Sheehan & Company - Bulletin - Recent News: JANET L. ROSENBLATT, CPA has been promoted to Tax Manager.

Have you ever made a purchase of a Financial Product, Automobile, etc., and felt you did not receive all the information to properly evaluate your decision to buy? Well, you're not alone. When an individual is trying to make a decision, even with the help of an experienced advisor, often there is a lot of discussion about the benefits without a similar evaluation of the costs. Given the chance to see only one side of the cost-benefit equation increases the likelihood of making a poor decision.

"Costs" in financial products are management fees, sales and surrender charges, taxes and other expenses that occur as a direct result of a financial decision. In order to properly evaluate the effectiveness of a financial decision, the costs must be identified as well as the benefits.

A one-sided approach could have disastrous results in business as well as in personal financial planning. For example, consider the consequences if a business owner only focused on the perceived benefits of purchasing a new piece of equipment, and never considered the cost to purchase and operate it. There is obviously great risk of failure by operating from such ignorance. The same holds true in personal financial planning. Lets take a look at a 401(K) retirement plan. It is not enough to project that you will have $3 million at age 65. You must also evaluate the cost to accumulate that $3 million. This should include the "hard costs" (fees) as well as those frequently not spoken about "soft costs."

When you incur a tax, fee, or sales change as a result of a financial transaction, your cost is not only the dollar amount of that charge, but what those dollars could have been worth to you in the future if you had not paid them. These are "opportunity costs."

Typically, unless you go looking for these costs, you won't find them. Although these costs are real, they are also arbitrary. Everybody places a different compounding rate on money they choose to place somewhere else. It might be 5% for some, 10% for others. Even though these costs are hard to determine, and most people fail to recognize that they exist, it does not lessen their financial impact.

Another consideration is the effect one financial decision has on another. When considered separately, some financial decisions may seem prudent and possess their own merit. But when considered within a "macro" environment, may prove to be a failing strategy.

Consider an individual contributing regularly to a retirement plan with the hopes of accumulating a large nest egg for retirement. Even after studying the costs and with greater than expected performance, this decision must be evaluated in view of everything else going on in his/her economy. Lets say they achieved investment results of 10% annually, but still carried credit card balances at 18%. Are they really making money?

This carries over to investment risk as well. What would happen if a financial option you are considering does not pay off? If the opportunity for higher returns turns into larger losses, what will happen to other financial plans? In order to make good financial decisions, you must in some way account for the impact your decision may have on the rest of your financial life.

Let Sheehan Financial Advisors, LLC assist you in evaluating the true cost of accumulating and distributing wealth and show you ways to make your money work harder for you. Our macro-economic planning process can help you quantify the impact opportunity costs will have on your economy and demonstrate the efficiency and effectiveness of a financial decision. We will empower you with the knowledge to make good financial decisions based on the "whole story" not just half of it!

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