save to have enough financial security at retirement. They must have a reasonable understanding of what type of returns to expect, and how many stock investments vs. fixed income investments were right for their goals and risk tolerance. They must have the discipline to keep investing when the markets take a drop (especially a big one) and resist the urge to add “hot” individual stocks or funds to the “easy” mix.
If investing is one of the “easier” aspects of financial planning needed to reach success, there are still other considerations. What about protecting the assets one is accumulating? Where and how is one exposed to creditors? What is the best way to protect assets in general in each state? How should cars and property be titled? How does a business protect its and its owners assets from creditors?
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How about insurance coverage? Is someone sharing enough risk with the insurance companies? Too much or too little? Could you be paying too much for his life, disability, liability, health, auto, and/or homeowner policies compared to others? Does a family have enough coverage (or any coverage in each category)?
How about estate planning? Who would get assets in the event of an early death? Are heirs likely to be responsible in spending a legacy, and if not, were safeguards in place to preserve their inherited financial gifts? Did estate planning conflict with good asset protection practices?
How about taxes? Can you optimize your affairs to minimize taxes and maximize tax deferred savings for retirement? How is a retirement plan designed? What are those investment choices, since they’d probably be different than the “easy” allocation discussed above? What was the right balance between savings into a retirement plan and outside of it?
Upon entering retirement, how much can could safely spend? Did you know which accounts to take money from in order to minimize taxes and maximize a stream of income?
I think this website and many others minimize the complexity of managing a family’s many financial decisions.
Simply investing can indeed be easy and inexpensive (and should be) with some patience and discipline (which you may not have).
But the risks of ignoring the many other factors in a financial life can far outweigh the benefits of just doing your own investing. You also must be prepared to investigate and manage the many other issues discussed here (and more).
Steven Podnos is a fee-only financial planner in Central Florida. He can be reached at Steven@wealthcarellc.com and at www.WealthCareLLC.com.
This article originally appeared on Florida Today: Investing is easy but there's much more to building financial security
