Financial planning is essential in achieving one’s financial goals. It is the process of managing your financial resources to meet your personal and financial objectives. Financial planning, as per Cody Biggs, involves different elements such as budgeting, investment planning, tax planning, and retirement planning, among others.
Financial Planning: Cody Biggs On Goal Planning And Asset Allocation
One of the critical aspects of financial planning is goal planning, says Cody Biggs. It is an essential component that helps you determine what you want to achieve and how to reach those financial goals. In other words, goal planning acts as a roadmap that guides you toward a successful financial future.
There are different types of financial goals, including short-term, medium-term, and long-term goals. Short-term goals are those that you want to achieve within a year, while medium-term goals take between one and five years. Long-term goals, on the other hand, are those that take more than five years. The specificity and clarity of your goals will aid in creating a more effective plan.
Setting your financial goals is only a part of the process. To achieve these goals, you need to create a feasible plan that aligns with your objectives. That’s why asset allocation is an essential component of financial planning. Asset allocation refers to the process of dividing your investment portfolio into different asset classes, such as stocks, bonds, and cash equivalents. The purpose of asset allocation is to spread the risk of your investment across different classes.
Asset allocation is an optimal strategy that helps you balance risk and return based on your time horizon and financial goals. It involves diversification, which helps to reduce the overall level of risk in your portfolio. Allocating your assets among different classes also helps you plan for taxes and liquidity needs as you approach your financial objectives.
Many investors focus on selecting individual securities, assuming that this will yield higher returns. However, it is worth noting that portfolio construction and asset allocation contribute more to portfolio performance than market timing, security selection, or even market returns. Studies have shown that asset allocation explains more than 90% of portfolio returns.
When creating an asset allocation strategy, you need to identify your risk tolerance, time horizon, and financial goals. Risk tolerance is the level of emotional and financial security an investor is willing to accept in investment portfolios. It’s important to evaluate risk tolerance as some investors may be willing to accept higher risks to achieve higher returns, while others prefer more stable and less risky portfolios.
According to Cody Biggs, the time horizon is also essential when creating an asset allocation plan. Based on the length of time that you intend to hold an investment portfolio, you can choose a suitable mix of assets. Investors with shorter time horizons may choose more stable assets that yield lower returns, while those with a longer time horizon may choose riskier assets that potentially yield higher returns.
Cody Biggs’s Concluding Thoughts
In conclusion, financial planning is an essential process that requires goal setting, budgeting, investment planning, tax planning, and risk management. Goal planning and asset allocation are essential components of financial planning that play a critical role in achieving financial success. Goal setting acts as a roadmap for achieving financial objectives, while asset allocation helps to balance risk and return based on the investor’s risk tolerance and financial goals. Therefore, investors should pay close attention to goal planning and asset allocation strategies to achieve their financial objectives.
Cody Biggs recommends remembering to consider consulting a financial advisor to help guide you in making sound financial decisions. With the right financial plan and asset allocation strategy, you can achieve your financial goals and secure your financial future.