Charlotte Financial Planning & Advice

Blog

Happy Money: The Science of Smarter Spending

If you think money can’t buy happiness, you’re not spending it right. Two rising stars in behavioral science explain how money can buy happiness—if you follow five core principles of smarter spending:

1. Buy Experiences
2. Make it a Treat
3. Buy Time
4. Pay Now, Consume Later
5. Invest in Others

“Buy Experiences” essentially means to spend money on memorable experiences instead of expensive toys, because you are able to relate to those experiences on an emotional level for much longer than with objects.

“Make It A Treat” focuses on the concept of over-consumption creating a weakening of the enjoyment factor. If you have something every day, even if it’s something you love, it becomes routine rather than fully enjoyable.

“Buy Time”: The idea that you make life decisions that allow you to have more free time. Suggestions include outsourcing unnecessary tasks.

“Pay Now, Consume Later” is a fascinating concept. In society today, we’re more apt to do the reverse, thanks to credit cards. Essentially, it’s sort of like half the fun of a road trip is getting there. When consummation is delayed, from something as simple as eating candy to attending an event, the enjoyment is increased. When something’s already paid for, if enough time passes, it seems “free” when it’s actually consumed.

“Invest In Others” hits on how donating or spending money on others feels better than buying things for yourself.

Happy Money (by Elizabeth Dunn and Michael Norton) offers a tour of new research on the science of spending. Most people recognize that they need professional advice on how to earn, save, and invest their money. When it comes to spending that money, most people just follow their intuitions. But scientific research shows that those intuitions are often wrong.

Happy Money explains why you can get more happiness for your money by following five principles, from choosing experiences over stuff to spending money on others. And the five principles can be used not only by individuals, but by companies seeking to create happier employees and provide “happier products” to their customers.

By the end of this book, readers will ask themselves one simple question whenever they reach for their wallets: Am I getting the biggest happiness bang for my buck?

What You Should Focus On

We all want to live a great life. The path to achieve that life relies, in part, on knowing what to focus on and what to ignore. Focusing on the things you can’t control is a waste: a waste of time, energy, and often, money. Here’s a list of things that matter, things you can control, and the things you should focus on.

Things that matter:

Health
Human progress
Long-term market returns

Things that you can control:

How you treat people
Feeling good about yourself
Making smart financial decisions

What you should focus on:

Living a happy, productive life
Surrounding yourself with good people
Not letting a long-term plan be derailed by the current market environment

Source: Carl Richards, Michael Batick

Two Deadly Assumptions

We live in a world that is replete with financial scams. Here are two classic and deadly assumptions that can rapidly separate you from your money.

Deadly Assumption #1 — The guy belongs to my church / temple / country club / ethnic group, of course he’ll look out for me.

Maybe he will, but is affinity a good enough reason to trust a financial advisor? Quarterback Mark Sanchez found out the hard way that this sort of thinking can easily lead one into the arms of a predator…

From ThinkAdvisor:

Former New York Jets quarterback Mark Sanchez and other professional athletes said they were cheated out of millions of dollars in a Ponzi-like scheme orchestrated by an investment advisor who appealed to their Christian faith.

Sanchez and Major League Baseball pitchers Jake Peavy and Roy Oswalt were defrauded out of about $30 million, according to a recently unsealed U.S. Securities and Exchange Commission lawsuit in Dallas federal court. The athletes all used the same broker, Ash Narayan, formerly of RGT Capital Management. The advisor gained their trust through religion and their interest in charitable works, the SEC said.

Deadly Assumption #2 — This advisor works for a big, prestigious firm and the product is very sophisticated, I deserve this special access.

Structured products are a minefield for the wirehouse wealth management client because the firms’ “producers” are highly incentivized to sell them. Anything being pushed on the brokerage sales force by the home office is, by definition, perilous for the client. Because if it were so good, then no commission would be necessary – the product would be found by savvy investors and there would be no need for extra compensation. But structured products are unnecessary for most investors, although profitable for the firms that create them, hence the degree to which they’re sold to people.

As proof of this, you almost never hear of a fiduciary advisor recommending this stuff. It’s not even in the lexicon for a client-centric practice or an unconflicted advisor.

