What is a Financial Plan?
It’s the job of the wealth advisor to read between the lines of what our clients are saying to understand what they really mean. Recently, a “financial plan” has been something more clients have been asking for without ever asking for it.
For instance, a client stated in a conversation that they are worried they won’t be able to retire because their asset values have fallen. We looked at their financial plan to show them that the income produced by their portfolio hasn’t changed much and can still easily support their living expenses. The change in asset values is not ideal, of course, but it hasn’t actually altered their plans or their ability to meet their retirement goal.
If you think back 4 months ago, life seemed easy. No masks required, no long lines at food stores and hugs weren’t almost a criminal offense. The market was near all-time highs and people felt financially secure. With the market volatility caused by COVID-19, we have since been connecting with clients and learning that they are, understandably, more nervous than they were only 4 short months ago.
So what is a financial plan and how can it help? The answer may seem basic, but it’s really subjective. We all have different outlooks, goals and concerns. To some, it is listing assets and coming up with a strategy of which combination of stocks and bonds to own. To others, it is creating a balance sheet or a retirement cash flow projection. And for others, it’s making sure that they will still be able to leave a legacy for their loved ones. All of the financial aspects that we can control (spending, insurance protection, estate planning documents, and our asset allocation) are interconnected and so it pays to work with an advisor who can assist in a multi-disciplinary fashion.
An ACM financial plan is an analysis to be presented, reviewed and updated as your life changes. When building your plan, we are first trying to model a “base case”. The base case considers your life continuing on its current trajectory. As we know, however, life and the markets don’t always follow a consistent plan. Having children/grandchildren, changing jobs, relocating or a long term care event are all things that could greatly affect your plan. Our plans allow us to model these changes adapt as life unfurls, or in some cases, also pre-plan for these potential “what-if” events.
We use a financial plan to help you determine your investment strategy, model large purchases, review insurance needs and current policies, save for education expenses, plan for retirement income and make sure you have your estate planning documents in order.
Many of our clients don’t initially come to us asking for a financial plan. What they commonly think of first is to ask ACM for an investment strategy.
It’s not practical for us to make a portfolio recommendation, however, without knowing how the assets you want to invest fit into your financial situation. And in the course of our conversation, we’ll help each other understand what you need your money to do for you. Making an investment recommendation without knowing what you need your money to do for you is like a doctor writing a prescription without examining you first.
Any financial plan starts with the facts: your age and your important/immediate family members, your income and your expenses and any assets and liabilities. Next we build some assumptions: retirement dates, social security retirement benefit estimates, future inflation, tax rates and rates of return on the assets you own.
The combination of facts and assumptions allows us to see a snap shot of what your current financial picture looks like. From there, we can begin modeling different scenarios. For instance, what would happen if you retired 2 years earlier? Or started social security two years later? Or, what if you have a long term care event that triggers additional, unexpected expenses? Running and reviewing these scenarios, in conjunction with your risk tolerance, helps us to make appropriate investment recommendations.
If the recent market volatility or change in your family or employment has you questioning if you are on the right path, then be assured that you are not alone. If you have questions or concerns, reach out to your ACM Wealth Advisor and ask them to help you with a financial plan.
The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.