Business Columns & Blogs

Constructing your financial house takes as much care as building your dream home

We know that home construction requires a floor plan and drawings. It gives us an idea what the final product will look like. More important is that it provides an idea of what the house will live like, and since we plan to live there, and may spend a small fortune building it, we want to get it right.

This same idea translates well to investment and retirement building. Many of the same principles apply, so let’s examine seven common themes.

Have details before you start building. Successful investing begins with a written plan. Your odds of success increase when you measure basic goals such as expected return, time to retirement, risk assessment, inflation and spending.

Higher the right people. Licensed architects, general contractors and engineers can be counted on to deliver the final product, structurally sound and on budget. Financial planners, accountants and estate attorneys will coordinate their efforts on your behalf to help you reach your financial goals.

Set reasonable expectations for the finished product. True investing takes time, patience and perseverance.

Resale value. If you must sell, make sure you’re prepared for immediate liquidity needs. We recommend clients reserve 5-to-7 years of annual spending in cash equivalents or short-term bonds.

Affordable mortgage. Avoid excess debt and leverage, in homebuying and investing. A house you can’t afford limits your lifestyle, while margin debt and overleverage may result in permanent loss of capital.

Don’t sacrifice amenities. Hiring a full-service adviser might result in higher fees than do-it-yourself models. But a financial adviser can provide the advice and guidance you need to focus on goal setting and success measurement, while navigating life’s financial challenges and opportunities.

Check the work. Ask questions, and understand what investments you own and why you own them. What will the financial house look like upon completion, and will it meet your goals in the time you have available?

Your dream home won’t solve all your problems, repair relationships or solve financial difficulties. Its purpose is to provide a place to live, enjoy your family and produce a growing asset over time. Your financial house should provide no less.

Mark Daly is an investment management analyst and partner in the Perpetua Group. Mark@ThePerpetua Group.com.

  Comments