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What’s all this about a wealth building plan? November 5, 2008

Posted by shaferfinancial in Uncategorized.
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One of the key items we accomplish at the Shafer Wealth Academy is to build an individual wealth building plan.  Most people don’t have one.  Some people hire “financial planners” and think they have a plan, when they don’t.  When I talk to these people the conversation goes something like this:

What's your wealth building plan?
Our financial planner encourages us to increase the monthly inputs into mutual funds. 
OK, but what is the plan?
Well every year s/he tells us to shift some of the funds around because they get out of whack.
Still don't see what the plan is?
Well, we are 75% equity funds and 25% bond funds and we have international fund, a small company fund and a large company fund.
OK, I see now your strategy is to invest in an array of mutual funds and do what they call asset allocation.
Yes, that's it.
Well, that is a strategy, not a plan!
Really, then what's a plan?

A plan has a starting place and an ending place. It certainly has strategies in the middle, but the strategies come after the structure is in place.
Your starting place is your existing working net worth.  What can you include in your working net worth?  Any and all investments you own, including mutual funds, annuities, CDs, savings, money market accounts, investment real estate, etc. You can’t include your personal residence, unless as part of the plan you will harvest the home equity and put it to work for you or are planning on selling your home and renting in retirement.
Your ending place is the number you feel you need to get to in order to produce enough income to live comfortably in retirement. That is totally up to you, but needs to take into account total inflation at time of retirement and also at expected life duration.  Once you have those numbers figured out you can fill in what needs to happen to get you from point A to point B. Now you can try different asset classes and different combinations to see what can get you to your goal with the least amount of risk. It is this step that few people bother to analyze.  But it is this step that forces you to make the real decisions.  Most people at this step discover that mutual fund investing will not get them to a comfortable retirement.  At this point folks have a decision to make, continue to do what isn’t going to work or make a change!

Now a wealth building plan isn’t etched in stone, but should provide the basic guidelines to your goals.  Once the plan is executed, then you can fiddle around with it as you see yourself either making the proper progress or failing to progress enough.

When I say people should learn to become ACTIVE investors this is a critical component of becoming an active investor.  Isn’t it ironic that the “financial planning industry” doesn’t create wealth building plans!!!


The facts are that the financial planning industry is really just a game of follow the leader, where the leaders’ wealth comes from you!



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