(Prosperity - Katherine A. Wahlberg, CRPC)

It is hard not to let emotions take control when Americans are hearing words like “recession” or worse yet “depression” for the first time in decades. Consumers are worried about their 401(k)s, investments, job security and more. The U.S. banking and investment environment plunged markets into a crisis, taking iconic institutions with it.

In June and July of 2008 a study co-sponsored by the Financial Planning Association® (FPA®) and Ameriprise Financial and  conducted by Harris Interactive found  that those with a comprehensive financial plan feel more optimistic about their finances. In fact, they are nearly twice as likely to feel confident as those without a plan.

A plan is a plan is a plan … or is it?
Debt. Saving. Investment performance. These are the current topics in daily headlines and water cooler conversations. But there is more to a person’s financial picture. A financial advisor looks at both financial and personal goals and prepares a written plan to help meet those goals. A comprehensive, written plan covers key areas of financial planning including cash flow, investments, retirement, taxes, estate, education and protection or insurance needs

The Value of Financial Planning study looked at three groups of investors to determine how a financial plan affects consumer attitudes and behaviors in a changing economy. The groups include those who are self-directed without an advisor or written plan, those who have an advisor but don’t have a comprehensive plan, and those who have an advisor and a written, comprehensive plan*.

The study found those who have a relationship with an advisor and a written, comprehensive plan reported differentiating attitudes and behaviors compared to other investors. Significantly, approximately nine out of 10 respondents (88 percent) with a comprehensive financial plan reported that they feel they have a clear financial direction, a number nearly 50 percent higher than those without professional support. Study participants reported feeling:

• More in control about their financial future.
• Optimistic and confident in their financial future even in times of market downturn.
• More prepared for unexpected events because they made emergency funds a priority and were generally better informed about financial issues.
• Calmer about their financial situation and confident they could weather a downturn
• More peace of mind and an ability to sleep at night.

In addition, investors with a comprehensive plan were more likely to report taking positive action during changing markets saying that they “stayed the course.” They stated they were able to save at the same rate as prior-to-market downturn (50 percent), rebalance their portfolio (42 percent), invest in low-priced stocks (18 percent), and add more money into existing accounts (27 percent) and new accounts (15 percent). In contrast, the self-directed investors were more likely to describe their financial approach as “sitting on the sidelines” (29 percent).

A guide on the path to financial peace of mind
Despite the popular advice to “buy low and sell high” it is during volatile times like these that investors are more likely to dismiss that advice and act out of fear. This can mean selling a stock when the market is low and the investment is worth less. It can also mean stopping systematic investing at a time when shares can be purchased at a lower price. This is when the guidance of a financial advisor can be beneficial. According to the study, the same investors who reported confidence and optimism were more likely to report that their financial advisor contacted them regarding these current market conditions with specific recommendations.

Financial planning is not just about numbers; emotions play a role. The support of a financial advisor and written, comprehensive plan may be the key to positive feelings and actions during these tough economic times.

* A comprehensive financial plan is a written plan prepared by a paid advisor that covers a minimum of three of the key areas of financial planning.

The Financial Planning Association® (FPA®) and Ameriprise® Value of Financial Planning Study: Consumer Attitudes and Behaviors in a Changing Economy, was conducted online within the United States by Harris Interactive on behalf of the Financial Planning Association and Ameriprise Financial between June 27 and July 18, 2008 among 3,022 adults with greater than $50,000 in annual income or investable assets. While market volatility was significant during the study period, the dramatic financial developments later in the year, which may have affected attitudes and behaviors reflected in this report, had not yet occurred. No estimates of theoretical sampling error can be calculated; a full methodology is available.

 

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This column is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation. Consult with qualified tax and legal advisors concerning your own situation.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA & SIPC.

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