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!
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.
You can instill a sense of gratitude and generosity in even the youngest children by teaching them to share with others, beyond the immediate family. For instance, a great place to start is to encourage your kids to volunteer their time or share a portion of their allowance with the causes they love.
Strategies for transforming your children into young philanthropists include:
Discover what sparks their interest
Create a family tradition
Establish a donor-advised fund
Discover what sparks their interest
You can easily discover children’s interests by having a conversation, or better yet, by holding a family meeting. Facilitate the participation of each family member regarding their special interests. Identify what captures the heart of each child; then select charities that fulfill his or her passion.
For example, if your child likes pets, that might generate interest in a local animal rescue group. Once the organization is selected, look for opportunities to support them by donating time or money. As an added incentive you might agree to match the donations your child gives.
Create a family tradition
Celebrate a holiday, anniversary, or other event as a family by giving back to those in need. Not only will your children learn the importance of volunteering and generosity, they will also look forward to this traditional family endeavor every year. For example, participate in a family-friendly one-mile or 5K walk that benefits a cause important to your family. Or enjoy beautiful spring or summer days by volunteering for a park cleanup project or a local community building project. These shared experiences provide valuable lessons about the impact of giving back to the community.
Establish a donor-advised fund
A great charitable tool you should consider is a donor-advised fund. Many families establish a donor-advised fund because it’s flexible and a great tool to teach their children about giving, saving, and investing. When you and your family donate to your fund, you may be eligible for an immediate tax deduction.
Family members meet regularly to review their contributions, their investment strategy, and the value of their donor-advised fund. They make decisions about when to grant money and to what organizations. Some families set savings goals; they wait for the fund to reach a certain value prior to dividing funds among their favorite charities. Because grants are made only to qualified charities, an added benefit is that investment appreciation has the potential to grow tax-free.
Givers for life
By teaching lessons in gratitude and generosity early on, you can set your kids up for a lifetime of giving back to those in need, to their local communities, and to cherished causes. If you would like to discuss specific strategies for incorporating charitable giving into your family planning, contact us today or take a look at the BalancingActBook.com Charitable Planning Map.
Stock markets have been on a wild ride this year and it is likely that the volatility will continue through the remainder of the year because of the degree of uncertainty around the world. Current events with indeterminate outcomes almost always trigger emotional responses on the part of investors, thereby affecting capital market movements.
When there are large swings in market activity it is often just an overreaction to uncertainty; there may be no fundamental reason for investor worry. A good example of this is when the media aired the news that Britain voted to exit the European Union. Overall the U.S. capital markets suffered for the first two days following the BREXIT vote; suddenly, when investors realized the sky wasn’t falling, the markets quickly recovered.
If markets continue to gyrate don’t be surprised and definitely don’t panic. Panicking (or selling) does not serve you or your portfolio results over the long term. Market fluctuations–even wide, uncomfortable swings–are a normal part of investing that we investors have to accept in order to reach long-term goals.
For instance, a client contacted us the morning after the BREXIT vote and asked, “Does it make sense to move money from my investments into cash?” Because her goals are long-term and there is no way to anticipate the market’s next move, our response was, “No. Making a move would not help your portfolio results.”
In our experience, successful investors look beyond short-term capital market movements and stay focused on their investment plans. This picture says it all:
Motivated to know more? Check in with your financial advisor to confirm that your investment portfolio is properly diversified or Contact Us Today for a second opinion regarding your investment planning.