When people think about their future, they normally envision what their life will look like and what they will be doing. Some people envision a bigger home, having children, traveling, buying a vacation home or a boat, and so on… These are financial goals. To achieve these financial goals requires a plan.

“A good financial plan is a road map that shows us exactly how the choices we make today will affect our future.”
— Alexa Von Tobel

In last month’s article (November 2014) “A Plan For Financial Success” I discussed the importance of a formal financial plan and how to get one. Once you have decided if you will purchase financial planning software, to do it yourself, or use a financial advisor to design your plan, then the next step is to get the plan done and activated.

The plan is an investment plan to help you achieve your financial goals. Most common goals are a home, college education for children or grandchildren, travel, vacation home, retirement, and an estate to take care of family or charities once you are gone. Your plan will be customized to you as an individual or a couple. It will take into consideration your time horizon, risk tolerance, income, financial goals, and tax situation. With this information a diversified investment plan will be developed to include an asset allocation strategy. Diversification of investments will help improve your portfolio returns as well as limit declines in your portfolio value. An asset allocation strategy will provide the recommendation for the right percentage of money to put in each asset class to achieve your goals and stay within your risk tolerance. There are four general asset classes:

• Equities/Stocks
• Fixed Income/Bonds
• Alternative/Tangible Assets
• Money Market/Cash Equivalent

The first three asset classes have several sub asset categories of investments and the plan will not only determine how much money should be invested in each asset class, but it will break down how much money should be invested in each sub asset category. While certain asset classes may perform well in one market environment, others may lag. When market conditions change, those that lagged may perform better than last year’s top performers. By properly diversifying a portfolio across different asset classes and sub asset categories, you can take advantage of their differing performance benefits. The right combination can improve return while reducing risk.

And here is a word of caution: If you think by not investing your money and keeping it in cash or money market you are avoiding risk – you’re not. Holding cash pays no interest and money market accounts pay less than one percent. Inflation usually goes up two percent or more each year. So you potentially are losing one percent or more a year. In five years you will have lost over five percent and if you are holding cash you will have lost 10%. Holding a portion of your assets in money market is usually recommended, but holding all your money in cash or money market for an extended period of time can be unwise.

So to repeat, maintaining and/or building your fortune and achieving your financial goals requires a customized and detailed plan. And once the plan is in place do not neglect the plan. Meet with your financial advisor quarterly, bi-annually or annually to update and track the plans performance. Then over time as your life changes and evolves, so will your plan. What is right at 20 years of age, changes at 30, again at 40 and SO and 60 and 70 and even 80 years of age. Remember the saying -Luck is preparedness meeting opportunity.