Your Family Financial Planning
10 Financial Planning Steps in the Right Direction
Families need an objective financial planning process. In addition, they need to be in control — whether or not they have a family financial planning consultant. With a well-designed and personal financial plan, you can optimize your financial affairs over your lifetime. You can greatly reduce the waste of your money and your time. I recommend the 10 steps below for personal financial planning and personal investment management.
To find an in depth article for each step, just click on the Sitemap link at the top of this page and look for the articles numbered from 1 to 10. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
1 – Personal Financial Planning
Because you must live with the results, you need to take full responsibility for your financial and investment success or failure. Delegating financial planning and investment decisions to advisers largely on faith can be very dangerous. Naive hope without adequate personal financial knowledge, attention, and control can be very risky to your personal and family welfare. The only practical solution is for you to increase your personal financial planning and investment knowledge and skills.
Educating clients about scientific investment and financial planning is extremely important to me. As such, I have written many educational materials that are of interest to my clients and the general public. My objective financial publications on The Skilled Investor website and blog are often the reason that people learn about my fee only independent financial planner and investment advisor services.
Your questions are important to me, and you should expect there to be a factual basis for any strategies and recommendations that I make. Please ask any and all of your questions, as we work together. During the course of developing a comprehensive, personalized plan for you, if you are interested, I can provide copies of educational materials that I have written and copies of original scientific finance papers that are particularly applicable to your situation.
2 – Financial Planning Tools
The single most significant financial lever that individuals control directly is their management of personal expenditures. The second is their lifetime effort to obtain sufficient income. Most people simply do not save enough of their current income to fund adequately their future needs.
To analyze your financial affairs in detail, we will use VeriPlan. VeriPlan is a very sophisticated and customizable computer planning model that I have developed. VeriPlan enables you to view graphical projections of your family’s income, expenses, assets, and debts across your lifetime. Data inputs reflect your particular situation and include all your assets, including cash, bonds, equities, property, real estate, private equities, and business interests.
Step 2 is a very important step, because this is where we construct your baseline financial plan and measure your current financial circumstances and goals and intentions for the future. To develop your customized lifecycle model, we will work together to gather information, adjust assumptions, and evaluate the effects of different financial decisions across your lifecycle. For more information about VeriPlan, see: Personal Finance Software for Your Lifetime.
VeriPlan can vary future expected investment returns by asset class, and it automatically analyzes the details of your taxes and investment expenses. Any and all assumptions can be changed for instant “what-if” testing. The model’s risk analysis capabilities evaluate how well your future assets would cover normal and extraordinary expenses, if market or personal circumstances were to disrupt your plans.
Excessive and unnecessary investment costs can substantially undermine your lifetime investment returns. VeriPlan automatically projects the returns you will waste with such fees, if you do not choose more cost-efficient investments.
3 – Investment Risk Tolerance
Investors with different levels of risk tolerance are more satisfied investment strategies that are better aligned with their risk preferences. Differences in risk tolerances mean that more risk-averse investors are personally more satisfied with a lower risk portfolio despite its lower expected returns. Less risk-averse investors are more satisfied with portfolios characterized by higher risk and higher expected returns.
While there are a variety of approaches to the measuring relative investment return and risk preferences, we do not believe that a simple “check-a-few-boxes” survey is sufficient. Therefore, you can expect that we will discuss your feelings about risks and rewards. We will assess together your likely behavior in the face of financial risks that might actually materialize.
We will also discuss the implications of adopting a particular investment risk profile relative to that of the average investor. Furthermore, we will test the financial projection implications of your risk preferences using VeriPlan. With VeriPlan modeling your particular financial situation, you can better appreciate the projected outcomes of different investment allocations associated with your risk preferences.
4 – Investment Diversification Strategy
Diversification is genuinely a financial planning and investment “free lunch.” A fully diversified portfolio is a key contributor to improved investment risk management. Diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated from a portfolio without reducing expected returns. As such, our investment recommendations will usually focus on very low cost mutual funds and very low cost exchange-traded fund (ETF) investments.
A significant portion of a portfolio may sometimes become concentrated in a single investment entity, which increases the overall risk of the portfolio. While undesirable, there sometimes are good or unavoidable reasons for investment concentration. In such circumstances, we will provide recommendations on possible ways to ameliorate the associated risk. If there are not good reasons to maintain the current level of concentration, then we will discuss how to reduce this concentration.
5 – Investment Asset Allocation
Your risk preference relative to the average investor with the average portfolio will influence your asset allocation. Appropriately setting your personal asset allocation in line with your personal risk tolerance is a critical decision for every investor. Because the average risk-averse investor holds the average portfolio asset allocation, this becomes the starting point in determining how a specific individual’s portfolio might diverge from that average allocation.
