New Financial Plan

As I gather information for putting together a formal financial plan I am wary of the advice and pitches that seem to be everywhere.  I want information.  I want impartial information.  I don’t want to just make something happen, but want to understand what it is that I am doing and why I am doing it.  This article gets it right.  It’s good to read up on personal finance, to ask questions, and to pull in information.  Sometimes it is good to get advice or work with a “real” planner.  It is always, no matter what it is you are doing with your finances, good to stop and think before you act.

I am considering several financial moves where I need a bit more information and thought before I take action.  We are considering taking a home equity loan.  We are planning the timing of our retirement contributions and charitable donations for the year.  I have been watching Zecco to see if an account there makes sense.  I have new options in my retirement plan at work this year.  We are reviewing our insurance needs and might change our coverage this year.

All of these things take time, thought, and planning.  I have tons of information available on each of those.  I have crunched numbers, compared options, considered risks, and balanced tradeoffs.  That is the planner part of the decision.  Now we are looking at the family part.  We are reviewing our options and sleeping on them.  I am also a bit of a perfectionist, and by giving it a bit of time I might come up with some “better” ideas to consider.

I’m trying to do the same with this site.  I have information I could throw at the site.  I could dump postings up many times a day.  I could comment on all kinds of stuff I read, respond to other blogs, and spew opinions and advice.  Instead I will be taking my time and trying to make sense, to build up a bit of order, and keep information here reasonable.  I want to get a feel for how this will grow.  I want you to get a feel for how I present information.  Take some time with me.  Understand what is going on.  Use what you can, when you can, and hopefully we can all learn and get something out of this.

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It seems like timing the market, if you could really do it consistently, would be the single best way to grow rich.  If you follow most mainstream personal finance resources you hear that it is virtually impossible to make that work.  If you dabble in it and test your luck you most likely will find that they are right.  Many things I have done, however, have involved a bit of timing.  It hasn’t always worked perfectly.  It hasn’t made me rich (yet).  But I do believe it has worked in my favor.  Below are a few of my financial timing experiences.

Real estate and mortgage loans.  We bought our house early on.  Housing was moving up quickly in the area and we wanted to own.  It was a stretch for us at the time that we considered worth the small risk.  Within a few years of buying we had earned a few promotions at work and the housing market had kept rising.  Then mortgage rates moved lower, bounced a bit, and moved lower again.  We refinanced and cut our rate by 2%.  Now we have a decent house with a very affordable payment.  Our timing in both buying and refinancing worked out very well.

Timing the market.  Stocks have been volatile, hitting all kinds of highs and lows over the past several years.  I remember when I starting investing in IRAs.  People told me not to put any money in stocks because they were too risky.  That was short term thinking.  Down stocks have been good to me, and I have enough time ahead that they are very likely to do well.  We try to max out our contributions by the deadline, to dollar cost average by spreading contributions out.  I also try to beat the market by buying lower.

Not to say all of our moves worked out, for example the money in a real estate fund we own, I believe is about even with where I started while the stock market is up since then.  At the same time the emerging markets we picked up a few years ago have beat the market index.  By putting more money there we missed out on having a larger portion of our investments in that winning fund.

I guess In my mind this version of market timing is really just reallocation taken a little further.  Instead of picking an allocation and sticking to it, I adjust the allocation too.  Maybe it’s along the lines of shifting the allocation of stocks vs bonds as you approach retirement.  Maybe it’s like moving to fixed income investments after you have a sum that you want to live off and protect.  Do you think in either of those cases your situation determines what the market will do?  It doesn’t.  Is it the market determining what you will do?  Then you are timing the market.  No, in either case it is risk as the deciding factor.  Those moves are simply to reduce exposure to risky investments while protecting principal or cash flow.

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It’s still time when lots of people are caught up in making resolutions, predictions, and plans for the new year.  Browsing around this morning I came across several articles along those lines that kept my attention.  Here are two I believe are worth sharing for a quick read.  Please remember that I consider all articles of basic advice and opinion the same as any other educational opinion piece.  They have value in expanding your view and prompting new thinking.  My advice is to use anything like that, including my posts, as only that when you see it.  If it has real value to you then you keep it and go back to it, otherwise move on and keep learning.

This article gives some predictions about economic growth for the year and a bit of insight into why those predictions are made.  It covers U.S. stock markets and housing.  My predictions are as follows: U.S. stocks SP500 will be up roughly 7.5%, overall housing will be up 2.5%.  I predict that there will be different rates within market segments and geographic regions.  I predict that my predictions will be no better or worse than others, and that some unforeseen factors will pop up and make some people look like geniuses and others look like fools.

My predictions are what I base my decisions on, but I update my view and make new predictions based on new information as it becomes available, which is very frequently.  My predictions and views tend to be relatively near term.  For our retirement investments I stick to broad funds using a lazy/indexed style of investing.  Big SP500 and other funds have a good bit of exposure to financials, pharmaceuticals, and global markets.  My prediction for my investing is that we will do fairly well keeping up with retirement contributions and returns, but not have enough “play” investment money to take the risks of aggressive short term investments for other goals.

After looking at some predictions, this tip is simple but powerful.  Part of 10 tips for better investing, number 5 on their list is “Know what you don’t know.”  It really ties in to what I believe is important.  In my first draft of my Keys to Success with Finances I listed build understanding as number 1, know the risks as number 4, and get help when you should as number 5.  All 3 of those are related to your knowledge and understanding.

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Every year I make loose resolutions.  I normally don’t include basic things like eating right, exercise, saving money, continuing my education and career advancement.  Those are all things that I work toward most of the time.  The resolutions are extra things I want to work towards.

This year a good chunk of my resolutions will be based on things I have been putting off.  I have to put a bit of effort in to clean these up and make them good goals with targets to track.  For now I have the start of a list as follows:

• Review all of our insurance needs and coverage.
• Finish shredding old paperwork and make sure what is left is still organized.
• College savings plan and action, probably signing up for a 529 and UPromise.
• Begin working on planning paperwork - possibly a will, power of attorney, estate outline, list of accounts and payment info, etc.
• Consider a home equity loan to consolidate other loans and make home improvements.
• Review retirement plans and progress.
• Set new financial goals.
• Complete my big financial plan, including all goals above and more.

I believe there are more things I have listed different places but have put off.  Getting on track with the big plan is a main goal, and keeping up with this site goes along with it.  Over the next week or so I hope to make a real list that is more specific, and hope to post it here and track my progress.

Are you making resolutions?  Are there any great personal finance type resolutions out there?

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