9 18 97 MSAs Guest Steve Burke

Indeed, I am.

Good question. Financial planning basically is a manner, a strategy of accumulating money for the things that you want later on in life. It could be 5 years from now or 10 years. Generally it refers more to retirement times but it can also involve education, vacation planning, that type of thing.

All of the above.

Yes. Right. Yeah. Actually, there are many people in the professions that you mentioned who do it and then there are in the last 10 years a group of people who are certified as financial planners, or with the CLU organization which is life insurance-oriented, CHFC people. But basically the people that you mentioned are quite capable in many cases and do concentrate on it. And then as I said there is a group right now who focus on just financial planning.

Indeed. Right. Well actually that's a very good point. I think that people have a misconception about financial planning. First of all, it is something that you can start early on and it's quite simple. You don't have to get very involved. You can, but you don't need to. And so the idea is that if you can, as you say, graduate from college, pay off your debts. It's a good time to start even modestly with financial planning at that time. And the idea is it's sort of like building a house, in this case, a financial house, what you want for yourself and your family. And if you work with a financial planner or someone who works in that area and let them know what your specifications are, you'd be pleasantly surprised I think most of the time as to how close to your goals you can arrive.

I mean if you're a salaried person, not really at the high end, you still should do some financial planning.

Hopefully not. Financial planners, this is a bit much, but it's not a bad analogy. Properly should be like a family doctor. The first thing that you need to have with a financial planner is good chemistry. Someone who reads you properly, who can repeat to you what you want because you're the expert. People like me are technical assistants. I work for you. I don't work for companies. I don't work for products. I work for my clientele. And my clientele range all the way from people of very modest circumstance to people who are quite affluent. So, it's good to start modestly and if you find someone who says, 'Well, I can't be bothered with $20 a month or something.' It's good to look for another person.

I think so. And again, it depends upon age to some degree as you suggested initially. Timing is everything. And if you have a lot of time, you can afford to thrash around a bit, make some mistakes. On the other hand, as you wait and wait and wait, then you get to the point where you really cannot afford to make mistakes. So basically, as you suggest, it's good to get on with it, even although it's very simplistic initially and then you go from there.

Not at all. No. As a matter of fact, if anything, it becomes, I think, more imperative that the person get right back into the swing if they possibly can because as you suggest, they've used up 15 or 20 or 25 years, and again, they're running out of time at the other end. So by all means, I think the big thing with financial planning with a lot of people if you have a financial planner who as I said is sort of like your family doctor or your money doctor if you will, it is good to have the understanding between the two of you that change which is going to occur as we all know will not be something that will put you off. You may have to step back a little bit or retrench, but the long and short of it is that you just keep a financial plan going all the time. Not unlike for example being at sea in a boat. You set a course and you adjust as you go along because you have a destination.

Lots of products actually. There is no one perfect product. First of all, I think the public recognizes it, but it's important to repeat there are lots of good products, lots of good companies, and lots of good people, but there's no one perfect product. And so, you have to mix and match, or as mother used to say, not all the eggs in one basket. And the idea is you start with the areas that are tailored to you. You know best about yourself. And as a result, when you talk to a financial planner, you should explain what you want, what your goals are, your time frame, your investment capabilities, and what your risk profile is. In other words, how much risk are you prepared to take for how much of a return? All these things are very personal as you can see.

It is. At least I believe it is. Now there may be some people out there that say they can do it. I cannot do that. Actually what we do is we deal with trends. And I think you'll find most financial planners deal with trends. Trading which is in-and-out type of thing is not something that we generally do. As a matter of fact we don't do it. What we do is deal with trends. And it speaks to just exactly what you're talking about, which is as you go through your lifetime, things do impact you financially and socially and economically in all kinds of ways. But you can adjust your plan. And the one basic rule which you should always keep whatever your position in financial planning is to keep your operation flexible so that whatever does occur can in fact be modified as you suggest down the road you can adjust.

Well, yes, you should bother and the more involved you can be, the better. However, you hit a very important point and that is that a lot of people are really not interested enough to get involved. However, it's a good idea to review with your financial planner at least once a year, sort of like your medical checkups. Once a year what your progress is. You don't have to have the specifics in terms of what mutual fund did what, although that should be provided to you if you want it, but rather what kind of progress are you making? Is it to your satisfaction? And if it isn't, why isn't it? One of the things that I generally close my segment of the program with is ask lots of questions. Our job is to respond to you to make clear to you what is happening to your money.

Yes.

Excellent point. Yes. In a word yes. I think that you're going to find medical savings accounts for example is a good example of that. Products of all kind are going to respond to what the people want because in the final analysis it's what you want that's important and what you should be able to get within the letter of the law of course. So there will be many types of products and that's again one of the things that a financial planner should do for you in terms of alerting you to new changes in the tax law, new products, situations which they feel may impact you either positively or negatively. And one last thing about financial planners, if I may, and that is respectfully to your audience, I suggest that they must recognize that a good financial planner is going to tell them the bad news as well as the good news. We don't like to do that, but in all honesty, I think it defeats the purpose of a good financial plan if you don't know the downside as well as the upside.

