Financial planning is a complex, lifelong process that people tend to approach with a numbers orientation. What rate of return do I need to reach my goal? How much insurance do I need? Can I afford a bigger house? How much money do I need to save for retirement?
To support their pursuit of the "right numbers," people often use separate advisors -- for instance, a banker, a financial planner, an insurance agent, a tax professional, and an estate planning attorney -- to oversee the various components of their household wealth. But can too many cooks spoil the broth?
This "siloed" approach to financial planning can easily lead to redundant investment strategies that could create exposure to unnecessary levels of risk. It may also result in multiple, random investment accounts in need of consolidation. Furthermore, such an approach may inadvertently overlook crucial tools, leaving entire planning areas to chance.
Unlocking Financial Synergies
When viewing their financial goals -- such as buying a home, paying for a child's education, or saving for retirement -- individuals typically think in terms of what those goals cost rather than how achieving them might affect their lives. If, however, they were to re-engineer the planning process and assess their current life issues and future aspirations prior to selecting investments and asset allocation strategies, they may be in a better position to achieve satisfactory outcomes. Perhaps equally important, by putting life circumstances at the center of financial decision-making, individuals may find more meaning in their actions with regard to money.
Indeed, values have a significant role to play in determining how individuals manage their assets. This is one way in which a holistic approach to "financial life planning" enables individuals to better assess their wants and needs, establish meaningful priorities, and avoid misguided investments. And, as life circumstances and priorities change -- as they inevitably will -- so too do financial goals. In this way, individuals employing a holistic approach to planning can easily identify and address those areas of their financial lives that are still working well and those that may be hindering their financial well-being.
Crafting a Plan
Crafting a plan that reflects your unique situation and that ties your life aspirations to your financial goals is part art, part science. To achieve this level of planning you need to rely on the guidance of a single skilled advisor -- someone who will take the time to get to know you and your circumstances and who will put together an appropriate combination of vehicles, strategies and, where appropriate, additional planning professionals to help achieve your goals -- whatever they may be.
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Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail firstname.lastname@example.org.
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