Should I Invest in Facebook?

If you follow any news sources, you have definitely heard about the stock market debut of Facebook, the social networking giant.  Although I never give specific recommendations about individual stocks, the IPO of Facebook is a good opportunity to review some basic principles of sound investing.

Facebook became available for purchase to the average retail investor this morning after a long period as a privately held company.  The social networking site has over 900 million active members worldwide and is extremely well-known and broadly utilized.  For these reasons alone, many people assume that it would make a great investment.

Investing is using money or capital in order to gain profitable returns, such as interest, income, or appreciation in value.  How does a share of Facebook fit into this definition?  Facebook debuted on the NASDAQ exchange today with a market capitalization (share price x shares outstanding) of over $100 billion, representing approximately 100 times its profits from 2011.  Most publicly traded companies trade for 10 to 15 times their annual profits.  Facebook shares do not currently pay any income.  In order to achieve a profitable return, the share price would have to continue to increase.  Anything could happen in the short-run, but a long-term appreciation of Facebook shares is only possible with dramatic increases in revenue and profitability of the company.  This will require charges for services that are currently free, additional advertising that could drive away users or other new sources of revenue that don't currently exist.  Although I will never claim to predict the future, Facebook has a long ways to go until it pencils out as a sound investment in my view.

Prudent investing requires appropriate assessment of risk, diversification and discipline.  Invidividual stocks come with a risk that is too high for most common investors.  Diversification requires that an individual own many different types of investments in order to spread risks across various companies, sectors and economies.  Discipline is also required to achieve consistent, positive, long-term investment returns.  The unpredictability and short-term, emotional movements of individual stocks do not cater to the sound discipline of a prudent investor.

There are other investment considerations that I haven't discussed here, but my simple recommendation would be to use Facebook as the great social networking tool that it is and only use it as an investment in a broadly diversified portfolio.

Happy New Year!

Although the new year is just another date on the calendar, it does give us an opportunity to reflect on the past twelve months and how we might make the coming days better.  Many parts of our financial lives do reset with the beginning of the year, so I would like to offer some recommendations for improvement.

1)  Keep better records - This isn't just for the detailed personalities out there.  There is a lot of insight and power that can only come from accurate recordkeeping.  There are even simple solutions like Mint.com that will do most of the work for you.

2)  Accept the past and start fresh - Although real estate troubles or job changes might have changed your financial situation, you can reboot and develop a new financial plan for your current realities.

3)  Reduce clutter - This might include closing some unused accounts or consolidating some old investments.  Less clutter in the practical areas of our lives allows us to focus more on the things that matter most.

4)  Live life more efficiently - There are lots of small things that can be done here.  Reducing unnecessary shopping trips, replacing inefficient light bulbs or appliances and programming your thermastat are just a few.

5)  Insure the important things in life - You should not take insurable risks that could cause harm to your family in the event of an accident or disaster.

6)  Establish an estate plan - This can include a will, health care directives, and a trust.  The first step is to think about it.

7)  Think about your investments - This is an area that can be very costly when ignored for a long period of time.  Each investment involves risks and these should be carefully reconsidered periodically.

8)  Reduce unnecessary debts - There are good debts and bad debts.  Debts should be reviewed, prioritized and paid down in a smart way.  For example - pay down the debt with the highest interest rate first.

9)  Do some math - You might not enjoy numbers, but some basic arithmetic can help your financial security.  Basic assessments of income and outflows and projected future savings balances have to be done periodically to have a sense of realistic goals.

10)  Share what you have learned - Family and friends can benefit greatly from the financial lessons that you have learned through your experience.  Be a good example of healthy habits that will be observed by others.

I could list many more, but this should provide some ideas for many of you.  If this is seems overwhelming, contact a fiscally-minded friend, family member or financial professional.  They would be happy to help!

Are the Markets Making You Nervous?

Stock markets have been more volatile lately, largely due to U.S. and European debt problems.  Although these are significant problems in need of long-term, structural changes, I view investing as a long-term, disciplined process.  That being said, how does one invest for the future but also take advantage of short-term opportunities to strengthen ones financial situation.

As explained by Andrea Coombes in a MarketWatch article posted on September 23rd, there are five things that should be the foundation of any long-term investment portfolio:

Minimize Taxes - Although investment income and capital gains are taxable, there are ways to structure a portfolio to minimize or defer these taxable events.  Gains can also be offset by losses in certain instances.

Control Costs  - Any investment has a cost associated with it, but these costs can be controlled by evaluating management fees and consolidating assets to reduce fees.  Costs can often be hidden or difficult to quantify, so an independent investment professional can assist in evaluating the true costs of various investments.

Diversify - This is as simple as "Don't put all your eggs in one basket."  Investments should be across various asset classes, company sizes and economies.  A large amount of an investor's portfolio in one specific investment, concentrates too much risk in one area, unless that investment is broadly diversified itself.

Rebalance - Different asset classes will perform differently in a portfolio.  Outperformance of one asset class should be realized and then reinvested in an underperforming asset class.  This rebalancing can contribute significantly to the aggregate performance of a portfolio over time.

Be Proactive, But Patient - A plan should first be developed before investing significant amounts of capital.  This plan should include goals and the amount of risk that you are comfortable with.  Portfolio performance should be monitored versus this plan over time and changes can made, if needed.  Accomplishing long-term financial goals is a patient process, though, and no rash changes should be made based on emotions.

Although the news headlines will always affect our emotional well-being, a long-term investment plan with a strong foundation provides a stable backdrop to the ups and downs of our daily lives.

A Tribute to Steve Jobs

Considering that the world lost an icon this week in Steve Jobs, I thought I could offer a small tribute of my own.

Ever since my family purchased an Apple II computer in the early 80s, I've appreciated the products that were influenced by Steve Jobs and his way of thinking.  Technology really is just a tool people use to communicate, create, appreciate other's creations and just get things done.  I've always been excited by the way I could more elegantly and efficiently accomplish things in my life with techology, while also enjoying the process.  This has always been the case when I've interacted with something Steve Jobs influenced.

Considering that this blog is about investing, I also wanted to share some thoughts about Steve Jobs and the business world.  I recently came across this quote from the well-known management consultant, Peter Drucker:
 
"Because the purpose of business is to create a customer, the business enterprise has two--and only two--basic functions: marketing and innovation.  Marketing and innovation produce results; all the rest are costs."

This is something that Steve Jobs understood at an amazingly high level.  From the time he returned to Apple in 1997 until the present, Apple's stock price increased 9,000%.  This was the effect of his focus on marketing and innovation.  As we strive to improve the American economy, we need to think of new and better ways to do things and share this message with the world.  Investing in this innovation will lead to positive returns because of the increased value that is created.  I hope that we can all get to work and be a part in making the world a better place.

Should You Save for Your Childrens' College?

Many parents of young children consider putting aside money for their children's college education a top priority.  As a parent of young children myself, I feel like the current and future education of my children is of critical importance.  That being said, everything has a cost and paying for your children's college is something that you need to be able to afford.  A popular online columnist, Emily Lambert, recently wrote about reasons that you might not want to save for college.  As a financial planner, I consistently discuss the cost of a college education with my clients and how to view this expense like an investment instead of an obligation.  I'm continually surprised when I meet parents who are willing to put up to six figures into private school tuition without any sort of idea about what this "investment" might lead to.

I recently attended a presentation by nationally-known parenting experts, Richard and Linda Eyre about entitlement.  They shared the maxim that "ownership is the antidote of entitlement and also the prerequisite of responsibility."  I feel like we should help our children own their education and future career.  As a result, they are much less likely to feel entitled and more likely to suceed.  Part of this ownership might require them to invest in their college education through savings, scholarships or part-time work during college.  Parents have many responsibilities in rearing their children.  These responsiblities often require financial outlays, but I encourage parents to evaluate their spending regarding their children in order to make sure it is leading to ownership instead of entitlement.

