You don’t have to know much to know that the world is a complex place. All you have to do is turn on the television or pick up a newspaper and you are bombarded with alarming concerns – Fiscal cliff, elections, inflation, severe weather, terrorism, sovereign debt crises, recession! Under the simplist of financial situations, these worries can make it difficult to feel like you can make sound financial decisions. And, if you have assets in multiple jurisdictions, it is even more confusing. So, what should you do?
We believe that one of the most important financial issues for almost everyone is one that gets the least amount of attention by a majority of individuals – developing strategies to meet financial goals. In our experience, most people spend much more time trying to reduce their taxes or refinance their debt than they do trying to accumulate wealth to meet long-term goals. Currently, with all the media attention on these big macro-economic issues facing the global community, it is easy to push off planning because “how can anyone know what is going to happen?”
This is precisely why everyone needs to plan. Planning is not an exercise to create a projection that will become reality; it is an ongoing process that allows you to track progress and make changes along the way to better ensure success. When taking a road trip, you don’t just plot a course and go that route no matter what. You pay attention to traffic and weather and make route changes in an attempt to get where you are going in the safest and quickest manner. You don’t just stop planning routes because you are not sure if there will be traffic. Comprehensive global financial planning creates a strong foundation that allows you to easily review your situation, make informed decisions and make changes to the strategy when appropriate. This strong foundation will ensure that proper attention is given to any additional complexities that are unique your situation and will allow your wealth to be managed in a suitable, sensible and tax-efficient manner.
The first step for any type of planning is to know where you are right now. Many people we meet do not have a good comprehensive understanding of what they have and how their assets can be used to help meet their needs down the road. Once you have a good understanding of what you currently have, you can move forward with building the necessary financial foundation to support your needs and goals. The process does not have to be complicated or overwhelming; even if you are dealing with assets across multiple jursdications, a successful planning process boils down to a few basic things:
- Knowing what you have
- Knowing where it is located
- Understanding the tax consequences of what you own
- Understanding what you need/what you want to be able to do
- Targeting what savings are possible in future based on current income and spending
Once you have a good handle on these basics, you can develop a tax-efficient saving and spending strategy with a full understanding of how a change in current spending affects future spending. You also are able to establish parameters on the possibility of meeting a future goal.
Sometimes, we hear that something “is not for everyone.” While that may be true for options trading or mountain climbing, we do not believe that this applies to financial planning. Everyone needs financial planning. However, planning is only valuable if it is very specific to your situation and you take the time to implement the actions at the end of the process.
Planning is not just for people going through a specific transitional event (for example – retirement, marriage, college, etc). Even if you have made sound decisions and engaged in planning in the past, what you have now may not be appropriate in the future. For example, prior to 2010, most employers did not have Roth 401k options nor were Roth IRA conversions available to most of us with IRAs. A plan at that time would not have considered the Roth options. Similarly, in years past, holding assets overseas was something many of our clients did for a variety of reasons including currency diversification, direct exposure into certain markets, etc. With the passage of the FATCA provisions by the US government, many of our clients are finding that overseas financial institutions no longer want to hold their assets and if they do, there can be serious tax ramifications associated with non-US investments.
While we all think of the planning process as the projections that are created, the by-product is awareness. You become aware of how the rules impact you, the types of securities available to you, and the significant long-term compounding that occurs from increasing rates of return by small amounts through tax-efficient investing. Your advisor also learns a lot about you – your goals, your fears and your hopes. We know this works because we have many clients who are accomplishing life goals that they did not think were possible before developing a strategy. In many instances, it was simply the awareness that led them to understand what was possible.
We are all biased toward pessimism when we are unsure or unaware of our own situation. The key is teaming with an advisor who has the technical knowledge about circumstances like yours and with whom you have a connection. You want your advisor to be fully engaged in helping you to achieve your goals. If you would like to seek advice from a financial planner, please feel free to contact Andrea Solana from Wolf Group Capital Advisors at firstname.lastname@example.org
ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE WOLF GROUP TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN.