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New parents: Know the true costs before choosing to stay at home

New parents: Know the true costs before choosing to stay at home

Gail Hicks is a senior financial advisor at Klein Financial Advisors. She is this week’s guest blogger while Lauren is away on vacation.


It’s a question almost every soon-to-be parent ponders: should I stay at home after the baby is born? And if so, for how long? Even for the most career-driven parent, it can be a very emotional decision. To come up with the right answer for you, step beyond a basic pros-and-cons list. Be certain you’re considering every piece of the puzzle before making a choice—and do all you can to be sure that choice balances your emotions with what’s best for the long-term financial stability of your family.

If you think that puzzle is a simple one, think again. It’s easy to look at the high cost of childcare and assume that those costs, combined with the savings on everything from dry cleaning to taxes to eating out after a long day at the office, make staying at home the most cost-effective option. That’s rarely the case.The truth is in the data. According to a recent study by the think tank Center for American Progress (CAP), the average 26-year-old woman who takes a 5-year break from her career will lose much more than five years of her salary. In fact, when considering lost income, wage growth, and retirement assets and benefits during just five years, she’ll lose a whopping $467,000 over her lifetime. A man of the same age will lose even more: just under $600,000. To make those numbers more personal (especially knowing that Orange County is one of the most expensive places to live in the US) assume that staying at home will cost up to five times your annual salary for every year you’re out of the workforce. According to the latest U.S. Department of Agriculture’s Expenditures on Children by Families report, households with income over $105,000 should be prepared to spend at least $400,000 to raise a child to age 18. With that price tag in mind, it’s a challenge to make staying at home an affordable option!

Of course for some parents, the math isn’t enough to sway the emotional desire to stay home with children. For others, there are family and cultural biases that strongly influence the decision. But it’s vital to look closely at the reality of your choice before opting to leave the workforce. As someone who has been there myself, I know the real-world challenges all too well.

When my husband and I were contemplating expanding our family from one child to two, we remembered the toll my job took on my health during my first pregnancy, including a very frightening pre-term labor that resulted in being put on bed rest at seven months. The high cost of childcare and the fact that we had no family in the area to help out were also factors to consider as we considered our options. We did the math (it’s what I do, after all!), and determined that with our savings and the extra income from my husband’s side business, we could make it work. We knew there would be sacrifices, but it was an important—and yes, emotional—decision for us both. So I walked away from a high-paying corporate job and walked into stay-at-home parenthood.

Unfortunately, the decision didn’t play out in real life as well as it had on paper. First, our second son was born with a mild disability. That alone tipped the financial and emotional scales. Jumping through hoops to get a diagnosis and then therapy two or three times a week was hard. Soon afterward, the recession hit, and with it came the end of the consulting income we had counted on to help replace my salary. Even worse, my husband didn’t want to add any more stress to an already high-stress situation, so he postponed admitting that his side business had completely dried up. Our plan of just breaking even quickly turned into the reality of taking on debt. Now the numbers didn’t make sense. How could I go back to work when my younger son needed me at home and my older son had grown accustomed to having me at home with him too?

At the same time, I was in a world of the unknown. I’d been a businesswoman my entire life. I was home with a special-needs child, I knew only a handful of my neighbors, and the few stay-at-home moms I was able to meet had never worked, so our experiences were completely different. I felt isolated and alone. And while it was a difficult choice to go back to work, money was just one piece of the equation. I was confident my choice would be best for our whole family, and it truly was. Within months of going back to work, I felt we had found balance again. Yes, I missed the time with my sons, but I knew I was a better mother when we were together as I watched the financial and emotional stresses wash away.

Everyone’s situation is different. The key to making the best choice for you is to understand the true financial impact of staying at home, and then to decide what makes sense for you and your family—both today and over the long term. How can you be sure your emotions aren’t overriding your common sense? Work with a professional advisor to help you crunch the numbers and be sure you’re really considering every piece of the puzzle.


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Ready to retire? Consider taking the road less traveled

Ready to retire? Consider taking the road less traveled

It’s inevitable. You tell your friends you’re retiring and the first question out of their mouths is, “What are your plans?” Question number two: “Where are you going?” It seems the connection between travel and retirement has become an obsession in our society. And while it may conjure up images of tropical destinations and “once in a lifetime” adventures, the dream doesn’t always reflect the reality.

My friend Joyce is a perfect example. After working in corporate healthcare for decades, ten years ago she was finally ready to call an end to her career. Of course, the questions and suggestions began immediately: “Where are you off to? Have you thought about a cruise?” “You should go on a safari! It’s the trip of a lifetime!” “We loved Capri! You just have to go!” “You’ve never been to Paris?” Joyce had already traveled a fair amount in her life, for work and pleasure, so the idea of planning a big retirement trip wasn’t even on her radar. Suddenly the pressure was on. She started to feel like she had to travel—it was, after all, what retirees are expected to do.

When we met for coffee a week after her retirement party, she was restless. “I don’t even know where I want to go, but I feel like I should figure it out soon. I’m already bored with my routine!”

It’s a dilemma I see all the time. As retirement looms, people are so focused on closing the door on their careers that they don’t take the time to think about what’s next. They know they’re not ready to settle into a rocking chair, but they have no idea how they want to spend their days.

To help guide Joyce, I posed a question that was much different than, “What’s your travel destination?” Instead, I asked, “What do you want to do in your second half of life?” Joyce looked like a deer in the headlights. I took a sip of my coffee and continued. “Is there anything you’ve dreamed of doing, but have simply never had the time—not including traveling?” We sat quietly for a few minutes, and I could see the wheels turning in her mind. When she did speak, she seemed almost embarrassed, as though she was confessing a dark secret. “Paint,” she said. “I’d love to paint.”

Joyce’s vision was no standard image of an elderly gentlewoman quietly painting landscapes on a sunny hillside. Her dream was to paint large, bold canvasses that would take people’s breath away. I could already picture her in paint-covered overalls tossing paint onto the canvas like a modern-day Helen Frankenthaler. She didn’t know her next step, but she now had a vision in her mind, and it had nothing to do with jumping on a retiree-filled cruise ship.

Don’t go me wrong. I’ve recently discovered my love for travel, and I get that, at least for some people, travel is a retirement dream come true. Even then, I’ve seen peer pressure turn what should be a time of financial freedom into a whole new level of stress and anxiety. Travel anxiety can be especially challenging for anyone who lives in an affluent area, and even more so for affluent couples who set out on their travels together. Suddenly, what could have been a modest, budget-conscious Alaskan cruise morphs into a five-star, luxury journey on the Crystal line—for five times the original cost. The pressure to overspend can come from relatives as well. Knowing that memories are important, it’s all the rage right now for grandma and grandpa to treat the entire family to an all-expenses-paid family vacation, yet few retirees can afford this level of extravagance. I’m all for spending money on experiences instead of “things,” but it’s important to be realistic. If a trip is beyond your budget, that’s the moment you need to stop and ask yourself: whose dream am I living? Mine—or my neighbor’s? Peer pressure can be tremendous, but swallow your ego and make choices that align with your dreams and your budget.

Joyce’s story has a wonderful outcome. After our talk that morning, she decided to make her dream come true. She signed up for classes at Otis College of Art and Design, studied with master teachers, and earned a certificate in Fine Arts. She’s been painting ever since, and though I have yet to see her in overalls (I guess that’s my version of her dream, not hers!), she’s happier than I’ve ever seen her. She does travel a bit, but mostly to New York City on artist trips. By focusing on what she truly wanted, she took the road less traveled (pun intended!) and painted a beautiful “retirement” that even she never saw coming.

If you’re on the cusp of retirement—or even already there—take some time today to brainstorm how you want to spend the next decade of your life. Build a vision board. Journal. And don’t let anyone else’s expectations stand in your way. Once you have some ideas, I recommend sitting down with your financial advisor to figure out a realistic budget, and then take it from there. By charting a path based on your dreams and your finances, you can paint your own picture of a wonderfully fulfilling retirement that’s free of financial anxiety. That’s what I call the “golden years”!

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Rethinking retirement in the “gig economy”

Rethinking retirement in the “gig economy”

There’s a movement going on in America, and it’s something retirees, and those even close to retirement, should start studying—hard. It’s called the “gig economy,” and it’s changing how people think about almost everything. Work. Play. And even the fine line in between the two. It’s changing how we pay and get paid for both, and it’s transforming how people look for work and how the work itself is getting done. Whether you’re looking for extra income to help fund your retirement, or you simply want to work to keep your mind and body active in your later years, understanding the gig economy and how it functions is vital to rethinking your retirement.

Anyone who has been forced to look for work recently can tell you firsthand how the gig economy has flipped the traditional work landscape on its head. Old-fashioned resumes have been replaced by LinkedIn profiles, and even the idea of finding a conventional “job” is fast becoming a thing of the past. Companies like Uber, Lyft, and Airbnb have provided a way for almost anyone to earn an income, as well as a whole new way for consumers to find and pay for services.

