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.

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

Powerball

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

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

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

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

Here’s why:

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

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

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

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

 

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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 Go Where Your Money’s Not Wanted?

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In the film The Shining, a ghostly bartender tells Jack “your money’s no good here,” while other ghosts are planning to do away with Jack and his family. In December it was Wells Fargo doing the “ghosting.” By urging its brokers to get rid of clients with a minimum balance of less than 65,000, Wells Fargo Advisors sent a clear message to younger investors that, going forward, their money is “no good” at Wells Fargo.

In a company statement quoted by Janet Levaux in Think Advisor, Wells Fargo, which is the most valuable financial institution in the world according to the WSJ,* 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.

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 RIAs, like Sherman Wealth Management (“SWM”), as well as the the new “robo-advisor” firms.

Younger, breakaway firms like SWM aren’t looking for “efficiencies” or working for sales commissions on the products we recommend. Our focus is different. We strive to help investors build a strong foundation then grow with them, not by profiting off the trades, good or bad, we recommend for them.

Where large brokerages currently see a “revenue problem,” we see a growth potential and are building long-term lasting relationships. By the time Wells Fargo and the other firms with traditional models get around to investing their time and attention in younger investors, it may just be too late. Those Millennial clients will be growing their wealth with firms that didn’t “ghost” them and, like Jack – spoiler alert! – may end up being “frozen out” of the largest wealth transfer in the history of the world as capital shifts from Boomers to Millennials.

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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.
*http://www.wsj.com/articles/wells-fargo-co-is-the-earths-most-valuable-bank-1437538216

Why You Should Consider Buying that Powerball Ticket

Powerball

If you won the Powerball today, what would you do with the $90 million dollars?

While I’m not the first to tell you that you are definitely not going to win the Powerball – you have a 20 times greater  chance of having identical triplets – it’s a great idea to think about what you would do with the 90 million dollars if you did win.

Here’s why: your answer is a great way to understand what you truly care about in life.

What’s the first thing you thought of? Was it “retire and live on a boat in Hawaii?” “Quit my job and become a deejay?” “Book a ride to the Space Station?” Or even just “Stop worrying about how to pay for my kids’ college?”

Your answer – however crazy or however normal –  is a window into what’s really important to you and a great way of evaluating your current financial strategy. Is upgrading your home a potential goal? Have you budgeted enough for your passions? Should you start saving more for more travel and adventure? Have you looked into 529 plans?

As a Financial Advisor, I would advise that you not waste that $2 when it would be better spent collecting compound interest. I would ask you whether you’d already contributed to your 401K plan, your emergency fund, and your other long or short term savings goals. Then I would suggest that if you really wanted to play Powerball, that you re-allocate that $2 from another area –  skipping the caramel latte this morning, for instance, or biking to work tomorrow to save on gas – so that the $2 is amortized.

But I would also tell you to keep dreaming, because those things you are dreaming about are a great way to evaluate whether your current savings and investment goals are tailor-made to help you achieve the life you really want, the life you’d lead if there was nothing standing in your way.

So consider it: if you won $90 million dollars, what’s the first thing you’d do? Now call your financial advisor and take the first step to actually making that happen.

p.s. – If you want to see what your chances of winning actually are, click here to try the LA Times’ Powerball Simulator!

 

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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.

The Most Important Question You’ll Ever Ask Your Financial Advisor

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Does your financial advisor follow the Fiduciary Standard or the Suitability Standard?

If you don’t know the answer without peeking – or calling your Lifeline – you’re not alone. A surprising number of people don’t know what these very important terms mean and whether their advisor is acting in their best interest.

Aren’t all financial advisors required to act in their client’s best interest?

Surprisingly, not all financial advisors are.

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

Having a waiter recommend an expensive chocolate cake that is “suitable” for adults and for someone who is willing to risk trying chocolate with sea salt may not be that critical, in spite of the fact that having fresh strawberries may clearly be in your best interest. But having a financial advisor who is making recommendations primarily based on your age and risk tolerance – and who could be putting their own, or their company’s, financial interests ahead of your interests — could be disastrous for your financial future.

Instead, the Fiduciary Standard, which is the standard for registered investment advisors under state and federal regulations, requires that financial advisor act solely in a client’s best interest when offering financial advice.

Registered Investment Advisors – like Sherman Wealth Management – must follow – and are held to – the Fiduciary Standard. That means that a RIA must put their client’s needs ahead of their own, provide fully-disclosed, conflict-free advice, be fully transparent about fees, and continue to monitor a client’s investments, as well as their changing financial situation.

Here’s a potential scenario that illustrates the differences

Let’s say your broker-dealer has three possible funds to recommend to you. The first is a “suitable” index fund, offered by her own company, which pays her a 6% commission on the sale and charges a 2% annual fee. The second is a similarly suitable index fund that would pay her a 3% commission on the sale and has a 1% annual fee. The third is an index fund that has no sales commission and an annual fee of .5%. Under the Suitability Standard, she can recommend the higher priced fund and still satisfy the standard. Under the Fiduciary Standard, she would be required to recommend the third fund.

This is not to suggest that broker-dealers or others operating under the Suitability Standard don’t look out for their clients.  While many reps who follow the Suitability Standard give their clients excellent advice, they 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.

So go ahead and let the waiter talk you into that chocolate cake (even though you know you’ll feel better tomorrow if you have the strawberries.) But when it comes to your money, think carefully about whose advice you are taking.

 

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http://www.finra.org/investors/suitability-what-investors-need-know

http://financialplanningcoalition.com/issues/fiduciary-standard-of-care/

Has the Internet Replaced Personal Financial Advisors?

human technology

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

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

A couple of reasons…

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

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

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

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

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

 

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

Follow us on Twitter to stay up-to-date with investment news and wealth management information.

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Do You Share These 4 Habits of the Wealthy?

Wealthy Habits

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.

Follow us on Twitter to stay up-to-date with investment news and wealth management information.

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

lemonade

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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5 Important Planning Tips for New Parents

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

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

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

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

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

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

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

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

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

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

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

 

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

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Four Things Entrepreneurs Can do Now to Save for Retirement

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While retirement may seem a long way off when you’re young and just starting to build a business – or older and rebooting – it’s important to have a retirement savings plan and stick to it to create the future you want.

Retirement planning can be difficult for anyone, but entrepreneurs and small business owners can face unique challenges. According to a 2013 American Express survey, 60 percent of small business owners said they weren’t saving enough for retirement, and over 73 percent said they were worried about not being able to afford the lifestyle they want in retirement.

While many employees can choose to make automatic deductions from their paycheck towards a 401k, for instance, entrepreneurs have to make a conscious decision to sock away money for retirement, as well as find plans that work for them.

Fortunately there are several things that you can begin doing now to contributing to your long-term financial future. As always, please review these and other options with your financial planner to see what strategy may be most suitable for your individual situation.

1) Open an IRA

If you haven’t already, now may be as good a time as any to open an Individual Retirement Account (IRA). IRAs are long term investments that allow you to save money for the future in a tax efficient way. They also offer catch up contributions if you’re over 50.

Traditional vs. Roth

Traditional IRAs allow you to deduct contributions the year in which they are made, then pay taxes when you withdraw the money. A Roth IRA allows you to pay taxes on your contributions now, rather than upon withdrawal and earnings and distributions may not be taxable if held in the Roth IRA for up to 5 years.

For older investors who are approaching retirement, traditional IRAs probably make more sense, as their tax rate may likely be lower in retirement than it is currently. Younger investors, however, may want to consider a Roth IRA if they believe their tax rate could be higher in the future than when they make their contributions.

Contribution Limitations

Regardless of whether you elect to contribute to a Roth or Traditional IRA the IRS sets annual limits each year stating the maximum individuals can contribute to their IRA based on their annual earnings. For instance, in 2015 you are limited to a maximum of $5,500 annually (or $6,500 if you are 50 or over).

Finally, with either type of IRA, there are penalties and taxes for early withdrawals prior to 59 ½ years old!

Please consult your tax professional regarding your specific situation and the specific rules that apply to you.

 

2) Consider alternative forms of IRAs to increase your contribution limits

If you are your company’s only employee, or you only have a couple of other employees, you may want to look into setting up either an SEP-IRA or a SIMPLE-IRA.

SEP-IRA

SEP-IRAs allow you to contribute up to 25% of your salary, or $53,000 (as of 2015) whichever is smaller. This is significantly more than what non-SEP-IRAs allow for.

Setting up a SEP-IRA may be an easy choice if you and your spouse are your only employees, but there can be other costs associated if you have other people working for you.

SIMPLE-IRAs

SIMPLE-IRAs provide an alternative that is cheaper for companies with several employees.

With the SIMPLE-IRA, the employer creates an IRA for each employee. Employees have the option to contribute a certain percentage of their income to their IRA. Employers are then required to match that percentage up to a maximum of three percent of the person’s salary, or contribute two percent of each person’s salary into the IRA.

By creating a SIMPLE-IRA the owner is then able to contribute an additional $12,500 ($15,500 for those 50 and over) to his or her own IRA.

If you have only a few employees working for you and you expect to contribute either the full $12,500 or a large portion of it, there is a good chance that your tax savings may more than pay for the cost of contributing to your employee’s IRAs. Please consult your tax professional for more specific information about how this could affect you and your employees.

 

3) Setup Automatic Deductions

Unfortunately, we all have a tendency to procrastinate, and thinking about retirement is often not at the top of our priorities! It’s easy for entrepreneurs and small business owners in particular to become distracted and forget to contribute to your retirement account(s). Automatic deductions solve this problem.

By setting up your IRA and other retirement accounts to take money directly out of your bank account or paycheck each week (or month,) you can ensure that you contribute as much money as you feel you can, up to the full tax deductible amount, each year. You no longer have to worry about forgetting to, or putting off, contributing.

With any IRA, think carefully about how much you can realistically contribute. They are considered long term investments and you cannot access the money prior to a specific age without incurring taxes and significant penalties for making early withdrawals. Please make sure you are carefully considering your short and medium term goals. And remember: starting to save early is a good way to get on the road to achieving your goals.

 

4) Speak with as Experienced Financial Planner to Help You Create a Plan

Taking care of long-term financial goals can be a challenge but fortunately you don’t have to go it alone. Financial planning professionals can help you create an individualized plan focused on your specific goals. Whether they are:

  • Saving for retirement
  • Saving for your children’s education
  • Buying a home
  • Having a baby

Financial planners are here to help you plan for the future you envision for yourself and your family.

 

 

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 prepare for retirement.

Learn more about our Retirement Planning services.

Related Reading:

Finding Financial Independence

YOLO (You Only Live Once) so you Need a Retirement Goal

Your 401K Program: A Little Savings Now Goes a Long Way

How Much Money do you Need for Retirement These Days?

The Benefits of Saving Early for Retirement

Advantages of Participating in Your Workplace Retirement Plan

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