After attending one of my recent presentations, “Diane” asked to meet for a consultation. At my office, she shared her goals and concerns and asked for my advice. At no charge or obligation, my team and I carefully evaluated her situation. We then constructed a customized financial plan that allocated her investment monies into various “buckets” to be used at different times and for different purposes.

 

Planning with Buckets: Diane’s first bucket of money was to be an emergency fund that she would maintain with cash in a checking or savings account. We also recommended that she pay off some debt with idle cash on hand. Her second bucket was to be used to create future income. We recommended she allocate a portion of her funds to a low-cost fixed annuity. The annuity “stood in” as the “conservative” part of her overall plan. We screened insurance companies for their financial strength and ratings, and then evaluated their products. We further refined our fixed annuity choice to the “index” version with the option of a fixed rate or a variable rate tied to a stock market index. The purpose of her third bucket was long-term growth, liquidity, and a hedge against inflation. We chose a diversified portfolio of no-load mutual funds and ETFs. We emphasized stocks while minimizing bond exposure (an unnecessary risk for her in light of the potential decline in their value when interest rates rise). Satisfied with the income, flexibility and risk management offered by our customized plan, I presented it to Diane. I walked her through the details and gave her a copy of the presentation to review at home.

 

What You Don’t Know You Don’t Know: We followed up with Diane about a week later to see if she had any questions about our recommendations. Her response was surprising. She said, “I can get an annuity anywhere!” True, you “can get an annuity anywhere.” But that’s like saying you can have open-heart surgery performed by any doctor. Financial products, including annuities, are not inter-changeable commodities. Who are you going to trust to recommend the right one for your situation? Will that person be a Certified Financial Planner™ practitioner who acts in a fiduciary capacity (putting your interests above his own)? Will the adviser independently screen and select the products, or will he only provide products his insurance company or brokerage firm allows him to sell? Will he build a plan that meets specific goals? Diane may not follow through on our well-developed recommendations, but fortunately she is not typical of the clients my team and I work hard to serve. Choose an adviser who puts your interests first, listens to your needs and goals, and thoroughly researches the products and companies he recommends.

 

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