Post-September 11 financial planning - Economics

USA Today (Society for the Advancement of Education), Jan, 2003 by Joe Rob

* Inflation is a virtual nonissue.

* Audited corporate financial reports are sacrosanct.

Does this sound familiar? Such assumptions were the virtual cornerstones of many financial plans a few years ago.

Relevance

Most of those assumptions are about as relevant today as vacuum tube technology. So what is relevant? What should financial advisors be telling their clients? Even more important, how can they help them?

Despite my earlier contention that there may be historical precedents for today's investor paranoia, when it comes to looking for guidance in terms of investing, history fails us somewhat this time. That is because the long-term numbers, especially the 10-year performance figures financial advisors have all confidently recited millions of times to allay a client's fears or performance disappointments, remain strong.

The Dow Jones Industrial Average still shows a historically consistent annual return for 10-year periods, but, by June 30, 2002, the five-year numbers had slipped to 5.6% from 11.1% on Dec. 31, 2001. While the 10-year numbers continue to reflect the 1990s bull market, the five-year numbers are beginning to be eroded by the recession and post-Sept. 11 volatility. Will the market recover in time to keep the long-term figures from being seriously affected? What are "normal" or "realistic" expectations today?

No one really knows what will happen near-term. The much-advertised recovery always seems to be just around the next corner, and seemingly each day the markets are being battered by yet another corporate accounting scandal. To plan accordingly today means being prepared to exercise all options.

The first step is to take thorough inventory of your financial superstructure--mutual funds, stock and bond portfolios, insurance, tax strategies, retirement plans, trusts, everything--so that they can be realigned in light of today's realities. A qualified professional financial advisor--someone who is not simply a "stock picker"--can be a big help in this process. In times like these, most people need the assistance of someone trained and experienced in combining the many financial tools and techniques available into a cohesive, goal-directed financial plan.

Advisors who are affiliated with full-service providers of products and services will have a distinct advantage in today's turbulent environment. More than ever, financial plans have to be cohesive. A good financial planner will know how to combine products and techniques creatively, so that they work synergistically and in concert with each other to help you reach your goals.

An advisor can assist with some of the more-difficult questions, too. For example, due to the market reversals of the past few years, many people are playing the waiting game, waiting for prices to come roaring back to their former levels.

What might make more sense would be to take advantage of lower prices by selling some holdings and diversifying into other types of investments (whose prices are also down right now). Or, as an alternative, you might use the assets to establish trusts. They can produce an income stream, provide tax advantages, and even enable you to ensure how your assets will be used by heirs.