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.

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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.

8 Common Investor Biases That Impact Investment Decisions

Sherman Wealth Management | Fee Only Fiduciary

This article was originally published on investopedia.com

One of the biggest challenges to our own success can be our own instinctive behavioral biases. In previously discussing behavioral finance, we focused on four common personality types of investors.

Now let’s focus on the common behavioral biases that affect our investment decisions.

The concept of behavioral finance helps us recognize our natural biases that lead us to making illogical and often irrational decisions when it comes to investments and finances. A prime example of this is the concept of prospect theory, which is the idea that as humans, our emotional response to perceived losses is different than to that of perceived gains. According to prospect theory, losses for an investor feel twice as painful as gains feel good. Some investors worry more about the marginal percentage change in their wealth than they do about the amount of their wealth. This thought process is backwards and can cause investors to fixate on the wrong issues.

The chart below is a great example of this emotional rollercoaster and how it impacts our investment decisions.

The Psychology of Investing Biases

Behavioral biases hit us all as investors and can vary depending upon our investor personality type. These biases can be cognitive, illustrated by a tendency to think and act in a certain way or follow a rule of thumb. Biases can also be emotional: a tendency to take action based on feeling rather than fact.

Pulled from a study by H. Kent Baker and Victor Ricciardi that looks at how biases impact investor behavior, here are eight biases that can affect investment decisions:

  • Anchoring or Confirmation Bias: First impressions can be hard to shake because we tend to selectively filter, paying more attention to information that supports our opinions while ignoring the rest. Likewise, we often resort to preconceived opinions when encountering something — or someone — new. An investor whose thinking is subject to confirmation bias would be more likely to look for information that supports his or her original idea about an investment rather than seek out information that contradicts it.
  • Regret Aversion Bias: Also known as loss aversion, regret aversion describes wanting to avoid the feeling of regret experienced after making a choice with a negative outcome. Investors who are influenced by anticipated regret take less risk because it lessens the potential for poor outcomes. Regret aversion can explain an investor’s reluctance to sell losing investments to avoid confronting the fact that they have made poor decisions.
  • Disposition Effect Bias: This refers to a tendency to label investments as winners or losers. Disposition effect bias can lead an investor to hang onto an investment that no longer has any upside or sell a winning investment too early to make up for previous losses. This is harmful because it can increase capital gains taxes and can reduce returns even before taxes.
  • Hindsight Bias: Another common perception bias is hindsight bias, which leads an investor to believe after the fact that the onset of a past event was predictable and completely obvious whereas, in fact, the event could not have been reasonably predicted.
  • Familiarity Bias: This occurs when investors have a preference for familiar or well-known investments despite the seemingly obvious gains from diversification. The investor may feel anxiety when diversifying investments between well known domestic securities and lesser known international securities, as well as between both familiar and unfamiliar stocks and bonds that are outside of his or her comfort zone. This can lead to suboptimal portfolios with a greater a risk of losses.
  • Self-attribution Bias: Investors who suffer from self-attribution bias tend to attribute successful outcomes to their own actions and bad outcomes to external factors. They often exhibit this bias as a means of self-protection or self-enhancement. Investors affected by self-attribution bias may become overconfident.
  • Trend-chasing Bias: Investors often chase past performance in the mistaken belief that historical returns predict future investment performance. This tendency is complicated by the fact that some product issuers may increase advertising when past performance is high to attract new investors. Research demonstrates, however, that investors do not benefit because performance usually fails to persist in the future.
  • Worry: The act of worrying is a natural — and common — human emotion. Worry evokes memories and creates visions of possible future scenarios that alter an investor’s judgment about personal finances. Anxiety about an investment increases its perceived risk and lowers the level of risk tolerance. To avoid this bias, investors should match their level of risk tolerance with an appropriate asset allocation strategy.