VeriPlan supports several mechanisms for allocating assets permitting a comparison of projections based upon different asset allocations. Anticipating allocation adjustments that may be needed in the coming year, we will also discuss how near-term net income might be invested to reduce the need to reallocate some of your portfolio in the future. If asset withdrawals are required to cover anticipated retirement expenses or other living expenses, we will recommend how to do this most cost and tax efficiently. Our goals will be to establish a durable approach to asset allocation and to minimize costs and taxes.
http://www.financialplannerpasadena.com/your-family-financial-planning-11.htm
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<<< Go Back to Part 1 (Steps 1 to 5) — Family Financial Planning Pasadena
To find an in depth article for each step, just click on the “Pasadena Financial Planners Sitemap” link at the top of this page and look for the articles numbered from 6 to 10. Note that you can reach us by using the contact form below. Please enjoy reading this article. Thank you!
6 – Personal Investment Strategy
Given the extremely large number and variety of available securities, investors need a rational basis to select among them. Without rational selection criteria and a good understanding of which factors are more or less likely to increase risk-adjusted returns, investors will make poor decisions based on false assumptions.
We will begin with the presumption that portfolio investment strategy would focus on broad-based, market oriented financial investments that can be acquired economically and held inexpensively in your portfolio for an extended period. We will provide a set of recommended investment vehicles and percentage allocations including a recommended minimum number of investment positions within each particular area. Consideration will be given to domestic versus international, value versus growth, small versus large capitalization, and other investment vehicles that may move the portfolio away from a broad market orientation. Of course, investment cost and tax implications will heavily influence these recommendations.
Consideration will be given to your existing investment portfolio to determine what parts should remain and what should change. We will discuss a transitional plan for those parts that we recommend to change, and our recommendations will consider the cost and tax implications of making such changes. When appropriate, recommendations will also address adjustments that counterbalance any financial concentration that you may have elsewhere in your portfolio.
7 – Investment Management Fees
Even with optimal investment strategies, there is still substantial room to improve upon net investment performance through continued and vigilant focus on controlling investment costs and tax realization. The investment fees extracted by the financial securities industry are grossly excessive. Excessive costs imposed on “retail investors” have increased substantially during the past several decades on both a total cost and a percentage of returns basis.
At the same time industry deregulation, market innovation, and increased competition have provided many new and useful mechanisms for investors to manage their assets in a much more cost- and tax-efficient manner. It is not hard to cut your investment costs, but you have to be conscientious and vigilant. I will help you to become an extremely cost-conscious investor, and I will help you to remove all those hands that may currently be in your family’s financial wallet.
For your current asset holdings and for new investments we will model details of taxation and investment expenses in the projections. Recommendations will be provided which are designed to reduce investment costs, to reduce and defer tax recognition, and to shift tax realization toward lower tax rates.
Recommendations for new investment will focus on very low cost, passively managed investment vehicles. A very wide variety of very low cost cash, fixed income, and equity investments are available through low cost channels, and there is no reason to purchase more expensive vehicles that are not expected to provide any better return or risk reduction.
8 – Insurance Risk Management
The world is fraught with numerous potential risks – financial and otherwise. Insurance can be purchased for a wide variety of situations, but the issue is always value and affordability. Many people could spend all their investable capital on insurance and have nothing left to invest and build a financial cushion for the future. Therefore, we can discuss a budget for insurance expenses and your preferences for risks you are willing to bear and risks you wish to ensure.
While value, affordability, risk exposure, and risk tolerance should affect insurance purchase decisions, insurance is often sold and purchased emotionally. The issue is where to set a rational rather than emotional balance between expected risk and return.
9 – Efficiency of Personal Investing Strategies
Time in life is the most precious and perishable asset that a person has. It should be spent enjoyably and efficiently. Scientific investment strategies that rely on relatively efficient financial markets allow people to minimize their time commitment to personal financial planning and personal investment management. Yet, on average, you can still expect to obtain optimal risk-adjusted portfolio returns that are near the market’s return
We recommend an annual review of your personal finance and investment plan on approximately the anniversary of your initial plan. At that time we will update your personal financial planning model and recommend any appropriate changes. In the interim, we can work together to implement recommendations that you accept and to perform other financial planning services that you want.
10 – Independent Investment Counselors and Financial Advisors
Pick financial planning and registered investment advisors solely to obtain objective and high quality advice. Specific investment advice is potentially of high quality, if it is carefully customized to your particular needs and is given by an adviser who is very knowledgeable, highly competent, and completely independent. If you agree with the advice being given, then buy the recommended financial products through the most inexpensive channel possible.
We do comprehensive personal financial planning exclusively. We do not sell securities and do not hold assets in custody. We do not sell insurance, nor do we provide accounting services or legal advice. However, as part of our business development and networking efforts we make efforts to become acquainted with high quality professionals who can provide specialized assistance. In developing a plan for you, part of our focus will be on providing you with recommendations on how to acquire appropriate professional services both easily and economically.
http://www.financialplannerpasadena.com/family-financial-planning-process-12.htm
Sunday, November 27, 2011
10 Personal Financial Planning Steps in the Right Direction
Your Personal Financial Planning Skills
10 Personal Financial Planning Steps in the Right Direction
This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner‘s personal financial planning and personal investment management process. For a summary of these ten steps, see Your Family Financial Planning. To find an in depth article for each step, just click on the Sitemap link at the top of this page. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
You need to develop your own personal financial management skills, because you must live with the results of your financial planning and investment management decisions.
