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Are you unclear on where to put your money across all your accounts? Are you worried about having enough ‘safe’ money for expenses? But you still want to invest and grow your money for future needs?
How a Portfolio Allocation Tool Can Help
A knowledgeable financial planning partner can help you answer these questions of course. However, portfolio allocation tools can provide an initial approach and spot checks to discuss with your planner. These tools can help you balance both ‘safe’ and ‘growth’ money needs at the same time. They can also be a portfolio rebalancing calculator, suggesting how to shift funds between your accounts.
A rebalancing plan should be built around a realistic plan, including current and planned family members’, homes’ and cars’ expenses.
With this thorough financial plan, allocations can favor just enough safe cash accounts for near term expenses and emergency funds. It can also maximize using riskier growth stocks and bonds for long range expenses.
In this manner, allocation tools can suggest an allocation plan tailor-made to your financial needs.
You Still Need a Financial Forecasting Tool
Having an allocation plan is well and good, but what if the stock market crashes? Bear markets can last up to 10 months on average. Suppose your allocation plan includes emergency funds for 12 months keyed to your plan. You might avoid pulling needed funds from stocks until they recover again.
Of course that stock market recovery time is important to consider as well. On average it takes two years to recover market value (as long as 25 years after the Great Depression). Suppose your financial plan’s long term needs depend on stock market appreciation to fund them (a typical case). You should likely assume and consider the impacts of a depressed market value now for forecast appreciation.
A financial forecasting tool should quickly update your financial plan based on the updated depressed stock market value. You might find those far off expenses can no longer be funded. Or else, you might find you can rebalance funds from bonds into the cheaper stocks. In this case, a stock market recovery could actually increase your net worth for later usage.
Hence, you likely need both a portfolio allocation tool and a financial forecasting tool. Ideally they work together.
FarPlanner is both a portfolio allocation and financial forecasting tool. You can try it for free today. See what allocations you can make to today to fund your plan for years to come. See how changing market values impact your financial plan as well.
Build a FarPlanner Plan, See Suggested Transfers
Let’s dig into how FarPlanner can help with both allocation planning and forecasting.
The first step is to build up your realistic financial plan with FarPlanner as mentioned above.
Next, FarPlanner’s simulations forecast your account balances and net worth into the future. You can then see FarPlanner’s suggested account transfers to consider making now to achieve both safety and growth:
The more information you add to your plan, the more realistic these suggested account transfers become. You should review these suggested transfers with your financial planning partner before making actual transfers.
Tell FarPlanner How To Allocate Into Your Accounts
How does FarPlanner know to use savings and cash accounts for short term needs? And to use bonds and stocks for longer term needs? You can control this, as detailed next.
As part of building your FarPlanner plan, you can add account ‘tracker widgets’ for each of your actual accounts. FarPlanner’s simulations forecast each account’s balance or market value into the future. You can have cash, bond and stock account types with different estimated market appreciations.
You can group your account trackers within taxable, 401k, Roth or annuity ‘allocation group’ trackers. FarPlanner estimates taxes and retirement draw downs based on these allocation groups. Yes, you can add your taxable, college, 401k and Roth allocation groups and their accounts to your FarPlanner plan.
You control how FarPlanner allocates money between accounts within each allocation group. For example, here are recommended selections for one allocation group:
FarPlanner uses your allocation selections to mimic account transfers when simulating and forecasting your plan. It applies these selections throughout your plan’s future. More complex allocations are possible.
For example, suppose FarPlanner sees at any future date in your plan you need funds less than 6 months out. For those future dates, FarPlanner will mimic transferring needed funds into your safe ‘Cash’ account.
For funds needed more than 25 years into the future, it mimics transfers into the growth ‘Stocks’ account above. For intermediate fund needs, it mimics transfers to either ‘Stocks’ or ‘Bonds’ based on the above table.
FarPlanner’s simulations make these transfer decisions at many points throughout your plan. Hence, FarPlanner also manages risk throughout your plan by not directly pulling money needed now from bonds or stocks. See this page for more details on how FarPlanner manages risk.
What if you update your planned income or spending, or else the allocation group table above? FarPlanner can quickly adapt and update your plan’s forecast, re-balancing for safety and growth across your accounts.
This is how FarPlanner suggests moving just enough funds to safe accounts for your plan’s immediate needs. And shifting funds to riskier growth accounts only for longer range needs (hopefully with time to recover from market swings).
Hence, FarPlanner’s allocations tailor-fit to your plan let you be both a conservative and aggressive investor at the same time!
Download and quickly build your FarPlanner plan for free today. See FarPlanner’s suggested account transfers custom fit to your plan for safety and growth.