Do You Need an Investment Adviser/Financial Planner?

Your personality determines your investment success. Understanding your relationship with money can make the difference between outstanding and sub-par results.

Your personality determines your investment success. Understanding your relationship with money can make the difference between outstanding and sub-par results.

Once again we see the market throwing a temper tantrum. On the way up it was tempting to handle your investments on your own. Now with the horizon less clear and a modest correction in the books as I write, you wonder if professional help might be worth the extra expense.

Those most knowledgeable about money resist the advice of commissioned (or fee-based) professionals. As everyone know, fees have serious consequences over long periods of time. The lower the fees the more you’ll have 10 years down the road.

But when the market gets schizophrenic confidence in one’s abilities declines. Worse, you can make serious mistakes well in excess of what you would pay a financial professional.

The stereotypical financial planner or investment adviser is history. Commission based compensation still exists but on a much more limited scale as fee-based planning has taken over, hitching the client’s performance to the adviser’s income. Annual fees typically run around 1% of assets per year. While this fee is lower than many mutual fund expense ratios from decades ago, 1% annually starts to add up. And remember, you not only lose the 1% fee, but all the future gains that 1% would have earned.

Readers of this blog generally forgo advisers since they are well versed in the details of money management. Some readers apologize when they call me for a consulting session as they pay investment management fees to an adviser. It doesn’t bother me if you use an adviser because there are good reasons to hire an adviser which we’ll cover shortly.

Normally people in the FI (financial independence) community would want to pass on an article suggesting you might benefit from a financial adviser. This should be the exception. After careful consideration I decided to share 3 reasons a financial adviser could be a good idea for you.

Actually, I personally believe there is only one true duty of a financial professional. Don’t cheat and skip ahead. There are other minor duties a financial planner should provide should you decide to hire one.

Broken Confidence

Before we begin I want to share why I’m writing this post. This blog has a presence on several social media platforms. I also follow several groups and pages in the genre on Facebook. Recently a few people confessed they were willing to sell because the pain was too great since they lost maybe 10% or so of their portfolio value from the market top a few months back.

This confused me since these same people exuded tremendous confidence in their personal investing habits without the help of a professional. How could a run-of-the-mill correction have people screaming? How would they react in a real down market? A bear market?

Further digging showed many were investing in individual stocks such as Apple, which is down is bit more than the broad market averages.

Of course selling after the decline is in full swing is rarely a good idea. The time to sell is when the market is up, not after it drops 10% – 25%.

People comfortable spending less than they earn and investing the difference consistently do fine when the market is climbing. But when the ride gets bumpy or a bear market growls loud, these same people consider making the largest mistake of their financial life: selling at a market low.

I see this whip-sawing with clients all the time. It breaks my heart to see a client bust her tail to build a sizable nest egg only to lose money in one impetuous panic trade.

And that is where professional help comes in. While fees are always a concern since we know it hurts long-term performance, we need to weight the costs against real world results.

So here are the 3 things a financial planner or investment adviser must do to earn your business:

3. Asset Allocation

Index funds get all the press, but index funds are not the answer to every problem. (Have halitosis? A healthy dose of a Vanguard index fund will clear that right up! If only.)

Index funds are an important part of almost every financial plan. A financial professional should help you (or keep looking until you find one who does) determine how much should be in bonds, equities and cash. (If the adviser recommends Bitcoin, commodities, options, or other esoteric investments, especially if commission based, run like the wind while you still have a chance. And hold your wallet tight as you run!)

A financial planner should understand you and your goals with consideration for your investment temperament. The only investment that works is one you stick with. Here are the tricks financial professionals use to win the money game.

A financial planner should understand you and your goals with consideration for your investment temperament. The only investment that works is one you stick with. Here are the tricks financial professionals use to win the money game.

My personal portfolio has very few bonds. I certainly don’t follow the traditional investment philosophy of subtracting your age from 100 and having that much in bonds, or some such advice. (Yeah, I know I mangled that. The point is I don’t follow traditional investing advice.)

This brings up an interesting point. Your portfolio will look different from mine even if we are exactly the same age, in the same health, and have the same amount of money! The reason is that your personality will be different from mine. I’m willing to ride out any storm (for real!) while you might lose sleep at night if your investment/s decline temporarily.

When the market drops I start licking my chops. Where some people get scared and want to sell to protect from additional declines, I’m thinking about—and usually carrying out—purchases of more shares of companies or index funds.

Down markets are where the real money is made! The same applies to an individual stock if it is a quality company in most cases. (Apple is down hard recently and may drop more. I added a small amount to my portfolio and if the decline continues I’ll add more. Apple is a well run company with superb management. Temporary setbacks are part of investing and usually a time to invest in more shares of great companies and always a good time to buy broad-based index funds.)

A good adviser/planner will help you build a portfolio that allows you to sleep at night. For some it might be all cash, ie. bank deposits. (I actually have a neighbor who has it all in the bank and is happy as a clam in his retirement. He sleeps at night! No index fund gains would be worth the loss of security to him so it is the right thing to do. . .  for him.)

2. Goals

The financial professional is more than a product pusher. The professional will know his client (that’s you) before making any recommendations. If an adviser prescribes before diagnosis, walk. Keep looking until you find an adviser who wants to work for you.

Investing isn’t about “more money”. Well, not completely, at least.

Investing needs a reason, a purpose, for it to be something you’ll be consistent with. Financial independence can be a solid goal since once you reach FI it opens your view to the horizon rather than working a job because you must. You may stay working in your current environment if you enjoy the work after reaching FI. There is nothing wrong with that! You might want to start a business or explore an idea. That is good, as well, as that is where all progress comes from.

Early retirement is an honorable goal. So is building a nest egg so you can work less and spend more time with family is a goal that motivates. Growing your portfolio to leave an adequate legacy is also an important consideration. So is growing your portfolio so you have the resources to fund philanthropic causes dear to your heart.

Goals are endless. An adviser or planner must be willing to listen to your goals, even help you formulate clear financial goals that will serve your needs.

Often times we don’t even know what we want. Just wanting more money isn’t reason enough! With only a vague, undefined goal, that SUV looks mighty tempting fast. Only goals you fully subscribe to will keep you on course and fill you with joy.

So, advisers and planners need to understand who you are and what makes you tick and work with you to discover your real financial life goals. It might sound like a detailed job; it is.

When I work with clients I practically give them a tax and financial proctology exam. You might be laughing now over my choice of words, but I’m dead serious. I need to know my client when dealing only with taxes. My advise is based on what I discover about my client and her goals. If it’s important with taxes; it’s tremendously more important when it involves your financial plan.

1. Panic and Greed

Two very important traits a financial adviser must have before you work with them is they must understand who you are and how it affects your asset allocation and a determination to help you reach your financial goals. But those traits are nothing compared to what I consider the only true value a financial professional has: dealing with your emotions: fear and greed.

It might seem like a total waste of money to pay a financial planner 1% of your portfolio annually when all the money is tucked safely into index funds. The whole low-cost benefit of index funds is partly removed with the advisory fee. So how can it be worth it to hire a professional for such a simple (and appropriate, I might add) investment portfolio?

On the surface the fees might seem like a waste until you remember how we entered this post: people freaking out on social media over a mild market correction.

If a 10% correction has you running for cover you made the wrong investment! Or at least you didn’t adequately prepare yourself for the reality of your investment choices.

Do you have the right financial plan? The right investment adviser can help you create, set up and implement the appropriate investment strategy for success and then work with you to stay the course.

Do you have the right financial plan? The right investment adviser can help you create, set up and implement the appropriate investment strategy for success and then work with you to stay the course.

And this isn’t a blame game either. Most people have no idea how risk adverse they are until the proverbial manure starts hitting the fan. Then Katy-bar the door, boys. It’s about to get real.

And for this reason a financial professional can earn her keep.

People who build a large portfolio do so by ignoring short-term market moves. It’s easier said than done. Most people need a steady hand to see them through. Enter the investment adviser/financial planner.

If the current market volatility concerns you then you either made the wrong investments for your personality or you need a professional to smooth the emotional peaks and valleys, maybe both.

The same applies to bull markets. If you’re tempted to use margin (borrowed money) when the market is hot you need a professional to talk you down.

My decades of experience makes it clear to me many people need professional help with their money. Everyone wants to go it alone because we all think we’re smarter than we really are, and as the market rises (as it usually does) it masks our deficiencies. Blue skies lull us into a false sense of security. Then the storm arises.

