Money Talks, So Should You

Q&A: What should I consider when creating an investment plan?

Robert Schmansky
by Robert Schmansky, The Garrett Network (@clearfa)

There are several things individuals overlook when creating an investment plan. Below are just a few things to consider in creating a plan.

1. Do you have an appropriate emergency savings plan established? Emergency savings is a buffer that provides protection against needing to tap into investment funds. It is critical to have at least three months of your net income outside of your investment plan in a cash or money market account.

2. Do you have significant consumer debt? Do you have a plan to get out of credit card and other high rate debt?

3. When do you need the money you will have invested? If you will need these funds within the next five to seven years, you will want to separate this money from your longer-term investments, and be more conservative with it.

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4. What is the length of the drawdown period? Your retirement funds will be withdrawn over a much longer period than money you will invest for college or other one-time goals. Likewise, your retirement funds should be more aggressively invested for the long-run, while it is often not appropriate to invest for goals that may have a short time horizon, and short drawdown period.

5. Besides investments, what other sources will fund your goals? For college your plan may include loans, scholarships or work. For retirement it you may have pensions or expect a significant portion of your income to come from Social Security or work. These resources should be considered in your investment plan, and may impact the amount you will want to invest in riskier assets.

6. What tax advantaged options are available to you? The options to save for retirement on a tax-advantaged basis depend on your income and if you have a workplace plan. For college, a 529 plan can be a good option, but considering all of the above they may also not be worth the costs.

7. What are the costs of the investment options I am exploring? Most individuals are not aware of the high costs they are incurring in their plans. An additional 0.50 percent to 1.00 percent in costs can have a substantial impact on an ending portfolio value.

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8. How much should you be saving? If you are young and don’t have a pension, your target savings rate should be at least 15 percent of your income. To get there, bite the bullet and do 10 percent as soon as you can, and commit to increasing that amount every six months.  


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Robert Schmansky is the founder of Clear Financial Advisors, a fee-only financial advisor and investment manager. Rob specializes in helping individuals, families and businesses create financial and investment plans based on their goals. He is a member of the Garrett Planning Network, National Association of Personal Financial Advisors, and Financial Planning Association.