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Planning Beyond the Numbers

By Morgan Stanley Smith Barney LLC. Courtesy of Manuele D. Wasserman, CFP ® Financial Advisor

While it’s never a bad time to revisit the fundamentals of investing, it’s an especially good time to do so when volatile markets start making investors feel anxious and uncertain. It’s during times like these that you’ll hear a lot about asset allocation.

 

The whole point of asset allocation—the spreading of funds across different asset categories, such as stocks and bonds—is to achieve your long-term financial goals with less risk. But in order for your asset allocation to be truly effective, your goals must be based on more than just market returns, industry sectors or the interest rate on a bond. Instead, your financial goals should correspond to your lifestyle, family and passions. Only when you’ve identified what you want to get out of life can you begin to build an appropriate long-term investment plan around that insight.

 

How do you get started? Get ready to have a number of intimate conversations with your spouse or partner and other integral family members. These discussions should help clarify the lifestyle you wish to maintain when you are no longer in your peak-earnings years. In addition to funding your vision of retirement (do you want to live like you do today, more modestly or more extravagantly?), you should consider how you will cover tuition expenses, charitable outlays and anything in between near and dear to you, while still having enough readily available to jump on new opportunities.

 

Let’s Talk About Risk

Risk is a notion that gets thrown around a lot, in terms of how much of it can you tolerate for that extra bit of return that may come with it. But when you are thinking about your long-term plan, it’s important to consider risk. Ask yourself these questions:

 

  • How would I fund a large, unexpected expense or face a job loss, illness or other catastrophic event that occurred before the end of my investment time horizon?
  • How do I respond to every market swing? Maniacally, or steadily?
  • What do I worry about when it comes to dispersing my money among various asset classes?
  • What would make me feel more secure about my financial future?

 

Also ask yourself if you are more of a conservative or aggressive investor—and why. If you consider yourself conservative, for example, is it because you had a bad past experience? Do you understand how issues such as the possibility of living longer than expected factor into a conservative allocation? The more you can articulate who you are and what matters to you, the better equipped you will be to put together a portfolio that aims to help you fulfill your goals and ideals.

 

Getting Down to Brass Tacks

Now that you’ve done the hard part—the architectural plans, let’s say—you can get started building the foundation, and that begins with a thorough look at all your holdings. This evaluation should include any illiquid holdings (such as real estate or a business) and concentrated positions (say to one stock or one type of asset class) you may have. You might be surprised just how undiversified you could be despite all your “diversification.” Also, remember that life events—such as retirement, divorce, the sale of a business, a child’s marriage or the death of an elderly parent—will affect not only your asset allocation but also your entire financial picture, so a regular review of your investment strategy and overall situation is highly recommended.

 

If all this assessment, planning and monitoring sounds daunting, it doesn’t have to be—there are many qualified professionals with a host of resources at their disposal to help you with more than just investment choices. Because as important as a sound asset allocation strategy is, it’s only as good as the goals and ideals you’ve identified. The performance of your investment portfolio has to do more than just look good on paper—it has to also be good enough to allow you to get what you want out of your life.

 

Manuele D Wasserman, CFP ® is a Financial Advisor at Morgan Stanley Smith Barney located in Lutherville, MD and may be reached at 410 494 8291 or manuele.wasserman@mssb.com

 

Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.   Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.

 

© 2009 Morgan Stanley Smith Barney LLC.  Member SIPC.


 

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