Do you live your life to the fullest? Do you live your life with passion and excitement? You cannot give what you don’t have! Do you effectively manage the blessings and gifts you are given in order to help others? The steps below are designed to help you live a wealthy and healthy life by maximizing your resources of time and money to accomplish your goals and dreams in a meaningful way.
Step 1: Get a Clear Picture of what goals and dreams are most important to your quality of life.
They don’t all have to be monetary. For example it could be spending more time with your kids or spouse. If the goal does require money then what dollar amount would you need to accomplish it? Be sure to make your goals as measurable and specific as possible and that means adding a deadline. When would you like to accomplish each goal? Once you have all of your goals down be sure to prioritize them into needs, wants, and wishes. Put them where you can see them every day. They should motivate and inspire you. If there is a picture that represents your goal try putting that on your mirror where you get ready every morning. It’s a great way to start your day!
Step 2: Pay yourself first starting now and put it on autopilot.
If you are ever going to grow your wealth successfully you must put your goals and dreams at the top of the priority scale. That means not kicking the can down the road and waiting until this changes or that changes. Next thing you know decades have passed and valuable time is lost. Waiting until after the bills are paid, hitting the ATM, dining out, going to the movies is a losing formula. In order to ensure you do not fall into the “invest what’s left” trap set up automatic deposits into your investment accounts starting immediately.
Step 3: Determine your risk score.
The question you likely have at this point is what to invest in and your risk number can help determine what mix of investments is appropriate for you. Your risk score is what I like to call your sleep number. If you invest in a way that makes you unable to sleep at night there is a good chance you will not stick with it and will do more harm to yourself than if you did nothing at all. If you invest in a well diversified portfolio that is in alignment with your risk number and comfort level you will stick to your plan and be successful.
Step 4: Determine your allocation.
Allocation is simply the percentages you put into stocks, bonds, and cash and their respective sub-asset classes. Studies have shown that allocation dictates over 90% of your long-term returns. Your risk number helps to determine what allocation mix is appropriate for you as well as what mixes give you the highest probability of accomplishing your goals based on your deadlines set in step one above. If you are not sure about allocation you should not go it alone. Find a well qualified fee-only registered investment advisor who will act as your personal fiduciary rather than using a commissioned based broker in order to get great conflict free advice.
Step 5: Minimize fees, expenses, and taxes.
After finding your allocation you should utilize index-based investments. Why? Because studies show the vast majority of active managers fail to beat their respective indexes over long periods of time. In Tony Robbins’ new book “Money Master the Game” he mentions that 96% of active managers fail to beat their indexes and sadly most people are paying over 3% in annual hidden expenses for the privilege of under performance. Some people will balk at spending 1% of investment assets on a fee-only wealth manager who handles more than client investments without realizing they are paying more in hidden fees and charges and setting themselves up for failure. An index approach also tends to have lower turnover and in a taxable account that can mean paying half the taxes of an actively managed fund. Tax advantaged vehicles can also help such at Roth IRAs, IRAs, and employer plans if your goal is retirement. 529 plans can also be an excellent option if the investments are for a college goal. A fee-only advisor can help you find great low cost options in each of these areas.
The above steps are the common steps that all of our wealth management clients share in common. As the saying goes…success leaves clues. I wish you the best of success!