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Traditional Financial Planning |
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Home >>> Institute >>> Traditional Financial Planning |
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The personal finance industry is a huge machine cluttered with information, advice, products and services. Information overload has become a real problem. With so many conferences, books, websites, cable channels and gurus, the consumer stays on the sidelines or takes the "easy way out" with a company-sponsored program or a broker-buddy from college. Often, confusion creates indecision, and indecision leads to inaction. Ultimately, no cohesive financial plan is implemented at all.
Instead of true wealth-building strategies, the traditional financial planner focuses on products that achieve some level of long-term capital accumulation. One of the primary problems with product-oriented accumulation strategies is that they focus on historical return, but don't account for current and future cost erosion.
For example, look at the language at the beginning of your mutual fund prospectus -- "All results reflected in this prospectus are historical, and do not take into account taxes or other fees that may occur."
What's this really saying?
"Although we're willing to spend a bunch of your money marketing an historical rate of return, there's no way we're going to present the true return after accounting for taxes, fees, and other eroding factors."
OK, what are the other cost elements that affect the "true return" on our investments?
- Taxes (all kinds; not just income taxes).
- Inflation (yes, even at 2-4%, this is still a big concern).
- Interest Rate Changes (up or down, this has a huge effect on inflexible investment portfolios).
- Market Changes (again, whether up or down, changes in the securities markets have a significant impact on "locked-up" investments).
- Loans and Interest (a staggering cost component that very few acknowledge when calculating "true returns").
- Fees and Expenses (you'll be shocked to see all the buried fees and expenses related to financial products, services and transactions).
- Lost-Opportunity Costs (yes, this is real, and we'll show you why).
Traditional financial planning often misses the big picture of how money really works. To make our point, let's take a look at the primary elements of a traditional financial plan. Here are many of the standard steps a conventional financial strategist will take you through:
- Determine your future financial objectives and run a computer calculation to see how much to save in the years ahead. The goal is to accumulate enough untouched principal to live off the interest. In a nutshell, "save" your way to "survival."
- Use qualified retirement plans such as IRAs and 401(k)s to the fullest extent possible. Don't forget that this assumes you'll be "poorer" when you retire, so you'll be able to take advantage of your lower tax bracket.
- Accumulate capital through a portfolio of mutual funds based on "dollar-cost-averaging," "risk-reward tolerance," and "compounding." What happens when we factor in taxes, inflation, and hidden transaction costs? Take a look - the ongoing costs of compounding your money often exceed the ultimate gains!
- As principal grows, add diversification to the mix by purchasing individual stocks, bonds and other securities. Again, look at the truth of the underlying costs and market risks. Often, diversification strategies through the purchase of individual securities only benefits the financial institution "making" and/or "brokering" the securities!
- Buy term life insurance based on an "income replacement" formula for the family. Did you know the costs of term insurance will exceed the death benefit unless you're "fortunate" enough to die young? Did you know that less than 1% of term life policy holders ever collect on their policy?
- Focus on the investment portfolio with no consideration of the cost portfolio. Everything's focused on the rate of return generated by the accounts. What about the eroding effects of poorly planned home loans, car loans, insurance, taxes, and expenses of life?
Aren't the pitfalls of traditional financial planning obvious? Shouldn't your financial strategist be focused on more than retirement "necessities"? What about true prosperity during your entire life? Instead of a computer calculation, let's explore your wants and dreams! Instead of a broker pitching products, how about a service-oriented financial expert that truly knows comprehensive and flexible wealth-building strategies!
At WealthWonks, we'll show you how to build wealth faster with no additional risk or out-of-pocket expense. Our systems will free you from the motionless malaise of conventional financial advice and propel you into the exciting world of financial freedom, well-being, and true wealth!
When you're ready to build true wealth, Contact WealthWonks!
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Warning: The Truth About Need Selling
- Mathematical Errors
- The Update and Review Apology
- Errors of Need Selling in Economic Theory
- Need Planning Fails to Plan for the Unknown
- The Underwriting and Need Planning
Discrepancy
- How Much Insurance Should Someone Have?
This article available upon request from Wealth Wonks. Contact us HERE to get your copy or dial 877-475-2601 today. |
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