The answers to these questions are to have a sound financial plan with an investment policy statement in place. A financial plan provides you the opportunity to:
- Assess what’s most important to you and how you want to live during the different stages of your life.
- Take inventory of the financial resources you have now and what you need to accumulate or protect for those life stages.
- Set the level of risk you are willing to take along the way based on the time you have and your comfort level with risk.
- Determine the legacy you want to leave behind.
An investment policy statement documents your investment plan and provides guidance for informed decision-making on investments. The two go hand-in-hand, because much of the investment policy statement is derived from the financial plan.
The more committed you are to planning, the more you are in control – even during times like these. By going through the financial planning process, you can acquire your household financial index number – the probability of having enough money to meet your needs, wants, and wishes for as long as you live. Once you have identified it, focus on the performance of that index to determine whether you are still on track to reach your financial goals more so than the performance of specific investments. That’s not to say performance is not important, but too much emphasis on it can lead to rash decision-making. Knowledge of your household financial index can get you through the wild roller coaster ride by looking out into the horizon and giving you confidence that your overall plan can hold up.
How healthy is your household financial index? Work with a financial advisor to find out.
Any opinions are those of the author and not necessarily those of Raymond James. Investing involves risk, and you may incur a profit or loss regardless of strategy selected.
Raymond James & Associates, Inc., member of New York Stock Exchange/SIPC