If you are considering a financial professional after reading this then I want you to do it right. Interview several financial professionals. If they aren’t interested in you, really want to know and understand you, move on. The adviser you hire (you’re paying them so you are hiring them so they darn well better do their job!) must take an interest in your goals. In fact, they should naturally gravitate toward questions bent to learn about you and what most motivates you.

Make it clear to any adviser you consider that you want a steady hand, not exotic investments. She must help you deal with the emotions in a down market so you don’t crush your financial dreams with impetuous trades; she must hone your desire to take a flyer when the world is getting rich in FAANG stocks.

A good adviser does those kinds of thing because they are responsible and looking out for you, her client. Anything less and you’re better off with the security of a bank.

A Parting Story

The mid and late 1980s were an incredible time to be invested. A long-time client with experience managing his own money added religiously to his portfolio. From 1982 to 1992 the market churned out an annual return well into the double digits. It was a good time to be invested in equity mutual funds.

During this decade my client invested in Fidelity’s Magellan Fund. During a good portion of this investment period the legendary Peter Lynch managed Magellan. Returns were in nose-bleed territory.

My client was a steady investing hand. An up market didn’t turn him greedy. He added funds steadily as he earned them.

Mild downturns were also okay for my client. But the 1987 stock market crash turned him into a sleep-deprived zombie. He couldn’t take the market volatility so he sold. At the bottom! Then the market recovered and blue skies returned so he moved back into Magellan.

Then in 1990 the market once again declined. Not nearly as bad as 1987, but enough to shake our good friend. As you may have guessed, he sold. A short while later when the market returned to new highs he felt safe enough to push all his money back into Magellan.

During this period the Magellan Fund was up an over 20% per year on average if you never sold. Our hero managed a measly 2% because he sold twice in decade out of fear, less than money market funds would have earned back then. Our hero went from mouth-watering investment returns to performing worse than money market funds over two stupid decisions.

Moral of the story: It only takes one or two stupid investing mistakes to sabotage your financial goals.

Now be honest: Do you need a financial professional to see you through the storm clouds?

Now for the bad news. If you do, they are as hard to find as a good under-priced stock.

Good luck.



More Wealth Building Resources

Credit Cards can be a powerful money management tool when used correctly. Use this link to find a listing of the best credit card offers. You can expand your search to maximize cash and travel rewards.

Personal Capital is an incredible tool to manage all your investments in one place. You can watch your net worth grow as you reach toward financial independence and beyond. Did I mention Personal Capital is free?

Side Hustle Selling tradelines yields a high return compared to time invested, as much as $1,000 per hour. The tradeline company I use is Tradeline Supply Company. Let Darren know you are from The Wealthy Accountant. Call 888-844-8910, email or read my review.

Medi-Share is a low cost way to manage health care costs. As health insurance premiums continue to sky rocket, there is an alternative preserving the wealth of families all over America. Here is my review of Medi-Share and additional resources to bring health care under control in your household.

PeerSteet is an alternative way to invest in the real estate market without the hassle of management. Investing in mortgages has never been easier. 7-12% historical APRs. Here is my review of PeerStreet.

QuickBooks is a daily part of life in my office. Managing a business requires accurate books without wasting time. QuickBooks is an excellent tool for managing your business, rental properties, side hustle and personal finances.

cost segregation study can reduce taxes $100,000 for income property owners. Here is my review of how cost segregations studies work and how to get one yourself.

Worthy Financial offers a flat 5% on their investment. You can read my review here. 


Get There Before You Arrive

How long does it take to crawl out a hole you dug? How long to formulate a plan? Execute it? Reach your goal? Financial independence (FI) is a goal most people have. Some want it bad at a young age and work toward that goal. Others wait until Father Time ticks closer to the traditional retirement age. Still others get a wakeup call when their body fails in some way.

Before this blog I was a tax Endorsed Local Provider (ELP) for the Dave Ramsey organization. His story resonated with me. I agreed with Ramsey that debt is the acid which destroys the vessel that holds it. Ramsey is fanatical against any kind of debt; I am a bit more moderate in the faith. Still, debt is a problem for many people.

Before FI can be achieved debt first needs to either be eliminated or seriously curtailed for most people. The Ramsey plan is to eliminate all debt and invest in actively managed mutual funds offered by a financial advisor. If you read that last sentence carefully you will begin to understand why I could no longer in good conscious be a Dave Ramsey ELP. Ramsey’s philosophy is right on so many levels and wrong on so many more.

