Page 615 - Encyclopedia of Business and Finance

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Personal Financial Planning

Here are some guidelines for handling risk, which HOW IS A FINANCIAL PLANNER
should increase an investor’s sense of security: CHOSEN?
Once a person has developed an overall plan, the decision
1. Do not invest in any instrument in which one can
lose more than one can potentially gain. This factor might be made to handle the task of implementing the
is sometimes referred to as risk-reward balance. plan alone. Or, the decision might be to seek a profes-
sional financial planner. Financial planners are paid for
2. Diversify one’s holdings. Spread investment dollars their work in one of three ways: fee only, commission
among a variety of instruments, thereby reducing only, or fee plus commission. As investors will quickly dis-
potential risk. cover, financial planners do not all charge the same level
3. When investments fail to perform up to expecta- of fees. Think about how one selects a physician, a school
tions (the period to hold them is based upon one’s for one’s children, a home for one’s family. Investors
objectives), sell them. Cutting one’s losses is the only should choose a financial planner who is well qualified
sure way to prevent minor setbacks from turning and who shares the same basic beliefs and judgment about
into financial nightmares. A rule of thumb is to sell financial planning.
when the value declines by 10 percent of the origi-
One may seek recommendations from friends whose
nal cost. judgment is trusted, from a professional organization that
4. Institute a stop order. A stop order is an instruction maintains lists of financial planners, or from advertise-
given to the broker who sold stock to the investor, ments. In many instances, preliminary personal appoint-
directing the broker to sell that stock if it should ments with a few financial planners will provide
decline by, say, 10 percent of its original purchase additional insight in making a decision about whether to
price. The moment the predetermined level is engage a professional planner and/or which one to select.
reached, the stock will be sold. Furthermore, once a decision has been made about
5. Do not discount risk altogether. The rewards may the type of financial professional that seems best, an
justify “taking a chance.” Remember the turtle. It investor may want to visit a few to seek information on
makes progress only when it sticks its neck out. how other clients’ investments have performed under
their guidance. It is wise to assess how well the planners
have been able to achieve their clients’ objectives.
WHAT FINANCIAL RECORDS
SHOULD BE MAINTAINED? Investors should not delegate all interest in their own
An investor needs a road map, so that all documents and financial plans. It is important to maintain considerable
their locations are known to the investor—and ultimately attention to plans and related decisions. Wise investors
to heirs. Records that should be kept accessible are: read financial information in newspapers, magazines,
annual reports, books, and material available at Web sites.
• Professional numbers: telephone numbers of Investors also find that they learn much through seminars,
lawyers, doctors, accountants, insurance companies, lectures, and courses.
business associates, and financial advisers or brokers
A key point is simple: It is never too early for an indi-
• Account numbers: brokerages, banks, credit cards, vidual to begin building a firm financial future. There is a
insurance policies (and beneficiaries), and safe- saying that sums up financial planning in ten two-letter
deposit boxes (along with keys and authorized words: If it is to be, it is up to me.
deputies)
SEE ALSO Bonds; Insurance; Investments; Mutual Funds;
• Business records, tax returns, payroll data, etc.
Stocks
• An updated will and trusts agreements, if any
• Retirement benefits: Social Security, Keogh plans, BIBLIOGRAPHY
simplified employee pension plans, 401(k)s, and the Lerner, Joel (1998). Financial planning for the utterly confused.
like New York: McGraw-Hill.
• Burial arrangements: cemetery plots, deeds Orman, Suze (2003). The road to wealth (Rev. ed.). New York:
Riverhead.
• Listings and details of outstanding liabilities
Quinn, Jane Bryant (2006). Jane Bryant Quinn’s smart and simple
financial strategies for busy people. New York: Simon and
Financial records should be kept in a secure place and
Schuster.
organized for easy review and updating from time to time.
Copies of basic financial records are best placed in a safe-
deposit box. Joel Lerner

592 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION