Investing Archives

Do You Share These 4 Habits of the Wealthy?

In his book “Rich Habits: The Daily Success Habits Of Wealthy Individuals,” author Thomas Corley outlines what he learned when he surveyed both wealthy and struggling Americans about their habits and attitudes.

Here are a few “rich habits” he identified that are worth integrating into your professional, financial, and even personal life, to help you on the road to achieving your own goals.

The Wealthy are Goal-Oriented

Corley found that 67% of the wealthy people he surveyed put their goals in writing, 62% of them focus on their goals every day, and a whopping 81% keep a to-do list.

It’s hard to reach your goals if you’re not focused on them and they’re not your top priority, and it can be daunting to have too many goals (one reason so few people are able to keep their New Year’s Resolutions.)

A more productive approach is to prioritize one important goal, create a plan of actionable steps that help you accomplish that goal, then add those steps, tasks and habits to your daily to-do list. These three simple steps will give your increased focus and will help you move closer to that goal.

Once you’ve incorporated them in your daily routine, identify a second goal and follow the same plan. The key to success is taking it one step at a time!

The Wealthy Use Downtime Wisely

At the end of your workday, do you like to relax with Netflix, video games, or YouTube? According to Corley’s data, 66% of the wealthy said that they watch less than an hour of television a day, 63% spend less than an hour a day on the Internet unless it is job-related, an impressive 79% say they read career and educational material each day, and an equally impressive 63% said “I listen to audio books during the commute to work.”

While we all like to relax and recharge with entertaining media, that time can never be recovered for things that help you become a stronger, more successful individual like reading, networking, exercising, or volunteering for a cause you believe in.

Time is the great equalizer: we all have 24 hours a day. What you choose to do with that time can either help you to reach your financial and life goals, or distract you from it, so choose wisely!

The Wealthy Invest in Their Future

Corley’s research also showed that the wealthy live within their means, pay themselves first, and don’t overspend.

Building wealth is not accomplished by upgrading to each new electronic gadget, leasing the newest model car, and living in an extravagant home. The wealthy, according to Corley, spend less than they earn, own and maintain their cars for many years, and save a significant portion of their income. While saving money and living modestly is not as sexy as a flashy smartphone, it will go a lot further toward providing a comfortable future.

Living within your means also includes not carrying credit card balances or heavy debt. When you are carrying debt, what you earn today is paying for yesterday’s expenses. Living within your means while saving and investing a portion of your income lets you invest in tomorrow, rather than yesterday, while learning to be satisfied with what you have today.

The Wealthy are Willing to Take Risks

Another fascinating finding of Corley’s research is that 63% of the wealthy people he interviewed said they that they had taken risks in search of wealth, while only 6% of the struggling Americans he interviewed said that they had taken risks.

For many, fear of failure is a great de-motivator and can be paralyzing. When you do not fully understand something, whether it’s a challenge, a potential project, an investment, or even a social problem, it can be easier to do nothing than to act. But without risk, there is often no reward.

What Corley discovered is that, instead, rather than fearing failure, the wealthy consider failure to be part of the process and – most importantly – an opportunity to learn.

How can you face risk without fear so that you can seize potential opportunities? Educating yourself is the key step. Researching the investment, the project, or the choice, and learning about the options and risks, help keep fear and anxiety about the unknown from clouding your decision-making process.

Even with the best preparation though, choices don’t turn out as envisioned. When that happens, take a page from the wealthy: learning from those failures and experiences will lead to more opportunities and better choices down the road!

Are Your Own Habits Setting You Up for Success?

While following each of these habits may not make you rich, they will certainly help you get into a success mind-set. 68% of the Americans on Forbes billionaire list consider themselves to be “self-made billionaires,” which means that they worked hard to reach their own professional and financial goals. The true route to financial success is through discipline and steady habits that grow your net worth over time.

Do you already share these four habits of the wealthy? If so, congratulations on your focus and your commitment to success. If not, try adopting one – or all four – of these important habits and see if it doesn’t get you closer to achieving your own goals!

With over a decade’s worth of experience in financial services, Brad Sherman is committed to helping his clients pursue their financial goals. Contact Brad today to learn more about how you can better pursue yours.

