Posts
Social Security Spousal Benefit Calculation Before FRA
10 months ago
Showing posts with label Awareness. Show all posts
Showing posts with label Awareness. Show all posts
Investing - Why Overpriced May Be Better Than Inexpensive
Are you the type of individual who recognizes you shouldn't trade stocks, mutual funds and ETFs frequently, but simply can't seem to stop? Or are you a financial advisor who trades more often than you would like to? Let me propose an unorthodox solution to provide some negative reinforcement each time you trade.
This is a solution I don't believe many financial advisors would endorse and certainly one I would not use from a pure dollars-and-cents perspective. This is a solution that should only be considered if you have trouble minimizing your trading addiction.
If you are a frequent trader, you are likely using a discount broker who offers trades at very low fees or even no fee in some cases. There is no instant disincentive to trading frequently. When you want to trade, you can do so without giving much pause to the cost of your action.
My solution is the following. Move your investment accounts to an old-fashioned brokerage that charges an arm and a leg for each trade. Instead of looking for the least expensive trading solution, select the most expensive institution that makes the hit you take on each trade as painful as possible. Use this painful, expensive trading expense to make you take pause and think through your trading decision more fully. Allow this pause to give you the time to allow emotion to ebb from your decision-making. Take the time to consider why you think something has changed from your original purchase.
Making good financial decisions is almost entirely about recognizing when our decision-making process runs astray, then putting in place mechanisms and processes to short-circuit those processes. Making trading excessively expensive is one example of doing this and may be a large enough barrier to minimize your trading habit effectively.
Thinking About Money
How often do you think about money? Once a week, once a day, once an hour...even more frequently? Did you know there is often an inverse correlation between how often you think about money and your level of financial well-being? People who think about their money constantly generally have done more poorly with arranging their financial lives than those who think about their money only occasionally.
If you think about, and more specifically worry about, your money frequently you have not put in place processes that allow you to know with confidence how you stand financially. As is so often the case, the most important tool to help you gain this confidence is a formal budget.
Taking the time to put together a solid budget that includes what you value most and your financial goals allows you to stop thinking about money all the time. A budget, which you follow, that really captures what is important to you, gives you the freedom to not have to dwell on and think about each financial decision ad nauseum. You already know your goals are being funded in your budget, other money is designed for other purposes.
A second tool is having an investment portfolio that truly is designed to fund your various financial goals while staying true to your willingness to accept risk. A portfolio that is built to fund your short, medium, and long-term goals allows you to stop worrying about those goals. In fact, with a properly designed portfolio, you may find yourself not paying attention to the stock market at all. Combined with the well-designed budget, financial worries truly begin to melt away.
Other tools that help you think less about your money and focus more on your life include a comprehensive insurance portfolio and estate planning completed to allow you to know those important to you will be provided for.
I don't think there is any magic number for how often to think about your money. The number is likely different for each of us. Certainly it is important to consider your finances occasionally, and to make well-informed financial decisions. But if you find yourself constantly worrying about paying bills or reaching your financial goals or struggling with financial decisions, you are likely thinking about your finances too much.
Are there any additional tools you can think of to help reduce the amount of time needed thinking about money?
The Financial Mis-education of Our Country
Did you receive financial education as a child or young adult? Did you learn financial basics in school or from your parents? I certainly did not. I entered college with no concept about how to spend or save money, no concept about budgeting, no ideas about planning for the future. Worse yet, I was bombarded with misinformed financial lessons from every direction. Television and other media taught lessons of materialism and that success was defined by becoming rich.
I spent the past four weekends meeting with hundreds of individuals to provide basic financial advice. I spent countless hours discussing budgeting and the importance of setting financial goals and an emergency fund. I spent more time helping individuals try to dig out of financial emergencies, save their homes, and get control of their financial lives. Over and over, people told me they had virtually no financial education. Worse yet, they had never had anywhere to turn to get that financial education.
