So how can you make decisions on your portfolio? The first step is to identify what type of investor you are. Depending on your type, you will have different goals depending on your current life circumstances.
Not-Soon-to Retire
If you are nowhere near retirement, this may be your type. You may be concerned about starting an investment strategy and taking care of yourself, your family, and your basic living expenses.
Your investment plan. Determine what your ultimate savings and investment goals are, including retirement, college funding, and charitable giving. Once you do this, identify how much of your savings you need to allocate towards each of these goals. Knowing these goals will help identify an ideal allocation mix. Cash flow. Use the Taxes, Savings, Life (TSL) approach (or the 50/20/30 approach) to budget your income. Tax planning. Look for ways to maximize your taxes such as state tax exemptions or tax-deduction strategies. Estate planning. You will need to make decisions in terms of what types of accounts to hold your assets in and proper beneficiary designations.
Soon-to Retire
If you are planning to retire within five to 10 years, this may be your type. In this instance, you may want to know how you’re going to retire in a few years and what you should have in place that you don’t today.
Your investment plan. Build an investment plan for retirement that “fills the buckets.” Cash flow. Think about how much is coming in versus how much is going out. Match income needs with current cash flow, considering social security, pension, or any other sources of income. Make sure that you are saving and diverting your excess cash to the right places such as Roth IRA, 401(k), or 529 plans. Tax planning. Start looking for a way to maximize your taxes. Speak with a financial advisor to help you understand your total wealth management plan, including such things as stock options, withdrawal strategies, tax deduction strategies, defined benefit plan withdrawals, and Roth conversion decisions.
Business Owner
If you are a business owner with business and personal success, you may want to determine how to manage the consistent cash flow that you are generating.
Investments. Determine what your savings and investment goals are, including retirement, college funding, charitable giving, then identify how much of your savings you need to allocate towards each of these goals. Knowing these goals will help identify an ideal allocation mix. Cash flow management. One of the most pressing questions that business owners face is what to do with their cash. Business owners need to determine what to do with monthly, quarterly, or annual lump sums of cash that need to be saved long-term and put in the overall asset allocation plan. Insurance planning. With a successful business, you need to be sure that you and your partners are properly insured in the event that something happens to either party. Retirement planning. Set up your company’s retirement plan to accomplish all of your goals. Having the right plan to accomplish your long-term goals can be a great way to generate tax-deferred savings that can work in your benefit as much as possible, as well as serving as a benefit to your employees.
Business Seller
If you have worked hard at growing your business and are in a position to sell it (or have sold it), then you are probably looking for the best option to invest a lump sum of money.
Your investment plan. Determine what your savings and investment goals are including retirement, college funding, charitable giving, then identify how much of your savings you need to allocate towards each of these goals. Knowing your goals will help you identify an ideal investment allocation mix. Cash flow management. If you are like most business owners, you probably have always lived significantly below your means, but you may not be 100% sure how much your real day-to-day needs are since many of your costs were probably run through or inside the business. The first few months after a sale will likely need to be funded with a cash allocation until a true-need number is determined. Estate planning. Many times, the sale of a business will completely change an estate plan. It is important to work with an estate planning attorney along with your advisor to ensure that assets are sold and processed to the proper entities that make sense for your family through multiple generations. Insurance planning. Depending on the size of the sale, you could need a new policy. Proper insurance planning is key.
Beneficiary
If you are a beneficiary, you may have received an inheritance or windfall through some unexpected circumstances or event. You may be trying to figure out how to manage this large lump sum of assets if you haven’t had this kind of money before.
Your investment plan. Determine what your savings and investment goals are, including retirement, college funding, and charitable giving, then identify how much of your savings you need to allocate towards each of these goals. Knowing your goals will help you identify an investment allocation mix. Estate planning. This new windfall could change the way you think about your savings, retirement, and ultimately your estate and legacy. You might need to consider changing who is responsible for handling your estate in your will and who the beneficiaries may be. Build a trusted team to make sure that account structure and plans are married properly with the estate plan.Insurance. Look into your policy to see if it needs to be updated. Is it possible that you are under-insured because of a liability that could be outstanding because of one or both spouse’s death? Or, due to a pension that was taken without survivorship options, a large mortgage on the primary or second home, or a child’s education that has yet to be accounted for, saved, or planned for? Another reason for a new policy could be estate planning purposes or because you need to pay a large tax bill at the time of death. This can all be taken care of with proper insurance planning.
Retired
If you are retired or about to retire within six months or less, you are likely trying to determine how much cash you need to live comfortably or how to invest to create a supplemental income stream during retirement.
Estate planning. Decisions such as what types of account to hold assets in, as well as proper beneficiary designation, are crucial to carrying an estate plan out from a will through passing assets on to heirs. Insurance. Do you really understand why you have those insurance policies from 30 years ago? There are many questions that should be reviewed and answered. Long-term care planning. Should be considered and understood in the context of your overall plan and situation before you can make a decision as to whether it is right for you and your family. Tax strategies. Ensure that all investment strategies are being used in the most tax-efficient manner. There are a number of things to consider that your financial planner can review with you. Cash flow. Retirees often wish to maximize retirement income to last their lifetime. Cash flow from social security income, pensions, and other retirement savings accounts will be included in any financial decisions or investment scenario.
