The Importance of Discipline

Benjamin Graham’s famous book, The Intelligent Investor, offers insight into the most important trait in investing, discipline. Graham explains you don’t have to be smarter than the rest, just more disciplined than the rest.

We often think investment success is achieved by picking the next hot stock or manager/fund that’s been beating the market, but that is a flawed approach. In the words of Graham, “The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.”

While all advisors and managers strive to outperform the markets over time for their clients, the single biggest thing a good advisor can do is be there to act as your behavior coach.

Many studies show investors are often their own worst enemy, letting emotions drive their financial decisions. This ultimately means doing the wrong thing at the wrong time for the wrong reasons. Advisors are there to work with you to help you determine your goals and craft a long-term plan funded with a long-term portfolio. Together, you continue working the plan through all the cycles of the economy, and all the fads and fears of the market. (more…)

Hiring a Financial Advisor

So you’ve decided to hire a financial professional to help you navigate your future. You’ve talked to friends and family members, and while you trust their recommendations, putting your financial future into the hands of someone else is a very big deal. You need to do your own due diligence, but where do you start? Not all financial firms/advisors are created equal. And with all the options available to us, many people decide to go it alone out of fear. They fear they could be hiring the next Bernie Madoff, or that they might end up being a number in a long list of clients. The task can seem so daunting that it’s often easier to hire the first advisor you meet, or do nothing at all.

It’s a big decision and many don’t know what questions to ask and what to look for. The below can help provide anyone looking to hire a financial professional a place to start. The questions are not meant to sway anyone in a certain direction, but rather to help ensure you hire someone you feel comfortable with and confident in.

Understand how the advisor is compensated.

Find out exactly how your advisor is paid and make sure you understand any fees and charges – and have them in writing – before making any final decisions. Fee-only means the advisor does NOT earn any commission, while fee-based advisors can earn commissions.

I believe fee-only advisors are best. I formed this belief working for firms that were fee-based and fee-only, and witnessed the practices at each. Fee-only advisors do their best to align their interests with their clients. They don’t make money off the investments they recommend. In a fee-only structure, anything that comes out of your bottom line in turn comes out of the advisor’s bottom line. Therefore, it’s in the advisor’s best interest to only recommend investments they truly believe are in your best interest.

Fee-based advisors might have incentives to sell certain products. (Have you ever heard: “If you want to buy your financial advisor a new Mercedes, buy an annuity?”) Fee-based advisors can fall prey more easily to their clients’ views and emotions, especially during volatile markets. You want to make sure you are hiring someone that will give you the best advice, even if it isn’t what you want to hear. “The difference between successful people and really successful people is that really successful people say no to almost everything.” – Warren Buffet. You don’t want a “Yes” man. (more…)

Provide Support for Disabled Family Members with an ABLE Account

ABLE, short for Achieving a Better Life Experience Act, is a type of savings plan established in 2014 to provide support for those with disabilities. The accounts are similar to traditional 529 plans in that contributions can grow and be distributed tax-free for qualified expenses. The difference between a college savings 529 plan and an ABLE 529A savings plan is that ABLE funds can be withdrawn tax free to cover qualified disability expenses versus just qualified education expenses.

Does having assets in an ABLE account impact federal benefits?

Assets in an ABLE account won’t impact federal benefits unless the balance exceeds $100,000. Any excess beyond $100,000 in an ABLE account is considered personal assets, and once personal assets exceed $2,000 (such as in their checking account), Social Security benefits are suspended. This means that if assets in an ABLE account are $100,000 or more, plus checking or any other account surpass $102,000, Social Security benefits are halted. Social Security benefits resume once personal assets fall below $2,000 ($102,000 including $100,000 in ABLE account).

If you take distributions from your ABLE account for qualified housing-related expenses and retain them to be paid the following month (such as paying rent the following month), those distributions are countable resources for Social Security.

ABLE accounts do not impact Medicaid eligibility. However, upon the death of the recipient of aid, Medicaid can claim assets, such as those in an ABLE account, for payback. Outstanding qualified disability expenses, such as burial costs, receive priority over Medicaid claims. If Medicaid payback claims are greater than the remaining ABLE account, there is no further recourse against the disabled beneficiary’s other assets. (more…)

Moving Considerations

Making a move can be an exciting and challenging time, but you want to make sure that relocating is the best thing for you and your family. There are many financial impacts to consider before making final decisions.

First and most importantly, there’s the happiness factor. Making a big change can be very exciting, but there are things you’ll leave behind. It’s good to consider the life you have built, your family, friends and community. You want this move to be something that enhances your life and makes you happy.

Next, carefully review the financial impacts. You might have a great job opportunity, but relocating should also make overall financial sense. Many things will impact your income and expenses, so don’t let a shiny, new salary be the only thing to sway you on the financial scale.

Consider the actual costs of the move. Some companies cover relocation costs, while others give you a budget or say you are on your own. Determine if you want to have movers pack up your things or if you want to do it yourself. We often don’t place a value on our time outside of work, and packing up an entire household can be time consuming and stressful. Assign a value to your free time, and use that to calculate what packing would cost you. If your new company isn’t paying for you to relocate, get three or four quotes. Research each moving company’s reputation and insurance coverage for your goods, in addition to the total cost.

Compare current rental/mortgage rates in your area with those where you are looking to move. If you own your current home, seek advice from a real estate professional to help determine if you should sell your existing home, or rent it out. Unless you are already familiar with the new area, you’ll likely want to have temporary/rental housing while you look for a new home. Take time to get to know your new area. You don’t want to rush into buying a home, only to discover a year later that you wished you’d waited and bought elsewhere. You want to find a place that makes sense for you and your family.

If you’re not familiar with the new area, you might need temporary/rental housing while you look for a new home. A temporary housing situation could mean an additional move, or added cost of storage. If you prefer to rent, determine the cost of breaking a lease, if needed, and the cost of moving into a new home. You’ll likely need the first and last month’s rent, plus a sizeable deposit. (more…)