Be on the same team! Talking about and managing finances together

Money woes are the leading cause of divorce in American couples. Over ⅓ of people in the United States have stated that financial pressure was the biggest challenge their marriage has faced in the past, and ¼ of Americans have said most of their arguments are money-related. As a financial planner, I work with a lot of couples – and I’m always surprised by how few of them have actually had an honest conversation about their money.

 

The old saying holds true when it comes to household finances – communication is key. When you work toward creating a financial plan with your spouse, you need to talk to each other about expectations, frustrations, and any goals or dreams you may have. That being said, money conversations can also be incredibly uncomfortable – which is probably why so many American couples avoid them altogether. Knowing what you’re walking into, and how to best talk about money with your spouse ahead of time, can help you have a productive conversation.

Know Yourself and Know Your Spouse

Everyone likes to point fingers when it comes to money because it’s frustrating to admit our own faults. We may be harboring some guilt around unhealthy spending habits, or be embarrassed because we don’t know as much as we think we should about saving for retirement. On the other hand, our money mindset may be a direct result of how we were raised – and it may be different from how our spouse approaches their finances.

 

Understanding where you fall down when it comes to your personal finances is key in order to talk to your spouse about building a financial plan that’s going to work for your family. When you know your own flaws, you’re able to create a plan of action that helps you to stay on track – which is something your spouse will appreciate. It’s also important to understand your spouse’s money mindset, as well as their financial strengths and weaknesses. Having a clear understanding of how each of you approach financial decisions, or value your money will help you to align your vision for the future (and avoid arguments down the road).

Approach Financial Opinions With No Judgement

Personal finance is always emotionally charged. Everyone has opinions on how money should be handled, and often they differ dramatically – even between an otherwise compatible couple. Money conversations between two spouses who have different opinions about money can evolve into arguments quickly. The key is to approach all financial opinions your spouse may hold without judgement.

 

On the surface, this sounds easy – it’s not. For example, if you firmly believe in paying down debt and living a debt free lifestyle, but your spouse sees the benefit in carrying some debt and would prefer to prioritize saving before debt repayment – you may find yourself falling into the trap of judging them for their opinion because you strongly believe that yours is “right.” The truth is, when it comes to money, there are no “right” opinions. Opinions are just that – opinions. They’re based on a value set and history that someone has with their personal finances. They aren’t fact, and they aren’t “wrong.” Knowing that your spouse’s financial opinions aren’t right or wrong (and neither are yours) can help you move through conversations without assigning emotional value to their ideas.

 

It’s also important to avoid judgement of each other’s financial past. For example, 1 in 8 divorces are directly caused by student loan debt. The pressure that hefty debt, a lack of savings, or other financial missteps you bring to the table can potentially alienate your spouse. Working together to be on the same “team” when it comes to addressing these money woes is key.

Set Goals Together

As you’re discussing your family’s finances, you’re going to come to a point where you need to set goals that you’re working toward. It’s tempting to set individual goals and work independently toward them, but that’s a recipe for financial dissonance in your household. Talking through your money goals, and working to align them with the values you share as a couple, can help you lay a foundation of financial peace in your home.

 

When you set financial goals together as a married couple, you’re actively working to approach your money situation as a team. You’re building a safety net that protects both of you, planning for the lifestyle you want as a unit, and staying honest with one another. Once you’ve set goals as a team, you can move forward with creating a game plan that puts you on the path to reach those goals. This might mean creating a household budget, setting up automatic payments to knock out your debt or build up your savings, or building in “rewards” like a date night once you hit smaller milestones on your way to your long-term goals.

 

If you’re struggling to find common ground when it comes to your  money, talking to a fiduciary, fee-only financial advisor can help. An impartial third party can often guide you in taking the emotion, or blame, out of your personal finances and help get you and your spouse on the same team when it comes to your money.