People face formidable challenges to lifetime financial success and their ability to retire with financial security. Throughout your life, you must decide for yourself whether any particular personal financial planning or investment management concept is fact or fiction. One thing can be guaranteed: there will be no shortage of ideas proposed to you by others about what you should do with your money.
Even when you delegate decisions to an investment counselor or financial advisor, you and your family still must live with the consequences. You must learn about investing.
You must make intelligent and informed decisions about whether the financial planning strategies and tactics recommended to you in the financial media and by financial advisers are personally valid for you and your family. The vast majority of financial ideas proposed to you during your lifetime will be suboptimal, self-interested (not yours), simply wrong, and/or just plain rubbish.
Many people have inadequate knowledge and skills about personal financial planning and personal investing.
Some of the saddest financial stories concern naive older people who get robbed of their lifetime savings by some smooth-talking slime bag financial scam artist. These fraud victims have no way to recover the lost lifetime assets. Before the fact, they needed to know better to avoid being duped. However, they lacked the knowledge, skills, and judgment to know better.
Only through a lifetime of taking personal responsibility and intentionally educating yourself will you learn how to manage your money. Only by taking personal responsibility will you learn to navigate around the amazing number of potential pitfalls associated with personal financial planning and personal investment management.
Is it reasonable to expect that you would have such expertise? You may be an expert in your profession or trade, and you may earn substantially more than you need to meet your current expenses. However the dilemma is whether and how you will also learn to manage, grow, and protect your financial assets. As you develop your financial expertise, you will increase the chances that your assets will grow sufficiently to fund your family’s future financial needs, while you become less dependent on your earned income.
Personal financial planning and investment management requires knowledge that is different from professional and career skills.
This situation makes self-direction of your finances problematic. Furthermore, this situation creates a great temptation simply to trust someone else to manage your financial affairs and investment strategy — hopefully in your best interests. (Remember to cross your fingers and keep them crossed!)
The Pasadena Financial Planner believes that people who are successful in their careers and have the ability to generate substantial investable income must also become more successful concerning the management of their money during their lifetimes. You must develop both career professional skills and personal financial planning skills to increase the probability of achieving lifelong financial success. In financial affairs, trust is often given, but not always reciprocated. Many people are just too naive and trusting, when others have an eye on their pocketbook.
Many people need help from financial planners and investment counselors. However, they base their advisor selection decisions on “trust” and the recommendations of friends and colleagues. Frustrated with complexity of personal finance and investing, they want to find someone they can “trust.” Then, they want to hand over the keys and let someone else drive.
Unfortunately, the entire financial services industry uses a “we are worthy of your trust” marketing message. Yet, it is difficult to find another service industry where so much is paid for so little genuine value in return. Much of the trust that individuals have if mis-placed and ill-founded.
Personal financial planning and asset class investment management advice from the financial services industry is often shallow and inappropriate.
While advice might seem plausible, many financial industry proposals are simply not good for you. The financial services industry writes its marketing material to sound reasonable to individuals. Some financial ideas reasonable, but many are not. Most recommendations involve the purchase of financial and investment products that are simply far too costly and far too risky.
The vast majority of personnel in the financial services industry are taught how to sell the most profitable financial products. Relatively few genuinely understand finance and investments from the perspective of what is really best for their clients. Even fewer have an incentive to act in the best interests of their clients.
Most often, the interests of the industry and the client are in conflict. Most often, the financial services industry will win, as it delivers excessively expensive and overly risky financial and investment products to its overly trusting clientele.
Without adequate personal financial knowledge and oversight, delegating personal finance and investment decisions to industry financial advisers can be very risky to your personal and family financial welfare. You will have to live with the consequences of poor or bad decisions long after your advisors have perhaps passed from the scene and even retired on their fees.
Naive trust, faith and hope are not a reliable path to financial success, when you are dealing with the financial services industry. There are simply too many potholes, conflicts of interest, and hands in your wallet. The only practical solution is for you to increase your personal investment knowledge and skills.
Information from the financial services industry furthers its interests, as brokers and financial counselors sell risky and expensive investment products and financial services to you.
For example, when hundreds of broadly diversified mutual funds and exchange-traded funds (ETFs) are available at extremely low costs, there is ABSOLUTELY NO GOOD REASON for individuals to do so much buying and selling of individual securities. Yet, millions frantically buy and sell equity securities in efforts to beat the market.
Egged on by the financial media and the brokerage industry, millions of people waste huge amounts of their valuable personal time in these pursuits. Most will fail miserably in their efforts and will suffer substantially increased risks, costs, and taxes in the process. Most will obtain substantially inferior performance results relative to the performance of broad securities market indexes.
Yet, the vast majority will never bother to check their net performance against passive benchmarks. They will just keep trusting and never really know how very badly they have done compared to a passive investment program that would have required far less time, less risk, lower taxes, and much lower industry fees.
Individual investors need to do a much better job of distinguishing personal finance and investment planning fact from fiction.
