My colleague Dina Isola @RealSmartica testified before the US House of Representatives Financial Services Committee this morning in support of a strong fiduciary standard for all financial advisors.

She is armed with the most important weapon of all – the truth. pic.twitter.com/b26w3pJS4b

— Downtown Josh Brown (@ReformedBroker) March 14, 2019

Weeks ago, I found myself writing testimony I would deliver before the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets.  The topic was examining the SEC’s Best Interest Rule to see if this “replacement” for the fiduciary rule could ensure that investors’ needs would be put first by financial professionals.

Sorry to say, I felt like Dorothy in the Wizard of Oz after the curtain was pulled back – horrified at the bullying and cowardice on display.

Congress had no shortage of spin masters that day.  It disgusted me to watch as these conflicted politicians defended Regulation Best Interest even though it allows financial professionals to partake in sales quotas, contests, and sell higher costing product because it pays higher commissions (which is never in a client’s best interest). 

I walked away angry over the fact that those in a position of authority are tainted in the worst of ways and it enables them to politicize the issues and use ignorance and fear to keep the American public fleeced into thinking that lawmakers are looking out for them.

Now, in fairness, there were two bright spots that stood out – Rep. Katie Porter (CA) and Rep. Carolyn Maloney (NY) clearly were looking to strengthen investor protections.  So, if you happen to be lucky enough to have one of these fierce ladies representing you – congratulations!  They gave me a tiny glimmer of hope that not all politicians are looking to their next high-paying gig.

In the days and weeks following my testimony – I did a slow burn that kept intensifying and no amount of ranting seemed to get it out of me.  It percolated in me like a toxic sludge.

My poor husband who had endured the weeks of neurosis leading up to my testimony now had to deal with the aftermath, too.  Sometimes, life just isn’t fair.

Coincidentally, we had a number of financial literacy classes scheduled with high school students over the course of the next month.  It was there I found some peace.

If I couldn’t beat the bastards – I would work to educate others so they could not be taken advantage of.  Armed with the most passionate teacher I know (Tony), we set out and that seemed to be a therapy of sorts.

It reminded me of how, years earlier (before the fiduciary rule was even on the table) he and I would give Investor Self Defense presentations.  Over time, we had built up our clients and had less time to devote to these programs – but we had always enjoyed informing others.  It is truly at the heart of who we always have been.  Nothing has changed.

Today, our emphasis may be on the lack of protections afforded to teachers’ retirement plans – but as long as there is no fiduciary rule governing IRA accounts, college savings plans, and regular brokerage accounts – we are all teachers.  We are all vulnerable to fall prey to a convincing sales pitch.  We can all fall prey to conflicted salespeople purporting to be trusted advisors.  We can all be duped into thinking the sales guy is really working for us, when he is working for a firm who has made campaign contributions to sway politicians into weakening investor protections for their own benefit.

It’s even easier for us to become prey when the gatekeepers in Congress would rather prop up an outdated, inefficient and expensive business model than insist that they do better for investors.

It’s only a matter of time before the public catches on and finds fiduciaries to work with – or low-cost mutual fund companies, like Vanguard which allow investors to do an end-run around expensive product and unhelpful advice.  Firms like Betterment are also offering low-cost automated investment options. 

The financial services industry should support raising the bar on protections; higher standards give investors confidence and faith in our economic system.  That is an important ingredient for economic growth and robust markets. 

The brokerage and insurance industries best enjoy their gluttonous feast now because the purge will be violent.  And make no mistake – that day will come. 

Millennials are breaking with tradition and the old mold will be cracked open.  They don’t care who their parents used for investments.  In fact, they’re pretty mistrustful of the established way of doing things.  Good for them!

Our representatives in Congress should look to raise their standards above their own personal gains and interest.  Greater faith in the government is never a bad thing.  Apparently, members of Congress didn’t get the memo that Americans find them to be the most mistrusted group. 

Sadly, I have to agree.

Unfortunately not everyone realizes that it is open season on investors; we live in a buyer beware environment.   For those who are informed, the onus is on us make others aware so they can look out for themselves.

I had the pleasure of speaking with Barry Ritholtz about this experience and he asked me if testifying had been a waste of my time.  While it certainly felt fruitless, I did walk away feeling the need to scream from the rooftops: Watch out because the regulators aren’t watching out for you. 

Consider this my rooftop.  Now do a good turn and let someone less informed know.

I had the pleasure of catching up with my colleague, Blair duQuesnay, for an episode of On Her Mind podcast.

She shed some light on the history of women in the workforce and shared that, before 1973, newspapers had segregated the help wanted ads by gender. So it is a fairly recent development that women have been part of the professional business world.  This might explain why current workplace policies have not consistently addressed the challenges faced by dual-career couples raising children.  The lack of female representation on corporate boards is another.

The plight of the modern-day career woman is complicated. In spite of being better educated than ever before (and having more academic credentials than men) women get into the workforce and are faced with earning less pay and often are hampered in their advancement by gender biases (intentional or not) inherent in our society.  Yet, women are still thought of as the spouse primarily responsible for the household and child-rearing, all while she is also working full-time.

And, if that isn’t bad enough, the divorce rate is higher if she earns more than her husband.

It is a confusing time for women and men.  Breadwinner roles are not traditional anymore and there isn’t a tried and true map guiding us through these curves in the road.

In the world of finance, women are horribly represented and, of course, that is bad news not just for the industry but for the female client looking for an advisor she can relate to.

As Blair pointed out, girls didn’t get the memo that they can be interested in learning about money, banking or finance.  And, regardless of whether they want to study this as a career or not, any woman planning on having money will need to know how much to save and how to invest.  Women live longer and earn less, so the stakes are particularly high.

Getting involved on a personal level is critical.  If more women then decide to pursue this avenue as a career — that would be quite the added bonus.

I hope you will check out the interview, subscribe to the podcast and visit On Her Mind’s show archives.  If you like what you hear, please consider writing a review on iTunes.

This discussion is far from over.

I’d love to hear what is on your mind so I can create the most helpful content I can.  Please email me at onhermindpodcast@gmail.com.

I’ve received some wonderful words of encouragement and I thank you for listening and sharing the podcast with others.

 

 

We live in a time when expressing an opinion and having an audience is as nearby as a cellphone.

We can always have lots of people agreeing with us, in fact – algorithms for social media, such as Facebook, guarantee that we will find our very own choir to preach to.

It makes us feel better to know others share our opinion; it makes us feel smarter, too.

If that is not enough, we get immediate gratification in the forms of likes, share, and retweets to make us feel bigger and more important than we really are.  If someone disagrees (respectfully, or not) we can fight them or block them – depending on how we feel that day.

But does this make us better, or just smug?

For someone in the position of advising clients – this can be dangerous.  Advisors can lose touch with what clients really need – which is first and foremost to be heard and understood.

A good advisor is like a doctor who cobbles together all the vague symptoms to get at what the real issues are.  It requires not latching on to an answer prematurely (like before questions have been asked).

Yes, sometimes things are fairly obvious and the course of action is straight-forward.  But, many times there are other fears, issues and concerns that are being expressed very subtly; and only a still mouth and focused ear can zero in on these details.

I had the pleasure of sitting on a panel to discuss deepening client relations.  The moderator was quite versed in social media, and we spent a lot of time discussing how to get more followers.  To be honest, that part of the discussion was not a place for me to add value.

While I use various social media platforms, that is not how I go deeper with my clients.  It is how others might find me and read my content.

My content (my blog) comes from what I hear, over and over from people too embarrassed, ashamed or nervous to share it with others.  It comes from walks I have walked (willingly and unwillingly).  In short, I try to share things I wished I had known, things that at times have baffled me or intimidated me — and continue to frustrate others.

When I was in college I had a lucrative side-job tutoring college prep kids.  Majoring in English, I mistakenly thought that writing would be a subject I would enjoy tutoring.  It turns out that the subjects I understood the best were like my ability to ride a bike – I had my balance, but couldn’t explain how others could find theirs.  It was hard to articulate what I intuitively knew.

I discovered my greatest talent was communicating subjects that had once challenged me (trigonometry and calculus, anyone?).  I understood what was confusing about the subject matter; and, most important, I had slogged my way out of the maze.

I liked putting others at ease so they could stop being self-conscious and learn.  Having found my way out, I delighted in giving others their chance to get on secure ground.  It energized me more than when I had rescued myself.

That is how an English major ended up an advisor.

My best clients are not the ones that want to talk about their rates of return.  They want to feel more in control of where they are headed.  They want to understand:

• Why some of their fears are unwarranted (like worrying that an Index fund will go to 0);
• Why some of their ideas are speculative (buying that “sure thing” marijuana stock);
• What they can control (i.e., how much they invest, how long they stay invested, keeping their fees low, minimizing taxes, letting compound interest work its magic, and not selling when the market dips – but buying low, instead); and
• Why they are not abnormal in their worries or ignorance (many are in the same boat).

