Posts Tagged ‘investments’

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 Darren@TradelineSupply.com 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.

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!

 



If You Love Spending Money This Will Make You Rich

5 spending habits that can make you wealthy. How you spend your money determines how rich you will be. Right spending habits increase your wealth. #wealthyaccountant #spending #spendinghabits #investing #debt ##indexfunds #incomeproperties #rentalproperty #guilty #guiltyfeelings #buyersremorse“Should I feel guilty when spending money?” It’s a common question when I consult with clients. They are so tuned into frugality they sometimes start associating negative feelings with money. It’s a bad thing to start feeling.

Spending money is NOT an evil activity! In modern society we have it so easy that we tend to either overspend (the vast majority) or become hyper-frugal (a significant percentage of the demographic reading this blog). Both lifestyles are unhealthy. Overspending leads to serious problems when the bills come due and income might not keep up. Debt is a serious issue I ask clients (and readers) to consider purging. The opposite of overspending is the hyper-frugal drive. This can suck the pleasure out of life as fast as a heavy debt burden.

I tend toward the frugal side of the equation and get called out on it periodically, too. Sometimes I do things just because it’s the cheaper choice. If I were as smart as I think I am I would reconsider such decision-making. Frugal isn’t always the best answer.

Frugality for me is more about my hate for shopping. When I spend I know exactly what I want and side purchases are never a distraction.

Buying a good or service feels good even for a frugal accountant like me. I needed a longer breaker bar (torque bar) to get the lug nuts off a tractor tire so I can take it in for repair. The breaker bar I have is only 14 inches; the one I bought is 30. By the time you read this I might have that tire off with my new piece of equipment. Yes, I’ll save money on a service call by getting the tire to the shop, but it still feels kind of good knowing I have a shiny new tool in the garage.

But spending is a problem for many people. Frugality is a forced habit at best for the majority. Economically enforced austerity gives way to bad spending habits when normalcy returns. The cycle is familiar and we know it while we do it. If only we could stop.

Since most people enjoy spending money I thought I’d share 5 ways you should spend because this kind of spending makes you richer. In fact, if you don’t adopt these spending habits I outline below you will suffer serious personal finance issues. Those who have money will realize they were already spending this way. For the rest of you, please come along. I’m going to show how you will want to spend that money burning a hole in your pocket.




Maintenance

This may sound like common sense, but too many people defer spending to their detriment. Every so often you should change the oil in the car. It runs better and lasts longer when you do. When the roof needs replacement frugality is not your friend. The structural damage follows shortly after and gets very expensive. Then you get to spend a lot of money for no additional value. That is not a good spending habit.

5 ways spending can make you rich. Spending habits can lead to debt or wealth. Here are the secret spending habits of the wealthy.. #wealthyaccountant #secrets #wealthy #spending #spendinghabits #habits #debt #moneyDo-it-yourself (DIY) projects are a good opportunity to spend. One of the cables broke on my garage door recently. I bought new cables and discovered I didn’t have tools or the recommended bars to loosen and tighten the spring. I broke down a bought a pair (you need two) to finish the job. Now I need to keep them safe for a distant future event when I need to work on a garage door again. The cost was only $15, but it is spending. The spending saved me the cost of a service call which would have been significantly more. Some spending is good spending and increases your wealth.

The same situation occurred at the office this summer when I wanted to do some light landscaping. The place really needed it. Clients have a better opinion of an establishment with appealing décor. I acquired several quotes which all came in over $10,000. (And it wasn’t that big of a job!) I decided to do the job in-house. The cost of dirt and river rock and some seed money for some extra helping hands was under $2,000. I have several huge rolls of felt in the barn I used and unused treated fence posts from a previous farm project so that cost nothing extra. In the end I spent a couple thousand, assuaging my spending itch, and created over $10,000 in value; more if you count the added business an attractive building can bring in.

Maintenance and DIY projects are a perfect way to spend money in a way that creates value. If I would have written a check for $10,000 to landscape the office it wouldn’t have felt as good. I got the satisfaction of a job well done and the opportunity to order 10 yards of top soil and two orders of river rock. There were multiple spending opportunities for the same job. For people with an itch to spend, this might be a good way to kill two birds with one stone.

Pay Down Debt

I’ve preached this line often before. Loan payments are not completely new spending. The interest is, but it doesn’t feel like fun spending. You get nothing for the interest spending: no pretty baubles or service or vacation. Nothing. Your wealth just disappears.

The act of spending is addicting to many. Rather than spend on more stuff and putting it on the credit card at 18%, consider tricking your brain into spending the right way. Here is what I propose. Spending is about wanting something. Some people enjoy the shopping experience. Either way, turn these desires into a wealth creating machine. For the shopping addict, lay out all your debt and obsessively review your balances. Create an aggressive spending payoff habit. Set your payments up on automatic, but also send in extra whenever an extra nickel crosses your path. Turn it into a game! Have fun with this. Instead of building debt, turn debt elimination into an exciting adventure.

If shopping doesn’t trip your trigger then you probably spend just to have something new. I have something shiny and new you’re going to want: a debt free balance sheet! I mean it. Instead of a new boat, roll up your sleeves and butcher those bills. Remember, it is easier to enjoy a new toy when you don’t have to work to pay off the toy, plus interest.




Investing

Once you pay down debt you might be tempted to return to old habits which caused the financial problems. I say, “Nyet!”

The newfound habit you used to eliminate debt is a good behavior for proper future spending habits. Turn investing into an automatic wealth creating machine. Automating investing doesn’t always satisfy the itch to spend. There is a solution.

