- Acting as if they know exactly what the financial markets are doing and why.
- Not being quickly and easily accessible via phone or email.
- Not continuing to research a client’s financial situation for a better solution.
- Not recognizing a total solution by ignoring the client’s portfolios managed by outside firms.
- Not speaking to and working deeply with both members of a couple.
- Limiting recommendations to the products provided by the advisor’s firm.
- Failing to address the risks associated with an investment.
- Failing to give ancillary and holistic advice on a client’s financial issues once the portfolio is established.
- Talking over a client’s head and using jargon.
- Managing client assets without knowledge of the client’s comprehensive financial plan.
Tis the season to select your health insurance plan either through your employer’s offering or the private insurance market. If you’re considering a high-deductible health plan (HDHP), keep in mind that many (but not all!) come with the fantastic opportunity called a Health Savings Account (HSA).
We love HSAs because they do two things:
- They help you pay for your medical costs either today or in the future
- They are triple tax advantaged
The government makes these accounts triple tax-advantaged because they want to incentivize you to save for your future medical costs. We know as the nation greys and gets older, we need to have a pot of money set aside to cover our potential out-of-pocket costs.
Here’s the triple tax saving advantage:
- When you have an HSA account attached to a high-deductible plan, you get to take a tax deduction on your current your contribution. For families, it’s $6,900 in 2018 ($7,000 in 2019). This means you get to lower your adjusted gross income by $6,900, a tax savings of potentially around $2,000 if you take into account state and federal income taxes. That’s $170 of savings each month if you do a little rounding. That’s pretty incredible. That’s step 1 – you get a tax deduction in current year. If you’re age 55 or older, you eligible for a $1,000 “catch-up contribution” so your can lower your AGI by $7,900 (thus lowering your tax bill by ~$2,300 or $190 a month).
- Layer two of the triple tax advantage is it grows completely tax deferred meaning it is growing without taxation on any appreciation, any dividends, or any income that’s going on a long as that money is sitting in the HSA account.
- Here’s the third layer and really the knockout that makes it an awesome savings tool for the future. If you use the money in the future for medical expenses, your HSA distributions are completely tax free.
(Here’s another cool thing. Once you reach retirement, you don’t have to use your HSA for medical expenses, but if you want them to be tax free, it needs to be medical expenses.)
Be careful when you select a high-deductible health plan (HDHP) to make sure it qualifies for HSA eligibility:
- HDHP minimum deductibles: self-only $1,350; family: $2,700
- HDHP maximum out-of-pocket amounts: self only $6,650; family $13,300
HSAs can be one of your best friends for the future.
At a 100,000-ft level, we do two things in our financial advisory practice: Asset Management* and Financial Planning. Although these two functions are distinct, they are very much interrelated. Both are essential components for our client families’ long-term success, but it’s important to understand and appreciate the differences:
(* Asset Management also falls under the monikers of “investment management” or “portfolio management”)
Asset management is about asset allocation, expected returns, risk tolerance and time horizons.
Financial planning is about making wise choices about the use of debt, setting up college savings plans, tax efficiency, estate planning and ensuring your insurance needs are taken care of.
Asset management is about managing investments.
Financial planning is about managing investors.
Asset management is about portfolio construction and risk management.
Financial planning is about comprehensive planning and emotional management.
Asset management is about measuring portfolio performance by comparing results to predetermined index benchmarks.
Financial planning is about measuring your performance against your true benchmark — your goals.
Asset management is about allowing your money to work for you to help you reach your financial goals.
Financial planning is about helping people define their goals, dreams, desires and fears.
Asset management is about creating a process that guides your actions in a wide variety of market environments.
Financial planning is about implementing a plan and making corrections along the way as life or market and economic forces intervene.
Asset management is about creating a portfolio that can survive severe market disruptions.
Financial planning is about creating a financial plan that can survive severe life disruptions.
Asset management deals with financial capital.
Financial planning deals with human capital.
Asset management is about growing and/or preserving your wealth.
Financial planning is about understanding why money is important to you personally.
Asset management is about where to invest a lump sum.
Financial planning is about how and when to invest a lump sum.
Asset management is about asset allocation.
Financial planning is about asset location.
Asset management is about creating policies to guide your actions in the face of economic and market uncertainty.
Financial planning is about helping people make better decisions with their money in the face of uncertainty that is impossible to reduce.
Asset management helps you understand how much you need to earn on your investments to meet your future spending needs.
Financial planning helps you understand how much you need to save meet your future spending needs.
Asset management helps you figure out where to take your money from when you need to spend it.
Financial planning helps you figure out where to spend your money in a way that makes you happy.
Asset management helps you grow your savings to meet future consumption needs.
Financial planning helps you plan and budget for future consumption needs.
Asset management is about creating a long-term process to guide your actions in the markets.
Financial planning is about creating systems that allow you to spend less time worrying about your money.
Asset management is about reducing the anxiety that comes from the volatile nature of the markets.
