Personal Finance Archives - Page 4 of 8 - NorthStar Capital Advisors

Know More, Make More

A ground-breaking academic study finds that more financially knowledgeable people earn a higher return on their 401(k) retirement savings.

Dr Robert Clark (NC State University), Dr. Annamaria Lusardi (George Washington University), and Dr. Olivia Mitchell (University of Pennsylvania) analyzed a unique dataset that combined 401(k) performance data for 20,000 employees plus financial literacy data for the same workers.

Investors deemed to be more financially knowledgeable than peers enjoyed an estimated 1.3% higher annual return in their 401(k)s or other defined contribution plans than those with less knowledge.

According to the study’s authors:
“We show that more financially knowledgeable employees are also significantly more likely to hold stocks in their 401(k) plan portfolios. They can also anticipate significantly higher expected excess returns, which over a 30-year working career could build a retirement fund 25% larger than that of their less-knowledgeable peers.”

Financially savvy people tend to save more and are more likely to invest those savings in the stock market. But past studies haven’t clearly demonstrated that these people necessarily make better investment decisions. The authors look at patterns in 401(k) retirement accounts and find that more sophisticated investors do indeed get better returns on their savings.

Source: “Financial Knowledge and 401(k) Investment Performance”

Code Red! 8 Ways to Permanently Wipe Out Your Retirement Savings

Dana Anspach at MarketWatch wrote about 8 financially devastating mistakes (aka “Code Reds”) that must be avoided:

1. Believe in a stock
The company you work for is doing well. You understand the potential of the business. You should own a lot of company stock. After all, it shows your level of commitment, right?
WRONG! CODE RED!
You can lock in lifestyle by taking risk off the table. If trusted advisers are telling you to reduce risk, listen. You can’t take your “belief” in your company stock to the bank. Owning a lot of company stock doesn’t demonstrate a commitment to your company; it demonstrates a lack of commitment to your own personal financial planning.

2. Get reeled into real estate
Rental real estate is a good way to build wealth with someone else’s money, isn’t it? I mean, that’s what the infomercials say.
WRONG! CODE RED!
Investing in real estate is a profession in and of itself. With real estate prices on the rise again, don’t get reeled in with the lure of easy passive income. It isn’t as easy as it looks.

3. Follow a Tip
An opportunity to double your money is an investment opportunity worth pursuing. It could change your life, right?
WRONG! CODE RED!
Tips are great for your waiter or waitress. But where you family’s future is concerned, avoid the tips, and stick with a disciplined and diversified approach.

4. Change lanes — every year
Smart investors watch the market and frequently move money into the latest high performing investment, right?
WRONG! CODE RED!
You’ve probably noticed if you constantly changes lanes on a backed up highway, always trying to inch ahead, you usually end up farther behind. Driving this way isn’t effective; investing this way isn’t effective either. Pick a disciplined strategy and stick to it. Jumping from investment to investment is only going to slow you down.

5. Play the currency cards
Experts can deliver higher returns, right? Find someone who knows how to trade, and you’ll be set.
WRONG! CODE RED!
If experts could generate such high returns, why would they need your business? Don’t play the currency cards, the expert cards, or fall for any kind of outlandish promises. I’ve yet to see one of these programs work the way it was marketed.

6. Follow your ego
Better investments are available to those with more money, right? If you get the opportunity to participate in something exclusive, it is likely to deliver better returns.
WRONG! CODE RED!
If someone appeals to your ego, walk away. When it comes to investing, the only thing I’ve seen egos do is help someone lose money.

7. Follow their ego
You can trust prestigious people in your community. That’s why you should do business with them, right?
WRONG! CODE RED!
Checks and balances are good in government and in investing. One way to make sure checks and balances are in place is to work with an investment adviser that uses a third party custodian. The third party custodian sends account statements directly to you. The investment adviser can make changes in your account, but the transactions are reported to you directly by the custodian, who isn’t and should not be affiliated with the investment adviser.

