What separates the rich from the struggling? Diligence in financial planning.


During his 30 years in the wealth and investment management industry, Clark Kendall has seen fortunes rise and fortunes fall. But the one constant he finds between the wealthy and the financially challenged is how diligent they are in developing a financial plan.

People who live below their means, who are conservative savers, and who take advantage of things like 401(k)s, employer health insurance, and “529” college savings plans are the ones who eventually pull through, he says. “It’s the people who do their due diligence and look into these things without money” who end up with multi-million dollar accounts, says the CEO of Kendall Capital in Rockville, Maryland.

Doing a financial checkup at the start of each year can help you avoid unpleasant surprises, keep your investments on track and reduce your taxes. Such a review can be especially helpful now that the pandemic is waning and people are reflecting on what has changed over the past two years. “It’s not a process to dread, but rather an opportunity to reflect, reevaluate and renew,” says Kendall.

Here are some considerations:

Rebalance and reevaluate

With many investment portfolios plump after a bull market and the Federal Reserve poised to raise rates soon, investors should consider whether their investment strategies remain appropriate, says St. Louis senior adviser Garrett Reeg.

It suggests rebalancing if your portfolio has become overweight equities relative to your target allocation. The strong outperformance of tech investments over the past few years, for example, could change if we head into a lower growth environment with higher interest rates, he says. It’s important to understand and be comfortable with your allocation when markets experience volatility like the one we’ve seen recently, he adds.

Stephen Tally, managing director of Leo Wealth in Dallas-Fort Worth, advises monitoring your investment fees and expenses, which can change from year to year, and considering any new investment options that have been added to retirement plans like 401(k)s.

“You want to own the best investment possible, but all things considered, if you can have the same type of investment but at a lower cost, go for savings,” he says.

Meanwhile, advisers say investors in workplace plans should review contributions and investments and determine if adjustments are needed. If you’ve changed jobs, received a raise, taken a part-time job, or welcomed a new family member, you may need to change your contribution level.

Tally says he’s had many new clients who only contribute to their plans the amount their business will match, even if they’re able to contribute more. Since employer-qualified plans are tax-deferred, contributing more is an easy way to lower your taxes, he says.

When reviewing your contributions, it is essential to determine if your liquid assets, such as cash, bank accounts, money market accounts and life insurance cash value, are sufficient.

Increasing your 401(k) contribution is not a good idea if you lack liquid assets, Linda Grant-Smith, a senior financial planner based in Nashville, Tennessee, tells Baird, noting that many people have lost their jobs during the pandemic. and some are now underemployed. “How are you going to pay your bills if all your money is tied up in 401(k), IRAs and other qualified assets? That’s pretty hard to achieve,” she says. “Liquidity equals flexibility.”

She recommends contributing at least the amount your employer will match into plans like 401(k)s, then saving at least six to 12 months of expenses outside of retirement accounts.

Reconsider insurance policies

Insurance policies are often overlooked, but advisors say that’s a mistake because changes in your financial situation could leave you overinsured or underinsured.

Young families often purchase life insurance to replace lost income to care for dependents and cover other household expenses in the event of the death of a working spouse. But Kendall says many don’t revise that policy once their savings are enough to support their spouse and children. With term life insurance, premiums can rise sharply after the set term is over, so it’s important to consider whether you still need the policy, he adds.

If your wealth has increased significantly, you may need to consider supplemental insurance. Those with a net worth of $2 million or more should consider an umbrella insurance policy — liability insurance that covers claims that exceed their owners’ usual coverage, automobiles or boats, Kendall says. It’s essentially a defense against exorbitant multimillion-dollar claims, such as drifting lawsuits, he says. Many assume that their retirement funds are protected from creditors, but this is not necessarily the case.

Tally suggests revisiting all the insurance decisions you made years ago. “The right amount of insurance is just as important as your cost,” he says. If your car insurance’s collision coverage maxes out at, say, $50,000, with the price of cars today, you could easily exceed that amount in the event of an accident, he says.

Reeg says he will compare property and casualty insurance policies to those available on the market every two or three years to ensure they are still competitively priced. “Often you can switch carriers and get pretty decent savings while still having the same or better coverage,” he says.

Websites such as assurance.com and politicsgenius.com provide quotes from multiple insurers so you can compare and find the best coverage at the best price, Kendall says.

Digitize your credit file

Your credit score impacts the loan rates you can get and the insurance premiums you pay, among other important financial matters, so it pays to review your credit report regularly.

Grant-Smith recommends checking credit reports at least once a year and signing up for a service that will notify you if there is a problem with your credit. Some free services allow you to check your report without affecting your score, and there are also low-cost services available, she says.

She also recommends checking the credit reports — whether it’s a split credit card or a car loan — of young people as soon as they start spending on their own. “Sometimes identities can be stolen, even children’s,” Grant-Smith says, “you wouldn’t know unless you checked their credit report.”

Write to retirement@barrons.com


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