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5 No-No’s for IRA Investing

It is generally well-known that in an IRA account you have a wide range of investment choices. These choices are typically only limited by the custodian’s available investment options.  However, there are specific prohibited transactions that cannot be accomplished with IRA funds. Often these prohibited transactions can cause your IRA to be disqualified, which can result in significant tax and penalty, along with loss of the tax-favored status of the funds. What’s Not Allowed for IRA Accounts? Self-Dealing.  You are not allowed, within your IRA, to make investments in property which benefits you or another disqualified person.  A disqualified person includes your fiduciary advisor and any member of your family, whether an ancestor, spouse, lineal descendant (child) or spouse of a lineal descendant.  It is important to note that this limit applies to both present and future use of a property. So if you purchased a condo and rented it […]

Comprehensive Financial Planning – Explained

Do you know what is involved in comprehensive financial planning? This post gives an overview of the components and how they all fit together.

Create Your Own Luck

“Luck is when preparation meets opportunity.” The other day I was eating lunch with my kids. After lunch was over I gave them a “treat” from the drawer that we normally house goodies of all sorts. I happened to grab a couple of gold-wrapped chocolate coins. These coins were renditions of the JFK half-dollars. My youngest grabbed her coin and said, “heads or tails?” I quickly said “heads” while she flipped the coin in the air. The coin landed on the floor. Tails. I said, “Well, we both lost.” My daughter quickly exclaimed, “I won daddy.” When I asked her how she won when the coin landed tails she replied to me, “I called both heads and tails.” Win-win. Essentially, my daughter had created her own luck. And I immediately thought, “This is excellent fodder for a blog post. So here we are. The reason why I mention this is […]

5 Questions to Ask Your Advisor

If you’re contemplating hiring a financial planner or advisor or if you’re currently working with one, here are some fair and important questions you may consider asking him or her. Are you a fiduciary? Being a fiduciary means that the adviser must legally act in your best interest. While not an absolute guarantee that the advisor will never act otherwise, most advisors who are fiduciaries embrace the responsibility – they want to be fiduciaries. Any other answer then yes to this question means you need to keep searching for an advisor who is. How are you paid? Generally, three different answers will follow. It will either be fee-only, fee and commission, or commission. If the advisor says fee-based or salary, you’ll want to dig deeper. These two responses don’t say how the compensation is derived. More importantly, you want to know how you will pay the advisor. And if you’re […]

Read the Fine Print

As I was reading the paper the other day I came across an ad for a pretty prominent mutual fund broker-dealer. The ad was touting the investment acumen and performance of its mutual funds and fund managers. It mentioned how many of its funds had outperformed category medians over a certain span of years. Then I read the fine print. The fine print stated the following: Rankings are based on total return and do not include the effects of sales charges The rankings were based on the funds’ Class Z shares. Past performance does not guarantee future results. In providing these materials the company is not acting as your fiduciary as defined by the Department of Labor. Let me summarize what these fine print statements mean. First, sales charges reduce returns. In other words, their rankings didn’t include the expenses associated with commissions earned by the salespeople that sell the […]

Sorry to Rain on your Parade

I wanted to take a brief moment to remind our readers of a fundamental investing truth that tends to get overlooked, forgotten, or deliberately disregarded during times of market euphoria. Think about this. If you had a million dollars at the beginning of 2016 to invest and I said that over the year that there would be a Supreme Court vacancy, the Cubs would win the World Series, interest rates would rise, and Donald Trump would become president – would you invest that million dollars in the market? I would bet that many people would not. They would guess that 2016 would be a dismal year for market returns. Yet, in 2016 the Dow returns 13.4% and the S&P 500 returned 9.5%! With all of that uncertainty and the improbable happening, the market still had a great year of returns. Those who stayed invested were rewarded. Those who sold (say, […]

Planning Without Assets

Many individuals, especially after graduating college have an enormous amount of human capital but very little when it comes to financial capital and investable assets. A common question or concern may be that they are of little interest to financial planners because they don’t have any investable assets or wealth. Let me say that this is both correct and incorrect thinking – depending on the financial planner – and just as important; how the financial planner is paid. Let’s start with the correct version first. Financial planners are paid in a number of different ways from commission, fee-only and fee and commission. Focusing on fee-only planners for a moment, these planners may be compensated by the hour, retainer, or as a percentage of assets the planner manages for the client. If a fee-only planner is only compensated by assets under management, then the planner may not be interested in helping […]