Government Debt and the Stock Market

The headlines the past few weeks have been dominated by political wrangling about raising the government debt limit and the related volatility in the stock market. As a financial professional, I do follow the headlines, but I also try to formulate relevant lessons that I can apply to my own or my clients' situations.

Although there was hope that the discussions between Congress and the President would lead to some significant improvements in the fiscal outlook for America, the resulting bill basically arranged financing for spending that has already occurred. Although big changes still could be coming, the lack of significant improvements in some economies is one thing that has contributed to decreases in various stock markets the past couple weeks.

I think that more people are coming to the realization that the government can't solve our problems. In America, we are our own government and the problems at that level are often a reflection of what is going on in individual homes and families. The solution is ourselves. We should individually evaluate our household finances, our debt situation, our savings and our education to make improvements. Just as America needs a new plan for government revenues and expenditures, we can each make an individual financial plan to improve our lives. It can start with small changes and eventually we'll see improvements at a higher level. Let's return to what made America great and get to work!

Do you have control of your finances?

As I talk to family, friends and prospective clients, I often hear about financial challenges. Most people have financial challenges. If not, they would almost always like to be in a better place when it comes to their financial well-being. I try to remind people that the challenges aren't always the problem. The problem is often the fact that people don't have a clear picture of their financial situation. Many people aren't even aware of what parts of their financial lives they are in control of. I'd like to review a few areas and offer some suggestions.

A good starting point is a net worth statement and a income statement. In plain English, a net worth statement is a listing off all positive and negative account balances in order to come up with the net positive or negative "net worth." An income statement is a listing of all income and expenses over a chosen period of time. Once you have pulled together a basic summary of where you are, you can start to look at what you can control to improve your financial situation.

Bank Accounts - Are you paying unnecessary fees or missing out on earning interest? Do you have adequate savings?

Investments - Are you taking inappropriate risks considering your stage in life? Do you know what you are investing in and why you are doing it? Are your investments diversified? Have you had a professional assessment of your investments?

Real Estate - Do you have the lowest rate available on your mortgage? Is your mortgage balance appropriate? Are you maintaining your home and only spending money on it in "smart" ways?

Credit Cards - Do you pay more interest and fees than is necessary? Do you even need to use credit cards to begin with? Can you reduce the balances that are incurring interest?

Other Loans - Borrowing money for purchases should be well thought out and should not be a frequent behavior.

Salary - Are you living up to your potential at work? Have you evaluated your career path and what type of spending that supports over the long run?

Monthly Expenses - Which of these are necessities and which of these are luxuries? Can you really afford all the luxuries?

Taxes - Do you take advantage of all available deductions? Do you consider the tax impact of your large financial decisions?

The Bottom Line - Are you living within your means? Is more coming in than is going out?

Gaining control of your finances takes work, just like keeping your body healthy, keeping your marriage strong and teaching your children correct principles. Like all of these things, increased financial control will expand your options in life and lead to greater peace of mind. We are all faced with challenges we can't control, but we also have the ability to take charge and chart the path we want to follow in life.

Retirement As We Know It

There have been quite a few articles written lately about "The End of Retirement As We Know It." There are a variety of reasons for this, which I would like to discuss. I would also like to address the fact that this may also not be a terrible thing, at least from a certain perspective.

Because of the recent financial crisis and downturn in the economy, many of the overly optimistic and irresponsible calculations regarding retirement, investment returns and pensions have been brought into question. The Federal government is being forced to question long-term entitlements and what is realistic. State and local governments and the unions that often represent their workers are being pressured to question the generosity of their pensions and other retirement benefits. Individuals that didn't have a holistic, professional retirement plan are now wondering if they will be able to retire at all. And finally, some people approaching retirement without a fulfilling plan are questioning what they even want to do in this period of their lives. I guess some people are recognizing that many years of government-funded cruise vacations aren't really what we should all be after in life.