Debt in and of itself is not bad. It’s just a thing. Too much debt is the real issue. Credit card and similar high interest debt is caustic, no doubt. A home mortgage can make all the sense in the world. Even a small, short-term business loan is a positive in many instances. A blanket faith in no debt is something I don’t subscribe to. When very wealthy people borrow for a home or investment it is frequently the right choice. Borrowing $10,000 for working capital in your business instead of selling a profitable income producing investment I will argue is a good call, especially when you consider the tax consequences.

Here is where I will get into trouble. I am NOT a fan of investment advisors. Most are broke or at least have a smaller net worth than their income level would suggest. It’s matter of physician, heal thyself syndrome. Investment advisors are broke because their advice is not worth as much as they claim or they refuse to save at the required level to have an expected level of financial wealth compared to their income. In other words, they don’t take their own advice. Over the last three decades it was a rare occurrence to prepare a tax return for one of these professionals where they had a high net worth. They had high income, but not much to show for it.

A Wise Man Once Said

At Camp Mustache a few weeks ago, Doug Nordman, a retired military guy, gave a presentation on the stock market over his adult life. Once again he dropped one of those golden nuggets I am only too happy to pick up. He said financial independence, your net worth, was a product of your savings rate and the fees you pay on your investments. If I were so wise I would have come up with something so simple and elegant.

Armed with the simple knowledge of FI as offered by Nordman, we return to my days as a Ramsey ELP. Understand I agree with Ramsey on many levels and recommend his program. What he has produced is powerful and effective. The reason people following Ramsey need a financial advisor is because they have shown no talent to do the basic steps necessary to turn debt into a tool or eliminate it and invest intelligently on their own. My hope is you can eventually do it on your own if you are a Ramsey follower. Ramsey is not cheap and neither are investment fees in the broker’s office. It all hurts your FI goals. Ramsey and the broker are necessary only until you can walk on your own. And no, I don’t have an emergency fund. Long before you reach FI an emergency fund is not needed. You have plenty of money accessible for nearly any possible emergency.

Plan! Ain’t Got No Plan

Ramsey convinces people they need a plan. He even provides the skeleton of your plan in the form of his financial Baby Steps. I like it! But here Ramsey and I disagree again. Ramsey says you should pay off low balance debt to start the snowball rolling. His goal is based on psychology. By eliminating debt sources quickly it will give you a psychological boost to remain faithful to the program. All this might be true, but you are an adult. Right? If you are dug in deeper than a tick on a hound you need to pay off the highest interest rate debt first! If you have psychological problems might I suggest a lobotomy? You can either dilly dally around in poverty of you can subscribe to the Wealthy Accountant method and get your tail to FI as fast as you can. That’ll do wonders for your psychology too.

Goals. The thing people love to hate. Don’t worry, I will not put you through a goal setting program. . . today. I want to get to the premise of this post first. Goals are well thought out things you want to accomplish; plans are what you create to get there. We will focus on plans.

The first goal most Ramsey clients had when they walked through my door was to eliminate debt. FI wasn’t even in the cards. These people couldn’t even fathom a serious positive net worth having lived in financial Armageddon for so long.

It was time consuming, but it had to be done. I had to get these new clients to think ahead to the next step. Paying off debt is not unilateral. After crisis debt levels are reduced it is better to institute saving/investing while continuing the debt reduction process. After crisis mode you want, for example, to invest in your work 401(k) at least to the level of the employer match. This is free money! It is a small start, but all journeys begin with the first small step, a Baby Step.

As people worked through the game plan to reduce debt and build a serious net worth, they became disheartened. They visualized in a linear fashion the reduction of their debt load. It actually works exponentially. (Before you math geniuses tell me I am wrong, read on.)

The linear debt reduction approach might mean it take three years and two months to eliminate debt. That is a really long time for most people to wrap their mind around. I always tell them not to worry; it will go faster. But the numbers? The math says three years and a bit! Don’t worry, I assure, it will take two years and a bit, plus you will have a modest amount invested as well by the time your debt is gone.

