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Drilling Your Financial Advisor


One of the things that irks me about most financial advisors is that they dump their clients' into a mishmash of investments without a sense of purpose. And some look at investments in isolation, without considering their clients' overall financial picture. Here are some questions to ask to make sure yours isn't one of them.

In a previous post, I discussed the most-important step in getting your financial life in order -- nailing down your goals. Everything you do falls into place and has a purpose based upon your financial goals.

The next step -- before you actually begin to create a plan to build wealth -- you need to protect what you already have and make a plan to shelter what you will have in the future through asset-protection and insurance planning.

Only after you’ve taken these two steps can you focus on building your wealth to achieve the goals you’ve set. Wealth enhancement can be broken down into two areas: investment-portfolio management and retirement planning.

One of the things that irks me about most financial advisors is that they dump their clients’ money into a mishmash of investments without any sense of purpose. Many don’t bother to figure out how much risk a client needs to take in order to achieve his or her goals. And some financial advisors look at investments in isolation to the rest of the wealth-enhancement process -- for example, investing money in a retirement account without taking into account investments held in other tax-advantaged accounts. That’s a huge mistake.

So what are the questions you or your advisor need to answer before implementing a wealth-building strategy?

Here’s a start:

1. How much risk do you NEED to take in your investments to achieve your retirement goals? (This is THE most important question.)

2. How much risk are you willing and able to take in your investments?

3. What is the proper mix of investments that meets your ability, willingness, and need to take to risk?

4. How will you change your asset allocation as you age and as your life circumstances change?

5. How do you properly diversify an investment portfolio?

6. What investment products do you need?

7. What investment products should you avoid? (This is just as important as determining what you need.)

8. How can you minimize taxes in your portfolio?

9. How much do you need to save to meet your financial goals in retirement?

10. How likely is it that you will meet your retirement goals?

11. What options do you have if you cannot meet your retirement goals?

12. How does inflation impact my future spending, and how does that affect my savings rate and asset allocation?

13. How do I allocate investments across different accounts?

14. What is the role of annuities, and do you need an annuity?

15. Which type of retirement accounts are appropriate for me (IRA, SEP-IRA, solo 401(k), etc.)?

16. Should I invest money in a Roth IRA account or traditional retirement accounts?

17. How should I invest funds in a taxable account?

18. When should I begin to take Social Security?

19. Do I need long-term care insurance and, if so, how much coverage do I need and what type of policy should I buy?

20. How do minimize the likelihood of outliving your money? (This is THE ultimate goal of any financial plan.)

As you can see, your financial plan is not just about investments, it’s about integrating your investments with the other critical parts of wealth enhancement and ultimately creating a comprehensive wealth-management plan.

This week’s financial prescription: Integrate your investments with the overall wealth-enhancement process.

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Victor J. Dzau, MD, gives expert advice
Victor J. Dzau, MD, gives expert advice