Learn more about our Financial Advisor services.

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Not Investing Yet? Here Are 4 Simple Steps To Get You Started

Close your eyes for a moment and envision where you’d like to be in 30 or 40 years… Are you sailing to Tahiti? Writing that book? Running your vineyard? Building a new company?

If you had trouble envisioning where you’d like to be, you’re not alone. But unless you can visualize it, unless you’ve got your destination planned, it can be hard to get there. That’s why it’s so important to start thinking about what your goals currently are – whether it’s for yourself, your career, your startup, your art, and/or your family – and take the first – or the next – steps to invest in your future.

What does investing mean? Very simply, it means putting your money somewhere you expect it to grow. It can be traditional stocks, bonds and mutual funds, or real estate, collectibles, annuities, and other things that are expected to gain value over time.

When you’re just starting out, thinking about – and setting aside money for – your future can feel like a challenge; when you’ve just set up your first lemonade stand and barely breaking even, it’s hard to think about re-investing part of your profits in lemon groves that will someday produce income for you.

The trick is to overcome inertia, get started, and make a commitment, even if it’s just a tiny first step.

Inertia is not your friend

Inertia is one of the biggest reasons people waste opportunities to started investing when they’re young.

Objects at rest tend to stay at rest:

If you’re not investing yet, or if your money is sitting in a non-income producing bank account it can be hard to get started or get moving.

Objects in motion tend to stay in motion:

If your money is constantly in motion, if you’re spending everything you make, or if your money is following the crowd to the next big glamour stock, it can be hard to slow down and take stock with a Financial Planner to build a solid foundation.

A study by Hewitt Associates found, for instance, that only 31% of employees in their 20s invest in their company’s 401K plan¹. That means almost 70% of young employees who could be investing in a matching 401k plan haven’t started taking advantage of what is essentially free money. Whether inertia is keeping them from getting started, or inertia is keeping their money in motion so that there’s none left over to invest, they are not only leaving free money on the table, they’re not letting that money grow through compounding.

According to an article in US News and World Report, if you start investing just $100 a month in your 20s, increase contributions as your income increases, and make good financial decisions along the way, you are on your way to potentially retiring with over 1 million dollars.²

How Do You Get Started?

Here are four simple steps to get you past inertia and get you started.

Find your motivation

We are all passionate about certain things. The more you care, the more focused you are about achieving your goals. Make a list of the things that are important to you and the things you want to achieve.

Find extra money

There are only two ways to “find” money – spending less or making more. While it may seem daunting – inertia again! – you’d be surprised by how easy it is to discover places you can cut back a little or spend a little less. And, while you have a lot more control over your spending than your earnings, you can also look for ways to find extra sources of income, work more hours, or even get a better paying job.

Move financial goals up

If you plan to save “whatever you have left” or “whatever you’ve saved” at the end of each month, don’t be surprised by how little that actually is. We all have a tendency to spend what we have, and spend more as our income goes up. You can avoid that pitfall by paying yourself first. When you prioritize saving in your budget and take that money “out of circulation,” your spending will fall in line.

Get advice from an adviser you trust

The world of finance and investing can be complicated and confusing. Don’t let fear of the unknown keep you from getting started. You don’t need a large amount of savings to meet with an adviser who can answer a lot of your questions. Getting a roadmap from someone who knows the territory will help you get started and may allow for a smoother journey.

Investing in your future is an investment in yourself. If you take these four simple steps, even with limited assets, you’ll be laying the foundation for a lifetime of investing in your own plans and goals, and your own vision of financial freedom.

All investing involves risk, including the possible loss of principal. There can be no assurance that any investing strategy will be successful. Investments offering higher potential rates of return also involve a higher level of risk.

Learn more about our Investment Management services.

Related Reading:

What is Dollar Cost Averaging?

5 Things Investors Get Wrong

5 Big Picture Things Many Investors Don’t Do

Behavioral Investing: Men are from Mars and Women are from Venus!

