A Program That’s on the Money

Financial planning is virtually a necessity in our complex economy. Doing it properly is a daunting task.

First, you have to figure out how you are spending your money and where it has gotten you--the current value of your assets and liabilities. Then you have to figure out your major financial goals, such as buying a home, putting children through college or having enough money for retirement.

Next, you have to factor in predictions for how things will change over the years, such as inflation and the rate of return you can expect from your investments. After that, you can begin deciding how to get from where you are financially to where you want to be.

Such a complicated undertaking can be made much easier by using a computer--if you have the right software program to help you.

Wealth Builder by Money magazine, at $250, is designed to do just what I’ve described. And its colorful design, visible if you have a color monitor, even makes the job attractive.

The program, developed by Reality Technologies of Philadelphia in conjunction with Money magazine, is available in versions for IBM and compatible PCs and for the Apple Macintosh.

There are several aspects to the program. It allows you to define your current financial condition and your financial goals. Then you can test various savings and investment strategies for reaching those goals.

It also provides a database of performance histories of 400 mutual funds, from which you can select appropriate investments. For an additional $100 annual subscription, you can obtain quarterly updates of performance records for the same 400 mutual funds plus 1,000 others. An additional subscription for data on 1,500 stocks is also planned.

The power of Wealth Builder comes from all of the financial categories and formulas built into it. Basically, you merely fill in the blanks and the program does all the work.

It does a particularly nice job of handling the effect of time on money. It converts monthly payments to annual amounts, for instance, as well as computing the impact of inflation on your investments between now and the time you expect to retire.

Wealth Builder contains four main parts, each of which is reached from a pull-down menu listed at the top of the screen after you start the program. First is the Fact Finder, in which you fill in a series of blanks to create a financial profile of you and your family.

Then you set your overall investment philosophy on a sliding scale ranging from conservative to risk taking. Instructions on the screen explain how to make the choice.

Next comes the more tedious task of creating the balance sheet and your budget. The balance sheet provides for six major categories of assets and 36 subcategories, including primary and secondary residences. The budget section is equally detailed with 14 main categories and 36 subcategories. There also are “tool boxes” to plan your insurance needs, estimate your income tax and plan your estate taxes.

Once all of that data is entered, you can move on to the next phase--setting objectives. Three basic objectives are predefined. They are retirement, home purchase and educating the children. You can add up to five additional special objectives, which generally would be the purchase of some major asset such as a vacation home or a boat or a motor home.

Defining each objective requires that you plan how you will pay for it. The premise of Wealth Builder, after all, is that the only way you can reach your objectives is by investing wisely.

If Wealth Builder went no further than what I have described, it would have provided a great service by forcing its users to analyze where they are financially and where they want to go.

But there is much more. The next step, and the most interesting part, is setting up investment strategies.

Based on your financial profile, your objectives and your investment philosophy, Wealth Builder recommends a diversified mix of investment categories for reaching each objective. The four basic investment categories used are cash, equities, bonds and precious metals.

The investment philosophy behind Wealth Builder, according to the manual, is “that a consistent asset allocation held for the long term offers the best chance for the average investor to achieve consistent returns.”

There are only two investment limitations built into Wealth Builder. One is that a minimum of 10% of a portfolio be held in cash and the other is that a maximum of 10% be kept in precious metals, which are considered to be a hedge against high inflation but are very risky.

The program’s recommendations can be overridden by the user at any time. For instance, you may not want to buy any precious metals and may not be comfortable unless half of your investment is in government bonds.

The effect of any investment strategy is displayed graphically as the projected value of the investment year-by-year up to the time established for meeting the objective. The formulas used to calculate the projections are described in an appendix to the manual.

Any shortfall between the desired goal and the investment strategy is instantly shown in this “reality timeline” depiction. You can change the investment mix and run the graph again and again until you find the right combination.

You also can see a comparison between your current investments and the consumer price index and Money magazine’s small investor index.

Finally, when the mix of investments is right, you can go to the database of mutual funds, and stocks when it is available, to select those offerings that best meet your needs.

The mutual fund list is broken into four types of funds--equity, bonds, precious metals and other, with further subcategories. The funds can be sorted by nine different criteria including returns and yields for the last four quarters as well as five- and 10-year returns. Sales charges is another sorting characteristic. You must subscribe to the quarterly updates to keep the data current.

To help you get started with an investment program, Wealth Builder includes seven hypothetical case histories covering broad categories of individuals and families from newlyweds to retired singles. There also is a tutorial guide built in to the program.

Of course, a computer program does not guarantee wealth or even modest success in investing. But if you are willing to do the work it takes to organize your finances, it does provide a coherent picture of what you are doing.

WEALTH BUILDER

An investment planning software program by Money magazine, priced at $250.

Features: Simple fill-in-the-blank approach to budgeting and creating investment strategies, plus a database of mutual fund performance data. Optional $100 yearly subscription provides mutual fund updates quarterly.

Requirements: IBM PC or compatible or Apple Macintosh, both with 512 kilobytes of memory and hard disk storage.

Publisher: Reality Technologies Inc., 3624 Market St., Philadelphia, Penn. 19104. Phone: (800) 346-2024.