All this being said, I am a strong believer in striving for financial independence and in being able to have time in life in order to achieve balance and fulfillment. There are several different ways to get to this point, and a realistic plan often includes a variety of these. One option is the government plan known as social security. This progam was designed with reasonable ideas and intentions, but its current path is unsustainable. Although it will be around in some form for many years to come, I would suggest a muted expectation of how this might fund future living expenses. A second is a retirement plan from a public or private sector job. Once again, some pension plans have not been well designed and will see changes in the years to come, but a well-funded and well-managed employer plan can provide some future living expenses. Finally, and most importantly, is a unique, well-designed, individually funded plan for financial independence or flexibility. This can include well-managed personal savings, a reduced income stream in a fulfilling and flexible profession, or lifestyle changes to free up resources and/or reduce living expenses.

Our lives, minds, and abilities to work, produce and be creative contributors to society are all gifts. Our free society gives us the opportunity to use these gifts. I encourage you to take charge of your personal situation, prioritize your goals and dreams and make a plan to achieve them!

What is a Fiduciary?

I had a prospective client inquire the other day about my fiduciary duty. What is my fiduciary duty in my profession and why would a prospective client care?

A fiduciary duty can be defined as the highest standard of care at either equity or law. A fiduciary is expected to be extremely loyal to the person who he owes the duty (the principal) and must not put his own interests ahead of the principal. Personally, I expect this type of care any time I am entering into an agreement with someone to oversee something of value for me. I have also aligned myself with professional organizations and standards boards that require this level of professional conduct. Unfortunately, it can be difficult to find professionals who will agree to this level of care. We are all inherently selfish beings and tend to look out for ourselves first.

Regulations in the financial world allow for various types of arrangements between professionals and clients. Not all of these arrangements require the financial professional to act as a fiduciary. Because of the sensitive nature and the significance of financial matters in all of our lives, I encourage anyone I come in contact with to consider the types of arrangements they enter into with various professionals to ensure that their needs are being considered first instead of someone else's needs. Feel free to contact me if you are ever in question about a financial relationship and how it should be structured, considering all involved. I have also included a list of valuable websites on this blog that provide resources for finding ethical financial professionals.

Balance & Compromise

As I read the news headlines and follow happenings in the U.S. and around the world, I realize that many of our problems would be solved with more willingness to keep things in balance. We are seeing battles in Congress between taxing and spending. We see disputes between those preferring economic development versus those who want to preserve the environment. We also see fights in families and governments that can lead to heartache and sometimes even violence or wars. As I ponder the problems around me, I wish that more people could consider both sides of the story and compromise to solve problems and move forward.

When I work with individuals to develop a financial plan or manage an investment portfolio, it often comes down to the ideas of balance and compromise also. There are often choices to be made between short-term spending and long-term savings. There is balancing that needs to be done between asset classes in an investment portfolio. Compromises also have to be made between spouses about financial goals. Finally, a compromise is needed in determining how much risk can be tolerated and how much potential reward that might lead to.

A basic understanding of financial principles is something that all Americans could use. As we work to solve some of our state and national economic problems, we could all benefit by taking a look at our individual lives to see how we can bring things into better balance. A more realistic view of finances on the individual level would have significant benefits in solving some of the more significant problems in our country and around the world.

The Complexity of the Tax Code

As the tax season is now upon us, I thought I would address the complexity of our current tax code and offer some of my ideas about simplification. I attended a tax presentation at my local chapter of the Financial Planning Association where the presenter, a CPA, questioned the entire value and purpose of our tax code in its current form. Once certain provisions of the Health Care Act are enacted in 2013 (if they are enacted), we will effectively have three concurrent systems of taxation, an ordinary income tax calculation, an alternative minimum tax calculation and a tax surcharge calculation. Although our government does need to collect revenue to serve certain functions, the method and complexity of the taxation of individuals, trusts, estates, partnerships and corporations has gotten somewhat out of control.

