what their cash outflows are.
The next thing is to establish some written short-term and long-term financial goals. That gives us the platform to design a prudent financial plan.
DUNAGAN: After the carnage of the last three years, people should sit down with their advisors, find out where they are, and reassess their strategy. So, if they were saving $100 or $200 a month in their 529 plan for their children’s college education and it took some hits, is that amount enough? Investors should look at their stock portfolios, instead of holding on to investments and waiting for them to come back. Decide where you can get the most value right now.
BRYANT: The first thing is to understand that gone are the days where you could buy a stock or a mutual fund and hold it forever because it would perform nicely. It’s also important to rebalance your portfolio quarterly to get your asset allocation back to normal.
Second, I think before you ever buy a mutual fund or a stock, you should know what your exit strategy is, a strategy that is comfortable for you in terms of taking some profit.
CREUZOT: You shouldn’t invest in anything if you don’t understand it. You’ve got to take some responsibility, do some reading, and learn on your own.
WILLIAMS: Investors should also re-evaluate
how much debt they are in. If they have an exorbitant amount of debt, then I don’t think they should be investing until the debt has been reduced.
Also, they need to evaluate how much liquid assets they have for emergencies. If there isn’t at least three-to-six-months worth of emergency money sitting in an account, then they’re just shooting themselves in the foot. People need to look at their disability coverage. What would happen to them in the event that they are injured? Many people think that they have coverage at work and they don’t. These things are paramount and should be considered before a person decides to invest.
B.E: Are there any tax strategies related to the current tax proposal by President George W. Bush that you are recommending to your clients?
DUNAGAN: One of the things people should take advantage of is the catch-up rule for 401(k)s. [The government has] increased the amount people over 50 can contribute over time, and I think it’s a good thing to contribute more if you haven’t fully funded your tax-deferred retirement plan yet.
CREUZOT: People should consider increasing the amounts they place into tax-deferred accounts. Even those who are under 50 should look at their deferral percentages to make sure they keep pace with the additional monies that they can legally defer due to changes in tax law.
CLARK: With the possible elimination of the tax on dividends, investors may want to adjust their portfolios to include companies that are offering dividends, particularly if they are conservative investors.
WILLIAMS: And as it applies to single individuals who earn incomes of less than $25,000, they can get a return of contribution credit for elective deferrals and their IRAs. That’s very important