This is perhaps the most important step, and certainly a vital part of your portfolio management process. We have found that in almost every case, when a client has their financial house in order, they always feel better and more empowered to consider financial opportunities and, ultimately, to make choices about their money that result in positive outcomes and gains.

Putting Your Finance Portfolio In Order

Financial organization is the process of pulling together everything you have, so you know what you have, where it all is, and how much it’s all worth. It’s like a puzzle that comes in a box with a picture on the front showing what the finished puzzle will look like. When you first open the box and dump the pieces onto a table, it’s a big jumble that doesn’t look like anything. You start by finding the four corner pieces, then you find and assemble the edge pieces. You continue by filling in all the middle pieces until the puzzle is completed and looks like the picture on the box.

Think of the picture on the box as your retirement vision. All your financial resources are the pieces that we put together to realize your retirement vision.

Portfolio Management And Analysis

This step is about taking an inventory of all your financial holdings, income resources, and debts. This includes holdings owned in various asset classes, income resources such as Social Security and pensions, and both short- and long-term liabilities. The main objective here is to clearly see what you have, where it is, and what it all adds up to.

When we supervise this activity for clients, it is almost always an eye-opening experience. Most people have only a general idea of what comprises their holdings. Upon completion of this step, the majority of our clients are pleasantly surprised by what they actually have and how much it’s worth, and in some instances they actually uncover assets they had forgotten about.

As soon as all the assets are inventoried, we calculate your Net Worth. This is total assets minus total liabilities. Net Worth is a very important number. It represents the sum total of all the financial decisions and choices you have made over the years, both good and not-so-good. More importantly, it is the primary number we use to track how effectively our clients’ money is being managed by them, us, and/or others. We use their initial Net Worth as a benchmark that we refer back to periodically to assess our clients’ financial condition and progress.

Why We Calculate Your Net Worth

It’s important to understand that Net Worth will do one of three things over time:

  • Net Worth will increase – this assumes that there is a positive cash flow and returns on investments are consistently positive.
  • Net Worth will remain steady and fluctuate only slightly – this equates to cash flow and returns being about breakeven over time.
  • Net Worth declines – if Net Worth is consistently declining, this is obviously a concern. However, for people in retirement, declining Net Worth is not necessarily a problem. During retirement, it is not unusual to experience a reduction in income that may necessitate more reliance on savings withdrawals to cover expenses. Returns on investments may also be reduced based on more conservative stock market allocations.

It is essential to carefully and systematically keep track of your Net Worth during retirement and to manage it correctly. If it does begin to trend lower, we do not want it to decline to the point that you experience financial hardships and are forced to make sacrifices to your standard of living and desired retirement lifestyle.

This is why our clients establish a benchmark Net Worth number. This number is used as a reference going forward to track how Net Worth is trending over time – up, unchanged, or declining.

When We Meet With A Client

Each time we meet with our clients as their financial advisors, we update their balance sheet and inspect their Net Worth, then compare it to the benchmark Net Worth number. Based on findings, we proceed accordingly, making necessary updates or changes to their retirement plan.

This step is completed by way of our “Planning Site” software that makes the process of completing a financial inventory quick and efficient. It also makes it simple to maintain a state of an organization so our clients can monitor all aspects of their finances, including Net Worth.

This crucial step is about establishing and maintaining a high degree of financial organization to enhance financial efficiency and your ability to evaluate financial choices, maximize returns, and avoid losses.

Contact the financial and investment advisors at ProIncome in Walpole, MA, today to get started on your retirement planning process.