I’m not interested in voicing my opinion to prove I know something; I’d much rather use my experiences to show others that I’ve been there, I understand, and I want to help them find some financial peace.

You can go ahead and tweet that.

 

Photo by Carolyn V on Unsplash

 

Sometimes you find a cause to support, but when a cause finds you it means something in life has sunk its teeth in and has torn some of your flesh.

Such was the case for our family when, in 2014, our fifth-grade son showed me a lump on his neck.  What appeared to be an infected lymph node turned out to be Hodgkin’s Lymphoma.  And, while it was caught in its early stages and is one of the more curable cancers, the road to recovery was filled with a hot-coal walk no child should ever endure.

As parents, nothing is more excruciating than not being able to make a scary, ugly world safe again for your kid.

Unfortunately, this road is also well-traveled with scores of other young warriors (and their families) fighting cancers with far less certain outcomes.   We can never forget those we passed in the corridors (and those, sadly, who are now angels).

Prior to our son’s illness, I was blissfully unaware that cancer is the disease that claims more young lives than any other.  I didn’t know that only 4% of federal funding goes to pediatric cancer research.  I didn’t realize that September was earmarked as Childhood Cancer Awareness Month, signified by gold ribbons.

In 2015, I noticed, along with many pediatric oncology parents, that the world was not a sea of gold in September the way it turned pink in October.

Limited awareness results in limited support.

Thankfully, this is starting to change, but there still is much work to be done.

When I hear someone say that money is the root of all evil I know they have not found a cause, they have not seen the good works that money provides – the research, programs and support.

Our family will forever be indebted to Stony Brook Children’s Hospital for saving our son’s life, as well as scores of charities, like Make-A-Wish Suffolk, the Sunrise Fund, and the Ronald McDonald House that gave us hope and respite.

For us, the only way to heal from this is to ease the path for others who will share a similar, terrifying journey.

As humans, we are hardwired to help – and it is good for our health.

According to Elizabeth Dunn*, a psychology professor at the University of British Columbia in Canada who studies happiness, “People who donate money to charity are happier in poor and rich countries alike… Dunn said her more recent research suggests giving away money can tangibly improve one’s health.”

She measured the blood pressure of subjects before and after they gave away money.  When they spent money on themselves, their blood pressure remained unchanged but, when they gave away money it resulted in reduced blood pressure.

Dunn noted that when a donor is personally connected to a cause, the positive effects of giving are more pronounced.  She believes that giving is good for the heart.

Tony and I have had the pleasure of helping a number of our clients set up donor-advised funds, which allows for contributions of cash and assets (such as collectibles and investments).  Advantages to using these funds (as opposed to writing a check) include:

• Donors contribute to the fund and take the deduction in the same year, but the donation does not need to be made right away, so donors have time to thoughtfully disperse the funds.
• The account is invested and can grow over time, which may increase the amount the charity ultimately receives.
• When donating appreciated assets held over one year (e.g., stocks, collectibles), donors can avoid paying capital gains taxes.
• Recordkeeping of contributions/donations are handled by the fund.

Next time you meet with your financial advisor to discuss funding your many goals (college, weddings, vacations and retirement) consider that being generous to a cause has many rewards, including helping to mend a broken heart.

 

 

*Source:  “People who donate to charity are much happier and healthier” by Reuters, NYPost.com, September 3, 2015.

Often, I have seen people burdened with a financial secret; something that they have not faced head-on or have been hiding from their families, and it leads to emotional overwhelm.

Over the last month, I have had several conversations with a successful career woman who has amassed credit card debt that she cannot pay off in full.  Though she has never been late or delinquent in paying her bills, the guilt and self-loathing she carries was keeping her stuck in place – paying the minimum or a little more when she could afford to do so.  She had no idea what her balances were on each and every card, nor did she know the rates she was paying.

When emotions run high, it is easy to be reflexive and ride the wave like a piece of Styrofoam in the ocean.  But if we can just believe we can control our emotions, then we can learn to manage our responses, according to Guy Winch, Ph.D. and author of “Why You Should Believe You Can Control Your Emotions.”

Winch explains that our natural response to troubling thoughts is to either distract ourselves or to suppress what we are feeling; neither response is useful.  Yet, the simple belief that we can have control over our emotions allows us to reframe the challenge as an opportunity and can “lessen the emotional impact” of the stressful situation.

While failing to manage emotions can harm your personal life, your financial health can also get compromised along the way, even if money hasn’t been an issue for you in the past.   It could look something like this:  Rather than face your dissatisfaction with your career advancement, you decide to renovate a perfectly good kitchen (distraction).   You take out a line of credit and that makes your monthly budget a little tight, but you push down those nagging feelings telling you to hold up on the remodel (suppression).

Money complicates emotions because it represents more than just currency.  It is the yardstick that measures success, status, and prestige.  It is easy to give the impression that you have more of it than you really do.  Fake it (cross your fingers) and hope you can make it.

Posting images of a successful life on FaceBook, Instagram or other social media outlets wouldn’t be as prevalent if we didn’t care how others see us.  Ironically, our emotional response to these social media posts is to feel bad about our own lives, which fuels the need to keep up (or at least pretend to).

In my opinion, the only thing worse than living life on a gerbil wheel is to live it on someone else’s gerbil wheel (and get into debt over it).

Though not my area of expertise, I wanted to help this woman find her way to higher ground.  I could not offer her credit counseling but I was able to help her get her emotions out of the way so she could move forward.  She was then inspired to speak with an expert on the topic and has called me to discuss her progress.  As I read the article by Dr. Winch, I was struck by the fact that she and I informally covered his five questions to find a silver lining and regulate emotions.  This is how we talked through her issue:

1. What is the possible upside in this situation?   I will not allow myself to get into further debt.  I only go shopping for groceries.  I have stopped the bleeding and have made a plan to pay this off in four years.
2. How can I use the situation to further another goal I might have?  I have wanted to look at my budget and dig into how I am spending my money and set aside something for retirement.  I will make a place in my budget now.  I am tired of only paying other people; I want to invest in myself.
3. In what ways is the situation not as distressing as it first seemed?  When I sat down and listed all my card balances and then wrote down the interest rates I was paying, I was sick over it.  To continue what I was doing meant it would take decades to pay off the debt and it would cost me an additional $100K.  Now I won’t be wasting any more money.
4. What would the situation look like if I took a different perspective?  Yes, I was irresponsible in my spending.  I am embarrassed I let it get to this.  But, I have been responsible in always paying my bills on time.  Now I will be proactive in paying it off sooner.  I am making it right and this will never happen again.
5. What potential opportunities are there in the situation?  I want to explore why I have had an unhealthy relationship with money and fix it, which will also rebuild trust with my husband.  I want to educate my children about my mistakes, so they will make wise decisions with money.

At the time of our last conversation, her shame and guilt started to shift out of the way to make room for her more important work of fixing the situation.  Managing her emotions enabled her to make her own playbook, freeing her from paralysis.

She believes she can change this situation now; so do I.

Whether you are facing an imminent financial threat or realize that you have allowed day-to-day distractions to keep you from actively planning your financial future, these five questions can help you take control and not live at the mercy of your discomfort.

You can wring your hands over past mistakes and missed opportunities, or put them to work and make your own playbook.  Then, you can get busy going where it is you want to go.

 

Source:  “Why You Should Believe You Can Control Your Emotions” by Guy Winch Ph.D., Psychology Today.com, September 5, 2018.

Photo by rawpixel on Unsplash

When my mother wanted me to be aware of someone’s self-serving nature she would say, “Hooray for me, and the hell with you!”

That one sentence was a much-needed warning as my tendency was to follow the Golden Rule (“Do unto others as you would have them do unto you.”).  The trouble is, sometimes you can feel like a bit of a patsy following that rule when everyone is muttering through a fake smile, “The hell with you!”

At a company like Wells Fargo, management has built their fortunes exploiting their clients in the most egregious of ways.

A July 27, 2018 Wall Street Journal article by Emily Glazer “Whistleblowers Detail Wells Fargo Wealth Management Woes” details how perverse sales goals greased the already oily fingertips of advisers who: “pushed clients into products that generated additional fees and often moved client assets between different products or investing platforms to generate more revenue and bigger bonuses…”

Add this ick to a long list of gripes against Wells Fargo, including manipulating banking data, opening fake customer accounts, hocking dangerous investments, using illegal lending practices in minority and low-income communities, not to mention claims of ripping off small business owners, mortgage holders and car insurance policy holders.

What I can’t figure out is how they have the audacity to outline their values on their website.  This is a direct lift from its site which put someone’s MFA degree in Creative Writing to tragic use:

Five primary values guide every action we take:

• What’s right for customers. We place customers at the center of everything we do. We want to exceed customer expectations and build relationships that last a lifetime.
• People as a competitive advantage. We strive to attract, develop, motivate, and retain the best team members — and collaborate across businesses and functions to serve customers.
• Ethics. We’re committed to the highest standards of integrity, transparency, and principled performance. We do the right thing, in the right way, and hold ourselves accountable.
• Diversity and inclusion. We value and promote diversity and inclusion in all aspects of business and at all levels. Success comes from inviting and incorporating diverse perspectives.
• Leadership. We’re all called to be leaders. We want everyone to lead themselves, lead the team, and lead the business — in service to customers, communities, team members, and shareholders.

They say their vision is to make customers succeed financially.  Well, that just doesn’t add up in the land of hooray for me, and the hell with you.

What is baffling is its advisory arm manages $1.6 trillion in retail client assets!

For all its misdeeds Wells’ net income year-over-year went from $5.9 billion in the second quarter of 2017 to $5.2 billion in 2018 and revenue went from $22.2 billion to $21.6 billion over the same period.

Where’s karma when you need it?

Mistakes get made in life, but a predatory culture is hard to shake – and even more difficult to clean up.

If customers believe they are working with professionals who are doing a good job – that’s nice. But if those at the top of the food-chain have blood dripping from their teeth, I don’t much care how nice my bank rep/advisor is.

Wells is not alone.   The good news is an online search and a visit to FINRA’s BrokerCheck allows investors to research firms and individual representatives for disciplinary actions and infractions.

Always look at the firm’s record,  as well.  Remember: Culture is as culture does.

Separate out those firms who use the Golden Rule from those who thumb their noses at it, and at you.  Then, take your business elsewhere.

“…Let us not waste our time in idle discourse! Let us do something, while we have the chance….”  Vladimir, Waiting for Godot by Samuel Beckett

The characters in Waiting for Godot sit under a leafless tree waiting for Godot to show up and it is like groundhog’s day.  Time drags out and actions repeat in an endless loop.  The men insist they will not wait for Godot, and yet they continue to do so, even though they know it is useless.  It is maddening and futile.

It reminds me of something I often hear from would-be investors:

“When I have enough money to invest, you will be the first person I speak with.”

The odd thing is, I am frequently approached when I am minding my own business.  I can be reluctant to share what I do for a living because I have seen the anxiety and embarrassment it sometimes conjures up in others.

I rarely have follow-up conversations with these types that are hopeful.  I might run into them again at a gathering, and I will never bring up finances – but they will. They will tell me they haven’t forgotten about me and when they have money they will be sure and call.  They are right about one thing: they haven’t forgotten about me; they have forgotten about themselves.

They are waiting for “good dough” to invest; to which I say good luck.

Their lack of commitment to securing their finances is usually a lot less about actual resources available than it is about their priorities.  No matter what someone’s goals are –personal, professional, spiritual, financial – there comes a point when a first step is taken; a desired outcome is set and a series of action steps are taken.

I saw a headline on Charles Schwab’s 2018 Modern Wealth Index study: “Most Americans have no financial plan, and many think their wealth doesn’t deserve one.”

Sadly, it is true and with devastating results.

According to the survey, which looked at daily money behaviors, people who tend to plan are more likely to have an emergency fund and life insurance. 75% of planners pay their bills on time and still manage to save money every month versus 33% for non-planners.  They are less likely to carry a credit card balance and they are more apt to feel financially secure.

When it comes to their investing behavior, the gap between these two groups grows even wider:

• 82% of planners consider their risk tolerance when investing versus 55% for non-planners;
• 78% of planners are aware of fees and investment costs versus 44% for non-planners; and
• 54% of planners regularly rebalance their portfolios versus 17% for non-planners.

Having a financial plan creates priorities and causes focus, which leads to action and improvement.   That is why it is not surprising to me that planners are more aware of the very things they can manage – the risk, fees and asset allocation.

Without focus, procrastination kicks in.  The next holiday season when I’m around the punch bowl I will hear the same nine million excuses about why nothing has changed since last year.

I’m not judging, mind you; but I know one thing.  I can’t help, either.  I’m the kind of person that if I’m told a problem, I will do my best to offer a few actionable steps to take.  When I just hear the worry with no commitment to taking action – suddenly the other person’s discomfort and anxiety become mine.  That may make me sound selfish, but I‘d rather help than worry.

Something as simple as putting aside $50 a week will amount to $1,000 after five months.  It’s a start.

Companies like TD Ameritrade and Vanguard will open accounts with no investment minimums and low trading costs.

Robo-advisors, like Liftoff, are another great option.  Based on an investor’s time horizon, goals and risk tolerance; an appropriate, low-cost, diversified portfolio is constructed and is rebalanced back to the original portfolio allocation.

Fear of not being able to achieve their financial goals may cause some people to waste the most precious ingredient to compounding interest: Time.

Time out of the market pays nothing, and the endless, senseless waiting begins; which, for some, never ends.  Maddening and futile; and so it goes…

 

 

Sources:  
Charles Schwab’s 2018 Modern Wealth Index Study. 
Lombardi, Esther. “Quotes and Themes from Waiting for Godot.” ThoughtCo, Feb. 19, 2018, thoughtco.com/waiting-for-godot-quotes-741824.

Our sons have been playing in a summer basketball league and have entered the playoff season.  The first opponent they faced was a team they had beaten easily during the regular season.

“They don’t know how to play!  We’re going to kill them!” my son said.

“You played them at the beginning of the season, things could have come together by now,” I cautioned.  “Never underestimate your opponent in a game, or in life.”

Cue the eye roll – because you know that’s exactly how he responded.

As my son pointed out, I don’t know much about basketball. But there’s this little matter of having lived more than half a century and having seen a thing or two – especially upsets.

Going around thinking you’re the bomb can cause an explosion, all right.  Reality shows like Top Chef and Project Runaway delight in showing contestants openly bragging that this week’s challenge is their area of expertise and how they will smoke the competition. The episode usually ends with the contestant eating crow and heading back home or barely squeaking by – kind of like winning a basketball game by a measly five points, which is what happened.

With the EBI West Conference still fresh in my mind, I thought back to one of the speakers, Michael Lombardi, an America football executive.  He spoke about lessons for life and business.  Basically, he spoke about what makes great, great.

Mr. Lombardi worked as an assistant coach to one of the most successful football franchises, the New England Patriots, under the impressive (if not grumpy) Bill Belichick.  What separates the Patriots from other teams is the fact that they have appeared in more Super Bowls than any other team and eight of those 10 appearances were under the guiding hand of Belichick.

Lombardi credits a culture of humility as an important factor in the team’s historic successes.  Every season starts as if the previous season’s wins didn’t exist.  This explains why the locker room is bare.  Past triumphs matter not and they certainly won’t get the Team another championship.

Giving into an ego stroke would derail them – and that won’t help them establish themselves as the team with the most Super Bowl wins (that distinction belongs to the Pittsburgh Steelers, who have won six championships to the Patriot’s, five).

I have seen this happen with investors who have had a good run of things; though unlike a football franchise, often times luck – not skill, talent or discipline – was behind the success.  Pride blinds the eye to the truth and can poison future success.  Add into the equation exceptionally high, earned income and the hunger to make a better future can start to wane.

Life is good, it will always be good.  Aren’t I great?

To be successful in life – and investing – requires that you prepare yourself to perform in all environments – favorable and hostile; each has its own challenges.

Keeping a cool head requires a plan to keep the ego in check when things are going well and to not give in when you’re getting knocked around.

Here is what this might look like:

• When times are good, save more. You can afford to and, when the market turns volatile you will feel better for having put more away when you could.  It also forces you to live off of less; being lean never hurt anyone.
• Rebalance, rebalance, rebalance. Your advisor should help you determine the appropriate mix of investments given your time frame and your risk tolerance, but as the markets move your portfolio can get out of balance.  For example, if an allocation of 70% stocks and 30% bonds makes sense for you, and stocks go down in value, your allocation might shift to 60% stocks and 40% bonds.  Rebalancing forces you to sell the bonds (high) to buy the stocks (low) to return to the 70%/30% mix.  These adjustments needn’t take place frequently, but keep an eye out for major shifts in allocations.
• Understand what you have and why. There is a temptation to load up on an asset class that has performed well.  A good portfolio has a mix of investments – both the top performers and the bottom performers.  You need to own them all in order to participate in the market shifts that topple last year’s “winners.”  If you know the role all these investments have in your portfolio, you will not over-weight one investment type because it is the latest rage.
• Don’t pat yourself on the back too hard. Be happy for the successes you get, but understand that how you are prepared to handle the difficult times will dictate your long-term financial health more than your short-term wins. Let’s face it; it’s hard to go forward if you are grinning at yourself in the rearview mirror.  At best, you won’t move forward very fast – at worst, you’ll end up in the trunk of the person in front of you.
• Share your painful lessons, especially if it will spare someone a similar fate or can help someone heal from their wounds. That’s just being a decent human being.

Long-term success is achieved when we push just as hard at the beginning of the journey as we do at the end.  Humility fuels that drive and allows us to start over again and again.