Source: TRB

The Best Advisors Will Tell You “NO”

As a fiduciary we’re obligated to put our clients’ interests first. This essential mandate can on occasion run into direct conflict with what a client wants. There are circumstances where an advisor knows that what the client is requesting defies common sense and is at odds with his or her long-term interest.

What kind of things are we talking about? Here’s a short list courtesy Barry Ritholtz:

• Taking on more risk than is prudent.

• Buying the hot new thing.

• Participating in an expensive, underperforming private investment (e.g., hedge funds, venture capital).

• Using excess leverage.

• Following the advice of pundits or talking heads.

• Overtrading.

• Pursuing the latest media fixation.

• Speculating in commodities.

• Allowing emotions to steer investments.

• Buying low-quality, high-yield “junk” fixed income paper.

• Buying non-liquid investments (private equity, gated private investments).

• Market timing.

• Buying IPOs.

• Cherry-picking portfolio allocations.

Our gently communicated but firm response to all of these is “NO.” All the academic research in the world suggests these are a bad bet. As Barry says, “if you want to make an expensive gamble, enjoy a lovely vacation to Monte Carlo, but please leave your retirement plans out of it.”

That’s our stance on this issue and we take it from a position of deep care and protection for our clients. But what’s your opinion? Should advisors do what a client wants, even when the advisor knows it is not in the client’s best interests?

P.S. In case you’re wondering…here’s what a big “YES” is in our book:
We invest through a broadly diversified set of indexes via a robust asset allocation model. It is global, inexpensive and primarily passive. It is statistically what is most likely to generate the highest returns for the least amount of risk over the long-term.

10 Signs You Own the Right Portfolio

The following elegant observation comes courtesy of Jonathan Clements.

You’re so well diversified that you always own at least one disappointing investment.
Your livelihood isn’t riding on both your paycheck and your employer’s stock.
If the stock market’s performance over the next five years was miserable, you wouldn’t be.
You can remember the last time you rebalanced.
You have no clue how your investments will perform, but a great handle on how much they’ll cost you.
You don’t have any hot stocks to boast about.
For every dollar you’ve salted away, you have an eventual use in mind—and the dollars are invested accordingly.
Jim Cramer? Who’s that?
A year from now, you plan to own the same investments.
You never say to yourself, “Wow, I didn’t expect that.”

Source: JC

10 Cognitive Biases That Affect Your Investment & Everyday Decisions

Research suggests that we make up to 35,000 decisions every single day. Emotions, experiences, and environment can strongly influence our decision making process. Enjoy the cartoons below and learn more about common cognitive biases that impact your everyday life and your investing behavior.

Bandwagon Effect: Believing or doing something because people around you believe or do it

Availability Heuristic: Overestimating the importance of information that is easiest to recall

Dunning-Kruger Effect: Unskilled individuals overestimating their  abilities and experts underestimating theirs

Framing Effect: Drawing different conclusions from the  same information presented differently

Confirmation Bias: Seeking and prioritizing information  that confirms your existing beliefs

Curse of Knowledge: Struggling to see a problem from the perspective of someone with less knowledge than you

Reactance: The desire to do the opposite of what is requested or  advised, due to a perceived threat to freedom of choice

The Sunk Cost Fallacy: Refusing to abandon something unrewarding because you’ve already invested in it

Hindsight Bias: Believing that you could have predicted an event after it has occurred

Anchoring Effect: Excessively focusing on the first piece of  information you receive when making a decision

Source: Towergate

Advice for New (and soon-to-be) Retirees

A few years ago the consulting firm PricewaterhouseCoopers conducted a survey to reveal what new retirees need to understand to make their retirement more meaningful and to ease this major life transition. The following are powerful insights for those moving toward retirement from those just ahead of you.

Initial Thoughts
Most of the new retirees strongly recommended keeping active, whether in volunteer work, hobbies, travel, reading, or new business ventures. Words of wisdom included:

Use your talents and realize this is a “new beginning” and not an end.
Set goals two to three years in advance. Good planning is helpful … focus on financial and emotional issues.
You should develop a routine (daily) and not just allow things to happen or not happen—you really are on your own—work, family, etc.
Learn to relax without feeling guilty about it! Stay busy, mentally and physically. Remember, it’s never too late to learn new things and improve old things.
Make a priority list of the things you’ve always wanted to do but didn’t have the time to do. Start doing the highest-priority items immediately.
Consider retirement a process rather than an event.
Don’t worry about how you will fill your day. If you are reasonably active physically, have outside interests and are willing to be involved in your community affairs … you will wonder where the time flies. But nail down the finances.