They need to base their decisions on financial strategies and tactics that have been validated scientifically. Individuals must become better informed. Otherwise, they must rely naively upon the supposed goodwill of investment counselors and financial advisors who have very strong incentives to sell expensive financial products to them.
When you deal with a broker, investment counselor, or financial advisor, the financial products they recommend will almost always far more expensive than necessary. You will be sold the dream of better results, while most often the reality in the future will be the opposite. In this very costly environment of “advised” personal finance and investing, depending upon the goodwill of industry representatives can be a very risky strategy.
Significant danger exists in not understanding certain fundamental truths about the financial services industry itself. The structure of the financial services industry creates costly conflicts between the financial interests of individuals and the profit motives of companies in the industry and the self-interest of its sales agents. These financial conflicts of interest are a much greater threat to the welfare of individuals and their families, than is the potential for outright financial fraud that rightly concerns so many people.
The securities industry sells investment products that add substantial and unnecessary costs that are not in the interests of their clients.
Individual investors, sometime referred to as “retail investors,” will never find “free” risk-adjusted investment money lying around. Interactions with the financial markets are a “zero-sum game” before costs and taxes. With all costs and taxes, dealing with that financial industry is a “negative sum game.”
In the short-term, the size of the securities market pie is fixed. When one party gets more, another gets less. In and of themselves the securities markets do not create value, but the industry can siphon away a significant portion of an individual investors’ potential returns through visible fees and hidden costs.
Of course, the capital markets provide an extremely valuable economic contribution to our world through the generally efficient allocation of capital. However, this role does not necessarily mean that investment profits will be shared equitably between individual investors and the financial services industry. Retail investors and the financial industry are in competition with each other over how to split this fixed short-term pie. Investors who understand this conflict can better ensure that they get a more reasonable deal.
The good news is that modern financial markets are competitive and relatively efficient asset price setting mechanisms. This means individual investors cannot consistently “beat the market” on a risk-adjusted basis. While this might disappoint some investors who believe they are smarter than others, in reality this is very good news. On the opposite side, the good news is that competitive and efficient markets mean that individuals need not be beaten badly by the market either. Investor returns can track a market return quite closely at very low cost.
While beating the market is not a reliable strategy, individual investors can still make better decisions by choosing lower cost investment strategies.
Passive strategies targeting the market return do not provide an entirely free ride, because there is always a minimum cost. However, optimal investment practices do amount to a highly discounted ticket, which can get individuals to their financial goals quicker and/or richer.
Without optimal strategies, the risk-adjusted asset class returns of the average investor will lag the market return by a much wider margin. This lag will be due to the inferior gross returns of their sub-optimal investment strategies, which are primarily attributable to their unnecessarily high investment costs and taxes.
Therefore, at the outset, the crux of the matter is to learn what does and does not work in personal financial planning and investing. Accepting what you hear or read about personal financial strategies without demanding proof, is almost certainly the road to a much lighter wallet in the future.
Please click the Sitemap link at the top of this page to find and read about the other steps in this 10 step Family Financial Planning Process.
http://www.financialplannerpasadena.com/your-personal-financial-planning-skills-14.htm
=========================================================
ost-Financial Crisis Update About:
Personal Financial Planning
NOTE: The best individual investment and financial planning rules persist and wouldn’t vary due to market cycles or financial crisis. The article that follows was written years ago and requires no changes. Given the subsequent financial market crisis, the update comments in this box were written more recently to emphasize the enduring wisdom contained in the detailed original article below.
The financial crisis has demonstrated clearly that there really are no “smart money” managers — at least none that you can hire to work in your interests after all of their costs are considered. Furthermore, when the financial tide went out, so much fraud and malfeasance was uncovered that only the most gullible of people still believe that wide swaths of the financial services industry actual operate in their best interests. Individuals or “retail clients” are a huge industry profit center. The profits are immense, the fees are ever-present, and the bite out of your wallet is huge over the course of your lifetime.
The original point of this article was that people need to do their homework and to develop some sophistication in dealing with their own finances and with the industry. Only you and your family will have to live with the results of your financial decision-making throughout your life. The industry will extract its exorbitant costs up front and along the way. Pay less to the industry and you will have more assets for longer. If you don’t have any assets, you won’t get the time of day from the financial industry.
You need to get educated, and you need to be skeptical. While the industry has very polished song and dance routines in a vast rainbow of flavors, most of what you are told to do is not good for you. The vast majority of the supposed “financial innovation” that you encounter is designed to lighten your wallet. Only a minority of the investment, mutual fund, ETF, insurance, annuity, education, retirement, and other specialized financial products that you encounter have any long-term validity demonstrated in the objective financial research literature. Your best interests come after the best interests of the financial services industry. It is a simple as that.
And, by the way, all that wool, silk, brass, and mahogany looks impressive, but who is paying for it? (Hint: find a mirror.) The pay scales and bonuses of the financial services industry are astonishing compared to any other industry. This is even more bizarre, because from what I can tell, the average value-added of this service industry to the average person is negative! Start being skeptical and stop deferring to the supposed wisdom of the latest slick financial industry sales pitch.