What is an HSA and Why Is It Important

https://youtu.be/sApWZfHBnac

 

You’ve likely heard that having an HSA can help you to lower the cost of your medical care – but studies have shown that only 17% of people enrolled in group health plans are using their HSA. And of the people who are using their HSA, only a few of them are contributing the maximum amount each year. This gap is largely because not everyone knows about HSAs or their many benefits. As is usually the case with personal finance, the more you know, the better decisions you’re able to make. So let’s take a minute to break down what, exactly, an HSA is and how you can use it to your benefit.

What is an An HSA?

An HSA, or Health Savings Account, is attached to High Deductible Health Plan insurance coverage (HDHP). In order to open an HSA, you have to be enrolled in HDHP insurance. The HSA is intended to offset the high medical costs often associated with HDHP insurance coverage – which has a high deductible (hence the name), and puts group members in a position where they have to pay out of pocket for most non-essential care services until their deductible is met.

 

Your HSA is funded with pre-tax money, and it grows tax free.. More importantly, it rolls over from year to year, so you’re continually growing your funds without feeling pressured to use them immediately. Keep in mind that your HSA funds can only be used for qualifying medical expenses. This can include everything from doctor copays to hospital bills to a box of bandaids from your local grocery store. Putting money aside into an HSA helps to lower your taxable income while still preparing for a medical emergency, or even just offsetting smaller medical expenses – like taking your kids to the doctor.

Know What You Can Contribute

Because contributions to your HSA lower your taxable income, it’s a good idea to contribute as much as you can. The current contribution limits are:

  • $3450 if you’re single
  • $6900 for a family
  • Add an extra $1000 to either of those figures if you’re over 55 years old

 

Many people use their HSA to save for larger medical procedures – like having a baby, or intensive surgery. Others use it to put money aside for rising medical costs during retirement. Knowing what you can contribute is the first step to understanding what the best way to use your HSA might be. Some employers even offer a program where they assist in contributing to your HSA – which increases the total amount you’re able to save for future medical costs.

 

HSAs and HDHP insurance plans were originally created in hopes that if an insured individual was forced to spend their own funds on health related costs, they’d spend wisely. While this logic might work for some, others have figured out how to work the system to their advantage and use their HSA for several different financial planning purposes:

  • To save for upcoming medical costs like cold medicine, doctor visit copays, or medical procedures
  • To save for future medical costs during retirement
  • To lower their taxable income
  • As an investment vehicle

Remember: You Own Your HSA

As you create a plan for your HSA funds, it’s important to remember that you own them, not your employer. Even if you set up the account through your employer originally, you get to take that account with you wherever you choose to work in the future (or into your retirement). That’s why researching your HSA provider to ensure you’re getting the benefits you want is critical. It’s also important to remember that you won your HSA – and get to decide what happens to the funds in the account.

 

This means you can decide whether you want your HSA funds to remain all-cash, or if you want to invest all or a portion of them. Additionally, you get to decide who the beneficiary is on your account, and if you want to proceed with a one-time roll over or transfer of funds from your IRA to your HSA.

Think Smart – Protect Yourself

I like to view an HSA as an added layer of protection for clients. Putting money aside in an HSA has clear tax benefits, and it’s handy to have when you hit retirement. More than that, though, clients who contribute to an HSA because they’re enrolled in a high-deductible insurance plan are protecting themselves against the unknown. As a financial planner, I talk a lot about building an emergency savings and thinking about your future.

 

This is especially true for entrepreneurs, or young families who are working to pay down debt, grow their retirement savings, and reach other financial goals – like purchasing a home. Your HSA is an added layer of insulation against the inevitable. Eventually, something will go wrong with your health (or a family member’s health).  In our case it has helped with medical bills for the kids and recently my cardiologist appointments (dont worry everything is fine). 

 

It’s not uncommon for people to go into massive amounts of debt trying to pay off thousands of dollars of hospital bills after a car accident, or when their kid breaks their arm, or because they’ve been hit particularly hard by flu season. Don’t let the unexpected force you to sideline your big-picture financial goals. Regularly contributing to an HSA, or finding another way to set money aside for medical expenses, can help keep you on track.

