Wednesday, January 26, 2022

Back to Basics

Ask the CFP

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“He who fails to plan is planning to fail.” ~ Sir Winston Churchill 


Question: Why do so many people fail to obtain financial independence? 

Answer: Taking the first step and getting started takes discipline and commitment. There are also a litany of rationalizations including investing is too risky, too complicated, too time consuming, and only for the rich. The fact is, there’s nothing complicated about common investing techniques, and it usually doesn’t take much time to understand the basics.



Both saving and investing have a place in your finances, but don’t confuse the two concepts. Savings is setting aside money for a financial goal and can be done as part of a workplace retirement savings plan, an individual retirement account, a bank savings account, or some other savings vehicle. Investing is deciding what to do with savings. Some investments are designed to help protect your principal – the initial amount you’ve set aside – but may provide relatively little or no return. Other investments can go up or down in value and may or may not pay interest or dividends. Stocks, bonds, cash alternatives, precious metals and real estate all represent investments; mutual funds are a way to purchase such investments and also are themselves an investment. Note: Before investing in a mutual fund, carefully consider its investment objectives, risks, charges, and fees, which can be found in the prospectus available from the fund. Read the prospectus carefully before investing. 


Investing is for the future, and the future is expensive, mostly because of inflation and because we tend to live longer. Costs are often higher than expected. Though all investing involves the possibility of loss, including the loss of principal, and there can be no guarantee that any investment strategy will be successful, investing is one way to try to prepare for that future. Taking responsibility for your own finances may include working with an expert to help to do so. Government programs such as Social Security will probably play a less significant role for you than they did for previous generations. Corporations are switching from guaranteed pensions to plans that require you to make contributions and choose investments. The better you manage your dollars, the more likely it is that you’ll have the money to make the future what you want it to be. Because everyone has different goals and expectations, everyone has different reasons for investing. Understanding how to match those reasons with your investments is one aspect of managing money to help provide a comfortable life. 


Take inventory by organizing your finances to help manage your money more efficiently. Investing is just one component of your overall financial plan. Get a clear picture of where you are today. What’s your net worth? Compare your assets with your liabilities. Look at your cash flow. Be clear on where your income is going each month. List your expenses. You can typically identify enough expenses to account for at least 95 percent of your income. If not, go back and look again. Are there extra dollars for investing or are you drowning in credit card debt? If so, pay it off as quickly as possible before you start investing. Every dollar that you save in interest charges is one more dollar that you can invest for your future. Establish a solid financial base: make sure you have an adequate emergency fund, sufficient insurance coverage, and a realistic budget. Also, take full advantage of benefits and retirement plans that your employer offers. 


Take advantage of the power of compounding. Compounding is the earning of interest on interest, or the reinvestment of income. For instance, if you invest $1,000 and get a return of 8 percent, you will earn $80. By reinvesting the earnings and assuming the same rate of return, the following year you will earn $86.40 on your $1,080 investment. The following year, $1,166.40 will earn $93.31. (This hypothetical example is intended as an illustration and does not reflect the performance of a specific investment). Use the Rule of 72 to judge an investment’s potential. Divide the projected return into 72. The answer is the number of years that it will take for the investment to double in value. For example, an investment that earns 8 percent per year will double in nine years. 


If you have the time and energy to educate yourself about investing, you may not feel you need assistance. However, for many people – especially those with substantial assets, it may be best to work with a CERTIFIED FINANCIAL PLANNER™ professional to help guide them to their goals. 


Get in the habit of saving. Set aside a portion of your income regularly. Automate that process if possible by having money automatically put into your investment account before you have a chance to spend it. Invest so that your money at least keeps pace with inflation over time. Don’t put all your eggs in one basket. Though asset allocation and diversification don’t guarantee a profit or ensure against the possibility of loss, having multiple types of investments may help reduce the impact of a loss on any single investment. Focus on long-term potential rather than short-term price fluctuations. Ask questions and become educated before making any investment. Invest with your head, not with your stomach or heart. Stay focused and plan accordingly. 

The opinions expressed are those of the writer as of May 24, 2021 but not necessarily those of Raymond James and Associates, and subject to change at any time. Information contained in this report was received from sources believed to be reliable, but accuracy is not guaranteed. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Past performance does not guarantee future results. Raymond James does not provide advice on tax or legal issues. These matters should be discussed with the appropriate professional. 

“Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” 

This article provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at (239)389-1041, email Website:



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