1. Looking for a quick fix instead of a long-term
strategy. Remember: the quest for financial security is a marathon, not a sprint.
2.
Confusing financial planning with investing. Investing is just one part
of financial planning. There’s also tax, insurance, retirement and estate planning as
well as debt and cash flow management. For many people, it also includes planning for
their children’s education and even the best way to finance a home, car or business.
3.
Not setting measurable financial goals. You must know where you want to
go to determine the capital and average annual return you’ll require. Plus, progress
checks can help you manage the risk level of your portfolio.
4.
Neglecting to evaluate their financial plan periodically. Review your
plan at least annually and after any major change in your life.
5.
Thinking financial planning is the same as retirement planning. Financial
planning should address every stage of life. It’s about directing your money and
career to meet both current and future needs.
6.
Expecting unrealistic returns on investments. This is a huge problem,
since so many people got used to 10% returns on guaranteed deposits during the high
inflation years, and then 15% returns from history’s biggest bull market for stocks.
Most analysts believe reasonable assumptions should now be 6% to 8% a year for a
diversified portfolio.
7.
Being afraid of planning, or not planning in general. Many people are
intimidated by the math and wide range of investments. Others assume that tax and
insurance planning are too boring to worry about until they’re much older. As with
any field based on specialized knowledge, working with a professional is one of the most
effective solutions.
8.
Not realizing that a financial plan is only as good as the information on which it
is based. To receive appropriate advice, you need to come forward with accurate,
up-to-date information about your holdings, current lifestyle, goals, and constraints.
Otherwise, your portfolio could wind up being too aggressive or too conservative, or even
in conflict with assets held elsewhere, such as in your retirement plan at work.
9.
Not understanding how advisors are compensated. No one format is
inherently good or bad. What’s important is to understand what you’re paying for
and feel comfortable that you’re getting fair value.
10.
Being a “passenger” instead of a “driver”. A personal
financial plan isn’t just a product that you purchase and then throw away when
you’re done. It’s a process – one that works best when you take an active
role. |
