4 Tips for Your Financial Self-Assessment

4 Tips for Your Financial Self-Assessment

If life were only as simple and fun as a BuzzFeed quiz, we’d be awarding ourselves with lavish titles of “hero”, “artist” or “divine spirit”. But alas, self-assessment, when it comes to your personal finances, acumen can be deeply challenging. We tend to believe we are champions of knowledge and experience, but the reality might lead us to disappointment. Remember, your beliefs inform your attitude and your attitude informs your decisions. In other words, what you believe becomes your reality; sometimes in direct opposition to reality.

Personal financial planning not only deals with where you allocate your 401(k) plan, but spans areas like cash flow management, risk management (more than just investment risk), college cost planning, retirement planning, investment planning, tax planning, estate planning, social security and health care planning. All areas that determine your future.

Let’s examine 4 topics that might provide you with a basis for self-knowledge and a platform to make choices that really work to better your life.

  1. Your beliefs: If you flip a coin, and during the first 7 flips the coin lands on heads each time, do you believe the next time the coin will come up tails? If you believe that, you are asserting that the coin has decision-making ability and will try to equalize the binary nature of coin flips, and subsequently, will want to come up tails. After 7 heads in a row, it has to land on tails, right? Of course, we are aware that the coin has no ability or even desire to land on a certain side. When it comes to your attitude towards money and issues of financial concern, consider what you believe and whether those beliefs are grounded in objective information or if they’re tinged by bias. Think about areas like buying a stock: You believe the stock price will rise—but what you might not consider is that you are buying the stock from someone who decided that it was time to sell. What knowledge did they have that you lack?
  2. Acknowledging lack of knowledge and experience: I don’t know about you, but if my furnace breaks, my hand is reaching for the phone—not a wrench. The same holds true when it comes to my health. While WebMD contains a lot of information, I am confident that I can get better answers from my physician. Somehow, when it comes to financial issues, men (especially) seem to feel that they are, by genetic disposition, able to handle what can be extremely complex, and contain far reaching consequences. When it comes to making money decisions, are you more or less likely to ask for help or rely on your feelings of what you believe is correct?
  3. Frequency of review: How often do you review, or believe that reviewing all your financial matters is necessary and important? If you believe that financial planning is a “set it and forget it” check box, or that items only need to be revisited when there is an occurrence like a recession or change in employment status, marital change, death or a noteworthy event, you might be surprised that a reactive stature when it comes to your financial plan can place you in a very problematic position.
  4. Change-ability: Even for the most self-aware, change can be difficult. Consider the last significant change you’ve experienced and what process you endured to create a successful change. Whether it’s a change in job, housing, health insurance carrier or CPA, there’s typically a level of pain in starting afresh. Shifting strategies, even something as seemingly simple as cutting discretionary spending, can be rife with pain. Consider how well you navigate change and how you’ve been successful in the past. Use this knowledge to better your financial path for the future.

Your ability to successfully meet the challenges of your complex life are best supported by having a clear understanding of your knowledge, beliefs, biases, and ability to insert objectivity into your preset thinking. Move away from biases and towards objectivity. Take some time to really consider these four items and where you stand. The security and the well-being of you and your family depend on it.

Michael Kay
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I founded Financial Life Focus because I wanted to work with people who put your success at the forefront of everything they do; people who understand that finding balance is ... Click for full bio

An Advisor's Guide to Helping Women Become Savvy Investors

An Advisor's Guide to Helping Women Become Savvy Investors

Today, more women than ever are involved in managing their personal and household finances. In a recent study, nearly half of the women surveyed (44%) stated that they are solely responsible for their household financial decisions, compared to 35% of men1. But the study wasn’t all good news. While women may be taking the lead when it comes to their finances, they also reported that they are not confident in doing so. In fact, in every financial category included in the survey, men reported much greater confidence than women. Where was the biggest gap? You guessed it: investing.

