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Plan for the Worst, Hope for the Best

By Brett Danko, CFP^®

This time of year, I am always amused at the abundance of forecasts as to what is going to happen in the coming year, especially in the financial markets. I would like to see a show on every channel at the END of the year that specifically reviews how the forecasters actually did over the previous year. It is my understanding that in the studies that have been done, the predictions did NOT fare well.

So where does that leave us? I mean, if the “experts” do not know what will occur in the future, then how do we, the common folk, have a realistic chance of achieving our dreams and capturing financial independence?

Put simply, do we have a chance?

Well, the answer is an emphatic YES!!!!

The key is to have a plan to accomplish your goals. To do this, you need to actually have specific, measurable and realistic short and long-term goals. These goals do NOT have to be specifically financial, though the financial side of the equation will allow you the flexibility to do the things you love.

We believe strongly that attaining your goals and taking into account your risk tolerance is paramount.

We do NOT have a crystal ball and please beware of anyone that does!

The key is to diversify your holdings and to pursue what is called a “core-satellite” investment strategy. The core portion of your portfolio is generally passive, such as ETFs (Exchange traded funds) and index funds, with low internal fund fees. Circulating around the core are the satellite investments which include more actively managed mutual funds and alternative investment funds that can go long or short depending on the judgment of the manager. Depending on your goals and risk tolerance, your core may be a larger or smaller portion of your portfolio.

No “Silver Bullet”

There is no “silver bullet” to financial planning and investing successfully. You start with a solid plan, adhere to a spending plan (better word than budget), and invest to make money over time. Sorry folks, it takes time and there is NO such thing as a quick, easy way to achieve financial independence. Trying to score touchdowns throwing long passes rarely wins playoff football game. However, the team that has a solid running game and uses short passes down the field moving the chains while chewing up the clock usually wins the game. No, it is NOT cool, sexy or a big hit at cocktail parties, BUT winning is all you should care about in the end.

As I wrote a few months back, the key to realizing your financial goals takes time and hard work, kind of like losing weight. I have lost 14 pounds in the last couple months, not by having bypass surgery (the financial equivalent to winning the lottery) but by eating correctly and exercising. What shocked this previously sloth like creature (me) is the amount of extra energy I have and how I sleep better after losing a little weight and exercising. I still have a LONG way to go (about 20 pounds), BUT I am making progress. Getting you financial house organized can improve your mental outlook as well, as you are moving forward with a plan.

I wish each of you as happy, safe and successful 2011.

Remember the ancient Chinese proverb, “a journey of a thousand miles must begin with a single step”.

If possible, take some positive steps with finances this year and remember those short passes can bring you victory at the end of the game!

Carpe Diem!

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