By Mike Gertsema, Senior Wealth Advisor
I think we’ve all heard the phrase, don’t put all your eggs in one basket. As a financial advisor I hear it all the time, so I decided to do some research to see what this really means. I visited merriam-webster.com to find the definition of the phrase and it says:
“To risk all one has on the success or failure of one thing.”
Sometimes people think this means holding investments at several different companies. It really means diversifying your money into several types of investments, not spreading investments across different institutions.
This makes sense to me because when we’re working with clients in financial planning, we’re looking at the total picture, which includes all investments and sources of income.
When new clients set an appointment for a no-obligation consultation, we like to send out a checklist of items that are useful for our initial meeting. The list includes the following:
- Copy of most recent IRA, 401(k), pension, profit sharing, and/or employee benefit statements. (Please include your current contributions and your employer’s contributions.)
- Copy of most recent Social Security benefits statement. (ssa.gov)
- Copy of most recent brokerage
- List of all banks and/or credit union accounts that are relevant to your retirement plan. (Please include both checking and savings accounts, with current )
- List of all CDs, including maturity dates and interest
- Copy of most recent Federal income tax
- Life and/or long-term care insurance policy
- Beneficiary information: name, address, Social Security #, date of
Most people are grateful that we have a checklist, but question why we are requesting all the information because they’ve never experienced this from their current financial advisor or brokerage firm.
Getting a Full Financial Picture
It’s very understandable to be cautious, but when people understand our reason for asking, they are more at ease. We need a full picture of their financial assets, debts, income, expenses, and taxes so we can position them to meet their goals in a tax-efficient way while respecting their risk tolerance. Having investments scattered at different financial institutions with no plan and getting different opinions is the most common situation we see. Unfortunately, the recommendations are based on a sale, and not a financial plan.
So, don’t put all your eggs in one basket simply means diversifying your investments in different asset classes, managing risk, and rebalancing on a regular basis. You don’t have to spread your eggs across multiple investment firms to be diversified.
Having your investments scattered around different intuitions without a financial plan is like taking a trip to an unknown destination without GPS or a map.
You might get to the destination but by the time you arrive, you discover there is a more efficient way to get there with better roads. In the financial planning world, a comparison would be a person who has saved enough for retirement but missed income tax planning opportunities or who could have spent more during retirement without the fear of running out of money.
You may arrive later than expected because of missing a turn or exit, road construction, or a detour along the way. In the financial planning world, a comparison would be a person who retires too early and thinks they’ll be ok or a person who saves enough in retirement plans but has debt above a mortgage that needs to be paid off before retirement to lower expenses during retirement. Sometimes retirement living expenses are too high because of credit cards or auto loans. If the debt had been paid off before retirement, it eases a lot of stress and anxiety.
You may get lost and never get to the destination at all. In the financial planning world, a comparison would be a person who has a retirement plan offered through the employer but doesn’t participate or does participate with a minimal amount. We also see people participate up to the company match, but invest in the stable account, not getting any long-term growth and missing opportunities. The difference between the first two examples and this one is the first two paid themselves first and paid their bills with the balance instead of paying their bills first and trying to save the balance.
A Financial Advisor Can Help You Along Your Path
Bottom line, why go through the journey of life without having a plan? Bring a financial advisor, who is a fiduciary, along for the trip! They can be your GPS who looks out for you, your goals, your concerns, and helps you arrive at your destination. Financial planning is not an event – it’s an ongoing process. Your plan changes as you change and advice from trained professionals based on your financial plan can be the difference between failure and success.
For more information, or to schedule a no cost or obligation consultation, call 816-259-5060 or contact us online.