How can this be? How can financial education be left entirely to chance in our country? Money is one of the most powerful forces in society, yet we head into the world with only the mis-education we received from media and our parents to guide us. We are not even given the choice to seek good financial education.
Our education system and financial industry are failing in this regard. We must introduce financial education at a young age, the force money plays is simply too powerful to continue to ignore. Poor money knowledge destroys marriages, destroys lives and destroys our country.
The Best Credit Card Ever
Are you like the majority of Americans and carry a credit card balance? Do you use credit cards for both regular spending and impulse purchases? Last week,as I prepared for the day in my hotel room, I overheard a credit card commercial on the television that sounded great. This credit card company offered to help you reduce the amount of interest you paid and to give you control of your credit card. It was also a huge pile of baloney.
This commercial was wonderful. The company made a great presentation about their credit card. They offered nice features to help you try to pay less interest. They did everything in their power to make it sound like they were on your side, not on the interest-receiving side. It was a super job of marketing and salesmanship.
And it was all useless. Credit card companies are not trying to save you money! That would mean they are making less money. Do you really think that's the business they are in...saving you money? They may put tools in place to "help you avoid interest", but you can feel certain they are making up that lost money elsewhere such as in an annual fee, or late charges, or some other fee. Credit card companies are not on your side. Nothing could be further from the truth.
Don't, don't, DON'T fall for this type of credit card marketing.
Using credit cards and other debt instruments will have a profound, negative impact on your financial wellness. Deciding to use these cards is entirely under your control, and I would advise you not to use them. Debt kills reaching financial goals, particularly bad debt like credit card debt. Grab control, ignore the marketing and don't use credit cards.
Credit cards...great marketing, horrible product!
Financial Wellness Is About Understanding Your Financial Behaviors
I thought for today's blog post I would try something a bit different. I have become increasingly convinced that financial wellness is entirely a matter of understanding one's financial behaviors and strengths, then creating a boundaries and systems to help make well-informed financial decisions.
So for my blog post today, I'd like to challenge each of my readers to take the following steps:
First, recall a time when you made a financial decision which you recall fondly and makes you feel pride. Really let the memory and feelings fill you. Re-experience that moment.
Next, think about what led to that decision and what was in place that allowed you to make that decision. What were the circumstances. What types of boundaries had you set for yourself. Take a moment to really consider what had freed you to make that decision.
Finally, commit to allowing yourself to make financial decisions in this manner more regularly. Put in place the same circumstances that allowed you to make that initial financial decision that brought you pride.
Financial wellness is all about allowing yourself to make good financial decisions more frequently. This requires deep consideration about your financial behaviors and patterns, then creating boundaries and processes that allow you to make good decisions more frequently.
For me, this meant using primarily cash for day to day spending and forcing myself to physically go to the bank when choosing to spend extra money. The act of having to drive to the bank has often been enough to give me pause about a financial decision and make me consider more fully how much I valued the purchase I wanted to make.
What types of systems would help you make better financial decisions? Give it a try and commit to a financial behavior change. Commit it to paper, or as a comment below. Often telling others your plans can create a stronger commitment to the plan.
##
Photo by: qthomasbower
Some Top Financial To-Do's That You Are Probably Not Doing
I have a very simple post for you today. There are several financial to-do's that a great many people are not doing. You may be one of those people. There is nothing difficult here, nothing that takes a tremendous amount of work or sacrifice, nothing you have not heard before. Yet each of these items will improve your financial well-being. Start doing them.
1) Contribute enough to your company's retirement plan to receive the full employer match. If you are not doing this, you are returning a portion of your paycheck to your employer. This should be an absolute priority, even if your budget is very stretched. Is there any other instance where you would turn down a paycheck your employer hands you? You've earned that money...take it!
