photos courtesy of Gary Morrison

Sound Financial Decisions

Sound Financial Decisions

Here are the basics for making sound financial decisions.

GRIS Planning Process

We use a simple four-step planning process to help clients reach their financial goals called “GRIS.” It stands for:

Goals – Let’s be clear about what you’re trying to accomplish in terms that are important to you.

Risk – How much chance do you want to take that you may not reach your goals, always remembering Steve’s Rule #1: TNSFL (There’s No Such Thing as a Free Lunch)? If you want less risk, you’ll have to save more, spend less, accept less investment return — or some combination of these. If you’re willing to accept more risk of failure, you can save less, spend more and hope for more investment return.

Invest – Investing without a plan is like setting out on a hike without a map – you may get there, yet your chances are better with a plan. We’ll help you create your personal Investment Policy Statement (IPS). Once you have a plan, follow it. Otherwise you’re likely to wander into the wilderness.

Save/Spend – These are two sides of the same coin. When it comes to any asset, you’re either saving or spending it. The right amount of savings will help you reach your goals. The wrong amount of spending will keep you from your goals.

Four Cornerstones for Investing Before Retirement

While you’re saving for retirement, there are four investment building blocks. They are:

  1. Know your risk tolerance and time horizon for when you’ll need the money
  2. Diversify among different asset classes
  3. Use index funds
  4. Arrange your investments according to a core and satellite approach. The core is a mix of index funds in different asset classes. You use the satellite to invest in areas of special interest that you think have the chance to give you greater gains.

Three Buckets Investment Approach After Retirement

After you’re retired, you need a sound way to draw down your retirement savings. The Three Bucket approach works like a charm after you’re retired and it’s as simple as it is effective. Here’s how it works:

Bucket One – one year’s worth of expenses in a no risk money market fund or savings account.

Bucket Two – a series of CDs or the highest quality bonds with specific maturity dates from one to 10 years from the date you start retirement. Each year, when one of these instruments matures, you cash it in and use it to fund bucket number one.

Bucket Three – a well-diversified mix of index mutual funds that invest in U.S. and non-U.S. equities and Real Estate Investment Trusts (REITs). The goal is to hold the assets in this bucket (except to rebalance it once a year) until you need to refill bucket #2 once every 10 years or more.
We have written several articles on investing to amplify these points. Visit the Free Resources page of this Web site to learn more.