Your Significant Other
A frequently overlooked but important aspect of retirement is the new or different relationship with one’s spouse. A new retiree may need to be careful not to intrude or tread on a spouse’s independent lifestyle. Spouses offered the following comments:

Retirement is great but not for lunch.
Remember we have lives that are already full, and don’t expect to be waited on all the time.
Spouses have their own life in community activities. Make sure you don’t make them feel guilty when they continue their own lives.
Be prepared for a lot of togetherness. [One wife described it as half the money, twice the husband.]
Continue to pursue and respect other interests; take care of your health.
Sit down and review life’s priorities. Develop a jointly agreed-upon plan, together with benchmarks concerning the high-priority items. Allow plenty of time to relax together.

Expectations
Most retirees were surprised at how easy it was to fall into a new routine. Common sentiments included:

Instead of being bored and frustrated I found a new sense of freedom. For the first time in years I was my own boss and totally accountable for my state of mind.
The first six months [were] lonely and depressing that your successors never ask for your advice … followed by bliss!
How hard I thought it would be and how easy it really is.
[I was surprised that] my handicap did not drop by 10 strokes.
[You will be surprised by] how much you will miss the relationships and connections that you leave behind at work.

What They Would Do Differently
Lastly, new retirees were asked what they would have done differently before retiring. Most respondents said they would begin retirement planning, including financial and tax planning, at an earlier stage. Here are some insightful comments on this topic:

Put as much of the financial/administrative side of life on automatic pilot as soon as possible. Simplify and try to get out of the middle of all the minutiae.
We traveled extensively the first year. I would spread it out, but highly recommend travel.
Develop a greater understanding of the income tax considerations in the year of retirement.
I would have said appropriate farewells (good-byes) to all colleagues.
Would have done advance planning (for post-retirement activities) one to two years before actually retiring.

Source: PwC

America — How are you saving?

Vanguard just released their annual report on the state of retirement savings in America: How America Saves 2018

There’s a ton of great info in the report, but we want to highlight some good news…and some bad news.

First, let’s start with the positives:

Participation rates: More people are enrolled in defined-contribution plans;

Portfolio composition: This has improved, as plans have moved away from random fund selection and toward either target-date funds or balanced funds;

Automatic enrollment: Up 300 percent since 2003;

Automatic annual deferral-rate increases: Two-thirds of participants do this;

Account balances: Most have increased substantially.

And, now the bad news:

Total savings: It’s still not enough, and it suggests a large swath of the public either doesn’t save enough or can’t save. You can blame some of it on lack of wage gains during the past few decades. The huge increase in the cost of health care, housing and education certainly doesn’t help. Nor does our profligate, consumption-driven lifestyle. But no matter the reason, the conclusion is inescapable: many Americans are not financially prepared to retire. Perhaps that’s why so many of them are working well into their 80s.

More nudges are needed: Savings for many people are not keeping pace with their pay increases. There is a tendency to set and forget 401(k) contributions, and not revisit the issue ever again. The solution is to have automatic increases for retirement-savings contributions as pay increases.

Target-date funds: These funds automatically adjust the balance of stocks and bonds over time, shifting more heavily toward bonds as the participant gets closer to retirement. The problem is that given increasing modern lifespans, these funds may end up being too conservative in the final decade or two of work for many participants.

To have and to have not: To paraphrase Hemingway, the rich are different: they not only have more money, they also have more retirement savings. The advantages of being wealthy are manifest versus middle- and lower-income savers. Although most of the investment industry targets the wealthy, the underfunded retirement plans of the rest of America continue to be a serious issue.

Spend some time reading through Vanguard’s report to not only help you get the best from your retirement-savings plan, but also help America do better with its future retirement.

Source: Vanguard

8 Ways to Live Well in Your Middle Years

Our mantra at NorthStar Capital Advisors is Plan Well. Invest Well. Live Well.

Here are eight terrific insights on how to live well in your middle years distilled from former NPR reporter Barbara Bradley Hagerty’s new book, Life Reimagined – The Science, Art, and Opportunity of Midlife.

