Heading off to college is an exciting life transition and a major growth opportunity. For many young people, it’s their first chance to manage their own finances. Parents and students who invest a little time, planning, and partnership up front will reap profound benefits for life. Follow these four tips to ensure that you have a great financial launch!
Open a checking account
Often the university credit union or local counterpart is a trustworthy, low-cost option. Download the bank’s mobile app to make easy deposits and to check account balances. Set automatic alerts to provide low-balance notifications or other helpful information. Parents will likely find it convenient to link their bank account to their child’s to provide monthly allowances, etc.
Build a budget
Discuss sources of money and allowances. Know what money is coming in and going out by tracking it. Sign up for Mint.com. Draft a simple spending plan and follow it. Don’t overspend. Don’t forget to budget for an occasional indulgence (within reason!). Resist temptations and impulse purchases. Learn to differentiate between wants versus needs. Expect to iterate a few times on your budget as parents and students adaptively learn the reasonable costs of college life.
Get a credit card
Credit cards are for the convenience and security of not having to carry large sums of cash. Credit cards are NOT for spending money you don’t already have. If you can’t pay off the entire credit card balance each month, you are OVERspending. Avoid on-campus promotions that covertly proffer high-interest-rate cards via enticements of free t-shirts, tumblers, or other trinkets. Again, the university credit union is often a safe space. It’s ideal to have a checking and credit card at the same bank to make payments and management easier. Set alerts (e.g., purchases > $100) to flag transactions above normal spending patterns and protect against fraud.
Start Saving and Investing NOW
I know it’s hard, but having the foresight and the discipline, as a college student, to save and invest will be LIFE CHANGING. No one ever told us this and it is our greatest financial regret. Committing to saving even a small amount each month will add up quickly over time and instill a good habit of saving. Compounding growth is magical — save $20 per month starting at age 18, invest it to grow at 8% per year, and keep doing this for 40 years. You will have contributed $9,600, but your account will have grown to $64,422 thanks to compounded growth. This is your “army of dollar bills” working and growing for you. To get started, open a Roth IRA at a low-cost provider (e.g., Vanguard or Fidelity) and invest your earned income in an S&P 500 index fund. Long-term success is predicated on time in the market, not timing the market.
The budgeting, spending, and savings habits that students form in the coming months and years in college will likely establish their money management persona for life. By cultivating this money-centric parent-student learning partnership, you’re making an investment in your long-term security and happiness.
We’re dealing with more uncertainty than most of us have ever faced before. And as the months drag on, the stress of not knowing what comes next is taking a toll.
How do we make smart decisions when we’re stressed out and everything is uncertain?
We made a quick video talking about what we can learn from how Navy SEALs deal with stress and uncertainty.
|Chris Mullis, Ph.D., CDFA®
Dear Clients & Friends,
The first six months of 2020 saw the advent of the worst global public health crisis in a century — since the 1918 influenza pandemic. In response, the world locked down, putting its economy into a kind of medically induced coma.
In this country, the immediate effects were (1) a savage and nearly instantaneous economic recession, accompanied by record unemployment, and (2) the fastest, deepest collapse in stock prices in living memory, if not ever.
Though I usually write you an extended personal summary annually concerning the year past — and will again — the stark drama of the last half year has been such that I wanted also to report to you now.
This letter follows the format of my annual reports to you. It’s divided into two parts, the first a statement of general principles, especially those most relevant in the current crisis, with a restatement of how I practice my stewardship of our clients’ invested wealth. The second is a review of what little can be known at this point, and of how I propose we continue to deal with the pervasive uncertainties of the moment.
• I believe that all lastingly successful investing is essentially goal-focused and planning-driven. All failed investing is market-focused and event-driven.
• Stated another way: every truly successful investor I’ve ever known was acting continuously on a long-term plan. Every failed investor I’ve known continually reacted to sudden and terrifying market shocks.
• Thus I’ve found that long-term investing success is only incidentally a function of the economy and the markets. It is a direct function of how the investor reacts—or, more properly, how he/she refuses to react.
• You and I are long-term, goal-focused equity investors, acting on our plan with patience and discipline. The smaller part of what I do for clients is the crafting of that plan. The much larger part is helping them not to react in stressful times like this.
• I continue to believe that the equity market can’t be consistently forecast, much less timed, and that the only certain way of capturing equities’ superior long-term returns is to sit through their occasionally steep but historically temporary declines.
Review and Outlook
• At midyear, the best that can be said is that the first great wave of the pandemic appears to be abating, and the economy is slowly reopening. As it continues to reopen, there will inevitably be some flareup in new infections. The interaction between the pandemic and the economy in the short to intermediate term is therefore perfectly impossible to forecast, as is the timing of the development of a vaccine.
• The equity market crashed from a new all-time high on February 19 to a bear market low (so far) on March 23, down 34% in 33 days. There is no historical precedent for this steep a decline in so little time. Confoundingly, it then posted its best 50 days in history. The S&P 500 closed out the first half at 3,100.3, 8.4% off its all-time high.