Avoiding Behavioral Mistakes

By understanding the common behavioral mistakes investors make, a quality financial planner will aim to help clients take the emotion out of investing by creating a tactical, strategic investment plan customized to the individual. Some examples of strategies that help with this include:

  • Systematic Asset Allocation: We utilize investment strategies such as dollar cost averaging to create a systematic plan of attack that takes advantage of market fluctuations, even in a down market period.
  • Risk Mitigation: The starting point of any investment plan starts with understanding an individual’s risk tolerance.

The most important aspect of behavioral finance is peace of mind. By having a thorough understanding of your risk appetite, the purpose of each investment in your portfolio and the implementation plan of your strategy, it allows you to feel much more confident about your investment plan and be less likely to make common behavioral mistakes.

Working with a financial planner can help investors recognize and understand their own individual behavioral biases and predispositions, and thus be able to avoid making investment decisions based entirely on those biases.

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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.

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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?

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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.

Is Your Retirement Advisor a Fiduciary?

Is your Retirement Advisor a Fiduciary?

Do you want a financial professional who is opposed to financial transparency managing your money?

The upcoming and long anticipated proposed rules by the Department of Labor (“DOL”) exposes that very debate, as it seeks to eliminate the ability of financial advisors to profit by selling retirement account products to investors without being held to a “fiduciary standard.”

For those wondering what that means, with a fiduciary standard an advisor must always act in your (their client’s) best interests. A fiduciary standard ensures that the advisor’s duty is to the client only, not the corporation they represent. To the surprise of many, that currently is not always the case. Financial advisors have had the ability to profit (through commissions and high fees) to the potential detriment of their clients. That is exactly what many large financial institutions and insurance companies have done. In fact, the federal government estimates that there are roughly $17 billion dollars of fees generated each year from conflicted advice.

The DOL has made clear –and we agree– that a commission based investment model creates a conflict of interest. Companies with a commission based model operate with an inherent conflict: the pressure to sell products that are more profitable for them and/or their firm can be important factors in how they direct you to invest. For example, an advisor may receive a 5% commission by selling you a fund through their company when you could get a similar product elsewhere without commission. 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. That is the primary reason we stay completely independent and operate as conflict-free, fee-only advisors.

The proposed DOL rule will hopefully begin to fix this issue as it is expected to require a strict fiduciary standard for financial advisors in the context of sales for retirement account products.  This standard will require advisors to certify that they are acting independently and in their client’s best interest, and are not motivated by the prospect of a commission. This has created a firestorm among big insurance companies, broker dealers and other institutional investors who, as we pointed out, don’t typically operate as fiduciaries.

In a letter sent last week to the SEC, Senator Elizabeth Warren, a strong proponent of the proposed DOL rule, pointed out that presidents of Transamerica, Lincoln National, Jackson National and Prudential all have called this proposal “unworkable.”  She commented on the self interest in their position, and the danger in permitting unwitting investors to be guided by non-fiduciaries in the context of their retirement investments.

Why would a rule that requires a financial advisor to act in their client’s best interest create such an uproar? One reason is that unlike Sherman Wealth Management, they are in a commission driven model, and therefore fear that the way they currently serve clients would not meet the standards of this new rule. We hope that because of the conflict a commission driven model creates, that eventually enough pressure from policy-makers like Senator Warren and Labor Secretary Perez will propel this proposed new rule beyond just retirement accounts. In the meantime, think to yourself why anyone would oppose this rule if not for purely selfish reasons?

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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.

March Madness and Investing: Surprising Similarities (And How to Avoid Common Mistakes)

March Madness (1)

What a great time of the year. Cherry blossoms are out, baseball opening day is right around the corner, and the best single elimination tournament in sports is on its way. That’s right, it’s March Madness time.

For those of you unfamiliar, March Madness, as it’s commonly called, is a 64-team college basketball single elimination tournament. There are four regions that each have 16 teams seeded 1 though 16. The winners of each region meet in the “final four” to determine who will emerge as the champion.

Offices around the country are buzzing with brackets, upset picks and friendly wagers. In other words, it’s chaos both on and off the court and it’s glorious!

In case you couldn’t tell, I love sports. As a financial advisor, I am constantly looking at seemingly unrelated topics, and comparing them to the world of finance. What may come as a surprise to you is that investing and March Madness have more in common than you think.

