The objective of investing is not to make a “big pile of money.” Or is it? This is not a real goal – it is a fairy tale. We think we’d love to make a “fortune.” But how much is a big pile, a lot, or even a boatload? How much is enough? What do we need it for? What are we trying to accomplish?
Imagine you have come to the office of Stoffer Wealth Advisors for a consultation. You need some help in reviewing and structuring your investments. You are concerned about securing a good rate of return on your investments and want to understand what will be the best approach. Here’s how the conversation might go.
Did you hear the latest on the trade talks with China or the health of the economy? If you somehow missed it, you’ll probably hear about it later today or tomorrow. It may be on the screen at the gym. You’ll turn on a radio and there it is. It seems impossible to escape the financial news. Does listening to any of it help you to invest your money more wisely. The answer is, probably not. The point is that we’re bombarded with all kinds of “information” that is supposedly making us more informed about markets and investing. The ‘news’ usually focuses on telling us what has happened. It certainly doesn’t help inform us of what is likely to happen.
Captain Jack Sparrow in the movie “Pirates of the Caribbean” has been forced ashore by a mutinous crew. We see him stranded on an island drinking rum with his lovely companion beside a fire. They are discussing his ship. “It’s not just a keel, a hull, and a deck and sails. That’s what a ship needs. But what a ship is, what the Black Pearl really is . . . is freedom.” As an idealistic young investor in the ‘80s I felt the same way about the investment of my retirement savings. Those investments represented financial freedom. What do your financial investments mean to you?
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.
Retirement success means something different to each of us. Some people see themselves working in retirement because that's what they've always done. Others are afraid to stop working for fear of running out of money. Some people just want to feel secure when they stop working and know they'll have sufficient money to live. Since retirement isn't really a destination, but a process, try our 3 P's to help create your vision of a successful retirement.
The idea of paying off the mortgage – usually our largest single debt - has an iconic and seemingly straightforward appeal. But is it really the best financial strategy? The analysis of the relative benefits of paying off a mortgage versus saving for retirement can be complicated. To answer the question it is important to consider your individual situation. Are you close to retirement age, or many years away? Do you have significant retirement savings or not? What tax bracket are you in and how much benefit do you receive from the mortgage interest deduction? Will the returns on your retirement investments exceed what you are paying for the mortgage? I will provide some guidelines to help you think through your particular situation. If you are already feeling dizzy contemplating the range of factors affecting such a decision, you are not alone. Professional guidance may be needed.
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.