2) Speaking of a budget, create one. Do it now. Stop procrastinating. Creating a formal, planned budget is the single most important thing you can do to positively impact your financial well-being. Even if you never look at it again, the simple act of putting all your expenses to paper will help you become more aware of how you use your money and may spur you to make changes, if necessary.
3) Stop buying stuff. I'm not asking you to stop buying things you need or things you want and have planned for. Stuff is made up of the purchases you make that end up being used once or never used, that don't bring value to your life and that you made for some reason other than because it was important to you. Maybe that stuff was on a great sale. Or maybe there was a great commercial that made you really want that stuff. Maybe you don't know why you bought that stuff. Stop using your money to buy it.
There's nothing difficult here. Putting together a formal budget requires the most work, but will also have the greatest impact. These are all steps you can take on your own at little or no expense to you. Get started on each of these today, and you'll have already improved your financial well-being significantly with very little effort.
Poor Financial Decisions & Money Regret
We've all made poor financial decisions. You have, I have, and every other person out there has. What's more, each of us will continue to make poor financial decisions from time to time, regardless of how knowledgeable we are about finances. Last week, I discussed the money taboo in our society. Today I am going to discuss poor financial decisions and shame around those decision that are exacerbated by that taboo.
Making a poor financial decision is nothing to feel shame about. All of us act emotionally at times and make financial decisions colored by emotion. This can lead to bad results. Allowing the money taboo to prevent you from seeking help can create far more negative consequences than the initial poor decision, however. The period following a poor financial decision is exactly the time to seek advice from others; whether that be a financial professional, a parent, or a friend.
If you find yourself in a position where you have made a poor financial decision that is large enough that you need to make another decision about how to deal with it, don't go it alone. Seek help. Speak with a friend. Call a financial advisor. Talk to someone close to you. You will likely feel some embarrassment admitting your initial poor decision, but that is a small price to pay to prevent long-term severe financial damage.
Your asking for advice will also help others. They will see you as an example of someone willing to discuss their mistakes and talk about money openly. This may make them more willing to seek help when the time comes that they make a poor financial decision.
Regretting a financial decision is not harmful, but allowing the money taboo to prevent you from seeking help can be very harmful. The money taboo in our society impacts us in many ways. Exploiting our money regret is one of the most powerful.
Budgets and Financial Plans Are About Balance, Not Sacrifice
Having a good budget and financial plan does not mean giving up everything important for you today to plan for later. Often when I have discussed budgeting with people, they have indicated they don't want to budget because they don't want to give up many of the things they value now for an uncertain future. A good budget, by which I mean a budget you will be committed to and brings you toward your goals, does not require you to give those things up that you value most. A good budget offers a tool to help you balance your present financial self and your future financial self.
If you have put together a budget that takes into account your values and your goals, you are already on the path to achieving this balance. The way you have built the budget will force you to prioritize what you value more. Do you prefer to have every television station possible available to you now, or would you prefer to purchase a new, fancy car in five years? You get to make that decision when you establish your budget. The budget itself does not judge your spending, it only forces you to decide what you value more.
A financial plan provides the exact same mechanism. A financial plan does not judge your decisions, although your financial planner may do so. A financial plan provides a tool to help you decide whether you value a current expense more or less than a future expense. It's your choice to decide which to pursue.
Budgets and financial plans help you create balance between the present and the future. They offer tools to help you prioritize what financial goals you value most. Don't buy the misconception that a budget or financial plan is about giving up what you value today. Budgeting and financial planning are about balancing today and tomorrow.
5 Simple Steps To Improve Your Financial Well-Being Now
Finances and financial planning can become very complex and intimidating. Often I believe large financial institutions intentionally make finances appear even more complex than necessary to convince you to seek help from one of their salespeople. There are some very important things you can do to dramatically improve your financial well-being that are extremely simple, however. Below I have listed a few steps you can take that will have great impact on your finances.
1. Spend half an hour today writing down (don't just think about it, but write it) what your perfect life would look like. Where would you live? What would you do for work? Whom would you share your life with? Include details.
