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: email@example.com 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: firstname.lastname@example.org or (610)687-3515.
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.
Summer is almost here and everyone seems to have vacation on their minds. We often get questions about paying for travel; a typical one is: “How much can I afford to spend?” So today we’ll provide you with some helpful tips on how to create a vacation fund that fits easily into your budget. That way you can enjoy vacation without feeling guilty about the expense.
A good first step for creating a vacation fund is to determine how much you feel comfortable spending. Start by recording all of your monthly income sources; some examples are salaries, child support, pensions, investment income, and annual gifts. Be sure to add everything up so that you know how much money is coming in every month.
After you know how much is coming in, you should review and record all of your household expenses. The goal is to gain a firm understanding of where your money is spent. Start by tracking your expenses for at least one full month. It is usually easiest to start by recording your fixed expenses such as mortgage, car, and retirement savings. After you have recorded these fixed costs–for your needs–then identify the costs for things you want, your discretionary items such as clothing, walking around money (WAM), and travel. Write down all of your discretionary expenses. Now you are ready to give careful thought to how much money you are comfortable allocating toward vacation.
Recording your income and spending is a key to success because simply assuming you know the financial details leaves a lot of room for miscalculation. And miscalculation leads to budgets that do not work. Another benefit of tracking your income and expenses is the sense of control you feel when you know where your money is going.
We encourage you give it a try for a month or two. Here is a great spreadsheet to use or you may prefer an online budget system like www.mint.com.
Now you are ready for the second step: Set money aside and earmark it for your vacation. This step is important because it provides you with peace of mind, knowing that your money is there and available before you head out of town.
Everyone has a slightly different approach to this. Here are four examples:
Inheritors often set aside a portion of the income produced by their investment portfolio as their vacation fund.
Business owners tend to earmark a portion of their business profit or bonus to fund their vacation plans.
Executives may decide to set aside a portion of their annual bonus or utilize a portion of their exercisable stock options to create a fund for travel.
Retirees commonly establish a separate account for their social security income and earmark a portion or 100% toward travel.
To recap, start by recording the details of your income and expenses. Then select the way you prefer to earmark money for travel. The sooner you begin the sooner you may feel peace of mind, knowing the money you need is already saved.