It may be hard to believe, but there was a time when I enjoyed spending a bit more than I tend to nowadays. Money was rolling in and times were good in the 1990s. I was smart enough to know good times don’t last forever so I devised a plan to satiate my spending desires with intelligent cash allocation.

These are the 5 things you need to spend on if you want to be rich. The 5 secret spending habits wealthy people use are available to anyone. Frugality isn't the entire game. The wealthy spend. They spend right. #wealthyaccountant #frugality #frugalliving #wealth #money #passiveincome #spending #spendinghabitsTax season was always a good time of year. My mutual funds were automated, but I needed a home for my excess cash so I wouldn’t be tempted to spend it. My solution: dividend re-investment plans (DRIPs). I wrote checks to all my DRIPs. It gave me great pleasure to finish my day with a spending splurge. I’d write a check to JNJ, Aflac, Phillip Morris, Wrigley (damn you, Warren) and more. As fast as it came in I sent it out. I don’t know what you spend your money on, but I have a nasty habit of buying as much stock as I can get my hands on. For the record, it’s a good habit to have.

DRIPs aren’t what they used to be. Brokerage accounts generally automate re-investment of dividends and many DRIPs now have fees. There is still a solution. Set a minimum amount you can easily invest every month. Automate the process. Then either write a check every time money comes in or log in and set up a transfer. Trust me, you’ll have so much fun spending on your index fund. The best part? Instead of paying interest on your purchase you’ll be paid dividends instead. Oh, the joy!

Turn investing into a game. Real wealth creation is built on the proper allocation of capital. The bank is fine for short-term and emergency funds. But your serious money needs to be working hard building a better world and the only way to do that is to own a piece of great businesses.

Another spending game to consider is investing funds you planned on spending foolishly. Excessive dining out or drinking in bars can be swapped out for an index fund investment. I’m not telling you to forgo a pleasurable life. God forbid! All I’m suggesting is that you switch some consumer spending for investment spending. And besides, you know as well as I you will enjoy those dividend checks more than interest payments.

Income Properties

If you have an itch to spend, income properties are for you. Many moons ago I owned a city of real estate in my portfolio. From personal experience I can attest you get plenty of spending opportunities when you own real estate.

Your primary residence is different from income property. Money you spend on your primary residence (or second home) comes from another source and can run dry. Income properties have—wait for it—their own income stream to fund expenses. If you have a serious spending itch, real estate done properly can scratch that itch raw.

You still need to buy properties right! Stupid income property purchases will force really bad spending even when you discover how bad the spending is and want to stop. Sometimes you can’t. But a small portfolio of investment property can give you plenty of opportunity to shop and buy. Researching the right property should be a priority. Once you own the property there are always things that need to be paid for: property taxes, utilities, insurance, repairs and maintenance. A property manager can do all this for you, but you can write the check yourself if you insist. Even still, you can review your monthly statement from the manger which will show all the spending. It should serve as a powerful ointment for your spending itch.




Small Business/Side Hustle

Okay, hustlers! Nothing beats spending opportunities than a small business or side gig. Even a frugal guy like me still manages many hundreds of thousands of dollars in annual spending just by owning a small accounting practice. Every two weeks payday comes around and I get ample reminders on how to spend my money.

These smart spending habits can put serious money in your pocket. Spending on the right things can increase your wealth rather than build debt. Spend your way to riches! #wealthyaccountant #smart #spending #happiness #dreams #frugality #frugalA side gig or business is an easy way to alleviate the desire to spend. Maybe too easy. While I can brag I spend $250,000 in my business, it needs to be brought into perspective. I’ve seen too many people over the years start a business, spending like mad to get it up and running. It soon becomes apparent my client isn’t ever going to make a sale. He’s going to keep spending until he’s broke without ever actually starting the business. Then he asks if it’s deductible. (Not if it was a hobby or you treated it as such.)

Still, business owners are spending daily. At home my wallet has moths. At the office money is moving constantly. Office supplies are replenished, utilities are paid, property taxes come due, employees get paid, IT needs money. The list goes on and on. A frugal habit goes a long way toward profitability in a business. It’s easy to spend; not so easy to bring it in.

Spending/shopping addiction is a serious problem with many consequences. Shopping is a waste of time compared to time spent with family and friends. Shopping has its place as long as it doesn’t rise to addiction. Business has a natural built-in need to allocate money. If you can run a “real” business or side hustle you have my blessing. Before long you will lose that desire to spend. Take it from a three decade business owner. Spending gets old real fast when it becomes a job. (You know; a job. That thing you want to take early retirement from.)




Coda

Spending in and of itself is not wrong! Overspending is a bad habit and even a sickness. Excessive frugality is a bit of a sickness too. Careful readers may have noticed that from a certain unnamed accountant over the past few years.

I’m not here to tell you to never spend. What I want for you, kind readers, is a healthy relationship with money and spending. Reducing debt to background noise is important. Investing for your future and that of your family is imperative.

Spending easily becomes a job! Money is a powerful tool to help you live a quality life. Too much or too little is a problem. Using the 5 ways to spend listed above will make you wealthier. That is what we are about around here: quality of life which is the true meaning of wealth.

Finally, can you do me a favor? If you think this is as important as I do, go back to the top of this post and use the buttons to share on social media. You can pin the placards to Pinterest, as well. Help me spread the word. Let’s make the world a better place where people control their spending and build powerful, nurturing money habits.

Thank you.

 

More Wealth Building Resources

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 Darren@TradelineSupply.com 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.

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

Amazon is a good way to control costs by comparison shopping. The cost of a product includes travel to the store. When you start a shopping trip to Amazon here it also supports this blog. Thank you very much!