From the Archives: Two Rules My Grandmother Had About Money, and What They Mean For Your Investments

Betty Kelly 3.4.24

When I was a kid my family would sit around and play cards for money – usually nickel ante poker and games like that. The stakes were never very high, but it was enough money in those days that a kid could get into some trouble if he wasn’t careful. A big pot might be $50, but in 1978 that was a lot of money.

Rule #1: Don’t risk what you can’t afford to lose.

Gearing Up For An August Blog Break

There is nothing like a Minnesota summer vacation. It’s the one time of year when we Minnesotan’s can actually brag about our weather and enjoy living in MN to the fullest. Well, most days anyway.

Since many of my readers will be taking some last minute time off to enjoy what is left of summer (and perhaps not reading my blog posts), I though this would be a good time to take a short blog break before I get busy again in the fall.

So after over 180 consecutive blog posts I am announcing the first ever August Blog Break. Consider it a summer vacay from the blog.

Not to worry. The blog break is very temporary. Just a few short weeks before I am back with a ton of new content to help readers pay less for college, maximize retirement income and cross the bridge to a confident retirement.

In the meantime, go to the lake! Ride your bike! Catch some fish! Eat ice cream! Hang out at the State Fair! Sleep under the stars!

Do whatever it takes to make the most of the rest of your summer because once Labor Day comes and goes, it’s back to work.

For those who really must get their weekly fix of The Bridge I will re-post some of the my most popular blog posts of the last four years. If you are a new subscriber, this new-to-you content may be just what you need to get up to speed with your personal finances. Long-time subscribers and clients may benefit from a quick review as well.

Look for my next original blog post on September 6th.

 

Make Your Race to Retirement A Gold Medal Performance

photo-1461567933755-6c82be2197da“Hup!”, “Hup!”, “Hup!”

When I was a kid “Coach Jackson” of the Bellevue Swim Club used to shout this mantra from the side of the pool as we swam our races. Hearing this chant was a reminder to hang in there, and draw on the skills and lessons we got from our training.

One of Coach Jackson’s great lessons was that the 3rd lap is always the hardest.

It didn’t matter if you were swimming a 100-yard race (which requires swimming 4 lengths of the pool) or something much longer.  That third lap was always the most difficult.

Tell me, Mike. Why Should I Hire a Financial Advisor?

photo-1428895009712-de9e58a18409Recently I met with a prospective client who was referred to me by another client that I have known for many years. These days most of my new clients come to me this way – by referral.

While most referrals are happy to hire me based on the good word of a friend or family member, I occasionally run into a referral that asks deep and probing questions like the one above.

I love questions like this because they make me think. Truthfully, I also dread them for the same reason. Thinking can be such hard work.

According to the Bureau of Labor Statistics there are 249,400 of us who answer to the call of “personal financial advisor”. Over 74,000 hold the CERTIFIED FINANCIAL PLANNER™ designation, more than 2,100 in Minnesota alone. So the question of why you should hire one of is entirely appropriate.

With the Department of Labor’s recent regulation requiring all advisors who work with IRA and retirement assets to put their clients interest first, the question of why should you should consider hiring a financial advisor is also especially timely.

Every financial advisor has their own way of doing things, of course. Some focus primarily on investment management or product sales. Others provide comprehensive financial planning services. Many offer a combination these services.

Below is a short list of what a good advisor can do for you.

Comprehensive financial planning and wealth management. Planning for long-term goals like college and retirement, doing the right thing with your retirement plan at work, managing your short and long-term tax bill, and making smart choices with insurance, investments and how you spend your money – personal finance can get complicated in a hurry. It’s no wonder that a recent study by Northwestern Mutual found that 58% of Americans believe their financial plans are lacking and over 1/3 have no plan at all.

A comprehensive financial plan helps you determine how much money you need to meet your various financial goals and outlines the specific steps you need to complete to achieve them. Want to send your kids to college? Retire at 62? Avoid estate taxes and probate issues when you die? All of the above? Your financial plan creates the foundation from which you and your advisor can begin to outline the steps needed to reach these and other goals.

Specific recommendations. A plan without recommendations offers little value. It’s like your doctor telling you your sick, but not offering any treatment. A comprehensive financial plan includes specific recommendations regarding retirement, estate planning, tax planning and other specific needs based on the client – strategies for maximizing social security benefits and paying less for college, for example.

Some recommendations such as establishing a tax deductible IRA or retirement plan for your small business may provide significant value right off the bat. Others will prove their value in the future – proper beneficiary designations on retirement accounts or ideas to minimize estate taxes and avoid probate issues, to name a couple.

Regular monitor and review. To work effectively a good financial plan needs to be monitored and reviewed regularly. Just when you get it all figured out something changes. Tax laws, personal circumstances, the economy, the markets … you name it.

Twenty years ago a financial plan was a big, expensive book that sat on a shelf. Today, technology makes it possible for financial plans to be updated daily with current account values, expense tracking, and other tools to help monitor progress towards your goals. As your needs or circumstances change, your financial plan changes as well. Your financial plan can even be pulled up on your smartphone, just in case you were wondering how you stack up to the millionaire next door.

Asset Allocation.  Financial planners also add value by constructing investment portfolios designed to meet a family’s long-term goals without taking more risk than necessary.  How much should you invest in stocks? What types of stock and bond investments make sense for your goals and risk tolerance? How and when should you rebalance or replace investments? What other threats to your financial security should you be prepared for?