For advisors, this presents a challenge and an opportunity. There is a 90% likelihood that a woman will be financially self-reliant at some point in her life due to divorce, becoming a widow, or choosing to marry later in life or not at all2. By taking steps to help your female clients become confident, savvy investors, you’ll not only be more effective at serving in the best interests of these women and their families, but you’ll also be able to build much stronger, more trusted relationships to help ensure each family’s assets remain in your care for decades to come.

Follow these five steps to help your female clients invest with greater confidence:

1. Urge every woman to put her financial needs first. 

Women do have a weakness when it comes to planning for the future, but it has nothing to do with a lack of knowledge, skill, or smarts. Their primary weakness is a willingness to put others’ needs first. This is a huge mistake when it comes to planning for the future. Investing for retirement simply can’t wait until the kids are grown or aging parents no longer need care. In fact, based on average life expectancies, women should plan to accumulate enough funds to last at least 20 years after retirement. The following chart illustrates the power of compounding based on an 8% rate of return to help bring that point home:

This hypothetical example assumes an annual 8% rate of return and does not take into account income taxes or investment fees and expenses. This example is for illustrative purposes only and does not represent the performance of any specific investment. An investor’s actual return is not likely to be consistent from year to year, and there is no guarantee that a specific rate of return will be achieved.

2. Educate women about the power of investing.

Security about any topic is rooted in confidence and knowledge. Educating your female clients about investment basics can help drive more confident decisions and more positive long-term outcomes. From the basics of compounding to the nuts and bolts of researching options and understanding the pros and cons of different asset classes, make it your job to help every client understand what she is buying—and why.

3. Dive into the details of asset allocation.

Asset allocation is by far the largest determinant of a portfolio’s success—even more important than the individual securities selected and timing of an investment. This is critical information for your client to understand as she pursues her financial goals.

Related: Need More Referrals? 5 Steps to Building Stronger Word-Of-Mouth Influence

4. Discuss how her investment strategy needs to evolve over time.

Part of every client’s financial education should be to understand how financial needs and goals change with each stage of life stage. Because a shorter investment time horizon creates greater vulnerability to market volatility, she needs to understand the impact of shifting a portion of her investment portfolio to more income-oriented investments as she moves closer to retirement. This Life Stages Guide can help you paint a clear picture of how allocation strategies need to evolve to fit her changing needs.

5. Be sure she’s covering all the financial bases.

Smart investing is vital, but missteps in other areas of financial planning can thwart even the best investment plan. Offer every client a basic planning checklist that includes these three important steps:

  • Focus on the big picture. Organize your important financial papers and schedule an annual review of your investment strategy with your advisor. Regularly monitor your net worth—including your assets (all investments and savings) and liabilities (mortgage, credit cards, and other debts) to be sure you’re always moving toward your end goal of a secure retirement.
  • Pay down any outstanding debt. Debt reduces your net worth, threatens your financial security today, and reduces your ability to invest for the future. Do whatever you can to minimize debt, and build an emergency fund to help pay for any unexpected expenses.
  • Make estate planning a priority. Once a year, review your will and your beneficiary designations for every account to be sure they continue to reflect your wishes. If you have children under 18, work with your advisor or estate planner to establish a trust and select a trustee to ensure your assets are managed for the benefit of your children.

As a trusted advisor, make it your mission to provide your female clients with the education and guidance they need to become savvy investors and make the smart, educated financial decisions. By doing so, you can help every woman you work with not only enhance her financial security, but also gain the confidence to take greater control of every aspect of her financial life.

Click here to learn more about IndexIQ.

[1] Survey conducted by Regions Financial Corp. in partnership with Vanderbilt University, 2015.

[2] The Simple Dollar, “Guide to Financial Independence for Women,” 2014. 

Disclosure: The information and opinions herein are for general information use only. The opinions reflect those of the writers but not necessarily those of New York Life Investment Management LLC (NYLIM). NYLIM does not guarantee their accuracy or completeness, nor does New York Life Investment Management LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice. 
Laura McCarron
Building Smarter Portfolios
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Laura joined New York Life & MainStay Investments in 2009, and is currently the Director of Value Add Marketing. She is responsible for the development of investor educati ... Click for full bio