Planning Your Financial Future


Editor’s note: Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations. Consult an accountant or tax advisor for advice regarding your particular situation.

Arguably, saving and investing for a comfortable retirement has never been more difficult and complex than it is these days. The breathtaking roller-coaster ride that began with the improbable stock market gains of the 1990s and ended with the economic meltdown that began in October 2007 has left many business owners and professionals agonizing about what to do next. Realistically, there are no simple answers.


One of the tried-and-true investing philosophies known as buy-and-hold—buying quality stocks and holding onto them during good times and bad—is no longer sacred in the minds of some financial advisors. “Not only is buy-and-hold dead, it was never alive,” says Matthew Tuttle, president of Tuttle Wealth Management in Stamford, Connecticut. “It worked from 1982 to 1999, but anything would have worked during that period.” And while there is no shortage of financial professionals in agreement with Tuttle, it’s also not difficult to find others who sharply disagree.

With no clear-cut consensus, it’s up to individuals to decide for themselves whether buy-and-hold makes sense in today’s economy. Fortunately, there are many other investment philosophies that still meet with near-unanimous approval from the pros.


Most financial advisors agree asset allocation and diversification are the most important keys to successful investing in any economy. Allocating your assets skillfully among the various classes of investments is more important than your selection of individual stocks or mutual funds, according to the pros.

So, what is the best asset allocation for you? Should you have 10% of your portfolio in stocks, or should it be 80% or 90%? What about the rest? Should you invest the balance in bonds and CDs, or should you stuff it under the mattress?

For an asset allocation calculator that will help with this decision, log on to


Once you’ve decided on the best asset allocation for your circumstances, it’s important to make adjustments at least once a year. As the prices of stocks in your portfolio fluctuate, the allocation ratio that you have established will change. If the total value of your stocks has risen, you may want to sell off some of them to restore your original ratios. If their value has dropped, shift more cash into equities to restore your formula. If your investment portfolio is largely within an IRA, 401(k) or other retirement plan, consider rebalancing it at least twice a year.


If at all possible, maximize your annual contribution to your 401(k) or other tax-deferred retirement account. Whether you’re self-employed or an employee, contributing the maximum allowable amount to your retirement accounts is an important step in setting yourself up for a comfortable and secure retirement.

At this writing, the maximum allowable contributions for 2010 have not been released. However, there are rumors that they may be slightly reduced from those of 2009. Should that happen, it will be the first time that contribution limits have been lowered.

Stick with your plan

“Creating a plan and sticking with it under all market conditions is the way to maximize your returns,” says Jordan Kimmel of Magnet Investing Group in New York. “One helpful technique in this regard is called dollar-cost-averaging—putting the same amount of money into equities or mutual funds at regular intervals regardless of swings in the market. That way, when prices are higher, you are buying fewer shares; when prices are lower, you are buying more shares. Dollar-cost-averaging is an effective way to minimize the effects of emotion in financial management.”

“It’s human nature to chase hot sectors that have already made a significant move,” says certified financial planner Greg Womack of Edmond, Oklahoma. “It’s also natural to panic and sell out when everyone else is doing the same. While it may seem natural, it’s not the smart thing to do. It’s important to have an investment strategy and stick to it. If it’s in the headlines and everyone else is doing it, you’re probably too late anyway.”

Never trade on margin

It seemed like such a wonderful idea, or so they thought back in 1929: Put up just a small percentage of the money you need to buy a hot stock and let your broker lend you the balance of the purchase price. Then, when the price goes up, sell the stock, pay off your loan from the broker and pocket the profit. With that kind of leverage, a rising stock market could make you rich beyond your dreams.

But what if the price of the stock goes down, in which case the broker may demand immediate payment of your loan? Now you have stock worth less than what you paid for it and a huge loan you must pay off. This is exactly what has happened throughout the years to more investors than you could count.

When you buy a stock and pay for it in full, the most you can possibly lose is your original investment, even if the price of the stock falls to zero, which is highly unlikely. When you buy on margin, your potential loss is literally unlimited—a scenario that has wreaked financial destruction for many an investor.

Smart planning

As that old chestnut goes: The more things change, the more they stay the same. According to the most successful financial pros such as Warren Buffet, the world’s richest investor, common sense remains the best investment philosophy of all. So keeping your head about you when creating financial plans for the future is really some of the best advice you can follow.

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