2011’s Top Ten (Part 2)

Number two among my top ten resolutions seems simple: have a plan.

It may seem self-evident that financial planning requires a plan, but many people don’t think so. They think that if they just had more money, all their problems would be solved. So they go about maximizing their income and don’t think about all the other stuff.

But money comes in many forms: income, capital appreciation, insurance proceeds, even lottery winnings. Your personal situation will determine what’s the best way for you to receive your money. And income isn’t everything. You also have to consider expenses, cash-flow needs, and your personal balance sheet—assets and liabilities.

If this seems a little dry and accounting-like, don’t be discouraged. Managing money is like a chess game. You don’t know whether a move is appropriate unless you look at all the pieces on the board. By understanding your position, you can tell whether you should move that bishop forward or backward.

It’s the same thing with finance. Unless an investment plan fits into your total financial picture, it’s impossible to tell whether stocks in Apple or Nestle or State of Vermont bonds or private equity are appropriate, and in what amounts.

It’s easy to go roaring into things without planning your next move. But like a new driver facing a snowdrift for the first time, without a plan you’re likely to expend a lot of energy getting nowhere and just spinning your wheels. The best investing starts before any investment is ever purchased.

Douglas R. Tengdin, CFA
Chief Investment Officer
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