CFP Board's Bulletproof Investment Strategy

Financial insecurity has reached record levels as more Americans sacrifice long-term financial goals to pay for necessities. However, Eleanor Blayney, CFP®, consumer advocate for the Certified Financial Planner Board of Standards, Inc. (CFP Board), says that consumers can reclaim their long-term financial security by following a smart, pragmatic approach to investing. 

Creating an investment strategy as part of a financial plan is one of the twelve steps in the CFP Board's year-long "12 for '12 Approach to Financial Confidence."
 
"Today, many Americans lack the financial resources to exercise a full range of choices over how they live," says Blayney. "Aspirations of owning a home, providing for a family, and retiring comfortably are being hampered by today's financial necessities. By prudently investing now, one can open up the future to the possibilities the American Dream promises."
 

Your Financial Tune-up

The Texas Society of CPAs recommends asking these questions to see where you stand financially:

  • Do you have the right Insurance?
  • Are your Investments on track?
  • Is your will up-to-date?
  • Can you renegotiate some payments?
  • Can you reduce credit card costs?
 
Following are six key components Blayney recommends consumers consider when creating an investment plan:
 
1. Invest in what you understand. Venturing into unfamiliar investment areas or complicated derivatives can be a prescription for failure. Start simple by first creating cash reserves for tomorrow's needs. As you become a more experienced investor with a larger portfolio, you can then add more complex and risky investments.
 
2. Be prepared for losses. Losses are a necessary part of investing: without some downside, there can be no upside and, therefore, no possibility of creating a better future. For example, when you play it safe by choosing only cash or fixed-income investments and avoid equities, you lose to inflation and diminished wealth in the long-term.
 
3. "Not enough" is no excuse. Start now. Start anyway. The time to invest is now. Even if it's only a small amount, every dollar put toward meeting your future needs helps. Start small by looking at what you're spending your money on every day and cutting out one or two small expenses. Take the money you save and start investing. The earlier you begin, the less you need to invest to meet any given future goal. (This is due to the power of compound interest. For an even more powerful device, put that compound interest into a tax-deferred investment vehicle).
 
4. Build flexibility into your investment plan. The future is inherently uncertain, so it's important to hedge your bets and position your investments with a variety of economic scenarios in mind. For example, whether interest rates go up or down, you should have enough diversification in your portfolio so that some of your investments come out ahead.
 
5. Don't simply follow the leaders. Investing in the latest hot sector or stock (think Facebook), just because everyone else is, is a bit like following others straight into enemy fire. It's a good way to lose big. Be a contrarian investor - one who buys shares of stock when most others are selling and sells when others are buying.
 
6. Ask for outside help. Consumers can use the steady hand of trained, experienced professionals, such as a CFP® professional, who can look through the fear and greed that often hinder people when making decisions about money and planning their investments. Financial planning experts can also assist you with the ongoing management and assessment of your investments.
 
"Investing involves first looking at the financial realities of today - at one's cash flow, debt, and exposure to risk and then considering the possibilities for the future: a secure and healthy retirement, education for children, and a satisfying legacy for family and community," says Blayney. "The critical planning link between the two, between today's facts and tomorrow's goals, is investing. Let a CFP® professional help you invest for the future you aspire to achieve."
 
In January, CFP Board launched a new initiative called "12 for '12 Approach to Financial Confidence" where all the components and steps for successful personal financial management are presented, one each month throughout the year, including: establishing realistic goals, tax planning, emergency and risk management, investing, retirement, debt management, and estate planning.
 
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Source: CFP Board
 

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