Financial Planning Too Often Hung Out to Dry

Oil changes, vacations take priority over portfolio planning, says Schwab survey.

Taking the car in for service ranks higher on the "to-do" list of American investors as they prepare for 2004 than meeting with their financial advisor, according to a new survey released this week by Charles Schwab & Co., Inc.

"This survey is interesting because it confirms that most investors still need to take their finances much more seriously," said Rande Spiegelman, vice president of financial planning, Schwab Center for Investment Research. "The family car does need to be serviced, but investment plans need tuning up as well. And with the recent tax law changes and improving signs for the economy, proper planning for the New Year may help people get more mileage from their investments."

Despite the warnings of economists and money management experts that Americans need to pay more attention to their finances:

  • Only 38 percent of those surveyed said they planned an annual face-to-face meeting with their broker or financial advisor.

  • 93 percent said they planned to have an annual medical or dental check-up.

  • 74 percent said they plan to take an annual vacation.

"Vacations last a week, maybe two, but investments can last you a lifetime and even beyond," Spiegelman said. "A financial checkup is no more painful than a medical checkup and ought to rank very high in terms of priorities.

After all, we're not just talking about money here -- financial planning is ultimately about peace of mind and achieving your long-term hopes and dreams."

Additional Findings

In fact the survey, conducted for Schwab by StrategyOne, found that nearly half (47 percent) of those polled would rather do laundry than carefully read their investment statement even though many investors may be seeing some improvement in their portfolios.

  • Investors who work with a financial advisor are almost twice as likely to cancel an appointment with their advisor (22 percent) than they are to cancel a car service appointment (13 percent).
  • Only 22 percent of respondents ranked "investments" as among their top three priorities in 2004.
  • Other priorities which respondents ranked among their top three included family (96 percent), health (71 percent), relationships (58 percent), and career (41 percent).

When deciding on New Year's resolutions, Spiegelman urges investors to include a pledge to put their financial house in order. He offers 10 tips on what investors can do to get serious about their money in 2004:

  1. Give your portfolio a check-up: Just like your car or your health, your portfolio needs regularly scheduled check-ups. Make sure your overall asset allocation is in line with your goals, time horizon and risk tolerance. Diversify and remember "buy and hold" does not mean "buy and forget." Also, with the market up nicely over the past year, check any old employee stock option grants you might have to see if they are now in the money.

  2. Pay off credit cards: Resolve to get rid of all consumer debt that is not tax deductible. Develop a plan to pay down credit card balances and stick to it. With short-term interest rates still near historic lows, consider a deductible home equity loan or line of credit to pay off credit card debt (but only if you can control your spending).

  3. Track your spending: Write down everything you spend for 30 days and then look for opportunities to reduce spending. Use the savings to help pay down credit card debt and to build up three to six months of emergency living expenses.

  4. Determine your tax bracket: There have been some major changes in the income tax landscape in the last year. All marginal rates above 15 percent have come down and your marginal tax bracket determines a wide variety of important financial moves. Check with your professional tax preparer and be sure to ask for a 2004 projection along with your 2003 return.

  5. Max out retirement savings: Start early, contribute often and even if you can't contribute the full legal limit available to you, be sure to contribute as much of that amount as you possibly can.

  6. Save for your children's or grandchildren's education: Take advantage of 529 college savings plans and/or Coverdell education savings accounts to put away money -- free of federal taxes -- for college education costs.

  7. Review your insurance coverage: This is the time of year to check your homeowner and auto policies for appropriate coverage and deductibles. Be sure you have adequate life and disability insurance and that your beneficiary designations are up to date. Now is also a good time to review your health and dental coverage with your employer or provider.

  8. Protect your estate: The estate tax exemption rises to $1.5 million for 2004 but even if you are not concerned about estate taxes, you should still have a will and durable powers in force to make sure your wishes are carried out and that guardians are appointed as necessary.

  9. Update your personal financial plan: If you have previously had a financial plan created, sit down with your advisor and update it. If you have never gone through the planning process, do it now!

  10. Be the master of your finances: Financial planning is only a means to an end -- the fulfillment of your life's goals. As with life, plan for the long-term and strive to keep a balance.

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