So what does the tournament have to do with investing? Let’s have some fun and take a look.

You Can’t Predict the Future

Every year people get excited about their bracket. We watch the “experts” on TV and eagerly listen to their reasons for picking one team over another. We all go into the season thinking that this is “our year.” We’ve done the research and we’ve studied history. What could possibly go wrong?

In the first round of this year’s tournament, a record 10 double-digit seeds advanced to the second round! Do you think a lot of people predicted that? Not a chance.

March Madness BracketsHave you ever heard the saying on Wall Street that past performance does not guarantee future performance? There’s a reason the saying exists. Just like last year’s successful mutual fund managers aren’t any more likely to pick this year’s best accounts, the winner of last year’s bracket pool is no more likely than you to pick this year’s winning March Madness team.

When it comes to investing, “experts” love to tell us what is going to happen in the future. People brag about their best stock picks and conveniently leave out their poor ones. The truth is, no one knows what is coming. Once you accept that, you can create a financial plan that takes into account your risk tolerance, and current life situation to make the best investment decisions for you.

Diversification and Risk vs. Reward

No one picks a perfect bracket. The odds of filling out a perfect bracket are 1 in 9.2 quintillion (source: USA Today). According to that number, if everyone in the US filled out one bracket each year, we would see a perfect bracket once every 400 years. You’d be better off gambling with the lottery based on those odds.

However, straying from the standard “favorites” isn’t always the answer either. People love to pick the underdog or “dark horse,” but if you do this consistently year after year, you aren’t likely to have much success. That doesn’t mean you can’t pick an underdog here or there, but the risky picks should be a subset of your overall picks, not the full strategy.

The truth is, no one wins a bracket pool by picking all favorites or all upsets. As the point above taught us, everyone is just guessing. By diversifying your picks with some favorites and some upsets, you give yourself the best chance at success.

The same principal applies with investing. If your portfolio is composed of stocks from one sector or all growth stocks, you are exposing yourself to huge amounts of risk. Sure, the reward may be great if you end up being right, but as we’ve seen time and time again, that is a strategy that can set you up for disaster.

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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 Volatility Is an Opportunity for Long-Term Growth

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This article was originally published on NerdWallet.com

The market has been on a wild ride lately, which has provided a wake-up call for investors who rode the six-year bull market — and its low volatility — without a care in the world. Now reality has set in.

As with all market corrections, this one has inspired retail investors to question whether it’s time to pull money out, shift to safer and more stable investments or just throw in the towel entirely.

While it is normal to feel anxiety during a downturn, there’s another way to look at it. As long as downturns and dips don’t affect your financial plan or, more specifically, your immediate need for cash, they can be an opportunity.

Remember the mantra “buy low and sell high”? The volatility, geopolitical risk and uncertainty we’ve experienced so far in 2016 have presented a particular opportunity for investors in the accumulation stage of their lives, or for anyone who has money but hasn’t started investing yet, to actually buy low (or at least lower). If you’ve been delaying investing regularly because the “market was too high” or “you knew a correction was coming,” now might be a good time to start.

The key is to view volatility — like what we experienced last August and what we are seeing now — as a tool to keep contributing regularly to your investments. This will let you maximize the possible potential for your investments and enable you to watch them grow. The two best concepts to help you do that are dollar-cost averaging and compounded interest.

Dollar-cost averaging

Dollar-cost averaging is the process of spreading out the costs of your investments as the market rises and falls, rather than purchasing shares all at one (potentially higher) price. The key is to pick a schedule — whether it’s monthly, bimonthly or weekly — and an amount, no matter how small, and stick to it by purchasing as many additional shares in your investments as your fixed amount will allow. This is much more effective than trying to “time” the market by buying shares when they are at their lowest or selling when they are at their highest.

Using this system, you are regularly contributing the same amount, regardless of the price of shares. As a result, that fixed dollar amount buys more shares in times when the market has dropped and prices are low, and it limits the amount of shares when the market has risen and prices are high. Over time you will come out ahead, compared with trying to time the market.

Compound interest

Once you have started to build up the size of your investment with the help of dollar-cost averaging, the concept of compound interest gives you a boost. Compounded interest is the interest you earn on the sum of both your initial investment and the interest that investment already has earned. If you have $1,000, for instance, and it earns 5% interest yearly, you will earn $50 at the end of the first year. Then, if you keep that money invested, the next year you will earn 5% interest on the total — $1,050 — which is $52.50. The following year, you will earn 5% on $1,102.50, which is a little more than $55.

Because dips in prices allow you to buy more shares with a fixed amount, volatility allows you to maximize the potential for compound interest as well.

Using these two concepts, the daily ups and downs and market corrections are not a cause for undue concern. If you are sticking to your dollar-cost averaging plan and taking advantage of compound interest, news events shouldn’t affect your long-term plans and goals. Any dollar that is invested in the stock market should be a dollar that you are comfortable keeping invested through a bear market or a major correction.

If you are disciplined about investing, and consistent about reinvesting, you’ll start to look at market volatility as a tool and an opportunity, rather than as a source of anxiety or, worse, a reason to throw in the towel and lose out on long-term growth.

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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.

In Times of Uncertainty, Feeling Certain about Your Plan

fed

As I was listening to Fed chair Janet Yellen’s testimony in front of Congress last week, I was intrigued by a tweet from Morgan Housel: “Go back to 2008 and tell people that in 2016 our biggest headwind would be low oil prices and a strong dollar. Economics is hard. Not in a “things are actually good today” way. But in mid-2008 surging oil prices and a falling dollar were a big headwind.”

As a Financial Advisor, I read every piece of economic data available to me and follow the thought processes of the top thinkers at virtually all the key financial institutions so I can carefully invest money on behalf of our clients.

Here’s what I’ve discovered: none of them, and none of us, have been given a roadmap to what the future holds. They can watch and study the relevant economic indicators, but they cannot predict the financial future with absolute certainty. We all live with uncertainty while trying to make the best decisions we can with the information available.

Given the certainty of uncertainty, what can individuals do to best prepare for their financial future?

With all of the speculation about the upcoming elections, questions about possible negative interest rates, and concerns about international instability, it’s easy to feel anxious about the potential effects on the economy and on your savings and investments. Particularly because the airwaves and the Internet are full of news reports, commentary, blogposts and Tweets about how volatile and risky the markets are.

One thing that is certain: there will always be volatility and risk in the markets. That’s what makes the stock market the stock market. Even if we are currently experiencing a bit more than just normal market volatility, remember that the markets have historically rebounded extremely well after corrections (which are considered a drop of at least 10%). Don’t take my word for it, take a look at the chart below:

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These charts show 27 corrections of at least 10% or more since 1987. All of those corrections had one thing in common: they all rebounded with a bullish rally. What history has shown is that, over the long run, markets continue to move higher.

What does this mean for individual savers and investors? No matter your age or experience with financial planning and investments, there is one universal “must” that applies to everyone. You need a financial plan:  a carefully thought-out, customized financial plan, not just something you downloaded from Google. Once you have that plan in place, the next steps are to implement it, then put your head down and trust in that plan.

This current market in particular highlights the importance of having a financial plan that is both age-appropriate and risk-adjusted to your specific financial situation, goals, and needs. If you’re in your 20s or 30s, for instance, the correction we’re experiencing is a great opportunity. Why? Because you have the luxury of time on your side. With the market currently down significantly from where it was a year ago, this is a great time to implement a dollar cost averaging strategy and start saving and investing on a consistent basis.

One of the things that differentiates us at Sherman Wealth, however, is that we believe that no two people are alike and that everyone’s investment strategy and portfolio should be customized to suit his or her individual situation, needs, and goals. We get to know each client – or potential client – so we can analyze their actual risk tolerance in a holistic way, rather than just plugging their age and one or two other factors into a simple, one-size-fits all algorithm the way some of the Robo-Advisor platforms do. Then we create a plan that is designed to work for our clients.

