Of course the financial advisor you hire should have the right credentials. But here's what else they should have, and it's just as important as those credentials.
First, as a disclaimer, let's establish one thing here: credentials matter, a lot. Expertise, of course. Fiduciary? Absolutely!!! To understand the complexity of the financial world, to know what's available for clients, and to understand how each individual is different and has unique needs and goals... all of that takes schooling. And more schooling later on to stay current. And exams. It's not a profession for people who don't like to study and learn things, so let's just put that out there right now. Expertise is crucial in the financial advising profession. Credentials matter! Now that that's off our chest, we can say this: we can't stress enough how important the fiduciary standard is when it comes to hiring a financial advisor you can trust. Some Advisors Don't Take the Fiduciary Oath... Now for another disclaimer. While many consider the fiduciary standard to be a non-negotiable necessity for the advisor they hire, it's also true that there can be (and are) advisors who do not take the fiduciary "oath", but who serve their clients well. They are commission-based advisors, and make their money when they're able to sell certain products to their clients. It may sound dubious to you, but as long as the clients understand this and agree to that, the relationship does work for some people. They simply add one step to the process: they double-check every recommendation their advisor offers them. For them, that system works, and they don't mind the extra work. For the rest, however, the fiduciary standard is their way of knowing the financial advisor they hire is looking out for them in every possible way. Want Objective Advice? Hire a Fiduciary A fiduciary is obligated, by law, to hold your financial interests above their own. That means, when it comes down to a choice between two investments, for example, he or she can't choose one over the other simply because they get a cut when they sell that option. They'll be literally bound to choose the options that serve your financial interests the best. Most fiduciaries won't bother signing up for many commission-based programs, since they may not legally be able to recommend those products unless they're the absolute #1 best option for their clients. Instead, they usually charge a fee for their services, or charge their regular customers an annual percentage based on the total amount they're managing. These are called "fee-only" financial advisors (the other type are called "commission-based" financial advisors). So, What's the Take-Away? Commission-based advisors aren't thieves, of course. They're hard-working professionals who studied a long time to earn their credentials. They're simply working off a different structure than what many people are seeking these days. For those who want the officially-recognized beacon of trust in the relationship with their financial advisor, the fiduciary standard is an important thing to look for when hiring someone new.
4/3/2017
7 Easy Steps to Set Financial Goals
One of the easiest ways to reach your financial goals is to start by setting some! Without documenting what it is that you’re hoping to achieve financially, you may never accomplish the financial success you’ve envisioned for you and your family.
Luckily, this post will walk you through seven easy steps you can take right now to start setting financial goals and begin working toward them. 1. Write Them Down Chances are, you have a running list in your mind of your financial wants and needs. But if they are only in your head, new ones get added or jumbled with old ones and there is no clear list of all the things you are working toward financially. Instead, list them out on a piece of paper. Everything from redoing your downstairs bathroom to paying off that student loan and saving toward retirement. And when you think of your goals, don’t limit it to only the items you can already quantify in terms of cost but also dreams of how you want to live your life. For example, if you always want to be able to take a 2 week family vacation each year, put that on your list too. 2. Prioritize Them According to What is Most Important to You Do you know why money is important to you? Is it because you want financial security or a certain status? Maybe it’s to be able to provide for your family or so that you can afford to do certain things with your time. Knowing why money is important to you will allow you to more easily prioritize your financial goals. If, for instance, it is most important to you that you are able to go on a family vacation every year, maybe the remodel of your kitchen is something you spend more time saving toward so that you can still afford your trip. Look at your list and see which goals map most closely to your ‘why’ and see if that helps you more easily prioritize your financial goals. 3. Categorize Goals Naturally, not all financial goals fall in the same category. You are going to have small, short-term goals and then the large, behemoth money goals. For example, an emergency fund is potentially something you may need tomorrow! Consider categorizing your money goals as Wants vs. Needs and Short Term vs. Long Term. Under your needs column you may have items like build up an emergency fund. Wants column might be more discretionary money to spend on entertainment each month. Long term goals may include saving for retirement and your children’s education, while short term goals may be to redo your master bathroom. 4. Estimate Your Goals Next, figure out how much money it will take to reach your goals. Knowing at least a ballpark amount will allow you to actually work towards certain goals and start saving. Your emergency fund should be anywhere from three to six months of your income to cover fixed expenses. What is the amount you need to have saved in an emergency fund? How much more money would like you like for entertainment expenses each month? What do your monthly contributions to your retirement account and 529 plans need to be in order for your to reasonably achieve your long-term savings goals? Knowing the answers to all of these questions may not be immediately clear. If you have questions, a financial advisor can help you estimate many of your long-term financial planning goals. 5. Start Once you have your goals documented, prioritized, categorized, and estimated – it’s time to start working toward them! Start executing on your dreams by saving money for your specific goals and cutting unnecessary expenses. You’ll reach your goals faster if you’re able to redirect spending in one category to the goals that are your highest priority right now. Maybe start with a small goal so that you can feel the gratification of reaching a financial goal and cross it off your list and then work towards a new one! 6. Revisit Your Goals Every 6 Months Every six months, revisit your list of financial goals and see how you’re doing. How are you doing towards achieving them and do you need to make any adjustments? Life is fluid and full of changes, so it’s completely reasonable that your list of priorities may alter from when you started due to unforeseen changes in your circumstances or a shift in priorities. That’s OK, but just be sure that you are still focused toward the goals that are important to you. You are responsible for your financial success and so much of it relies on your ability to focus on your goals and implement.
