Consider two hypothetical investors. Both are 55, both earn about the same, and both have $300,000 saved. The first plans to retire in five years, has a pension and no children at home. The second expects to work another twelve years, has two children heading to college and owns a small business. Handing them the same portfolio would be wrong for at least one of them, and possibly both.
That is the whole case for a customized investment plan. Your savings balance and age are only the starting point. The portfolio should be built around when you will need the money, how you will react when it falls, how you are taxed and what else you own.
What a Customized Plan Should Account For
When you need the money. Money needed in two years for a tuition bill should not be invested the same way as money you will not touch for twenty.
How much decline you can actually tolerate. Questionnaires ask about risk in the abstract. A more useful question is concrete: if your $300,000 fell to $240,000 in a bad year, would you hold on, or would you sell? The honest answer should shape your mix.
Your tax situation. Which accounts you hold, your tax bracket now and later, and how withdrawals will be taxed all affect which investments belong where.
Everything else you own. A pension, Social Security, a business, real estate and insurance all change how much risk your investment portfolio needs to take. A plan that looks at investments alone misses them.
Why Off-the-Shelf Approaches Fall Short
A target-date fund or a five-question risk quiz is better than nothing, but neither knows about your pension, your business or your plans to help a child buy a house. They assign you to a category. A customized plan starts from your circumstances and works outward, so that each investment has a reason to be there.
How We Build One
Our financial planning process has four steps:
1. Connect. We start with a conversation about what you want your money to do.
2. Learn. We gather the full picture: accounts, income, expenses, taxes, insurance and family circumstances.
3. Analyze. We look at how the pieces fit together, including the tax side. Our advisors prepare tax returns every year, and tax planning is included in every client’s plan at no additional charge.
4. Present. We walk you through the plan in terms that make sense to you, then put it in place.
Most families also work with an accountant, an attorney and an insurance agent, each handling one piece. We coordinate with those professionals so that the pieces of your plan support each other instead of pulling in different directions.
A Plan Has to Change When Life Does
A customized plan is not a one-time document. Marriage, divorce, a job change, an inheritance or a health event can each change the right answer. When that happens, the same advisor you started with is there to adjust the plan with you. Our life changes pages cover the most common of these.
To see what a plan built around your circumstances would look like, call our Wallingford office at 203-949-1710 or contact us.
This article is for general information only and is not individualized investment, tax or legal advice. All investing involves risk, including possible loss of principal.