Why does it happen faster than planned in 90% of the cases? There are two reasons. First, when you pay off high interest debt it makes a larger difference than simple math dictates. (It also illustrates how caustic high interest debt is.) When you make an extra $100 payment to an 18% interest credit card you just cut your spending $18 per year, every year from then on unless you are dumb enough to re-dig the hole. (Note: reduced spending (interest is spending) is tax-free. The extra cash flow to your budget from reduced spending is never taxed!)

The second reason is the coups de grace. Your debt load dies faster than planned because you have a plan! For example: you allocate $100 a month for the light bill. Now, aware of a light bill ceiling you do things to keep the bill below $100. Dining out is even easier to reduce as you learn to cook more meals at home and brown bag lunch at work. Your budget, your plan, assumed a $100 light bill. When you reduce the bill to $92.75 you have more free cash flow in the budget to illuminate debt. And additional reduced debt on an 18% credit card snowballs fast. Living a mere $100 below your original budget per month used for additional payments on high interest debt does not reduce your debt only $1,200; the additional reduced debt no longer accumulates interest! The first additional payment reduces your interest expense by $18 the first year. But the second payment goes even further because more goes to principle because there is less interest to cover due to the prior month’s extra payment.

Time for FI

Eliminating debt is only the first step. The second step is FI. Once debt is adequately reduced it is time to start growing your wealth.

A few years back I ran across a blog called 1500 Days to Freedom. Here was a guy, Carl, who planned on building a million dollar debt free portfolio in 1,500 days. I showed the blog to clients and staff periodically with my sage wisdom, “He will get there sooner than planned. Just watch and see.” Little did I know Mrs. Accountant and I would spend a weekend with the guy years later.

Carl’s investment portfolio broke the $1 million mark in under 3 years, but he still had a small mortgage. Not all debt is bad so he kept the mortgage (for now) and upped his investment goal by an equivalent amount. Goals/plans are like that. You can change the rules when it serves your needs and the police rarely get involved. He reached the new goal in three and a half years. Go figure!

So why did Carl do so well on his wealth accumulating phase? The same principle applies to wealth accumulation as applies to debt reduction. Your basic plan assumes you meet a minimum amount of investing, but you usually beat your goal, if only by a bit. Those extra bits compound fast! Also, most people take a ruler and strike a line from the lower left of their goal chart to the upper right. But you forget the first month’s investment also earns money so you have more in month two. It compounds and keeps compounding!

Smart readers will notice I said month two is more than month one as if investments always go up. Good catch guys, but there is one last mystery to solve in the rapid wealth building industry. I learned this trick from Nick Murray. When I was in the investment industry back in the 90s, my broker/dealer brought in Murray to speak at our annual conference. Murray was retired from mutual fund sales, but had a long career starting in the 60s.

What Murray introduced was the concept of owning shares rather than account value. Murray said it was more important how many shares you owned than account value. If the market declined your dividends and new investments bought more shares. The more shares you owned equaled more money when the market went up.

You many notice this is a different way of looking at dollar cost averaging. People freak out when their plan is delayed due to a market decline. Market declines happen a lot, but it always goes back up and more! Always!

When you focus on how many shares you own you are less likely to freak out. Regardless the severity of a market decline, you still own the same number of shares. Nothing really went down if the value is still in the companies the market is comprised of. Get it?

It messes with the mind how fast money can work in your favor. You’ve experienced how fast, and bad, it can work against you. It works even faster when you put the power of wealth building on your side.

You may have a plan to retire your debt. You may have a plan on reaching FI or a million dollar net worth. Don’t sweat it.

You will get there before you arrive.

Financial Planning and the Death of a Spouse

Graveyard1There are critical times in the course of life when financial independence is at risk of destruction. A lifetime of planning, saving, and investing can go up in smoke in a few short years without an adequate plan to protect the most vulnerable member of a marriage (or any relationship, for that matter) after the death of a spouse or loved one. The trauma and grief after a loved one dies is acute. Deep pain and emptiness creates risks for the surviving spouse. Well intentioned, and lonely, people will try to connect with the bereaved. A couple committed to a lifetime of financial discipline will acquire a massive nest egg of retirement wealth. The surviving spouse is a prime target, a highly desired, person for this reason. Even people with honorable intentions can wreck havoc on the surviving spouse’s finances.

