Has the Internet Replaced Personal Financial Advisors?

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With the wealth of information readily available online, it’s easy to feel that we’re all experts about everything. From scouring the finance blogs and Twitter for the latest “surefire” ways to beat the market, to diagnosing our aches on WebMD, to grilling along with Bobby Flay on YouTube, it can seem like we have almost instant access to the same information as the pros.

So when it comes to personal finances, why is it necessary to have a financial advisor when financial news is so readily available, Twitter is flooded with “hot tips,” robo advisors are ready to automate the whole process for you, and comparison shopping is so easy? Why can’t you just use this treasure trove of information to make your own financial decisions? Or subscribe to an algorithm-based service that will make the best lightning-quick decisions for you?

A couple of reasons…

If you’re good and you dedicate a lot of time online, you can definitely pick up some great information and strategies that the experts are sharing (follow me on Twitter by clicking here!) The tricky part is making sure that the information and the strategies are actually appropriate for you and appropriate right now. We all know that, if we’re not careful, the instantaneous nature of the internet, social media, and impersonal algorithms can lead to impulsive decisions that may not support our own long-term goals and personal risk profile. Quick reactions to new stock market “darlings” or to sudden market volatility can lead to choices that are not the best for your long – or even near – term financial health and growth. In fact, there is a whole science called Behavioral Finance that addresses how personal biases can lead investors to make decisions that actually work against the goals they set for themselves.

A good financial professional is able to sift through the vast amount of information available to you and determine what is significant to your strategy and what may just be a distraction. A financial advisor who understands Behavioral Finance can help you see where your assumptions, habits, and biases about money and investing may be leading you to get in your own way.

The new algorithm-based platforms are increasingly interesting and have a lot of merit, but the level of personalization is not yet very deep. That means that portfolios are based on broad criteria that may have nothing to do with your current situation, lifestyle, and goals. Again, this is where a trained professional will be able to view your unique individual needs and create a tailored strategy that is geared to you and not just everyone who matches your age and salary level. As more and more fiduciary financial advisors are starting to use smart algorithms as part of their offerings where appropriate, the key is “where appropriate” and “in the clients’ best interest,” the very definition of a fiduciary.

Think about it: would you rather grill along with Bobby Flay on your iPad or would you rather have regular meetings with Bobby, where he looks at the size and model of your Weber, the size of your shrimp, and the recipes you’re trying to learn, and works with you to make sure you become the master of your own grill? (and shrimp!)

The same goes for your financial future. While do-it-yourself is getting easier and easier, that doesn’t necessarily mean it’s getting better and better. Look for a fiduciary financial advisor who also has access to the latest information online and is familiar with the latest algorithmic innovations, but who uses that information to get to know clients individually, and tailors a long-term growth strategy for them that will put them on the road to achieving the goals they have set for themselves.

 

With over a decade’s worth of experience in financial services, Brad Sherman is committed to helping his clients pursue their financial goals. Learn more about our Financial Advisor services.

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5 Important Planning Tips for New Parents

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Expecting a visit from the stork soon or has it already dropped off a new bundle of joy? If so, you know the full range of emotions that come with a growing family. Along with the love and excitement you feel with a new baby boy or girl, comes the pressure of new responsibilities and additional financial obligations.

Babies change your life in many ways, including requiring large amounts of time and money. While you may already be thinking about childcare costs and options, or about paying the medical bills that accompanied your new child, there are several other – important – financial considerations you should be thinking about even before the new baby arrives.

Evaluate Financial Priorities. It’s important to consider both short-term and long-term expenses that come with the addition of a new family member. It is a natural impulse, for instance, to want to put your child first and redirect retirement savings into college savings. But remember, you can borrow for college but you cannot borrow your way through retirement. It’s also important to balance long-term goals, like retirement and college expenses, with current financial needs, to help you allocate resources in an appropriate way.

Update Insurance Needs and Your Will. With the expansion of your family, insurance needs can change significantly. Having enough insurance is important in feeling confident about your family’s financial future. Adding your child to your health insurance policy can usually be done with a phone call. Making sure you have enough life insurance for both parents can help ensure you have the funds to raise your child if the unthinkable happens. Short-term disability insurance provides benefits if you have an accident that takes you out of work temporarily. Long-term disability insurance is critical in case a major accident has a permanent impact on your ability to work and earn. While some companies offer disability insurance, it can also be purchased independently.

Updating your will or creating a trust can provide care instructions for your child and allocate resources for their upbringing. Without a will or trust, if you and your spouse die, the state will decide who will raise your children. A will establishes your wishes for who will care for your child. A trust can direct funds specifically earmarked for raising your children and can be an effective way to cover financial expenses and provide for college expenses.

Start Planning For College Early. The sooner you start the better. While it is impossible to know exactly how much you’ll need to save – given that you don’t know what kind of college your child will choose – consider that in 2013-2014 the cost of a moderate in-state public university was $22,826 per academic year and the cost of a “moderate” private university averaged $44,750, according to a College Board survey. ¹

For new parents this means that college could cost over $100,000 for a public college and more than double that number for private school. Instead of trying to fund the entire cost of their education, determine how much you want to contribute. Having children be responsible for a part of their education is often a good lesson in work ethic, even if you can afford to pay for everything, and a critical life lesson if you can’t.

Keep Spending and Debt under Control. When you have an adorable child it’s very easy to overspend. You want them to have the best of everything. Setting a budget and sticking with that can help you keep your spending in line with your established budget. This can also help you maintain the discipline needed to continue contributions to long-term financial goals like retirement and their college education. And remember, the best gift you can give your children – your time and attention – is free.

Another important consideration is debt. When you carry debt, you are paying today for yesterday’s bills. Investing potentially allows you to pay today for tomorrow’s bills. By keeping yesterday’s bills settled and debt to a minimum, you lay the foundations for having enough to enjoy today with your children and plan for tomorrow.

Teach Children About Finances At An Early Age. Finances are a part of our daily lives. When you involve children early on they gain an appreciation for what things cost and how to choose what we want and what we can live without. As soon as your child old enough, start helping save their pennies for something they really want, and teach them that work is part of the process of earning money. These skills, if taught early, can lead to a lifetime of responsible money management.

Parenting is an amazing adventure that changes the way you see yourself and the world. Keeping an eye on finances can provide you with the confidence you need to not only enjoy your growing family but help lay the foundations for a stronger future.

 

¹ http://www.collegedata.com/cs/content/content_payarticle_tmpl.jhtml?articleId=10064

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It’s National 529 Day!

National 529 Day

Friday, May 29 is “National 529 College Savings Plan Day,” to raise awareness about the benefits of college savings plans.

Surprisingly, nearly 70% of Americans are unsure of exactly what types of college savings plans are available. Are you one of them?

If you have children, a college savings plan should be considered as an important part of a diversified long-term savings plan!

With all 50 states and the District of Columbia offering at least one type of college savings plan, many states also offer state tax favored treatment of contributions to those who use their state’s plan. And, in honor of National 529 Day, many states are having promotional offers.

Don’t procrastinate when it comes to your child’s future. Sherman Wealth Management can offer further information and detailed explanations with regards to opening and contributing to a diversified college savings plan. With Sherman Wealth Management’s experience, you can start saving for your child’s future today.

 

 

Withdrawals from a 529 Plan used for qualified higher education expenses are free from federal income tax. State taxes may apply. Withdrawals of earnings not used to pay for qualified higher education expenses are subject to tax and a 10% penalty. Participation in these plans does not guarantee that contributions and the investment return on contributions, if any, will be adequate to cover future tuition and other higher education expenses or that a beneficiary will be admitted to or permitted to continue to attend an institution of higher education. The plan is not a mutual fund, although it invests in mutual funds. In addition to sales charges, the plan has other fees and expenses, including fees and expenses of the underlying mutual funds. The plan involves investment risk, including the loss of principal.

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Discussing Personal Finance is Difficult for Many – but Critical

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Money can be a difficult subject for any of us to talk about, although it seems to be particularly challenging, statistically, for women.

According to a recent study released by Fidelity, 80% of women surveyed said that they had refrained from discussing financial issues with friends or family, despite the fact that over 92% of those surveyed expressed an interest in learning more about financial planning. Among those surveyed, some of the most common reasons given were that money was too personal a topic, it felt uncomfortable to talk about, or it was considered “taboo.” Additionally, women are also more likely to feel that they don’t know enough about the subject to speak about it intelligently. This is despite the fact that studies have shown that women tend to be better investors than men.

Money is, however, a critical subject that we all need to discuss – and discuss often – in relationships. A little while ago I wrote about the 7 Things Married Couples Should Discuss Today, where I talked about why it is critical that married couples go over their finances together. Marriage is not, however, the only relationship that requires having difficult conversations about money.

We need to communicate with our parents and children about money, and even friends, coworkers and extended family members in some cases.

With money playing such an important role in our daily lives, it’s critical that we learn to overcome our desire to avoid the topic and learn how to effectively and confidently communicate about financial matters.

Fortunately there are a few things you can do to make the topic of money easier to discuss:

1. Realize that difficult conversations are sometimes necessary

Whether you need to confront your parents about their retirement plans, your spouse about where to allocate investments, or your children about their spending habits money can be a difficult topic to talk about. By reminding yourself that these are conversations that you will ultimately need to have however you are setting yourself up for success.

2. Find someone knowledgeable about finances who you can trust

No one has all the answers when it comes to money, which is why it is often helpful to turn to others for ideas and suggestions. You should find someone – whether it’s a friend, family member or a financial advisor – who is knowledgeable, who you know has your best interests at heart, and with whom you feel comfortable speaking.

This will give you the opportunity to ask questions, bounce around ideas, and learn and grow. It will also give you the confidence to discuss finances with others.

3. Get educated

One of the best ways to feel comfortable discussing money with others is by learning as much about the subject as you can. Read books, ask questions, and get help when needed. By learning as much as you can, you feel more comfortable giving advice, making financial decisions and having what would otherwise be difficult conversations.

4. Don’t procrastinate when discussing finances

If there is a money-related conversation that you have been putting off, bring it up now or at the next time possible. Don’t wait!

Here are a few more suggestions for important conversation starters:

With your spouse:

  • Family’s budget
  • Retirement savings
  • Saving for children’s college fund
  • Where to invest money

With your children:

  • Allowance
  • Spending
  • Basic financial principles

With your parents:

  • Their retirement plans
  • Location of legal documents including wills, trusts and insurance paperwork

If you’re like most people, chances are there are many other subjects that you need to discuss with those you’re close to. It may be a good idea to contact a financial advisor to help you with these as well as other issues revolving around money.

Brad Sherman is a financial planner in Gaithersburg, Maryland who is committed to helping individuals and families achieve financial independence and gain confidence with regard to financial issues.

Call him today to see if his services are a good fit for your needs.

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