Financial planning is about reducing the anxiety that comes from making important decisions with your money.
Asset management involves growing your wealth so some day you can become wealthy.
Financial planning involves figuring out what a wealthy life means to you.
To get the most benefit from asset management, you really need comprehensive, well thought-out financial planning.
25 Important Documents You’ll Need Before You Die
• Letter of instruction
• Trust documents
Proof of Ownership
• Housing, land and cemetery deeds
• Escrow mortgage accounts
• Proof of loans made and debts owed
• Vehicle titles
• Stock certificates, savings bonds and brokerage accounts
• Partnership and corporate operating agreements
• Tax returns
• List of bank accounts
• List of all user names and passwords
• List of safe-deposit boxes
• Personal and family medical history
• Durable health-care power of attorney
• Authorization to release health-care information
• Living will
• Do-not-resuscitate order
Life Insurance and Retirement
• Life-insurance policies
• Individual retirement accounts
• 401(k) accounts
• Pension documents
• Annuity contracts
Marriage and Divorce
• Marriage license
• Divorce papers
Learn more in this article
A recent survey by Fidelity shows that wives and husbands don’t share retirement-planning duties nor agree on the plan:
- Only 41% of couples surveyed handle retirement investment decisions together.
- Only 17% of couples say either spouse is prepared to assume sole responsibility of their retirement finances.
- Although women are more likely to outlive their husbands, only 35% of wives say they are completely confident in their ability to take over the finances. 72% of husbands feel they can.
- 33% of couples say they don’t agree or don’t know where they plan to retire.
- 62% of couples nearing retirement don’t agree on the age at which to stop working
- 47% of couples nearing retirement don’t agree on whether they will continue to work in retirement.
Here’s what you should do and know:
- Both husbands and wives should know where critical documents are kept
- Both need to know what to do if their spouse is no longer able to assist with financial decision-making
- Both should have an understanding of the family’s finances, savings, and investment goals.
- Both should become active in financial planning and meeting with the family’s financial planner and investment manager.
- Both husbands and wives should talk about retirement and finances more often together for better agreement and mutual understanding.
Although we live in a complex world, this doesn’t mean we have to accept nor invite complications. In fact, very often a simple solution is the best solution. So what are some possible non-complex approaches to complicated finances?
Advisor Tony Isola, CFP, has a few ideas for you to consider:
- Automate your retirement contributions and eliminate the default status of doing nothing;
- Try to stay married (divorce is a great destroyer of wealth);
- Buy experiences and not things, and de-clutter your life while increasing happiness;
- Do not spend $250K for a four-year private college education for your children;
- Exercise and eat right; this will save you a boatload of cash on health care in the long run;
- Bank at a credit union;
- Do not invest a dime on an investment “tip;”
- Don’t be cheap when finding an accountant;
- Check your investment portfolio annually, not every day;
- Don’t cheat people because karma is a bi*ch; and
- Get disability insurance.
Sir Isaac Newton chimed in on the subject as well: “Nature is pleased with simplicity and nature is no dummy.”
What’s the best source of financial advice? A pundit or a professional? Charlie Bilello, the Director of Research at Pension Partners, provides this perspective-building comparison so you can make the right choice:
Pundit (noun): A supposed expert in a particular field who is frequently called on to give opinions to the public. See also Dennis Gartman.
Professional (noun): A person competent or skilled in a particular activity. See also John Bogle.
The Pundit spends their days making subjective predictions.
The Professional spends their days making objective assessments.
The Pundit seeks self-promotion.
The Professional seeks self-improvement.
The Pundit exudes hubris.
The Professional exudes humility.
The Pundit is forever calling for the next big melt-up or crash.
The Professional is forever focused on avoiding the next big mistake.
The Pundit seeks out only opinions that confirm their views.
The Professional seeks out all evidence, even if it runs contrary to their views.
The Pundit believes they know everything.
The Professional knows they know nothing.
The Pundit makes a living selling fear and greed.
The Professional makes a living helping to control these emotions.
The Pundit has a sense of entitlement.
The Professional has a sense of gratitude.
The Pundit seeks to inform.
The Professional seeks to educate.
The Pundit makes extreme forecasts to gain attention.
The Professional forecasts wide ranges of possible outcomes to gain respect.
The Pundit thinks in terms of long or short, this market or that market.
The Professional thinks in terms of asset allocation and the entire portfolio.
The Pundit believes in certainty, conviction, and precision.
The Professional believes in uncertainty, reservation, and probabilities.
The Pundit reads the news and listens to financial TV.
The Professional reads books and listens to podcasts.
The Pundit sees everything in markets as black or white.
The Professional understands there is often a gray area.
The Pundit makes the simple sound complex.
The Professional makes the complex sound simple.
The Pundit has a prophecy.
The Professional has a plan.
The Pundit has an answer for every question.
The Professional is often saying “I don’t know.”
The Pundit is an entertainer.
The Professional is an educator.
The Pundit gives recommendations.
