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We’ve all heard of the “millionaire next door,” the investor who quietly amasses a fortune by living within his or her means, buying the right securities, and faithfully staying the course through various stock- and bond-market cycles. Perhaps we even know a few such people.
This sort of person typically eschews the services of a financial planner, reasoning that his or her own strategy has worked so far, and that the financial planner’s fee is an unnecessary expense. But financial planning by an objective professional — one who has no proprietary products to sell —is an investment that will pay for itself many times over, just like a good security.
An adviser will take many things into account when advising a client, including the time horizon (age of the family), its short- and long-term financial goals, and the timing and nature both of cash inflows and outflows.
The 30-year-old just starting out is in the asset-accumulation stage, and that client’s near- and long-term goals and lifestyle requirements will be very different from those of a 60-year-old, who is beginning to enjoy the fruits of their labors.
The advisor will consider not only the age of the current generation, but also of the children and parents, as they often both need to be cared for. In the estate-planning phase, there are also many considerations.
Some people don’t want their children to be burdened with debt or student loans, while others want their children to work and save, and build up a thrift ability. Most want to be some kind of safety net, early or late. Some will give the adult child $1 million while they’re still alive, to see how the child handles it, and fashion their estates accordingly. Some want their children to inherit various amounts at age 30, 35, and 40.
All of these arrangements can be complicated on the legal side. A trusted financial advisor is key in making sure your assets end up in the hands of the people you intend to have them.
Another way an honest, arms-length advisor can help the client is to determine their ability and willingness to take risks. Risk and return go hand in hand. Countless people are looking for that “high-return, no-risk” investment, but Bernie Madoff provided a rude awakening to that dream.
With all the talk of risk versus reward, sometimes it’s helpful to remember that Will Rogers famously said, “I am more concerned with the return OF my money than the return ON my money.”
History offers many examples of a desperate and anxious borrower offering a very tempting interest rate to lure investors. Unfortunately, the unwary investors often find that what sounded too good to be true was, in fact, too good to be true. A trusted financial adviser can help steer a client away from such a deal.
We at Coral Gables Trust Company help each client create a personal balance sheet showing assets, liabilities, and net worth. We work closely with the client’s other professionals, including their accountant and attorney. We help with tangible things like income tax planning and with intangible things like adjusting clients’ expectations when the market has been on a long run. It cannot be too soon or too late for “the millionaire next door” to investigate the benefits of having professional financial advice, even if they think they don’t need it.