¹http://www.bankrate.com/finance/financial-literacy/retirement-planning-for-20-somethings-1.aspx#ixzz3JfVGNIYk
²http://money.usnews.com/money/retirement/articles/2012/07/30/7-ways-to-retire-with-1-million

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Are You Making These Two Critical Investment Mistakes?

It’s no secret: getting an early start on saving and investing is one of the most important things you can do for your future! Putting money into the market when you’re young – even small amounts – gives your investments time to grow and compound over time.

Unfortunately, too many millennials haven’t gotten started yet. A recent survey by Bankrate found that only 26% of Americans under 30 were invested in the stock market, compared to 58% between the ages of 58 and 64. (1)

While the stock market has historically seen positive returns over the long run, it’s not hard to understand why many millennials are wary of it. Millennials under 30 have seen two major market crashes: the tech bubble of the late 1990’s as well as the 2008 economic crisis. Many saw how family members and friends lost years worth of savings and were often financially devastated by what happened.

The result: a deep distrust of Wall Street and a desire to avoid the market altogether.

While it is understandable that millennials are wary about putting their earnings into the market, it’s also unfortunate.

In spite of the two crises of 1990 and 2008, if you had invested in the S&P 500 at the beginning of 1985, and kept that money in until the end of 2014, you would have earned over 25 times what you had initially invested. (2) (3)

Even saving just a small amount each week or month would have made a tremendous difference in your retirement savings.

The Second Mistake

While many millennials make the mistake of investing too little in the market, others make another critical mistake. While they may be making regular contributions, they may not be invested in a wide enough variety of securities.

The youngest generations have grown up with access to the internet, social media, online financial media, and the tools to invest in any publicly traded security that they choose and they feel empowered to make investment decisions on their own, without consulting a professional. They’re also able to trade information with friends and make changes to their portfolio in a matter of seconds using their smartphone or computer.

Because of this, millennials are often invested in individual hot stocks, companies they believe in, or companies that sell products they use and like. This can (and will) work for some investors sometimes as a result of sheer luck and the law of large numbers, but it is not a consistent – or wise – strategy to rely on.

Buying What’s in the News

In 2007 researchers at UC Berkeley and UC Davis published a paper where they showed that individual investors have a tendency to buy stocks that had recently been in the news, or that had share prices that had recently gone up (4). By buying these “hot” stocks, new investors were forced to bid up the price to a higher level than they were before the news story came out. The study showed that, because these investors were buying at an artificially higher price, their portfolios ended up performing poorly as a result of having bought these ‘hot stocks’.

Additionally many millennials choose to engage in “socially responsible” investing, avoiding stocks in companies that sell products they don’t believe in, or that engage in business practices they feel are undesirable, and putting their money in companies that they believe in and feel good about.

Unfortunately, this too can have a negative impact on their returns over the long run. By focusing so narrowly, their portfolios are missing a major piece of the market, which limits their diversification. Additionally social responsible investments can have higher fees than their non-SRI counterparts, because they have the added cost of screening out stocks based on certain criteria.

Along with the added costs, and the decrease in diversification that result in focusing only on SRIs, researchers from Princeton and New York University published a paper in 2009 that showed that ‘sin stocks’ have historically outperformed their non-sin counterparts. (5)

Whether you are choosing to invest your money in a single stock, or several stocks, or you choose to invest in a SRI investment, you are limiting your investment choices, which in turn limits your level of diversification and possibly your returns over the long run.

Bottom line: if you avoid these two critical mistakes by starting to save – and invest – early, and by making sure your portfolio is diversified, you’ll be setting yourself up to watch your money grow over time.

Broad-based investment vehicles with low fees and high levels of diversification, if appropriate to their specific circumstances, is one strategy to help clients toward their goals.

http://www.cnbc.com/id/102602094
http://www.moneychimp.com/features/market_cagr.htm
The S&P 500 index is representative of domestic markets and includes the average performance of 500 widely held common stocks. Individuals cannot invest directly into an index.
http://faculty.haas.berkeley.edu/odean/Papers%20current%20versions/AllThatGlitters_RFS_2008.pdf
http://pages.stern.nyu.edu/~sternfin/mkacperc/public_html/sin.pdf

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It’s 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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One Secret to Investing: Do Less

We’ve all been tempted. Whether there’s a hot new sector that seems to be on fire, or a classic U.S. company that seems poised for a new burst of life, or, worse, a pundit who keeps warning us not to get caught flat-footed.

It’s human nature to be attracted to the next shiny new thing. My 2-year old son was perfectly happy playing with his trusty push truck, for instance, until he got a shiny red Matchbox car for his birthday and abandoned the – still very serviceable – truck.

It’s also human nature to try to catch winners on the way up and want to abandon the underperformers. But that doesn’t mean it’s always a good idea.

While the market as a whole has done quite well over the last 20 years – the S&P 500 has returned approximately 9.9%, and a diversified portfolio of 60% stocks and 40% bonds would have returned 8.7% [1]– the same can’t be said for the average investor.

During the 10 year period from 2003- 2013, the average investor’s portfolio only returned 2.6% annually, [2] barely a quarter of what the S&P returned, and not much higher than the rate of inflation.

What’s the reason for this underperformance?

By trying to beat the market by chasing performance, by trying to time markets, and by overpaying in fees, investors hurt their returns significantly.

Chasing Returns

When a particular investment is performing well, investors often get excited and invest more, causing the price to continue to climb. As it does, more investors are attracted to its returns – even as the stock becomes more expensive – causing the price to rise even more.

Eventually however the investment will return to its intrinsic value, and fluctuate slightly around that number.

When that happens, the investors who tried to chase performance and bought on the more expensive upswing, will lose money or underperform the market.

Timing the Market

It is not surprising that investors try to time the market. If we were able to predict when markets would top and when they would bottom, we’d all be enjoying extraordinary returns. In reality, however, very few people who try to time the markets actually succeed.

According to Morningstar, market timing costs the average investor 1.5% annually. For a hypothetical portfolio that returned 8.7% annually, a 1.5% additional ‘expense’ ends up eating up over 17% of the investor’s returns.

Warren Buffet once said, “the only value of stock forecasters is to make fortune tellers look good.” Famed investor Peter Lynch said, “Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves”. [3]

If Warren Buffet and Peter Lynch don’t believe in trying to time the market, and studies have shown that strategies that try to time the market have very low success rates, it’s a good sign that you’re probably better off not trying too.

Overpaying Fees

If you are chasing returns, and trying to time the market, chances are you are making more trades than you would with a buy-and-hold strategy. That means you are paying more fees, which also affects your overall rate of return negatively.

A Potential Solution

The smarter approach may be to do less. Investors have historically hurt their returns by over-trading. Looking at your portfolio too often or constantly checking up on how the markets are doing can be detrimental to your finances if you are prone to reacting too impulsively. Rather than trying to time the market, or always buying the next hot stock or asset class, investors tend to have more success by taking a hands off approach.

Yes, his red Matchbox car is shiny and bright. But, as my son grows up, I hope he’ll learn to value the tried and true as well. And smart investors do the same, thinking carefully before they leap into the next big thing, or try to catch the current wave and ride it to the top.

Sometimes doing less is doing more.

It may be helpful to speak with a financial advisor to determine if your current portfolio and your current strategy are appropriate for your individual investment needs.

1) https://www.jpmorganfunds.com/blobcontentheader/202/900/1158474868049_jp-littlebook.pdf (page 65)

2) http://www.forbes.com/sites/advisor/2014/04/24/why-the-average-investors-investment-return-is-so-low/

3) http://www.nytimes.com/2014/01/28/your-money/forget-market-timing-and-stick-to-a-balanced-fund.html?_r=0

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Navigating the Stock Market: Tips for Millennials

Navigating the stock market can be daunting for anyone, especially if you’re new to investing.

Between struggling to pay off student loans, finding jobs in a difficult market, and setting goals for financial independence in a stressed market environment, it’s been a daunting few years in general for many Millennials, who may have put off investing because they just don’t feel comfortable or ready.

Feeling comfortable with investing – and understanding how the stock market works – is critical, however, as you start gaining independence and start making important financial decisions. If you get started now, you’ll be maximizing your chances of hitting those marks on your way to achieving your goals!

Here are some basic tips to help you get started.

7 Tips For The Long Term Investor

● Start today: Procrastination can put a large dent in your ultimate savings. Whether you’re investing in a retirement savings plans or a regular investment account, it’s important to start early so that your investments compound. Remember, even small amounts add up over time!

● Create a plan and stick with it: There are many ways to be successful and no one strategy is inherently better than any other. Once you find your style, stick with it. Bouncing in and out of the market makes is just as likely you will miss some of the best days and hit the worst. Readjust your portfolio when necessary, but not too often.

● Think long term and be disciplined: Be prepared to buy and hold your positions. Big short-term profits can be enticing when you’re new to the market but short-term wins will get you off track. Start a program, stay invested, and don’t be too concerned with day-to-day profits and losses. Warren Buffet once asked, “Suppose you’re going to be investing for the next several years. Do you want the price of the stocks to go up or down?” While everybody assumes it’s “up,” in reality, it’s only people who are withdrawing in the near future who really want stocks to go up!

● Do your research: Always be an informed investor. Do your own due diligence with companies you’re interested in. Don’t go for a ‘hot tip’ just because there’s a lot of buzz; research companies, get advice, and decide if they’re investments that are right for you.

● Never let your emotions influence you: The markets move in cycles. When the markets are up, we feel elated about our investment decisions. When markets start to move down, we may experience anxiety and panic. Reacting emotionally can lead to spur of the moment decisions that don’t benefit you in the long run. Again: think long term.

● Always have a margin of safety: The first rule anyone new to investing needs to learn is that there are no guarantees in the stock market. An investment that looks great on paper does not always pan out in real life. Know how much risk you are willing to take and make sure your investments are aligned with your risk tolerance.

● Diversify: Never put all your eggs in one kind of basket. It’s important to make sure your portfolio includes both stocks and yield-producing assets, such as bonds, to cushion you against market volatility. Diversification doesn’t just mean investing in multiple companies either; investigate ways to invest in different markets, bother national and international, as well.

One final tip: find an experienced financial planner you trust, who “gets” you, your goals, and your timeline, and who can guide you as you invest in your future.

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

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

Financial Planning for Millennials: Overcoming the Fear Factor

What do you think of when you think of Millennials? The media loves to paint Millennials as “adventurous”, “risk takers,” and “thrill seekers.” But, surprisingly, when it comes to financial planning for Millennials, their behavior is anything but risky.

In fact, there is evidence that, while emotions and biases play a large part in Millennials’ investment decisions, fear leads the list of behavioral influences.

We Millennials grew up during the Internet crash and have witnessed one of the most turbulent market cycles in recent U.S. history. With the financial crisis of 2008, and the housing bust leading to a recession, many of us have watched our parents struggle with financial security and worry about whether they’ll ever be able to retire. Many recent grads have experienced unemployment as a result of the crisis, and many are burdened with significant student loan debt. Good times? Not.

These experiences during their impressionable years have led many Millennials to take an emotionally driven approach to Financial Planning for Millennials and to adopt conservative money habits that analysts have compared to the investment behavior of young adults during the Great Depression.

They tend to be wary of investing in equities, for instance, resorting to a behavioral bias that favors peer narratives and unscientific anecdotes – such as stories of retirement-age people whose nest eggs were destroyed by the financial crisis – over careful data analysis.

In May 2013, Wells Fargo released the results of a study surveying more than 1,400 Millennials, that found that Millennials view the stock market, and most investments, as a risk not worth taking. More than half of Millennials are “not very confident” or “not at all confident” about the stock market and many of the Millennials who do consider investing in stocks see the market as a short-term investment. The survey also found that Millennials’ primary concerns were student loan debt and paying their monthly bills.

In fact, Millennials have not only taken on more student loan debt than any previous generation but they continue to struggle in a challenging job market. With many Millennials remaining unemployed or underemployed, and with bills and debt as their top priorities, they have very little disposable income for investing. Many, according to a Pew Research poll released in October 2013, did not even begin thinking about saving or establishing a 401(k) until about five years into their careers.

Additionally, a UBS Wealth Management survey report featured on Bankrate.com found that, more 39% of the Millennials surveyed – more than any other age group – said that cash is their preferred way to invest money that they don’t need for at least ten years. That’s three times the number who chose to invest in the stock market, despite the fact that the S&P 500 has gained 17% over the past year while most cash investment yields remain below 1%.

The Danger of Playing it Safe

The problem with short-term stock investment approaches and dipping in and out of the stock market is that it can work against investors, because short-term investments may be subject to a higher rate of volatility. Instead of looking at the long-term data, which shows that stocks typically outperform other more conservative asset classes over the long run, those young investors are fearful of the short-range volatility, clouding data about the positive potential of long-term investing.

That reluctance to get into the market can be problematic for long-term portfolio growth because, without the returns from stocks, it can be difficult to reach savings and retirement goals.

Bigger is Not Always Better…When Finding a Financial Advisor

With the crash of the big banks and the negative publicity surrounding Wall Street financial firms, Millennials became a generation that looked at financial professionals with mistrust. Instead, they rely more heavily on the Internet, social media, and personal networks for financial advice. Their experience with market volatility and lack of job security has had a significant impact on their attitudes and behaviors toward investing. With very little disposable income after bills and debt payment, Millennials want to feel a sense of security with their investments.

When it comes to working with a financial professional, ‘old school’, traditional banking services are of no interest to them. Bigger is not better in their minds; a smaller, more independent financial planning firm may be able to offer a more hands-on and collaborative approach to investing that Millennials feel more comfortable with.

It’s important to Millennials that they find someone they can trust and who can relate to their concerns and be open to new ideas and methods of investing. Sherman Wealth Management understands that being a part of the investing process is a must in financial planning for Millennials. We fill a role for clients who can no longer relate to, or trust, the large financial institutions that once held a stronghold in the marketplace. The professionals at Sherman Wealth Management provide a personalized plan for investing and help our clients navigate through the difficulty of prioritizing financial obligations.

Remember how it was the overconfidence of the large financial firms and irresponsible investors that brought us the financial crisis in the first place? That Millennial reluctance to let history blindly repeat itself may turn out to be a pretty good thing after all!

Learn more about Financial Planning for Millennials and our Financial Planning services.

Having the Money Conversation

Millennials have a tremendous advantage over their Baby Boomer parents because they are comfortable talking about money. Having grown up with social media and the internet, this generation is not as private as their parents and grandparents are, especially about subjects like money and finance. The advantage is that open conversations can reduce fears and increase understanding, which can result in better decision making.

Yet, with all this comfort in discussing financial matters, many Millennials are hesitant to meet with a financial advisor. It’s one thing to gather information from family and friends or read articles about investing, it’s another to discuss your personal information with a financial advisor. That’s when it moves from theoretical to personal and that can create a great deal of fear and discomfort.

Why Fear Gets the Best of Us

How Much Do You Really Know About Finances? As educated professionals, it’s common to feel like you should know everything. After all, if you don’t understand it, a few internet searches should provide the answers!

When it comes to money matters, though, many Millennials feel like a fish out of water. Internet searches can provide information that’s both confusing and conflicting, and that doesn’t answer individual questions about strategy and direction.

Then there is the question of what information can be trusted. Is the site legitimate and can the writer’s – and site’s – motivation be trusted? While financial information is plentiful, much of it’s either very general or coming from a sales site that promises a secret formula that will turn you into a millionaire.

Financial decisions by nature are very individual and personal. Because there’s no one-size-fits-all investing strategy, personal consultations are invaluable.

Advisor motivations. Can the advisor be trusted? A trusted advisor needs to understand your circumstances, goals, dreams, and aspirations. Once they do, they can help to create a long term strategy that will help to make those dreams a reality. But you must be able to trust that your advisor will make recommendations that are most beneficial to you, the client, not the best for them, the advisor.

Addressing these concerns in an open conversation will go a long way. No one wants to be sold a product. We all want to invest money in a sound strategy. Understanding the reasons for the recommendation will help you understand how it may benefit you and help you pursue your long term goals.

Fear of not being understood. As complicated individuals we want to appear like we have everything in order. In reality, sometimes we’re confident, other times not so much.

Financial advisors have seen nearly every level of financial preparedness. They have seen financial messes and worked with clients to get things corrected. They have seen strong portfolios, weak portfolios, no portfolio, and everything in between.

Even if you don’t feel you have all your ducks in a row, an advisor can help. If you’ve made bad decisions in the past, they can make recommendations for corrective action. If you’ve been unable to get things in order on your own, working with a professional can be the fastest way to get on track.

Markets not doing as expected. This can go two ways. If you invest conservatively and the market takes off you might end up kicking yourself for not being more aggressive. If the markets are slow and you invest aggressively you can end up wishing you’d been more conservative.

When you meet with an advisor, you’re meeting with a professional who understands the investment business and who can make recommendations that are consistent with your financial goals. An advisor does not have a crystal ball; remember that long term investing is not about beating the markets, it’s about making strong financial decisions that over time will lead to increased confidence in financial matters.

Pulling the Trigger

The first step is always the hardest. This is true whether you’re trying to establish a workout routine, learn a new language, start a new job, or change your investing strategy. Resisting change is natural and we are creatures of habit. However, there comes a point when, in order to grow and progress, we have to stop making excuses and get started by meeting with a financial advisor.

Make the appointment. Even if you don’t think you know enough, have enough money to invest, have a good enough paying job, or whatever the excuses for delays have been.

Before you meet with the advisor, write down questions you have. What things have you heard and what things do you want to understand. This can guide the conversation as you begin to develop a relationship with an advisor.

A financial advisor at Sherman Wealth is someone you’ll want to get to know! You’ll want them to know everything about you and your family’s needs. As your advisor learns more about you, they’ll be able to make the appropriate recommendations as opportunities arise.

Learn more about our Financial Advisor services.

What is Dollar Cost Averaging?

The concept of dollar cost averaging is investing a set amount of money at regular intervals. This might mean a percentage of every paycheck that is used for investing or a specific dollar amount. You might start with as little as $50 a month or $50 a pay period and that will begin to create a portfolio that pays for future needs.

Advantages of Dollar Cost Averaging

1) Establishes a habit of investing. One of the largest benefits is you begin to pay yourself first and take care of future needs today. Establishing a habit of setting aside a little money for tomorrow will help you live within your means, have more thoughtful budgeting, and be better prepared.

2) The investment is built into your budget, and you learn to live on what remains. The interesting thing about money and finances is that you tend to spend what you have. If there is a little less in the account each month you will adjust spending to accommodate for what you have. Even if it does not appear that there is money for investing you might be surprised how easy it is to “find” a small amount that can be earmarked for investments. A simple thing like bringing lunch twice a week instead of eating out can result in saving over $50 a month to use for investing.

3) Dollar cost averaging purchases shares at a set time each month regardless of where the investment price is. This means if the price is lower you purchase more shares. If the market is higher less shares are bought. The result is a greater tolerance for market fluctuations because you gain a better understanding that the markets move every day.

4) No Large Sums Required to Begin. Dollar cost averaging can be started with small amounts of money. One possible strategy is to increase monthly contributions at least annually. The more you raise the contribution amount the larger and faster your investments may grow over time.

5) Flexibility. Monthly contribution amounts can be changed at any time. The amounts can be raised or lowered depending on life events that impact your budget. In a perfect world the contributions would always increase, but sometimes that does not match real life events. The ability to adjust contributions reduces risk and allows for greater flexibility to meet current demands.

6) Great long-term strategy. Building a portfolio from the ground up can be accomplished through dollar cost averaging and regular contributions. Your investment should grow over time through both additional contributions and portfolio growth. As you receive bonuses or other financial windfalls you can make additional one time contributions as your finances allow.

When it comes to investing there are no short cuts. Starting early and making regular investments will help to provide financial security and accounts that will build over time. When you start early you are less tempted to take on more portfolio risk and are better able to reach long term financial goals.

The future is uncertain and setting aside a little each month to pay for long term financial needs is one of the soundest ways to pursue financial security.

“Dollar cost averaging does not protect against a loss in declining markets. Since such a plan involves continuous investments in securities regardless of the fluctuating price levels, the investor should consider his or her financial ability to continue such purchases through period of low price levels.”

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5 Things Investors Get Wrong

Humans have a tendency to behave irrationally when it comes to money. Here are the five things investors get wrong that can harm their returns.

Believing They Will Beat the Market

Study after study shows that investors, including professionals, continually under perform the S&P.

In their most recent SPIVA (S&P Indices vs. Active) report, released in September, McGraw Hill Financial found that more than 85% of all funds underperformed the S&P 500, the index found to represent the overall market. (1).

What’s scarier is the fact that individual investors do even worse. In a 20 year study conducted by Dalbar, a financial services research firm, the average investor has seen a return of just 2.1% compared with the S&P’s annualized return of 7.8% (2).

What causes this under performance?

According to Dalbar the biggest reason for this under performance by investors is due to irrational behavioral biases. These include panic selling, under-diversifying, and chasing momentum (3).

Chasing Hot Stocks

In a study done by the University of California Berkley, as well as UC Davis, researchers found that investors are much more likely to purchase shares in companies that have recently been in the news (4), bidding the price of these stocks up.

Additionally many investors make the mistake of trying to chase performance by buying investments that have already risen significantly. A 2011 study by Baird, a wealth management firm, suggests that investors generally chase short-term performance by buying funds that have risen in the short run, and selling those that have performed poorly (5).

The same can be said about the market as a whole where investors tend to purchase stocks after they have seen a large rise, and subsequently sell into weakness (6).

In short, investors sell low, and buy high.

Ignoring Fees

You probably know that fees are important, what you may not realize is just how important they are.

Take for example two 30-year-old investors who each contribute $5,500 annually to their IRAs. They both achieve 9% annualized returns, before fees, over the next 35 years. The only difference between them is that one investor pays annual fees of .5%, while the other investor pays 2.5% in total fees. Over the course of their working career, investor A will have accumulated $1,059,859.21 in their account while investor B will have $682,190.80.

This is a hypothetical illustration only and is not indicative of any particular investment or performance. Return and principal value may fluctuate, so when withdrawn, it may be worth more or less than the original cost. Past performance is no guarantee of future results.

In this example, Investor B’s IRA will be worth less than 65% of Investor’s A account as a result of a 2% difference in fees!

Not Re-balancing

While buy-and-hold is usually a good strategy for most people, it is sometimes necessary for individuals to make slight tweaks to their investments.

This is particularly important if you have had one asset class or investment rise or fall significantly more than the rest of your portfolio. In this case it is a good idea to re balance your portfolio in order to realign it with your target allocation. This ensures that you not only maintain diversity, but also that you buy low, and sell high, by buying assets that have fallen significantly and selling assets that have risen.

Turning to the Wrong People for Advice

Financial advice and information has never been more accessible to the average investor than it is today. Between TV and the Internet, investors are bombarded with information on a daily basis. Unfortunately not all of this information is sound.

Investors should consider carefully the source of any advice they receive, watching out for potential conflicts of interest. Before making any investment decisions you should carefully consider all options, and consider speaking with a financial advisor.

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The Wealthy are Goal-Oriented

The Wealthy Use Downtime Wisely

The Wealthy Invest in Their Future

The Wealthy are Willing to Take Risks

Are Your Own Habits Setting You Up for Success?

Inertia is not your friend

How Do You Get Started?

The Second Mistake

Buying What’s in the News

Chasing Returns

Timing the Market

Overpaying Fees

A Potential Solution

7 Tips For The Long Term Investor

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The Danger of Playing it Safe

Bigger is Not Always Better…When Finding a Financial Advisor

Learn more about Financial Planning for Millennials and our Financial Planning services.

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Why Fear Gets the Best of Us

Pulling the Trigger

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Advantages of Dollar Cost Averaging

Related Reading:

Believing They Will Beat the Market

Chasing Hot Stocks

Ignoring Fees

Not Re-balancing

Turning to the Wrong People for Advice

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