2. Make a budget. Detail how you use your money now. It doesn't matter if this is a pencil and paper budget, a spreadsheet you set up, or an online budget like www.mint.com. Make a budget that works for you. It can change your life.
3. Look at that "perfect life" you wrote down, and create two or three goals you will pursue beginning today that bring you closer to reaching the perfect life.
4. Review your budget. Is there anything that surprised you or that you wish you spent more money on or that you were very uncomfortable with? Decide if there is anything you spend money on now that would be better served to reach one of the goals you've written down. Adjust your budget to reflect that changed priority. Make sure to include your goals in your budget, this will create commitment to using your budget.
5. Consider your goals and "perfect life" before each major purchase. Does it help reach your goals or perfect life? Does the purchase represent a new goal of higher priority than what you've written down?
Making certain you are aware of how you are using your money and that it is in alignment with your goals and values will change your life. Keep pursuing your perfect life and recognizing what your priorities are, your financial well-being will improve.
Why You Should Fight the Money Taboo
Are you willing to talk to others about money questions or difficulties you have? Do you find yourself ashamed by your financial situation? It is my belief that money is the one great taboo in our society. And I believe that this taboo is a cause of many financial problems.This afternoon I am going to be meeting with many people to discuss financial issues they have and provide whatever advice I can in a very unusual situation. I will only be meeting with each person or couple for a few minutes and a part of the expectation of me is to get beyond that taboo to discover financial issues. My advice is being offered at no cost to these individuals and it is a great opportunity for them to begin setting a course to improve their financial well-being.
Unfortunately, much of the time I have with each individual will be spent trying to get them to open up about any financial issues they may have. And I feel certain that I am often unable to reach the people with the greatest difficulties because of the shame they feel about their situations.
So I sit here wondering this morning how different might many of our financial situations be if we were comfortable speaking about and seeking help with our finances. How much more full might our lives be if we stopped secretly worrying about our money and instead got help and dealt with our money issues? How much more time would we have to pursue fun and joy versus thinking about our finances?
I plan to explore money taboo more in future posts. Now I have to prepare to break through that taboo in order to help people.
On Why Good Financial Decisions Are Often Wrong
While beginning my day some time ago, a local news station played on the television in the background. As I sipped my coffee and discussed the day with my wife, I overheard a story begin to play with a title similar to "home renovations that pay off now." This story, which on the surface seemed to make perfect sense, presented a clear opportunity to discuss why good financial decisions are often wrong.
The premise of the story was pretty straight-forward. It was the type of story media outlets recycle often and seem to use as filler when they are short on news. The newscaster discussed the amount someone could expect to pay for a certain home renovation (e.g. kitchen remodel, home expansion, etc.) and the amount that each renovation might increase the value of the home. Finally, the story was wrapped up with a comment about which renovations returned the most money for your investment and then concluded by listing which renovations were the best to make.
I have found when talking to people that often financial decisions are approached in this manner. They are reviewed primarily from a "maximize return" perspective and the highest expected return equals the "good" financial decision. There is good reason to consider the return to expect from some financial decisions, but it is my opinion that generally this is not the best way to make decisions. Far more important is the value you receive by choosing either side of the decision. What is important to you? How much are you willing to pay or give up to choose a certain path?
Take the home renovation example, a kitchen remodel may return more than an in-ground swimming pool addition, but if your goal is to swim in your backyard every day and you never cook, the kitchen really does not make much sense. You may get more money back if you choose to sell the house in the future, but you get no return from the kitchen while you still own the home. The kitchen remodel might be the good financial decision but entirely wrong for you.
Other examples of this type of decision-making include maintaining a mortgage for a tax deduction when you could pay it off and you are debt-averse or taking more investment risk to maximize return at the expense of sleeping well at night.
