Thinking ahead about how investing can support financial goals is the purpose of planning. Naturally, there’s lots of talk about common planning targets: retirement and college. But there’s also consideration of how to achieve multiple goals at various stages of life — whether covering basic needs or leaving a legacy — and how taxes and tax planning could impact results. Articles in the planning category allow you to clarify how today’s decisions can impact efforts to grow, manage, and maintain wealth.
I learned a harsh lesson about portfolio turnover during a recession. I was forced to pay capital gains taxes on distributions of a long-term mutual fund holding, even though I didn’t sell any fund shares and even though the fund value had dropped more than 20% that year.
This experience taught me about portfolio turnover and related expenses, including taxes (along with the generally wise and tax-efficient approach of purchasing mutual funds for tax-advantaged accounts, not taxable ones). Since then, I have paid more attention to this notion, not in fear of turnover but recognition of its potential costs and benefits.
So, what is portfolio turnover and why does turnover matter?
Getting financial guidance should be straightforward. But, in my experience, the process of seeking expertise can take me down the wrong path if I’m not careful. Here’s how to recognize the right path.
In a meeting with a financial professional, I may freeze up when quizzed about financial goals, fret that I haven’t accumulated a fair amount of money based on my age and income, or fear being judged for past mistakes. Worse, I may get frustrated if a professional establishes financial targets that are out of sync with my capabilities or recommends products that seem pricey or not aligned with my expressed needs.
I have written about what shouldn’t happen in a financial advisory relationship. But knowing how things should proceed is equally useful. Recently, I spoke with Peter J. Creedon, CFP (Certified Financial Planner), ChFC (Chartered Financial Consultant), CLU (Chartered Life Underwriter), and founder/CEO of Crystal Brooks Advisors, a Registered Investment Advisor (RIA) in regard to common misperceptions about financial planning.
He dispelled common myths and explained how the planning process ought to proceed. Here are five myths and truths about financial planning and planners: