DIY Financial Planning Issues

DIY Financial Planning Issues

Many people that refer to themselves as a Do-It-Yourselfer in regards to their finances are almost always referring to their investments.  Meaning, they feel comfortable allocating their portfolio between various index funds, mutual funds, or stocks without the ‘help’ of a professional.

I get it, investments are the sexy part of financial planning and managing investments can be fun.  This is true even if you’re just using boring old indexes (like you probably should be). But owning an index fund does not make you a do-it-yourselfer.  It just means you have a low-cost portfolio.

It seems to me that the index revolution has caused a bit of a distraction from what is truly important to your long-term success, and that is actual financial planning.  This happened before back in the old stock picking days where people thought that their financial future was primarily dependent on what hot stocks they owned.  Same problem today, just with a different vehicle.

This is not picking on index funds.  I love index funds and believe they should be the primary investment vehicle for most investors.  But the idea that simply owning index funds will ensure your success isn’t likely true.  You still need to properly fund the plan and deal with a plethora of other financial issues as well.  That is where I take issue with the majority of the DIY community.

Because, what I don’t often hear from DIYers are conversations on the rest of the planning such as emergency savings, insurance portfolios or estate planning.  (And I don’t see these conversations happening much online either.) But the truth is, if those aspects of your plan are not properly addressed, then you’re doing yourself a disservice and taking significant financial risks at the same time.

There is nothing wrong with being a DIYer.  In fact, if you’re willing to put in the work, then I think it’s entirely possible (and enjoyable) to manage your own financial plan.  Just don’t let the fact that you want to DIY aid you in ignoring the need for a comprehensive financial strategy.

To encourage people that truly want to DIY or to help those on the fence decide if it’s for them, I put together a list of questions that need answers regardless of your choice.  Here goes:

  • Have you clearly defined what your financial goals and objectives are?
    • Retirement is not a goal.
    • Retirement at age 65 with $7,000 per month after-tax spendable income assuming 3.5% inflation and 8% portfolio returns pre-retirement, 6% post-retirement is a goal.
    • Are you crystal clear on what you are trying to accomplish?
    • What about your other goals such as college, a retirement home, and so on?
  • When was the last time that you verified you are investing enough to meet your financial goals?
  • When is the last time you made an increase to how much you are investing to meet those goals?
  • Have you calculated how much life insurance you need to protect your family?
  • Have you put those life insurances in place?
  • How much do you have in your emergency savings?
    • Do you have too much or not enough?
  • Do you have proper liability coverages on your auto/homeowners policies?
  • Do you have an umbrella policy?
  • Do you have a proper will and estate plan?
    • Have you established guardianship for your children if something should happen to you?
    • Have you set up a testamentary trust to ensure that your children are provided for in a way that you’d be happy with if something should happen to you?
    • Have you established a trustee to help manage those funds for your children?
    • Do you have a Power of Attorney?
  • When is the last time that you reviewed the beneficiaries for all IRAs, 401ks, life insurances and transfer-on-death taxable accounts?
  • Are you taking full advantage of your workplace benefits?
  • Are you/should you consider Roth contributions or conversion strategies?
  • Have you recently rebalanced your portfolio to make sure it’s still in line with your goal timelines?
  • Have you established a personal investment policy statement that will guide your portfolio decisions through all market conditions?

Now, be honest with yourself.  Have you taken the time to address all of the above issues?

If you have, congratulations!  You are in small company (even including folks that already work with an advisor).

If you haven’t, don’t be ashamed.  There are a lot of reasons that people don’t do the work required to ensure success.  For one, it takes a lot of time to do it right.  Many of us are far more interested in spending time with family, friends, or doing other things we love.  And rightfully so.  There is absolutely nothing wrong with that.

For others, they find that they just aren’t that interested in learning all that is required to manage all aspects of financial planning or are simply overwhelmed.  Many people love to learn about investing, but what about life insurance planning, budgeting, estate planning, inflation/investment rates, and liability coverages?

If you find yourself in the latter camp regardless of the reason, then you might consider hiring someone to take the planning off your plate.  Know that this is not a failure on your part, but a wise business decision to push you towards long-term future success.  I’ll bet that once you find a trustworthy comprehensive advisor to help, you’ll feel a sense of relief and a renewed confidence in your long-term prospects.

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