Don't forget yourself and what is important and valuable to you when making financial decisions. Don't allow someone to convince you to make a choice that does not represent your values simply because it has the highest expected return. Well-considered financial decision are made by considering the expected return, long-term impact and what is important to you, then balancing those factors to reach the decision. A good financial decision according to the experts could be entirely wrong for you.
A Little Secret About Stocks
Money invested in stocks is not spendable money
What I mean is that, barring true emergencies, you should never look to the value you have in stock investments as money available to support your lifestyle and spending now. You also should not see that money as available for next year or even five years from now. Money invested in stocks is money to be used well down the road...that's why stocks are long-term investments. Stock investments should be allocated for spending 10 or more years down the road. I would even argue for a number greater than 10 as a starting point. Stocks are volatile. Over the long-run, the expectation is that you will be rewarded for accepting that volatility and risk. That means you cannot expect to use that money until you have reached the long-run!
As you approach the need to use some money invested in stocks, that money should move to other investments. Very near term spending should be held in cash or cash-equivalents (money market funds, short-term CDs, etc...) For spending a bit farther out, look to other investments such as bonds and long-term CDs.
Once you have understood this secret and truly believe it, dealing with the volatility we have seen over the past couple years and poor performance over the past decade becomes more palatable. The short- and mid-term stock volatility can be painful to watch; but if you have followed this secret, the impact on your financial well-being should be minimized.
So, let me give you the secret one more time: money invested in stocks is not spendable money.
My Confession: Have I Offered Solutions?
You may be getting sick of my ranting and raving; of my complaining about what the financial advisory industry looks like; and of the lack of value being delivered by financial advisors to you. You may wonder why I bring all this up, but never offer any solutions to the problems. The answer is simple: I do not have any solutions. I do not know what needs to happen in order to truly help you with your financial well-being. I do not know how to get the focus away from chasing overnight wealth and materialism.
This industry is simply chasing the money. What is being offered is what you are willing to pay for. You don't need expensive investment advice; but this is what you continue to ask for, so the industry delivers. You don't need someone to predict the future, but we continue to try (and mostly fail) because this is what you are demanding. The industry has no incentive to change.
I confess, I am frustrated and don't know how this industry and profession move forward. On my other blog, I am putting together a business plan for what my ideal financial planning practice would look like. I am not moving forward very quickly. I sit down to write the business plan, but get nowhere. I have an idea about what I would like to deliver, but have a belief that you won't pay for it. You want investment advice and predicting the future, not help with using your money to reach your goals and understanding the impact money has in your life. I can't deliver what you want, and you don't want what I can deliver and what you really need.
There is so much more that the financial advisory industry and the financial planning profession can provide you. But for the most part you don't want it and we don't deliver yet. How does this change? I don't have any answers, only questions.
Do you have the answer?
Fire Your Financial Advisor!
I'm serious...go do it right now! Fire your financial advisor! You should expect more and better than what the financial advisory industry is offering you right now. You are paying too much and having too little delivered. Your financial well-being is being hurt as often as it is being improved.
The financial advisory world is so fundamentally flawed, so deeply entrenched in the money-making business that on the aggregate we are not bringing you a service worth paying for. This needs to change and quickly. There is one way to make that happen...stop giving us your money for too little service. Force us to change and to develop a better service for you. Don't pay us until we offer you more value for your money.
I may upset some of my colleagues by writing this because they believe they are doing things better. Frankly, I know there are some financial advisors who do a tremendous job and who do bring real value to client's lives. They are tremendously intelligent individuals who recognize that there needs to be significant and radical change to financial advice and financial planning. Unfortunately, they are in a drastically small minority dwarfed by the large money-making organization who work for their shareholders and do not care about their clients (or customers, as they consider you.)
So stop paying us for promises to make you rich overnight. Stop paying us for investment management that has a high likelihood of doing worse than what you could get almost for free. Stop accepting financial planning that is designed to reach someone else's goals and expectations. Stop giving people money for doing these things. As long as you continue to pay, people will continue to offer these low value services.
