Smart Tips for Smart Women: Are Your Financial Goals in Order?

Save, save, save is a message I repeat often.

But the fact of the matter is, tucking money away is only half the story. The other half is doing everything in your power to make sure all the dollars you’ve so faithfully set aside are where you want them.

Studies show that asset allocation is the single most important factor to achieving a successful portfolio. The key is to have a proper allocation of your portfolio, one that matches your investment objectives. What’s “proper” may vary from one person to the next, but the fundamental motto of asset allocation is the same for everyone: diversify!

A diversified portfolio is essential to achieving your financial planning goals.

The majority of us, particularly those with investments of less than $1 million, will be investing in mutual funds, which have seen a popularity boom in recent years. Everything from your IRAs to your 401(k) accounts is likely invested in mutual funds. Why? Because they are a nice shortcut to a diversified portfolio (i.e., allocated funds). By carefully choosing a few funds that match your investment needs, you spread risk over a number of stocks and bonds, thereby providing diversification. Diversification may help reduce, but not eliminate, the risk of investment losses.

Whether your portfolio is comprised of mutual funds, individual stocks and bonds, or a combination of both, three key factors should drive your allocation decision:

1 How soon you’ll need the money
2 Your tolerance for risk
3 Your financial objectives

This is why a sound financial plan is so important.

Obtaining investment information is easy in today’s economic environment. Choosing the investments that are right for you is much more difficult. You need to identify your investment objectives, evaluate your risk tolerance, analyze your current portfolio, develop an appropriate asset allocation strategy, and recognize various alternatives tailored to meet your needs.

Your goal should be to maximize your investment returns while minimizing your risk. Your financial advisor should use modeling tools that illustrate the implications of different portfolio scenarios related to your financial situation, assets, and cash flow needs. Then you should agree on your optimum allocation.

While this information may seem confusing, it’s empowering to know what to ask your financial planner to ensure you get the best help. I encourage you to keep reading, learning, and saving. And remember, one of the greatest risks you can take is to do nothing - and miss out. ■

Kathy B. Paal, MBA, CFP, RFC, CTFA

Ms. Paal is a certified financial planner at Heritage Financial Consultants in Lutherville, Md., and is an investment advisor representative, registered representative, and licensed insurance broker with Lincoln Financial Advisors Corporation, a registered investment advisor and broker-dealer (1300 York Road, Lutherville, MD, 410-339-6675). You may email Kathy at [email protected].