If we have the courage to be brutally honest with ourselves, it also can help us identify the blind spots that would threaten our well-being – just ask Bill Belichick.

I had the pleasure of attending the EBI West last week.  For those of you unfamiliar with it, it is a conference for financial advisors and the theme is evidenced-based investing.  There were many distinguished speakers from the financial industry with interesting perspectives, but the content the “outsiders” to the industry brought was refreshing and enlightening; especially one who spoke about ancient Greek philosophy.  I am being quite serious.  He was riveting.

Ryan Holiday, a best-selling author and founder of Brass Check, spoke about Stoicism.  This ancient Greek philosophy is every bit as relevant today as when it guided philosophers, such as Seneca and Epictetus, as well as statesmen and emperors, such as Cato and Marcus Aurelius.  Some of our most notable American presidents, George Washington, Thomas Jefferson and Theodore Roosevelt, were inspired by this philosophy.

For those of you who think philosophy means sitting around and pondering life’s great questions, Stoicism is about behavior.

According to Holiday, “The philosophy asserts that virtue (such as wisdom) is happiness and judgment be based on behavior, rather than words. That we don’t control and cannot rely on external events, only ourselves and our responses.”

This way of thinking challenges us to make our obstacles our advantages and to realize that it is a waste to try and control that which we can’t; invest your time in what you do have power over.  Put your energy into living a good life, which means being virtuous – patient, honest, and sincere, for example.

It sounds so simple and yet there are many distractions we deal with in a modern life.  An endless news cycle entices us to gyrate to every hiccup, the non-stop barrage of social media dings and pings can dilute our focus – just to name a few.

For investors, the market noise can push our hands into acting when we should exercise restraint.  It’s a heck of a lot easier to do so when you put the work in up-front – into a financial plan – which enables you to control all those variables you can, instead of worrying about market returns (which is like worrying about the weather forecast in the future).

Barring extenuating circumstances, you can control how much you work and what you earn.  You can control how much you spend and how much you save.  You can decide when to retire –or whether you will seek out part-time employment in retirement.

Some of the devices you need to employ might not be easy – they may come at great sacrifice.  Only you can determine if the price is too steep.  It’s more productive to weigh the pros and cons of your options, rather than to worry about market volatility or to hope on the unlikely possibility of a winning lottery ticket.

When you do take control of what you can – expect a peace to settle over you.  Even if you have to work your tail off doing so, even if you make great sacrifices – it is empowering to focus your energy on actions that move the needle in the direction you want to head.

When Tony and I decided that I would stay home full-time with our infant sons, we were somewhat prepared; we had saved aggressively in the years leading up to their arrival.  It also gave us the incentive to start our own advisory firm.

In order to do so, we both had to take courses for the Series 65 license.   Tony was working full-time and made the time for this.   Our sons were poor sleepers and I often was in a fog of sleep deprivation – yet I managed (with lots of coffee) to stay awake reading what I had to so I could take the test.

That was certainly not the end of it.  Tony continued to teach full-time, which meant client meetings took place in the evenings or on the weekends.  His coveted school breaks were consumed by catching up and cramming in more meetings.  He set about working towards a Certified Financial Planner^TM designation, which was another worthwhile, yet time-consuming, endeavor.

Honestly, I had come to dread Christmas and summer breaks because there was always a false hope that it would be a vacation.  For years, it never was.

Controlling what we could made the difficult work easier because at least we knew what we were killing ourselves for – which is better than killing yourself for someone else’s benefit (which, trust me,  I could have easily added a decade to my lifespan had I been smarter in my youth).

Our actions were not merely driven by economics.  Here is where the virtue part comes in: What we had seen happen to others, at the hands of ill-intended financial salespeople, made our work important.  Our work could empower others and help them move towards financial security and the peace that comes from that.

Joining our efforts with Ritholtz Wealth Management was a way to help reach more people than we would have been able to as a two-person firm.  We were able to set up a program to rescue teachers from expensive options in their 403(b) plans.

Thanks to Mr. Holiday, I am inspired to learn more about Stoicism and how to apply it to all facets of my life.  That certainly is within my control and it’s up to me if I choose to act or merely ponder.

The same is true for you.  A good place to start is his website.

My senior year of college wasn’t filled with the dread that some of my classmates seemed to carry.  All the “countdown” parties went on without me; I didn’t feel the need to squeeze the last bit of juice out of my carefree days as a student.  I was itching to get on with it; the next big event in my life was hovering on the horizon and was taking forever to arrive.  I was impatient for my real life to begin.

Had I not been so doe-eyed, I might have clung to every moment of what was slipping through my hands.  I might have even curled up in the safe arms of another university to pursue a master’s or law degree.  But I was arrogant, ignorant and without a plan.  What could possibly go wrong?

It was the spring of 1987 when I graduated.  As my initiation into the business world, I went to various personnel agencies with the same results.  My fanny was promptly plunked before an electric typewriter and I was asked to type as fast and as accurately as I could in a minute.  No pressure.

I tried to tell them that there was some mistake because I had a degree; if my typing speed was a determining factor for employment, I was in deep trouble.  I looked to my left and I looked to my right – no guys were on the typewriters.  I guess this was a sign of the times.

I finally landed a job where my boss didn’t care how quickly I typed.  The only problem was within five months of starting this job and renting an apartment, the market crashed.  Many people lost their jobs as financial firms seemed to tumble like dominoes.

Being entry level, I was cheap labor and I managed to never be without work; yet, I also felt trapped into staying where I clearly didn’t want to belong.  But rent, bills and student loans were my responsibility, and I was raised to always meet my responsibilities (even if I felt like a trapped mink, ready to gnaw off a body part just to get free).

What did I have to complain about anyway?  I was 22, living on my own, paying my own way and I was employed.  This was no time for a pity party, but there was time during my hellish commute to lower Manhattan to fantasize about winning the lottery and buying my freedom from this mundane life I was living.

Fantasy gave way to reality; no, I didn’t win the lottery, but I began playing regularly.  It seemed one of the few things I could control and it sparked a bit of joy in me.  Had I just put some of that money away and invested it, maybe the more fulfilling moments of my life would have arrived sooner.  I’ll never know and I’ll never get back that time.

But, I did see a correlation between my lottery playing relative to my overall satisfaction with life; it was an inverse relationship, like a see-saw.  The lower I felt, the more I would play.  When I felt like I was moving in an upward direction, I didn’t even think about playing; I was excited enough by my life.  I had created my very own Misery Index and didn’t even know it.

At the heart of it, I was looking for something that money really couldn’t provide all by itself.  Yes, it might have helped speed things along, but it might have derailed me.  Misery can be a motivator to make changes; comfort can lead to complacency.

Over the last few days, I read three interesting blog posts from my colleagues.  Nick Maggiulli wrote about the life-altering effects of money and why it cannot be measured or predicted by data.  Barry Ritholtz wrote about the privilege of taking a thoughtful approach to being productive.   Josh Brown wrote about the importance of why we work. All three struck a chord with me.

Nick examines a lottery winner who had already been wealthy; in spite of his savvy and good intentions he implodes and loses everything.   This is an interesting twist, as it is typically the rags-to-riches-to rags stories we hear about.

How is it that someone with financial success, skill and knowledge could blow this?  Nick analyzes data to draw conclusions and there just isn’t data to predict the human response to the adrenaline rush a windfall can create.

My own personal hunch is that the hunger that led this wealthy man to look for a big win had absolutely nothing to do with money at all.  Money is a beautiful, quantifiable distraction when life is unsatisfying.  At the end of the day, looking at a big net worth number might take the sting out of the suck of life – but after a while that salve won’t ease what is really causing all that chafing.  If life is going off the rails money can speed up the process by miles, and it makes for a wickedly colorful crash and burn.

Barry addresses that by not operating on the gerbil wheel of chasing sales, we are able to slow down and be more deliberate and focused in our efforts as a firm.  This leads to a productivity that can be measured in fulfillment, and not merely output for output’s sake.  We are how we invest our time.  When that is in lock-step what we truly value, life becomes richer – and no, I’m not talking about the green stuff (and yes, it is a privilege).

Josh writes about another one of our colleagues, Alex Palumbo, who didn’t dilly-dally in getting on a career course that has meaning to him.  Like many of us, he started out in this industry in a soul-crushing way.  Unlike me (and Josh and many others) he got the hell out as soon as he could.  He wanted to work at something that had meaning to him and as a result, his career is off to an impressive start.

As Josh points out, “Alex needs a Why, not just a What or a How Much in order to find himself in the working world.”

I would argue we all need this in life – not just in work.  Without meaning, it is tempting to fill up on other excitements, such as lottery playing/gambling, boozing, drugging, and cheating, etc.

Having more money isn’t going to ease a dissatisfied life.

That Misery Index can soar off the charts for many reasons; take the time to discover what your reasons are before you buy that scratch-off.

Photo by Pixabay on Pexels.com

 

 

 

 

 

 

 

I had the privilege of attending a parent/student meeting at South Side High School in Rockville Centre the other night.  For a change, I was neither an attending parent nor a presenter; I was a very interested observer for a number of reasons.