I can’t tell you what the market is going to do tomorrow or six months from now – no one can. But with a well-thought-out financial plan – one that takes into consideration who you are now, where you want to be, and how much risk you can tolerate – you will feel much more confident about your own strategy and less likely to panic about what the next crazy pundit to pop up on the internet has to say.

Photo Source: AP

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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.

9 End of Year Tips to Finish 2015 with a Bang – not a Blow-Out

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Even the best financial plans can be tough to stick to during the holiday season. No matter how careful you’ve been all year, it’s tempting to splurge on some of the things that make us happiest: good times with friends and family, travel, entertaining, and generous gift-giving to friends, loved ones, and favorite charities.

Here are 9 end of year tips to help make sure you’re still on target with budget and strategy and help keep important goals in mind if you’re tempted to go over budget during the holidays.

  • Review your budget: See where you can scrimp a little so you have more to spend on holiday fun. Bring lunch to work, skip bottled water or sodas, or take public transportation, for instance and use the money for holiday treats, travel, or gifting. Seeing where you can cut spending may give you some ideas about how to live more frugally in 2016 so you can pay down debt faster or increase your savings significantly.
  • Max out your 401K: Before the end of the year, take full advantage of your company’s matching program. Those matching funds are the gift that keeps giving through the power of compound interest.
  • Use your Flexible Spending Account: If you have a flex account for healthcare, transportation, or dependent care, try to use your yearly allowance before the end of the year. Cash in on that new pair of glasses you’ve been wanting. If you didn’t use it all – or if you’d already spent it all by May – rethink what you should set aside next year.
  • Take a look at this year’s tax refund: Decide if it makes sense to reduce how much is withheld from each paycheck. By reducing your withholding you’ll have more money in 2016 for investments, savings, and next year’s holiday spending, instead of lending it, interest-free, to Uncle Sam.
  • Talk to your financial advisor: Whether having a conversation about converting from a traditional IRA to a Roth IRA or what to declare next year on your taxes, the end of the year is the right time to make new financial decisions. Your financial advisor can also help you determine if you have assets that are either above or below your target allocation. If you’re selling at a loss, you can take advantage of a tax write-off!
  • Review your insurance policies: Review any changes in your circumstance or property to make sure you have the right amount of coverage for all contingencies. At the same time, make sure you’re not over-paying for coverage you no longer need.
  • Give to your family: You can give up to $14,000 each to family members with no gift tax or reporting requirements, and the recipient doesn’t pay any tax either.
  • Give to charity: Before the end of the year, charitable donations are not only a great way to express your values, they are also a good way to increase your itemized deductions.
  • Save for the kids: Consider giving children or grandchildren an investment in their future and a first lesson in investing by contributing money to a 529 College Saving Plan! They can use the extra dollars tax-free for college tuition, room and board, and you get a state income tax deduction for your contribution.

While it’s better to give than receive, don’t leave any free money or tax advantages on the table! Review your budget and see if you can add a line item for next year’s holidays so that December 2016 will be the happiest and most stress-free holiday season ever.

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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.

Financial Strategies for Individuals with Brain Injury

Investor Biases

By Brad Sherman, President of Sherman Wealth Management.

Individuals who have sustained a traumatic brain injury (TBI) often have difficulties that can affect all aspects of their lives and, more specifically, can impair their ability to manage financial affairs. Navigating your finances after a TBI can be overwhelming and intimidating when there are different directions to take and so much information to digest.

Finding the right financial professional to assist you and guide you on a path unique to your specific needs is important. The right partner will help individuals with TBI create a strategy to cope with the anxiety that often comes with managing one’s finances. With access to the right assistance, information, and tools, one can address financial concerns and develop a path to achieving financial stability. The assistance that is required depends on the distinct needs of the individual and can range from providing management of day-today financial affairs to creating and addressing goals to obtain present and future financial security and well-being.

When looking for a money management professional, it is important to seek a collaborative partnership with someone who specializes in a fully customizable, personalized approach to managing finances, not a one-size-fits-all approach. Together, you can establish a tailored plan that is right for your financial situation.

