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Managing your wealth
Economic climate has changed investment priorities


December 26, 2010

Most of us have financial goals, whether it is to retire at a reasonable age, fund our children’s education, do some traveling or simply manage debt. While overall plans haven’t changed, people’s attitudes have gone through a period of adjustment — and that’s occurring across all age groups, local industry experts say.

"Investors are more concerned with the safety of their investments than ever before," says David A. Baumgarten, president of Bank Mutual in Milwaukee. "Baby boomers are concerned if their money will last the rest of their lives. Their primary question is, ‘Do I have enough?’ And, even Generation Y-ers under 30, who traditionally didn’t think much about saving for the future, are thinking more about retirement, seeing what has happened to the stock market and their parents," he says.

Whatever the goal, planning is still the key, financial experts say.

Reducing Risk

Because every investment involves some risk, it’s important to learn techniques and strategies that minimize those risks. "When you put an investment portfolio together, you can’t just set it and forget it. You need to understand what you own so you can manage it," says Charles Albrecht, senior vice president, Investments, Wells Fargo Advisors in Milwaukee.

He suggests investors follow these guidelines:

•Know your goals. What are you saving for and when will you need your money? "You may need to review and adjust your goals from time to time," Albrecht says.

•Understand your risk tolerance. "How much can you afford to lose? This depends on different factors, including age and income," Albrecht says.

•Know what you are investing in. "Many people don’t know. Even some investment advisors don’t understand the investments they recommend to their clients. That’s why it pays to know something about your advisor," Albrecht recommends.

•Diversify your portfolio. "This is extremely important. Don’t invest in just one type of asset. You need asset classes that tend not to correlate with each other," Albrecht says.

•Maintain flexibility and liquidity in your portfolio. "Make sure you are able to easily make adjustments. A life event can occur that might necessitate the need to obtain cash quickly," Albrecht says.

•Monitor your portfolio and rebalance it from time to time. "This should be done at least annually. When circumstances change, review your investments to see if they still make sense," Albrecht advises.

Finally, just be prudent, Albrecht says. Avoid falling prey to deals that sound too good to be true. "We tend to let our guard down when we hear a good pitch. Many people learned some hard lessons in the last few years," Albrecht says. "It sounds cliché, but if an investment sounds too good to be true, it probably is."

Funding a College Education

"Twenty years ago, people used to tell me all the time that they wanted to retire early. I don’t hear that so much anymore," says Blanche Berenzweig of BSB Financial in Mequon. "These days, people are planning for two primary goals: retirement and college for their children. And, an increasing number of my older clients are providing funds for their grandchildren’s education. They may be concerned that their children can’t afford it," she says.

The best vehicle for saving for college is a 529 plan, Berenzweig says. "A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. These plans are sponsored by the state and some private colleges and universities," she says.

The 529 savings plans generally permit investors to establish an account for a future student, choosing among several different investment options that the savings plan invests on behalf of the account holder. These options include stock or bond mutual funds and money market funds, as well as age-based portfolios that automatically shift toward more conservative investments as the student gets closer to college age.

"There are many benefits to a 529 plan," Berenzweig says. "Withdrawals can generally be used at any college or university, and earnings aren’t subject to federal tax or state tax so long as the withdrawals are used for college expenses. And, the parent or grandparent can keep control of those funds. You can keep it going as long as you want, and if the student gets a scholarship and doesn’t need the money, it can be transferred to another beneficiary," she says. Generally, there are no income limitations or age restrictions on 529 plans.

Planning For Enjoyment

While some clients might be re-evaluating their investments, most are trying to stick with their long-term strategies, says Lori Gervais, CFP, senior vice president, Gervais Group, Robert W. Baird in Mequon. "I don’t think folks are dropping their dreams. Their perspective might be different; for example, instead of saying, ‘I want to retire early,’ they are saying, ‘I want to retire comfortably,’" she says. "Or, they are seeking retirement at 60 or 65 instead of 58."

People still want something to look forward to, Gervais says. "They may want to sail around the world or build a home up in northern Wisconsin. They are still planning for these things," she says.

Gervais helps her clients save for dreams like travel after retirement. "We have to evaluate a number of factors: When will they need the money, what is their current income and current investments, and what can they afford to put aside toward that goal? We have to look at the present value of that future cost and build a monthly savings budget for that goal," she says.

You always need to be focused on what you want to do and when, Gervais advises. "If you have 10 years to plan for your trip, you likely have the opportunity to invest your money in multiple investment vehicles," she says. "But we need to create a customized plan, to evaluate where it’s best to invest and what makes the most sense for each individual."

Debt Management Strategies

Financial planning involves multiple aspects including, of course, savings and investment, but also focusing on credit and debt management. Financial planners can recommend a plan to help lessen your debt, to free up more money for investment. "In the current environment, many people are simply looking to properly manage their debt," says Matt Demet, senior vice president, Wealth Management, at Johnson Bank. "Ultimately, people are trying to get themselves into a position to retire at a reasonable age. Part of that is making sure people are effectively managing their liabilities with regard to credit cards," he says.

Paying down debt requires some discipline, Demet says. "Many people have gotten into situations where they have racked up high credit card bills. And, many individuals used their homes as ATMs in recent years," he says.

"The first question to ask is, ‘How did we get here?’ Was it a one-time situation that drove the problem? Or, is it an ongoing situation? A plan needs to be put in place that will examine anticipated income flows and other things that can be done to try to eliminate debt," Demet says. "We may look for other resources, such as selling investments. Or, some individuals may have equity in their homes and they can take advantage of the favorable interest rate to refinance," he says.

It comes down to managing your individual balance sheet. "You need to attempt to strike a balance between reducing liabilities and increasing assets. The goal is to improve net worth," Demet says.

Closing in on Retirement

Are you approaching the traditional retirement age? More importantly, are you ready for retirement? "The last 10 years before retirement are the most important years in terms of investment planning. Typically, these are the 10 highest earning years when you likely have the most money in the stock market, although you may want to pull back a little on stocks," says Michael Sadoff, investment advisor with Sadoff Investment Management LLC, in Glendale.

"Don’t underestimate the importance of the choices you make during those 10 years between 55 and 65," Sadoff says. "The wrong decisions can lead to disastrous mistakes, and that applies to people at all levels, whether annual income is $100,000 or $500,000. The math doesn’t change," he says.

To prepare for retirement, people need to determine how much money they have, how much they plan to save per year, and at retirement, how much they plan to spend, Sadoff says. "Then, we subtract Social Security and any pension and say, OK, they need this additional dollar amount. Next, we look at what is in the retirement account and how much more they will need to make it last throughout their expected retirement years. And, that could be 20 years or more," he says.

The portfolio mix is critical, Sadoff says. "You might have all stocks at age 55, but as you get closer to 65, you need to diversify to satisfy your comfort level," he says. "Consider how much you’re going to save and how much the portfolio is going to appreciate."

Proper planning with the correct team is important, he says. "You need the correct advice about not just investing, but about insurance, estate planning and other issues. Odds are that the market will come back, but the economy is likely to be lackluster for a number of years. You can only build in so much protection," he says.


This story ran in the October 2010 issue of: