last step in the financial planning process is reviewing. What does this mean?
A Every five years or so check that the investments are performing as expected
B At least annually check that the investments are performing as expected and that the goals are still current.
C Don't worry about checking your finances as you have already set up a plan and implemented this
D Check your investments performance every six weeks and immediately sell those which aren't performing.The Correct Answer and Explanation is :
The correct answer is B: At least annually check that the investments are performing as expected and that the goals are still current.
Explanation:
The “review” step in the financial planning process is critical because it ensures that your financial plan remains relevant and on track. Financial circumstances, goals, and market conditions change over time, and reviewing your plan helps identify and address these changes. Here’s why B is the right choice:
- Performance of Investments: Financial markets fluctuate, so it’s essential to assess whether your investments are performing as expected. Annual reviews allow you to determine if your portfolio is aligned with your goals, risk tolerance, and timeline. If any investments are underperforming or have changed in nature, you can make adjustments to your strategy.
- Relevance of Financial Goals: Life events such as marriage, the birth of a child, a new job, or retirement can significantly affect your financial goals. The review process helps ensure that your goals remain current and that you are saving enough or investing in the right manner to achieve them. If your financial situation or objectives change, your plan needs to be adapted accordingly.
- Strategic Adjustments: During a review, you may also find that you need to make adjustments to your asset allocation, rebalance your portfolio, or even shift your financial strategies depending on tax laws, market conditions, or changes in your personal situation.
Reviewing your financial plan annually gives you a comprehensive view of where you stand and ensures that you stay on track to meet your long-term financial objectives. It’s a proactive approach that allows you to adjust your plan, rather than passively following a fixed strategy that may no longer be suitable.
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