8. Leverage up
Borrowing at low interest rates and investing in high growth assets is an excellent way to accumulate wealth, isn’t it?
WRONG! CODE RED!
Think twice before borrowing to invest. It causes ruin more often than it causes riches.

Visit MarketWatch to read Anspach’s full article.

Class of 2017: Financial Advice That will CHANGE YOUR LIFE

The following is a brief excerpt from the commencement address by Dr. Chris Mullis to the graduating class of Providence Day School on May 31, 2013. The full text of Dr. Mullis’ speech, that includes career advice, financial guidance, and a few pearls of wisdom, can be found here.

At my investment advisory firm, we developed complex computer algorithms and use them to manage our clients’ investment portfolios. But the basic steps you need to take to manage your own money well are deceptively simple. First, live within your means and avoid being caught up in rapid lifestyle inflation. You will not live like your parents when you first start out. Second, save and invest your money wisely. Let me elaborate on this point.

Wealth accumulation depends on three factors: how much you save, the rate at which your money grows, and how long you save. That last factor, time, is very, very important. There’s an urban legend that Albert Einstein once said that compounding interest is the most powerful force in the Universe. That quote is likely misattributed but the message is spot on. If you save $5,000 a year for 40 years and earn 8% annually, you will eventually have $1.3M. But if you delay starting for merely 5 years, your results after 35 years will be only $860k. That 5-year delay preserved $25k of short-term capital but ultimately cost you >$400k in the long run. Time is the most powerful lever in the machinery of investing. Nothing else comes close to it.

So what do you need to do? Start saving and investing right out of high school regardless of how hard you think it hurts or how unpleasant the tradeoffs. Even if you set aside only 5% of your paycheck starting out, do it to get into the habit of saving. Delaying getting serious about investing until my 30s was a significant financial mistake on my part. No one ever sat me down and explained how important it is to start investing early. Now that we’ve had this little talk, you’ll never be able to say that no one told you.

Guide to Car Buying and Leasing

Our friends at the The Big Picture have published an excellent guide to buying and leasing a car.

Here’s an overview of how to expertly navigate this process while saving time and money.

1) Set Up Your Online Shopping Identify:

Get a Google Voice account (its free) then get a LeeMail account (its free). These are the only numbers/addresses you use until you decide which car you are getting from which dealer.

2) Do your homework: Before you ever step foot on a dealer’s lot, you need to figure out a few things:

a) What kind of transport? Are you looking for a minivan, convertible, truck, coupe, SUV, etc.
b) The range of competitive vehicles for that car type
c) Your actual budget (including your “bottom line” monthly price)
d) Buy or Lease? (see #3)

3) Buy or lease? Most people should own, not lease cars. Its better not to pay for just the most expensive years of a depreciating asset.

The exception is if you can lease with pre-tax dollars — if you own (or are senior enough in) a company, than a lease may be a great deal. But without that tax advantage, the numbers favor owning.

4) Know Your Price Range and Approximate Cost of Cars: All of the cars I mentioned have extensive websites where you can build and price vehicles. You end up with MSRP.

5) Understand Factors Which Impact Pricing: The cost of any given car is a function of its retail price (MSRP), specific programs dealers are running, financing, what is hot or not, and other factors.

6) Be aware of the sales routine: If you followed steps 1-5, you know the approximate cost of the car, plus the options you want, and how that prices it.

7) Understand the buying/leasing math: The purchase math is simple: Negotiated cost of car plus financing expenses.

8) Use Online Salespersons: I asked several dealers for quotes on cars. If they ignored my request for an emailed quote and called, I held that against them. Different dealers have differing demands for specific cars. Some of the deals were very competitive .

9) Go to Competing Dealerships: Don’t be afraid to cast a wide net.

10) Use a car buying service: That was the suggestion for people who are too busy or intimidated or who simply don’t want to be bothered. Leading suggestions: USAA, Credit Unions, and (multiple recommendations) CostCo.

