Los Angeles, California (PRWEB) February 28, 2014
Significant and unique differences in lifestyle exist in Los Angeles. These differences, for better or worse, affect the cost of living and the quality of life. Bad weather requires higher heating, air conditioning and clothing costs for the four seasons but cheaper home prices compensates. Although established financial principles apply throughout the country, unique differences must be addressed and solved. Comedian and humorist Groucho Marx said, “It all evens out. When you have less hair to comb, you have more face to wash.”
The Following Tips May Help Angelenos To Prepare For Financial Independence
1. Why Wealth Management?
A financial planner reviews, analyzes and makes recommendations for a client’s cash flows and budgeting, income taxes, insurance coverage, investments, and retirement and estate planning. Implementation, including preparation of tax returns, drafting wills and trusts and managing investments, is often handled by different specialists as they involve different areas of expertise. A wealth manager, who is generally a Certified Financial Planner designee and a registered investment advisor, does both. We believe that investments cannot be properly managed without a thorough understanding of one’s finances and goals because every financial situation is unique. Smart financial decisions are needed to resolve conflicts between needs, wants and resources. Managing wealth involves much more than investments alone. Your financial success should be carefully and purposefully planned, not left to chance.
2. How is Los Angeles different?
The positives include clothing for moderate weather, a healthy lifestyle with outdoor sports and exercise, and plentiful college and professional sports. There is a diversity of cultural venues for music, art, museums and theater. The negatives include high home prices, high taxes and horrific traffic. These opportunities and obstacles create special planning discussions and solutions.
3. Reduce expenses with electric, hybrid and fuel efficient cars.
If you can’t avoid long commutes and bumper to bumper traffic, reduce the cost of gas. Incentives with electric cars may include tax credits and passes to use the carpool lane for single drivers. If possible, living closer to work and telecommuting will save money, time and stress.
4. Buy versus Rent?
A home is often the best investment for appreciation, tax benefits and psychic gratification. Rentals may initially provide lower monthly costs but without any investment potential, tax benefits or protection against rising costs. Today’s low interest rates help to make buying affordable and attractive, provided the monthly costs are manageable. A 20% down payment and 80% mortgage is ideal, but it should not exceed 90% of the purchase price.
5. Avoid bad debt.
Not all debt is bad. Avoid credit card debt like the plague because interest rates are too high and they are not tax-deductible. 30-year fixed mortgages and equity lines of credit (HELOC) at low, deductible interest rates are desirable. Set up an emergency fund to prevent future problems that sometimes lead to bad debt.
6. Begin with a financial plan.
No one plans to fail but most fail to plan. Financial planning involves a review of all the items listed in #1 above. Goals and objectives, needs and wants, are all carefully identified before a strategic plan to get you to your destination is prepared. Once created, your financial plan becomes your roadmap. Financial planning is truly a process that evolves at different stages of life. Unforeseeable events often occur, priorities change and modifications to your original plan will be required.
7. Invest now and always for financial independence.
Investing is a long-term process. The sooner you begin, the greater the benefit because of compound interest rates. Conversely, the longer you wait to begin, either more money or more risk will be needed to achieve the same result. The first priority is to maximize the benefit of free employer matching funds. For younger investors, a Roth IRA potentially provides greater future value because growth and withdrawals are both free from federal and California taxes.
8. Asset Allocation.
Academic studies conclude that the diversification between stocks, bonds and cash is the greatest determinant of total portfolio gains, beating stock selection and market timing by huge margins. Generally, growth oriented and younger investors should maximize the percent in stocks, while those approaching retirement and retirees who rely on withdrawals from investments for support might increase cash and bonds to 40%, 50% or higher percentages based on age and other factors. Some investors can tolerate big swings in their portfolio in order to attain the highest possible return. Other investors are not comfortable seeing their portfolio value decline, and are willing to accept a lower potential return in order to achieve greater safety of principal. All accounts should be regularly reviewed as personal and market conditions change.
9. Investment selection.
There are many different and conflicting theories. Results vary under different market conditions. Skill levels, technology and fees all contribute to success. After over 40 years of education, study and experience, I believe that no one approach works consistently. Our proprietary process includes what we believe are the best aspects of different approaches. For most individuals handling their own investments with limited resources, we believe that core large cap stock holdings should be in index funds or ETFs. With smaller stocks and bonds, actively managed mutual funds often add value by individual stock or bond selection. Investment selection should follow the asset allocation decision based on the desire and need for growth or preservation of principal.
10. Review, Rebalance and Relentlessly commit to written goals.
Every plan loses effectiveness with time based on future events. The plan should be a living document that is regularly reviewed for timeliness, updated as circumstances change and followed relentlessly as your game plan for success. To help minimize risk, the portfolio should be rebalanced at least annually. For example, if you chose to place 10% at risk in small stocks and they double in value, you now are taking twice as much risk. To keep the desired risk constant, sell 10% and invest the proceeds in assets that declined. Taking profits and buying low helps to reduce risk and improve returns over time.
The financial principles above will help any serious person willing to make smart decisions to succeed in life. Deciding what you want, assessing your resources, preparing a written plan and relentlessly committing to do whatever it takes to achieve it is a recipe for success. Most people fail to plan because it is hard work. Wishing for more is a start but planning and committing to an effective action plan creates results. Follow the byline of Nike: Just do it! Get started and then refine, change and adjust later. Once you are committed, get a qualified financial planner who you trust to act as your coach. A trained and detached professional can be valuable to focus on issues and resolve emotions. The approach is not perfect but it has worked for others and can work for you. I wish you success in creating your bigger future.
Marv Kaye, J.D., CFP®
Kaye Capital Management
11835 West Olympic Blvd., Suite 385E
Los Angeles, CA 90064
310-207-KAYE (5293) Telephone