One of the saddest moments in the Wealthy Accountant’s office is when a client dies. An elderly person dying is painful, but understandable. The deepest wounds come from clients who die at a young age. Today we will focus on people in long-term relationships, living a frugal lifestyle, and have attained financial independence. I will introduce you to a client who lost his wife at a relatively young age. His grief was only the beginning of his pain. Then I will offer some ideas to prevent the same damage happening to you or your loved ones when you face the same situation.

Who Goes First

As the years add up I have started to wonder if Mrs. Accountant will leave this world before me. I always say, “Dying is the easy part; we all do it right the first time. It’s the living that is hard.” I refuse to worry about it because there is nothing I can do about the future. What I can do is plan. With an adequate plan I can manage if Mrs. Accountant dies before me and by working with Mrs. Accountant now I can help her build tools to survive the trauma of my death before hers.

51-ok2DRpDL._SX331_BO1,204,203,200_Survivors need my attention. There is no 100% guaranteed way to protect loved ones after you are gone. There are steps you can take to increase the chances your loved ones will be okay financially after you die. The best way to start this discussion is with an example from a client. Let me introduce you to Ben and Lou (not their real names).

Ben and Lou walked into my office decades ago. Lou managed the money in the household. Ben was a laid back husband living life one day at a time. Back in the 1960s Lou worked for the Zwicker knitting mills in town. Back then they had a program where you could take money from your paycheck and buy U.S. savings bonds. Lou did just that. Every week she took a modest amount from her paycheck and bought savings bonds. Ben and Lou also added to their retirement savings over the years in addition to the bonds.

Lou never invested optimally. She proved to me saving is more important than hitting a home run in your portfolio. She never owned a mutual fund in her life. Her money was in savings bonds, CDs, and fixed annuities. She did have the advantage of the high interest rate environment of the 1970s. Still, she managed to pay off the mortgage while building over $400,000 in liquid funds. Ben and Lou also had pension plans provided by their employers. The knitting mills went bust in the 80s, leaving Lou with a significantly reduced pension.

Ben and Lou stick out in my mind because Lou had a unique way of presenting her tax information to me. It was easy for me to understand and helped facilitate a fast and accurate tax preparation. Every year I looked forward to meeting with Ben and Lou.

Graveyard3They retired at a relatively young age, but not exceptionally so. By age 60 Ben and Lou were living the good life. It did not take long for disaster to strike. A few years into their 60s the news came Lou had fallen and was taken to the hospital. She had a stroke and did not survive. Ben was distraught and lost. He had no idea what to do with his life. He was alone. Money issues were now his to manage. His entire life he avoided dealing with money; Lou took care of that. I worked with Ben and his financial advisor to help him make good decisions on his finances. Then the second disaster struck.

Loneliness causes smart people to do really dumb things. Ben was alone in this world and lost without Lou when a widow befriended him. She lacked Lou’s skills with money. Soon a relationship started and the new woman was helping herself to Ben’s money. Let me make this clear, she was not stealing Ben’s money. But she encouraged Ben to ramp up his spending.

Ben married his new sweetie shortly thereafter.  Now in control, the new wife really turned on the spending. The financial advisor contacted me. He was concerned about how fast Ben and his new wife were burning though their cash. I was shocked to learn the new wife ramped Ben’s spending to $180,000 per year. Yikes! Ben was too distraught to listen. He trusted his new wife would take care of things like Lou had. It was not to be. In just over two years the money was all gone and they went back to living on Social Security and a small pension Ben received. Even the personal residence was sold to cover spending. They live in a small apartment now.

Protecting Loved Ones

It breaks my heart to tell this story. Ben and Lou are awesome people; my opinion of the new wife is less flattering. She refused to listen to the financial advisor or me. She eventually convinced Ben to change accountants because she did not like my advice and I raised my prep fee $5 one year to a whopping $110. Let me repeat that: She was spending $180,000 a year like a crazy woman and felt $5 was too much extra to pay for sound financial advice.

Keith’s Rule # 16: Only wealthy people pay for sound financial advice.

Lou was great at saving and keeping the household spending reasonable. She never invested; she only saved. Lou never talked about money with Ben. She just took care of it and everyone was happy. Money was not an issue. Until Lou died.

