Prudent Portfolio: Looking Ahead to Your Financial Future a Smart Move

By Kevin Peters

Writers’ workshops seem to be very popular, and of the myriad literary classes offered – how to write a children’s book, how to craft a query letter, how to pitch an agent – one that is de rigueur seems to be memoir writing. Many would-be authors, it seems, are intent on immersing themselves in their own history, bringing to life on the page some essential moment of their past.

For many, the experience of reliving or retelling the past can be therapeutic, bringing valuable insights to the present.

But when it comes to finances, looking ahead, rather than back, may be much more helpful.

The financial success of previous decades should not necessarily be compared to the present. The 1990s, for instance, when low unemployment, minimal inflation, substantial tax cuts and the burgeoning Internet defined the decade, was a different world entirely.

By the same token, investments that profited yesterday may not continue to do so today; what worked in the past may not work in future. As many financial professionals will note, past performance is no guarantee of future results.

A better strategy might be to map your financial future: your expectations, your needs and your goals.

Pinpoint your starting point

Where are you now financially? Document the elements you already have in place. Draw up a list of your assets (401(k), bank accounts, Roth IRA, etc.) as well as your liabilities (living expenses, student loans) to give yourself a complete picture of your finances at this moment.

Map out your milestones

Where do you want to be in five, 10 or 20 years? Do you see marriage in your immediate future? That means budgeting for major expenditures such as a wedding or honeymoon.

If you expect your family to expand any time soon, sit down; a child can cost some $14,000 annually. According to a recent report, it costs nearly $250,000 to raise a child from birth to age 17, which does not include the cost of college.

The average cost of today’s private college education is $33,480 a year, so the earlier you start preparing, through a 529 college savings plan, for instance, the better.

Consider home

Home ownership may not necessarily be on the immediate radar: millennials, in particular, tend to defer purchasing a home in favor of renting. However, a house can be a valuable asset for the future.

If purchasing a home is one of your goals, consider this: the median home value in Westchester is currently about $557,000. Even though the average down payment has dropped to 5 or 10 percent, that still could mean putting down a hefty $27,000 to $55,000.

Consider career

For women, a pivotal concern is the interruption of career trajectory to have a baby. While women, more and more, defer motherhood into their thirties and even their forties, the decision clearly impacts earning potential, in both salary and social security contributions. Gaps in earning years mean less opportunity for compound growth.

Later in life, the career interruption for both men and women may take the form of caring for elderly parents.

Estimate need for a comfortable retirement

Some experts estimate you can retire on 85 percent of your pre-retirement income, adding about 2 percent each year for inflation. Significant costs, such as unexpected medical bills, can dramatically change your numbers, as will where –and how – you live.

Transition your business

If you own your own business, don’t neglect to craft a succession plan. A formalized plan for transitioning ownership of your business may not only prevent nasty infighting, but also can help ensure that your business continues to grow and expand without impediment. Who will take over the business? How will it be configured? A succession plan may be the best way to communicate your core values and guiding vision for your business.

Write a will

Your will is key to leaving the legacy you desire. Will you leave your assets to your spouse, partner or children? How will you divide your estate? Will you support a favorite cause, charity or community organization? Or create a philanthropic foundation? A will is critical to direct the disbursement of your estate.

In many ways, your will is your personal memoir; it tells the story of your personal wealth over your lifetime, and how you, the author, wish to be remembered.

Digging up the past can reveal treasured memories and a trove of historical information. But if your goal is to build and manage your personal wealth, better to look to the future.

Kevin Peters is a financial adviser with the Global Wealth Management Division of Morgan Stanley in Purchase, NY. He can be reached at 914-225-6680.

The information contained in this column is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be suitable for all investors as the appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Wealth Management, or its affiliates. Morgan Stanley Smith Barney, LLC, member SIPC.