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5 Questions You Need to Ask Right Now About Your Finances

Doug Fabian

Senior Vice President



1. What are your investment goals?

We like to encourage people to place their investment goals in terms of a target rate of return. If you were to get X percentage on your overall investing portfolio, would that equal satisfaction? What does satisfaction mean to you? We’ve got to pick a number, or at least pick a range. Is that 5 percent? Is it 7 percent? Is it 10 percent? It’s up to you to understand that to be able to build an investment strategy to attain a particular goal, you’ve got to know what that goal is. So, pick a number. Realize, though, that the higher the number, the higher the risk. And, if you want double-digit rates of return on your portfolio, you are going to be assuming a much higher level of risk.

2. What were your results in 2017?

It’s been an excellent year in the financial markets. We’ve had double-digit returns in US stocks, and even better returns in international investments. Bonds also did well in 2017. It was one of those years where it was easy to make money in the financial markets. So how did you do?
One of the ways we would encourage you to look at your investment returns in 2017 is to look at each account. If you have a 401(k), if you have a Roth IRA, if you have a regular IRA, if you have a taxable account, calculate where that account was at the beginning of the year (relatively easy information to attain in your financial statements) and see where you are now (or where you ended) the year. Did you have a 5 percent rate of return; a 7 percent return, a 10 percent return, or more?

3. What is your current asset allocation?

How much of your portfolio do you have invested in stocks? How much in bonds or fixed income, and/or in cash? Boil it down to just three categories. Make this simple.

4. What is the cash component of your portfolio? 

How much cash do you have? Does cash represent more than a 5 percent, 10 percent or 15 percent of your overall allocation? Do you have one account that is all cash, and that’s been all cash all year long? One of the things you can focus on to improve your overall rate of return is what you’re doing in your cash position. Sometimes people have a cash position because they’re getting ready to buy real estate, or they’re getting ready to put a child through college. There are very good reasons to have cash. But you simply must realize that cash is not an investment strategy.

And, if you really look under the hood, if you look at your cash account versus inflation, right now cash accounts are paying anywhere from 0 to 1 percent. You might be able to get 1.2 percent in a money market account. But inflation is currently near 2 percent. So, if we subtract 0 percent or 1 percent from 2 percent, you get a negative number. That means you’re losing money sitting in a cash position.

5. What’s holding you back from investing your serious money toward your target rate of return?

My experience has been that over the last 10 years, when people come to us to have a personal wealth coaching session or have a discussion about their finances, it is not because they are over-allocated to the stock market. It is because they are frightened. The financial crisis of 2008 and 2009 just took the wind out of their sails, so they have absolutely no confidence and very, very high cash positions in their portfolios.

So, what’s holding you back from investing your serious money towards your target rate of return? You have a goal. Maybe that goal is 4 percent. Well, you’re never going to achieve 4 percent sitting in a money market fund.

What are you worried about? Is it that you have no confidence in your investment strategy? Or maybe you have no confidence in your financial advisor? It’s time to reflect on why you’re sitting in a cash position, because to achieve economic freedom, we must be able to learn from the past. We must be able to look in the mirror. We must realize when we may be standing in the way of our path to achieving our long-term goals.

Now is the perfect time to reflect on what your next step should be. Do you want 2018 to be a better year in terms of achieving your long-term investment goals? While we’re not suggesting you put all your assets in the stock market, we are suggesting you invest in accordance with your target rate of return.

To achieve economic freedom, it may be time for you to seek out a different investment strategy, or a different financial advisor, and perhaps change the way you’re thinking about the world, about domestic events or about politics. Stop allowing the things that you have no control over to stand in your path to achieving your financial dreams.

The journey toward true economic freedom begins with these five questions.