3 Common Mistakes To Avoid When Making A Financial Plan

NEW YORK, NY – APRIL 4: Traders and financial professionals work on the floor of the New York Stock Exchange (NYSE) ahead of the opening bell, April 4, 2018 in New York City. The Dow dropped over 300 points on Wednesday morning after China announced new tariffs on 106 U.S. products. (Photo by Drew Angerer/Getty Images)

Successful investors understand the importance of creating a well-thought out long-term financial plan. A pilot would not fly an airplane without having a well-thought out flight plan about how they will execute their next flight and contingencies that may arise. The same is true with financial planning and is just one reason why so many people under-perform their goals each year. Drafting an intelligent financial plan is just one way for you to get ahead of the crowd and make sound investment decisions on Wall Street. That said, here are three mistakes investors make when drafting a financial plan:

1. Create A Comprehensive, Not A Narrow Plan:

Stepping back, one big mistake most people make when creating a financial plan is that their plan is too narrow. A good financial plan is one that is comprehensive in nature and can cover all areas of your life, not just one area like an investment portfolio. Focusing on tax issues, risk management, estate planning, and long-term care needs are all critical to creating a solid long term financial plan.

2. Create a Balanced Portfolio But Fail To Re-Balance At Least Quarterly

Another common mistake people make is creating a balanced portfolio but failing to re-balance on a regular basis. When you create a balanced portfolio, it is important to maintain the portfolio balance as the market ebbs and flows. The original portfolio can and will change over time as events like market rallies naturally increase overall equity exposure or retirees take required minimum IRA distributions that may cause an over or underweight to equities. These are just a few reasons why it is important to ask your advisor if your portfolio is in balance and continues to match your financial plan.

3. All Talk, No Action

The third mistake people frequently make with respect to creating a financial plan is they take the time to create a plan, but then fail to follow-through and take action. Robert ”Buzz” Law CFP® CKA® President of Creative Financial Group with $1.2 billion under management told me, “The key is to follow-through and make sure the client actually follows your plan. What good is having a financial plan if you don’t take the time to follow it? Yet, so many people are stuck in this situation.

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