Do you have any idea of the costs and fees associated with your investment accounts? The previous articles in this series have explored the difficulty of determining what things really cost. In discussing this issue with some friends, another frustrating cost question arose: “What does it cost to invest your money?” There was unanimous agreement that information about investment costs was often scarce and confusing. What fees are associated with investing? How do we find out? Many people don’t know whether or not their accounts are being managed by anyone, and whether or not they are being charged. In this article, we’ll look at those investment accounts you may have. What exactly are you paying for? How much does it cost to have your money managed for you? Some investment vehicles, specifically mutual funds and ETFs, have “expense ratios.” We’ll look at those as well as 401Ks.
Last month’s article about prices began as a rant about the difficulty of knowing what specific items should cost and how to assess their value. In this month’s article, we’ll look at the “price” of retirement. How much does it cost? Have you saved enough? As a financial planner I want to know what something is going to cost before I say “yes.” Sometimes this can feel a little embarrassing. I’ll be the first to ask the waiter, “So how much is that swordfish special?” Did you grow up hearing, “If you have to ask, you probably can’t afford it”? I have the excuse that “it’s my job,” but I know that many people experience fear around asking. I’m not the only one who wants to know.
In a workshop I gave some time ago, a woman named Lisa related the following story. She had been sent to the store with money to buy milk for dinner. As she was leaving the store, she spotted a cute little stuffed bear. She had change in her pocket and thought, “I can buy this!” All the way home she was excited as she anticipated showing her mom what she had bought. But when she got home, her mom screamed at her, ordering her to return the bear and bring back the change! The little girl was traumatized...
Back in 2008 a woman in her mid 50’s came to my office for an initial meeting to discuss her personal finances. She had rescheduled at least three times. About half way into our meeting I asked her, “So, how was it for you gathering your information to come see me?” Her response displayed such vulnerability and courage I’ll always remember it. She said, “I’m am so embarrassed! I’m so disorganized! I’m at a point in my life where I feel like I should be more together. I’m ashamed that I don’t have more saved.” Whether you earn a little or a lot of money you can find yourself having similar feelings.
In their book, Why Smart People Make Big Money Mistakes, Gary Belski and Thomas Gilovich state: “Numerous studies over the years have demonstrated significant overconfidence in the judgments of doctors, lawyers, engineers, psychologists, and securities analysts.” According to these findings, highly educated people seem to see their “smarts” in one area as evidence that they are more knowledgeable in other areas as well. But it’s not just professionals who fall prey to this belief. It appears to be part of human nature generally to over-estimate our abilities. For instance, in rating our skills at driving, how many of us think we are “smarter than the average bear?”
Consider the following scenario. You are perusing the menu at a restaurant, deciding what to order. The fresh, local salmon in a piquant sauce with sun gold tomatoes and basil has your mouth watering. It is $32. You definitely want fish, but immediately conclude that the salmon is simply “too expensive.” No, can’t do that. So you order cod, perfectly respectable, broiled – but plain – at $22. It arrives. It’s OK – but it isn’t what you really wanted. We’ve all experienced this type of automatic compromise that seems so sensible we accept it as the “right” decision. Such thinking may become an unconscious principle behind our money decisions. This is the smart thing to do. But is it? Why do we so often deny ourselves what we really want? One obvious answer is that it is about the money. Ten dollars is . . . well, ten dollars.
It’s the sort of thing people ask friends and acquaintances. Recently at the gym I happened to overhear a conversation that began with this question. Unfortunately, I was on my way into the shower and didn’t get to hear the answer. It’s an intriguing question. What is a “good investment guy” anyway? At some point, you may want to find some investment guidance, too. What should you be looking for?
In Part 1 of this series, women shared stories from learning when to ask for more money to never assuming that someone else will take care of you financially. Here, a few women share more lessons learned. Hopefully these stories will help you plan your own finances, rather than realize your errors in hindsight. Taking Time Out to Raise Children For those planning on taking time away from the workforce to raise kids, Lori had this to say. “I was astounded how difficult it was to find work (that paid well and utilized my skills) after having been away just a few short years.” Her advice was to do something — anything — part-time rather than leave the workforce altogether. Keep up your contacts and your skills. “Getting back to where you were earnings-wise can be a real challenge.” Being Emotionally Tied to a Home She Couldn’t Afford Madeleine’s wake-up call came in 2008. Her husband told her that he had decided to move out and seek divorce. Even though half the household income just walked out the door, she continued to spend like she and her husband were still together.
Many of the women I see in my financial planning practice have been through divorce. Many are experiencing for the first time what it is like to live independently. I hear familiar themes with respect to money —phrases like, “I should have paid more attention,” and “I shouldn’t have assumed my ex-husband knew what he was doing.” Finally, it dawned on me to start asking these women what lessons they would want to pass along to younger women, including their own daughters, about money. What follows are their stories and mistakes. Every one of these women has a valuable lesson to share!
Last month I posted a piece encouraging people to pay attention to their money. This, I argued, was “the one thing” that could make a meaningful difference in peoples’ financial lives. It may strike my readers this month, therefore, as counter-intuitive when I suggest that over-vigilance of one’s investments might backfire. Let me explain.
I’m beginning to wonder if how much money we have is less important than how we feel about it. I suspect that if I spent as much time exploring how I felt about my money as I have trying to earn it, I’d be a much happier person today. Is the person who is wealthy yet miserable just a cliché? What about people living in poverty who seem joyful and display incredible generosity? Before we dismiss these extremes as stereotypes, perhaps there is more to be learned by looking below the surface. As a financial planner, I have heard people express the gamut of emotions when it comes to finances. Often, just talking about our money issues can be very liberating.
According to the old saying, where the eyes go, the body goes. It turns out the basis for this truth is not only physical, but psychological as well. I remember a recent motorcycle trip over the Sonora Pass. I had the road to myself and was enjoying the thrill of driving fast through the turns. Coming down the mountain looking out toward Nevada, I glimpsed a long stretch of road ahead. Accelerating out of a turn, I anticipated a clear sweep. Suddenly I saw a scrap of two by four on the road, directly in my path. My attention fixated on the piece of wood. Panicking, I hit it. Luckily, I didn’t wipe out, but instantly began berating myself for the collision with this obstacle. Perhaps if I had directed my eyes elsewhere, I could have avoided it. I’ve recently encountered a couple of people with financial challenges that reminded me of this event.