If you asked a lot of young couples about their savings priorities, many of them will say "saving for an education". Their child's 529 plan takes precedence over their own retirement, which is a perfectly understandable way to reason things.
But it's not always such a clear-cut decision, according to financial planners who work with families struggling with this decision. Like so many things in life, the right answer depends on individual circumstances. It's a Common Dilemma Parents can feel torn between saving for their own retirement and providing for their children's future education in a 529 plan. Both types of saving involve investing over the long term for a steady rate of return, so time plays an important role in either plan. Some parents stock away too much in their child's 529 plan, leaving little or no money left for early investing in their own retirement funds. That can be a big mistake, since it leaves them with no means for living later on. Plus, it sort of defeats the purpose of providing for their kids, since they're potentially becoming a burden by not planning for retirement. But it's hard for most parents to ignore their child's future, and everyone wants their kids to go to college. So how can parents decide what to do, and when? Is There a Firm and Clear-Cut Rule? While parents can feel pulled in both directions as far as where their investments should go, there are a few hard-cast rules to follow. One of these rules involves your 401(k). If you have a 401(k) plan at work, nothing short of a federal emergency or the apocalypse should stop you from contributing the maximum amount that's matched by your employer. Matching contributions are a rare a precious gift from employers - free money - that nobody should turn down. Even if it means delaying your 529 contributions, put your money into your 401(k). Another accepted truth is that even just a little bit of investment in a college plan early on will make a difference over time. That means while you're agonizing over the decision about where to invest your money, it might be wise to just stop and put away $50 per month just to get one started. Then, time can take over and you'll have a nice chunk saved by the time Junior is enrolling for freshman courses at his chosen institution of higher learning.
Is it possible you're missing out on one of life's greatest pleasures by letting a robo advisor have all the fun?
In personal finance, as in life, we feel satisfaction when we set goals and achieve them. It makes us feel that life is worth living, we're getting somewhere, and we're not just wasting our time on earth. But one of the things a robo advisor doesn't do for you is set goals and tell you how to achieve them. You Have Goals, Don't You? The strength of digital advisors, as they're sometimes called, lies in the automation of a single part of your overall financial plan. You, or someone you trust, has to do the rest. Money is a symbol of our aspirations for our lives- it's how we get where we want to be. But if all you do is work, spend, and invest the rest with a robo-advisor, you may not be fulfilling your goals as effectively as you could. That's where financial planning comes in. A good plan will take into account your earning potential, your education, your goals, your personal situation, your family, and your future (have we forgotten something?). A financial advisor can take your dream of owning a weekend cabin in the woods and turn it into a financial goal, complete with a plan to get there. Can a robo advisor do that for you? Here's What Robo Advisors Can & Can't Do For You If you put all your spare cash into a robo-advised investing account, you might be missing out on some pretty serious financial techniques that could get you places faster. You're also missing out on learning how to prioritize your finances – a life skill that will serve you forever. For example, how many people investing with robo advisors don't have an emergency fund in place? It's actually pretty common, given the grim stats on how Americans just don't save a thing. And by not having an emergency fund in place, you're risking having to do some pretty fast and desperate manipulation of your finances should you encounter a cash emergency (like huge medical bills, for example). That could set you back a long ways in terms of reaching your financial goals. By blindly socking away your spare cash in a robo-advised account, ignoring the rich variety of savings and investment tools at your disposal, you could be missing out. Learn more about personal finance or talk to a financial advisor to find out what you're missing!
You've been dutifully making your 401(k) contributions for a while now... but is your strategy really the best one for your needs? Here's a new way to look at things.