As a mother to teenagers, I was happy to see a school district take a novel approach to support teens in making better choices.  It’s hard enough to do the right thing in life; when you’re young and inexperienced, filled with emotions and dying to be cool – it’s that much more difficult.

The event was mandatory for teens attending the Prom and their parents.  The expectations for a trouble-free, alcohol/substance-free weekend were firmly outlined; any sign of indulging would be met with a breathalyzer (when appropriate) and being removed from Prom and the graduation ceremony.  The PTA organizes a post-Prom party free to all students, filled with activities, food, music and cash giveaways to give students a safe after-party experience.

It was important to have the parents there as witnesses – there would be no room for negotiation on these rules.  Anyone violating the school policy during the Prom, graduation rehearsal or the graduation itself would not march in the procession.

After the rules and expectations were covered, students had the chance to meet a good friend of mine — someone who had the misfortune of making a critical error in judgment; one that would haunt him forever.  He was there to reinforce the fact that invincibility is a mirage for us mere mortals – especially for over-confident teens with impulsive tendencies.

It was December 1981 when Peter Hawkins (then 17) attended a party for a classmate.  To put the times in perspective –MADD and SADD were in their infancy.  In N.Y., the drinking age was 18 and a driver’s license was without an identifying photo.  In short, it was a pretty lax climate for underage drinking.

The party was held at a bar, though most of the kids were 17.  Peter decided not to drive that night, because he planned on drinking; he had a ride and so he was set to do what he wanted that evening.  And that is where this story goes off the rails.

At 17, the ability to make a good decision can be pretty difficult; add alcohol to the mix and it’s downright impossible.  And so, Peter made the mistake of trusting that his friend was okay to drive.  Had he been sober, he would have realized that his friend was also drunk; had he been sober, maybe he would have been the one driving and the night would have ended differently.

Instead, he promptly fell asleep in the passenger’s seat, without a seatbelt on.  His friend decided to cap off the evening with a drag race that ejected Peter from the car, severing his spinal cord, paralyzing him from the waist down.

A year older than me, I knew Peter as captain of our football team, an incredible athlete who, in spite of a slight frame was as tough as nails.  His accident had a deep impact on the entire school even for those, like me, who only knew him casually.  It was a few weeks before Christmas and this young man – a force of nature, known for his signature flip in the end-zone – was in a coma; the heaviness was felt by the entire school.

As he spoke to the students at South Side High, he didn’t spare himself blame; he didn’t hold back on personal details on how the accident did more than take his ability to use his legs; he held himself out as a cautionary tale.

For some mistakes in life, there is no do-over or ‘I’m sorry’ that erases the difficult consequences.  Giving away your personal responsibility to someone else doesn’t excuse you from owning the poor outcome.  Some things in life you get to wear, whether it is fair or not.

The best you can do is to share these mistakes in the hopes that someone else gets spared making these mistakes.  That is what Peter does every time he bares his journey to teens.

I can’t help but connect all this to financial health, which is my role in life.  How many times do I hear investors blame their plan on the fact that they turned over their power to someone else – someone who maybe wasn’t fully equipped to actually deliver good financial oversight or worse, someone with bad intentions?

Who you choose to look out for you is an important decision; one you should never take lightly.  Being “nice” is no substitute for being competent; being a “friend” doesn’t mean they are the best ones to look out for you.

Yet, people make this mistake every day by failing to look into the professional – or the financial firm – to check for violations or disciplinary actions.  They don’t ask questions that might be uncomfortable.  They work with people who have no legal obligation to look out for their best interests, and somehow they think the financial professional is going to give them care above and beyond what is required.

In fact, they don’t even know the difference between a salesperson and a fiduciary (one who must always put the client’s needs first).  And, they don’t realize that the vast majority of financial service professionals do not work as fiduciaries.

Every day I have to shake some shoulders and ask: “Why would you trust a business model that revolves around selling you stuff and not your end result?  Why would you put your long-term financial well-being into that kind of conflicted model?”

If everyone in life acted as a fiduciary in every aspect of life, the world would be a safer place for all.  Peter’s friend would not have gotten drunk and driven, and he certainly would not have chosen to drag race.

Peter’s fatal flaw was failing to realize that the first step starts with being clear-headed and carefully deciding into whose hands you place said trust.  It’s a mistake he offers up to spare someone that painful lesson.

Clearly, the administration of South Side High School is acting as a fiduciary in educating  students about the dangers that can derail a person’s journey and by supporting them so it is easier to choose wisely.

At the end of the night, I complimented the principal, John Murphy, for going to great lengths to keep the kids safe; noting that in the school district where I live it is fairly common for seniors to rent a house in the Hamptons, unsupervised for the weekend.  Many parents are afraid to be the spoiler so they allow their kids to go; knowing full well that this is a dangerous situation in the making (not to mention a potential lawsuit, should things go astray).

He said that he has taken flak from parents because the school keeps Prom, post-Prom, rehearsal and graduation on a narrow timeline so kids can’t engage in an unsupervised weekend, but I am sure there are plenty of parents who are relieved that someone is truly looking out for their kids.

I’m grateful for my friend, Peter, who decided long ago that it was worth revisiting a painful decision and sharing it if it prevents someone from making an irreversible mistake.  I’m inspired by what I saw that night.   In spite of what ugliness I have seen in the financial services industry, there are many people in life who choose to do the right thing to help others and who generously share their knowledge for good; and not because they have to.

Peter is one of those guys.

I had the pleasure of speaking  with Dina Cataldo of Soul Roadmap podcast to discuss “How to Reach Your Money Goals.”  She has put together an informative and inspiring show aimed at giving people tools and strategies to live their best lives, and she covers a myriad of topics.

It was a lively discussion and it inspired me to put together an Investor Self Defense Checklist to help make sure your financial plan works for you:

 ____I have an emergency fund of 3-6 months’ worth of living expenses (more, if self-employed).

____ I know what debt I carry, the rates I pay and am working towards paying off debt.

____ I participate in an employer-sponsored retirement plan (e.g., 401(k), 403(b), Simple IRA, etc.) because it lowers my taxable income and helps me save for retirement.

____ If I don’t have a retirement plan offered to me, I contribute every year to either a Roth IRA or Traditional IRA (maximum investment amount is $5,500 per year for those under 50; $6,500 for those 50 or older).

____ I save 20% of my income and, if not, I plan on reaching that percentage of savings in years by increasing the amount I am saving every year by __% (this includes all sources, and any contributions to retirement plans).

____ I contribute to my company retirement plan and get the employer match (free money).

____ I don’t own share class funds (A, B, C, D) which have sales charges / high fees.

____  I have gone to FINRA’s Fund Analyzer to look up my fund expenses.

____  My financial advisor, a fee-only fiduciary, does not earn commissions to sell product.

____  I do not own annuities in IRA, Roth IRA or other retirement account, such as a 403(b).

____  Money I need to fund short-term goals (5 years or less) is in cash.

____  Investments in stocks or mutual funds are with money not needed for 10 years or more.

____  I own a mix of stocks (U.S. and foreign) and bonds (high-quality U.S. bonds).

____  I understand why I own what I own in my portfolio.

____  I communicate with my advisor about any changes in my financial life (e.g., debt, employment, marital status, health, inheritance, birth of a child/grandchild, income).

____  I have a will, health care proxy, durable power of attorney and, for my minor children, a Guardian and Trustee set up in the event they are ever orphaned.

____  I have term life insurance that will cover my income until my children reach age 22.

 

My mom, Lucy, 1945

While I think of my mother numerous times throughout the day, this week, just days away from Mother’s Day, I got a little wink from her.

A client of ours sent us a note of appreciation.  He and his wife have worked with us since 2015.  Not to sound too sappy here, but that’s the kind of stuff that makes what we do so fulfilling.

What does my mother have to do with this?  Everything.

As was often the case with her, she gave money to numerous charities.  One such charity was Stony Brook Children’s Hospital, which has served my family incredibly well from the moment our sons were born prematurely.

My mother received many thank you notes for all of her donations, but she was particularly moved by the thank you note from the hospital.  She was compelled to thank them, but she wasn’t well.

I tried to explain to her that she needn’t write a thank you note for a thank you note, but she persisted.  Before I could resist, she had convinced me to send an email to the hospital’s chairman on her behalf.

He, in turn, forwarded my email (and my contact information) to other departments in the hospital.  One person who read my forwarded email was touched by it and, out of curiosity, he looked me up.  Coincidentally, he and his wife were looking to work with a financial advisor but hadn’t found one.

The rest, as they say, is history.

I’ve often written about my father; particularly because all that baffled me about him became very meaningful as I forged deeper into adulthood; in my younger years it was my mother who served as mediator and translator of his parables.