The best advisors work hard to allocate investment portfolios in a way that makes the most sense for their clients’ goals and time horizon, and also for the level of market volatility they can tolerate. They help ensure clients invest the right portion of their savings into the market for the right reasons and stay invested even through the tough times. Proper asset allocation gives clients a better chance to reach their goals without risking more in the stock market than necessary.

Taxes.   Unless a financial advisor is also a tax preparer, most don’t prepare personal income tax returns. However, many do add significant value by helping clients be as tax efficient with their investments and in their personal lives as possible. That may involve managing investments for greater tax efficiency, making the best use of tax-deductible IRA or work place retirement plans, utilizing various Roth IRA strategies, or helping clients set up a retirement plan for their small business.

Other tax strategies minimize estate taxes and/or taxes on investment gains, dividends and charitable contributions. For many clients, tax planning may be one the biggest opportunities for your advisor to add value.

Manage overall investment fees. Next to taxes, investment fees and expenses are probably the biggest drag on most investors’ long-term returns.  According to Morningstar, the average mutual fund charges about 1.25% to own their fund. Known as the “expense ratio”, this number is disclosed in the mutual fund prospectus and can often be found in public information available online. However, there are also trading and transaction costs that are not disclosed in the prospectus or easily found online. These trading costs can add another 1.4% or more to the cost of owning a mutual fund. Advisors who do their homework can often add value by putting together investment portfolios with below average fees and expenses.

You are not hiring an advisor. You are hiring a team. Most financial advisors in the industry are solo-operators and work in very small offices. Many, however, work with a team and collaborate with other professionals to help them add even more value to their clients. A team-based approach adds value even when the advisor is not available or doesn’t have the expertise to meet a client’s specialized needs.

In my case, I have a staff of two, plus a virtual assistant who manages my event planning and helps with some of my marketing needs. Together we are able to meet our clients’ service needs more effectively than if I were a single advisor. In addition, Focus Financial has a whole team of people that provide support and services to help me help my clients.

Someday you will be gone. You may know as much or more about investments and personal finance as your advisor, but what happens when you are gone? A lifetime of savings can be cut down in a hurry by others who are well meaning, but ill informed as to the best way to handle your estate when you are no longer able to do so.

No one knows how much time we have and when our spouse or loved ones will have to step in and pick up where we left off. Many of my clients were referred to me because they suddenly found themselves in the position being responsible for the family finances. Not everyone is comfortable in this role. It’s a huge benefit when they can work with an advisor that they already know, like and trust, and who has experience with them, their family and what their goals, and concerns are.

Peace of mind. Clients frequently tell me the biggest value they find when working with a financial advisor is the peace of mind in knowing that someone they trust is looking over their finances and partnering with them on the important decisions they need to make in their financial lives. I often take that for granted, but for some clients that’s everything.

Regardless of your reasons for working with a financial advisor, hiring a financial advisor or CERTIFIED FINANCIAL PLANNER™ takes a leap of faith. While there are many benefits, there is no way to guarantee that you will be better off because you hired a financial advisor.

Still, according to an IRI study published in 2014, people who worked with financial advisors were twice as likely to feel confident about their retirement than those who did not. Another study titled The Future of Retirement found that people with financial plans had accumulated 250% more assets than those who without plans. David Blanchett and Paul Kaplan of MorningStar authored a research report titled Alpha, Beta and Now… Gamma, which found that financial planners added about 1.8% of additional total return for their clients each year resulting in 28% higher income in retirement.

For an excellent article from Forbes.com that references these sources and others, click here.

If you are convinced that hiring a financial advisor is right for you, click here. I just might know an advisor who can help you cross the bridge to a confident retirement.

Survey Says…

zEk8RJdmQrqja2XwbjgJ_DSC_2368Survey Says …29 people responded to my reader survey.

Thank you so much for providing your feedback.

Here is what I learned.

First, I need to write my questions more carefully. Obviously I am not a pro at taking surveys. The first question had a glitch that didn’t allow for existing clients to say that they learned about my blog simply by being a client. Oops. I already know that most blog subscribers are clients so I might have been a little careless on that one. I will know better next time.

Second, Most of you read my blog because you are a client. For those who are not, you likely learned about my blog because you attended one of my college planning workshops. That’s good to know. A few of you found me on your own. One of the benefits of a blog is that it’s a great way to stay connected to people. Maybe you will become a client in the future.

Third, Your favorite topics are retirement, financial planning, and IRAs. College planning and charitable giving were at the bottom of the list. Interesting to me was the fact that even though many of you came to my blog through the college planning workshops, you may read the blog for other reasons. Another interpretation, of course, is that most of you are clients of mine for whom college planning isn’t a major goal, perhaps because your kids have already graduated from college.

Fourth, Overwhelmingly you prefer a weekly blog. All the experts say that blogs should be posted more frequently. Apparently they don’t have kids, clients, and a business to run. I like the weekly posts. We will stick with that.

Fifth, Some of you like my blog posts A LOT. For that, I am very grateful. Thank you for your kinds words and the comments you shared. You are the small subset of readers that I try to appeal to most and the reason for doing the survey in the first place. I will try to keep delivering content that you find valuable. Please tell your friends.

Sixth, You have been reading my blog for quite a while; more than a year, in most cases. Thank you! I also learned that personal stories and examples are a big hit. I agree and I think it makes things more interesting.

I won’t swamp you with continuous survey requests, but I will probably do this again in the spring. Ultimately, I want to know what kind of person you are and what you want to read. In the meantime, if you have any thoughts or comments you wish to share with me directly, please email me.