 

Good Judge-ment Means Good Planning

Were you surprised to learn that Brett Kavanaugh, a Supreme Court justice nominee with an annual income of $247,000, could have racked up debt and saved so little for retirement? 

A recent article in Vanity Fair reports that the Washington native accrued between $60,000 and $200,000 on three credit cards and a loan for Washington Nationals tickets as well as home improvement loans. While it’s not hard to imagine going into debt living in the DC metropolitan area, it is surprising to think that we may be investing our money more wisely than someone appointed to the highest judicial bench in the land. 

Brett Kavanaugh’s story unfortunately is not unique. According to a CNBC article 35% of all adults in the U.S. have only several hundred dollars in their savings accounts and 34% of Americans have NO savings at all.  Even 40% of Baby Boomers are not ready for retirement. This shouldn’t be shocking when you look at the savings accounts (or lack thereof) for the vast majority of Americans. According to the EPI, nearly half of families have no retirement account savings at all, including IRAs and 401(k)s.

The median retirement account for U.S. families is just $5,000. Even older workers who can see retirement on the horizon aren’t prepared for it. The median savings for families whose wage earners are between 50 and 55 is only $8,000. For those who are between 56 and 61, it’s $17,000.  That’s not anywhere near enough money to get you through your golden years.

The good news is that this crisis can easily be rectified with self-discipline.  If you can commit to saving only 6% of your salary, or 3% with a match by your employer, you will be able to see the money add up over time. Using a $76,000 annual salary as a basis for our calculations, if you begin saving 6% of this at age 25 (about $760 a month), you will amass nearly $600,000 when you are ready to retire.

It isn’t too late for our potential Supreme Court justice to begin either. With a simple savings plan and some smart budgeting, Judge Kavanaugh will be able to contribute more towards his retirement account, while still managing to keep his kids at Blessed Sacrament School and cheering on his beloved Washington Nationals (a passion those who know me know I share.)

  

How Much Money Do You Actually Need in America?

Sherman Wealth Management | Fee Only Fiduciary

In my line of business, we talk a lot about wealth management. The idea, of course, is that financial planners and wealth managers assist you in creating a road map for your money that helps you grow savings for lifestyle goals like retirement, purchasing a home, or sending your kids to the college of their dreams. The term “wealth management” often begs the question: What does “being wealthy” mean? And when do you need a financial planner to help you manage your wealth?

How Do People View Wealth?

A recent study has shown that the definition of being wealthy rises as people age. Bloomberg states that Boomers tend to view $2.4 million as a requirement to be “wealthy” whereas millennial’s view wealth as a $2 million requirement. That’s a fairly large discrepancy – and it’s pretty clear what’s causing it. The younger we are, the more likely we are to view our financial future with a sense of optimism. We also tend to be more short-sighted in our financial planning, and believe that a smaller amount of wealth will last longer.

As we age, we become more realistic about our finances. We start to see the big picture, and that honest truth is that we often need a lot more money than we realize.

What Does Wealth Mean to You?

Despite the discrepancy in what quantifies “wealth” among generations, one thing stays the same: people view wealth as several consistent things. They believe that wealth is:

  • Options
  • Freedom
  • The ability to stop worrying
  • A secure future
  • Caring for yourself and your loved ones

Many people also say that being wealthy equates to taking time for themselves in their daily life. According to the same survey, the majority of millennial’s believe that they will be wealthy in the future. However, the same optimism doesn’t translate to Boomers and other generations.

The Importance of Saving

The key to building wealth is saving a lot, and saving early. The sooner you can start to prioritize saving in your budget, the sooner you can begin to take advantage of compound interest. I’ve discussed this in previous blog posts, but to review:

Compound interest is essentially a snowball effect. As a snowball rolls down a hill, it grows in size. Even if you start with a small amount of money invested, it picks up more and more snow with each revolution. By the time you reach the bottom of the hill, the snowball has grown significantly, and will continue to grow faster the more you have invested.

This demonstrates the importance of saving early on in your financial life. Although many millennial’s feel positively about their opportunity for wealth, they won’t be able to capitalize on these goals if they don’t prepare now.

The Importance of a Financial Plan

This wealth study by Bloomberg also indicated that most people, unsurprisingly, felt more secure in their finances when they worked with a financial advisor on constructing their financial plan. Many millennials have yet to employ their own financial advisor, and it’s time to rethink that trend.

At Sherman Wealth, many of my clients are millennial’s. I enjoy working with families and young professionals to both clearly define their goals and help them build a plan that moves them in the right direction. When advisers have the opportunity to work with millennial’s to grow their wealth, they have a leg up on pre-retirees who focus on financial planning as they near retirement: time.

When you implement a financial plan early in life, you have time on your side. With time, your wealth can grow significantly, and working with a financial adviser can help you make the right money moves early on to set yourself up for success in the long run.

Are You Ready?

In my recent video reviewing MarketWatch’s article on what you need saved for retirement by the time you’re 35 years old, I stressed the importance of saving early. It’s critical to start growing your wealth, even as a millennial who has many years until retirement, through targeted savings and a smart investing strategy. The critical thing to remember is you’re not just saving for retirement – you’re saving for all future goals like buying a house, sending your kids to college, or living well throughout your life. Saving is truly the only way to ensure wealth in your future, which means that saving is the only way to ensure options, freedom, and a lack of worrying about money as you age.

If you’d like to discuss your saving strategy, schedule a consultation today. Building a comprehensive financial plan that prioritizes saving while mitigating the impact of taxes and investment fees is key to growing your wealth and building a financial future you can rely on, and I’d love to help.

Entrepreneurs and Investors: Keeping your eye on the endgame pays off

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Let’s face it – we live in a world where people expect their needs will be met with instant gratification.  Social media, online shopping and the availability of having access to everything right at our fingertips means that consumers have high expectations that their needs will be met immediately without having to wait for what they want.  Unfortunately, these kind of short-term reward expectations can have drastic consequences for us both personally and professionally as well as for the economy overall.

When we focus on the short-term gain instead of the long-term goals for ourselves or our businesses, we deprive ourselves of the full benefits (like all of the compound interest) that can come from patience and being self-disciplined when working toward our future goals and we wind up hurting the economy as well. We recently wrote about the benefits of investing for the long-term and in tribute to our beloved Washington Capitals and DC sports in general, patience pays off and success is the reward. We hope they win the cup after 20 years!

I can attest to keeping a long term vision through the building of my own business, as years of hard work and sacrifice have gone into growing Sherman Wealth Management into what it is today.  I did not start out reaping the benefits of my efforts right away. It continues to take a lot of patience and planning to grow my company into the vision I have for it long-term.  Along the way, I get positive reinforcement that this slow and steady strategy is paying off. In fact, I was just named one of the Top 100 Financial Advisors by Investopedia which certainly did not happen overnight.

Building my company brick by brick and keeping my eye on the endgame is what allows me to successfully grow my company day by day.  What if all workers viewed their endgame instead of what they need immediately? Investing in the future is the only way to make sure your endgame is what you want it to be.  Resist the “I need it now” mentality that our culture pushes and shift your mindset to an endgame view.

Instead of solely focusing on short term profits, companies should look more at their long-term strategy, growth and sustainability.  In this article by Jamie Dimon and Warren Buffet, the pitfalls of what happens to the economy when looking only at the short-term is examined.  The compound interest that can be potentially generated from funds invested for the long-term is lost when companies are focused on the short-term fluctuations of the market. The article states that “Short-term-oriented capital markets have discouraged companies with a longer term view from going public at all, depriving the economy of innovation and opportunity. Fewer public companies has also meant fewer opportunities for retail investors to create wealth through their 401ks and individual retirement accounts.”

What does your endgame look like?  Can you envision kids’ college tuition paid for, a beach house, summers off or traveling the globe?  It is never too late to change your mindset and your daily habits to achieve your dreams.

Patient Investors Come Out on Top

Many feel they don’t have the money they need to invest, so they forego savings altogether. Sound familiar?

If this is you, the time has come for you to stop shooting yourself in the foot, and start saving today. Consistency while saving is key, and can make all the difference over time. Each dollar that you contribute to your portfolio adds up. In the long run, your investments early on can make a real impact, and when the time comes to withdraw your hard earned savings, the interest you’ve earned on your investments will help to provide a comfortable retirement or any long term goal you might be saving towards.

Start Saving Now

Consider the difference of waiting to begin saving. At age 27 you will need to put away $214 a month to reach a goal of $1 million. When you start at age 37, you will need to put away $541 a month to reach your goal. If you wait until age 47, that number rises to $1,491 a month and if you wait until age 57, you’ll need to put away a hefty $5,168 a month. Waiting until the last minute (age 62) would mean having to stash $13,258 a month to reach $1 million by the age 67 – ouch!

When you factor in things like compound interest, the negative impact of delaying your retirement savings becomes increasingly obvious. Compound interest is often compared to a snowball. If a 2-inch snowball starts rolling, it picks up more snow, enough to cover its tiny surface.

As it keeps rolling, the snowball grows, so it picks up more snow with each revolution. If you invest $1,000 in a fund that pays 8% annual interest compounded yearly, in 10 years you’ll have $2,158.93, in 20 years that will be $4,660.96, in 30 years it will be $10,062.66, and in 40 years it will be $21,724.52. It takes patience, but with time you can turn $1,000 into $21,724.52. That sounds like a lot of money, but if we’re being realistic, $1,000 is often spent on:

• A weekend skiing with friends
• A few months of dining out with friends or your spouse
• A new piece of furniture, or tech that you may/may not need

By hitting “pause” on these non-essential goals, you can easily start saving today and take advantage of compound interest.

No matter where you are right now, the crucial point is to begin putting money aside immediately to achieve your long-term financial goals.

What are your future goals?

Travel? Education for your kids? Paying off your mortgage?

Even when you contribute a minimal amount annually, if you’re consistent with that contribution over many years, the growth your investment will make can maximize your wealth in the long ron.

The idea that you don’t have enough money right now to make your investment worthwhile is hurting you and your future. Resist the urge to overthink how much you are investing, and just act by giving what you can to your future savings today. Remember: every dollar counts, and the satisfaction of watching your investment grow over time will give you peace of mind and a freedom to plan for the future.

Don’t Jump Ship When Things Go South

Many investors view themselves as being rationally-minded individuals who don’t take sudden action when the markets become turbulent. Too often, though, people do try to time the markets, and wind up making a wrong decision as a result.

Derek Horstmeyer of the Wall Street Journal writes “Most investors think of themselves as rational and immune from the behavioral elements that periodically roil markets. Human factors, however, do continue to affect our personal portfolio decisions—usually to the detriment of our long-run returns.”

Thinking too much about the “perfect timing” when growing our portfolios is a strategy that will more often than not cause people to lose money in the long run. A far better investment plan is to focus on the big picture, and less on a perfect portfolio – where every decision is made at the exact right time.

Timing the market is less important than time in the market, and getting caught up in getting that “perfect timing” is almost certain to cost you money. Aiming toward a good, solid return on your investment is a smarter strategy than worrying about every detail affecting your portfolio. All too often, people panic as soon as things start to go south (pulling out when the market has already hit bottom and putting in more when at the top). As a result, they often don’t experience this stated return in full. By resisting this urge to make a rash decision, investors showing behavioral restraint may actually wind up saving 1-2 percentage points a year.

Starting early is a critical component to a successful portfolio. It is never too late (or too early) to start, so the sooner the better. Beginning in 2011, studies were conducted where participants were shown a computer generated rendering of what they might look like at their age of retirement. They were then asked to make financial decisions about whether to spend their money today or save that money for the future.

In each study, those individuals who were shown pictures of their future selves allocated more than twice as much money towards their retirement accounts than those who did not see the age-progressed images. Seeing the images gave the participants a connection with their future selves that they did not possess before. As a result, their saving behavior changed dramatically because, “saving is like a choice between spending money today or giving it to a stranger years from now.”

Picture Your Retirement

Instead of viewing your future self as a stranger, think of how you actually might look. Then think of the financial decisions you are making today and how they will affect you in the future.

Are your spending and saving habits today matching up with how well that future self is able to live tomorrow? Every delay you make toward saving for retirement, or investing wisely means a further burden you will place on yourself later on. In fact, starting your retirement saving early is actually more important than earning higher returns at a later date.

The importance of starting now can’t be stressed enough. Luckily, fee-only, fiduciary advisors exist to help everyday people in making wise choices and to lessen the anxiety associated with what can seem like an overwhelming task.

The good news is you don’t even have to be a millionaire to get this customized service. Working with a professional will enable you to maximize your return on investment and tailor a savings plan just for you. Don’t delay getting started. The benefits of starting early and often far outweigh how much you actually save.

Teaching Children Financial Responsibility: Start Early

Would it surprise you to know that students graduating from high school enter college with little to no knowledge about their finances, how to budget, or save for their futures? The problem has become so severe that 40% of these students wind up going into debt in order to fund their social lives and 70% of these students wind up damaging their credit ratings shortly after college graduation.

Unfortunately, it seems as though this debt will not be going away anytime soon.  The average student loan debt for the class of 2016 increased by 6% from the previous year and the financial literacy rate in the U.S. has not improved over the past three years. While college enrollment and the number of college graduates has continued to increase, financial literacy lags among these young people at record lows. Where does this disconnect come from?

Few states offer personal finance or economics courses and even fewer states test students on the financial knowledge they have acquired. It therefore comes as no surprise that American students (and we can infer American adults) have one of the lowest levels of financial literacy when compared to other countries.  While the number of student loans has increased,

  • 44% of Americans don’t have enough cash to cover a $400 emergency
  • 43% of student loan borrowers are not making payments
  • 38% of U.S. households have credit card debt
  • 33% of American adults have $0 saved for retirement

Why does it matter? How is it affecting the economy?

Students are graduating with loans they can’t afford to pay back and with minimal financial knowledge in planning for their futures. According to Student Loan Hero, Americans have over $1.48 trillion in student loan debt, which is more than double the total U.S. credit card debt of $620 billion. This debt is becoming a major barrier to home ownership. 43% of student loan borrowers are not making payments and most of these individuals do not have any savings. A lack of sound financial knowledge will affect the economy as these millennials enter the labor force burdened with student loans.

As parents, we play a vital role in educating our children about the importance of personal finances.  In the Sherman household, we are teaching our children the importance of finances on a daily basis. Our 4 year old son is learning about savings by doing chores in return for an allowance, which he saves in his piggy bank. He is learning to save and spend his money wisely.

Parents can begin educating their children at home in order to increase the financial literacy of their kids. By demonstrating wise financial habits, parents can serve as role models for their kids. Talking in an age appropriate way to your children about the dangers of debt and the importance of saving a portion of any money they earn instills financial values and lessons your child can use throughout life.  You may find that using an allowance is a way that you can teach your kids about saving and spending appropriately. Since it has been shown that kids who manage their own money have been found to demonstrate better financial habits in the future, giving your kids the opportunity to spend and save their own allowance or money earned is a good way to prepare them for later on. Even a simple trip to the store can be used as an opportunity to start the conversation about the danger of credit cards and how they should only be used in an emergency.  Educating your kids at an early age will enable them to better learn and practice sound financial habits while under your watchful eye and cause them to be less likely to make irrational decisions once they are out on their own.