10 Personal Financial Planning Steps in the Right Direction
This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner‘s personal financial planning and personal investment management process. For a summary of these ten steps, see Your Family Financial Planning. To find an in depth article for each step, just click on the Sitemap link at the top of this page. You can reach us by using the contact form below. Please enjoy reading this article. Thank you!
You need to develop your own personal financial management skills, because you must live with the results of your financial planning and investment management decisions.
People face formidable challenges to lifetime financial success and their ability to retire with financial security. Throughout your life, you must decide for yourself whether any particular personal financial planning or investment management concept is fact or fiction. One thing can be guaranteed: there will be no shortage of ideas proposed to you by others about what you should do with your money.
Even when you delegate decisions to an investment counselor or financial advisor, you and your family still must live with the consequences. You must learn about investing.
You must make intelligent and informed decisions about whether the financial planning strategies and tactics recommended to you in the financial media and by financial advisers are personally valid for you and your family. The vast majority of financial ideas proposed to you during your lifetime will be suboptimal, self-interested (not yours), simply wrong, and/or just plain rubbish.
Many people have inadequate knowledge and skills about personal financial planning and personal investing.
Some of the saddest financial stories concern naive older people who get robbed of their lifetime savings by some smooth-talking slime bag financial scam artist. These fraud victims have no way to recover the lost lifetime assets. Before the fact, they needed to know better to avoid being duped. However, they lacked the knowledge, skills, and judgment to know better.
Only through a lifetime of taking personal responsibility and intentionally educating yourself will you learn how to manage your money. Only by taking personal responsibility will you learn to navigate around the amazing number of potential pitfalls associated with personal financial planning and personal investment management.
Is it reasonable to expect that you would have such expertise? You may be an expert in your profession or trade, and you may earn substantially more than you need to meet your current expenses. However the dilemma is whether and how you will also learn to manage, grow, and protect your financial assets. As you develop your financial expertise, you will increase the chances that your assets will grow sufficiently to fund your family’s future financial needs, while you become less dependent on your earned income.
Personal financial planning and investment management requires knowledge that is different from professional and career skills.
This situation makes self-direction of your finances problematic. Furthermore, this situation creates a great temptation simply to trust someone else to manage your financial affairs and investment strategy — hopefully in your best interests. (Remember to cross your fingers and keep them crossed!)
The Pasadena Financial Planner believes that people who are successful in their careers and have the ability to generate substantial investable income must also become more successful concerning the management of their money during their lifetimes. You must develop both career professional skills and personal financial planning skills to increase the probability of achieving lifelong financial success. In financial affairs, trust is often given, but not always reciprocated. Many people are just too naive and trusting, when others have an eye on their pocketbook.
Many people need help from financial planners and investment counselors. However, they base their advisor selection decisions on “trust” and the recommendations of friends and colleagues. Frustrated with complexity of personal finance and investing, they want to find someone they can “trust.” Then, they want to hand over the keys and let someone else drive.
Unfortunately, the entire financial services industry uses a “we are worthy of your trust” marketing message. Yet, it is difficult to find another service industry where so much is paid for so little genuine value in return. Much of the trust that individuals have if mis-placed and ill-founded.
Personal financial planning and asset class investment management advice from the financial services industry is often shallow and inappropriate.
While advice might seem plausible, many financial industry proposals are simply not good for you. The financial services industry writes its marketing material to sound reasonable to individuals. Some financial ideas reasonable, but many are not. Most recommendations involve the purchase of financial and investment products that are simply far too costly and far too risky.
The vast majority of personnel in the financial services industry are taught how to sell the most profitable financial products. Relatively few genuinely understand finance and investments from the perspective of what is really best for their clients. Even fewer have an incentive to act in the best interests of their clients.
Most often, the interests of the industry and the client are in conflict. Most often, the financial services industry will win, as it delivers excessively expensive and overly risky financial and investment products to its overly trusting clientele.
Without adequate personal financial knowledge and oversight, delegating personal finance and investment decisions to industry financial advisers can be very risky to your personal and family financial welfare. You will have to live with the consequences of poor or bad decisions long after your advisors have perhaps passed from the scene and even retired on their fees.
Naive trust, faith and hope are not a reliable path to financial success, when you are dealing with the financial services industry. There are simply too many potholes, conflicts of interest, and hands in your wallet. The only practical solution is for you to increase your personal investment knowledge and skills.
Information from the financial services industry furthers its interests, as brokers and financial counselors sell risky and expensive investment products and financial services to you.
For example, when hundreds of broadly diversified mutual funds and exchange-traded funds (ETFs) are available at extremely low costs, there is ABSOLUTELY NO GOOD REASON for individuals to do so much buying and selling of individual securities. Yet, millions frantically buy and sell equity securities in efforts to beat the market.
Egged on by the financial media and the brokerage industry, millions of people waste huge amounts of their valuable personal time in these pursuits. Most will fail miserably in their efforts and will suffer substantially increased risks, costs, and taxes in the process. Most will obtain substantially inferior performance results relative to the performance of broad securities market indexes.
