2020 brought many expected and unexpected challenges – on top of a political election year, we faced a pandemic, a challenged economy, and turbulent markets, to name a few.
We don’t yet know what 2021 will bring for the economy, for markets, or for our own lives, but there are still some things we can control.
As we welcome in a new year with hopeful expectations, let’s take a moment to recommit to those factors within our control:
Sharing Our Dreams and Values
As we reflect on the strange and challenging times this year, many find themselves wondering what their families did in the past to get through difficult times. We may remember snippets of stories told by our elders or passed on through our family, but often wish we knew more.
As wealth advisors we know firsthand the importance of legacy planning through legal documents. We also believe in the value of sharing the essence of who you are, your values, and experiences for future generations to come, through the creation of a Family Legacy Letter.
Building Better Financial Behaviors
Too many investors focus on markets when they should focus on themselves, their hopes, their goals, and their dreams. Identifying the choices in our control isn’t just a good financial lesson, it’s a great life lesson dating back to ancient Greece, when the Stoic philosopher Epictetus said:
“The chief task in life is simply this: to identify and separate matters so that I can say clearly to myself which are externals not under my control, and which have to do with the choices I actually control.”
Understanding Our Biases
Daniel Kahneman and Amos Tversky are famous for their work on human behavior, particularly around judgment and decision making. We can apply much of their discoveries to investor behavior. While we can’t completely eliminate biases, we can learn about them and how they impact our decision making, allowing us to take action to address them and avoid costly mistakes.
May you and your family enjoy the warmth this season has to offer and a new year filled with hope, love and success!
It’s the start of a new year, a new decade even. For a lot of us it means setting new intentions or revisiting goals that may have been forgotten. It also means having to fight for a treadmill at the gym (at least for the next month or so). As you think about the year ahead, what resolutions or intentions are you setting in your financial life?
Here are a few tips on the best way to create and stick to a resolution, according to science:
The more specific the better.
Saying you will save more is too vague to be able to gauge your success. Most likely you’ll lose track of your progress and abandon this resolution at some point in the year. Try creating goals with specific metrics you can track, like “I will increase my contribution to my 401(k) from 5% of salary to 8%.” Or if you’re saving for a specific goal, like a down payment, determine a specific amount to set aside per month.
Set yourself up for success.
Ask yourself how likely you are to meet the resolution you set. If the percentage is below 75%, consider making the goal more achievable. If you want to pay off all your debt by the end of the year, you may get discouraged if an emergency expense comes up and you aren’t able to meet your goal despite your best effort. Instead, try setting an amount to put towards your student, car, or home loan that you feel confident you can maintain throughout the year.
Knowledge is power.
Many people draw a blank when asked how much they spend each month. Trying to budget without knowing what current spending looks like is a bit like trying to lose weight without actually tracking your weight. Reviewing your spending each month and understanding where your money is going will make you a more conscientious consumer. There are many great free online budgeting solutions that you can start using now.
Associations are powerful. We avoid things we don’t want to do and, in the process, those tasks can start to pile up and feel more burdensome to even start. Take some of the doom and gloom out of working on your finances by making the process more enjoyable. Have a special treat or drink while you budget. Play some of your favorite music while you review your retirement account. Tackling your finances in smaller, more frequent chunks of time will also make the process more palatable.
Ask for help.
Sometimes we get stuck, and that’s okay. If you have a financial advisor, leverage them as a resource to get guidance when needed. Often, we just need a little nudge in the right direction to get back on track.
Have you ever heard the proverb about the cobbler’s children? It essentially states that the cobbler’s children, although surrounded by well-made shoes, have the most worn out shoes. Or that doctors are the worst patients? The same can be said for wealth advisors. We’re not immune to the common mistakes that exist in the financial world, and even we can benefit from the financial guidance we provide for others.
As a new advisor, I had an epiphany. Yes, an epiphany, as corny as that sounds. I realized that although I could adequately pick investments, decide on a savings plan and develop a strategy for myself, I wasn’t following through with it. While at a client meeting, my coworker explained it best by saying, “We help hold you accountable to your goals.” Duh! That was the thing I was not giving myself. I could make the best laid plan, but I wasn’t following through and doing the actions I needed to do to be successful. I had the knowledge, but needed accountability. The very next day I hired my first advisor. (more…)
I recently met with a prospective client, looking to hire a financial planner. She saw a TV ad from the CFP Board about hiring a professional planner. She visited their website and realized she didn’t know how to differentiate between them all. She wanted to ensure that the planner would help her look at all aspects of her financial life, and she realized that just because someone was a CFP® it didn’t mean they all operated in the same fashion. Her search was proving to be more difficult than she had anticipated.
It’s true, not all CFP® professionals are created equal. This article discusses why you might want to seek out a CFP® and some common differences to help you in your search. It’s important to educate yourself on what financial planning really means and to ask a lot of questions before deciding who to hire.
When looking to hire a financial professional, one of the most desirable credentials is the Certified Financial Planner™, or CFP®, designation. The CFP® mark indicates the highest standard in financial planning because CFP® professionals must meet certain educational requirements, pass a lengthy examination and have at least 6,000 hours of work experience for the standard pathway to certification. They must also adhere to specific standards of ethics and practice as outlined by the CFP Board.
Sounds great, right? The problem is that many financial professionals who have the CFP® designation use it as a marketing tool. There’s been a big marketing push to hire those with a CFP® by the CFP Board, and consequently financial firms are encouraging more of their advisors to obtain the CFP®. While there’s an educational benefit to anyone with the CFP®, it doesn’t always carry over into the work they do for their clients. (more…)
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…)
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…)