Let’s start working with our clients with a fresh approach to planning their financial life.
Don’t just focus on their finances, start with their goals: what they want to get out of life. Then, add a bit of reality and common sense to help them see what might be blocking their ability to reach their goals.
Then talk possible solutions, with the understanding that everyone’s unique and other factors may need to be taken into account so they may make decisions that fit with their overall financial picture.
Diversify. This means allocate their assets across the three major asset classes of stocks, bonds and fixed products and within each of those classes.
Next, practice asset allocation because it may have the greatest effect by far of anything you can help your clients do to manage risk and take good financial care of themselves. Look at it this way: It’s not putting all your eggs into one basket.
Next, make sure their mix of assets, how much they put where, is right for them. Their decisions should feel comfortable and be in keeping with their goals, their time horizon, how much risk they can tolerate and how much money they have “left” to work with. Of the money they have left, how much do they not want to have at risk so they can feel more confident about the money you do have at risk.
Finally, don’t get let them get too comfortable. At least once a year, review their allocations and make adjustments to make sure their assets are still allocated as they intended and they are still on target.
What stage of life are they at?
Now, regardless of what stage of life they are at, asset allocation is vitally important. In fact, it’s essential for any sound financial plan—whether you’re in your 20s, 40s or 60s.
Now if your client is a 20-something, he or she may be working at their first “real” job and starting off their career. They may be trying to pay off college loans, and beginning to pay ordinary living expenses, like food, rent and transportation costs.
They should begin to start investing for the future, so they can someday own a home, travel or fulfill some other lifelong dream they have. Ask them: What are your goals? And how much risk can they take with their money? During this stage of life, they definitely want to ask themselves: “What’s my goal?” and “What’s my tolerance for risk?” Once they have answered these questions, you’ll want to keep these strategies in mind for how they might finance their goals.