The Art of Creating a Blended Financial Plan

By Brian Tarpey
InsuranceNewsNet Magazine, January 2012

Good financial advisors help their clients diversify their holdings and explore alternative investments that might bump up the yield and spread the risk. But a great advisor will help clients see their “life picture” and fit their investing strategy to what they truly value.

Financial planning, especially in regards to retirement, requires consistent evaluation and review. Investors should continually analyze how a portfolio is performing, making tweaks as necessary. Flexibility in investing is not only essential to the strength of one’s retirement portfolio, but also to the individual’s happiness and comfort.

Before getting started, it’s critical that clients take the time to assess their current financial condition. When creating a financial plan, it’s important to set realistic goals that clients can achieve upon retirement. If clients need to adjust their savings and investment plans, always be sure they’re doing it for the right reasons—such as if you foresee a change in your clients’ long-term position.

What is a Diversified Portfolio?

In its simplest form, financial diversification means reducing risk exposure by investing in a variety of assets—it’s all about balance. A diversified portfolio includes assets with returns that do not correlate perfectly in sync. Diversification works best when the individual assets are reduced. This means that if an individual starts with a chunk of capital in one stock and then invests that same amount of collateral in another stock, they would actually be incurring more risk, not less.

Think of it as spreading the “financial love” among investments that may rise and fall at different times. This, most importantly, helps avoid those hard hits that could hurt an entire portfolio.

Although you can always expect the market to rise and fall over the long term, stocks have considerably outperformed other asset classes.

You can also try investing in something your client is passionate about. Unique, alternative investments are quickly becoming some of the most prominent and profitable assets in a retirement portfolio.

Transforming Clients’ Passions into an Alternative Investment

Alternative investments have made quite a mark in the wealth management world. These unique options stray from the three traditional asset types—stocks, bonds and cash. It’s important to remember that a blended financial plan goes beyond stocks, annuities and life insurance—which is why many of today’s investors are taking into consideration real estate and commodities such as gold and silver.

Real estate especially offers opportunity for big gains, but investing in property is often a lot more complicated than investing in stocks or bonds. Clients can immerse themselves in real estate investment in many ways, such as real estate investment groups, real estate trading or simply investing in acres of land. Land is highly attractive for individuals looking for long-lived assets. And now is a good time to buy, as global demand is steadily increasing. There are land “classifications” as well, depending upon what you are looking for—farmland, timberland or better-use land, commonly used for development—have all seen the potential for value appreciation.

Another alternative investment growing in clout is high-end collectibles. Collectibles are a physical asset that will appreciate in value over time and most often these assets are rare or coveted by niche groups.

What are your clients passionate about? Do they enjoy fine wines? Consider investing in a winery or building a collection of distinct vintages that can increase in value over time. Are they lovers of antiques or classic art? Auctions occur all across the country and many investors—both young and old—are using these as prime opportunities to turn something they love into a significant piece of financial security. Because the maturity for a collectible can vary widely, it makes the act of acquiring them that much more exciting and personal for the individual.

Invest Like a Pro in 2012

Although the unsteady economy over the past few years has left some weary of true investment, taking hold of financial planning now is the first step toward efficient wealth management.

Many of our country’s wealthiest people aren’t letting the ups and downs of the economy scare them away from investing, according to the 2011 “PNC Wealth and Values Survey—Investors’ Outlook”.  In fact, when the American millionaires surveyed were asked what changes they’ve made to their investments over the past three months, 69 percent said that they “left their investments largely as they were,” while 20 percent said they “moved money into cash or cash equivalents.” And, interestingly enough, another 8 percent said they “invested in gold.”

When these affluent investors were asked what sectors they expected to see the biggest gains over the next year, the top three stocks remained the same as those identified to be the best the year prior: technology, energy/utilities and health care. While at the same time, on a year-to-year basis, the retail and socially responsible/green sectors lost the most investor interest.

Clearly, advisors have many options for customizing a client’s portfolio. Being flexible and continually evaluating how the investments are performing, however, are crucial to turning a client’s passion into a sound investment strategy that paints a promising financial future.

And, remember, the most important aspect of effective wealth management is to craft portfolios that complement each client’s unique life picture. 

Brian Tarpey, president of The Tarpey Group, is a widely recognized insurance and financial professional, having been awarded Top of the Table honors by the MDRT. He can be reached at [email protected].

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