The relationship I had with my mother was easy.  While I may have hidden my emotions from others, too embarrassed by the depths of my feelings, I never had to do that with her. My heart was cut from hers.  We were profoundly affected by similar things; our empathy, a bountiful current.  Of all the many gifts I have received in life, being fully understood by my mother was the greatest of comforts.

I have always thought of my emotive nature as a detriment to my professional life in a male-dominated financial industry, and I have worked hard to stifle that side of me.  But now, a whole lot older and a smidgen wiser, I can say that when I am brave enough to tap what I am feeling for others – whether in my writing or when helping a client – it touches others in insightful ways.  And, it is so much easier to not waste my energy pushing down what comes naturally to me.

Every day I am grateful to have had a mother who taught me so much by the way she lived and the way she loved; by sharing her soft-hearted strength.

So, for those who celebrate – Happy Mother’s Day; and a deep gratitude to those mothers whose wisdom continues to guide our hearts in their absence.

It has been almost two years since Tony and I formally embarked on a mission to educate and free teachers from expensive and inappropriate investments in their 403(b) accounts.  Our main message has been buyer beware.

A teacher, Chase Malia, has taken it a giant leap forward – proposing Resolution #41 to his union, NYSUT, which would affect all of the members, not just his district.  The union acted to approve the resolution, which will protect members from financial predators by:

• Educating members about the importance of lowering investment fees;
• Providing members access to fee-only fiduciaries to provide un-conflicted advice;
• Advising members on how they can add low-cost options to their district’s provider list; and
• Seeking legislative action to offer fee-transparency and fiduciary protections that 401(k) participants currently enjoy.

Halleluiah!

Though this will all take time to get underway, it is a huge first step.

The good news is: If you are a teacher in NY, you do not need to wait for this undertaking to begin.

Tony and I, along with the help of motivated teachers, have been helping districts in NY improve their situation since 2016.  Our educational presentation has empowered teachers to demand better options and to control what they can by:

• Explaining that they can choose to work with someone who puts their interests first (fiduciary) or settle for the suitability standard of insurance and financial salesmen.
• Showing them that low fees are an investor’s best friend and teaching them how to determine what they paid for investments and how the representative was paid.
• Informing them that the certainty of a pension is not enough to sustain a retirement that can last decades; investments are needed to grow assets to outpace inflation.
• Diversifying their portfolio to mitigate risk. A portfolio needs to have a variety of asset classes to endure varied market conditions.
• Reducing their taxable income by contributing to their 403(b).

I’m not going to lie – there have been times that I have lost faith in humanity, sickened by what I have seen done to unsuspecting teachers in the 403(b) arena, such as:

• Charges of 2.25% and as high as 4.25% that the investor was completely unaware of.
• Owning inappropriate annuities in a retirement account with surrender fees of thousands of dollars to get out.
• Contaminating other financial assets, such as a spouse’s IRA or a child’s college fund into these same atrocious, expensive broker-sold investments.
• Paying exorbitant prices for whole-life insurance policies that would barely provide enough coverage to replace a half a year’s worth of income.
• Owning speculative and illiquid investments, such as junk bonds and private REITs, which subject investors to unnecessary risks that, of course, were never explained.

Every awful product I have seen teachers own can be traced back to one common thread: A “nice” sales guy made a ton of money peddling this garbage.

In short, teachers have been paying Maserati prices for a Yugo (an obsolete car company that had the decency to stop production of its lemons in 2008).

And yet, there have been moments of great hope, as informed teachers have spread the word to their colleagues and newbies.  Some have graciously shared their most embarrassing investing mistakes in order to spare someone an avoidable, costly mistake.

And some, like Chase, have demonstrated a tireless commitment to fairness; working unselfishly to get a better option for all.

Yes, my faith has been restored.

We’re here to help you, your colleagues and your district.  To learn more, visit us or email me at dina@ritholtzwealth.com.

There is a way out of this dizzying maze.  The question is: Are you ready?

Scott Dauenhauer, Tony and I caught up with Joey Fishman, Ritholtz Wealth Management’s ESG expert on the Planning to Teach and Retire Rich Podcast to discuss ESG and sustainable investing.

In a climate of less government regulation, some companies are taking a stance on environmental, social and governance issues to reflect their missions/values.

Investors, too, have become increasingly interested in where their money gets put to use and this is creating an opportunity for asset managers who craft ESG portfolios.

But, do these types of companies make for better investments?

According to Sonia Kowal, president of Zevin Asset Management, a $600 million firm specializing exclusively in ESG portfolios, “In general, companies with the strongest records on employee relations and environmental sustainability, for example, often have better financial performance over the long run than those with the weakest records… Given this, why wouldn’t you use this information advantage when looking for investment ideas?”*

We only scratched the surface of ESG and sustainable investing, but we plan on continuing the discussion with Joey Fishman, so stay tuned.

 

 

*Source:  “Is ESG investing going mainstream?” Jeff Benjamin, InvestmentNews, February 10, 2018

Imagine: you give a teenager access to car keys when they have never driven a car or taken Driver’s Education.  You simply tell them to drive carefully and you hope for the best.

That would be setting them up for failure, and yet, we do this every day with personal finance.

The stakes might not be dying in a car crash, but racking up massive amounts of student loan debt before even starting a career may be a death of a certain kind, nonetheless.

According to The Student Loan Report, national student loan debt exceeds $1.4 trillion; the average debt per student borrower is $27,975.

GoBankingRates estimates 39% of Americans have $0 in savings, and 57% have less than $1,000 saved. For those aged 25-34 the results are worse: 41% have $0 saved and just 20% have less than $1,000 saved.

Exactly how are these young adults supposed to get ahead, buy a home, start a business, and live their lives with this burden on their backs straight out of the gate?

For all the advanced degrees swimming in this pool of debt – has no one been able to understand the power – and devastation – of compound interest?  Our system has failed; these students are not fluent in personal finance – and no matter what they earn or what they will become, their potential will be limited.

Instead, schools focus on standardized test taking; parents stress over how their kids score and what their rank is. Frankly, it is all meaningless if they can’t survive in the real world, which revolves around money.

If you never learned to drive a car, simply waiting an extra 10 years won’t make you skilled.  Money is like that, too.  There is no substitute for practice; developing good habits is key to minimizing debt and amassing savings/investments.

Growing older will not bestow someone with money wisdom; in fact, age without experience means more wasted time and more wasted money.

I have spoken with very accomplished adults with superior schooling and degrees far more impressive than my humble B.A. in English; I have had to tell them to take the $5,000 from their savings account (earning 0%) and pay off the credit card debt that is accruing at 19%.  It would be the equivalent of earning 19%, risk-free.

This can all be avoided, of course, if we start educating children.

Kids love to learn about money.  I have stood before elementary school students who appear shy and bored and, in a matter of minutes, their eyes widen.  They understand that they are not too young for this lesson – they can even do the math.  They become energized and ask about setting up their own investment accounts.  I have seen imaginations take flight – thinking of all the ways they can earn some money and get practicing.

So what gives?  Why are there only 17 states that have a personal finance requirement to graduate high school and only 22 that require an economics class to graduate?  Even when there is a class requirement – one class in senior year does not a financial wizard make.

Have schools become so unimaginative and uninspired that they are sticking to the same-old, same-old way of doing things?

The price of financial illiteracy is steep.  Eventually, taxes get raised to help support those who cannot support themselves.  Products and services cost more when people default and don’t pay their bills.

This is stupid-simple to understand – fixing this problem could create more jobs, make a more robust society; and enable others to climb up to a new rung of social advancement. With success comes progress and innovation.  Families, employers, nonprofits, municipalities are just a few of the beneficiaries of a more financially responsible society.

So why isn’t financial literacy an issue worthy of attention in schools?

Why aren’t parents complaining about this – and demanding more for their children?

Why doesn’t the financial industry do more to avail themselves to this mission?

Tony and I have gone to many schools, to educate students, parents and even teachers – but we are just two people.  Unfortunately, some schools express interest and then fail to follow-through.

April is supposed to be “National Financial Literacy Month” –  but without any real and consistent support, this is just lip service (which never pays the bills).

Until financial literacy is not a novelty month – but a regular and rigorous part of the on-going curriculum – our schools, colleges and universities will continue turning out very bright, but financially ignorant graduates.

Sorry, but that just doesn’t seem very smart to me.

 

My son considered his course options for next year. His dilemma was how to meet the visual arts requirement; art classes interest him like watching paint peel. We suggested a digital photography class.

“I hear it’s a lot of work!” he said, “It’s not easy, you have to know about camera settings – you don’t just go off and use the camera.”

I started to scold him that he was being lazy and not challenging himself, but the truth is I remember looking for the easy way out to classes that didn’t interest me.

In spite of my efforts, I can’t make him care.

I’m not sure exactly when my perspective changed but it energizes me to try things that I haven’t been good at. At my age, maybe failing to learn something new terrifies me more than trying and failing.