That's right. Well, exactly. And I think that if I can make it clear again coming back using you if you don't mind as an example.

Okay. If you can tell me as precisely as you possibly can what you want, when you want it, how much risk you're prepared to take, and how much money you're prepared to put into it, I can tailor a plan for you. And when I say I, I think all good financial planners, of which hopefully I'm one, can do for you. So the real key is you. The person who knows you best is you. It would be presumptuous of me to say, well, this is something Janet that you should have. Rather I would like to know what do you want and then let's see if I can arrange it for you.

Never.

Precisely. Yeah. Your time frame starts to close in but you're right.

Yes. There are three basic cost situations. One is a fee only type of situation where the financial planner charges you so much an hour for example like an accountant or attorney. There are others who work on a commission-only basis which is if they sell you something or provide a product for you then they get a commission. And then there are people like me who do either or, not both, either or because I don't think you should be paid twice for the same job. So in a case like that some people for example would rather just say look I want to pay you for your services so much an hour and then I'll go to somebody else and do my business. On the other hand, if we have clients, which we do, who have bought things from us, then my feeling is if there's a commission connected, we should apply that to what our rough fee is.

I certainly hope so.

Right. When Time for Living continues, a second effort salute to some people who are using their pets to put some pretty bright smiles on the faces of some very appreciative individuals. So stay with us.

In recent programs, I've been suggesting that you ask lots of questions relative to the product or strategy being presented to you. One of our viewers said, 'That's a good idea, but what are the questions I'm supposed to ask?' With that in mind, I thought it would help if we talk about mutual funds by asking lots of questions about them, things you should know. One of the first questions you should ask is, 'When I retire, can I receive a certain amount of money every month from the fund or funds?' The answer is generally yes. It is possible to receive a specific amount on a periodic basis or a percentage of the value of your fund or funds. This allows you to anticipate an amount of money each month, quarter, or year for budgeting purposes. It's important that you are constantly aware of the value of your fund so that you don't accidentally decimate your asset. A practical approach is to determine what the 10-year history of the fund or funds has been. That done, plan to take less income than your fund should generate. Example, if your fund has been realizing a 10 to 12% average return, consider drawing down 8% annually. This gives you some protection from overdrawing the account. However, always keep an eye on the balance. Remember, fund values go down and up. You might want to stop or change the income stream you are receiving to avoid a zero balance. What kind of fund should I buy or have in retirement years? Some simple approaches. Funds with a 10-year performance record which impresses you rather than a hot shot new fund which hasn't been around for the downs but only the ups. A fund with an investment philosophy which is in tune with your thinking, conservative, aggressive, or moderate. Diversify your funds. The old not all the eggs in one basket approach. Since there are over 7,000 mutual funds out there, you have a lot of choices. Also, by investing in different funds, you can adjust your risk. Remember, the stock market mutual funds arena is risky. By putting monies in those funds whose objectives seem in line with yours and do some research if only to ask lots of questions. Where can I get objective information? There are a number of sources, Wall Street Journal and Morning Star Incorporated being two of the better known places for information. Once I've invested my money, can I change to other funds or other products? Certainly. But again, make haste slowly because funds go up and down. You don't want to spend your time guessing about timing. Better to stay with a good solid family of funds which allows you to move around in the family and thus minimize fees if you choose to make any moves at all. Generally, it's good sense to ride with a fund or funds you originally picked unless very obviously you have made a mistake. The good funds have a tendency to increase in value, albeit there may be some down times. Can I avoid taxes by reinvesting my dividends, interest, and capital gains with my fund? No, except in those cases where you have a mutual fund or funds in your 401k, IRA, some other form of pension plan or possibly in a variable annuity or variable life plan which have some of the characteristics of a mutual fund and whose returns are tax deferred. If your money is not protected by some of the aforementioned products, you must pay taxes even if you have reinvested the returns from your fund and never cashed a check. What sort of fees or commissions can I expect to pay? There are fees, if only the type called 12b1, which are very hard to define in dollars, but they are there nevertheless. After all, like any business, mutual funds need to be paid for providing their services. In many cases, you have a choice of how to pay these charges. Some of you have heard of no load funds. The fact to keep in mind is that there are fees and/or commissions upfront, in the middle, or at the end of your relationship with any fund. No load simply means they have a way to be paid which is more palatable to some people than load funds which also have different ways of being compensated. It's my suggestion that you use one of the many honest, able representatives available unless you want to do all the necessary homework yourself. Ask them how they get paid and what their commissions and fees are. And don't do business with someone unless the chemistry is good. Your common sense has gotten you this far. Keep on believing in your judgment about people and things. This is Steve Burke. Time for Living.