Do You Have The Perfect Financial Plan?

We have all heard people harp on having a financial plan and investing for the future, but what does that mean?  What happens when you develop your asset allocation, purchase your Dividend Growth Stocks and Dividend ETF’s and have  saved for an emergency fund with a high interest online account like ING Direct?

We have also heard all of the “talking heads” on television talk about diversification.  They are more than likely talking about diversifying within the stock market.  Diversifying between stocks, sectors, and industries as well as between fixed income investments like bonds and equity investments like stocks.  This is usually good advice, but what about other types of investments?  Where do they fit in the picture and how can they help you to further grow and protect your wealth?

What Happens Next?

At Blueprint for Financial Prosperity, they ask what is next in your financial plan after you have successfully accomplished the following:

  • Paid down all your debt until all you owe on is your mortgage.
  • Maintain six months of expenses for your emergency fund in a high yield money market account.
  • Fully fund your and/or your spouses 401k, 403b, 457, etc.
  • Maximize your and/or your spouses Roth or Traditional IRA up to the allowable limit.
  • Invest some money each month in a 529 plan (and possibly even a Coverdell “Education” IRA) for each of your children’s future educations.
  • Set aside some additional money each month and at bonus time into a taxable brokerage account for such goals as that long-awaited trip to the Orient, the sunny vacation property on the water, or even retirement.
  • All your investments are properly diversified by asset type according to your goals, time frame, and risk level.

The article goes on to mention investments in tangible assets such as gold coins or a stash of gasoline, although the latter is difficult to manage.

Diversify Away From The Stock Market!

I would suggest that diversification away from the stock market take into account a variety of tangible assets such as precious metals, raw land (vacation property is preferred), Real Estate, and valuable collectibles or antiques.

You should be aware that these tangible assets typically have narrow markets and can be very illiquid. However, they can be very valuable in times when the stock markets are out of favor and should comprise a small piece of one’s overall investment portfolio.

It is essential that you do your due diligence with every form of investment. Purchasing these tangible assets can be tricky if you are not well versed in the particular niche market. That said, thorough research could yield tremendous value so get out there and test the waters!

I have little in the way of antiques and coins, but I have had some success with Real Estate and I do own some semi-valuable sporting collectibles.

I am a strong believer in diversifying away from the stock market and I prefer rental Real Estate because I am adamant that cash flow is the engine that drives wealth.  Real Estate is the only avenue where the average person can utilize the power of a mortgage as financial leverage to compound their wealth.

6 comments

  1. Hey, Finally one someone is talking about GOLD. Thank You. I would say sell all US investments and wait for the crash.

  2. Invest outside the stock market, because that’s where you want to invest, not to “diversify away” …

    … if you happen to like the stock market; if you happen to like index funds; if you happen to have a 30 year outlook … then – if 75 years of history is any guide – you are almost certain to average a compund 11% return on your money, and virtually certain (well, as absolutely as investing the day before the Crash of 29, but hanging tight through the crash and the next 30 years) to get at least 8.5% compound.

    Hmmm … I wonder what the VIRTUALLY CERTAIN 30 year compound growth rate is on other unleveraged investments?

    Of course, if you want to be rich, you’d be looking for leveraged GROWTH + INCOME investments, anyway (stocks on HELOC + margin; real-estate; etc.).

  3. I am a big, big fan of diversifying outside the market, and I agree that people don’t talk about it enough. Or at all, really.

    However, your suggestions are too scary for me. Over the years, I’ve tried to think of additional alternatives, and I’ve come up with the following:
    1) Pay off your house (that’s sort of like your real estate idea, but not really, because it’s really just about only having to pay taxes and insurance to live indoors–it’s speculating that those things will be cheaper than rent)
    2) Invest in training yourself in job skills that are in demand
    3) Write a book or make another creation that might pay royalties
    4) Invest in frugality skills (such as changing your oil) and tools (such as recipes)
    5) Stock up on things you know you’ll need that won’t spoil (like your favorite sneakers when they go on sale) (still risky–you could change sizes or preferences, get flooded, etc.)
    6) Money under the mattress in small bills and quarters (for natural disasters when ATMs don’t work, for when you need to do laundry at the laundromat, for when you’re eating out with others and want to have exact change)

    And of course insurance.

    And having good relationships with friends, family, your church, and other community groups could give you access to more resources (for example, ultimate frisbee players house each other at tournaments and SCA members do the same for events; friends might dog-sit or bring you to pick your car up from the shop, etc.)

    I wish I knew more ideas.

  4. Debbie,
    these are excellent ideas that I don’t think many people (including me) think about when they approach the subject of investing.
    Thanks for your comments and I will be sure to utilize them.
    You might even see these in an upcoming article!
    Thanks again,
    Tyler

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