The Professional offers guidance.
The Pundit provides a reason for every wiggle in the market.
The Professional provides evidence of randomness and noise.
The Pundit believes their success is a result of their exceptional talent.
The Professional understands their success is a result of hard work and luck.
The Pundit lectures.
The Professional listens.
The Pundit is thinking about the next day.
The Professional is planning for the next decade.
Pundit or Professional? The choice is yours.
History provides a huge wealth of wisdom for helping us grow and protect our money. Trader-turned-educator-turned-financial planner Tony Isola provides an awesome analysis of the application of history lessons:
How can investors act as applied historians and use this skill set to create wealth?
There are several minefields that could easily be avoided with some knowledge of the past:
- Most market corrections don’t turn into bear markets.
- Using leverage to boost investment returns often ends badly.
- The president has very little control over the global economy.
- Buying new financial products at market peaks is a poor idea.
- Bull markets last much longer than bear markets.
- Stocks are six times more likely to be up 20% than down the same amount.
- Uncertainty is always present and it is not a wise choice to use it as an excuse not to invest.
- Stocks will do the best job of protecting future purchasing power over long periods of time.
- Investing in the fastest growing world economies will not guarantee higher investment returns.
- Most recessions haven’t turned into depressions.
- Investment costs, savings rates and time in the market are the biggest components in generating healthy investment returns.
- Factor investing won’t work for most people because of their cognitive deficiencies.
- There is a large behavior gap between total mutual fund returns and what investors actually receive.
- The great majority of mutual fund managers will underperform low-cost index funds because of costs.
- Diversification works, just not every year.
- Stocks can stay massively over- and undervalued for very long periods of time.
- Real returns after inflation are the only returns that matter.
- Stocks are in a bull market 85% of the time.
All of the following can be proven with applied historical analysis. This is a much better strategy than relying on your gut, or believing a compelling story, when allocating money.
Source: Teachable Moment
In light of the threat of Hurricane Florence to the Southeast of the U.S. this week, we want to spotlight the following important FTC Consumer Alert:
Home is where most people feel safe and comfortable. But sometimes — say, when a hurricane, flood, tornado, wildfire, or other disaster strikes — it’s safest to pack up and go to another location.
The Federal Trade Commission (FTC), the nation’s consumer protection agency, says that when it comes to preparing for situations like weather emergencies, financial readiness is as important as a flashlight with fully charged batteries. Leaving your home can be stressful, but knowing that your financial documents are up-to-date, in one place, and portable can make a big difference at a tense time.
Here are some tips from the FTC for financial readiness in case of an emergency:
- Conduct a household inventory. Make a list of your possessions and document it with photos or a video. This could help if you are filing insurance claims. Keep one copy of your inventory in your home on a shelf in a lockable, fireproof file box; keep another in a safe deposit box or another secure location.
- Buy a lockable, fireproof file box. Place important documents in the box; keep the box in a secure, accessible location on a shelf in your home so that you can “grab it and go” if the need arises. Among the contents:
- your household inventory
- a list of emergency contacts, including family members who live outside your area
- copies of current prescriptions
- health insurance cards or information
- policy numbers for auto, flood, renter’s, or homeowner’s insurance, and a list of telephone numbers of your insurance companies
- copies of other important financial and family records — or notes about where they are — including deeds, titles, wills, birth and marriage certificates, passports, and relevant employee benefit and retirement documents. Except for wills, keep originals in a safe deposit box or some other location. If you have a will, ask your attorney to keep the
- a list of phone numbers or email addresses of your creditors, financial institutions, landlords, and utility companies (sewer, water, gas, electric, telephone, cable)
- a list of bank, loan, credit card, mortgage, lease, debit and ATM, and investment account numbers
- Social Security cards
- backups of financial data you keep on your computer
- an extra set of keys for your house and car
- the key to your safe deposit box
- a small amount of cash or traveler’s checks. ATMs or financial institutions may be closed.
- Consider renting a safe deposit box for storage of important documents.Original documents to store in a safe deposit box might include:
- deeds, titles, and other ownership records for your home, autos, RVs, or boats
- credit, lease, and other financial and payment agreements
- birth certificates, naturalization papers, and Social Security cards
- marriage license/divorce papers and child custody papers
- passports and military papers (if you need these regularly, you could place the originals in your fireproof box and a copy in your safe deposit box)
- appraisals of expensive jewelry and heirlooms
- certificates for stocks, bonds, and other investments and retirement accounts
- trust agreements
- living wills, powers of attorney, and health care powers of attorney
- insurance policies
- home improvement records
- household inventory documentation
- a copy of your will
- Choose an out-of-town contact. Ask an out-of-town friend or relative to be the point of contact for your family, and make sure everyone in your family has the information. After some emergencies, it can be easier to make a long distance call than a local one.
- Update all your information. Review the contents of your household inventory, your fireproof box, safe deposit box, and the information for your out-of-town contact at least once a year.
Source: Federal Trade Commission
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?
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