Don't panic: if you're making 401(k) contributions, you're far ahead of many of your peers when it comes to being ready for retirement. But beyond simply participating, there are various ways to invest to get more of what you need. Wealth vs. Income Many people choose a retirement planning strategy that invests for wealth. Sounds great, right, since who wouldn't want to chase wealth? But there are different ways of looking at your investment performance. You can look at the size of your account: that's your wealth. Alternatively, you may also look at the income-generating potential of your investments. Some experts say that's actually more important than the size of your holdings! The Target Date 401(k) Over the past decade or so, the "Target Date" retirement account has become very popular. You choose your retirement date (that's your target date), and the financial institution managing your account adjusts your holdings according to how close you are to your target date. That typically involves starting out with a heavy ratio of stocks to bonds, when you're young. The idea is to slowly move out of stocks as you get older, in order to minimize risk. Short-term bonds become a larger percentage of your portfolio, since they are less risky. The idea is to keep your holdings steady- if the market dips, your account should remain relatively stable, not falling so much you can't recover in time to retire. This is known as a wealth strategy. Consider the Income Strategy An income strategy, on the other hand, would have your portfolio including annuities and long-term bonds, both of which are affected by long term interest rates. When you're trying not to let your holdings fall too far, this is considered a risky strategy, so those target date accounts usually shy away from these types of investments. However, viewed from an income-generating point of view, long term bonds could be a good bet. That's because their prices run parallel to annuity prices, which would also be part of an income strategy of planning for retirement. Watching your nest egg grow is a fun habit, but rather than focusing on the total amount, you might want to consider focusing instead on what sort of income that total can generate for you in retirement. Want more info? Ask your financial advisor, who can explain all this in terms easy for you to follow.
Buying a home is exciting and overwhelming at the same time. The process is different for everyone, but no matter what your budget may be, and no matter how experienced you are, a financial advisor can smooth the way to better decision making.
Here are the steps to buying a home, and how having a financial advisor at your side can greatly increase the chances you find the right home for you. Step One - Get Your House in Order By this we mean figure your net worth, analyze your present and future earnings, and figure out what a realistic budget for your new home might be. Too many people make the mistake of not understanding how much house they can afford, and a financial advisor gives you a much better idea than a free online calculator. They can also help you find ways to come up with an appropriate down payment. Step Two - Start a Down Payment Savings Account Knowing how much down payment you can afford is just the first step. Now you have to figure out how to come up with one. Should you divert funds from somewhere else? How can you maximize your investments quickly for a larger down payment? A financial advisor is the best person to answer these questions, too. They can help you see the wisdom of a large down payment, and then find ways to scrounge up the funds for it. Step Three - Find the Best Kind of Loan It can seem like loans come in as many flavors as Baskin Robbins, and choosing the right one is a pivotal part of your home-buying plan. Choose the wrong loan and you could be (literally) paying for that mistake for years. There are FHA loans, conventional loans, and then there are fixed-rate vs adjustable rate loans. Do you want a government-backed mortgage? These questions are not something your realtor is trained to help you answer. A financial advisor, on the other hand, is all about helping you with tough decisions like this. Step Four - Find a Home Here's where a realtor might come in handy. Find a home that's within the budget you and your financial advisor set, then make an offer. Before you commit, however, get it inspected by a certified home inspector you can trust. Use one you find independently, not someone who has anything to do with the seller. Once you've got the right mortgage and the right home, just stay in touch with everyone involved, and soon you'll be closing and moving in. Good Luck!
If you've got some money to invest, there are several compelling reasons to look into real estate. The market has recovered since 2008 and there are multiple ways you can opt in. We'll show you those ways, and how to get started right here in this Investor's Guide to Buying Real Estate.
Learn Your Options From the straightforward concept of buying a rental property to investing in REITs on the stock exchange, you have several ways to dip your toes into the sea of real estate investment. You might even want to consider commercial real estate. Here are some of the ways you can invest in real estate:
State Your Goal(s) We all want more money, and you'd probably love to grow your investments to a point where you've got either a steady income or growth or both. Beyond that, there are different reasons why people choose to invest in real estate. Here are the top reasons:
For some, investing in real estate is something they simply can't help. They enjoy the thrill of the property hunt, the thought of a great deal that's going to appreciate in value, or the vision of fixing up a beautiful property (and making the world a better place). As for taxes, you get a tax deduction for depreciation of your property over the life of the property. You also may want to claim the interest as a tax deduction, if you are paying a mortgage. One goal that's not very realistic is getting rich fast. Don't be susceptible to so-called experts who say they got rich in a week by flipping real estate. Real estate is meant to be a long-term investment for everyone but the most dedicated and experienced of investors. It's risky, volatile, and complex so leave behind the notion that you're going to make a fortune overnight. Make a Plan A common bit of advice you'll hear is that you shouldn't buy investment property in your own name. That's mainly for legal reasons, should you get sued. You'll have insurance of course, but sometimes legal settlements turn out to be more than what you're covered for. You'll want to plan out what sort of legal entity to form (most use LLC). Seek advice from a lawyer, an accountant, or even your financial advisor. Next, define your strategy. Too many investors start with a property they love, buy it, then think of how they'll make money from the property. That's the wrong order of things! The plan should come first, and then you find the property that suits your plan. For example, your plan might be to buy a duplex and live in one half while you rent out the other half. You'll save yourself a lot of time if you come up with that plan before you go shopping around. Creating and sticking to a plan will also help prevent "emotional buying", which is when you let your feelings do the shopping. Remember: you're not going to live in the property. You have to look at it from a purely financial perspective. Recap There are now many more choices for today's real estate investor than there used to be, including the more liquid REITs and Real Estate ETFs that are relatively new on the scene. And as we all know, real estate markets are unpredictable and risky. That's why nobody should go it alone. This investor's guide to buying real estate should really be just a starting point for you. Getting advice from a financial advisor is a smart move for any investor, especially in the complex and risky world of real estate investing. Good Luck!
