Women, Wisdom and Wealth: Is your financial plan looking too normal?

“If we had no winter, the spring would not be so pleasant;

if we did not sometimes taste adversity,

prosperity would not be so welcome.”

Anne Bradstreet, Early American poet.

In connection with the referenced quote from Anne Bradstreet, I’d be willing to say that many of us are ready for both prosperity and more traditional Florida weather. We’ve experienced unprecedented behavior in the financial markets and our customarily predictable and pleasant Florida weather has been unusual, as well.

I won’t go as far as saying that we’re experiencing a “new normal” with our weather, because the professionals say that this is attributed to an El Niño cycle. But we have been through a remarkable time in the investment world and could very well be looking at a new normal.

The new normal implies that leverage is out and liquidity is in. Logically leverage and debt were never sought-after ideals, but rather means to obtaining an end. Leverage provides increased consumption, but without increased revenue or new sources of funds it may bring about unpleasant results.

On Wall Street, there are three kinds of animals; bulls, bears and pigs. In contradiction to Gordon Gecko (“Greed is good”) it’s said that pigs get slaughtered. Now we have to watch out for a new breed of pigs, the PIIGS (Portugal, Ireland, Italy, Greece and Spain) and their combined international budgetary woes.

Over the years, I’ve learned that the only thing I have control over is myself. Most of the time, I’m smart enough to remember that I’m basically powerless over other people, places and things, so it follows that my focus should stay on something that I do have control over, such as my own financial plan.

You may have spent weeks or months crafting your own financial plan, and it may have served you well as you worked to realize your financial goals, but beware a common trap that snares some investors. Your plan isn’t sacred. It’s a living document, sure to be in need of adjustment and redirection every so often. When the weather changes, we adapt our choice in clothing; the same concept applies to your investments.

Your plan’s mission is to act as a kind of interactive road map to financial success – not as a straitjacket to confine you to inaction. You can and should make changes if you believe they’re warranted or if your goals have changed. Before you decide to make them, however, you’ll need to evaluate your plan to determine how it stacks up against the 2010 financial markets and how well it reflects your evolving financial goals.

Realistic or fantasy?

When reassessing your plan, make sure you’re being realistic about your goals and your ability to meet them. Does your current financial status coincide with what you expected it to be? If it’s better, should you be investing more for your future? Or, do certain aspects of your plan relate more to earlier fantasy than reality and now need to be brought into focus? Ask yourself whether your plan is on track to achieve what you intend – and stay grounded as you make the assessment.

Reasonable change

Even if your savings rates and goals turn out to be satisfactory, continue your assessment to include your lifestyle changes and requirements. Is your tolerance for risk – for the markets generally and for your portfolio’s holdings in particular – at the same level it was before the market turmoil of the past two years?

If not, what changes should you make that would allow you to sleep better? Be aware that there is no such thing as risk-free investing – inflation probably will see to it that the $1,000 in cash you bury in a vault in the back garden will be worth less in a year or two. Investments offer varying degrees of risk.

Be sure you know what your holdings are and how risky they may be, and then make whatever changes are needed for you to achieve your comfort level, which may be different from what it was a few years ago. You may need to diversify differently, adjust your asset allocation or, within those assets, diversify differently.

There are many areas to assess, including your level of debt and types of debt. Are you carrying the type of debt that acts like an albatross on your financial plan? Does your plan provide for enough readily available cash for immediate needs?

Your plan was established as an asset to be watched over and shepherded along as you live your life. It will serve you best if you keep it elastic and changeable. Treat it as untouchable and it could turn into a trap, more likely to impede your financial success than to enhance it.

Over the past several years, investors have been examining the relationship with their assets. And since we’re speaking of relationships, Have a Happy Valentines Day!

Monday, Feb. 15 is Presidents’ Day and U.S. financial markets will generally be inactive. Without the distractions of the noise and news, a less hectic day like tomorrow presents an ideal opportunity to thoughtfully and quietly review investment strategies, asset allocation adjustments and other general big picture financial planning matters. Or, you could just go shopping at the Presidents’ Day sales!

Darcie Guerin, financial advisor and branch manager, Raymond James & Associates, Inc. 606 Bald Eagle Drive, Suite 401, Marco Island, FL 34145, provides this article. Gulfshore Life magazine named Guerin as one of the Best Personal Wealth Managers in the Southwest Florida area for 2009. If you have questions, e-mail her at Darcie.Guerin@RaymondJames.com or call 389-1041, toll free (866) 343-0882 or visit RaymondJames.com/Darcie. Past performance may not be indicative of future results.

© 2010 marconews.com. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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