We received a call from Marvin, who finally decided he felt uncomfortable having $2 million in just a single stock. Yes, he loves the stock and is loyal to the company; he first acquired the stock because he worked for the company years ago at the beginning of his career. But so much money in just one equity? What if the company goes through a bad patch and he loses half the value?
Marvin reported to us that his risk of loss, because this $2 million of his net worth is not diversified, has become untenable. We agreed, having often raised this concern with him. Now that it is time for action, what can he do? He originally purchased $250,000 worth of the stock, so his gain is a whopping $1,750,000! On the one hand, we investors love the gains but on the other, to sell off this stock aiming to reduce risk by diversifying means a tax bill–a BIG tax bill.
We opened our conversation with Marvin by asking if he would be interested in learning how he might “Do Well” (reduce his portfolio risk and reduce that Big income tax bill) by “Doing Good.” That idea attracted his attention. We then presented Marvin with the following two options for doing good while aiming to reduce his portfolio risk and avoid big tax consequences:
Donate the stock to a charity (or charities), to fulfill your charitable intentions during your lifetime. Such a donation would result in a deduction in income tax liabilities for most of us, but check in with your accountant before taking action!
Establish a donor-advised fund (DAF), and contribute the stock to the fund. Do not sell it first because that triggers the BIG taxes. When the stock is in the DAF, it can then be sold and diversified with no income tax liabilities. This donation is eligible for an income tax deduction, just like contributing a single stock to a specific charity or two.
Before our conversation about these choices, Marvin figured he was stuck losing a substantial amount of his single stock gain to income taxes, as the trade-off for reducing his portfolio risk. He was thrilled to learn of the personal economic benefit of donating. To say nothing of the feel-good experience of fulfilling his charitable intentions now, rather than after his death.
Our conversation ended on a good laugh, when we shared with Marvin the following medical research:
“Medical tests have indicated that giving of your time, your talents or your money stimulates a part of the brain that results in the same gratification as when you eat food or have sex.”¹
Whether you would like to do well by doing good, or just plain want to feel good this holiday season, give us a call like Marvin did to learn what planning can do for you. 610-687-3515 or firstname.lastname@example.org
¹Arrillage-Andreessen, Laura. Giving 2.0: Transform Your Giving and Our World. New York: Jossey-Bass, 2011.
This information provides opinions and general information compiled by the Firm from sources believed to be reliable at the time of this material being distributed. All contained opinions and material relied upon may change or become outdated without notice. The Firm makes no representation or guarantee of the accuracy of the opinions or views expressed or information relied upon from third parties. This material is a general opinion regarding current markets, economy outlooks, and/or financial planning topics. Further, the opinions or views expressed in this material are not intended to be financial, legal or tax advice.
Readers should always seek advice regarding their particular accounts and transactions from their financial advisor before making investment decisions. All investments involve risk. Past results do not guarantee future performance. There is no guarantee that any investment will return a particular performance result or a better performance result over another investment option.
Jeremy has been an entrepreneur since high school. His pride and joy is the restaurant he opened upon graduating and has built into a successful enterprise over the past two decades. When we met, he reported that he promised himself for the last five years that early retirement was just around the corner. He wants more time to spend with his beautiful family.
Jeremy’s aspiration, what we at Entrust call making work optional, is lofty. It requires a finely-tuned financial game-plan to make it happen. You will not be surprised to learn that Jeremy has no financial game-plan because, like virtually all entrepreneurs, he spends all his time working on his business.
Not having the time to devote to creating your personal financial game-plan–or preferring to delegate your long-term financial success so you can spend your time doing what you love–is the first indicator that it is time for you to hire a competent financial advisor. Jeremy contacted Entrust when he was finally able to admit to himself that he had neither the time, nor the interest, in formulating his own game-plan for long-term financial success. We assured him that he was not alone in his lack of interest. After all, everyone has different interests, passions and talents.
Our discussion continued with consideration of two other common indications that financial expertise is needed: an individual’s so-called “financial goals” are actually vague hopes; an individual’s portfolio of investments is just a collection of accounts and holdings, selected with no rhyme or reason.
Let’s take a closer look at the three indicators:
You never get around to handling your personal finances. Most of us prefer to hire an expert to handle complex matters for us. We recognize that while we can look on the internet for information, that does not mean we have the skill required to be the best advocate for ourselves in all matters. For instance, do we really want to drill our own teeth or perform our own surgery–just because “we could”?
Your “financial goals” are actually vague hopes.
