Category Archives: General Financial Planning

Keeping Your Eye on the Ball

I thought this would be a good time to refocus any of my readers out there who may be getting distracted by the recent market decline.  For the majority of investors, market volatility should either be ignored, or treated as an opportunity to add to your portfolio at “sale” prices.  Even for those of you who are retired and may be taking occasional distributions to supplement your other income sources, there is likely no need to sell positions right now to raise cash.  Doing so will likely be a regrettable decision, even if the market moves lower before it eventually trades higher.  Well-built, diversified portfolios, should be able to withstand prolonged periods of market volatility, just as they always have in the past.

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Why Hire a Financial Advisor?

Some people may choose not to work with a financial advisor because they don’t think they need one.  While it may be the case that not everyone needs to work with a financial advisor, I think there is a tremendous amount of value which can be unlocked from such a relationship when the correct client/planner match is found.  I’ll provide some examples below because illustrating this relationship may be helpful in figuring out where some of that potential value may lie. Continue reading

Generation Y: The Evolving Financial Planning Practice

Gen Y is a large and increasingly affluent segment of the population.  As the number of clients under 40 in my practice continues to grow, I’m noticing clear themes emerging about what this demographic is looking for.  Interestingly, they have needs which are really quite different from my clients who are 20-30 years older.  I created a list below which summarizes some of the messages I’ve been hearing from my Gen Y clients:

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The Case for Universal Life Insurance as a Conservative Investment Alternative

Everything we do in life involves some element of risk.  Some risks are known, and believed to be understood, while others are more uncertain and involve either probability or magnitude that we find difficult to quantify.  When investing, we generally seek to obtain the highest return possible given the amount of risk that we are able and willing to tolerate.  Unfortunately, gauging the degree of risk associated with various investments is not always easy.  Studies have shown that people tend to prefer known risks over unknown risks[1].  In many cases, this propensity, referred to as “ambiguity aversion,” can cause us to overweight or exaggerate risks that we are unable to quantify or that we do not entirely understand.  At the same time, people are prone to downplay risks that are common and familiar, where undue significance may be attributed to our own subjective personal experience (i.e., “I’ve done this for years, and nothing truly bad has happened to me, so it must not be very risky.”).  Taken together, these (often subconscious) biases can prevent us from properly assessing our alternatives – resulting in decisions that are based on perceived risk, rather than actual risk.  Chances are, you know people who are frightened of flying in airplanes but don’t think twice about getting into an automobile, despite statistics that place the odds of dying in a plane crash at 1 in 11 million while the odds of dying in a car crash are (according to some sources) as high as 1 in 5,000.[2] Continue reading

Financial Planning & Investment Advisory Fees – What is Reasonable?

From what I’ve seen, fee-based advisory firms, my own included, generally charge an annual fee which ranges from .75% to 1.75% of assets under management.  Generally, the larger your account balance, the more likely you are to receive a lower fee.  In fact, fee schedules are often tiered such that the initial 250K is billed at a higher rate which scales down at varying thresholds such as 500K and 1M.  There may, however, be other methods of determining an advisory fee beyond simply the size of the account.  For example, some firms are more active (tactical) than others.  Those firms would likely charge a slightly higher fee than a firm which is more passive and investing strictly in products which mirror indexes such as the S&P 500 and the Dow Jones.  Firms with passive investment strategies may still charge fees over 1% if they are including valuable services such as financial planning, estate planning, tax planning, etc.  What is included in the fee amount (above and beyond investment management) should be discussed in clear detail at an initial consultation. Continue reading

8 Questions Financial Advisors Should Ask Their Clients

I thought this entry would be interesting for both financial advisors and for people who work with them.  Having a truly productive relationship with your financial advisor means trusting them and giving them the needed information to figure out how to really help you.  Much of that information doesn’t come out through back and forth discussion and needs to be extracted through specific questions and elaborate answers.  Below are 8 of the questions which I ask my clients that I think really help to gain a more complete understanding of their financial profile: Continue reading

Debating the Fed’s Current Interest Rate Policy

I find the entire debate surrounding economic interest rates to be highly significant at the moment.  What is supposed to be a policy tool used by the Federal Reserve to contain inflation and occasionally encourage either economic expansion or contraction has turned into a drug which our economy is gradually becoming immune to.  The debate over interest rates is currently taking place at high level institutions such as the Federal Reserve who understand that if they wait too long, the drug can have serious consequences.  The debate is also taking place across America where portfolio values and real estate prices have been on the rise, giving people the satisfaction of passively achieved wealth.  That satisfaction, however, is partially masked by the concern of bubbles and whether those asset prices may come back down at some point soon.  Continue reading

5 Tips for Financial Success and Independence

Save Early and Often – It’s some of the most popular financial advice out there – start saving in your 20’s, and yet so many people don’t do it.  I understand that people have other obligations such as paying off debts and getting established in their careers which can interfere with implementing a savings plan.  However, most people don’t properly prioritize saving.  If you treat saving like paying a bill and you make it totally automatic, you’ll forget you’re doing it.  Create an automated savings plan when you’re young and get started.  Even if the amounts are low at first, it’ll be easy to increase the amounts as your income level rises and your debts disappear.

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Simple Ratios and Rules of Thumb for Financial Planning

I often get asked quick questions such as “how much house can I afford?” or “how much life insurance do I need?”  Personal finance is a very subjective science and the answers can vary widely depending on who is doing the asking.  That said, it’s nice to have some basic rules of thumb which can be used to make sure you’re not totally off base when making a quick financial estimate.  Below are a few of these rules which apply to saving, spending, housing, and insurance.  Enjoy!

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Building a Standard for Financial Advice

There was a good article in Research magazine last month about the business of financial advice and how it needs improvement.  Research is an industry publication so it’s not the sort of article which would be distributed to the general public.  That said, I’ve read articles in consumer publications which comment on many of the same points.  Part of the problem is that the financial advice industry doesn’t really have an official designation, perhaps one that is state-issued, required for  inclusion in the industry, and that has a rigorous set of practice standards.  Accountants have the CPA, financial analysts have the CFA, lawyers have the JD, etc.  Some might say that people in the business of giving financial advice have the CFP (Certified Financial Planner) designation, which they do, but that isn’t a requirement for inclusion in the industry.   In fact, many people don’t know about or distinguish between the various financial planning designations which exist.

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