• It is not possible to forecast the near-term course of corporate earnings or dividends, as they — like the economy they reflect — are still largely hostage to the pandemic. That said, I invite your attention to the fact that at June 30 the yield on the 10-year U.S. Treasury note was less than 7 tenths of one percent.
• I infer from the current state of interest rates that though it is impossible to forecast equity earnings, dividends and prices, it can be stated as fact that few if any of my clients can continue to advance toward the achievement of their long-term financial goals in bonds, at anything close to today’s yields. This is just another reason why I’ve advised them to stay the course in equities.
• It should also be noted that even if the pandemic continues to subside and the economy to recover, investors will still have to deal with what may be the most widespread civil unrest in our country in decades, and what promises to be a bitterly partisan presidential election cycle. Emotions seem likely to continue to run high, with unpredictable short-term market consequences.
• I’ve very deliberately labored in this summary to convince you of the sheer unknowability of the short (say, the third quarter of 2020) to intermediate (say, through the first quarter of 2021) term economic and market outlook. In the next breath, I remind you that not one of you is investing for the next one to four calendar quarters. I say again: you and I are long-term, goal-focused, planning-driven, patient, disciplined investors. Our focus is on history rather than headlines, and our mantra is from Churchill: “The farther back you can look, the farther forward you are likely to see.”
• Finally, I would urge you to think back to January 1 of this year. Have your most cherished lifetime financial goals changed since then? If not, I see no compelling reason to change your plan — and no reason at all to change your portfolio.
• Be of good cheer. This too shall pass. Optimism remains, to me, the only long-term realism.
By all means, please be in touch with me with any and all questions and concerns. In the meantime, thank you — as always — for your interest.
|Chris Mullis, Ph.D., CDFA®
Over the past several weeks, the stock market has experienced both the fastest crash and the most robust bounce ever seen. Right now, while things are relatively calm, I want to underscore the following points that are profoundly important to your investing success.
- When stock prices are going down, the enduring value of the underlying companies is going up. A market decline is therefore always to be experienced as a sale, and the very nature of sales is that they are temporary. The lower prices go, the more value is to be had at those prices. You instinctively know this about virtually everything else in your economic life. If you can’t apply that same correct instinct to the stocks of America’s and the world’s great companies, it’s not probable that you can ever become a successful investor.
- Staying fully invested during temporary market declines is the only sure way to capture the entirety of the market’s permanent advance. It is not possible consistently to sell out of falling markets, and later buy back into already advancing markets, thereby capturing the long-term returns of equities. Those returns are your reward for staying calm.
- You never try to make long-term investment strategy out of short- to intermediate-term disruptions. We have a plan for getting you to the goal you need to reach, in order to secure a successful retirement. To achieve that goal, you need to invest consistently. And to stay invested, not just when the sun is shining.
- Perhaps more today than ever, bonds, CDs and the like are not an alternative. At the moment, the cash dividend of the S&P 500 is close to three times the yield on the 10-year Treasury note. Even if dividends were to halve in the current crisis, and interest rates stayed where they are, stocks would still yield more than the 10-year Treasury. I’ve never seen that before, and when this crisis passes, I don’t ever expect to see it again. Bonds are simply not, in my judgment, a rational alternative to stocks for the long-term investor.
- How low the stock market ultimately goes in response to the economy’s cardiac arrest is both unknowable and — to the long-term, goal-focused, planning-driven investor — irrelevant. (Unless, of course, he/she is still in accumulation mode, in which case a renewed decline would be a genuine godsend.)
I hope sharing our enduring principles helps both steady you in the present and focuses you on your long-term success. As always, if you have any questions don’t hesitate to give me a call.
When the world goes as haywire as it’s done lately, you may have occasion to question your investment strategy — and even your overall financial planning. If so, you may wish you could get an objective second opinion you can trust, from a friend. I hope you’ll know me to be that friend.
Wishing great success,
|Chris Mullis, Ph.D.
So much is unknown.
Do we reopen or wait?
Are we past the peak? Or just over the first summit of a mountain range?
Are we safe yet?
After weeks of restrictions, it’s easy to feel that we’re swirling in a maelstrom of uncertainty, helpless to make decisions when so much remains unknown and out of our control.
The uncertainty, the personal losses many have experienced, and the everyday challenges of socially distant life can shake our foundation and cause us to lose touch with what’s most important.
I think that’s normal. We’ve traded a trip on the highway for an off-roading adventure. And we don’t know where it’s going to take us this year.
So let’s lean into the uncertainty. Let’s embrace it and use it as a wake-up call to explore and appreciate what really matters.
Our health. Our family, friends, and loved ones. Our home. Our community. Our compassion and creativity. Our resilience as human beings.
As for me, I have some moments of frustration, but I’m staying grounded by playing outside with our kids and working in the yard.
I’m also learning a lot about myself. I’ve learned that I really enjoy sitting face-to-face in the same room with clients, friends, and colleagues. I’ve learned that I’m not “camera ready” for Zoom meetings nor remote TV interviews, but I’m humbly trying to get better.
I’m working on gratitude and enjoying simple things like dinner-time conversations, our weekly visit with my parents, and fresh air.
I’m grateful to have a wonderful family, a comfortable home (aka The Bunker) and deeply meaningful work.