A comfortable retirement and/or the desire to pay for four years of college for your children are admirable aspirations, but they are not achievable goals unless they are: quantified, have a step-by-step plan for implementation, have specific timelines for achievement, are monitored, and may be revised as needed. How many of us have the time to consistently fulfill these facets for goal-achievement?
Your investment portfolio is really a collection of accounts and holdings without rhyme or reason. This can happen for a variety of reasons, but most often it is due to a lack of a disciplined investment plan strategy. Especially in today’s climate of changing jobs many times over a career, inheriting money, divorce, as well as other life events, it is easy to accumulate financial clutter. But it is not easy to move from clutter to better portfolio results.
Whether you are trying to build wealth, preserve wealth, or make work optional like Jeremy, partnering with the right financial expert is often vital to your peace-of-mind and long-term success. Now is the time to confirm that your financial advisor relationship is right for you; take advantage of our Second Opinion Service today.
Rachel would tell you she likes to make money, not count it. However, what stands out when you meet her are her phenomenal entrepreneurial skills. In fact, Rachel’s relentless effort in her business endeavors, coupled with a superb instinct for calculated risk-taking, led to the accumulation of a nest egg of over $6 million saved (in cash). She accomplished this while living a lavish lifestyle including owning a home on each coast.
Finally, at age 53, Rachel scheduled a meeting with us. She did this because she realized that not a penny of her money was invested during a period in the financial markets when her savings could have doubled in value. In other words, she could now have a nest egg worth $12 million.
You may be thinking, “What stood in her way?” Just a few minutes of discussion led to the answer: fear. She was afraid to invest in the stock market because no one in her family had ever invested and she could never seem to take that first step to finding a financial advisor she could trust.
Not surprisingly, a first step in our relationship was to help Rachel recognize the following: the difficulty she experienced in taking that first step towards becoming an investor was probably simply an extension of what she learned about money when growing up. For instance, her parents lived paycheck-to-paycheck; anything “extra” went into the bank savings account.
Most of us repeat what is familiar or emotionally comfortable to us, until we see a reason to change. A favorite metaphor illustrated this conundrum to Rachel:
One of the most dramatic portrayals and much-loved characteristics of the old Star Trek series was the interaction between Captain Kirk and Mr. Spock. Captain Kirk often made gut decisions relying mostly on his emotions, while Mr. Spock always used sound logic to make his decisions. Like Captain Kirk, many of us rely first and foremost on our emotions in our decision-making and then use our logical minds to rationalize our emotional choices.
It can take considerable intention to add in a strong dose of Mr. Spock’s sound logic to our comfortable gut reactions, before deciding on a course of action.
Rachel began to see that repeating the past pattern of how her parents handled their money had resulted in huge consequences to her financial well-being. To her, it was worth the effort of bringing intention into her personal financial decision-making rather than relying predominantly on her gut as she had before. Rachel reported that, when it comes to her savings, she will start counting–and rely on the logic of market efficiencies–to get her money working for her as hard as she worked for it!
You would not expect a business to succeed unless the owners established short and long-term goals, and took the time to track expenses and income. When it comes to couples and money, the same expectations hold true. Setting goals and tracking financials can make all the difference to a lifetime of financial success.
But as you know, not all couples experience financial success. What stands in the way? First, couples are often unsure how to collaborate with one another to make good financial decisions. Second, money is personal and each partner brings his or her own values, desires, habits, and baggage from the past into the conversation. However, as you are about to see with the story of Eva and Brian, the past does not have to present an obstacle course to financial bliss within relationships.
Eva, aged forty-two, works for a local university and was never married. Brian, aged fifty, is a partner at a large law firm and has two children from his first marriage. You can imagine how different their incomes, savings, and lifestyle choices were before they met. They decided to contact Entrust due to their uncertainty about how to fairly join their diverse finances and investments, a goal they wished to achieve prior to their upcoming marriage.
While there is no magic formula because financial success in marriage is a journey, not an end-game, the following steps helped Eva and Brian to get on track:
Put all your cards on the table. Before you marry, be honest about where you are today financially––review your current situation, including your income, expenses, debt, savings, and financial goals. Not surprisingly, this type of truth party takes courage. In our illustration, Eva was ashamed that she still had some student loan debt to re-pay; Brian was embarrassed that his investments had been in cash since 2008.
Determine your income and expenses. With a clear understanding of the pieces of their financial puzzle, Eva and Brian were then able to collaborate regarding expenses. They now use mint.com to make it easy to monitor their cash-flow, and report how reassuring it feels to know how much money comes in, how much goes out, and to have a firm grasp on where their money is spent.
