LogoMotive January 2007

Resolved

By: Larry Frommer

Frommer & Frommer Associates

RESOLVED

New Year Brings Opportunity to Review Your Future

It’s January and the new year is in full swing.  You’ve made resolutions – maybe even broken one or two already.  If reviewing your investment portfolio wasn’t on your list of resolutions, now’s a good time to do so.  And this resolution is one worth keeping, because your future depends on it.

Examining your investments can be somewhat time consuming, but it’s one of the most important things you can do as you plan for tour future.  Most people at age 65 can expect to live another 20 years – that’s another third of a lifetime.  The question you should ask yourself, as you review your investments is:  What do I want my life to be like?

Most people spend more time planning vacations than planning their retirement.  They ignore their investments, hoping it will “all work out.”  Ignoring the performance of your portfolio, however, is a mistake that could cost you. 

It could mean the difference between a meager and a comfortable lifestyle, and will affect all aspects of your life, from the types of food you eat, to the medical care you’re able to procure, to the type of car you’ll drive.  It even makes a difference where you live, and whether you’ll be able to afford a few vacations each year, if that’s what you envision for your retirement.

What can change in the space of one year?

It’s especially important to review your investment portfolio if last year brought a major life event, such as a marriage, a child, or a transition toward retirement.  The average portfolio review takes about six hours total.  That’s less than one day of work annually – with a payoff that can last for years.  The time you spend now could translate directly to the increased quality of the time you’ll spend in your retirement years.

I’m too busy this year.  Can’t this wait another year?

You should review  your investment options at least annually.  Because income typically increases as time passes, investments should increase accordingly.  The cost of waiting to invest, or not regularly increasing investments as your income rises, can be great over the long term.  Hypothetically, if you save $1,000 per year and earn 10 percent assumed interest on your account balance, here’s the difference a year can make:

If you save for 30 years                        $180,943

If you save for 29 years                        $163,494

Note: This is based on a regular investment with compounding interest and no

withdrawals.  This is a hypothetical example not indicative of any specific investment.

Where to Start

When you’re analyzing your portfolio, there are four things you should consider for each investment: 

• Does it fit your asset allocation philosophy?

• Does the management philosophy fit with your own?  Is it consistent? Can it be replicated?

• What are the fund’s historical, long-term returns?  At this point, look back five to ten years, or even longer if statistics are available.

• Are the risks the fund managers have taken relative to the fund’s return?

If the first question threw you for a loop, or you find the following questions a bit daunting, consider consulting a professional.  Many people don’t know how to analyze investments – it’s nothing to be ashamed about.  Just as you wouldn’t try to doctor yourself, you should consider a professional point of view when deciding how to invest your money.

 A financial professional can help you with the following:

•  Creating an inventory of  your current savings and investments.

• Writing up financial goals and other key factors.

• Selecting a suitable portfolio.

• Reviewing and updating your program annually.

Articles in this edition of LogoMotive:

Conductor

Resolved     Tax Planning

Marketing