First of all I appreciate the opportunity to guest write for First Dependable Insurance.  I’ve been a very happy client with First Dependable for 4 years now and I consider writing for your company an honor.

 My name is Greg Phelps.  I’m a Certified Financial Planner, a Chartered Life Underwriter, an Accredited Investment Fiduciary, and an Accredited Asset Management Specialist.  My firm REDROCK WEALTH MANAGEMENT has been helping Las Vegas and Henderson clients achieve their financial and investment goals for going on 8 of my 17 year career. 

 I’d like to explain one of the core investment planning steps I take with every investor, and that’s defining who they are from a personal finance perspective.  This is always the first step in every good investment plan.

 We always start our investment planning process with defining the investor.  Of course you already know who you are, but as your financial advisor it’s critical to gain a solid understanding of exactly what type of investor you really are. 

 Every investor views financial matters in their own unique way.  Investing may be scary, or possibly even exciting.  Budgeting may be challenging, or it may be fun!  Saving may be painful, but you may take great pride in watching your portfolio grow over time. 

 Framing your personal situation in a financial context is first step in your investment planning process.  It helps build a framework for investing wisely for years to come.

 I always start with an in-depth review of your personal finances.  How do you feel about money?  What’s important about money to you? 

 More specifically I like to analyze your assets, liabilities, income and expenses.  Your current and expected finances are a dominant factor in your investment plan.  Every time I refer back to a client’s plan I start with who they are (were) as an investor.

 Are you retired, a young professional, a corporate executive nearing retirement, a schoolteacher, etc.?  A truck driver will have a different attitude about investing than a corporate executive.  Your profession plays a part in your investment planning.

 Do you spend everything you make?  Where does your income come from?  Are you overly burdened with debt that should be paid off first?  Your income and expenses also play a large part in your investment planning.

 How much do you know about investing?  Are you an expert investor and just tired of doing it yourself?  Are you a novice and trying to learn as much as you can?  Do you have some experience, but want to learn more?  Your investment knowledge helps determine the types of investments suitable for your situation, and more importantly how I explain them to you.

 What is your feeling about inflation?  Since inflation is a massive unknown risk to every investor, your attitude about inflation plays a large part in your financial and investment planning.

 Do you expect inflation to increase, decrease, remain the same?  Expectations for higher long term inflation require greater long term investment growth.  Expecting lower inflation rates may allow for more conservative investment allocations with lower returns.

 Guessing inflation rates is akin to playing the lottery however.  No one knows.  Even seemingly obvious economic outcomes rarely materialize.  Not one client of mine expected the markets to soar when US debt obligations were downgraded in the summer of 2011, yet the markets did indeed soar!

 With inflation expectations it’s best to play it safe.  We always start with the assumption that long term inflation rates will remain relatively similar to where they’ve been the past several decades.  In this case roughly 4.5% going back to 1970 as measured by the consumer price index (CPI).

 You already know who you are as an investor.  Yet clearly defining how much investing knowledge you have, how your finances are structured and your inflationary expectations is still important information for your investment plan.

 A Sample Case - John & Jane

 This can be done in as little as a few sentences, for example:

 Jane is a homemaker and I (John) am nearing my target retirement date in 5 years.  When I retire my income will drop by 40% to roughly $55,000 per year as my pension kicks in.  Social security for Jane will start at age 66 in 6 years from now.  Social security for me will start at at 66 in 8 years from now. 

 We have approximately $650,000 in total savings including a $250,000 IRA rollover.  We have an emergency fund of $18,500 and expect an inheritance of approximately $250,000 within the next 10 years.

 We own our home free and clear, it’s value is $350,000.  We have no debt other than credit cards which are paid off every month.

 Jane has little to no knowledge of investments or investing, I have a moderate level of investing knowledge. 

 We expect inflation to continue at long term average rates, approximately 4.5% per year through the rest of our lifetime.  While we’re not risk seeking investors, we understand that some volatility in our portfolio will be necessary to achieve higher long term growth rates.”

 Those statements reinforce who John and Jane are as investors.  They cover their assets, liabilities, income, and expenses.  They also include their knowledge of investing as well as their (broadly painted) financial goals and inflation expectations.

 This may seem trite on the surface.  You’re probably thinking you don’t need to re-visit these personal financial fundamentals, or take the time to document them on paper.  From a financial advisor’s perspective however, this information is critical to defining what’s appropriate for your personal financial and investment planning.

 You wouldn’t build a house without securing the foundation.  Don’t start your investment plan without a full accounting of who you are as an investor and what your personal financial situation is.