Create and work toward precise goals, and specify timelines for achieving them. Brian and Eva are excited to be aiming toward achieving retirement goals as well as planning to provide for an elderly parent and special needs child. They conduct monthly financial check-ups and find creative ways to celebrate when their progress reports are right on track.
Today, Eva and Brian feel a revitalized sense of financial security because they know that they are on track–collaborating and sharing responsibility for achieving everything they need for a lifetime of financial success. If you need help fine-tuning the financial bliss in your relationship, contact us right now: email@example.com or 610-687-3515.
If you are like many of us, you believe your employer-sponsored 401(k) plan is “free.” After all, you do not receive a fee report outlining the calculation of your pricing. And perhaps with respect to your personal investing, you or others you know may also have reason to believe investment advice is virtually free. For instance, one commonly heard claim some advisors make to clients is: “You don’t pay me. My firm pays me.” No wonder such investors assume they are getting a free lunch.
Kerri and Dan’s experience illustrates this important concern. Kerri and Dan are entrepreneurial and own a law firm that they have grown into a successful business with close to one hundred employees. They established a company 401(k), so that they and their employees could save consistently for retirement. Believing their 401(k) to be virtually free, they hired the same advisor who provided the 401(K) to assist them with the management of their personal assets. It did not occur to them that the absence of a quarterly fee report outlining the calculation of pricing–for both their company 401(k) and personal portfolios–was a signal of hidden costs.
What prompted Kerri and Dan to question their current financial advisory relationship and to schedule a meeting with Entrust for a second opinion? It was the attention-getting new regulations, applicable to employers offering a company 401(k). The new governmental regulations, which among other things emphasizes the employer’s responsibility to provide transparent fee disclosures, caused Kerri and Dan to realize that they were not exactly sure what their investment management expenses were.
Entrust’s fee-based business model and long-standing commitment to transparent reporting of investor costs appealed to Kerri and Dan. Our work together led to the identification of hidden expenses that were substantial. We were then able to provide a proposal to fulfill their 401(k) and personal investing needs that utilized transparent fee reporting and less expensive investment management.
Common examples of hidden expenses that many investors pay without realizing it include:
Revenue sharing among mutual funds, another investment company and the advisor
Monthly administrative fees that provide additional compensation
Excessive internal expenses within mutual funds
Like Kerri and Dan, you may be ready to move beyond hidden costs such as those named above and instead, discover the benefits of a transparent fee model to fulfill your investing needs. We would love to start a conversation: firstname.lastname@example.org or (610)687-3515. Better yet, if you are a business owner and would like an evaluation of how much your “free lunch” firm 401(k) and personal financial advice really costs, contact us right now for a second opinion: email@example.com or (610)687-3515.
Your portfolio is comprised of a variety of ingredients. These ingredients–typically stocks, bonds, and real estate (perhaps in the form of mutual funds)–are combined based on how much risk you want. But is it possible to keep your risk-level on track over time?
When we hear the word “recipe,” most of us think of food. And now that the summer season is here, foods with fresh ingredients are abundant–a welcome and nutritious change. But we can also apply the friendly term “recipe” to our portfolio asset allocation, recognizing that our portfolio ingredients are likely to be stocks, bonds and real estate. Fortunately, when we get the proportions right, these investment ingredients may deliver welcome results and keep us financially healthy.
Sue’s experience provides a perfect illustration. Sue is a meticulous and successful entrepreneur with a strong commitment to preserving what she has accumulated. Before we met, she had not paid much attention to the ingredients in her portfolio. She assumed that her long-time advisor, whom she inherited ten years ago along with the money from her father, was doing just that for her. Furthermore, because she recognized the names of the companies in her portfolio as “good companies,” she figured she did not have to worry about a loss in value.
However, Sue decided to talk to a different advisor about her most important financial goals, especially her primary goal of “making work optional” for herself and for her partner. Therefore, she scheduled a meeting with our Entrust team: 1) to discuss her financial goals, and 2) for a second opinion about whether her current portfolio of investments was on track to help her achieve them.
None too soon! Analysis of her investments revealed that over the years, Sue’s portfolio had become concentrated in just a few stocks. Not only did this concentration increase her risk, but the fact that the stock positions she held were all in just one sector of the market also resulted in greater risk than she had intended. Sue now realized that if she continued to hold concentrated positions going forward, her portfolio would have little chance to deliver the consistent and reliable appreciation she needed to achieve her primary goal, that of making work optional.
As an alternative, we introduced Sue to the risk-management strategy of allocating her money across a variety of ingredients (assets), such as stocks, bonds and real estate. She agreed to the diversification recipe we presented and her decision was soon validated. Not long after the implementation of her new portfolio asset allocation was completed, one of her former technology stocks plummeted in value. She is thrilled to have escaped the volatility of single-sector investing before the worst occurred!