It's time for the financial advisory industry and profession to evolve. It seems clear government will not be helping with this, so it is time you vote with your pocketbook. Effect change and demand more. Fire your financial advisor!
By the way, if you have a better solution in mind, please post it in the comments. I would rather see a solution which does not hurt the good people in the profession and I want to start a practice in this profession myself. However, I do not see any other way to get the industry to evolve into something of true value until you stop giving us money to do less.
The Riskiest Risk
Today I am going to provide you a tool to help you really understand the largest risk to any investment or strategy a financial advisor may recommend to you. It's so simple it will seem silly, yet it is also very powerful. The risk you truly need to be concerned with and the risk that can harm your financial well-being more than any other is the risk that a financial advisor pooh-poohs away as being too big and too unlikely to need to worry about.
The conversation could go many ways, but ultimately the financial advisor will make a statement to the effect that worrying about a certain risk is useless because it means something has gone so fundamentally wrong that there are much bigger worries. What the advisor is really telling you is that they do not understand that risk and do not know how to manage or quantify that risk.
I do not like to speak or write in absolutes, but I am making an exception. NEVER follow a strategy or accept an investment recommended to you that your financial advisor does not really understand. If they cannot properly explain the risk and instead use arguments with no substance, do not consider that recommendation any further.
I have listed a few examples of phrases to listen follow below:
- If company X can't meet its contract guarantees, we have bigger problems than your investment failing.
- The risk in this investment is different.
- This company has never had problems in the past. If it has problems in the future, our economic system has been so deeply hurt that no investment can survive.
- That risk of X happening is extremely small and unlikely to happen. If it does, we have much larger concerns to deal with.
Any derivative of one of these statements is not an explanation of risk. It is simply a way to avoid having to acknowledge that the risk is not well understood. If we have learned anything over the past couple years, it is that those unlikely and misunderstood risks are what can truly derail financial plans and financial well-being. Those are the risks to be avoided.
Our economic system did teeter on the brink of total failure. Companies never expected to fail collapsed (or only survived with historic government intervention) virtually overnight. Yet, the sun rose the next day and we had to continue to live our lives. We had to continue to think about our financial well-being and future financial selves. We did not have the luxury to not worry about the damage done to our finances because what had happened was low risk.
Avoid these types of risks at all costs. Call your financial advisor out when they do not explain a risk to you and instead use an empty explanation. Your financial advisor is not being malicious or trying to deceive you. They likely truly believe what they are saying. Nevertheless, they are doing you a disservice when recommending something who's risk they do not truly understand.
I Don't Know What Financial Planning Means
Ask a financial advisor to define financial planning and they will give you an answer. Unfortunately, you could ask five different advisors and receive five different answers. The financial advice industry does not have a common lexicon to describe what it is we do nor to describe financial theories and concepts. In speaking with other advisors, I have often recognized that we were using similar words, but not discussing the same thing. This is a major problem both for the industry and profession, and for clients. How are you, as a client, supposed to understand what is being discussed if the industry cannot even agree on definitions.
In a previous post, I discussed the lack of clarity in titles used by financial professional. None of these titles are terms of art, although I hope that in the future we will see that some become so. This is one glaring example of the lack of shared vocabulary in the industry.
Another example can be found when discussing investment advice. Professionals who believe in active investment management often use the phrase "buy-and-hold" to characterize passive investment management. A professional who believes in passive management is unlikely to believe in the concept of "buy-and-hold" recognizing that passive investment management does not mean doing nothing. Passive and active managers do not agree on the definitions of their investment styles, despite being similarly trained.
A third example, and of particular interest to me, is the definition of financial planning. I have a definition of financial planning, one which I know is not shared by many other professionals. I have met financial professionals who believe financial planning to be nothing more than investment management; and others who believe investment management could be excluded entirely from the definition of financial planning.
