Financial Planning and Investing

It was only 10 or so years ago, says antiquarian bookseller Drusilla Jones, that someone rummaging through items at a New England shop picked up a copy of Edgar Allan Poe’s Tamerlane and Other Poems by a Bostonian, paying a mere 50 cents.

Tamerlane—a pamphlet of works published in 1827, less than a handful of which are known to exist—turned out to be a deliciously fine investment. When the gavel came down and the auctioneer hollered “Sold!,” the gleeful seller realized about a $10 million profit.

As Americans continue to watch years of savings eroded by a depressed stock market, more and more people are considering alternative ways to invest their hard-earned, after-tax dollars. Whether it’s sinking money into franchises, race horses, art, or jewelry, the possibilites for doing well are almost endless, as is the potential for losing a pile of money if you don't know what you’re doing.

Financial advisor Randy Brinton tells a story that would cause savvy retirees—and a lot of successful middle-aged people, too—to gasp in utter horror.

One of his clients—a woman worth roughly $20 million—refused to consider estate planning advice, says Brinton, a senior vice president and stockbroker with Ferris Baker Watts. “All she wanted me to do was act as her stockbroker, nothing else,” he says. “After all was said and done, I ended up writing the Internal Revenue Service a check for $12 million.”

While the IRS was undoubtedly thrilled, Brinton knows intelligent estate planning could have reduced that figure significantly, leaving much of that money for her heirs or for her favorite nonprofit causes.

Figuring out the perfect formula for financing one’s retirement would require the mathematical skills of Albert Einstein combined with a wisdom available only to the Almighty.

Yet for mere mortals, say financial planners, the necessary ingredients for achieving one's goals include careful oversight of asset allocation, combined with an eye for risk tolerance.

“Furthermore, when it comes to asset allocation, there are subsets to pay attention to,” says Giff Blaylock, a Wooden & Benson Chartered tax manager. “One of those subsets is asset diversification.”

All in all, it’s a balancing act that is as unique as DNA, and one that changes depending on the stock market, the investor's age and a host of other considerations, such as when one hopes to retire and what kind of an income is expected. Not to mention how many years the investor will end up living and whether or not he wants to leave money to the next generation.