If you have a life changing event that is coming, you know you need to be prepared. Whether it is buying a house, sending your children to college, or retirement, you know you need financial planning. Whether you do financial planning yourself or with a professional financial advisor is up to you. What you should understand are three principles of planning.
First, know your time horizon for financial planning. If you just had a child, and want to be ready to pay for college by the time she is 18, there are several financial vehicles for that. Similarly, if you are 25 and expect to retire in 40 years, there are many different ways to achieve that. The important thing to understand is that the longer your time horizon, the more patient you need to be.
This leads me to the second point of financial planning, which is to be patient. We have seen how asset classes can lose value very quickly. We have also seen how they can gain value very quickly. Such volatility may indicate uncertainty, and if you are doing your financial planning for a time frame of a year or less, it is. That said, over the decades, all asset classes tend to have a dramatic return.
Finally, the third principle any financial planning company recommends is to diversify. No event, no matter how cataclysmic, will destroy value in every asset. If you have your investments divided between equities, debt and a few other asset classes, your portfolio willl never suffer dramatic losses. Just make sure you are able to tolerate risk.
Whether you plan to use financial planning companies, or to invest yourself, understand that good financial planning gets you far. No matter what your investment goals are, they can be met with a bit of prudence, a bit of saving, and some careful advice. With a right time horizon, patience, and diversity, you can return to living your life.
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