To Build a Sturdy Financial House, You’ll Need a Well-Designed Plan
You wouldn't build a house without a blueprint, but that's what too many people do with their finances, and it can easily turn out very wrong.


Is it possible, do you think, to accidentally build a house upside down?
It could happen, I guess. If you didn’t know what you were doing. If you got bad advice. Or if you didn’t have a set of blueprints to work from.
Obviously, at some point, though, you’d notice something was terribly wrong.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
When you’re building your financial house, the mistakes you make can be a lot harder to spot. But the idea is the same: It’s always best to work with a plan.
Lay the foundation
It’s important to start with a solid foundation built with “safe money,” such as Social Security and a pension, which can provide a steady and reliable source of income. And if those two income streams aren’t large enough when combined, you may decide to shore things up with an annuity. Think of the foundation as mostly — but not completely — replacing your salary, the income you’ve had all your life. It should be stable and dependable.
Build the walls and roof
Next are your walls, made up of conservative investments. They might be subject to some volatility, but they’ll stand up to most storms. Sometimes they’ll bend and sometimes they’ll break, but most of the time, they’ll help keep you protected.
And then, of course, comes the roof, which is made up of your more moderate- and high-risk investments. The more effort you put into care and maintenance, the better off your financial house can be. Still, this part of your financial portfolio may be the first to go when things get turbulent.
Unfortunately, I see upside-down financial houses all the time, and often the people who own them have no idea the precarious state they’re in. Because the marketplace puts a priority on equities and people are taught to chase returns, all the money goes there, instead of into a well-laid-out portfolio.
Go back to the blueprint
How can you fix an upside-down house?
Diversification is the key.
There are 13 asset classes, and an investment that does the best in one year typically won’t repeat that performance in the next. That’s why it’s important to own a mix of stocks, bonds and cash, diversified across different market caps and styles. This can help spread your risk, because you’ll own a variety of asset types that may perform differently from one another in any given time period.
If you’re looking at the periodic table of asset classes, which ranks asset returns as measured by global market indices, I recommend that clients stay in the middle range, with investments that have been ranked No. 5, 6 or 7 over the last 20 years. Not No. 1, but not 13, either.
Now, this isn’t to say that you won’t ever lose money — remember, your walls may bend or even break. But you may experience less loss of your investment if you go with this approach. And I have been telling my clients for years that when it comes to investing, you win by not losing big.
If you want to have a good, upstanding house with a strong foundation, sturdy walls and an adequate roof, you need financial advice and strategies that utilize a diversified portfolio. A financial professional who is held to the fiduciary standard can furnish you with a personalized detailed blueprint to get you started — or help you out if you’re standing in the middle of a leaky fixer-upper.
Kim Franke-Folstad contributed to this article.
Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Roberts Wealth Management are not affiliated companies. Investing involves risk, including the potential loss of principal. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Paul E. Roberts Jr. is the founder and chief investment officer of Roberts Wealth Management. He has passed the Series 65 exam and has insurance licenses in Texas, Louisiana, Mississippi and Alabama. He spent 22 years as a practicing CPA, then founded Roberts Wealth Management, a firm that focuses on estate preservation and retirement planning. His primary areas of focus are retirement income planning, investment management, 401(k)/individual retirement account (IRA) guidance and asset protection.
-
The '8-Year Rule of Social Security' — A Retirement Rule
The '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
Should I Buy Stocks or Should I Buy Bonds Right Now?
Generally speaking, stocks provide reasonable growth while bonds provide stable income. Each play important roles in diversified portfolios.
-
You Were Planning to Retire This Year: Should You Go Ahead?
If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get It
The Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning Playbook
Consider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
Your Home + Your IRA = Your Long-Term Care Solution
If you're worried that long-term care costs will drain your retirement savings, consider a personalized retirement plan that could solve your problem.
-
I'm a Financial Planner: Retirees Should Never Do These Four Things in a Recession
Recessions are scary business, especially for retirees. They can scare even the most prepared folks into making bad moves — like these.
-
A Retirement Planner's Advice for Taking the Guesswork Out of Income Planning
Once you've saved for retirement, you'll need your nest egg to support you for as many as 30 years. For that, you need a clear income strategy, not guesswork.
-
Why Smart Retirees Are Ditching Traditional Financial Plans
Financial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
To My Small Business: Well, I've Been Afraid of Changin', 'Cause I've Built My Life Around You
While thinking about succession planning might feel like anticipating a landslide (here's to you, Fleetwood Mac), there are strategies you can implement to manage the uncertainty and the transition.