Financial Failings of NBA Legend Antoine Walker

Former NBA All-Star forward Antoine Walker possessed a varied skill-set that enabled him to play both inside and outside. A big man who also shot the three, Walker was notorious for his hilariously erratic shot selection and, later in his career, an aversion to running that led to lazy play.

The quality of financial advice Walker received throughout his career was evidently very close to the quality of his shot attempts, as he filed for bankruptcy in 2010, two years after he retired from the game. In a recent column in the Players’ Tribune, Walker writes a letter to his younger self detailing what went wrong and what he could have done better.

Surprisingly, there are a few money management lessons that anyone—NBA star or not—can apply. (For related reading, see: Do You Need to Change Your Financial Advisor?)

Actively Screen Advisors
Screen advisors before you hire them, and after you do, make sure you know where your money is going. Walker frames his letter with the importance and difficulty of saying “no,” whether to friends asking for money or, most crucially, a friend of a friend who asked for money to start a real estate venture.

The advisor, who Walker met at a dinner with NBA colleagues, started Walker Ventures with bank loans guaranteed by Walker’s personal portfolio, an incredibly risky move. Walker let the advisor have complete control of managing the properties since he was playing basketball nine months of the year. Ultimately, Walker Ventures was forced to close after the housing crash with $20 million of debt. The advisor went to jail, and Walker was forced to file for bankruptcy.

There were a couple ways this could have been prevented. First, Walker didn’t do much due diligence before making the deal. He could have run it by another advisor, who probably would have told him it was structured as an extremely risky venture. Second, because of his schedule, Walker did not adequately check up on the investments.

Many people, particularly young investors, share Walker’s desire to make some money outside of their main job, especially to save for retirement. Finding a financial advisor who is trustworthy, and right for your unique needs, is very important. (For related reading, see: 6 Questions to Ask a Financial Advisor.)

The Upside of Having Someone Say No
Walker’s trouble with the real estate venture was compounded by his reckless spending. While he confesses that he spent lavishly on himself, including a $350,000 Maybach car, it appears that what took the biggest bite out of Walker’s wallet was his spending on family and friends. “I gave them whatever they wanted and spoiled them. You can’t do that,” Walker said in a CNN/Money interview. “It ended up being an open ATM throughout my career.”

While most of us don’t take our friends to a Gucci store and let them buy whatever they want—as Walker has said he did—spending without at least an idea of what is manageable is a problem many people encounter. For young professionals in particular, overspending can seriously hinder retirement saving.

A good financial advisor will do more than simply invest your money. They will incorporate periodic spending goals, major expenditures like vacations, and life events like a new home or wedding into your comprehensive financial plan. Sometimes, this could mean advising against a big purchase for the sake of a long-term goal.

Obviously, we don’t all have $110 million to blow like Antoine Walker. But lackadaisical spending control and being too busy to check on our investments or advisors are traps anyone could fall into. Ensuring that your money is in the right hands is a universally important objective. (For related reading, see: Which Investor Personality Best Describes You?)

This article was originally published on Investopedia.com

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Do You Need to Change Your Financial Advisor?

Financial Advisor

In his song “Real Friends” musician Kanye West raps, “Real friends. It’s not many of us. We smile at each other. But how many honest? Trust issues.” West wonders whether those around him are there because they really have his best interests at heart, or if they only care about him for his money.

Given recent developments in the financial advisory industry, many Millennials might be wondering the same thing about their financial advisor. The Department of Labor (DOL) will soon be enacting a new rule that requires all financial advisors handling a retirement account to abide by a fiduciary standard, which means always acting in the best interests of the client and not the advisor’s or corporation’s profits. It might be surprising, but that is currently not always the case. If your advisor is not a fiduciary, he or she may not be obligated to act only in your best interest. You can read more about the new rule and our take on the fiduciary obligation here.

Opponents of the rule, unsurprisingly the financial services industry’s lobbyists, who largely oppose the rule, point to a study saying that it will decrease access to financial advice for small investors since advisors “cannot figure out how to make money when working with them.” Without the fiduciary obligation, how do advisors currently profit from younger investors? Forbes recently published an article by the Morgan Stanley team where advisor T. Gregory Naples says that with Millennial clients he,

“starts them out in managed mutual funds until they reach $50,000. After that, he often switches them to more transparent and lower-cost stock and bond funds managed by institutional money managers.”

Breaking it Down

This is a huge admission. Let’s break down exactly what Naples is saying. Crucially, Naples admits that, until you hit $50,000 assets under management (AUM), he invests your money in more expensive, less efficient funds. Many of these “actively managed” funds, which try to beat the market’s returns, have higher costs because of labor and number of trades they execute. After this period, once your AUM gets to a point where Naples can more easily make money off of you through fees, he puts your money into more efficient places it should have been all along.

Later on, he mentions examples illustrating the power of compound interest, but neglects to mention that the unnecessary fees you are incurring from the inefficient funds he has invested your money into will eat away at the returns you get from the compound interest. This illustrates the folly of the argument that the fiduciary rule will drive young investors away. Young investors who are just starting out are, in fact, much better off being driven away from advisors with non-fiduciary practices like Naples. Entrusting your money to a non-fiduciary, traditional financial advisor as a young, new investor is like intentionally hitchhiking on a road known for having murderous truck drivers when there’s a much safer road nearby. (Read more about 6 Questions to Ask A Financial Advisor)

People naturally gravitate towards big firms with name recognition. But as the Naples quote demonstrates, these large, non-fiduciary firms may not always be the best option, particularly for young investors. What the back-and-forth over the DOL rule reveals is that non-fiduciary advisors often don’t even really want your money. Most seek accounts with higher balances. So why go where your money is not wanted?

 

This article was originally published on Investopedia.com

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

4 Healthy Financial Habits to Develop Now

4 Healthy Financial Habits

Our habits play a crucial role in our ability to meet our goals and become who we want to be. Bad habits — whether it’s biting our nails, overeating, smoking or something else — create roadblocks on the path to becoming our best selves.

And it’s no different when it comes to our finances. Bad money habits can have damaging, long-term consequences for our financial security. But developing healthy financial habits can do wonders for helping us achieve our long-term goals like saving enough for retirement or paying for a child’s college education.

The earlier you develop healthy financial habits, the better your chances of successfully meeting your goals. Here are four financial habits you should start working on today:

1. Separate spending on ‘needs’ and ‘wants’

This is the first step in developing healthy habits. You need to understand where your money is going and then figure out where you need to allocate it to make the best use of it.

Sticking to a spending plan and avoiding impulse buying is crucial for building a healthy savings plan. Create a simple budget that shows you how much money you are bringing in and helps you understand your monthly spending. Add up all of your expenses that you would consider a need — this includes your monthly savings amount, rent, car payment, cable and internet bill, food, etc. (By including your savings amount in your need category, you create an automatic savings plan for yourself — more on that below.) Subtract that total from your income, and what is left over is your free cash flow.

The remaining money is the amount you have at your disposal for your “want” expenses. At the very least, make sure you are not spending more than that. At the end of the month, if you still have money left over, stick it in your savings or investment account. This removes the temptation to spend it and lets you start the next month fresh again. If you consistently have money left over, increase your savings amount.

2. Set up automatic savings

Creating a consistent savings mechanism will ensure you are saving a minimum amount each month or paycheck, making progress toward your longer-term goals. Whether you are saving into an investment account or your bank savings account, set up an automatic contribution from each of your paychecks so that the money is “out of sight, out of mind” and you won’t be tempted to spend it.

Why is this so important? Without having an automatic savings plan, you could be saving $500 one month and then $0 the next. Although this is better than not saving at all, it is not a good practice to adopt. And remember, you can start small. Even if it’s $100 a month, saving consistently will pay off immensely down the road. 

3. Participate in your employer-sponsored retirement plan

Saving for retirement is one of the most important financial habits you can build for yourself. The power of tax-deferred investment growth over your entire career can really add up. Another benefit with 401(k)s and other retirement plans is that the money you contribute is pretax, which effectively lowers your taxable income, reducing your tax liability today.

If your employer offers a matching contribution to your 401(k) based on your contribution level, it’s especially important to contribute enough to take advantage of this benefit. The employer is basically offering you free money that you would be turning down. For instance, an employer may offer a retirement savings plan to which you can contribute up to 5% of your salary and it will match up to 3% of that. If you don’t contribute at least 3%, you are in effect saying no to a 3% raise.

If your employer does not offer a retirement savings plan, look into opening a self-directed retirement account such as an IRA so you can benefit from tax-advantaged retirement saving.

4. Start investing now

Time is the greatest advantage investors have when it comes to saving and investing early and consistently. With the power of compound interest, even small amounts can really add up over the years. With compound interest, your interest amount is added to the principal, increasing the amount of interest you earn, even if the rate of return does not change. To take advantage of compound interest, the earlier you start saving, the better.

If you can boost your savings rate, you’ll be even better off in the event of a long period of low investment returns, according to Michael Batnick, director of research for investment firm Ritholtz Wealth Management. “Saving more money can offset lower returns because you’re compounding on top of compounding,” Batnick writes. He points to a comparison of two portfolios over a 20-year period, both starting with contributions of $5,000 a year. The portfolio earning an average of 4% annually, with contributions increased by 10% each year, will have $100,000 more in it compared with a portfolio earning 6% a year, with contributions raised by only 5% ($393,153 vs. $293,534).

Prioritize your goals

If you already have these good financial habits, that’s great. If not, the best time to start developing them is now. Everyone will have their own goals and needs, and, unfortunately, not all of those can be satisfied at the same time. You’ll have to prioritize your goals, but once you do, you can start building healthy habits that will allow you to reach them. Separating your needs from your wants, saving early and often, taking advantage of tax-favored retirement savings plans, and investing now can help you build a solid financial foundation and get you where you want to go.

This article was originally published on NerdWallet.com

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Where Millennials Can Turn for Financial Advice

Sherman Wealth Management | Fee Only Fiduciary

We live in a fascinating time. The biggest wealth transfer in history is beginning, as Millennials will soon become the wealth bearing demographic in this county.  Not surprisingly, as we pointed out in a recent blog post, personal finance is a huge issue for many Millennials. But where can a Millennial turn for advice?

Goals, dreams, jobs, family plans, etc. are going to vary widely, but there a few common themes that seem relevant across the spectrum. We constantly write on many of these issues, so decided to summarize the topics for you and answer some of those nagging questions.

 

  • Getting started is often the hardest part. Beginning a savings plan early is key, which makes planning all the more important. We constantly preach the importance of determining your short, intermediate and long term goals and then focusing on creating a plan on how to achieve them. Having the “money conversation” is a great way to get started. Remember, it’s not how much you make, but how much you save. Read more here on getting started with the money conversation.

 

  • Student Loans/Debt – A common financial hurdle for many millennials is navigating student loans. So how do you determine if your focus should be on accelerating the payoff of that debt or maximizing saving instead? We wrote about that here.

 

 

  • Knowing Who to Trust – Even if you understand the advantages of investing in the stock market, it’s not always easy to find a professional you can trust. A recent facebook study shows that over 50% of millennials have no one to trust for financial guidance.

 

FB Study

Source: insights.fb.com

 

A few months back we wrote a piece titled “Why Go Where Your Money’s Not Wanted” that touches on the point of many financial institutions turning down Millennials as clients. Most of the corporate institutions prefer high-net worth clients because it creates “efficiencies of scale” and a higher profit margin on larger trades. As frustrating as the requirement for a high minimum balance is for first time investors, it’s actually one of the main reasons I created Sherman Wealth Management. It was important to me to make sure top notch financial advice was available to anyone and everyone,  particularly to those who are starting out on the path to wealth accumulation. We created this guide to make sure you are asking your potential financial advisors the right questions to determine if they are right for you. – 6 Questions to Ask Your Financial Advisor

 

  • Marriage – Getting married is more than just substituting the word “ours” for “yours” and “mine”. It’s combining your finances, histories, dreams, aspirations, possessions – even your music – and making all of that “ours” too. If you have started to think about marriage, or are married already, there are a few financial discussions you should be sure you have.  Since a significant part of those pre-marital dreams and aspirations involve money, having multiple financial conversations before marriage (or right after, if you’re newlyweds!) can help you start married life on a firmer footing, with regard to financial goals. Here are two blogs we wrote for those getting married or already married.

 

  • Buying a house – There are studies out there saying that Millennials are not buying houses. A prudent home purchase often can be one of the most stable and solid investments a young person can make. So why the hesitation? Some Millennials wonder if given the rate increase and current market turmoil – if this is really the right time to purchase a first home, or if renting makes more sense for you right now? We wrote about this exact topic here.

 

  • Kids – 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 – 5 Planning Tips for New Parents

 

If this all seems overwhelming, don’t be discouraged. Personal finance is a journey and everyone is going to take a slightly different path. Taking the initiative to educate yourself on these topics is a great 1st step.

We are passionate about improving financial literacy in our society which is why we try to write blogs like these that will be useful to those trying to navigate the rocky waters on personal finance. If there are additional topics you would like us to write about, we would love to hear your thoughts! Email us at info@shermanwealth.com.

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Personal Finance – Why Didn’t I Learn That?

I recently returned from a reunion weekend with some of my college buddies. We caught up on wives, kids, work and all the other important parts of our lives. One thing struck me about the conversations, no matter whether I was speaking with liberal arts majors or those who studied corporate finance: While we all know that E=MC2 and maybe even know a fair amount about Einstein’s theory, most of them graduated without having a real clue about personal finance.

In other words, the financial skills we learn in school are not necessarily the ones we need in the real world — at least when it comes to our personal lives.

Personal finance is not typically part of a college curriculum. And while some of us have parents or family members who can guide us along the way, those individuals may not be financial experts, and there is a limit to the help they can provide.

From my experience, most people are interested in financial literacy but don’t know where to go to get started. We all face similar issues, and the less familiar we are with the mechanics of approaching them, the more anxiety-provoking they become.

The younger you learn, the better off you are. When I was in the first grade, I wanted to be Alex P. Keaton, the money-savvy teenager played by Michael J. Fox on the television sitcom “Family Ties.” It was clear early on that I had an affinity for sound saving, investing and growing money. When I was 7, my grandmother gave me a dollar; I turned it into $5, then $50. I am thrilled by the challenge of helping people reach their financial goals at all stages of their lives.

For example, take buying that first home. Your career is on track, and becoming a homeowner seems like an appropriate goal. So with some excitement and anticipation, you decide to start looking.

Then the questions begin flooding in. How much home can I afford? How much should I be saving? When is the ideal time to buy? How does a mortgage work? Will I qualify? What’s my credit score? Do I need insurance? How do property taxes work?

Imagine if there were a course in college (let’s not get crazy and imagine they would teach this in high school) called Personal Finance 101. In addition to the homebuying lessons above, the curriculum could look something like this:

Cash flow and budgeting

Topics covered: What is a budget? How do I create one? How do I know what I can afford?

Building credit and understanding credit cards

Topics covered: What are the advantages and disadvantages of owning a credit card? How should I decide which one to get?

Intro to the stock market and investing

Topics covered: What are the differences in the various investment vehicles — exchange-traded funds, mutual funds, stocks, bonds, certificates of deposit?

Taxes

Topics covered: How do I pay taxes? What do I need to pay attention to in my tax planning?

Future workplace retirement plan options

Topics covered: What is a 401(k), IRA, Roth IRA? When should I start saving? How much should I save?

My guess is that a course like this would be incredibly valuable to many. It’s complicated stuff. It’s important stuff. It’s the kind of stuff that you actually need to know.

This is the main reason I chose to get in this line of work. Younger people have no idea where or how to start, and they have no idea where to find help. Traditional financial management institutions have investment minimums that most of us won’t be able to meet for over a decade, if ever. These minimums can range from $250,000 to $500,000, and sometimes are higher. Even if you were fortunate enough to be accepted by a big institutional investment manager, you’re kidding yourself if you think a large institution is going to take the time to explain to you the difference between a traditional IRA and a Roth IRA.

That’s why I chose to create a wealth management model where we would provide the same customized service to all of our clients, without consideration of a minimum initial investment and irrespective of the size of their accounts. We hope that by investing in you early, you’ll see our value for the long term.

If you are reading this and can relate to some of these thoughts, know that it’s not just you. It doesn’t matter whether you majored in art or corporate finance, you almost certainly did not take a class in Personal Finance 101. The good news is, you don’t have to go at it alone. Seek the help that is out there, and learn what you may have missed in college.

This article was originally published on NerdWallet.com

This article also appears on Nasdaq.

 

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

6 Questions to Ask A Financial Advisor

6 Questions for Financial Advisor

Finding a financial advisor who is right for you is an important process. A good financial advisor is there to prevent you from making decisions that would have a negative, unintended impact on you. Who wouldn’t love to have a financial coach to keep you on track to achieve your financial goals?

Just like with any working relationship, it’s a good idea to interview advisors until you find the one who is the best fit for you, your life, and your financial goals. Since you are entrusting your financial well-being to someone, you should get to know them and their financial planning and investing philosophy before committing to a long-term relationship.

As you may have heard the Department of Labor (DOL) has just released its new fiduciary rule in its final form. We previously wrote about the reasons why someone would oppose this rule considering it was created to improve financial transparency and eliminate conflicted advice from advisors. While this rule would still allow advisors to keep their “conflicted” commissions in some instances, it would require advisors to act as fiduciaries (a.k.a. “best interests contract”) when handling client’s retirement accounts.

We have long been proponents of more transparency and conflict-free advice and feel this is a step in the right direction.

So how does this affect your search for the right financial advisor? Here are 6 questions to ask to help with finding a financial advisor.

1. Are You a Fiduciary? (Are You ALWAYS a Fiduciary?)

As we mentioned earlier, this new rule will only require financial advisors to act as a fiduciary for client’s retirement accounts. A fiduciary is regulated by federal law and must adhere to strict standards. They must act in the client’s best interest, in good faith, and they must provide full disclosure regarding fees, compensation, and any current or potential conflicts of interest.

Until now, broker-dealers, insurance salesman, bank and financial company representatives, and others were only required to follow a Suitability Standard. That means they only had to provide recommendations that are “suitable” for a client – based on age or aversion to risk for example – but this may or may not be in that client’s best interest.

The brokerage industry, as you can probably imagine, and all those who earn their compensation from commissions are strongly against these new rules.

Even with this new law passed, we feel it is important to make sure your advisor is acting as a fiduciary when dealing with ANY of your finances, not just retirement accounts.

 

2. What is Your Fee Structure? (Difference Between Fee-Only, Fee-Based and Commission)

Advisors throw out terms like “fee-based” and consumers assume that is the same as
“fee-only.” That is not the case. At Sherman Wealth Management, we are fee-only which means that we are paid exclusively by our clients, so we are completely conflict-free. We do not get commissions from the investments or products we recommend. We do not get bonuses based on how many clients we get to invest in company products. We are paid an hourly or quarterly fee by our clients who retain us because we are making their money work for them with only their best interest in mind.

Think of it this way: would you want to work with an accountant who also gets commissions from the IRS? Of course not. You want your accountant to represent your best interests. Would you go to a doctor who makes money each time he prescribes penicillin? No, you want your doctor to prescribe what is right for you.

Do not assume that an advisor is following a fiduciary standard with their compensation now. The new rules will not be enforced until 2018. Ask your financial advisor to clearly specify their fees. With many layers of diversification that can be applied to your portfolio, you want to be aware of whether you are exposed to up-front charges, back-end fees, expense ratios, and/or whether a percentage of your returns will be deducted.

 

3. Why Are They Right for YOU?

A financial advisor should be able to tell you their strengths and what sets them apart. Some advisors will advise on investments while others specialize in comprehensive financial planning. While you may think all advisors are the same, and it certainly may seem like that on the surface, by now you should be seeing that is not the case.

Ask how involved they are with their client’s portfolios. Are they hands-on in their approach? How available are they for their clients’ needs?

For us, we enjoy serving a wide-range of clients, from young first-timers who are just getting started with investing and financial planning, to experienced savers, to high-net-worth investors who are well on their way to financial independence.

We strive to understand our clients wants and needs. We help our clients plan for the long term while simultaneously working to avoid short-term roadblocks. We do so by making it a point to SHOW you that you are not alone. We’re just like you, we’ve been there, and we know that financial planning can be an anxiety provoking activity for many. We use a fluid process to help set clear, realistic goals with an easy to understand roadmap of what you need to do to get there. We are right there with you every step of the way.

In today’s world you don’t just want a trusted advisor, you want instant access to your accounts and the progress you are making. That is why we offer some of the best in new financial services technology tools.

[video_embed video=”160946766″ parameters=”” mp4=”” ogv=”” placeholder=”” width=”500″ height=”281″]

The relationship with your financial advisor is an important one. You need to feel comfortable with whom you are working with.

 

4. What is Your Investment Philosophy?

Every financial advisor has a specific approach to planning and investing. Some advisors prefer trying to time the market and actively manage funds versus passive investments. Others may seek to gain high returns and make riskier investments. Your goals and risk tolerance need to align with the advisor’s philosophy.

When anyone invests money, they are doing so with the hopes of growing it faster than inflation. While some traditional investment managers not only want to generate a profitable return, they aim to beat the market by taking advantage of pricing discrepancies and attempting to time the market and predict the future. Some investment companies offer “one-size-fits-all” investment management solutions that only take into account your age and income.

We have a different approach. We believe an individuals best chance at building wealth through the capital markets is to avoid common behavioral biases in the beginning and utilize a well thought out, disciplined, and long-term approach to investing. We create a well diversified, customized portfolio that focuses on tax efficiency, cost effectiveness, and risk management. Read more about how we do this.

Make it a top priority to understand the strategy your advisor uses and that you are comfortable with it.

 

5. How Personalized Are Your Recommendations for Your Clients?

It is important that your financial advisor tailors your financial plan to your specific goals. Your retirement plan and investment strategy should be customized to take into account your risk tolerance, age, income, net-worth, and other factors specific to your situation. There should not be a one-size-fits-all approach to managing your money.

Some traditional brokers and insurance companies are so big that it becomes impossible for them to give you a truly individualized experience. They have a corporate agenda that they must follow and it can restrict the service they provide to you.

As frustrating as the requirement for a high minimum balance is for first-time investors, it has also inspired a new breed of smaller independent Registered Investment Advisors (RIAs), like Sherman Wealth Management. What our clients all have in common is that they appreciate the focus on their own individual goals and best interests that we guarantee as a boutique, independent, fee-only fiduciary.

We know that each client is unique.  We don’t look for “market efficiencies” or work for sales commissions on the products we recommend. Our focus is different. We strive to help investors build a strong foundation and grow with them, not by profiting off good or bad trades. This gives us the opportunity to create individual strategies and plans that are uniquely suited to each client, not just a cookie-cutter plan based on age, income, or broadly assessed risk tolerance.

 

6. Do You Have Any Asset or Revenue Minimums?

Some have argued that the proposed DOL rule will end up hurting the small investor because larger institutions will not be willing to serve small accounts. This logic is fundamentally backward and flawed, as those clients were never on their radar to begin with. In fact, the ability for these large institutions to generate commissions and thus charge more to these small investor clients have driven that business, without regard to the best interests of the individual investor.

For example, In a company statement quoted by Janet Levaux in Think Advisor, Wells Fargo, the most valuable financial institution in the world according to the Wall Street Journal, said that in 2016, “bonuses will be awarded to FAs with 75% of their client households at $250,000.”

Wells Fargo isn’t the only large institution effectively ignoring Millennials and other smaller and entry-level clients. Most of the corporate institutions prefer high-net-worth clients because it creates “efficiencies of scale” and a higher profit margin on larger trades.

The complaints against the new DOL rule have nothing to do with protecting the little guy. Rather, the complaints are driven by the desire of commission-based large institutions, insurance companies, and broker-dealers who are trying to protect their ability to generate commissions and charge clients unnecessary fees.

Make sure you understand your advisor’s motivations. If they don’t want you, why should you want them?

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Why Stock Picking Is a Losing Investment Strategy

roulette

This article was originally published on NerdWallet.com

Picking a stock that goes up 100% in a year is exhilarating. But there’s a problem with this method of investing. Like gambling in Vegas, it may be fun and even rewarding in the short term. Yet in the end, just as the house always wins, picking stocks is a losing game.

I talk to friends all the time who say they invest in stocks — meaning individual ones rather than broad-based index funds that capture the movement of the entire market — and I always wonder why. I think many people see a company that carries a well-known name — maybe they are customers or they hear about it on the news — and they assume it’s a good investment. But history has shown us time and time again that picking stocks of individual companies, and thus trying to determine which will be the winners, is not a good investment strategy.

No company is immune to short- or long-term failure, no matter how good they look in the moment. The company’s value may not go to zero, but it could certainly take a huge hit relative to its underlying industry or index. Just think about how the Standard & Poor’s 500 index has changed in the past two decades. There has been a revolving door among the largest companies in the S&P 500, proving that even the biggest companies out there are not immune to volatility and risk.

Individual stocks vs. an index

As further evidence that picking stocks is risky and ultimately a losing game, consider recent research from financial firm JP Morgan Chase & Co. It compared the Russell 3000 index — which, as the company notes, “represents approximately 98% of the investable U.S. equity market” — between 1980 and 2014 with information on individual stocks. Here are the three main findings:

  1. The risk of ‘catastrophic’ failure among individual stocks is higher than you think. “When looking at how often a stock has what we call a ‘catastrophic decline’ — falling 70% or more and never recovering — we see that 40% of all stocks suffer this fate at some time in their history. And some sectors — like telecom, biotech and energy — saw higher-than-average loss rates,” the report states.
  2. Most stocks underperform over their lifetime. According to the report, “The data shows that two-thirds of all individual stocks underperform over their ‘lifetime,’ as compared to the Russell 3000. On average, the outcome for individual stocks was underperformance of about 50%.”
  3. Concentrated holdings in individual stocks add huge amounts of risk to your portfolio. “When computing the optimal risk-adjusted return for a concentrated holder,” the report notes, “we find that 75% of concentrated stockholders would benefit from some degree of diversification.”

Why investors keep picking stocks

So why do so many individuals keep trying to pick stocks? I see two main reasons.

We all enjoy making money, and we don’t usually associate the word “boring” with something we enjoy. That reason alone likely explains why so many people try to pick stocks. It’s the “sexy” way to invest. But the research is clear that this is not an optimal strategy. When it comes to investing, “sexy” might as well be spelled “sucker.”

Rather, investing should be boring. It’s like baseball: Base hits are the name of the game. By properly diversifying your investment portfolio — picking a mix of asset classes with exposure to many sectors and countries — with a long-term strategy, you allow yourself to take advantage of compounded gains without subjecting yourself to unnecessary risk (i.e., swinging for the fences).

The other major issue is that not all investors understand what they are doing. When you’re stock-picking, you may think that you are diversified by owning five different stocks; but if that’s all you own, you’re exposing yourself to a huge amount of risk by having such a large percentage of your portfolio invested in just one stock or industry. One catastrophic loss could devastate your portfolio.

Diversification

The logical question you might have is, “OK, so what should I do?” While answers are going to vary slightly for each individual, one applies across the board: Diversify. That doesn’t mean owning many different individual stocks in the same sector, but rather spreading your investments throughout multiple asset classes, industries and countries. Proper diversification of your portfolio is key to your investing success over the long run.

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

When A Storm Hits Are Investors Still Gluten-Free?

Empty Shelves

More snow coming?

Get ready for Instagrams and TV reports about empty bread shelves!

Here’s one from my local store before the blizzard a couple of weeks ago:

BreadShelvesNo matter how many people have resolved to stick to a gluten-free diet, that gluten seems much more appealing when a storm is on the horizon and gluten-free bread may get harder to find.

The same thing happens to investors. When the market is stormy, anxious investors often disregard their financial plans and start switching to what they perceive as “staples,’ sometimes at surge prices.

The trick with smart investing, as well smart shopping, is to make sure you’ve got enough of what you need – and want – before the storm hits, not during a run on the shelves. If you’re gluten-free, that means having a pantry already stocked with gluten-free pasta and a gluten-free loaf of bread in the freezer – not to mention beans, rice and tomato sauce – to tide you through the blizzard. It also means sticking to what you know has made sense for you in the past and realizing that two days without bread is not the end of the world – the bread will return to the shelves once the storm has passed.

Likewise, if you know your risk tolerance and have already planned effectively, you’ll have a balanced portfolio that contains the right balance of stocks and other less volatile instruments before a storm hits. With a fully diversified asset allocation strategy, there will be parts of your portfolio that go up, as well as other parts that go down, during times of stress. That way you’ll be comfortable sticking to your investment strategy and plan when the market is stormy. Plus, you’ll have purchased those less volatile instruments before pundits start shouting and everyone starts panic-purchasing.

A good financial advisor will help you build a portfolio strategy that truly for reflects your risk tolerance and, importantly, helps you understand exactly where the risk is in your portfolio. Your advisor will help you understand if, when and why to own bonds, Munis, Treasuries, and CDs, and how much of a cash component makes sense for your particular situation and need for liquidity.

The volatility we’re experiencing, current geopolitical uncertainty (like Japanese negative interest rates), and Federal Reserve uncertainty are all great litmus tests to determine whether you have a properly diversified portfolio and whether or not it’s an accurate match for your true risk tolerance.  If current market conditions or any paper losses you may be experiencing make you feel uncomfortable – or keeps you up at night – it’s likely that your investment strategy does not match your actual risk tolerance and needs to be re-balanced.

If, however, you’ve worked with your financial advisor and are comfortable with where you, then you’re best bet is probably to ignore the noise, ignore the panicking pundits, and stick to your saving and investing plan. Remember, if your investments made sense to you a couple of weeks ago, they probably continue to make sense for you, even during market volatility.

Just like a diversified pantry will help you stick to your nutritional goals when there’s a run on the supermarket, a good fee-only financial advisor can help you create a portfolio that is truly diversified, risk appropriate, and with the exact amount of liquidity that makes sense for your long-term goals, so you can sit back and weather the storm with confidence.

Photo Source: Reuters/Shannon Stapleton

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Do Interest Rates Have You Worried About Buying a First Home?

Guide to Buying Your First Home

Did the recent interest rate hike news cause any delay to your plans to house hunt? Are you wondering – given the rate increase and current market turmoil – if this is really the right time to purchase a first home, or if renting makes more sense for you right now?

Actually, the exact opposite happened. Rates actually fell from 2.3% to 1.55% on the US 10-year treasuries (a common indicator of how mortgage rates are priced), their lowest point since September 2012. If you already own a home with an ARM or 30-year fixed mortgage, this is also a good time to refinance or reduce debt at these low rates.

Remember a house or condo is both a home and an asset that can appreciate over time. No matter what they’re saying on the news, what’s important is what makes sense for your finances, based on your goals and what’s happening in your local housing market.

Here are a few things to consider:

Evaluate your current circumstances:

  • What would your mortgage payment be in relation to current rent? A good rent-versus-buy calculator can be found at Realtor.com
  • Do you plan to be in the area for 5 years or more? The housing market will fluctuate. If you need to sell quickly, you may have to sell for less than desired, whereas a booming market can provide quick sales for a profit.
  • Can you afford the additional costs? The cost of home ownership is more than just the mortgage payment. There are taxes, insurance and sometimes homeowner’s dues that need to be considered, not to mention upkeep, repairs, upgrades, and furniture!

Assess Your Finances:

  • Have a good understanding of what your assets and liabilities are.
  • Consider what you can afford. Being house poor and unable to save for emergencies, retirement, college or other financial goals can create a stressful situation.
  • Speak with a lender about which programs you may qualify for; what a lender will approve you for and how much you can afford may not be the same thing.
  • Take a look at your credit report. AnnualCreditReport.com offers a free credit report from all three credit bureaus. Get one from each bureau and check it for accuracy.
  • Meet with a financial advisor to strategize your financial planning Is it better to make a higher down payment, pay down debt to get your debt to income ratios lower? Or is it better to leave the money invested so the lender includes this in your financial reserves?

Get Pre-approval:

  • Your chosen lender will review your financial information and credit, then make an assessment about how much home you can buy, what down payment is required, and the best loan program. The lender then provides a preapproval letter.
  • A second option is having an underwriter review your completed file, evaluating your income, credit, and financial assets, then providing a pre-approval letter.   Having an underwriter review your file may require application fees and other costs to be paid up front.

Contact a real estate agent:

Start your search online to help narrow down location and potential neighborhoods. This can save time (and therefore money) by giving you a sense of where you want to live and what is available in your price range.

  • Pay attention above all to location: be sure you are within an acceptable commute to work, schools and other activities that you will be involved in on a regular basis.
  • Consider resale value: do not buy the most expensive home in the neighborhood.
  • Consider how you want to use your financial resources: fixer-uppers are the best bargains but take both cash and time to complete.

Buying a home is an exciting decision and can result in a solid investment that appreciates over time. Whether or not this is the right moment to purchase is something you should evaluate carefully with your financial advisor, based on your current financial plan and your long-term goals, not based on the news or economic “predictions.”

While interest rates may have risen slightly they are still at historic lows, so don’t miss out the opportunities that a low-interest rate environment offers homeowners and prospective homeowners.

***

 

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Still haven’t won the Powerball?… Now what?

Powerball

Still haven’t won the Powerball/? You may have to postpone that fantasy of buying a private island in Thailand, but that doesn’t mean you can’t still be on your way to achieving your financial goals and dreams.

Here’s one way to do it – take that money you’re sinking into lottery tickets and invest it instead.

Why are so many people willing to waste hundreds of dollars on a lottery they won’t win instead of investing it in capital markets that have shown growth over time? Many reasons. For some people, the hardest part of saving and investing could be just getting started. For others, it’s not understanding the benefits of compound interest and that even small amounts add up over time. For others it may be fear of volatility and distrust or the markets from listening to too much CNBC, Fox Business, and Bloomberg!

While it’s true that markets have dipped significantly in January, market dips are a potential opportunity to buy low and earn higher returns over time. The bottom line is that, for most people, even those starting with modest amounts, keeping money in cash is generally not a winning proposition.

Here’s why:

Lets say you are contributing $250 each month ($3k/yr) to your 401k plan with a 100% company match and invest it in a diversified basket of stocks and bonds based on your risk tolerance. At the same time, you save and invest $20 a week (the cost of 10 Powerball tickets a week) in a regular investment account. Assuming historical 4.8% annual returns*, here is how your money will grow over a 20-year period (in today’s dollars) vs. saving the same amount as cash:

Picture1

*based on a diversified portfolio that assumes the following weights: 25% in the S&P 500, 10% in the Russell 2000, 15% in the MSCI EAFE, 5% in the MSCI EME, 25% in the Barclays Aggregate, 5% in the Barclays 1-3m Treasury, 5% in the Barclays Global High Yield Index, 5% in the Bloomberg Commodity Index and 5% in the NA REIT Equity REIT Index. Balanced portfolio assumes annual rebalancing. All data represents total return for stated period. Past performance is not indicative of future returns. Data are as of 12/31/15. Annualized (Ann.) return and volatility (Vol.) represents period of 12/31/99 – 12/31/15. Source: Page 59 https://www.jpmorganfunds.com/blobcontent/202/900/1158474868049_jp-littlebook.pdf

So go ahead and keep dreaming about that island! But first speak with a financial advisor about your current situation and future goals and what the best steps are to start working towards financial freedom.

And when the next Powerball comes around? Our guess is that a good financial advisor can help you find better ways to let that $2 grow for you!

 

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.