It did not have to be this way. Steps could, and should, have been taken to protect Ben from himself and from a future partner with limited money skills. Here are some of my recommendations to clients:

  • Talk Talking is the most important part of a relationship. I know some people have no interest in discussing money, investing, or retirement planning. It is still important for all parties involved to know where the money is, how to access it, and the best way to preserve the lifetime of saving/investing. A lack of interest in money does not mean a lack of interest in what life will be like for the spouse who lives longest. Mrs. Accountant and I talk about money on a regular basis even though she has about as much interest in it as Ben does. Regardless, I have armed Mrs. Accountant with tools to protect her in the vulnerable years after I die if I should die first.
  • Annuities I am not a fan of this strategy, but in certain instances have recommended it because it was the only way I could see to protect my client. Annuities lock you into a low return with lots of fees. However, when both spouses are great at saving and live frugally, but have no interest in money, it might be time for an annuity. Here is the trick. Annuities are accessible in full (minus a surrender charge) at any time (in most cases) prior to annuitization. Annuitizing an annuity can make a bad investment worse. What is also does is protect you from a snatch and grab. Once you annuitize, the money belongs to the insurance company. You have a contract where the insurance company will pay you an income stream for a period of time, say monthly for a number of years or, more commonly, the remainder of your life (or that of your spouse in a second to die policy). You have no right to the original money so a new wife can’t show up and blow all the money in two years.
  • Grandpa’s Rule My grandfather was tight with his money. He deposited most of his money in the bank with only a small amount of his portfolio in stock mutual funds. He managed to sock away well into the seven figures. And he was a farmer his whole life! My grandparents had a lot of great rules/advice on money. You had to listen close or you would miss them. He never came out and said ‘This is how you handle money.” Instead, he would make a comment on a certain situation which revealed his attitudes toward money. My favorite advice he gave was: Never take off the stack. If you blinked you missed it. What he was saying was you never touch the corpus. Ever! You can spend interest and dividends, but the original investment and capital gains are sacred cows never to be touched. It is sound advice. Both people in a marriage need to share this idea with each other on a regular basis. Then, when the day comes and somebody tries to convince the survivor to spend the original investment the rolling pin comes out.
  • Warren Buffett’s Rule Warren Buffett’s advice to his heirs, including his wife, is put 90% of the money in index funds and the remaining 10% in short-term government bonds. The money in bonds is for daily expenses.
  • Keith’s Rule My advice to family, including my wife, is nearly the same as Buffett’s. My advice to family is to keep 3-5 years in short-term investments (governments bonds, laddered insured CDs, money market accounts, or other insured bank deposits) and investing the remainder in index funds with dividends deposited to the short-term account. Reinvest capital gains.
  • Know You can’t Protect Your Family When You are Gone The hardest part is knowing you can’t really protect your family when you are gone. If they are intent on destroying their wealth there is nothing you can do to prevent it. Even annuitized annuities can be destroyed by loans taken out again the income stream. You can plan accordingly and talk. After that there is no need to worry. You did all you could.
  • Children There are a few additional protections available when it comes to the kids. First, you can smack them around. (Did I say that?) Seriously, when it comes to the kids you can set up a trust where they do not get the money in a lump sum. My girls will not see money from dad until they are 35 years old. There are no incentives for my girls to see dad step into the grave early. The best part is they get 1/15th each year. Yes, my kiddos get their inheritance over fifteen years starting at age 35. If they haven’t figured it out by age 50 they never will and it is not my problem.

Talking about money with a loved one is necessary. Talking about death is also important. The odds favor one spouse dying before the other unless a plane crash or auto accident takes both out at once. Someone in the relationship will live without their soul mate at some point. Gold diggers are everywhere waiting for an opportunity to get a free ride. Discuss the issues now.

GraveyardaNo one knows the future. I don’t know if Mrs. Accountant or I will die first. We talk about it. Not every day, of course. We are not morbid. But we do discuss it. I want Mrs. Accountant to know that if I die I want her to be happy. She has my blessing to find love again. I hope she does if I die first. I want her to find another man who will love her as much as I do. I also warn her about men only interested in the money. Mrs. Accountant is a smart woman. She will be fine if I die first. I don’t want her to ever feel the pain of loss, but it is part of the deal in a life-long relationship.

You need to engage in the same planning. Legal instruments like trusts can help protect family members. Planning together and talking openly and honestly also helps. After that you can rest assured you did all you could. Now go out and enjoy your relationship. It does not last forever.