1. Aim for long-term meaning rather than short-term happiness, and you will likely find both
Aristotle suggested as much when he talked about eudaemonia, or the good life: striving with a purpose — raising terrific children, training for a marathon — rather than setting your sights on immediate pleasures, such as enjoying a good meal or a day at the beach. It’s also the best thing you can do for your mind and your health.

2. Choose what matters most
Clayton Christensen at Harvard Business School describes the eroding effect of short-term decisions — specifically, doing the activity that brings you immediate gratification (such as work) and putting off harder but ultimately more fulfilling activities (such as investing in your marriage and children).

3. Lean into fear, not boredom
Most of us become competent at our work by our 40s, and then we have a choice: Play it safe or take a risk. Howard Stevenson, also a professor (emeritus) at Harvard Business School, believes the greatest source of unhappiness in work is risk aversion — which leads to stagnation and resentment. “Ask yourself regularly: How will I use these glorious days left to me for the best purpose?”

4. “At every stage of life, you should be a rookie at something”
This insight comes from Chris Dionigi, a Ph.D. in “weed science” and the deputy director of the National Invasive Species Council (that kind of weed). He believes trying new things and failing keeps you robust. Always have something new and challenging in your life, he says, “and if that something is of service to people and things you care about, you can lead an extraordinary life.”

5. Add punctuation to your life
Young adulthood offers plenty of milestones: graduating from college, starting a career, getting married, having your first child. But Catharine Utzschneider, a professor at the Boston College Sports Leadership Center who trains elite middle-aged athletes, says midlife is like “a book without any structure, without sentences, periods, commas, paragraphs, chapters, with no punctuation. Goals force us to think deliberately.”

6. A few setbacks are just what the doctor ordered
Bad events seem to cluster in midlife — losing a spouse, a marriage, a parent, your job, your perfect health. But people with charmed lives — zero traumas — were unhappier and more easily distressed than people who had suffered a few negative events in their lifetime. According to resilience research, some setbacks give you perspective and help you bounce back.

7. Pay attention: Two of the biggest threats to a seasoned marriage are boredom and mutual neglect
The brain loves novelty, and love researchers say a sure way to revive a marriage on autopilot, at least temporarily, is to mix things up a bit. Go hiking, take a trip to an undiscovered land.

8. Happiness is love. Full stop
This observed wisdom comes from George Vaillant, a psychiatrist and researcher who directed Harvard’s Study of Adult Development for several decades. Vaillant found that the secret to a successful and happy life is not biology. It is not genes. It is not social privilege or education. It is not IQ or even family upbringing. The secret to thriving is warm relationships. Oh, then there’s this happy coda: Second chances present themselves all the time, if you’ll only keep your eyes open.

Source: NPR

Thank You for 12 Years!

Twelve years ago today we launched our financial advisory practice framed upon three starkly beautiful motivations:

To do good
To do well by doing good
To be happy doing well by doing good

Helping families articulate, plan out, and live their great lives is a noble mission that we take up with unyielding energy and commitment.

Stars pivot around the North Star above Maunakea Observatory, Hawai’i

We would like to take this opportunity to thank all of you who’ve helped us on our journey. From the early clients who trusted us from the get go to our friends and family who’ve lent their support in more ways than we can list here. We would not be where we are without each and every one of you.

It has been an exciting and educational journey. As we look back, here are a few things we have learned.

Time is the key, not money. When we meet with prospective clients approaching retirement, universally they express regret that they didn’t get organized and motivated about finances until late in their professional lives. “I wish I would have found you 20 years ago” is the common refrain. Money is a commodity. Time is the precious resource.
Inertia is the enemy. “If you do the same thing you’ve always done, you will get the same thing you’ve always gotten.” Whatever path you are on, look up to the horizon to see where it leads. If you do not like where you are headed, you must pull up the stakes and change direction…NOW!
All successful investing is goal-focused and planning-driven. All failed investing is market-focused and performance-driven. All successful investors are continuously acting on a plan. All failed investors are continually reacting to the markets.

As we look forward to the next few decades of serving our clients and our community, know that we are constantly working to provide a superior client experience. It’s our firm conviction that planning can be the key that unlocks incredible potential for the good of our clients, their families, and their communities.

We look forward to all the future has in store.

With heartfelt gratitude,

Chris Mullis, Ph.D.
on behalf of the NorthStar team

‹ Prev 1 234 5 6 Next ›Last »