Chart Your Own Course: A Formal financial Plan Can Provide You With a Customized “Road Map”


When it comes to financial planning, everyone is different.
By Grace S. Young, CFP

Grace S. Yung
Grace S. Yung

Are you running your own financial race? In some cases, the answer may be no. If you aren’t sure, ask yourself whether you compare your investment returns to those of “the market”—or even to those of other people. If so, then you aren’t running your own race—and even worse, you might be running down a path that you shouldn’t be on. Here’s why.

When it comes to financial planning, everybody is different. That is why individual plans are produced—or at least, they should be—for each individual investor. The plan should take into account your short- and long-term goals, your risk tolerance, and your investment time horizon. Once this data is taken into account, it is all evaluated to determine which financial vehicles would be right for you and your specific situation.

With that in mind, it only stands to reason that different investors would hold different financial vehicles that produce different results. The important key here is whether or not those results work for you.

Does the Market’s Performance Really Matter?

While the media would like people to worry about things they can’t control in order to increase ratings, the truth is that investors may or may not match overall market returns in any given year. Even so, if an investor’s portfolio is performing in the manner that it was designed to do, then it is still achieving its intended purpose.

Unfortunately, though, a great deal of emphasis is still placed on the markets and overall returns. But unless you are invested in exactly the same vehicles that make up these market indexes, your returns will differ.

Many people are unaware that “the markets” are controlled by fewer variables than they may think. For example, the S&P 500 far outpaced other equity indexes in 2014. Yet, in taking a closer look at this index, only 10 companies in the entire index accounted for 28 percent of the S&P’s gain, and only 25 companies were responsible for 46 percent of its gain—that’s nearly half!

Taking an even closer look, Apple Inc., the largest position in the S&P 500 Index, was also the greatest positive contributor for 2014. This stock alone was responsible for 9 percent of the total annual gain. (Source: Vital Signs) With that in mind, one should not directly compare their personal portfolio with that of the S&P 500—or any other market—and feel that they should have performed exactly the same.

Setting Up Your Course

When setting out on any journey—including that of saving for retirement—it’s always important to first chart your course. This is essential whether you are an individual investor or you are planning your future with a spouse or partner.

A formal financial plan can provide you with a customized “road map” for how to get from where you are today to where you want to be financially, using the financial vehicles that can best get you there.

In some cases, using Monte Carlo planning can help to narrow down an investor’s options. The objective of the Monte Carlo simulator technique is to analyze a variety of differing portfolio variants and then to determine how a lack of specific knowledge, along with random variables or error, may have an effect on the overall performance and reliability of the actual system that is being modeled.

There are numerous types of simulations that investors can use when running a Monte Carlo plan. Here, a computer will input a wide range, all with differing figures for the measurement of return and volatility, and then come up with literally thousands of potential scenarios that have different interest and inflation rates. In running such simulations, the computer can calculate the most probable outcomes for a particular investor.

Many investors use Monte Carlo simulation to determine how much income they may safely take from their portfolio at retirement time, without running out of assets.

Similarly, this technique can also help to analyze which particular types of investment tools and financial vehicles may work best in achieving objectives and moving an investor closer to both short- and long-term financial goals.

In other situations, annuities may offer the ideal solution. Today, fixed indexed annuities provide a combination of growth in “up” market years, along with principal protection in years that are down. This could provide a nice alternative for those who are behind on saving and don’t want to risk large market losses as they approach their retirement years.

By choosing the lifetime-income option on an annuity, you are guaranteed an income for the remainder of your life—regardless of how long that may be. There are many annuities that offer a joint lifetime income option where income pays out for the remainder of two lives. Because the joint income recipients do not have to be spouses, this can provide a way for same-sex partners to obtain guaranteed income, even if they are not legally married.

Many annuities will also offer additional guarantees. For example, if all of the initial principal has not been paid out at the death of the annuitant, the remainder may be received—tax free—to a named beneficiary. There may also be provisions in place for receiving additional tax-advantaged income in case of a long-term care need.

Are You Running Your Own Race?

Throughout our lives, we often talk about the importance of diversity, and just how essential it is not to appear like everyone else. The same should hold true with your investments. Your goals, your hopes, and your dreams are not identical to anyone else’s—and because of that, the way you plan financially for them won’t be either.

One thing that is important, though, is that when you do any type of tax, legal, or financial planning, you work with someone who has a focus on the LGBT community. This can help to ensure that the advisor is tuned in to the features that are necessary in certain types of plans—especially in states that do not yet recognize same-sex marriage.

Personal finance-related questions may be e-mailed to [email protected].

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances sine 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the 2014 September issue of Texas Monthly.


Grace S. Yung

Grace S. Yung, CFP, is a certified financial planner practitioner with experience in helping domestic partners plan their finances since 1994. She is a principal at Midtown Financial LLC in Houston and was recognized as a “Five-Star Wealth Manager” in the September 2017 issue of Texas Monthly.
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