A money manager can provide you with the most relevant resources and tools to fit your unique goals, whether you need guidance to make your own financial decisions or a trusted partner to do so on your behalf. In doing so, a money manager can help you understand the information given to you so you can make the most informed decisions regarding your personal finances.

The right money management professional can provide assistance with the following:

What to expect when awarded a financial settlement:
How to manage a lump sum of money while protecting and maintaining your lifestyle;
How to communicate with family and friends after you’ve received a settlement while keeping the monetary value confidential.

The options available to support yourself if you are unable to work due to TBI:
Budget planning
Income-producing security investments

Day-to-day assistance:
Opening and closing accounts
Making large or small purchases and transactions including household needs, property, and automotive

Financial planning including:
Low-fee and tax-efficient investments
Life insurance
Retirement planning

A network of trusted professionals:
Legal professionals who specialize in estate and trust planning, guardianship, power of attorney, and beneficiary rights
Accounting professionals

An inviting, objective, and trusted environment where you can express your financial concerns:
If you are living with TBI, it is important to have an advocate you trust to help you avoid being exploited

Availability:
Face-to-face, personalized attention, unique to your specific needs
A collaborative partnership

There are enough difficulties and roadblocks if you or a family member are living with TBI. Managing your finances does not have to be one of them. A money manager can help address the concerns you feel surrounding your finances. With the right professional assistance, your goals and wishes will be the top priority. You will have access to expertise and experience as well as a network of financial professionals and resources to assist you in managing your finances efficiently. With a collaborative partnership, you can create a present and future that you are comfortable with and can enjoy.

Transparency on Both Sides

Financial Advisor Transparency on Both Sides

According to a recent survey, only 40 percent of investors indicated that their financial advisor(s) clearly explained how they are compensated. In this same survey – the Envestnet Fiduciary Standards Study – 52 percent of investors did not believe that all financial advisors were bound to a standard requiring them to act in the client’s best interest. In the post-Great Recession era, these findings are exceedingly troublesome.

Brad Sherman, president of Sherman Wealth Management, serving clients in the greater Washington, D.C. metro area, has built his practice around improving those statistics.

Sherman is a big believer in full disclosure and complete transparency for his clients regarding his fees and how he works with their accounts. He’s also a big believer in total transparency from the client. “For the relationship to fully benefit the client, there has to be transparency on both sides of it,” Sherman said. “I have to provide a completely transparent structure so everyone knows what they are paying for what they are receiving – so that there are not any surprises to the client. On the other hand, the client has to fully disclose to me what their financial situation and goals are so I can make appropriate recommendations for them.”

He doesn’t have a firm minimum for his clients and in reality, most of his clients wouldn’t fit into the advisor marketplace niche requiring a quarter of a million to start. The bulk of his clients are his peers – people ranging in age from 25 to 40ish – who are starting careers, marriages and families. They are at the beginning of the accumulation phase of savings plans and many are buying their first homes.

“They are comfortable with me and with taking my advice, because I either have been just recently in the same situation or am still doing the same things they are,” Sherman said.

He started Sherman Wealth Management in January 2013 after spending 12 years working in financial services for other firms. He also had just completed his master’s degree in quantitative finance from American University, and it seemed like the appropriate time to hang out his own shingle. Since then, Sherman has taken on 50 clients and and wishes to develop relationships with additional clients seeking affordable, tax-efficient and customized advice.

Sherman said that his decision to become a registered representative with Lincoln Financial Securities Corporation Member SIPC gives him the flexibility to craft portfolios specifically matching the individual needs and goals of each client.

“Not all clients are the same,” he said. “That is why we customize every solution. Some of the bigger companies get into trouble by putting people into cookie cutter molds that may not be right for them. By representing Lincoln Financial in a fee-based model, there is no pressure on me to sell something that is not suitable for any of my clients.”

Learn more about our Financial Advisor services.

Related Reading:

Having the Money Conversation
Top 10 Questions to Ask a Financial Advisor

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