Just a year ago, I started taking guitar lessons. I had played the violin (badly) in elementary school and, back then, I had quickly learned that reading music took too long. My ear was fairly good and I thought that I was smarter than everyone else who toiled to read the notes when I could sound these simple tunes out rather quickly.

The trouble was, of course, the songs didn’t stay simple. My ear wasn’t prepared to keep up with the complexities of the music the orchestra had started to play. I sat there bewildered, fake-playing, knowing I was an imposter. I couldn’t catch up with everyone else – they had blown past me. There was only so far my short-cut could take me; it turns out I ended up getting nowhere fast, and I quit.

As I sat down for my first guitar lesson, my teacher asked what my goals were. I told him that reading music was something I wanted to do. Sure, I knew FACE for the space notes and Every Good Boy Deserves Fudge for the line notes, but I wanted to read the actual notes and play fluidly.

Unbeknownst to me, most guitar players do not read music and my teacher was thrilled to find someone who actually wanted to learn. I have stumbled around doing this, especially since learning to move the pinky and ring fingers independently takes all of my concentration at times. It’s one big brain multi-task exercise to read the music, move the fingers into the right positions, and strum in time.

I’m not very good, but I have made progress; in learning, there is no substitute for effort, patience and persistence. My ear has sharpened; how I listen to music has developed and my perspective is certainly wider.

When I hear people say they are not good with personal finance, I know it is a quick dismissal given without much effort or thought. Unlike playing the guitar, it matters if you are not good at this – it will impact your relationships; trap you in a job you detest but can’t afford to leave; limit the colleges your children can attend; and may mean you will work into your seventies just to make ends meet.

Ignorance will make you an easy mark for unscrupulous financial salespeople who will separate you from your money very easily. They will overcharge you and sell you unnecessary and expensive products that will rob you of precious time to reach your goals – and you won’t even realize it.

In fact, you’ll call him a “nice guy” and recommend him to others equally as disinterested in personal finance as you are; infecting some other poor unsuspecting souls.

You will be at the mercy of a stranger; simply hoping he will do right by you.

If you don’t care about your money, who will?

I wouldn’t count on the friendly neighborhood broker or insurance rep who is looking to qualify for a sales contest to Hawaii or Italy. (Yes, this really happens.)

I can’t make you care.

If you won’t pay attention, at least make sure that you haven’t hired a fox to guard your financial hen house. A fee-only fiduciary is the only way to go; you need someone to look at your options as if they were sitting in your shoes. That’s the best you can hope for.

The CFP board has a directory of planners – just make sure that the person you work with is strictly fee-only; fee-based is NOT the same thing – these professionals can earn commissions for selling product (which usually proves more beneficial to the person selling, not buying). This subtlety is something you wouldn’t notice unless you knew to take note.

The one thing you must pay attention to is who you allow to call your shots.

Ask yourself: What’s in it for them?

This is one homework assignment you can’t cop out of; you must do it yourself unless you want to discover that your short-cut turned out to be a painful and expensive lesson, which offers no refunds.

I have a bird’s-eye view into the many ways investors have been misdirected by their financial salespeople; but this past week I encountered a perplexing situation – which is rare, as I’ve seen a lot.

In the past, the usual “suspect-behavior” has been selling investors expensive mutual funds and annuities when better, lower cost options existed.  I’ve seen investors saddled with unnecessary surrender charges and no asset allocation strategy.  In short, I’ve seen no rhyme or reason to the recommendations that were made, but for one consistent theme:  It was really good for the person selling it; not the poor investor buying it.  This week, I can add illiquid, inappropriate investments to my list of worst things I’ve seen.

A new client came to me unhappy with his 403(b).  After we set about fixing that, he asked me to move over his IRA, as well.  That’s when the fun began.  The rollover request couldn’t go through, as the investments needed to be sold at the previous firm holding the assets.  The client and I called the firm together; the trading desk was very helpful but the trader informed us that there was one investment he couldn’t sell as it wasn’t held there.  He was kind enough to give us what contact information he had.

We set about on a hunt – probably about 30 minutes later we started to get some answers, but they were not good answers.

On an account worth under $20,000, more than half was invested in one position – an illiquid REIT (Real Estate Investment Trust).  The share price is 44% less than its purchase price – which tells me, someone collected a large commission to recommend this.

We were placed on hold as the rep dug around trying to find the right information/paperwork.  It turns out that in order to get out, the client had to apply during a limited period (tender) and, based on how many people were also putting in a request, and how many shares that constituted, they may or may not be able to liquidate all of the shares (at 44% less than what he purchased the shares for).

As if that wasn’t enough, they required a Medallion Signature Guarantee (i.e., an onerous roadblock) from a very specific entity (another roadblock) – and that entity would then be responsible for sending in the request to liquidate.  Then he would have to passively wait to hear when he could have his retirement funds, and how many shares would be available to him for liquidation.  The rep had no contact information for us to reach out to this entity that was integral to the liquidation process.

We were on the phone probably a total of 40 minutes.  During one of the many long periods we were on hold, I remarked, “For the record, we would never recommend anything to you that can’t be liquidated the same day.”

He laughed out of exasperation, not humor.  There was some embarrassment mixed in there, too.

Not that I needed reminding, but many people are overwhelmed with the process of getting out of these unfortunate investment choices because it is difficult, time-consuming and can feel like there is no end in sight to the hurdles and delays.  Often times, they give up and their assets remain hostage at a company they now have grown to hate.

Know this: It is a stall tactic to crush any desire to move forward.  What you need to decide is if you’re okay with someone else wagging your tail.

Furthermore, there are plenty of good straight-forward, low-cost index funds out there to satisfy a multitude of investment needs.  There is no need to put your money where you can’t access it without being tortured or gouged. That is never in your best interest.

The client was grateful that I had spent so much time on the phone trying to get him answers.  Companies like this make it very easy for clients to see why working with a fee-only fiduciary, like me, is a different, client-focused experience.

They did all the talking for me. I just wish it didn’t have to cost my new client so much wasted time and money.

 

 

 

 

 

As our sons started to dip their toes in online consumerism via eBay and Amazon, I realized it was time for an education. Armed with gift cards and trigger-happy index fingers, it was too easy to buy. They lacked the healthy skepticism smart consumers have. They would inadvertently buy an accessory to something, when they thought the main item was included, for example; or they were lured into knock-offs that they believed were real.
Investing can be tricky like that, especially if you are not working with a fee-only advisor (fiduciary) who must put your needs first. Often times, investors believe that the sales guy isn’t making commissions off the sale (they are) and that the investments are without a mark-up, just because fees or sales charges weren’t clearly discussed. Investors assume that things are the way they want them to be (no charges) when that could not be further from the truth.
My father, rest his soul, taught me this lesson when I came home from the mall with a pair of shoes I bought for a steal. I was thrilled until he started pressing me on what material they were made of. They looked like leather to me, and I thought that was good enough. But when he asked me where on the shoes or the shoe box did it say the actual word “leather” I had no answer.
I will never forget his response – because it pertains to so much more than just shoes.
“Leather is a premium item and if the shoes were made of leather the company would make sure you knew that. That is the selling point. You shouldn’t have to hunt for that on the label. They are hoping to fool you into thinking the shoes are leather.”
Embarrassed, now, by my cheapo faux leather shoes and the more galling thought that he was, once again, right; all I could do was hope they wouldn’t make my feet sweat too badly. They were on clearance and there was a no-return policy.
When investors tell me they do not think they pay anything for their investments – not only is it never true, but it ends up that they are paying a lot more than they needed to; especially for teachers in 403(b) plans – it can be as much as 400% more.
When I encourage them to look into what they are actually paying it is hard for them to figure this out.
I tell them, like leather, low fees are a selling point. If you have to dig to find out what the fees are, the answer won’t be pretty. Again, they are hoping to fool you into thinking there are no fees.
Here are just some of the lovely discoveries I have watched investors uncover:
• Sales charges of 5.25% every time a dollar was contributed through their payroll deduction.
• On-going fund fees of 1% or higher, in addition to a wrap fee, bringing total fees to over 3%.
• Annuities with surrender charges that seemingly never end  —  fees can last five years and, with every new dollar invested, a new five-year rolling period of fees begins. Or, surrender charges that last 15 years!

• Paying 4.75% for a college savings plan (529) when a superior option, charging just 0.17% is also available in their state.

I really do wish I was making this up.

My sons have wised up and have learned to read the fine print and to research the seller’s ratings, so they don’t do business with sketchy characters. One son has gotten very good at making complaints that have resulted in refunds, discounts and free stuff.

I wish it was as easy for investors to get swift justice.
For now, the best recourse is to be educated. FINRA’s Fund Analyzer is a great way to look at mutual fund fees. Teachers can go to sites like 403bwise and 403bcompare – but first, they need to learn that they have to take the lead on this.
My husband and business partner, Tony, recently recorded a podcast with Next Gen Personal Finance advocating for better 403(b) plans. If you are a teacher or know a teacher, pass it along.
You could be saving someone from something way worse than a vinyl-shoed fashion faux pas.

