By Fred Hensler
This morning was no different than any other. I came to the office, grabbed a cup of coffee and took a moment to look at the picture that hangs on my office wall. It’s a picture of Walt Disney standing on the barren ground which eventually became Disney World. The caption states, “It’s kind of fun to do the impossible.” That’s how Walt Disney lived his life, and I found him to be an inspiration for myself and our firm, Sapphire Blue Investment Partners. While we don’t claim to do the impossible, I am fortunate to go to work every day being inspired by making a positive impact on the lives of others.
Let’s face it – investing is scary, financial planning is scary, and estate planning is scary; because of our fear of those subjects, we often see people ignoring them, hoping the problem will go away. This is the “Ostrich Syndrome” that I have spoken about for the past 30 years. Not facing the issue will not make it go away, and in many cases may cost you thousands (if not hundreds of thousands) of dollars per year. It is our opinion that, regardless of the amount of money that you have, it’s important to start with a plan.
Let me use this story to illustrate. Let’s say you decide to go visit relatives in Los Angeles. As you board the aircraft, instead of taking your seat you introduce yourself to the pilot and ask for a copy of the flight plan. Imagine your dismay if the pilot says, “We don’t have a flight plan; we have flown to Los Angeles many times and know where it is. We’re going to head west and fly until we reach the coast of California. At that point we will fly up and down the coast until we find LAX and I’ll then radio in to get instructions to land.” Would you stay on that plane? Unfortunately, many people treat personal financial planning with the same careless abandon.
Handling your personal financial affairs is much like flying a plane. You should go through a number of checklists before you taxi down the runway and take off to a successful financial life.
At Sapphire Blue Investment Partners, we believe that no financial decision should be made alone, and work diligently to coordinate our clients’ total financial affairs. Here’s what that checklist should include:
Number One: Retirement
It’s imperative that you know where you’re trying to go before you attempt to get there. Let’s take retirement for instance. Too often we see people arbitrarily picking an amount to invest in their 401(k) or other investments without knowing the outcome. Here’s a calculation from www.money.cnn.com. If you are currently age 35 and anticipate retirement at age 67 with your current income of $55,000 per year, you will need approximately $1.7 million in assets to afford to retire. While that may sound daunting, it can be accomplished by directing 21 percent of your income toward your retirement. The same results could be obtained by a 25-year-old willing to save about 15 percent of their income. Starting early is important and paying attention is even more so.
Number Two: Estate Planning
Any good financial plan needs to have instructions on how your estate should be distributed. Whether you are 25 or 85 it’s important to have your documents in order. This includes durable health care power of attorney and advanced directives in a will or trust that give your representatives directions on who is to get your belongings. It’s been proven that no matter how well you eat or how much you exercise, you’re not going to get out of this life alive; therefore an appropriate estate plan is a must. Those documents should be reviewed or updated every three to five years.
Number Three: Life Insurance
While a life insurance salesperson may encourage you to buy more than is needed or put all your money into life insurance, that is likely not the best decision you could make. Life insurance should be used to replace the income of a deceased individual if they have dependents. In some advanced cases it can be used to offset estate taxes or as a savings tool. Your life insurance policy should be reviewed annually by an independent third party. One of the most important tools you can consider is called an in-force illustration. This illustration allows you to make sure that your life insurance policy is performing as planned.
Number Four: Insurance (Other)
When creating your financial plan, we believe it’s important to review your declarations sheet of your homeownerʼs and auto policies. This document allows you to review what is insured, what your deductibles are and how much coverage you have per occurrence. It also allows you to make sure you’re not paying insurance on vehicles you may no longer own. We also recommend a second set of eyes to look at your policy each year to make sure you’re not paying more than necessary.
Number Five: Taxes
Please tell me you’re not interested in paying more than your fair share in taxes. Unfortunately, we see time and time again that individuals attempt to prepare their own taxes instead of using a professional. It can be costly to them in potential missed deductions or opportunities for refunds. We highly encourage our clients to use the services of a certified public accountant.
Number Six: Manage Your Investments
According to the Bureau of Labor Statistics, the number of financial advisors in the United States is north of 332,000. One thing that each of them has in common is:
1. They would all like you to believe that they can do it better, faster and cheaper than the other guy.
2. Virtually every one of them will claim theirs is the best investment strategy.
3. You will likely be confused when talking with them.
Consider using a fee-based advisor versus someone who benefits from commissions. If a financial professional, banker, mutual fund salesperson or annuity salesperson tells you there are no costs, run. Research the recommendations and make sure you have a clear understanding of fees, restrictions, caps and other nuances of the investment you are about to purchase. If it is liquid, you can get out at any time, and there aren’t any costs involved.
The U.S. stock investment market has created more wealth than nearly any other investment opportunity available. It’s never too early or too late to begin your journey. Teach your children wise saving habits as early as you can. Finally, make sure to use the services of a professional financial planner and investment manager who has your best interests in mind.
Fred Hensler is the president and CEO of Sapphire Blue Investment Partners, a respected financial planning and investment management firm located in the heart of Genesee County.
Opinions expressed are those of the author and are not necessarily those of the named broker dealer or its affiliates. The information in this article is not intended as tax or legal advice. For a comprehensive review of your personal situation, always consult your legal advisor. Neither Summit Financial Group nor any of its representatives may give legal advice. Sapphire Blue Investment Partners, Inc. is an independent firm. Hensler and Associates Wealth Management, Hensler Aviation and Physicians Wealth Management are all divisions of Sapphire Blue Investment Partners, Inc. Each division of Sapphire Blue Investment Partners, Inc. is also independent of Summit Brokerage Services, Inc., and all of its affiliates.