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!
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.
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.
When I established my holistic financial planning firm in 2000, I was advised by colleagues to avoid using the word “holistic” to describe Entrust Financial’s services. “It sounds too new age,” they said, “Like you are reading taro cards or something. It just doesn’t sound like you are offering rigorous financial and investment advice.”
I admit I was puzzled by the strong negative reaction to the word holistic because to me, offering financial advice using a holistic process was the natural outcome of observing what clients needed to be successful. For example, early in my career I was referred a couple, Emily and Dan, who reported they wanted to meet because they were “hemorrhaging money.” To them, this meant that although they inherited a substantial portfolio a couple of years before, they had already dissipated about $2 million dollars of it.
How could this be? Two things stood out when we completed our discovery meeting. First, the allocation of their inherited portfolio was not structured to generate the income they were taking or to minimize taxes. Second, Emily and Dan had inadvertently overlooked the need to plan for their family’s financial concerns that went beyond investing. These concerns proved not only expensive but extensive as well, including things such as: promised payment of expensive college tuitions for four children, long-term care expenses for a parent, and private, unreimbursed therapist expenses for their children, to name a few. Not surprisingly, the money hemorrhaging continued until we were able to reallocate their portfolio with a tax-sensitive income objective and to address their family’s other financial concerns.
Let us return to the term holistic for a moment. It is an adjective that means to comprehend the parts of something as intimately interconnected and understandable only by reference to the whole¹. Emily and Dan were faced with a dissipated portfolio because they had failed to look at the interconnection between the asset allocation of their inherited portfolio, their family’s financial concerns that went beyond investing, the inevitable tax consequences, and their current need for income. Fortunately, Entrust’s commitment to using a holistic process provided the structure they needed to turn things around and re-position their personal finances for long-term success.
Today, unlike in 2000, Entrust can use the word holistic with confidence, knowing the term is a positive indicator of the extra layer of care we provide to clients. In fact, when Mckenzie and I made the decision to reorganize Entrust Financial as an independent fee-based firm in 2015, we chose the descriptor: Partners in Holistic Wealth Management.
Our years of experience have continued to teach us that ensuring financial security and independence for clients is a holistic endeavor requiring more than astute investment planning. We have positioned ourselves as the financial quarterback, meaning we see the big picture, coordinate related professionals, deploy resources and respond with appropriate strategies within the context of life transitions and unexpected events. The job of our Entrust team is to be each client’s financial partner, the fundamental multi-faceted resource they can count on, no matter what.
Surprisingly, despite the benefit to clients of the extra layer of care offered when a holistic process is utilized, fewer than seven percent of financial advisors have adopted this service-delivery model. Rather, the financial services landscape has remained virtually unchanged over the past twenty years, with the vast majority of advisors trying hard to sell investment products, instead of addressing investors’ complex financial needs.
Whether you are preserving your affluence or are in the process of building your wealth, Gloria Steinem’s wry observation sums up the need for using a holistic approach: “Rich people plan for three generations; poor people plan for Saturday night.” Planning your personal finances for long-term success is not about a product sale. It is about achieving a holistic balance as you address your complex financial needs.
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.
Entrust’s November video, intended to help you make good financial choices, focuses on: How can you get your children excited about giving back? It all starts with family meetings about the family finances, followed by conversations with children about sharing some of their money, and for many families expands into funding a donor-advised fund as a component of the family’s charitable giving road-map.
For most of us, making the right choices is a balancing act. Not only are we faced with balancing our values, needs, and interests, but our choices are complicated by the need to balance all of this within the context of our whole style of living. Balancing Act: Wealth Management Straight Talk for Women tells the story of many women. It records the choices they faced, the life balance for which they aimed, and the results they experienced. The book is a how-to guide for managing your wealth, protecting your style of living, and building the confidence you need to leave fear behind.
We are thrilled to share that when you purchase a copy of Balancing Act: Wealth Management Straight Talk for Women, you are not only helping yourself with the enlightening and inspiring true stories of many women, but in addition you are also helping students with financial need. We have decided to donate 100% of the proceeds from your purchase to a Temple University full-tuition scholarship fund.
If you are a parent, you understand the importance of teaching your children good money skills; unfortunately, many of us are not sure where to begin.
Here are some ideas to get you started:
Help your children begin to save. Encourage your children to save a little from all the money they receive, such as allowances, birthdays, bar and bat mitzvahs, etc. Open accounts for your children and assist them with tracking their money. A couple of ideas for tracking their money would be www.mint.com or you could go the traditional paper and pencil route (it doesn’t need to be fancy).
When I was a kid my mom taped a piece of paper on our refrigerator door and that was what she and I used to track my money. I loved making that number grow! So every Christmas and birthday I would make additions; then when I got my first job the additions became more frequent. I was always saving for something but my first meaningful purchase was my car (I paid for one third of it). I was proud and protective of that car because I saved for it. Accomplishing that goal felt good.
Next, teach your children the difference between saving money for short-term and long-term goals. After your children understand the difference between short-term (purchasing a toy) and long-term goals (saving for college) help them to understand how money should be treated differently for the two types of goals. You want your children to understand that bank accounts are great for short-term goals. However, money that is geared toward longer-term goals should be invested appropriately, so that it may grow and outpace inflation.
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.
When we realize that we have inherited money, most of us have the thought, “Wow, I want to make sure that I am responsible with this money but I have no idea what to do!”
A good first step is to determine the answer to the following question: “What do I want this money to do for me?” There is no right or wrong answer to this question and the answer will be slightly different for everyone. For example, our client Mary contacted us upon inheriting money from her father. She wanted to be sure that she was being responsible with this money and for the first time in her life to feel financially literate.
After some careful thought and discussion, it was clear that Mary wanted her inheritance to help her accomplish 3 primary goals:
Provide her family with some income now. Mary wanted to take a step back from her current career and pursue her dream of entering a different field.
Grow her money for retirement. It was very important to Mary that she and her husband would have financial security throughout their lifetimes.
Pass money along to her daughter. Ideally Mary wanted to be able to keep the principal intact so that she could leave a legacy.
As you can see, Mary had important goals that she wanted to address with her inheritance. She was not sure how or if she could obtain these goals, which leads us to the next important point.
After you have determined your priorities, the second step is to decide how your money should be invested. Keep in mind that investments are really just tools to help you accomplish everything that is important to you; this is why you need to start by determining your goals.
Many times people who inherit from a family member (especially a parent) think their money should be invested the same way that their parent chose to invest. This may not be a good idea primarily because your investment portfolio should be designed to fit you. Your financial picture is likely different from the person from whom you inherited the money.
For instance, when Mary first walked into our office she thought that all of her money should be invested in municipal bonds and Exxon stock because that was how her father had invested his money. After some education, Mary came to the realization that because her financial life and priorities were different from her father’s, her investment portfolio should also be different.
As you can see, inheriting money is complicated. If you find yourself having a difficult time making decisions you may be inadvertently trying to please or adhere to the philosophy of someone else. My suggestion is to give yourself permission to let go of the past and confidently seek the advice you need. If you are ready to seek the advice you need, contact us today.