it comes to wealth management, there are several ways good intentions
can go awry. Our panel of experts outlines five common mistakes and
advises how to avoid them. Knowledge is power, and in this case, itís
1. Pay Yourself
consider it a parental duty to provide for their children in the form
of a college fund. Potential difficulties begin when parents allocate
significant dollars to higher education while simultaneously
underfunding their own retirement accounts. Michael Formella, managing
director at Northwestern Mutual in Mequon, puts it simply. "You
can borrow money for a college education but you cannot finance
retirement." For those who might have neglected their retirement
plans for an extended period of time, "It becomes very
challenging to try and get back the time it takes to accumulate
retirement dollars. One approach is to pay yourself first," he
2. Tune Out the
In our digital
age we are overwhelmed with information that can be difficult to
funnel, and headlines have been consistently negative about the
markets and the economy. "People make snap investment decisions
based on the headlines, and most often that is very damaging,"
says Blanche Berenzweig, president of JK Investment Group. On the
market bottom of March 9, 2009, people pulled out of their investments
at the worst time, when no one was buying. She emphasizes the
importance of intellectual ó not emotional ó investments that
address the actual need to reposition as opposed to selling in times
of panic. Consulting a professional who can "tune out the white
noise" will help your money work harder for you.
3. Pay Attention
Group provides two generations of specialized service in retirement
planning. Financial adviser Aaron Kowal says you should avoid the
"set and forget" mentality with your investments, or as
company President Jeffrey Kowal describes it, an autopilot approach to
your accumulation of wealth. "Ongoing attention is crucial,"
Aaron says. "Your situation will change and you will need to
adjust your portfolio to adapt to those changes." He notes that
key birthdays, especially 59 and 70, can affect your tax situation,
health care eligibility and retirement benefits. Actively managing
your investments will ensure you donít miss new opportunities or
face penalties. "We invest in different ways at different
ages," he says.
4. Be Aware of
Working with a
trusted firm and an expert adviser who has a disciplined strategy is
effective money management, but personal responsibility is still
required. Be sure to monitor annual fees paid to your professionals,
trading commissions and mutual funds. Michael Sadoff is an investment
adviser at Sadoff Investment Management, who says many of his new
clients are unaware of the fees they pay, or if they are paying too
much. He recommends that the total expenses of your portfolio should
not exceed 1.5 percent. Even a small difference in interest rates can
have a large impact on your investment returns. "Compounding fees
add up over time. At a certain point, it gets excessive," he
says. Be aware, and donít allow costs to overwhelm your returns.
5. The Rule of
Smith, senior investment consultant at Robert W. Baird & Co., has
found that many people hire several financial advisers. He often poses
the analogy, "How many dentists do you have?" Some might
believe that more opinions will help them achieve maximum returns, but
in reality, this can cause overlap in your portfolio, an increase in
management fees, and it doesnít offer the benefit of buying in bulk.
Smith does, however, suggest working with a team of professionals.
"An accountant, estate planning attorney and a financial adviser
are three trusted parties that go hand-in-hand," he says. Each
should have a comprehensive understanding of your particular
situation, an updated tax-efficient strategy, and the personal
connections to work together for the common good.