Usually, people purchase life insurance policies to protect their children or spouse. Here's another reason, which you may find interesting because not everyone knows about it.
Your kid, your spouse, even your parents or siblings... you might provide financial support to any of these family members. If that's the case, you probably worry about what will become of them if you should pass away before they do. Of course that's one common reason people purchase life insurance. They want to know their loved ones will be protected from financial hardship if a breadwinner of the family dies. There are other reasons for purchasing life insurance, of course. Here's one that you've probably never heard of : protecting your investment when your child goes to college. Insuring Your Investment in a College Education? You Betcha This may sound a little unusual to you, but it does occur on a regular basis. Americans have been insuring their kids' college education for decades! It's a tradition hearkening back to the 1940s, and it works like this: You "invest" a lot of money in sending your child to college... if, heaven forbid, your child dies, that money can come back to you in the form of a life insurance payout. If that sounds grim to you, consider that although nobody likes to talk about it, people die all the time. Chances are, your child won't die in college but if they do, it would really add to your misery to be stuck with tons of debt along with your intense grief. Life Insurance for College Students, Especially for Private Loans If you're paying a big chunk of your child's college education out of pocket, then yes it's wise to consider "insuring" that investment with a life insurance policy. But then there's the matter of student loans. If your college student has taken out private student loans and you're the cosigner, then you'll want to do more than consider a life insurance policy on your student: you'll probably want to take action. For Federal student loans, the debt is discharged upon death of the borrower. Private loans, however, live on even after the student has died. The debt falls to the cosigner. So, along with trying to cope with a tragic and untimely death, parents left behind now have a major chunk of new debt to contend with. That means, while in the midst of mourning, you'll have to come up with the payments for that private loan, since they'll still be due right on time every month. Conclusion Whether it's to protect your own investment in your child's college education or to protect yourself from having to pay off a student loan, a life insurance policy can actually make sense for a young, healthy college student with no dependents after all. Now you know!
If you don’t have an emergency fund and are ready to build up one now, get ready to make a few changes. Getting into top financial shape takes work and a real intentional effort on your part to make some necessary adjustments to the way you deal with your money to make this possible.
When you are in the mindset of saving up for an emergency or paying down debts, it’s a time to live in forced scarcity. We aren’t saying to live in scarcity forever, but when you are trying to accomplish a very clear financial goal, like saving a large amount of money, it’s necessary to operate differently than you have been. Otherwise, you would have your emergency fund funded already! Ok, so six months of your expenses is a lot, but you can do this! Here are the seven steps to take for starting your emergency fund today.
It’s the good money habits you establish now – like having a fulling funded emergency fund – that will help to set you up on a path for financial success. Good luck!
1/11/2016
How to Choose a Financial Advisor
Choosing the right financial advisor just got a little easier with these three helpful tips.
What if choosing a financial advisor was like finding your dream home? It could be if you knew all the things you were looking for and allowed yourself some extra time to shop around. Choosing the right financial advisor shouldn’t be a sprint. This should be a decision you can take your time with that doesn’t come with pressure or an expiration date. This is a relationship you could potentially have for decades, if not generations. Financial planning and money management are ultimately about fulfilling your life goals. In an ideal world, you would find a financial advisor who views money as a means to an end and not the end in and of itself. Someone who knows how to put your money to work for you and is driven to work even harder because of the future you’re working towards, not just returns on a spreadsheet. Here are 3 Things to Consider When Choosing a Financial Advisor
Once you get to the point where you feel ready to make a decision, do one more gut check to make sure. Take note of how you feel around them- do they put you at ease? Do they help you envision your future and how you’re going to get there? Go with your gut, since it's usually right. If something feels off, walk away. And if everything feels right, go for it!
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Chris Hardy - CFP®, EA, ChFC®, CLU®,
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6/6/2017