Your Family Financial Planning

10 Financial Planning Steps in the Right Direction

Families need an objective financial planning process. In addition, they need to be in control — whether or not they have a family financial planning consultant. With a well-designed and personal financial plan, you can optimize your financial affairs over your lifetime. You can greatly reduce the waste of your money and your time. I recommend the 10 steps below for personal financial planning and personal investment management.

To find an in depth article for each step, just click on the Sitemap link at the top of this page and look for the articles numbered from 1 to 10. Also, you can reach us by using the contact form below. Please enjoy reading this article. Thank you!

1 – Personal Financial Planning

Because you must live with the results, you need to take full responsibility for your financial and investment success or failure. Delegating financial planning and investment decisions to advisers largely on faith can be very dangerous. Naive hope without adequate personal financial knowledge, attention, and control can be very risky to your personal and family welfare. The only practical solution is for you to increase your personal financial planning and investment knowledge and skills.

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Larry Russell, Managing Director

MBA – Stanford University, MA – Brandeis University, and BS – M.I.T.

Lawrence Russell and Company Pasadena, California 91103

A California Registered Investment Adviser — Certificate 133101

KNOWLEDGE — OBJECTIVITY — HONESTY — DILIGENCE — SATISFACTION

Start a conversation today — Send a message using this contact form

Financial Planning Consultants in Pasadena California

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Educating clients about scientific investment and financial planning is extremely important to me. As such, I have written many educational materials that are of interest to my clients and the general public. My objective financial publications on The Skilled Investor website and blog are often the reason that people learn about my fee only independent financial planner and investment advisor services.

Your questions are important to me, and you should expect there to be a factual basis for any strategies and recommendations that I make. Please ask any and all of your questions, as we work together. During the course of developing a comprehensive, personalized plan for you, if you are interested, I can provide copies of educational materials that I have written and copies of original scientific finance papers that are particularly applicable to your situation.

2 – Financial Planning Tools

The single most significant financial lever that individuals control directly is their management of personal expenditures. The second is their lifetime effort to obtain sufficient income. Most people simply do not save enough of their current income to fund adequately their future needs.

To analyze your financial affairs in detail, we will use VeriPlan. VeriPlan is a very sophisticated and customizable computer planning model that I have developed. VeriPlan enables you to view graphical projections of your family’s income, expenses, assets, and debts across your lifetime. Data inputs reflect your particular situation and include all your assets, including cash, bonds, equities, property, real estate, private equities, and business interests.

Step 2 is a very important step, because this is where we construct your baseline financial plan and measure your current financial circumstances and goals and intentions for the future. To develop your customized lifecycle model, we will work together to gather information, adjust assumptions, and evaluate the effects of different financial decisions across your lifecycle. For more information about VeriPlan, see: Personal Finance Software for Your Lifetime.

VeriPlan can vary future expected investment returns by asset class, and it automatically analyzes the details of your taxes and investment expenses. Any and all assumptions can be changed for instant “what-if” testing. The model’s risk analysis capabilities evaluate how well your future assets would cover normal and extraordinary expenses, if market or personal circumstances were to disrupt your plans.

Excessive and unnecessary investment costs can substantially undermine your lifetime investment returns. VeriPlan automatically projects the returns you will waste with such fees, if you do not choose more cost-efficient investments.

3 – Investment Risk Tolerance

Investors with different levels of risk tolerance are more satisfied investment strategies that are better aligned with their risk preferences. Differences in risk tolerances mean that more risk-averse investors are personally more satisfied with a lower risk portfolio despite its lower expected returns. Less risk-averse investors are more satisfied with portfolios characterized by higher risk and higher expected returns.

While there are a variety of approaches to the measuring relative investment return and risk preferences, we do not believe that a simple “check-a-few-boxes” survey is sufficient. Therefore, you can expect that we will discuss your feelings about risks and rewards. We will assess together your likely behavior in the face of financial risks that might actually materialize.

We will also discuss the implications of adopting a particular investment risk profile relative to that of the average investor. Furthermore, we will test the financial projection implications of your risk preferences using VeriPlan. With VeriPlan modeling your particular financial situation, you can better appreciate the projected outcomes of different investment allocations associated with your risk preferences.

4 – Investment Diversification Strategy

Diversification is genuinely a financial planning and investment “free lunch.” A fully diversified portfolio is a key contributor to improved investment risk management. Diversification has become an axiom of personal investing, because the specific risks of businesses and other investment entities can be reduced or eliminated from a portfolio without reducing expected returns. As such, our investment recommendations will usually focus on very low cost mutual funds and very low cost exchange-traded fund (ETF) investments.

A significant portion of a portfolio may sometimes become concentrated in a single investment entity, which increases the overall risk of the portfolio. While undesirable, there sometimes are good or unavoidable reasons for investment concentration. In such circumstances, we will provide recommendations on possible ways to ameliorate the associated risk. If there are not good reasons to maintain the current level of concentration, then we will discuss how to reduce this concentration.

5 – Investment Asset Allocation

Your risk preference relative to the average investor with the average portfolio will influence your asset allocation. Appropriately setting your personal asset allocation in line with your personal risk tolerance is a critical decision for every investor. Because the average risk-averse investor holds the average portfolio asset allocation, this becomes the starting point in determining how a specific individual’s portfolio might diverge from that average allocation.

VeriPlan supports several mechanisms for allocating assets permitting a comparison of projections based upon different asset allocations. Anticipating allocation adjustments that may be needed in the coming year, we will also discuss how near-term net income might be invested to reduce the need to reallocate some of your portfolio in the future. If asset withdrawals are required to cover anticipated retirement expenses or other living expenses, we will recommend how to do this most cost and tax efficiently. Our goals will be to establish a durable approach to asset allocation and to minimize costs and taxes.

See Part 2 — Pasadena California Financial Planning >>>

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Find the best personal financial planning consultant for those who need financial planning help in the Pasadena area including residents of Altadena, Arcadia, Baldwin Hills, Baldwin Park, Burbank, Eagle Rock, Glendale, La Canada Flintridge, La Crescenta, Monrovia, and Pasadena.

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• Investment Diversification Strategy (10 Personal Financial Planning Steps in the Right Direction This is one of the “10 Steps in the Right Direction” that make up The Pasadena Financial Planner's personal financial planning and personal investment management process. For a summary of these ten steps, see "Your Family Financial Planning." To find an in depth article for each step, [...])
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