This issue is not only affecting students and young adults.  Many professionals with advanced degrees have spent countless hours studying and researching information in their particular field.  Despite all of the hours spent earning their degrees, many of these people have never taken a single course in financial education and are surprisingly not prepared to deal with the important financial decisions affecting their futures.  As a result, many extremely smart and successful people are making critical financial errors which can negatively impact the amount of money they have saved upon retirement.

Beginning in 2011, studies were conducted where participants were shown a computer generated rendering of what they might look like at their age of retirement.  They were then asked to make financial decisions about whether to spend their money today or save that money for the future. In each study, those individuals who were shown pictures of their future selves allocated more than twice as much money towards their retirement accounts than those who did not see the age-progressed images.  Seeing the images gave the participants a connection with their future selves that they did not possess before. As a result, their spending/saving behavior changed dramatically because “saving is like a choice between spending money today or giving it to a stranger years from now.”

The benefits of educating your children about the importance of personal finances are undeniable, and you’ll be able to set them up for a promising future and help them prepare for retirement. Visit us online for more information about how we can help improve your financial life.

Money in Cash? Make Sure you’re Getting the Best Rate

Sherman Wealth Management | Fee Only Fiduciary

While the stock market has been steadily climbing for the past few years, a surprising number of people are keeping a surprising amount of money in cash. And while everyone is going to have a certain amount of cash allocation, what’s even more surprising is how many people are losing out on maximizing the interest rates for those assets.

Advisors typically recommend holding 3%-5% of your assets in cash – for emergencies, short term savings goals, a new home or a vacation, or simply as a hedge against volatility.  Yet, according to the latest Capgemini World Wealth Report, high-net-worth Americans are currently holding more than 23% of their assets in cash.

Treasury yields are climbing

Why would investors prefer cash over a booming stock market? Studies, like this one, have shown that “cash on hand” – the balance of one’s checking and savings accounts – is a better predictor of happiness and life satisfaction than income or investments. Put simply, people like having “money in the bank.”

There’s no reason for that “money in the bank” to be earning zero though, particularly when there are many FDIC-insured, highly-rated, savings account options that may be yielding a higher interest rate on your savings than your current bank or investment firm’s savings options.

Short terms saving rates generally follow moves by the Federal Reserve and, as indicated by the chart to the right, short term interest rates, as reflected in short term Treasury yields, are rising. But is your bank raising your interest rates too or are they pocketing the difference and profiting? While the percentages seem small, there is actually a significant difference between earning .05% and 1.5%: the difference between earning $5 and $150 on a $10,000 savings account.

Put simply, if your cash is in a zero percent interest account, it’s no better than putting it under your mattress. You’re losing money, both in lost interest and because inflation can reduce the value of your savings.

Do you know if  your own savings account’s interest is keeping pace with rising interest rates? If not, check with your advisor to make sure you are maximizing your money’s earning power. If you’re not, consider shopping for a higher rate. Cash should be an asset class, but it shouldn’t earn zero.

If you’re not sure, we’re always available for a free consultation to see if you’re getting the best rates and you’re maximizing the earning power of your cash reserves.

 

Paying Hidden Costs Because your Broker’s not a Fiduciary?

Investors often choose big banks and investment firms over smaller financial advisors because they think the brand name and size makes the service and product offerings better. In actuality, it’s often the reverse.

Unless your firm is a Fiduciary, chances are there are sales quotas and contests for the non fiduciary, “suitability” reps, who are often paid extra to put clients in proprietary funds that are not in the clients’ best interests, but that reap commissions for the brokerage house.

Last Friday the SEC issued a statement announcing that three investment advisers “have settled charges for breaching fiduciary duties to clients and generating millions of dollars of improper fees in the process.” The release goes on to say that “PNC Investments LLC, Securities America Advisors Inc., and Geneos Wealth Management Inc. failed to disclose conflicts of interest and violated their duty to seek best execution by investing advisory clients in higher-cost mutual fund shares when lower-cost shares of the same funds were available.”

