Building a Strong Financial Future – The Power of Planning

There is an old adage that the more I plan, the luckier I get! There is another old adage that failing to plan is planning to fail. While having a financial plan does not guarantee a successful outcome, not having one is a little like setting out on a trip without GPS or a map.

At Innovative Asset Advisors Group, one of our primary goals is to deliver the highest level of client service. We believe that our relationship with every client starts with developing a solid financial plan. Within this process, we also want to demystify financial planning and break it down to its most basic elements. In its most basic form, financial planning helps you understand how much it costs to be you in retirement and whether your assets, savings, and investments will support this goal.

Developing a Plan

When developing a plan, we start with basic information on a client’s assets to understand the financial parameters of that given client. We start with savings, review 401(k)s, IRAs, and other investment accounts. We take into account any debt a client might have and evaluate any other income or assets, such as rental income, royalties, or any other asset that could be income-producing.

We then focus on goals, such as a planned retirement date, a level of retirement spending, and look at post-retirement medical needs and potential expenditures for long-term care.

Once we have a clear picture of your assets, we then turn to income from your current job. We project Social Security Benefits and also focus on retirement income that may come from pensions and annuities. At this point, we have a clear picture of the assets and the income of a client, and then we move on to current and projected savings as well as expenses. All of this data collection allows us to build a financial blueprint for a client, and like any building, this blueprint is the foundation and the basis from which we build the financial plan.

Understanding Investment Allocation

Before forecasting retirement income and a probability for success, we go through all of the investment accounts to understand a client’s asset allocation structure. Asset allocation refers to the distribution of investments into appropriate categories such as stocks, bonds, cash, and alternative investments. Within stocks, we are looking at holdings in domestic stocks versus foreign holdings. We are also looking to understand the investment styles of current holdings, such as growth, value, large cap, and small cap.

Growth vs. Value, Large Cap vs. Small Cap

What does all this mean?

At a high level, a growth stock is a company that is growing at a faster rate than the overall economy, often within sectors like technology, biotechnology, or other rapidly growing industries. Examples of growth stocks include companies like Nvidia and Apple.

Value stocks are more established companies; they generally exhibit slower growth rates, but they often generate significant cash flow and provide stockholders with cash dividends. Value stocks are often financial companies, industrial, or other mature industries, with examples such as JP Morgan and Caterpillar.

When you hear terms like "large cap" or "small cap," they refer to a company's overall size based on market capitalization — the total market value of its outstanding shares. Large-cap stocks typically represent companies valued at $10 billion or more, while small-cap stocks generally have a market capitalization below $2.5 billion.

We will be publishing more educational pieces to discuss these factors in greater detail. For now, it’s important to understand that as part of the financial planning process, we evaluate all of your holdings to assess how you’re currently structured. From there, we make recommendations aligned with your goals to help ensure your assets are working effectively to support your financial success.

Running the Numbers: Monte Carlo Analysis

Once this analysis is completed, we run your structure through a Monte Carlo analysis, which tests your portfolio against 1,000 different economic scenarios. This helps us evaluate the probability of your plan’s success. A probability of 85% or higher is generally considered to indicate that your plan is on track.

If a client’s financial plan has a lower probability of success, we will then work with them to consider the ability to cut current expenses, increase savings and investment, consider working a little longer, or fine-tune retirement spending.

Realistic Guidance and Honest Advice

In our financial planning exercise, we want to help each client understand the art of what is possible and to help them understand where they may have potential pitfalls. We want each client to achieve their financial goals, but we will always provide an honest assessment and our best advice to help our clients achieve their goals.

Insurance and Tax Planning Integration

At Innovative Asset Advisors Group, we are finalizing a partnership that will give our clients access to over 250 insurance carriers, offering a wide range of solutions including life insurance, annuities, long-term care, and disability coverage. Through our affiliation with The Innovative CPA Group, we’re uniquely positioned to provide guidance on incorporating insurance into tax planning strategies and to help clients evaluate long-term care insurance as part of a comprehensive financial plan.

It's Never Too Early (or Too Late) to Plan

Another word on financial planning is that it is never too early to develop a financial plan. In fact, the earlier you develop a plan, the greater the likelihood of success. The benefit of starting younger is that you have the benefit of time to compound invested assets and to fine tune spending. That said, it is also never too late to develop a plan. Developing a plan will help each person understand their assets, liabilities, retirement income scenarios, and the potential for retirement spending.

Let’s Talk About Your Plan

If you would like to have an in-depth discussion on your financial plan, please reach out to Innovative Asset Advisors Group, and one of our advisors will work with you to develop a plan and an investment strategy.