A lot of discussion has been going on recently in America (see this article) about our Federal debt, deficit and method of taxation. I am in favor of dramatically simplifying the current taxation system and using some type of a "flat" tax. Although certain favored deductions would be eliminated, this could be done gradually or with some type of a standardized exemption. The new estate tax provisions are a fairly good example of this, although they are only effective for the next two years at this point. A large $5,000,000 exemption is available to all individuals and a lower 35% tax rate is imposed beyond that exemption. Although simplifying the tax code like this would dramatically reduce the need for various tax and legal professionals, the resources that are currently focused on our tax system could be put to use in much more productive and valuable endeavors. America is known for adaptability and ingenuity when it comes to our economy. I think we should reduce the complexity of our tax system and let all Americans decide how to better use their time and money.

The Efficient Market Hypothesis

So what is the "Efficient Market Hypothesis" and how does it apply to investing? This theory states that it is impossible to "beat the market" because the "efficiency" of the stock market causes existing share prices to always incorporate and reflect all relevant information. If this theory is true, it is nearly impossible to outperform the overall market, and higher returns can only be obtained by buying riskier investments.

A common perception about investment managers and "Wall Street" is that there are some super-smart people out there that know how to make money from investing in ways that no one else does. History has proven that the vast majority of "active" (those who use expert stock selection or market timing) managers do not outperform the markets as a whole. In most cases, the higher than market returns are obtained by taking on additional risk. Many on "Wall Street" also become wealthy by charging unnecessarily high fees for their advice.

If this hypothesis is correct, then what is the best approach to investing? For most people, index funds, exchange-traded funds, or low-cost mutual funds are the answer. Diversification, portfolio rebalancing and reducing costs are the three factors that can best increase portfolio values over time without taking on more risk than the individual would normally be comfortable taking. Like most fields, there are some true principles of investing, and I believe that the "Efficient Market Hypothesis" is one of these principles. I recommend that you look at this article and video for more discussion and advice on this topic.

Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010

As usual, Congress has passed a new spending bill with a long, complex name. Despite the tax savings (tax rate preservation) that comes with this bill, it also includes additional deficit spending, which has become the normal way of doing things in Washington the past several years. Political opinions aside, I will summarize a few of the highlights of this bill:

1) Extension of all current tax rates through 2012

2) Temporary modification of Estate, Gift and Generation-Skipping Transfer Tax for 2010-2012

3) AMT Patch for 2010 and 2011

4) Extension of "tax extenders" for 2010 and 2011

5) Temporary Employee Payroll Tax Cut

The average American might wonder what all of this means. With the exception of the new estate tax rates, Congress and the President have left our tax system very similar to how it is now for an additional two years. Most tax filers will see a tax return similar to 2009 for 2010 and 2011. One temporary tax reduction is the payroll tax "holiday" that reduces payroll taxes by 2%, saving most working Americans between $800 and $2,000 during 2011.

Although keeping tax rates low and temporarily reducing the payroll tax will provide a short-term boost to the economy, I feel that a better, longer-term, strategic approach to providing government services and funding our government is needed. We should let Americans work hard and innovate as they have in the past and the jobs and prosperity will follow. In the meantime, each of us should take a hard look at our personal financial situations and make any necessary adjustments in order to put our individual financial houses in order.

Long-Term Solutions

The bipartisan National Commission on Fiscal Responsibility and Reform has recently released some suggestions about how to reduce the massive federal budget deficit in the United States. One area that is being addressed is Social Security. In order to avoid massive reductions in benefits in the year 2037 (coincidentally the year I turn 65), the commission has recommended taxing more earnings, adjusting the benefit formula and indexing the retirement age, among other things. Although I don't want to debate the political merits of the various proposals at this point, I do feel that addressing significant problems with the federal budget with sustainable long-term solutions is exactly what our government should be doing. Although the outcome is yet to be determined, it is encouraging to see solutions being proposed.