Selection of the right portfolio ingredients can serve as a recipe for success and result in the achievement of investors’ most important goals. Contact us today for a second opinion about the health of the asset allocation recipe for your portfolio of investments.
Bizzie, a thoughtful and practical woman who has carefully cultivated her legal consulting practice for decades, is married to a high school music teacher and has one son–a teenager soon to complete his senior year and head off to college. Our story begins when Bizzie inherits a substantial amount of money following the sudden death of her father. While the handling of the family finances was always her husband’s responsibility, upon receiving this inheritance–which felt like a windfall to Bizzie–she realized she wanted to take charge of this money and for the first time in her life become financially literate. Bizzie wanted to be confident of doing the right thing; after all, this inheritance was high stakes money for her.
Bizzie quickly determined that step one on the road to financial literacy was to hire the right financial advisor. A linchpin for her, as she researched with whom to work, was learning about Entrust Financial’s commitment to planning and having a team of advisors who are Certified Financial Planner™ Professionals. When she contacted us to schedule a consultation, one of the first things she said was, “I want to do the right thing with my inheritance. I hope that with proper planning my father’s gift will make it possible for my family to achieve our most important financial goals.”
During our initial consultation Bizzie was articulate in sharing her goals, which included:
Prepare for a secure retirement
Provide a college education for our son
Earmark a $2 million-dollar legacy for our son
As we worked with Bizzie to formulate and implement a wealth plan for achieving her stated goals, we recommended an assignment: develop a precise understanding of expenses by tracking all family expenses over a period of several months using this budget spreadsheet. She was thrilled when this homework assignment allowed her to answer the question, “What does my family need to spend to be comfortable?”
Although she completed the expenses-tracking assignment in preparation for the successful implementation of her wealth plan, two excellent and unexpected outcomes resulted from her efforts:
She discovered her husband did not prefer to be solely in charge of the family finances. In fact, he indicated that going forward he was thrilled to share this responsibility with Bizzie, who enjoys the details far more than he.
She discovered that her inheritance portfolio could provide income today, thereby allowing her to take a step back from her consulting practice and finally pursue her dream of attaining her doctoral degree.
As Bizzie and her family experienced, “doing the right thing with your inheritance” can have far-reaching effects, superb outcomes that go beyond financial confidence and a sense of security knowing the achievement of important goals is within reach. Contact us today to explore how to accomplish your most important financial goals.
Cyber-fraud is on everyone’s minds these days. For instance, we probably all know of someone who was scammed through their email. A common and all-too-effective ploy is for a hacker to send an urgent and alarming email of distress–from a loved one–requesting that money be sent immediately. A good friend of mine responded to one such request for help because ostensibly it came from his best friend; as a result, he lost thousands of dollars.
At Entrust we are vigilant about protecting our clients’ information. Among the tactics we employ are three easy ones you, too, can use to protect your personal information.
Never use public Wi-Fi, unless your device has absolutely NO private information on it.
Never send documents with personal information, such as account numbers or social security numbers, through email.
Change your passwords at regular intervals–no less often than quarterly. And store your passwords securely on software–such as KeePass–designed for such storage.
What prompts us to blog about the topic of cyber-fraud? Hacking–now frequently PHISHING–has become a big business and we are all at risk. No longer is the hacker a late teenager, stoned, sitting in his mom’s basement hacking away on his computer to pass the time while he tries to “find” himself. No, today we are surrounded by global networks of hackers and what do they have in common? They are PATIENT. They are content to gather massive amounts of information and take all the time they need to sift through it for the nuggets of value, no matter how long it takes.
How can utilizing the foregoing tactics we enumerated protect you?
If you use public Wi-Fi, you are opening the door to hackers to gather whatever information happens to be on your computer. This information could be about you, or they could simply be gathering data about all of your connections–including your connections on LinkedIn or Facebook, for example.
Avoid public Wi-Fi and you are adding a layer of protection over your personal information (and your friends’ information, too!)
If you send private information by email, hackers truly love you because they do not even have to sift through anything to take the data they want. Use your secure portal, such as your Entrust portal, instead. Even if it takes extra time to provide information, avoid sending private information by email.
Because massive amounts of information are gathered and it takes time to sift through it, if you change your passwords at regular intervals, the likelihood is that when a hacker circles back to you, he will no longer be able to gain access because your credentials have now changed.
For all of us, protecting our information is becoming more difficult while at the same time doing so is more important than ever. Contact us to continue this conversation about how you can better protect yourself and those you love.