What is wealth management? Why is it important? Many people assume that wealth management is only for the wealthy. That depends on your definition of wealth. Our definition includes the use of all our resources in creating a sense of well-being and abundance while providing for present and future needs. To create a rich […]
If you wanted to leave some money to your children, how would you split it between them? You could come up with numbers based upon their likely need for help. Or you could simply divide it equally…after all you love them all, well…equally. Equal distribution is probably the most common way of dividing assets. Yet, what about the situation where one of the kids is very successful financially and has no need for your money? What message does an unequal gift send? Conversely, if you were one of the children on the receiving end…what if mom and dad left all (or even most) of the money and investments to your sibling because you ‘don't need it?’ You might feel ‘less loved’, or slighted in some way, left with a nagging feeling that perhaps they really did love them a bit more than you.
In the past several articles, we’ve looked at the variable nature of prices. What does a gallon of milk or a hotel room cost? How much does it cost to retire? What types of financial management services are there, how much do they cost, and which one might work best for you? In that vein, why pay someone to manage your money? I recently told the story of a client who experienced immense relief upon delegating the management of her finances. Making all the decisions on her own had left her plagued with fear and anxiety. My listener exclaimed, “But my father said never to pay fees!” Such advice might be good for one person, but not so good for another. While I agreed that one should pay as little in fees as possible, my listener’s objection raised the question: What are some of the reasons to have your money managed professionally?
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.
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?
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.
The stock market has gotten off to a wobbly start in 2016. If this “correction” feels familiar to the one in August of last year, it is because the same reasons are still in play: the economic slowdown in China, fear of Fed rate increases, and the rapid decline in oil prices. World Economic Growth While economic growth in the U.S. remains fair to good, economies in other parts of the world are not doing so well. China, the world’s second largest economy, had been a strong engine of growth. It is now slowing dramatically. Europe is still struggling in the aftermath of the economic meltdown of 2008. Japan is also lagging. Emerging markets have suffered as the threat of Fed interest rate increases spurred investors to look for less risky places to put their money. The U.S. economy does not exist in a vacuum. Weakness in the rest of the world threatens to lead us toward recession.
This week I’ve been reading Thinking Fast and Slow by psychologist Daniel Kahneman. The author received the Nobel Memorial Prize in Economics for his work on cognitive biases in decision-making. Where finances are concerned, we all like to think we make rational decisions, based upon well-considered reasoning. The studies examined in this book suggest otherwise. What is really behind our financial decisions? Here’s a personal example – my “lettuce story.” I am standing in front of the produce section at the grocery store, eyeing a beautiful head of organic romaine. But I’m frozen.
A silly question – maybe? OK, Halloween is over, but I got a bit of a fright when I reviewed a recent survey done by Harris Poll stating: “Nearly three quarters (71 percent) of Americans say some aspect of talking to a financial advisor scares them . . . ” That’s a huge number. What’s going on here?