I’m grateful to have you.
On the professional side, I’m focused on what we can control on our clients’ behalf and staying abreast of what might come next. Our mantra right now is: “one day at a time.”
How are you? I’d love to hear how you are coping. What lessons are you learning about yourself? What have you had the courage to try for the first time? Hit “reply” and let me know.
This pandemic is scary. But it’s also a once-in-a-lifetime chance to hit the “reset” button and connect with the creativity, joy, and good old human ingenuity that can flourish within the limitations of pandemic life.
Eventually, we’ll recover from the pandemic. It’s not clear yet what that will look like, and we’ll likely see more hard days before we get there. Businesses will reopen, people will go back to work, the recession will pass, and the country will rebuild.
We will heal. But some marks will remain as reminders of our experience.
The Great Depression taught people to clip coupons and “make do or go without.” 9/11 upended our travel rituals and awareness of terrorism.
Some lessons from the pandemic will stay with us long after the immediate crisis fades. Some will be unconscious; maybe we’ll become a society of dutiful hand washers and social distancers.
Others will be lessons we consciously take with us about our values and ability to adapt to circumstances far beyond our control.
I’m hopeful and excited to see what we learn. Let’s make it good.
How has the pandemic changed your perspective? What new values and priorities will you bring out of your experiences? Email me at email@example.com and let me know.
|Chris Mullis, Ph.D.
NorthStar Capital AdvisorsFinancial Planning.
P.S. Do you know someone who is having a hard time and could use some financial advice? We’re holding a few spots open for folks who could use a professional’s help. If you can think of someone, please reply to this email or call (704) 350-5028 to let me know.
P.P.S. And don’t forget about our special COVID-19 pro bono planning we created to support individuals and families who can’t afford fiduciary advice and financial planning.
“The toilet paper had armed guards.”
“We celebrated my birthday with a dinner party over Zoom.”
“My officemate jumped on my desk and drooled on my keyboard during a meeting.”
One day, we’ll look back on these strange days and tell stories about the COVID-19 pandemic of 2020.
But right now, we’re getting through it. One day at a time.
How are you doing? What stories can you share with me about your life right now? Email me at firstname.lastname@example.org and tell me. I’d love to hear about them.
In difficult times, it’s easy to think we are alone. Especially when our loved ones and support system are far away or reduced to virtual connections.
We are all learning how to adjust to a new world and stay grounded when headlines are blaring and our very health and well-being are under threat.
I’m working on being grateful for the great things in this life.
I’m grateful for my wife.
I’m grateful for our children.
I’m grateful for our family, friends, and neighbors.
I’m grateful for work that allows me to help people in my community get through times like these.
I’m grateful for you.
What are you grateful for?
Like WWII and 9/11, we’re living through days that will define future generations and change the very fabric of our society.
I don’t envy the policymakers making grim trade-offs between life, death, and the economy. How long do we socially distance? What about the 10 million+ who have lost jobs?1 Or the businesses that have been forced to close?
I hope with all my heart that each one of them has a financial plan and someone they can go to for advice. But my head knows better. I know that most Americans can’t survive a $1,000 emergency and only 17% have a financial adviser to help them.2
What trade-offs are we willing to make to protect those at greatest risk from the disease? We can’t put a dollar figure on human life. But we can put a dollar figure on the human cost of jobs lost and businesses closed.
The next few weeks are going to be tough for all of us. And I want you to know that I’m here for you.
Layoffs and furloughs are happening and I’m helping affected clients create a game plan to get through the next few months. If this happens to you or someone you love, please let me know immediately so I can help you determine if you’re eligible for special assistance. And, also please remember our COVID-19 pro bono program that we’ve launched to serve people who don’t normally have access to fiduciary advice.
How do we make good decisions with so much uncertainty and mixed information?
We make a choice:
We can choose to crumble under the weight of fear and uncertainty…
We can choose to simply hunker down and endure…
We can choose to grow, flourish, and come out stronger on the other side. We can be grateful for our blessings and focus on what’s within our control: our mindset, our behavior, and the actions we take.
I am fundamentally optimistic about humankind’s ability to weather this crisis and use it to grow.
I’m optimistic about how our society will adapt and change due to this crisis. Some of the greatest changes and innovations in history grew out of frightening, pessimistic times.
I’m optimistic about the heroes fighting the disease on the front lines.
I’m optimistic about the people helping friends, neighbors, and strangers stay safe and comfortable.
I’m optimistic that those with jobs will continue working to keep this country going while we wait and heal.
I’m optimistic about the innovators staying up late in labs, workshops, factories, and offices around the world to create vaccines, treatments, and tools to beat the virus.
I’m optimistic about the new inventions and technologies that will grow out of necessity.
I don’t know what challenges the world will throw at us in the coming days and weeks. I do know that I am grateful to be surrounded by smart, motivated people who push me to do better.
How can you show up for the people around you? How can you be your best self in these times?
How can I help you do it? Email or call and let me know.
Be safe and be well,
|Chris Mullis, Ph.D.
NorthStar Capital AdvisorsFinancial Planning.
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