Yet, the vast majority will never bother to check their net performance against passive benchmarks. They will just keep trusting and never really know how very badly they have done compared to a passive investment program that would have required far less time, less risk, lower taxes, and much lower industry fees.
Individual investors need to do a much better job of distinguishing personal finance and investment planning fact from fiction.
They need to base their decisions on financial strategies and tactics that have been validated scientifically. Individuals must become better informed. Otherwise, they must rely naively upon the supposed goodwill of investment counselors and financial advisors who have very strong incentives to sell expensive financial products to them.
When you deal with a broker, investment counselor, or financial advisor, the financial products they recommend will almost always far more expensive than necessary. You will be sold the dream of better results, while most often the reality in the future will be the opposite. In this very costly environment of “advised” personal finance and investing, depending upon the goodwill of industry representatives can be a very risky strategy.
Significant danger exists in not understanding certain fundamental truths about the financial services industry itself. The structure of the financial services industry creates costly conflicts between the financial interests of individuals and the profit motives of companies in the industry and the self-interest of its sales agents. These financial conflicts of interest are a much greater threat to the welfare of individuals and their families, than is the potential for outright financial fraud that rightly concerns so many people.
The securities industry sells investment products that add substantial and unnecessary costs that are not in the interests of their clients.
Individual investors, sometime referred to as “retail investors,” will never find “free” risk-adjusted investment money lying around. Interactions with the financial markets are a “zero-sum game” before costs and taxes. With all costs and taxes, dealing with that financial industry is a “negative sum game.”
In the short-term, the size of the securities market pie is fixed. When one party gets more, another gets less. In and of themselves the securities markets do not create value, but the industry can siphon away a significant portion of an individual investors’ potential returns through visible fees and hidden costs.
Of course, the capital markets provide an extremely valuable economic contribution to our world through the generally efficient allocation of capital. However, this role does not necessarily mean that investment profits will be shared equitably between individual investors and the financial services industry. Retail investors and the financial industry are in competition with each other over how to split this fixed short-term pie. Investors who understand this conflict can better ensure that they get a more reasonable deal.
The good news is that modern financial markets are competitive and relatively efficient asset price setting mechanisms. This means individual investors cannot consistently “beat the market” on a risk-adjusted basis. While this might disappoint some investors who believe they are smarter than others, in reality this is very good news. On the opposite side, the good news is that competitive and efficient markets mean that individuals need not be beaten badly by the market either. Investor returns can track a market return quite closely at very low cost.
While beating the market is not a reliable strategy, individual investors can still make better decisions by choosing lower cost investment strategies.
Passive strategies targeting the market return do not provide an entirely free ride, because there is always a minimum cost. However, optimal investment practices do amount to a highly discounted ticket, which can get individuals to their financial goals quicker and/or richer.
Without optimal strategies, the risk-adjusted asset class returns of the average investor will lag the market return by a much wider margin. This lag will be due to the inferior gross returns of their sub-optimal investment strategies, which are primarily attributable to their unnecessarily high investment costs and taxes.
Therefore, at the outset, the crux of the matter is to learn what does and does not work in personal financial planning and investing. Accepting what you hear or read about personal financial strategies without demanding proof, is almost certainly the road to a much lighter wallet in the future.
Please click the Sitemap link at the top of this page to find and read about the other steps in this 10 step Family Financial Planning Process.
http://www.financialplannerpasadena.com/your-personal-financial-planning-skills-14.htm
=========================================================
ost-Financial Crisis Update About:
Personal Financial Planning
NOTE: The best individual investment and financial planning rules persist and wouldn’t vary due to market cycles or financial crisis. The article that follows was written years ago and requires no changes. Given the subsequent financial market crisis, the update comments in this box were written more recently to emphasize the enduring wisdom contained in the detailed original article below.
The financial crisis has demonstrated clearly that there really are no “smart money” managers — at least none that you can hire to work in your interests after all of their costs are considered. Furthermore, when the financial tide went out, so much fraud and malfeasance was uncovered that only the most gullible of people still believe that wide swaths of the financial services industry actual operate in their best interests. Individuals or “retail clients” are a huge industry profit center. The profits are immense, the fees are ever-present, and the bite out of your wallet is huge over the course of your lifetime.
The original point of this article was that people need to do their homework and to develop some sophistication in dealing with their own finances and with the industry. Only you and your family will have to live with the results of your financial decision-making throughout your life. The industry will extract its exorbitant costs up front and along the way. Pay less to the industry and you will have more assets for longer. If you don’t have any assets, you won’t get the time of day from the financial industry.
You need to get educated, and you need to be skeptical. While the industry has very polished song and dance routines in a vast rainbow of flavors, most of what you are told to do is not good for you. The vast majority of the supposed “financial innovation” that you encounter is designed to lighten your wallet. Only a minority of the investment, mutual fund, ETF, insurance, annuity, education, retirement, and other specialized financial products that you encounter have any long-term validity demonstrated in the objective financial research literature. Your best interests come after the best interests of the financial services industry. It is a simple as that.
