My dad was a cardiologist. Hespent so much time educatinghimself in his profession,it's no wonder he was clueless when itcame to asset allocation, risk tolerance,and bypass trusts. When my fatherpassed away, I learned very quickly thatalthough he preferred to make his owndecisions about investing, he never possessedthe knowledge or time needed tomanage the 30 different accounts that heaccumulated before he died.
By the time I became involved, thedamage was done. His estate was insuch disorder that it cost our familyhundreds of thousands of dollars outof his assets—mostly mistakes thatcould have been avoided.
Had he sought professional advice,he may have learned the following:
•Prepare for your financial independence.Retirement planning needsto be done sooner than you think. Theearlier you begin to save, the more timeyour money will have to grow, andtherefore, the more money you will haveaccumulated by the time you reach yourgolden years. As physicians well know,life expectancy rises with every medicalbreakthrough. This trend means anextended period that your retirementfund must support you, which meansyou need to put more away now.
•Set financial goals and manageinvestments often. Your assets shouldbe diversified to align with your expectations.Since your objectives will adjustthroughout your life and your risk tolerancechanges, your investment strategyshould reflect those nuances.
•Plan for your estate using taxsmarttechniques. For example,arrange a bypass trust for assets inexcess of the amount automaticallyallotted under the exempted exclusion,allowing you to leave someone—freeof estate tax—up to a specified dollaramount (eg, in 2006, it is $2 million)upon your death. You also need to setup powers of attorney and medicaldirectives, so if you are unable, a trustedfamily member can make decisionson your behalf concerning your financesand your health.
•Protect yourself against unforeseendisaster. Should disability orpremature death strike you, you needto have the proper insurance to guaranteeyour family's financial stability.A sound advisor will tell you whatyour many options are for disabilityand life insurance policies.
These steps are only the beginning.For a full financial assessment, youneed to consult a professional financialplanner and meet with them severaltimes a year.
Katherine B. Paal, MBA, CFP®, CTFA, is a
Certified Financial Planner™practitioner at
Heritage Financial Consultants in Lutherville,
Md, and is an investment advisor representative,
registered representative, and
licensed insurance broker with Lincoln Financial Advisors,
a registered investment advisor and broker-dealer (1300
York Road, Lutherville, Md; 410-339-6675). She welcomes
questions or comments at kpaal@LNC.com.