The most disturbing part of all of this is that there is no dialog in the industry to try to arrive at common definitions. We recognize that there are differences, but continue speaking with one another even while we understand that we are not speaking the same language.
Clients and potential clients are hurt by this. You cannot know with any confidence what a financial professional is intending to explain when the definition can vary so significantly from one professional to another. The industry must begin to correct this if we truly hope to work for our clients. We must have a forum where open discussion can occur to create a common language. We must agree on the definition of financial jargon.
If Your Financial Advisor Does Not Talk To You About Budgeting, They Are Failing You
The concept of budgeting frightens you, doesn't it? Financial advisors long ago learned that bringing that word up with clients often caused clients to disengage from a discussion and no longer listen closely. Many people don't like the idea of budgeting. They feel it will restrict they choices, be difficult to implement and just a general pain in the rear. Many advisors decided to spend very little time on budgeting discussion, or ignore them entirely, because of the negative effect it had on clients.
Advisors who are claiming to help you reach your goals but have chosen to not spend time working with you on your budget are failing you.
I think this because I believe that understanding the way you use your money is the most important element to making well-informed financial decisions. Going through the process of creating a budget helps you understand your spending habits and helps you recognize ways you use money that you were not aware of or had not intended. Working on a budget is the best tool to truly understand what your priorities are, what you value, and how you really want to use your money.
Creating a budget is not designed to restrict your use of your money. It is your money after all and you have a right to spend it as you choose. Creating a budget is designed to help you understand your spending and adjust your spending to items you value the most. Creating a budget creates financial freedom for you and allows you to make well-informed financial decisions that will help you reach your goals.
If your advisor does not work on budgeting with you, or at least discusses the importance and gives you tools to do it yourself, they are missing the most important and highest impact financial advice service they can provide to you.
It's Not About The Damn Product
No Financial Product Will Achieve Your Financial Well-Being
If you've worked with a financial professional who has claimed that a financial product would be the solution to achieve financial well-being, you have been sold a lie. There are no financial products that are the answer to financial well-being. Consider financial products to be similar to over-the-counter medication. They can often treat symptoms making things seem better, and can occasionally provide a narrow solution to a problem; but they are never the solution to overall financial-well being. Financial products must be a part of a comprehensive strategy which only good financial planning can provide to achieve a path to financial well-being.
Returning to the over-the-counter analogy, consider trying to lose weight and live a more healthful lifestyle. You would not simply purchase weight-loss drugs and expect you life to become more healthy. You may lose some weight, but your heart would not become stronger and your endorphins would not increase (both benefits of aerobic exercise), you would also not enjoy the benefits of improving your diet. You would have treated the symptom of being overweight, but not have gained the overall health benefits of an overall lifestyle change.
Purchasing financial products is no different. The product may help with one problem, but you will not enjoy the benefits of focusing on your goals and values, crafting a path to reach those goals, understanding your cash flow and understanding your relationship with money. Your financial well-being might be slightly improved, but you would not have enjoyed the major improvement possible with good financial planning.
Don't allow a financial product salesman to sell you a bill-of-goods they cannot delivery. Financial products are not the answer.
LFA Blog Post Frequency
Since I began this blog, I have been trying to write a post every week day. Except for a couple days were circumstances dictated that I focus on other items, I have met this goal. Over the past couple weeks, however, I have felt like I have been forcing some content and not written the quality material I hoped to. So I will be refocusing and writing three posts (minimum) per week. I believe this should give me the space to write better content and bring more value to my readers. Let me know if you disagree.
True Financial Planning: Where It Begins
What is that one goal in your life that drives you every day; that one thing that, if achieved, will allow you to feel you have lived a life fulfilled? What is that goal that will give everything purpose?