And, by the way, all that wool, silk, brass, and mahogany looks impressive, but who is paying for it? (Hint: find a mirror.) The pay scales and bonuses of the financial services industry are astonishing compared to any other industry. This is even more bizarre, because from what I can tell, the average value-added of this service industry to the average person is negative! Start being skeptical and stop deferring to the supposed wisdom of the latest slick financial industry sales pitch.
Saturday, November 12, 2011
7 Common Sales Mistakes to Avoid
7 Common Sales Mistakes to Avoid
by Bill Lampton, Ph.D.
Arnie entered the reception area hurriedly, and found just enough breath to tell Mary Lucille, the Executive Assistant that "the traffic was awful out there today. That's why I'm ten minutes late, which I'm sure you and Stewart will understand."
That's Arnie's first common sales call mistake. No, neither Mary Lucille nor Stewart will understand or excuse Arnie's tardiness. He should have allowed ample time to combat traffic congestion, bad weather, getting lost, car trouble, and anything else that would prevent prompt, or preferably early, arrival.
Mary Lucille didn't respond to Arnie's statement. Instead, she told him that Stewart Evans was ready to see him now, and led him to the door.
Stewart looked at his watch, rose, shook hands with Arnie, and then shut the door. "Welcome to our headquarters," Stewart said.
"Glad to be here," Arnie responded. "I'll say this-you have a great secretary out there. Mary Louise made me feel welcomed right away."
Stewart said, "Her name is Mary Lucille."
Now we have witnessed common mistakes number two and three. Number two--getting the gatekeeper's name wrong--demonstrates poor listening skills, and suggests that Arnie might respect only those in top positions. The third mistake was using the outmoded title "secretary." So when Stewart and Mary Lucille compare notes afterward, they will agree that Arnie lacked basic skills for opening a sales conversation.
"We're glad you feel welcome, Arnie," Stewart continued. "Of course, our time is limited, and will be even shorter since we're starting ten minutes after the scheduled time. So please tell me why you are here."
"Sure, but if I have trouble concentrating today, maybe it will be good for you to know that yesterday I took our dog Sparky to the veterinarian. Sparky is like a part of the family, you know. Been real sick lately. I'm worried about what the vet will tell us."
There's common mistake number four. Stewart didn't agree to an appointment with Arnie to discuss Arnie's problems. The reverse was the case. Stewart wanted to talk about his own company's problems, and then give Arnie a chance to offer solutions.
"Uh, too bad. Hope your news will be surprisingly good. Now let's get to what you came here to discuss."
"Well," Arnie responded, "I understand that your business has used Sure-Fire Pest Control Company for the last few years. As you know, I represent Ultimate Protection Pest Control. This seemed like a good time for me to come and talk with you."
"Why now especially?"
"Oh, because I'm sure you've read the newspaper stories about the lawsuit a local restaurant filed against Sure-Fire Pest Control. Radio and TV covered the story too, so it's unlikely you missed it. The restaurant lost its sanitation rating because customers complained of rats and roaches running under the tables. I'm sure you don't want to do business with Sure-Fire any longer."
Not only is mistake number five more common than you'd guess, it is also a colossal blunder. Citing bad news about your competitor will not gain positive ground for you. The opposite happens. Why? It appears that your company has no clear advantages to offer, because you haven't mentioned them yet. If your only benefit is that someone else is worse, you're doomed to lose the sale.
"We've had no problems at all with their service," Stewart said. "So no, we are not in the market for a different vendor."
Now Arnie feels deflated. So he counters with, "Hey, speaking of restaurants, did you hear about what comedian Henny Youngman said to the maitre d' every time Henny entered his favorite New York restaurant as a customer?"
Checking his watch quite noticeably, as he had at the outset, Stewart wanted to protest, but Arnie cut him off.
"Well, you gotta hear the punch line."
No, he doesn't gotta. This is mistake number six. Alert sales professionals pick up on nonverbal cues. They consider them valid indicators of a prospect's feelings, and they change their strategy immediately. Arnie didn't do that, so he kept talking.
"Without fail, Henny would say 'Get me a table near a waiter.'" Arnie slapped his knee and started laughing raucously. "Isn't that hilarious?"
Mistake number seven: Arnie relied on an obsolete sales approach, using humor to move away from a sensitive topic. Maybe sales calls tolerated that smoke screen during less sophisticated times, but not in this generation. In fact, jokes are taboo in most sales settings. Heavily scheduled executives might view them as time wasters. Even if that's not the case, can everyone tell a story with the skill of Letterman or Leno? And with the prevalence of the Internet, how sure is anyone that he or she can tell a joke your prospect hasn't heard or read? Plus, most jokes have a fall guy. Suppose your prospective client has a special fondness for someone you have derided?
"Arnie, we'll have to end this conversation now. My company intends to continue our contract with Sure-Fire." Standing, he headed for the door.
Waving goodbye, Arnie turned his gaze toward the Executive Assistant, saying, "Thanks again, Mary Louise."
