Importance of financial planning for North Texans in an uncertain economy

Part 1: Get off the roller coaster and get a financial plan.

by Jonathan Cott, finance contributor and certified financial planner of Axa Advisors

You may find yourself unsettled by the ups and downs of the market. It is difficult to make educated decisions on what you should do with your money. From television to next-door neighbors to Internet chat rooms, everyone seems to have an opinion, but how can you be sure you are getting the right advice? What can you do to ensure you make the right choices? A well thought out financial plan may be the answer.

A financial plan can help you negotiate the twists and turns of the market because your investment strategy is based on your own situation and goals — not what the market is doing at the moment.

A financial plan is simply a guide to help you determine where you are financially, where you want to be, and how to get there. Many people resist creating a financial plan because it seems like too much trouble — until they find themselves in financial difficulty. If you’ve been seeing the value of your investments seesaw, now may be the time to consider the benefits of putting a solid financial plan together.

You can create the plan yourself or seek a qualified financial professional who has the knowledge and experience to help guide your key decisions. A good financial plan will address more than your investments: It will look at all the pieces of your financial picture, including investment objectives, risk tolerance, budgeting, saving, credit, taxes, insurance, retirement planning, estate strategies, and more.

Since it’s the investment portion of your financial picture that we are most concerned with here, let’s look at some of the related questions:

• What are your investment goals? Are you saving for a long-term goal, like retirement or a child’s education? Or are you looking forward to fulfilling some more immediate dream, like starting your own business or paying for a daughter’s wedding?

• How much money do you have available to invest?

• How long will you keep the money invested? Can you add to your investments on a regular basis? Do you need the income from your investments for living expenses? Do you have enough cash readily available in the event of an emergency?

• How much can you afford to put at risk? In other words, what is your risk tolerance level? Partly, this is a question about your psychology of investing. But it’s also a question that concerns your age, your current income, your potential income, and your total assets.

The answers to these and other important questions are the starting points for the investment portion of your plan. The next step is to outline the types of investments that are appropriate for you (diversification) and how much of each to invest in (asset allocation). Specifically, you need to decide how much to put in liquid investments, like money market funds*, how much in dividend paying investments, like bonds, and how much to put in stocks, and what kind of stocks.

Wise investors know that a diversified stock portfolio helps cushion against the ups and downs of the market. There are many different groupings of stocks — by industry, by market cap size (large, medium, and small), by investment style (growth, value, and blended), by country (U.S., international), and so forth.

Each of these different types of investments performs in different ways. Often some segments of the investment universe will be rising while others will be falling. Deciding on an appropriate asset mix for your particular situation can be the most important investment decision you make.

Whether you choose to create your own financial plan or seek out the help of a professional, having a plan in place can help ensure that your investment decisions are the right ones for you. Markets go up and markets go down, but good planning can help you take control of your finances.

*An investment in the fund is neither insured nor guaranteed by the U.S. Government or any other government agency. Although the fund seeks to preserve the value of the investment at $1 per share, it is possible to lose money.

Please be advised that this document is not intended as legal or tax advice. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose of avoiding penalties that may be imposed on the tax payer. The tax information was written to support the promotion or marketing of the transaction(s) or matters(s) addressed and you should seek advice based on your particular circumstances from an independent tax advisor. AXA Advisors, LLC and AXA Network, LLC do not provide tax or legal advice.

This article is provided by Jonathan Cott, MBA, CHFC, CFP, a member of the Sterling Group, who offers securities and investment advisory services through AXA Advisors, LLC (member FINRA, SIPC) in Dallas. The group offers annuity and insurance products through an insurance brokerage affiliate, AXA Network, LLC and its subsidiaries. Sterling Group is a division of AXA Advisors.

GE-41873(10/07) (Exp. 10/09)

Have a finance question for Jonathan? Email him at jonathan.cott@axa-advisors.com.