A woman holding a sign with a question mark meant to represent financial questions

Answers To Your Frequently Avoided Financial Questions

by Tami McDonald | Nov 7, 2024 | Financial Planning

When you embark on the journey to organize your finances – or even when you meet with your financial advisor – you will encounter an abundance of technical terms and jargon that may be foreign to you. When this happens, don’t hesitate to ask for clarification. Your advisor should be happy to explain them to you without making you feel inferior.

At Brookstone Wealth Management, we believe that educated investors have a better chance of success. We spent our careers coaching, teaching, and mentoring our clients to meet their individual financial goals, and we’ve identified a list of frequently avoided questions that clients wish they would have asked. If this has ever happened to you, don’t worry. We’ve compiled the answers, so you can have confidence in your next financial discussion.

Avoided Question #1: What is a financial plan?

You might avoid asking this question because it seems so basic that you feel you should already know the answer. We are here to tell you that it is okay if you don’t!

A financial plan is a wholistic document that charts a path from your current financial situation to your ideal future. It typically includes details like how much you need to save, what types of accounts you will use, and which investments you will own to help grow your funds.

In addition to saving and investing, a financial plan should cover other important aspects of your financial life. Some of the most common of these are retirement, insurance, tax, and estate planning.

Avoided Question #2: What Are Stocks?

Almost every adult has heard of the stock market and has a general idea of what it is. However, most haven’t taken the time to understand what a stock actually represents and what it means to own one.

A share of stock represents an ownership stake in a particular company. By purchasing that stake, you own a small piece of the company and are generally entitled to a share of profits. These profits can come in the form of dividends – where a company essentially writes you a check for your share of profits – or through a rise in the stock price.

You should be aware that investments in stocks are not guaranteed. When you buy a stock, you accept the risk of losing all or a portion of your investment if the stock price falls or the company goes bankrupt. For this reason, you should speak to an experienced financial advisor – like those here at Brookstone Wealth Management – before investing in stocks.

Avoided Question #3: What Are Bonds?

Unlike stocks, bonds do not provide ownership of a particular company. These investments are debt instruments issued by companies or governments.

When you purchase a bond, you earn a fixed rate of return throughout the length of the investment. Then, you receive your initial investment back at the end of the term. This dynamic can be particularly beneficial for retirees and those who need access to reliable income.

Bonds are generally considered safer than stocks because they receive a higher priority in bankruptcy proceedings if the entity issuing them fails. Further, Treasury securities – a type of bond issued by the federal government – are considered extremely safe investments since they are backed by the full faith and credit of the United States government.

Avoided Question #4: What Are Mutual Funds?

Mutual funds are another common type of investment that you may encounter when discussing your finances. These investments are collections of stocks, bonds, or other types of securities packaged and sold in pieces, as shares of a single investment.

There are many types of mutual funds that invest in different types of securities and in different styles of investment. Index mutual funds seek to track a predetermined set of securities while other types of funds invest to achieve a particular goal. There are also mutual funds that track specific sectors and even those that invest in currencies.

If the underlying investments in a mutual fund make money, that income is passed to the shareholders – minus the cost of administering the fund. On the other hand, if the underlying investments lose value, the price of mutual fund shares also falls. Investing in mutual funds is not always guaranteed, however some funds can invest in government guaranteed investments or other securities that provide protection against losses.

Avoided Question #5: What Are Annuities?

Annuities are often discussed but rarely understood. You may have also heard a lot of misinformation about this type of investment, so it is important to understand it.

At the most basic level, you purchase an annuity contract through an insurance company and generally receive an amount of income over a specified period. There are several types of annuities, some that provide a fixed income stream and others that are variable. Each type has its own rules and methods for determining the income you receive.

You can choose to think of annuities like pension plans – where you save throughout your career and then receive a benefit after retirement. Like pensions, annuities are often used in retirement planning to provide a baseline of reliable income after you retire through the end of your life.

Avoided Question #6: Do I need an estate plan?

Most people avoid thinking about the end of their life, so they also put off estate planning needs. However, estate planning is an important part of financial planning – even for those who are young. It involves ensuring that your intended beneficiaries receive what you want to leave them, not what the courts decide they should have.

One of the most important pieces of an estate plan is a Last Will and Testament and you likely need one if you haven’t already established this document. In addition to a will, there are other estate planning considerations that an experienced financial planner can handle on your behalf. These include ensuring that accounts designed to pass outside of the probate process – like bank accounts, IRAs, and 401(k)s – have the correct beneficiaries listed. Your financial planner can also help you establish trusts and charitable giving strategies to ensure your assets pass as you intended.

Avoided Question #7: What type of insurance do I need?

You may avoid asking about the insurance coverage that you need because you don’t want to learn that you don’t have enough coverage. However, the answer to this question is vital to your financial well-being.

Most people will need insurance to protect themselves from unforeseen circumstances including accidents, health crises, and natural events. Some also need insurance to protect their family in case of an untimely injury or death.

The most common types of insurance that most people need are:

Homeowners insurance for those who own a home to protect their investment from natural disasters and accidents.
Automotive insurance for those who own vehicles to protect their investment and their finances in case of an accident.
Health insurance or Medicare to cover unexpected healthcare costs.
Life insurance for people who are supporting a family and need the guarantee that their income will be replaced if the worst should happen.
Long-term care insurance for those who are worried about the rising costs of nursing home or in-home care.
Short- and long-term disability insurance for workers who rely on their income to support themselves or a family.

Not every person needs all these types of insurance at a given point in their lives, but all play a crucial role in protecting those who need them. An experienced financial planner can help you determine which types of insurance are needed for your situation.

Avoided Question #8: Am I financially healthy?

This is by far the most challenging question on this list, and you may avoid asking it because you don’t want to hear the answer. The truth is, unless you are working with an experienced financial planner to meet your goals – you probably have work to do.

Your first step toward financial health is to find a financial advisor that you trust. You’ll need to get “financially naked” with this person and let them know your current financial situation and goals.

The right financial advisor will work with you to develop a financial plan that details the steps you need to take to reach your goals. With this relationship in place, you can begin working toward your ideal financial future.

Get Answers to Your Financial Questions with Brookstone Wealth Management

At Brookstone Wealth Management, we strive to help all our clients feel comfortable from the first interaction – including answering any questions you may have. If you are ready to take the first step toward Financial Navigation Made Simple, reach out to a member of our team today to get your Financial Fingerprint®.

Your Financial Fingerprint® is a comprehensive wealth management program that brings together the most important aspects of your financial life into one easy-to-understand plan. Best of all, your financial success is supported by our experienced team of tax, legal, and investment professionals.