When starting out on your own financial journey, it’s important that you focus on building a strong foundation for your future. This is best done through professional financial planning, which can address the many nuanced issues related to your unique financial situation. However, there are some basic principles that are applicable to most individuals and families. Here are our top tips for building a financial foundation, based on our decades in the industry.
Diversify Your Investments
You’ve probably heard the benefits of diversifying your portfolio touted before, but let’s talk about them again in a bit more detail. There are pros and cons to almost every investment vehicle, so it’s important to balance those factors out by choosing from a wide range of investment options. This can include stocks, bonds, life insurance with cash value, real estate, 401(k)s, and more. While we can’t discuss all the options here, suffice it to say that you typically want to reduce the correlation between returns on your investments as you construct your portfolio. So, when investments like US stocks are falling, returns from other investments like international stocks may be rising. Diversification across a number of asset classes may help preserve your portfolio while growing your wealth. The exact mix of investments will depend on your personal risk tolerance.
Look at Short-Term and Long-Term Results
Many people have been conditioned to chase immediate return rates on their investments, but this is not a sustainable practice and not a secure foundation on which to build your future. Instead, you should be focusing on both short-term and long-term results of your financial plan. You should balance your savings efforts and investments to ensure that you can meet your immediate lifestyle needs while still saving and preparing for the future. This is why we place an emphasis on balance, allowing you to enjoy your life now, and in retirement.
Remember to Plan for Taxes
Taxes shouldn’t just be something you address when you file your tax return. They represent a significant percentage of your annual expenses, and it’s important to plan for them appropriately. Doing so can actually help you find options for reducing your tax liability on an annual basis. Again, both short-term and long-term outlooks are important as you make decisions regarding your taxes.
Always Consider Cash Flow
Your financial goals should rarely be rooted in a savings goal alone. Instead, you should be thinking about cash flow, and how to ensure that it’s consistent through all stages of your life. This is especially important for your retirement plans. You should look beyond that last day of work and think about how the assets you have when you retire will work for you throughout those years. When to draw down certain accounts, when to take Social Security benefits, and how to adjust your investments are all important decisions that impact your cash flow in retirement.
A comprehensive financial plan is the strongest foundation you can give yourself for your financial future. Contact Conversion Financial Services today to speak to our advisor and schedule a consultation to get started on your customized financial plan.