Most people confuse investing with planning. A proper perspective puts investing in support of the plan. This short article discusses how investing are the cables that support your bridge, a metaphor for you plan that takes from where you are today to where you want to get to. Blog with link to original post at http://wp.me/p2Oizj-AO
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Investing supports your plan advice iq
1. Investing Supports Your Plan
Submitted by Larry Frank Sr. on Monday, December 1, 2014 - 3:00pm
What’s the real difference between investing and planning? If
you’re like most people, you confuse the two or inevitably
emphasize investing because the market gives you headline results
you can see – and let’s face it, investing is just more fun than
planning to talk about. Fun’s fun, but just remember why you
invest.
Investing new offers rallies and crashes, cheers and wails,
company names you know. Plans, even if the goals are near to
your heart, seem more a blend of just daydream, vague intentions
and tons of patience.
You probably don’t see your financial plans, whether it’s on paper
or in your head, as clearly as you do your statement balances. You
can convert your investments into spendable money; not so your
plans.
There’s a problem with this misconception – and it might hurt your
future financial security.
Think of investing and structuring your portfolio’s allocation –
diversifying your holdings across many different kinds of stocks
and sectored, equity mutual funds – like entwining various bundles
to make a cable. A single strand inside each bundle represents
each company in which you hold stock.
Each bundle represents companies with common characteristics,
such as a bundle of large companies, another of small companies,
others of value companies, growth companies, U.S.-only
companies and so on.
Some know this as asset-class investing, putting your cash into
securities that exhibit similar characteristics, behave similarly in
the marketplace and are subject to the same laws and regulations.
The three main asset classes are equities (stocks), fixed-income
(bonds) and cash equivalents (money market instruments).
2. Bond strands might make up other bundles: long-term bonds,
intermediate- and short-term bonds, U.S. and international
bonds, bond funds (similar to stock mutual funds) and so forth.
Still other bundles might hold other types of investments with
common characteristics.
All the bundles together represent your overall, well-diversified
portfolio.
Neat image, but here’s the problem: You focus so much on
designing the cable that you forget its purpose. The cable is there
to hold up the bridge, in terrible weather as well as good, in bear
markets as well as in bullish ones. Focusing on the money
obscures why you invest the cash in the first place.
And if you’re like most people, you cared enough to forge a
financial plan somewhere in your past. A recent survey from the
Certified Financial Planner Board of Standards shows that close to
nine in 10 American households engage in some type of “formal or
informal” financial planning. Fewer than one in five, though, hire a
professional financial advisor, fuel an emergency fund or save
toward specific goals.
Maybe the other households are too busy weaving the cables
together, taking a break now and then to swig the brew of micro-
news of the ups and downs on Wall Street. The cable holds up the
bridge just as your investments support your financial plan.
That bridge gets you from where you are to where you want to go
with your money. Stay focused on the purpose of your financial
plan and just keep across that bridge.
Follow AdviceIQ on Twitter at @adviceiq.
Larry R. Frank Sr., CFP, is a Registered Investment Adviser
(California) in Roseville, Calif. He is the author of the book, Wealth
Odyssey. He has an MBA with a finance concentration and B.S.
cum laude in physics with which he views the world of money
dynamically. He has peer-reviewed research published in
the Journal of Financial Planning.
http://blog.betterfinancialeducation.com/.
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Tag:
Investing
Creating Financial Plans
Asset Allocation