 

I can worry about lots of things if I let myself – I am a mother after all, so that is fused with my DNA.  But one thing I’m really not worried about is an impending market crash.  Why?  Because that is what many people seem to be worrying about.

To be clear, a correction is certainly possible; I have no crystal ball.  But, being contrarian by nature, my reaction to what everyone is thinking is to move in the other direction.  I’m not “making a statement” or being snarky; nor am I smarter than everyone else; it is just the way I think.

I have been in the financial world for quite some time; many years as a complete novice.  But even as a novice, I noticed a pattern.

When everyone is so busy wearing their party hats and shaking the noise-makers, they fail to notice what looms on the horizon.  Euphoria tricks investors into thinking they are invincible and that markets can only go higher.

The louder the cheering, the more I quake.  From my experiences, the rosier the view, the closer we are to disaster.

In the summer of 1987, while working at (the long defunct) E.F. Hutton, the imposing sound of a ringing cow bell heralded every time the Dow Jones Industrial Average climbed higher.  The director of marketing took his job seriously, and would fixate on the ticker and let out whoops and hollers as he gleefully rang that stupid bell.  That’s what we should have called it:  the stupid bell.

Fast forward to just a few months later, October 19, 1987; the market crashed and panic permeated the squawk box chatter (the communications system brokers used).   The bell was likely put in a box and shoved into the back of the desk that the director was now clearing out.  We were for sale.  By Christmas, the firm was officially dead and many people were let go (including the cow-bell-ringing director).

A few years later, I ended up at a value investing firm.  The industry was still consolidating; many firms disappeared or merged; the industry was still pining for the glory days.

The value investors were quietly digging through the rubble; they weren’t lamenting over “the good old days.”  They were looking for the unpolished gems tucked in among the ashes.

They were strategic and measured.  They saw devastation as opportunity, which certainly took the sting out of fear.  It seemed reasonable and smart to me, and I took comfort in the fact that no one was doing a jig every time fund returns were decent.

I left that firm for one that was still finding its way.  Some value managers had been hired to round out the existing repertoire, which included growth, momentum, and technology – but my heart and head always seemed to quietly side with value.

As well-known tech investors (prior to the dot com craze) all eyes were on this firm to launch new and innovative tech investment products; the fans were obliged.  Elite tech funds, off-shore tech funds, and various versions of these funds were cranked out like counterfeit money.

I remember telling my boss that this fervor was making me jumpy.  It was like watching someone blow up a balloon beyond capacity.  Every breath caused me to cringe in anticipation of the explosion that was sure to come.  And, of course, it came – followed by the real explosions of 9-11, which put the final nails in the coffin.

I confess, I invested a small portion of my retirement account in one of the speculative funds. As a painful reminder of my folly, just last month I received a check for a whopping $77 for its final liquidation, over a decade after the fact.

So now clients, friends and family ask me: How long can this market gallop for?  They ask when the market will crash, as if I have been blessed with clairvoyance. But for now, I take comfort in the fact that people are nervous.  That keeps me calm.

Barry Ritholtz would probably tell me I am suffering from the recency effect – that my most recent experiences are telling me what might happen, even though it has no bearing on this situation, at this time.  There is no arguing with that; however, he would also say that being able to stick with your plan and control your behavior is key to being successful.  Agreed.

What has always given me comfort is looking at all situations in terms of the opportunity.  For long-term investors, corrections are a good thing, especially if regular, systematic investments are being made every month or every paycheck.  It is the equivalent of paying a clearance price for investments that ordinarily investors would have paid much more for, and gladly.

For the investor with a shorter time frame (nearing, or in retirement), these corrections can be terrifying.  New money may not be going into the account; in fact, monthly withdrawals may be needed to subsidize social security.

For those over age 70 1/2, required minimum distributions need to be made from retirement accounts.  In essence, selling low (one of the cardinal sins) may be inevitable; unless, of course, there is a plan in place.

For starters, think of money in terms of buckets.  Money for short-term needs (five years or less) should be in “safe” investments; available and secure.

What might this look like?  For someone who must take a required minimum distribution from an IRA, make sure that about five years’ worth of withdrawals are in short-term positions that do not fluctuate much in value (think cash, Treasuries, etc.).

The rest of the account can be invested more in stocks, but knowing that cash needs are met no matter how the market behaves gives some much-needed breathing room.

Most important, assets won’t need to be sold as their prices decline.  In fact, by rebalancing the long-term portion of the portfolio back to its original allocation, it guarantees that the asset classes being sold are the ones that have made money.  In turn, these proceeds buy the asset classes that are cheaper (buy low, sell high).

Having a strategy in place to pivot as needed can keep the mindset on a more even keel.  Bells might not be ringing, but on the bright side there will be no hangover after the party is long over.

 

 

 

 

I received an interesting call; or should I say my husband, Tony, did.  Though I introduced myself as Tony’s business partner, there was much reluctance to speak with me.  I guess this gentleman thought I was a ‘gal Friday.’

Finally, he decided to take up his solicitation with me, though it wouldn’t have mattered to whom he spoke with – the answer would have been the same.

He tried to sell me on the idea that we should reward our top clients with a trip to some elite golf tournament.  Never mind that the only person less interested in golf than me would be Tony – or me, were I buried six-feet under.

He argued that this would help us show our appreciation and allow us to hobnob with other prestigious and wealthy potential clients.  When I explained that we don’t operate that way he asked how we reward our top clients and how we attract prospects.

“By doing a damn good job,”  I said.   I went off on a tear.

“By always putting their needs first.  By offering comprehensive financial planning that includes advice on all that really matters to them — estate planning, taxes, insurance, charitable giving, college savings, and retirement planning.  By educating them through our blogs.  By investing in low-cost, diverse options. By being transparent in our fees.   By not charging them extra so that we can throw in ‘free’ perks that they actually pay for – like a golf tournament.”  I caught my breath, “And, they like us so much, they refer us.”

He was sorry he asked.

This reminded me of my early years at Dean Witter Reynolds (“DWR”) working in the Incentive Services department.  Being 23 and single, the firm probably thought they were doing me a favor, giving me exposure to wealthy, powerful men.  Judging by the gender and age of my counterparts, I would say we (unknowingly) fit some sort of “Stepford” profile.

The department’s sole purpose was to reward top producers with trinkets, trips and all the perks of being alpha-dog salesmen.   Items bearing the company logo, such as golf umbrellas, Gore-Tex® rain gear,  and Titleist® golf balls were handed out like Santa filling stockings of all the good little boys (that’s right, not a drop of estrogen to be found).

Our job was to make sure these producers felt pampered and worshiped.  Trips were to exclusive locations, like Monte Carlo.  All the arrangements from the caviar served at the cocktail hour to the golf foursomes were artfully selected.  A camera crew was flown in to capture the event so each participant could have a commemorative video keepsake.

Members of the Chairman’s Club, the consistent top performers, had their own custom-made, crested blue cashmere blazers as proof of their fraternity; they wore them on these trips.

The sales force was DWR’s biggest investment; the firm knew how to motivate them to compete against their fellow office mates.    And, as the cut-off for the contests would approach, brokers would ring our phones to check how much more they needed to sell to qualify.  

Numbers, numbers, numbers; they never lie; whether in sales or salary.

Unfortunately, the same can be said for sales charges and commissions.

I wonder how many clients were impressed by the framed certificates adorning the walls of their “club member” brokers.  Did they not realize that the accolades had more to do with their service to the firm than their service to their clients?

I am certain that if I had raised my objections to these incentives I would have been told that I don’t understand what motivates salespeople:  They are competitive; they like to win.  They will fight to the death to win a designer paperweight (in spite of the fact that the windows in their offices can’t open and there is no need for such an item).

Though I could never be motivated by these “carrots,” I do get it.  I just don’t like it; there’s a difference.  A zero-sum game is one I can live without.

I have a suggestion to these firms: Find people who are motivated by doing a good, honorable job for the client.  That is their reward.  That is their motivation.

It keeps their actions in line with pure intent.  Everyone wins: the clients and the firm; though the firm’s winnings may not be as lavish.  After all, if only the products that serve the needs of their clients are recommended, then expensive annuities and load-laden funds are not part of the repertoire.

When fat products feed the firm’s coffers, the client pays; always.

So I challenge these companies to adjust their compasses to align with their clients’ objectives.  It’s called being a fiduciary.

Then, seek out other like-minded financial professionals with the same values; who aren’t shallow enough to be enticed by a tote bag.

Maybe all the money that they save on trinkets and trips will bridge the gap from lost commissions.  Even if it doesn’t, perhaps they will be able to sleep better at night.  I know their clients will.

But as I dream of this nirvana, the industry fights the fiduciary rule, lying about it in the process.  They fail to see that advisors who do the right thing have good, solid businesses and clear consciences.

That is why attending a golf tournament isn’t our priority, or that of our clients (or prospective clients).

We wouldn’t have it any other way.