I feel that my role as a financial planner is also to provide long-term solutions. My professional responsibilities can be compared to a doctor focused on health and prevention. I recommend that my clients have a financial "check-up" at least once a year. At these meetings I "prescribe" adjustments that will keep my clients' financial lives "healthy" and avoid "diseases" that might develop if financial "health" is not maintained. As it is in many areas of life, focusing on long-term solutions as opposed to short-term "band-aids" is the key to keeping our households and our nation on a "healthy" path.

Hard Work & Determination

I have heard about several employers recently that have positions to fill but are having trouble keeping them filled due to inadequate employee contributions. The news headlines might tell us otherwise, but there are jobs available to those willing to work hard, develop skills and be adaptable to change and progress. I realize that there have been dramatic shifts in the economy and things aren't the way they were before, but I feel like many of our problems could be solved by some more hard work and determination.

Although there might be a few rare exceptions, the key to a comfortable financial future is based on the same things. A realistic financial plan involves assessing one's current situation, setting realistic goals for the future and then putting in the hard work of saving, sacrificing and being determined to reach one's financial goals. In addition, it's the journey that often provides most of the fulfillment, not the destination.

I recently heard a presentation from a financially independent individual who encourages more hard work. Why would someone who doesn't "have to work" encourage the opposite. He has experienced a period in his life without work and it did not fulfill him. As a result, he has filled his life with meaningful service and reaped the fulfilling rewards that service provides. I would encourage more hard work and determination in all areas of our lives. This is what has led our country to where we are and it is what will help us move beyond our challenges in the future.

The True Principles of Investing

There are numerous sources of investment information in the world, many claiming to have something that will provide an above average return or provide access to exclusive, profitable information. Although I'm open to new sources of investment information, I often view these sources somewhat skeptically until I understand the source of the information and how tried and tested it is.

Although things are changing in the world every day, there are some principles of investing that are as close to truth as it gets in the financial world. First of all, markets work. Various types of investments provide an expected return based on the risk of the investment and markets price these securities commensurate to the risk and expected return.

Second, and related to the first principle, is that investors are rewarded in proportion to the risk they take. This may not seem true in the short run, but over longer periods of time, this is almost always the case.

Third, diversification is a critical investment tool. It allows investors to capture risks that generate expected return but reduce risks that do not. The common phrase for diversification is "Don't put all your eggs in one basket."

Fourth, the appropriate risk or asset allocation is unique to each investor. The various rules of thumb do not apply to every investor. A customized approach considering the risk the investor can tolerate is best.

Finally, costs are variable and should be considered. Although two similar investments may provide similar returns, two investors could end up with vastly different sums of money because of the costs related to accessing these two similar investments. As consumers, we should be aware of the various costs of investing and comfortable with their appropriateness to our situation.

I seek for true principles in any area of my life that help me make more informed, reliable decisions. The investing world has been analyzed and researched for many years in order to uncover what things work when it comes to capital markets. I welcome feedback and discussion as I continue to seek and implement the true principles of investing in my profession.

Uncertainties & Opportunities

The one thing that I become more certain about as life progresses is that life is uncertain. Unexpected illnesses, financial volatility, natural disasters and irresponsible politicians all contribute to this reality. So if this is the case, what is one to do? Considering that this is a financial blog, how does one navigate the uncertainties in the practical areas of life?

1) Expect the unexpected - No matter how certain or predictable something is, consider the alternative. Certain things that were considered reliable in the economy are not as reliable right now, so have a back-up plan in mind.

2) Leave some wiggle room - The American way is often to live life on the edge, take risks and focus on the here and now. America is unique because of our founders' willingness to take risks, but we should consider the risks we are taking on a day-to-day basis and determine if they are really necessary.

3) Accept reality - It is easy to deny dramatic changes in our lives and refuse to adjust to a new reality. When it comes to financial matters, accepting the new reality and making adjustments to it is better than sticking to an outdated way of thinking. This allows for more flexibility is working through challenges and a more reliable plan for the future.

