Why Should Your Family Be Involved While Planning Your Investment Portfolio?
Given the current financial market scenario, building a strong and sustainable investment portfolio is something that one simply cannot escape. In fact, a well built and maintained portfolio is the keystone to financial success. For individuals, it is essential to determine the different asset allocations which work in conjunction towards achieving your financial goals along with keeping the risk tolerance in mind.
But if you have a family to take care of, it is important to work with all the members of the family as it no longer remains an individual financial goal, rather the family’s financial goals. Thus, it only makes logical sense to have everyone’s buy-in and inputs towards the family goal.
Money Handling Skill is an Acquired Skill
While it is an age-old debate if certain skills can be taught or learned, money handling skills can certainly be learned. For some individuals, it might come naturally, but everyone requires money-handling skills.
It is important to share the goals, plans and portfolio details with other members of the family. This will enable a couple of things. Firstly, the family members know exactly what to do at the time of need. And secondly, they are aware of what needs to be done in your absence.
Financial Planning is Towards a Common Goal
Individually a finger can do a lot of powerful things, however, when combined together to form a fist, it is even a more formidable force. This holds good for financial planning as well.
Each member of the family needs to work towards a common financial goal. It is essential that you discuss and arrive at a common goal(s) for the family and work together to achieve the same. Should each member work in a silo, the result will be far below expectations.
An investment portfolio is essentially a collection of assets, which will help you achieve your financial goals. Depending on the needs and requirements of a family, you can set various financial goals. Some examples of financial goals include:
- Paying off any credit card related debts.
- Saving money for the retirement of the primary earners of the family.
- Creating a sustainable budget for the family.
- Save money towards an emergency fund.
- Save money for children’s education.
- Save money towards buying a house. And so on.
Setting these common goals is just the first step. You would then need to work realistically towards these goals and assess the goals on a timely basis.
Risk Appetite and Asset Allocation Needs to be Prepared for the Entire Family
Before investing the money into different asset classes, it is important that you determine how much time you want to give the investments to grow. You should consider the age of different family members as well.
For example, if you want to create a corpus for your children’s education, you might be looking at a five to ten-year horizon. However, if it is for your retirement, the time frame is much larger.
Risk tolerance or appetite is critical as well. Are you someone who is willing to take some risks in return for higher returns? Considering your entire family, you need to strike a good balance between risk and reward.
Of course, everyone wants to get higher returns, but you should be able to do that without losing your sleep at night. The risk appetite will help you determine how much money you should invest in different asset classes.
Everyone in the Family Needs to be Aware of Where Money is and How to Handle the Same
It is recommended that you share the investment portfolio with some members of the family. This enables them to continue with the investments if you are unable to do so. Being aware of the investments will allow them to be at a much better standpoint to take decisions when it comes to utilizing the funds.
Bonus, Windfalls, Loans, etc. Need to be Managed From a Family Standpoint
Depending on the various assets that you have invested in, you might be subject to receiving bonuses, loans etc. Taking the decisions keeping the family in mind will help you achieve the goals faster. For instance, if you receive any bonus from an insurance policy or mutual fund, re-investing them in the fund is the smarter choice.
Similarly, you need to be careful while opting for loans so that your financial goals are not hampered.
Prepare Your Children for the Real World
Preparing your children for the real world is as important as educating them. Providing them regular life lessons along with means to handle money will make them better planners and consumers. In fact, your efforts will be rewarded, as they can do their bit towards the family goal.
Questions such as which car to buy, which size TV is good will be easier to answer if all the family members are aware of the financial plan and are working towards it.
Thus, involving your entire family towards a common financial goal through the process of Financial Planning is the best gift to give your family.