Check out TBP’s full guide at here

Auto and Homeowners Insurance? Shop Regularly

It’s important to shop most of your insurance policies on a regular basis. We recommend yearly for auto and every two years for homeowners.

Insurance rates vary by hundreds of dollars or even thousands per a year among insurers for the same levels of coverage. Get quotes from several companies on a regular basis to make sure you’re getting the best deal.

There are two ways to get competitive quotes: one-by-one via telephone or multiple quotes at a single go online. The latter is faster but don’t go there if you’re not comfortable getting spam in your inbox. If you’re a telephone kind of person, call three of the big providers like Allstate, Progressive, USAA, GEICO, and State Farm. If you prefer online, try insurancequotes.com or carinsurancequotes.com.

When you do your comparison shopping be sure its on an apple-to-apple basis — same level of coverage and save deductible. Also avoid asking for a new quote within 6 months of your last attempt. Insurers usually quote lower rates to “new” customers (i.e., those who haven’t asked for a quote in the last 6 months).

So, if you’ve never shopped your auto and homeowner’s insurance, or it’s been a while, don’t put it off any longer because you’re probably leaving money on the table.

What’s Your Wealth Index?

How do you know the health of your wealth? Are ahead of the curve or are you behind? Do you need to be saving more or do you need to ease up and be less frugal?

The most complete and accurate way to answer these questions is to reference your financial plan (i.e., a formal, written, date-specific, dollar-specific retirement accumulation plan). But a quick, “back of the envelope” approach is to use the Wealth Equation. This metric was created by Dr. Thomas Stanley, noted researcher and author of the Millionaire Next Door.

Here’s the formula:

Expected Net Worth = 10% x (your age) x (your gross income)

So if you’re a 50 year old making $150,000, your Expected Net Worth is $750,000 (=0.1*50*150000). If you’re a dual-income family, you would use your total family income and average age of the two earners.

Now take your Expected Net Worth and compare it to your actual Net Worth (don’t know your actual Net Worth? see our special offer below*). Create your Wealth Index by taking the ratio of those two numbers:

Wealth Index = (Actual Net Worth) / (Expected Net Worth)

Your Wealth Index tells you where you fall into the following categories:

Under Accumulator of Wealth (UAW) Wealth Index ≤ 0.88
Average Accumulator of Wealth (AAW) 0.88 < Wealth Index < 1.84
Prodigious Accumulator of Wealth (PAW) Wealth Index ≥ 1.84

Continuing with our example above, imagine that you are that 50 year old with an actual Net Worth of $937,500. Then your Wealth Index is 1.25 (=937500/750000) which puts you at the moderately high end of the Average Accumulator of Wealth (AAW) category.

Ideally, you want to be a Prodigious Accumulator of Wealth (PAW), in other words, a hyper saver who is consciously building a tremendous amount of wealth. If you’re a PAW (i.e., you have a Wealth Index at or above 1.84), Dr. Stanley calls you “balance sheet affluent” because you have an army of dollars working for you and you’re doing a great job of accumulating assets.

If you’re a AAW (Wealth Index between 0.88 and 1.84) you’re probably right on track. If you’re a UAW (Wealth Index below 0.88) you’re likely behind the curve and need to save more and spend less to grow your financial health. Remember you want to be saving between 15% and 20% of your gross income to fund your retirement.

A note to younger folks:
If you’re in your 20s and 30s (or even early 40s), your expected net worth in the Wealth Equation may be a bit too ambitious since Dr. Stanley designed this for people in their 50s and above. It still serves as good general reference point. For younger savers, Dr. Stanley suggests the following approach to ramping up your retirement savings:

In your 20s, save at least 5% of your income
In your 30s, save at least 10% of your income
In your 40s, save at least 15% of your income
In your 50s, save at least 20% of your income

We would urge you to try to accelerate this so you’re saving 15% to 20% as soon as possible to assure you will enjoy a happy and well-funded retirement of 30+ years.

