Take Time to Learn Your Critical Numbers

By: Ralph Broadwater, MD, CFP®, AIF®

We all want to know that we have organized our financial life as well as possible so we can accomplish our goals. One of the best ways to make sure that you are “on target” is to learn your critical numbers.

If you have a good handle on your financial affairs, you should be able to quote your personal critical numbers. Take a little time to make sure that you know yours!

Your Critical Numbers

1.  Net Worth

Your net worth is the shorthand for your overall financial condition. All you own minus all that you owe. (Your assets less your liabilities.) You should monitor this semiannually, and take pride in the fact that your net worth is rising over time. It is also helpful to be aware of your total liquid assets. This is your money that is invested to grow and support you in retirement. Your liquid assets are your total asset minus your home and personal property.

2.  Basic asset allocation

The best way to insure investment success is to have a disciplined, organized approach to investing. You should know your basic asset allocation (percentage of investments in stocks and percentage in bonds)

Most successful investors have developed an Investment Policy Statement (IPS) that defines an investment asset mix, criteria for asset selection, and how decisions will be made about any investment changes. If you don’t know your asset mix, that may reflect a poorly organized investment process that could be improved by having an IPS.

3.  Annual investment return goal

You should know the annual return that you are trying to achieve with your investments. Your return is determined by your asset allocation decision (asset mix. A reasonable portfolio annual return goal is between 5-10% depending on your specific asset mix.

4.  Portfolio Standard Deviation

In addition to your investment return goal, you should be aware of the standard deviation of your investment portfolio. The standard deviation is a measure of the risk in your portfolio. This risk is measured as the likely downside (and upside) volatility of your investments. Like your annual return, the standard deviation is determined by your asset allocation decision.

5.  Required investment capital to retire

You should have a rough idea of the amount of invested assets that you will need to accumulate to retire. If you do not know your required capital to retire, this may reflect poor overall financial planning, and may indicate that you have not taken care of the basic issues of having an organized financial life.

6.  Cost of College Education

If you have children, you should know the amount of capital required to educate your children. The cost of college, because of inflation, will be significant and you should plan appropriately so you are not surprised.

Know Your Critical Numbers

  • Net Worth
  • Basic Asset Allocation
  • Annual investment return goal
  • Portfolio standard deviation
  • Required investment capital to retire
  • Cost of College Education

Spend some time and learn your critical numbers. You will have the peace of mind that you are well organized and on your way to investment success and reaching your goals.

®2013 The Arkansas Financial Group, Inc., All Rights Reserved

IMPORTANT DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by The Arkansas Financial Group, Inc.-“AFG”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from AFG. Please remember that if you are a AFG client, it remains your responsibility to advise AFG, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. AFG is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the AFG’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: AFG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to AFG’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

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