Bill Lampton, Ph.D.--author of The Complete Communicator: Change Your Communication-change Your Life! -- helps organizations "Learn More. . .Earn More" through his speeches, seminars, and coaching. Visit his Web site: http://www.ChampionshipCommunication.com Call Dr. Lampton: 678-316-4300
Subscribe and Follow:
http://www.businessknowhow.com/marketing/salesmistakes.htm
by Bill Lampton, Ph.D.
Arnie entered the reception area hurriedly, and found just enough breath to tell Mary Lucille, the Executive Assistant that "the traffic was awful out there today. That's why I'm ten minutes late, which I'm sure you and Stewart will understand."
That's Arnie's first common sales call mistake. No, neither Mary Lucille nor Stewart will understand or excuse Arnie's tardiness. He should have allowed ample time to combat traffic congestion, bad weather, getting lost, car trouble, and anything else that would prevent prompt, or preferably early, arrival.
Mary Lucille didn't respond to Arnie's statement. Instead, she told him that Stewart Evans was ready to see him now, and led him to the door.
Stewart looked at his watch, rose, shook hands with Arnie, and then shut the door. "Welcome to our headquarters," Stewart said.
"Glad to be here," Arnie responded. "I'll say this-you have a great secretary out there. Mary Louise made me feel welcomed right away."
Stewart said, "Her name is Mary Lucille."
Now we have witnessed common mistakes number two and three. Number two--getting the gatekeeper's name wrong--demonstrates poor listening skills, and suggests that Arnie might respect only those in top positions. The third mistake was using the outmoded title "secretary." So when Stewart and Mary Lucille compare notes afterward, they will agree that Arnie lacked basic skills for opening a sales conversation.
"We're glad you feel welcome, Arnie," Stewart continued. "Of course, our time is limited, and will be even shorter since we're starting ten minutes after the scheduled time. So please tell me why you are here."
"Sure, but if I have trouble concentrating today, maybe it will be good for you to know that yesterday I took our dog Sparky to the veterinarian. Sparky is like a part of the family, you know. Been real sick lately. I'm worried about what the vet will tell us."
There's common mistake number four. Stewart didn't agree to an appointment with Arnie to discuss Arnie's problems. The reverse was the case. Stewart wanted to talk about his own company's problems, and then give Arnie a chance to offer solutions.
"Uh, too bad. Hope your news will be surprisingly good. Now let's get to what you came here to discuss."
"Well," Arnie responded, "I understand that your business has used Sure-Fire Pest Control Company for the last few years. As you know, I represent Ultimate Protection Pest Control. This seemed like a good time for me to come and talk with you."
"Why now especially?"
"Oh, because I'm sure you've read the newspaper stories about the lawsuit a local restaurant filed against Sure-Fire Pest Control. Radio and TV covered the story too, so it's unlikely you missed it. The restaurant lost its sanitation rating because customers complained of rats and roaches running under the tables. I'm sure you don't want to do business with Sure-Fire any longer."
Not only is mistake number five more common than you'd guess, it is also a colossal blunder. Citing bad news about your competitor will not gain positive ground for you. The opposite happens. Why? It appears that your company has no clear advantages to offer, because you haven't mentioned them yet. If your only benefit is that someone else is worse, you're doomed to lose the sale.
"We've had no problems at all with their service," Stewart said. "So no, we are not in the market for a different vendor."
Now Arnie feels deflated. So he counters with, "Hey, speaking of restaurants, did you hear about what comedian Henny Youngman said to the maitre d' every time Henny entered his favorite New York restaurant as a customer?"
Checking his watch quite noticeably, as he had at the outset, Stewart wanted to protest, but Arnie cut him off.
"Well, you gotta hear the punch line."
No, he doesn't gotta. This is mistake number six. Alert sales professionals pick up on nonverbal cues. They consider them valid indicators of a prospect's feelings, and they change their strategy immediately. Arnie didn't do that, so he kept talking.
"Without fail, Henny would say 'Get me a table near a waiter.'" Arnie slapped his knee and started laughing raucously. "Isn't that hilarious?"
Mistake number seven: Arnie relied on an obsolete sales approach, using humor to move away from a sensitive topic. Maybe sales calls tolerated that smoke screen during less sophisticated times, but not in this generation. In fact, jokes are taboo in most sales settings. Heavily scheduled executives might view them as time wasters. Even if that's not the case, can everyone tell a story with the skill of Letterman or Leno? And with the prevalence of the Internet, how sure is anyone that he or she can tell a joke your prospect hasn't heard or read? Plus, most jokes have a fall guy. Suppose your prospective client has a special fondness for someone you have derided?
"Arnie, we'll have to end this conversation now. My company intends to continue our contract with Sure-Fire." Standing, he headed for the door.
Waving goodbye, Arnie turned his gaze toward the Executive Assistant, saying, "Thanks again, Mary Louise."
Bill Lampton, Ph.D.--author of The Complete Communicator: Change Your Communication-change Your Life! -- helps organizations "Learn More. . .Earn More" through his speeches, seminars, and coaching. Visit his Web site: http://www.ChampionshipCommunication.com Call Dr. Lampton: 678-316-4300
Subscribe and Follow:
http://www.businessknowhow.com/marketing/salesmistakes.htm
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