Your Financial Plan Depends on More Than Your Age

financial plan

Your Financial Plan

We live in a time of great personal freedom when we have the opportunity to choose our own life goals and paths.

While it’s true that very few 26-year-olds are likely to be retiring, you might be that lucky one who just sold an app to Facebook and is considering philanthropy. While most people start families in their 20s or 30s, you might be that 40-year-old who’s just about to adopt a first child. And while most 60-year-olds have hopefully accumulated some retirement savings, you might be that entrepreneurial baby boomer who is moving to Detroit to launch a startup or open a coffee bar.

In spite of this brave, and exciting, new world of personal choices, what’s the first question a financial advisor or online financial site generally asks you? Chances are it’s your age. Then that answer determines the next question, and the next.

Too many financial planners and investment sites, unfortunately, use age to make assumptions that then dictate investment recommendations.

The internet, too, is filled with articles like “Financial Planning Tips Every 30-year-old should know” and “The best financial goals for every age.” There are books and studies that break your life down into age-based phases like “early career phase” and “peak accumulation phase” then make generalization based on those neat buckets.

What’s more important than age?

We’re all individuals, with different dreams, goals, and life situations and when it comes to financial planning, age is not as important as it used to be.

Your goals and your risk tolerance should be the factors to consider first in devising a personalized financial plan or investment plan that works for you.

Is your primary goal buying a house, is it wealth creation for early retirement, is it having income so you can bike around the world for a year? Those answers are more important than the fact that you are 32.

Does a volatile stock market make you anxious? Do you prefer slow and steady to winner takes all? While it’s generally assumed that young people can afford greater risk and volatility because they have time on their side, you may be that 24 year old that wants or needs to preserve savings first and foremost.

Goals differ and investment always involves a certain amount of risk. That’s why a fee-only fiduciary financial advisor works with each client individually to manage goals and risk in a way that works for them. It is vital for success to determine the level of risk each client can afford to take, how much risk is necessary to help them achieve their personal goals, and how much risk and volatility they can comfortably live with emotionally.

You Are Unique

Each of us is unique and that means that no two people will have the exact same goals + risk profile, in spite of being the same age. Yes, living off retirement savings is different than living off a first salary, but the amount may be the same. And paying off student loans is really not all that different from paying off a mortgage.

What’s important is that you find a good fee-only fiduciary financial advisor who looks beyond pre-programmed, one-size-fits all recommendations for 20-30 year-olds or 60+ year-olds and focuses to your goals, your risk preferences, and your uniqueness to create a personalized plan that works for you and evolves as you evolve, not one designed for an entire generation.

 

This article was originally published on Investopedia.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.

 

 

 

 

Got a Raise? Here’s How to Avoid Lifestyle Creep

lifestyle creep

We work with a lot of young professionals and because of that, we get the pleasure of seeing many of our clients progress up the ladder in their career. With this often comes more responsibility but also more money. A raise is something you should be proud of as it represents the payoff from the sacrifices you have made and the hard work you put in. This calls for a celebration, as it should!

At the same time, it is crucial to make sure you don’t fall victim to the dreaded lifestyle creep, famously coined by financial planner Michael Kitces. The basic concept of lifestyle creep is that as your discretionary income goes up (you get a raise), your standard of living goes up with it. For example, before you stuck to a dining budget where you only ate out on weekends, but now you are doing so two times a week.

We recently wrote about how a former NBA star filed for bankruptcy after earning more than $100 million on the court. Read below on some tips to help you avoid some of these mistakes.

Why Lifestyle Creep Is a Problem

Living above your means is a recipe for financial trouble. We constantly preach that it’s not about how much you make, but how much you save. By earning more money, you have the opportunity to save more. Take advantage of these opportunities by really thinking about what is a necessity vs. what is a luxury.

Read below on some tips to help you avoid some of these mistakes.

  • Write down and revisit your goals
  • Maybe your goals have changed, maybe they haven’t. By revisiting them, remind yourself what is important to you and you can then make sure that is what you are spending your money on.
  • One additional suggestion is to not make any purchases with the money you are receiving from your raise for the first month after receiving it. This gives you time to digest the news and will give you the ability to make more rational purchase decisions. If you still want to buy it after a month, then go for it.
  • Create and update your budget
  • If you don’t already have a budget, now is the perfect time to create one. If your boss gives you a $10,000 raise, that comes out to about $830 per month before taxes. With your goals in mind from tip No. 1, lay out all of your expenses and determine where the money should go each month. By having a set schedule, you reduce the urge to make impulse purchases because you see a large number in your checking account. (For related reading, see: The Conflicts of Interest Around 401(k)s.)
  • Set up automatic saving account deductions
  • Now that you have a defined list of goals and a budget to help you achieve them, it is time to put the plan into action. There are numerous banks that we recommend to our clients that give you the ability to create multiple savings accounts to bucket your savings based on your goals. Create accounts for each of your goals and set up automatic transfers to these accounts from each paycheck you receive.
  • In addition to your emergency fund account and other savings goals, make sure to give yourself a fun account that can be used to spend on celebrations such as getting a raise!
  • Increase or max out your retirement contribution
  • As part of your budget, look at how much you are contributing to your retirement account each month. If you have the opportunity to increase your contribution, that is a great option to consider. If you have an employer-sponsored retirement plan such as a 401(k), not only are you saving more for retirement, but you are also lowering your taxable income that just increased because of your raise. You may even qualify for an employer match, which makes these savings even greater!

After working so hard to get to where you are now, you should give yourself a chance to enjoy that success and celebrate. The important part is keeping an eye on the big picture and not letting your short-term emotions get in the way of achieving your true financial goals. By creating a plan that is realistic and one that you feel you can stick to, you dramatically increase your chances of success. (For related reading, see: How to Cut Back on Spending Like a Billionaire.)
This article was originally published on Investopedia.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.

The Importance of Personal Finance Knowledge

Financial Knowlege

For years, the Financial Industry Regulatory Authority (FINRA) has tracked American personal finance knowledge through a survey about saving habits and basic financial principles. FINRA recently released the results of its 2015 survey, which includes the fact that only 37% of those who took the survey could answer four of the five questions on a basic financial literacy quiz. Four out of five is FINRA’s baseline for high financial literacy. Back in 2009, 42% of the respondents were considered to meet this level of financial literacy. (If you’re curious, you can take the quiz here.)

We’ve previously written about biases in financial habits and the desolate state of personal finance education in high school and college, and this study re-confirms our suspicions. Way less than half of the American population has a sufficient understanding of the basic ideas necessary for successful saving and financial planning! That is nearing crisis levels.

Make no mistake–an ignorance of personal finance, while probably unintentional, has serious consequences. Just over half of respondents said they are worried about running out of money in retirement, only one in five are willing to take risks when investing, and 57% say they set long-term financial goals. But, when taken together with those statistics, the most concerning part is that 76% have a high self-assessment of their financial literacy.

As finance writer Jeff Sommer points out in his recent column, this means that Americans don’t know very much about personal finance and saving, but think they do. The positive self-perception is also the only figure to have significantly increased since 2009.

Improving financial conditions can create a false sense of security for many savers who think their current status makes them recession-proof. This is a huge reason why I decided to start my own firm. I recognized the alarming lack of awareness about saving, spending and the markets, and noted many common bad habits that can lead to trouble in an economic downturn. (For related reading, see: Behavioral Finance: How Bias Can Hurt Investing.)

The lack of education is compounded by the unavailability of many big-name institutions who offer financial advice and wealth management services to many. Traditional wealth management practices often have high account minimums that make their financial advice unreachable for most people. Moreover, even if you can open an account with a wealth manager, they may not be required by law to act in only your best interest, which can lead to inefficient investments for you that pay them commissions.

The reality is that many people are scared by the thought of investing. Since many Americans are mostly in the dark, they may not know where to go or how to start. That’s why it’s important to use online resources and educate yourself on all aspects of personal finance. (For related reading, see: 6 Questions to Ask Your Financial Advisor.)

This article was originally published on Investopedia.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.

4 Healthy Financial Habits to Develop Now

4 Healthy Financial Habits

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

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

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

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

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

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

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

2. Set up automatic savings

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

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

3. Participate in your employer-sponsored retirement plan

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

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

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

4. Start investing now

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

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

Prioritize your goals

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

This article was originally published on NerdWallet.com

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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.

Personal Finance – Why Didn’t I Learn That?

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

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

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

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

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

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

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

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

Cash flow and budgeting

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

Building credit and understanding credit cards

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

Intro to the stock market and investing

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

Taxes

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

Future workplace retirement plan options

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

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

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

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

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

This article was originally published on NerdWallet.com

This article also appears on Nasdaq.

 

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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.

When A Storm Hits Are Investors Still Gluten-Free?

Empty Shelves

More snow coming?

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

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

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

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

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

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

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

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

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

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

Photo Source: Reuters/Shannon Stapleton

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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.

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

Guide to Buying Your First Home

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

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

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

Here are a few things to consider:

Evaluate your current circumstances:

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

Assess Your Finances:

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

Get Pre-approval:

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

Contact a real estate agent:

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

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

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

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

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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.