*Need help calculating your actual Net Worth? Send us an email at info@nstarcapital.com and we’ll send you a free tool to calculate it quickly and accurately…forever!)

Oh Baby! You’re Expensive

Many parents worry about saving for college, but don’t forget about the proceeding 17 years! Food, clothing, shelter, and other necessities will cost $233,610 for a child born in 2015 to a middle-income family.

This week the the U.S. Department of Agriculture released their annual report where they total up the cost that parents pay to raise a child from birth to age 17.

The annual expense per child ranges from $9,330 to $9,980 on average (depending on age; $174,690 total!) for households with an annual income less than $59,200.
The annual cost increases to $12,350 to $13,900 ($233,610 total!) for households with income up to $107,400.
The annual cost increases yet again to $19,380 to $23,380 ($372,210 total!) for households with annual income greater than $107,400.

Housing, childcare & education, and food comprise 63% of the expenses.

It’s interesting to compare the costs of raising a child born in 1960 (the year the USDA study first started) to a child of 2015. The total cost has increased 16% from $202,020 in 1960 (in 2015 dollars) to $233,610 in 2015.

Housing was the largest expense on a child in both time periods (decreasing from 31% in 1960 to 29% in 2015)
Food was the second largest expense (decreasing from 24% to 18%)
Childcare & education has surged from only 2% in 1960 to 16% in 2015
Healthcare has doubled from 4% in 1960 to 9% in 2015

How Trump’s Tax Changes Will Impact You

“Reduce taxes across-the-board, especially for working and middle-income Americans” – that was Trump’s campaign pledge. And now he is about to move into the White House and is backed by Republican majorities in both House and Senate, he has a real shot at fulfilling that pledge to the letter. So, what are the specifics of his plan, and how would it affect you?

Source: How Much

Giving the Gift of Financial Planning

A Lifetime of Financial Knowledge Wrapped Up in a Bow

Stuck for ideas on what to give newlyweds, graduates, or new parents for Christmas or Hanukkah? Consider something nontraditional this year that will last a lifetime and never go out of style: a visit with a financial planner.

Giving someone a financial planning consultation is a unique way to show you care, and it can help set up a loved one for a successful financial future. Newlyweds, graduates, and new parents all are at the start of a new phase of their lives. A financial planning gift provides them with something that may last for decades.

Those experiencing life’s transitions will also face financial challenges. Whether it’s learning to budget as a couple, understanding retirement plan options at the first job after graduation, or starting to think about paying for college, many important financial decisions await young people today. You can help by putting financial planning front and center.

Maintain the Wedded Bliss

Money and finances are among the top issues that cause marital discord. A financial planner can help strategize for a happily-ever-after financial life. A good planner will spend time talking to the couple, helping them determine their mutual financial goals. There are so many topics a financial planner can help with, including: managing household expenses; reviewing assets, debts, and credit reports; creating a budget; discussing future goals and creating mutual goals such as buying a home; analyzing benefits; updating wills; and reviewing insurance coverage.

Help Graduates Start Right

Once the diploma is hanging on the wall, it’s tempting for new grads to overspend, racking up credit card debt and a new car loan when what they really need to be worrying about is paying down student loans and planning for retirement. A gift of financial planning can help a new graduate establish short- and long-term financial goals and develop a budget to meet those goals. A financial planner may also help the grad deal with the new challenge of filing taxes and make recommendations on how to allocate investments into 401(k) or other retirement savings vehicles.

Bringing Up Baby, or Babies

The government estimates that a middle-income family will spend more than a quarter of a million dollars to raise a child until he or she is 18. New parents will benefit by working with a financial planner to figure out how much money they’ll need to raise their child. A financial planner can help them create a savings safety net, create and stick to a budget, advise about life insurance and wills, and talk about saving for college.

Purchase a financial planning gift certificate for someone you care about and know you’ve made a lasting contribution!

Asset Management vs. Financial Planning

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.

‹ Prev 1 2 345 6 7 Next ›Last »