What to Expect After the Election

Now that the election has come and gone I wanted to send a note on what we should expect for the next four years and beyond. Really, these are no big predictions, but at times we may tend to forget our long-term goals in the hype and excitement of short term events. Expect volatility. Volatility is the norm, not the exception. Therefore, it should come as no surprise that markets will fluctuate, gyrate and generally have many ups and downs over the next four years and beyond. Think of it this way, would we expect any higher returns on our investments if markets were always calm and stable? No. Volatility is the price (risk) we pay for expected higher returns. We can diversify and maintain focus, but volatility will never go away. Expect change. As the saying goes, the only thing that is permanent is change. Do I know what […]

Should I Pay Off Debt or Save for Retirement?

Over the last few weeks I’ve gotten quite a few questions from individuals ready to graduate college and start embarking on their first job. As is often the case, many of these individuals have varying amounts of student debt but also understand the importance of saving for retirement. Naturally, a common question is should they pay off student loans or save for retirement. Here’s my take. As I’ve mentioned in previous posts, there are few ways to receive guaranteed returns. One of those ways is by paying down debt. This is an example of a guaranteed rate of return that is also risk free. By paying off a loan early, the interest that would have normally gone to the lender ends up in your own pocket. The good news is that the debt is retired faster, and the individual experienced zero volatility exposure compared to investing in the market. On […]

Should You DIY Your Financial Planning?

Many individuals may consider doing their own financial planning over the course of their lives. Although financial planning is generally not too terribly difficult, to answer the title’s question, the answer should be “No.” Here are some reasons why. Get a second opinion. Even if you do it yourself, it’s wise to have another professional take a look at what you’re doing. A good financial professional will confirm good decisions you’ve made and will politely tell you if there’s a gap in your plan or if you may be making mistakes or omissions here and there. Even good financial professionals have another professional look at their plans. Be wise enough to realize you don’t know everything. Time management. Although many individuals are smart enough to learn how to do their own financial plans, many aren’t willing to take the appropriate amount of time. It takes quite a bit of time […]

Pregnant Men and Tattooed Aristocrats

  When you read the title to this article your mind immediately processed the words as unfamiliar and not particularly logical. After all, how many pregnant men do you see and how many tattooed aristocrats do you run into? The title was actually taken from the book, Thinking, Fast and Slow by Daniel Kahneman. I’m currently in the middle of my third time through the book and it seems like each time I read it I gain valuable insight as to how our minds work and how we perceive things. Most notably, these words stuck with me as a way to inform our readers of other financial words and pairings they may encounter and to make readers aware that these word combinations will seem and are illogical. The goal is to help inform readers that should they see some of the following phrases, they should immediately realize that something doesn’t […]

Check Your Vitals

Whenever you go into the doctor’s office for a check-up what’s the first thing he or she usually does? The doctor checks your vital signs. Generally, this is heartbeat, blood pressure, breathing, reflexes, etc. Sometimes either the doctor or the nurse practitioner will have a questionnaire asking various questions such as number of drinks per day, whether or not you smoke, and any allergies – to name a few. Most individuals give this information without thinking twice. Most of the time, the answers we give don’t change. So why does the doctor keep asking the same questions every time we have an appointment? The answer is because if one of these answers does change (such as an irregular heartbeat or high blood pressure) this changes the potential diagnoses and outcome. This is why it’s important in your financial planning to always check your vitals. In other words, even though you […]

The Value of a Stay-at-Home Parent

In earlier posts we’ve discussed the importance of a spousal IRA for a spouse that stays at home taking care of the children in order to still save for retirement even though the “non-working” spouse has technically no “earned” income. Spousal IRAs aside, I wanted to shed some light on the value of a stay-at-home parent has, even though they might not be getting paid a salary for their work raising the children. The goal is to point out why stay-at-home parents still have a need for risk management and retirement planning as they (in my opinion) work one of the hardest jobs – raising children. According to the 2016 salary.com Mother’s Day Infographic, the value of a stay-at-home mom (parent) is approximately $143,102 annually, accounting for 40 regular hour work and 52 hours of overtime. This “salary” takes into account occupations such as driver, teacher, chef, nurse, and janitor. […]

