I love my work because of the immense satisfaction I get when the desired results are achieved making a difference in customers’ lives. But sometimes I do ponder whether I will have enough money to meet my financial goals? Financial goals can be achieved through many approaches. Many online website and financial advisors are available to help on selecting and implementing these approaches. Each approach has associated risks and costs. Few years ago, I identified my financial goals and developed a strategy to meet them. The strategy gave me the confidence to remain steady during financial market turbulence. It provided clarity on few options that I would like to pursue but more importantly many options that I should stay away from.
I used the Canadian Financial Wiki to create my financial goals and plan. The Wiki covers all aspect of financial planning including goals, investments, insurance, taxes, retirement and estate. I also liked their emphasis on Passive Investment strategy. I did have to spend some time in analyzing my recent income and expense statements and work with family to set financial goals and objectives.
Recognized as one of the finest non-technical finance and investment guides ever written it is believed to be one of the first books about finance published on the Internet. Investment Strategies for the 21st Century will introduce the reader to the changes in financial theory and investing. The book intends to show Investors of even very modest means how they can construct portfolios which rival the sophistication of multi billion dollar institutions. Learn how virtually anyone can invest economically and effectively and have confidence that they will be able to meet their financial goals.
I created a Financial Plan excel document containing following tabs:
- GOALS: Identified short-term, medium-term and long term financial goals and approximate amount needed both in present value terms as well as inflated, future value terms.
- BALANCE SHEET: Listed all assets (investments, fixed assets and cash), liabilities (mortgage, loan and credit card) amounts.
- INCOME & EXPENSES: Listed all sources of income (salary and bonus) and expenses (mint.com helped significantly to track my expenses). Another column Retirement Expense captured expenses that are expected post retirement. It was achieved by applying a factor to the current expense amount
- PROJECTED CASH FLOW: Listed all assets, liabilities, income and expenses current year balance. Then added another column to indicate annual applicable amount for each of those items and a potential factor by which they are likely to increase/grow. Then added a column for each of the year till age 95 to project the expected cash flow for rest of the life.
- INVESTMENTS: Identified various investments that be part of the portfolio. See investment section below.
- INSURANCE: Identified the type of insurance and amount that would be needed.
- WILL: Identified the clauses that should be added to will.
I am a fan of Modern Portfolio Theory that recommends that rather than trying to beat the market, you should choose your level of risk and create a diversified portfolio of assets—stocks, bonds, commodities, etc.—that matches that tolerance. I also prefer Passive Investment Management strategy over Active Investment strategy. I do not have lot of time to spend on research that is required for active management. In addition, you are likely to take impulsive investment decisions during financial ups and down when you have not spent enough time in market research.
Recently, few technology companies have tried to simplify passive investment for non-financial people. For a reasonable annual fees, they recommend a modern portfolio based on exchange traded funds (ETFs) that aim to achieve your financial goal based on your risk tolerance level and available time horizon. As the portfolio is made up of ETFs, the overall portfolio Management Expense Ratio (MER) remains low (approx. 0.2% to 0.3%). You save 1.5% to 2% in annual fees that are charged by mutual fund and other active management companies.
MarketRiders offers the most in-depth tools to create and maintain a disciplined investment strategy. Depending on the size of your account, it could be really cheap, too. But MarketRiders requires good understanding of complexities of investing, and it requires a bit of maintenance work.
FutureAdvisor is another online investment advisor that automatically manages your investments using modern portfolio theory (or MPT). It has a fairly enjoyable interface. It offers two distinct options: free analysis and advice, and automated rebalancing at select brokerages. Its fee for a managed account is now 0.5% that is higher than its closest competitors.
Betterment promises of making investing easier and is the easiest investment site you’ll ever use. The user interface design is quite intuitive. The overall fees is quite low. Their philosophy is to optimize for automation with long term focus and behavioral finance.
Overall investment results have been inline or better than my projections. I am on track to meet my goals. The above financial planning and investment strategy has eliminated any anxiety around meeting my financial goals. This has had a very positive impact on my family and career life too.
Were you ever concerned about your financial future?
What strategies did you follow in planning to meet your financial goals?
What results have you obtained?