And according to an article in Investment News last week, it turns out smaller credit card and savings customers may not have been the only ones who were misled in the Wells Fargo “fake account” scandal. The article states that “according to inside sources, some clients of the bank’s wealth-management division were steered into investments that maximized revenue for the bank and compensation for its employees.”

When will this stop and why would any one continue to do business with one of these non Fiduciary firms?

The big problem is lack of transparency. Most investors don’t understand how the business works and how broker-dealers make their money. That means the investors are, in effect, investing blindfolded. And while there are many good, principled people at the larger firms, because they are not bound by the Fiduciary Standard, there is lots of potential for recommending something that is “almost as good” as the best product for you.

The result is that, according to a survey just released by the CFA Institute, a majority of investors believe that their advisors fail to fully disclose conflicts of interest and the fees they charge. Only 35% of individual investors polled believe that their advisor always puts their clients’ interests ahead of their own and only 25% of the institutional investors who participated in the survey.

April is National Financial Literacy month and one of the most important Financial Lessons investors – and potential investors – can learn this month is what “Fiduciary” means and why it’s so critical to your financial health.

When you’re working with a fee-only Fiduciary, they have sworn to only recommend financial products that are the best for their clients. Most broker-dealers in large wire houses have only agreed to uphold the “suitability” standard, which means they are allowed to recommend investments that are “suitable” – not best – for you but potentially yield a markup for their company or bonus or commission for them.

If you’re unclear about what fees you are paying, share classes you own, or how much your funds are costing you in annual expenses, contact us for a free analysis of your currents investments and the costs associated with them.

Particularly during Financial Literacy Month, make sure your Financial Advisor is working for you.

 

Your Next-to-the-Last Will and Testament: Estate Planning When You’re Young

There was an excellent article in the WSJ last week about a topic most of us don’t really want to think about (but really need to:) how to prepare in case you die young.

No one likes to think about dying and absolutely no one likes to think about the possibility of dying young. Lately it’s hit home for me, though, because two of my high school friends were diagnosed with cancer over the last year. Both are in remission now, thankfully, but it brings home the fact that it never hurts to be prepared.

The bottom line is: if you’re old enough to be filing your taxes this month, you’re old enough to take basic steps to create basic estate documents. And yes, things will evolve and there will be adjustments to make over your – hopefully – long and prosperous life. But it’s never too early to get started.

  • The single most important thing we all need is a will and/or account beneficiaries, so that it’s clear where you want your assets to go. Statistics show that not only do most young people not have a will, but that most young parents who do have wills haven’t updated them when they had a second or third child. At the very least make sure you’ve named beneficiaries for all your bank and investment accounts (also known as TOD or  “transfer on death” provisions), to prevent having the courts probate and decide how to transfer your assets. If you need help we can connect you with our excellent network of Washington area professionals who can advise you about making the best choices for you and your loved ones.
  • If you have kids, naming guardians for them is critical, to protect them should the unthinkable happen.
  • And don’t forget yourself! My mother just had knee replacement surgery about two weeks ago and, just before she did, she handed me her advanced medical directive. I was grateful she did (she’s fine!) and your loved ones will be grateful to know what your preferences are if they ever need to make decisions for you. In addition to a life insurance policy, don’t forget disability insurance in case for some reason you can’t work. I’ve never had to use the policy I took out in my 20s but I’m glad it’s there.
  • And finally, why not create a notebook or file where all your important documents are handy? It’s a great habit to get into when you’re young. Or you could gather your documents in a tool like the online document vault our clients have access to. So take a moment and get organized – most likely you wont need it for a long time but you’ll have created a great habit for yourself.

April is a great time for an overall financial check-up: you have all your tax documents organized, which means it will be that much easier to get these important personal documents organized as well. April is also Financial Literacy Month so, as always, call us if you have questions or for a free consultation and financial check-up.