Sometimes it’s Not a Good Fit

Whether you’re the prospective client working with a financial planner or the planner working with a prospective client, sometimes for whatever reason the relationship doesn’t make sense. The purpose of this post is to help prospective clients and planners in deciding whether or not a client/planner relationship is worth pursuing or maintaining. First, let me start from the perspective of the client looking for a financial planner. Initially, as the client you’re going to want to look for some of the minimums every financial planner should be doing. The first is the CFP® designation. This means that the planner has at least a minimal amount of financial planning education and had passed a rigorous exam. Next, make sure the planner is a fiduciary. This is not optional. This means that the planner is legally required to act in your best interests always. Additionally, make sure they are fee-only. This means […]

A Note for New Advisors

This post is for an advisor just starting out in their career. Their work could range from working for a large broker-dealer, to a small financial planning firm with a few employees. The main point of this post is to give the advisor reading it some hope and inspiration. Having had experience working for both a large broker-dealer and a small firm (here at BFP) my hope is to give some advice thoughts as the advisor shapes their career. First, you are in one of the greatest positions in your career. You have the choice of determining how you want your career path to look. Determine the path and what type of financial professional you want to be moving forward. Identify if you are a hunter or a farmer. If you decide to be a hunter, you will spend the rest of your career “going for the kill”. This means […]

A Risk Management Checklist

Although many individuals have various risk management policies in place, sometimes those policies get brushed aside and every once in a while the dust needs to be wiped off of them and perhaps some updating needed. Here’s a checklist to consider the next time you review your risk management strategies. Auto Insurance – Review your coverage to make sure it’s still adequate. Liability limits of at least $250,000 should be the norm. Limits of $500,000 up to $1 million are better. If you drive an older car, consider raising your comp and collision deductibles or eliminating them altogether to save on premiums. Upside down on your car loan? Consider gap insurance. Better yet, don’t have a car loan. Home Insurance – Make sure your home is insured to its reconstruction cost. This is the cost to rebuild your home using today’s prices for materials, labor, etc. It is NOT the […]

Focus on the Things You Can Control

Left a good job in the city, workin’ for the man every night and day. But I never lost one minute of sleepin’ worryin’ ’bout the way things might have been. — John Fogerty Sometimes the answer to our stresses in life is to get back to basics and figure out what’s important to us, as well as what things we can control in our life. In the song quoted above, Fogerty’s writing was most likely tempered by his recent discharge from the Army Reserve (1967), after which the protagonist explores an awakening to a simpler side of life, and what turns out to be important to him. We are often faced with similar situations – maybe we’ve been laid off or some financial calamity strikes us, and from that perspective we often discover what’s really important to us. Other times we just come to realize that our life seems out of control, and […]

Should I Pay Off My Student Loans or Start Investing?

I had an interesting question come my way from a student the other day and I thought I’d expand on my answer that I gave to the student. The question was whether he should pay off his student loans and then start investing, or if he should start investing first and pay off the student loans gradually. If we really look at it, paying down any type of debt is very similar to making an investment in a guaranteed account paying interest on the equivalent of the interest rate on the debt. This student’s interest rate on his debt was approximately 7%. Paying this off would not be unwise and would be a great way to earn 7% risk free – only this method keeps the 7% out of the lender’s pocket and puts it into the borrower’s. However, if we completely ignore investing and saving for retirement we can […]

5 Ways to Handle a Falling Market

Given the recent market volatility and the uncertainty that comes with it here are a few things to consider to reduce potential stress. Some individuals can perhaps make the best of a rocky situation. Do nothing. Before reacting or making a decision that could affect your returns and income in the future, take a moment to think about the situation. Is it as bad as it seems? Is it just like the previous market dips? What happened afterwards? If you’ve decided on the correct asset allocation for your portfolio then expecting market dips should be the norm, not the exception. Revisit your goals. Remember the reason why you’re investing in the first place. Is it for retirement and you’re in your 30s? Is it for a college education and you have a 6 month old? Is it for retirement income and you have a family history of longevity? This point […]

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