Top Wealth Management Pitfalls - Part II
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By :
Morgan Petersen
Submitted
2010-01-24 11:30:46 |
This article is the second part of our two part series on Wealth Management pitfalls. In this article, we are going to take a closer look at the remaining wealth management pitfalls and how to navigate around these and stay focus on your wealth management strategy.
Out of Control Spending and Poor Financial Habits
You might wonder why spending is considered a separate issue than debt. but if you take a closer look, you will realize that spending and debt are not related as closely as some people think. Here is an example. Let's say you have a great job that pays six-figure salary. You can take care of all your needs and enjoy life with your friends and family without taking a penny in debt. From the surface it looks great. Why would you be worry if you can pay for everything you need and then some? It may be difficult to see the complete picture and pinpoint problem areas if you're too focused on your short-term needs. Remember, one day you'll retire and most of this income will go away. How will you handle you expenses then? You main goal should be focused on financial planning for future. Out of control spending with no saving will cause you lot of problems in the future.
Regardless of how much you make, cultivating good saving habits will not only benefit you but also your children and future generation. Most of out habits as an adult are transformed during early childhood days and you learn them from your parents. If parents have out of control spending and poor fiscal discipline, chances are that their children will struggle with financial issues in future. So even if you're completely debt free, you should focus on the more important task at hand and that would be learning to save for your future. This will also help you figure out some of the expenses that you don't really need and can still live same lifestyle with saving money for your retirement.
Poor Investment Strategy
If you have done everything right and have saved some money, you still have a very important task to accomplish. You need to figure out how to invest your savings so that you get a decent rate of return and protect your principal at the same time. Too many people have lost their retirement savings because they didn't have a good investment strategy.
Whether you use a sophisticated financial advisor or manage your retirement funds yourself, you need to stay on top of your investment strategy. Make sure you read your statements and ask questions if you things seem out of order. You don't have to be a financial genius to figure this out. If your gut feeling tells you that something is fuzzy, it probably is. So make sure you keep your financial advisor honest by questioning their strategy and making sure that it aligns with your long-term financial goals.
Another common mistake is not re-balancing your investment periodically. Many people continue to hope to recoup their money when they have lost money on an investment. Always use common sense and cut your loses when you can. On the other hand, many people fail to sell and lock gains when their investment has done well. Your investment mix should also reflect your life stages, If you're close to retirement, you want to make sure you invest in low risk securities and fixed income securities. If your mix of stocks, bonds, and cash (your asset allocation) makes you very uncomfortable, you need to think about making some changes and moving to an asset allocation that is in line with your ability to handle risk.
Lack of Estate and Trust Planning
For some reason, estate planning is one of the most misunderstood area of wealth management. Most people believe that estate and trust planning is only for super rich and wealthy people. However, in reality, estate planning has nothing to do with the size of your portfolio and assets. It is just a simple tool to make sure that your family is taken care of if something happens to you. If you have a family or surviving spouse, they will need to do certain things to keep your family on solid financial ground and estate planning can make it a seamless process.
Sometimes people have it on their "thing to do" list but never get it done because it is not high enough on priority list. People forget to designate proper beneficiaries on life insurance, company benefits, retirement accounts and it can create lot of extra work for the family or loved ones when you're gone. Another important part of your estate and trust planning should include considerations for disability as well as death.
Powers of attorney for health care and property can provide big help if you are to become disabled. So can living trusts. You also need to keep your family informed about the estate and trust planning that you have put together. After all these are the people who would need it most after you so it makes perfect sense to educate them and encourage them to ask questions. It is also important to make then familiar with the process so that they could understand the importance of estate and trust planning in their own financial lives.
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Article From Fiscalwealth | Personal Finances, Investment and Wealth Management
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