If you have asked yourself this question, I have a few more questions for you:
Q.) Have you spent time (or even want to spend time) studying about investments and markets?
A.) If not, you probably need to hire someone who is skilled in this area. First, find a professional who is licensed. There is a website that allows you to check if the advisor has unresolved complaints. The address is www.finra.org. Interview several Financial Advisors (FA). Ask them what their investment principles are. Listen for words like: balance, diversification, limiting risk. Always choose someone that you trust – ask the Lord for guidance in choosing.
Here are some things you should expect to discuss and resolve from establishing this relationship with an FA:
Q.) How much money should you keep in cash for unforeseen life events?
A.) Your FA will help you with this determination. You might tally up two or three major events (replacing a furnace, major repairs or a down payment on a car, etc.) and keep that much cash in a savings account. This will help keep you from having to unexpectedly redeem investments in your portfolio.
Q.) Are you looking for income from your investment portfolio? Or growth? Or both?
A.) Most investors want both. Your FA can help you understand the importance of owning diversified investments. The various kinds of investments do not always perform the same. At any given time, there will be poor performance in one area and good performance in another area.
Q.) How much of your portfolio are you willing to risk in investments that fluctuate in value?
A.) A good FA will help you think long-term: long-term being more years for millennials and less years for seniors. The FA will also help you determine your level of risk. Once the risk level has been determined, your FA will help keep your investments in balance.
Q.) Is your portfolio well-balanced and should you rebalance your investments annually, if needed?
A.) You should meet with your FA in-person annually or semi-annually to review your investments. The FA should recommend any changes needed to keep the portfolio balanced according to your level of risk and your age.
Q.) Are you saving enough for retirement?
A.) Your FA will have a calculator to estimate how much money you will need to save for a comfortable retirement. The calculator will take into consideration any 401(k) plans, IRAs, pension plans, and any other investments you may have. It will guide you as to whether your current savings and contributions are enough to help you live a comfortable retirement.
Q.) Are you familiar with the various retirement savings plan options?
A.) Individual contributions can be made to an Individual Retirement Account (IRA). You will want to discuss whether a Traditional or Roth IRA is right for you. At retirement, withdrawals from a Traditional IRA are taxed. For a Roth IRA, withdrawals in retirement are not taxed. If your employer offers a 401(k) savings plan, you can direct your employer to deduct an amount from each paycheck to be added to your plan. When you leave the employer or retire, you can generally roll the proceeds into your IRA. Your FA and tax adviser can help you understand which options would be most beneficial to your financial situation.
Q.) In past turbulent markets, have you been tempted to sell all your investments and leave the proceeds in cash?
A.) Most of us are concerned during these times. But panic makes us do things we regret later. If you sell when investment values are declining, you are forced to make another decision later…when to put your cash back into investments. Rowdy markets are inevitable. A good FA will help you stay calm through the downturns and advise against trying to time your investment purchases and sales with economy events.
Q.) Are you aware of plans available to save for your child’s college education?
A.) The FA can give you details about these plans. Most states sponsor a qualified tuition plan you can contribute to for college savings.
Q.) Have you planned your estate?
A.) When you envision your legacy, you are probably thinking of your children, extended family, and favorite ministries and charities. A good FA will have relationships with other professionals to help, such as estate attorneys and tax advisers. If you haven’t already, you may need to discuss with an estate attorney about making a will or setting up a trust. Tax advisers, if needed, can help you decide when to take capital gains and/or losses and advise which retirement savings plans would be beneficial to your situation. The tax adviser will also be up-to-date on new or changed tax laws.
I know I’ve given you a lot to think about. The object of this article is not for you to come away with an understanding of all the details of investing, but an understanding of foundational principles. I hope it leaves you with a motivation to find a great Financial Advisor to help you plan for the future financial stability of you and your family.