Monday, July 25, 2016

Countdown to Financial Fitness: Do You Need a Financial Planner?

Countdown to Financial Fitness: Do You Need a Financial Planner?: I'm a do-it-myself investor, but that doesn't mean I am against people using professional financial planners. Some people do their ...

Do You Need a Financial Planner?

I'm a do-it-myself investor, but that doesn't mean I am against people using professional financial planners. Some people do their own car repairs or home renovations; I have no problem delegating those tasks to a professional.

If you don't have the interest or the time needed to research and monitor your investments, by all means, use a professional. But choose wisely.

First of all, ask about credentials. Although things have gotten a little better since the financial crisis of 2008, the terms financial adviser, financial planner, etc., are still not well-regulated. You'll see names with a lot of important-looking initials after them—designations that can represent anything from a graduate degree to a certificate of completion for an online course or weekend seminar. When you interview an adviser, ask what those letters stand for, and what was required to earn them. (And then google the credential to verify.)

Next, ask how the person gets paid. "My adviser doesn't charge me any fees," a friend of mine told me. "It just comes out of the investments." Sounds great. But how much are you really paying?

Look around at the offices. Is there a secretary? A coffee maker and comfortable chairs? Assistants? None of this is free. Nor should it be.

There are three ways financial professionals get paid:
  1. Fee only (an hourly rate, or set charge per service)
  2. Commission (a bonus for buying and/or selling a financial product for your portfolio). "It just comes out of the investments."
  3. Percentage (an annual percentage of the assets under management). Most of the quotes I've heard run about one percent; slightly less for larger portfolios, maybe slightly more for small ones.
It sounds counterintuitive to pay a fee for financial advice from a professional when you could get the service "free." But think about it: an adviser who sells you products in addition to giving you advice has a conflict of interest.

Certainly, ethical financial planners would not steer their clients toward inappropriate investments. But if the choice is between a five-star growth fund with a sales charge and a hefty commission for the broker who sells it and a five-star growth fund with no load and no sales commission, that the client could buy directly from the investment company, which one would you recommend if you were the broker? Both meet your client's financial objectives, but only one pays your electric bill. You haven't broken any laws or deceived your client, and maybe you truly believe the fund offering you the big sales commission is better. (And it has to be lots better to make up for its up-front sales charge.)

Next, find out who is really managing your money. Is it truly the friendly family man who wooed you with a free dinner and informational seminar at a nice restaurant, followed by a free consultation in his plush office? Or a team of "experts" at a "headquarters" in another city? (Another middle man on your payroll.)

Also, find out if your money will be invested in publicly traded financial products, or proprietary funds set up by your adviser's company. Not only will you be able to do independent research on the performance of the publicly traded funds you've invested in, but if you ever decide to change advisers or move your money to another institution, you most likely will be able to transfer the assets "in kind," whereas a proprietary fund would have to be cashed out. When you cash out, you may be forced to lock in losses during a down market or face unwanted tax consequences.

Finally, you should expect transparency and accountability from your financial adviser. Open your statements promptly and read them, just as you would a bill or an estimate for a repair job. Ask questions if something is unclear. No question you ask is too stupid, and you should not be made to feel otherwise. Keep asking until you truly understand; insist that the adviser clarify in simple terms.

Establish up front whether the adviser will have the authority to buy and/or sell assets on your behalf and if so, under what circumstances. Don't let anyone talk you into a transaction you're not comfortable with, or into buying a product you don't understand. Never lose sight of the fact that it is your money, and the adviser works for you.

What advice can you share about working with a financial planner? I would love to hear your comments.

Tuesday, July 19, 2016

Countdown to Financial Fitness: Clutter Can Cost You

Countdown to Financial Fitness: Clutter Can Cost You: Clutter can be unhealthy and add stress to your life, but did you know it can also cost you money? Consider the following examples, where c...

Clutter Can Cost You

Clutter can be unhealthy and add stress to your life, but did you know it can also cost you money? Consider the following examples, where clutter and disorganization may result in unnecessary expenses:

A bill arrives in the mail. The family member who checks the mailbox drops the stack of unopened mail in the backseat of his car or tosses it on a cluttered table somewhere. By the time the person who pays the bills discovers it, the payment is overdue, and a late charge has been applied.

You buy a pint of fresh, juicy strawberries and then stuff them in the refrigerator behind some other groceries. By the time you wonder what happened to them, they are covered in mold.

You have a discount coupon or a gift card for your favorite restaurant, but you can't remember where you put it. You end up paying full price for your meal. When the coupon finally turns up, it has expired.

You need a black turtleneck to go with a new outfit you plan to wear next week. When you make a place in your closet for your new purchase, you discover another black turtleneck, perhaps the same size and design, with the tags still on it.

You love to shop when you travel, and when you find the perfect holiday or birthday gift for someone on your list, you buy it on the spot, regardless of season. Only problem, when that gift-giving occasion rolls around, you buy something new, because you forgot where you stashed the original present—or even that you had it.

A little organization and clutter reduction can simplify your life, and save you money as well.

