URL: http://www.abqjournal.com/biz/yourmoney/matt01-00.htm

SAGE January, 2000
Changing times
New circumstances warrant financial review
By Lee Matthew / Illustration by Dan Florentino
    Now that we've made the leap into the new millennium, it might be a good time to consider whether your financial plan is taking you where you really want to go. Life changes


    If your personal income or circumstances changed last year, you may face the challenge -- or opportunity -- of changing your financial plan.

    For example, if you got a raise, you may have landed in a higher tax bracket, and you may want to consider various alternatives for reducing your tax bill.

    Also, with a higher income, you may be in a position to increase your retirement plan contributions, or shorten the timeline toward a particular goal, such as buying a house.

    Changes in life circumstances can have a major impact on your financial plan.

    If you had a child, chances are you should be thinking about life insurance, education planning and possibly estate planning arrangements.

    If you got married, went through a divorce or became widowed, it may be time for a whole new financial plan. Risk tolerance


    Did the volatility of the market last year frighten you?

    Market fluctuations were much more noticeable in 1999, and this short-term volatility will very likely continue.

    Remember that time can be a great risk-reducer and that periodic market declines are natural.

    However, if the ups and downs just feel like too much to endure over the long term, it may be time to think about diversifying more to help limit your overall financial risk.

    Remember that no investment strategy is a guarantee of profits, and an investment, when sold, may be worth more or less than what you paid for it.

    For example, you could consider fixed-income investing with a portion of your portfolio.

    Fixed-income investments include U.S. treasuries, certificates of deposit (CDs), municipal bonds, corporate bonds and money market funds.

    These investments pay a predetermined, periodic interest rate until the investment matures, when the investor receives the original investment or principal back.

    Although past performance cannot guarantee future performance, stocks have historically produced higher returns over the long run than fixed income investments, but stocks have fluctuated more with changes in market conditions.

    Have a talk with your financial planner about your risk tolerance and the investment allocation best suited to you. Re-evaluating


    If it's time to re-evaluate your investment strategy, ask yourself:

     

    1. WHAT ARE MY GOALS?

    Major financial goals often include building a retirement nest egg, contributing to children's education or buying a house or a car.

    When you set a goal, be very specific: Attach a price tag and a date to every goal. Don't be afraid to set specific goals as guidelines for your plan; after all, you'll be re-evaluating at least once a year.

     

    2. ARE MY GOALS REALISTIC?

    If your list of goals is as long as your arm, you'll have to make some decisions about which goals are most important.

    Ask your planner to run some projections to help you evaluate whether your goals are achievable.

    For example, the chances of building a $500,000 nest egg by investing $25 per month are pretty slim, so you'd need to either revise that goal downward, or commit to saving more every month.

     

    3. WHAT IS MY RISK TOLERANCE?

    Achieving your financial goals will depend on your ability to stick with your plan, so you'd better have a plan you can live with.

    In relation to your long-term goals, ask yourself whether you can ride out the short-term volatility that may occur along the way.

    How much of a drop in the value of your investments could you tolerate in any one year?

    Different kinds of investments have historically shown different levels of risk, so you'll need to allocate your assets in a way that's suitable for your age and risk tolerance.

    You may also want to consider the uses of insurance to help protect your assets and income stream.

    Life, disability and long-term care insurances are commonly used for this purpose. If you have dependents, or if your plan depends on your ability to earn an income, ask your planner if you should consider insurance as part of your plan.

     

    4. WHEN DO I NEED THE MONEY?

    Make a list of special expenses coming up over the next year or two.

    For these short-term cash needs, so you'll want to reserve some of your existing savings or start saving now on a monthly basis.

    By building up your short-term reserves in a money market or CD, you may reduce the chances of having to sell a long-term investment during a temporary market decline.

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Lee Matthew is a financial planner in Albuquerque. She is an associate of Kathleen Winslow & Associates, LLC, and an investment advisor and Registered Representative offering securities through Financial Network Investment Corporation, a securities broker/dealer (member SIPC). Kathleen Winslow & Associates and FNIC are not affiliated.