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  • Successful investment management: Laying the groundwork

  • Smart investing does not begin with the question: “Where should I invest my money today?” Instead, investing is a multistep process. An important first step is assessing your financial needs and goals, tolerance for risk, investment time horizon and other constraints that you may have.

    Defining goals and needs
    Your needs are unique. Therefore, to determine your needs, it may be important to meet with with a financial advisor to discuss every aspect of your finances; ask detailed questions about your income sources and expenses; evalutate your current investments and retirement resources; and review your family circumstances. This process helps you accurately pinpoint your short-term and long-term investment goals.

    Assessment is not just a one-time event, but a continuing process. As changes in economic conditions, tax laws and personal circumstances dictate, it will likely be valuable to review and update strategies with your financial advisor.

    The issue of risk
    As you may already know, there’s a wide range of investment options available from which you can choose. Several factors can determine whether a particular investment is right or wrong for you, one of which is the risk associated with that investment.

    The assessment process includes probing your tolerance for risk. Are you someone who is at ease with upswings and downswings in the market — or are you apt to spend nights worrying when the market makes even a minor downward turn? Needs change and so can your “comfort level”, so it is important to keep the issue of risk at the forefront of the decisions you make with your financial advisor.

    The matter of time
    Closely associated with the issue of risk is your investment time horizon. By analyzing your short- and long-term goals, you and your financial advisor can choose the investments that match those goals.

    The general rule is simple: If you will need cash in the near term, your portfolio should include sufficient liquid and low-risk investments. Usually, these lower-risk investments* (short-term Treasuries, money market funds, for instance) carry a lower return as well.

    If, however, you are investing for the long term, your portfolio is likely to lean more heavily on a variety of equities, which are more volatile than short-term Treasury or money market fund investments but generally have a greater potential return.

    Other considerations
    When you take the time to understand your complete financial picture at the outset of the process, it is often easier as time goes by to simply fine-tune your investment strategy to your particular circumstances.

    Your tax status must be part of the investment equation. Investment return figures usually ignore the damage inflicted by income taxes. After the IRS takes its share from the interest and income earned as well as the capital gains realized, our clients often find that what’s left is less than fully satisfactory. In order to make your investment portfolio truly productive, don't forget to discuss your income tax bracket with your financial advisor and determine to what extent tax-exempt investments may be used to reduce your tax exposure.

    © 2013 M.A. Co. All rights reserved.
    Any developments occurring after January 1, 2013, are not reflected in this article.


     *Treasury and money market funds may lose value. Past performance is no guarantee of future results. This is not an offer to buy or sell any particular investment product or service.

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