For example, automate as many bills as possible or set up email reminders so you don't miss a payment. If you pay your bills by check through the mail, establish a system, such as a special folder or in-basket that is monitored regularly. Know when payments are due, so if a bill gets misplaced or lost in the mail, you can rectify the situation before your account becomes delinquent.

Take inventory of what is in your closet. Get rid of clothing you no longer use, so you can more easily locate the garments you still wear. Set aside a drawer or area of the closet for gift purchases, and check it before planning a shopping trip for a gift-giving occasion.

Designate a spot near the door for keys, lists, coupons, library books, borrowed items, purchases that have to be returned. Think of the time you'll save looking for these things.

Arrange your refrigerator and pantry shelves so perishables are visible, and food items with the oldest date are used first. Do a quick review of what you have on hand and make a list before you go grocery shopping.

And if your efforts to save money through organization lead to a less-cluttered, less stressful life, so much the better!

What tips do you have for reducing clutter? I would love to hear your comments.

Monday, July 11, 2016

Countdown to Financial Fitness: Summer Savings

Countdown to Financial Fitness: Summer Savings: Summer can mean more leisure time, more time to spend money: expensive vacations, high air conditioning bills. But here are some ways you c...

Summer Savings

Summer can mean more leisure time, more time to spend money: expensive vacations, high air conditioning bills. But here are some ways you can mitigate those expenses.

Energy: Just because it's hot outside, you don't have to keep the inside of your house like a freezer. It's not healthy for your body to experience such drastic temperature changes. Turn up the thermostat to 78 degrees, or as high as you can stand it; every degree toward equalization of indoor to outdoor temperature represents many dollars in savings. Put away sweaters and blankets, and wear those shorts and sleeveless shirts inside.

Take advantage of lower outdoor temperatures in early morning and late evening by opening the windows and running a whole house fan. But be sure to close all the windows and doors once you turn the air conditioner back on. Use fans to help circulate the air inside and make it feel cooler. But turn them off when you leave the room.

Close off vents in rooms no one is using, so you can concentrate the conditioned air where you are.

Program your thermostat to set the temperature higher when no one is home, then start to cool down about a half hour before your expected return. I've checked on neighbors' homes for them while they were on vacation, to find they have left their house plants to bask in a cool 72 degrees for an entire two weeks.

Food: Take advantage of seasonal fruits and vegetables that may be on sale. Prepare dishes that require little or no cooking, or that can be cooked by microwave, stove top, or outdoor grill. Using the oven not only consumes more energy, but it heats up your house and causes your air conditioner to work harder.

With higher temperatures, be more vigilant about food safety. Refrigerate leftovers promptly so they don't spoil. Rinse plates and utensils after use and dispose of garbage properly so as not to attract pests.

Plan your grocery shopping around your vacation schedule so you use up your perishables before you leave town. It's no fun coming home to a science experiment that represents wasted food.

Entertainment: See movies during the day, at the lower matinee prices. Plus, you can benefit from someone else's air conditioning while your thermostat is turned up.

Meet friends for lunch instead of dinner. Many restaurants have lunch specials which can help you lower your dining-out costs.

Take advantage of outdoor activities and longer days with more natural lighting. If you have access to a swimming pool, take a dip to cool down. By enjoying the outdoors, you won't consume as much electricity to cool and light your home.

What tips do you have for summer savings? I would love to hear your comments.

Saturday, July 2, 2016

Countdown to Financial Fitness: What Does Brexit Mean to You?

Countdown to Financial Fitness: What Does Brexit Mean to You?: The sky is falling! Last week, British citizens unexpectedly voted to leave the European Union. The stock market tumbled. Is it time to get...

What Does Brexit Mean to You?

The sky is falling! Last week, British citizens unexpectedly voted to leave the European Union. The stock market tumbled. Is it time to get out?

When my husband and I started managing his mother's investments—back in the nineties—she would call us every time some big news event caused the stock market to go down. "Did I lose all my money today?" she'd ask. "Should I take out whatever is left?"

The answer was usually the same, "Not unless you want to lock in your losses." Eventually, she learned to keep calm and trust us to help her stay the course.

Investing in equities involves risk. The market is not the best place to stash money you may need right away. Stock prices rise and fall. Sometimes for no reason, or not even the right reasons. If you panic and pull your money out every time the market slides, maybe you should re-evaluate your tolerance for risk. No use giving yourself a heart attack.

Successful investors make decisions based on facts and fundamentals, not emotions. But even if you can control your own emotions, you can't control those of others. Even when all of your research says you have made a sound investment, your holdings could still plunge. Crowd hysteria is a wild card.

If you've spoken to your financial advisor lately—unless you're with an opportunist looking for any excuse to generate commissions—most likely the advice was to take a deep breath, wait until the dust settles, and keep following a sensible path of diversification and age/risk-appropriate asset allocation.

That doesn't mean you shouldn't pay attention. If you find you're overweight in securities likely to be adversely affected by the economic changes, maybe it's time to unwind or reduce your position. Or maybe there's a stock you've had your eye on, and, assuming the fundamentals are still good, a price dip will enable you to snap it up on sale.

The stock market is a roller coaster. But up or down, the rewards can be great for those who can keep emotions in check and look for opportunities.

What does "Brexit" mean to you? I would love to hear your comments.