While it's in your head:
- Tell your spouse, a family member or friend about the goal
- Write the goal down
- State the goal out load even if only to yourself
- Tell your spouse, a family member or friend about the goal
- Write the goal down
- State the goal out load even if only to yourself
Now that you've made the goal real by telling someone about it, writing it down and saying it out load; begin to plan how to achieve that goal and how to do so as quickly as possible. There is nothing more important than realize that goal.
Call you financial advisor and tell them that this is the one thing you need to plan for first, and all the other goals need to either be subordinate or support reaching that goal. This will help you create a financial plan which you are truly committed to and that you will want to achieve.
If your financial advisor tries to convince you that this goal is not worthwhile or a waste of money or silly, I suggest you begin interviewing new advisors. Nothing could be more important than achieving the one thing which gives your life purpose! There are advisors who would be happy and excited to help you achieve it.
Begin today, don't delay. Your happiness, contentment and fulfillment await.
Your Financial Advisor Is Human
I don't make many guarantees, but I am going to guarantee you one thing with absolute certainty. This guarantee has tremendous impact on the investment advice you receive from an advisor.
Many financial advisors and investment advisors I have met with seem to believe they are not human. It seems that they believe they are able to make financial decision purely based on rational factors and unaffected by emotion. They are under the impression that they do not fall prey to the same snap reactions when there is a major stock market drop that their clients do. They are wrong.
Financial advisors and investment advisors are human. They experience emotions and react to those emotions just like other humans. Fear and panic cloud rational decision-making for an advisor no differently than for anyone else. These emotions can lead to poor decision and mistakes being made on behalf of clients. You may even have heard your advisor tell you they just had a gut feeling about some investment, either to buy or sell. A gut feeling is not rational, it's emotional. Advisors are also human and therefore prone to make similar errors to other humans.
Your advisor may choose to sell investments at poor times because they watch the markets collapsing. They may become wrapped up in the mania of a strong bull market and buy something as prices are rapidly increasing. They are human and subject to making these same mistakes, particularly if the advisor believes in actively managing your investments.
This emotion is not a bad thing, however. If they were not humans, good financial advisors could not empathize with their clients and could not have genuine interesting and truly care about their clients' well being. You want your advisor to be human, to have emotions and to understand your emotions. It can lead to a deeper and more trusting relationship between you and your advisor.
What is important is that you recognize that your advisor is human and that they can make the same errors you do. Good advisors realize this fact and put in place systems to help prevent them from acting on emotion; they may believe in a passive investment approach which does not react to market movements, they may have a multi-person process to make portfolio changes, or they may employ some other mechanism.
You, as a client, can your advisor recognize their own emotions as well. During the market collapse in the second half of 2008, I worked with a client who would call me almost daily asking if he should make any portfolio changes to some mutual funds we did not manage for him. Each day there was a major market movement (and there were many) he called to discuss, but he clearly had made up his mind before the call. It dawned on me after several calls that he was not really asking for our advice, but was instead gauging our emotions and making sure we were not making drastic changes to his portfolio based on those emotions. He would finish each call by telling me he was happy we were not changing anything and asked that I call him first should we decide to do so.
You can do the same with your advisor. Call and bring up your fear. Listen to your advisor's response and determine if they are trying to make decisions while under the influence of strong emotions. If you think they are, call them on it. Ask them to write out their rationale for their decisions and the impact those have on your long-term financial well-being in an email and send it to you. This will force them to think more rationally and may impact the decision they are making. You are in this together. The advisor should be trying to help you recognize your emotions and the influence this has on your decision-making, and you need to do so on return. You are both humans.
Now, to tell you my guarantee. I guarantee your advisor is human. No matter what they tell you regarding their ability to work rationally and logically, they are human and subject to the same errors that you might make. They need to understand the importance this has and you need to as well. Advisors cannot and will not be perfect. They will make mistakes. But by working closely with clients in an open and trusting manner, many of these mistakes can be avoided.
Subscribe to:
Posts (Atom)