4) Keep a positive attitude - The news headlines and other negative influences can make it easy to get down and give up the fight. We are all better off when we focus on what is in our control and take positive steps to improve our situation. Life might not always turn out how we imagined, but a positive frame of mind is often the key to conquering practical challenges.

I enjoy the challenge of assessing a financial situation, collecting the relevant information and developing a workable plan to move forward. Let me know your questions and challenges and I am happy to see where I might be of assistance.

Is the "Good Life" Only About Money?

As someone who designs financial plans and manages investment portfolios, I'm keenly aware of money and the significant role it plays in our lives. I also understand the peace of mind that comes with having enough money to pay the bills and meet future goals. It is actually this peace of mind and fulfillment that has directed me towards the profession that I'm involved in.

As humans, we are all searching for the "Good Life," where we feel we are spiritually, physically and emotionally healthy. We all want to have good family relationships and friendships that contribute to this state of well being. A certain amount of money or wealth can contribute to this state, but an excessive pursuit of wealth can also detract. As this article summarizes, a sense of purpose really is critical to achieving the good life.

So how does one achieve this sense of purpose? As a financial planner, I work with clients to assess their current financial situation by taking a snapshot of their current assets, liabilities, etc. This can also be done in other areas of ones life. I then discuss goals and dreams with clients to see if they are on track to achieve these aspirations. In addition to finances, one can look to the future in relationships, health and other areas to picture where he or she wants to be. In order to achieve this future state, one must then determine realistic steps along the way that will help to get you where you want to be.

Are you living the "good life?" If not, why not?--and what is your plan to get there? Good luck and enjoy the journey!

The Financial Planning Profession

When choosing a service provider, one often looks for someone with a professional license or credential. While a professional certification is not a guarantee that the service professional will be completely reliable, it does go a long way in guaranteeing that you are working with someone who has met professional educational standards and is subject to an ongoing level of learning.

Although the Certified Public Accountant (CPA) is widely recognized in the fields of financial accounting and tax preparation, a bit of public confusion exists when it comes to the best professional for personal financial advice. Although many titles and designations exist in regards to financial advice, the most recognized and reliable credential is the Certified Financial Planner (CFP) professional. In this unsettling period of economic volatility, it's critical to have a professional that will help you make and keep a financial plan that's best for you and only you.

The Certified Financial Planner Board of Standards was founded 25 years ago this week to foster the highest standards of excellence for financial planners. In order to become a CFP practitioner, one must complete advanced college level studies on nearly 100 topics, compile at least three years of work experience, pass a 10-hour, two day exam and most importantly, agree to uphold the fiduciary standard--which means putting the client's interest first above all others. Does your financial advisor meet these standards?

Risk & Diversification

The headlines have been dominated recently by the BP oil disaster in the Gulf of Mexico. This story and the dramatic effect it has had on the value of BP stock are yet another example of the risks inherent in investing. Considering these risks, why do people invest and how can one invest without exposing oneself to too many of these risks?

Many people consider large, established companies to be good investments. There are several reasons that this is true, but putting too much of ones investment portfolio into the stock or bonds of a single or small number of companies is still a risky proposition. BP and GM are dramatic, recent examples.

So how does one reduce the risks of investing in the "wrong" company? The simple answer is diversification. The common phrase used to define this term is "Don't Put All Your Eggs in One Basket." By owning stocks and bonds from a variety of companies, large and small, domestic and international, the risk of losing large amounts of wealth is reduced.

Some people have questioned the value of diversification because nearly every type of investment lost value during 2008. While this is true, a 40-year study that was presented at a recent financial planning conference showed that a year like 2008 was truly an anomaly. Diversification has provided significant protection in 38 of the last 40 years. Although disasters and market shifts will continue to pose risks for companies of all types, diversification is one way to have exposure to the upside of investing, without taking on too much risk.