These companies aren’t alone. Today, there’s a website or an app that offers on-demand services of almost any kind imaginable. DoorDash delivers breakfast, lunch, or dinner from your favorite restaurant to your door at the click of a button. TaskRabbit lets you order up a “trusted and local handyman” within an hour. Dogvacay gives pet owners online access to 5-star pet sitters and dog walkers. And there are just as many services for professional freelancers. Upwork helps companies hire web developers, writers, accountants, and virtual assistants. Guru is the place to find professionals in management and finance, engineering and architecture, and sales and marketing. And UpCounsel is the go-to site for legal services.

Of course, every one of these services requires individuals to provide skills. Whether they are driving for Uber or DoorDash, putting together IKEA furniture, or helping a business crunch the numbers, these workers make up a growing workforce that is already in place. That means that if you thought serving up lattes at your local Starbucks was the only job in town for anyone “post-career,” you’re happily mistaken. The gig economy is taking over, and that’s good news—at least for those who get it and can adapt to this new reality.

The business school at UCI certainly gets it. My friend Howard Mirowitz is on the advisory board at the school’s new Beall Center for Innovation and Entrepreneurship. The center is devoted entirely to inspiring innovation and entrepreneurship in the 21st century. Here students learn both why it’s important to become an entrepreneur, as well as the processes and tools to help turn that dream into a reality. The center fills a need that’s positively exploding. While being an entrepreneur may have sounded like a lofty dream a decade ago, it’s fast becoming mandatory for anyone hoping to succeed in an environment where it’s predicted that 43-50% of workers in the US will be freelancers by 2020. Let me repeat that: 43% to 50% of workers will be freelancers. Whatever your age, if you’re looking for work today, you are part of that statistic. Which means that now is the time to figure out what you have to offer the world and how that fits into what the world needs from you, and then begin to create your opportunities as part of this new, dynamic workforce.

For those of us who grew up in a business world where “climbing the corporate ladder” was the norm and playing by the rules led to a coveted lifetime pension, this new era can be pretty daunting. It requires flexibility and agility, not to mention a good dose of personal marketing savvy and technology know-how as well. So where do you start? It may be a moving target, but these five steps can help you take those first important steps:

  • Start to think differently.Rather than thinking about getting a “job,” make a list of all of your skills—both skills you learned in the traditional workplace and those you learned in life. Next, examine your list and circle the things you would like to continue doing and what someone else wants enough to pay you for. One of these skills may very well be your next “gig.”
     
  • Get a mentor.There’s no doubt about it: millennials have the gig economy down pat. To them, it’s just the way the world works now. If you need help figuring out how you can offer your skills, or even what skills people might be looking for, ask someone younger to serve as your mentor. You’ll be amazed at the knowledge they can offer.
     
  • Market yourself. Create a great LinkedIn profile that uses keywords that match your skill set to be sure people can find you online (learn all about LinkedIn keywords here). No, you don’t need to include dates that might “age” you or list every job you’ve ever had. Focus on what’s relevant to what you’re marketing today. If there’s already an on-demand service that matches your skills (think Upwork and Guru), explore how to get listed. There are even services which provide that service, helping to market everything from your Airbnb rental to your skills in human resources or healthcare.
     
  • Save madly.While there are many upsides to the gig economy, the downside is that it isn’t always consistent. Even if you do find the perfect niche, there may be off times when your services aren’t needed, or the need may change entirely, causing you to have to rethink your focus once again. Having a sizeable emergency fund can help offset potential gaps in income.
     
  • Be flexible.When I left my own corporate career, I realized there was a whole set of skills I needed to learn to succeed at my new goal. If you have some but not all of the skills you need for your new “job,” don’t let that scare you away. And if your interests change, know you have the freedom to change your work focus as well.

The gig economy may be replacing the traditional workplace, but what powers it are three things that will never be replaced: people, knowledge, and skills. By taking a look at the knowledge and skills you bring to the table, you may find that working in the gig economy can help your golden years shine that much brighter. How fun is that?!

 

 

 

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In Your Best Interest: Our Summer 2017 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


MARKET HIGHLIGHTS: Q2 2017

 

“Global Stocks Post Strongest First Half in Years, Worry Investors.” That Wall Street Journal headline from the last day of Q2 caused more than a few investors (perhaps you included) to ponder “what’s next?” 

As we closed out the first half of the year, most indices were continuing to rise at a pace we haven’t seen since 2009. Despite certain political and global events that would have dampened investor exuberance in “the old days,” investors have been nothing but enthusiastic, and the economic data has certainly supported that fervor. Tumbling oil prices have driven down energy prices and inflation. The housing market seems to be gaining steam. And while growth in the GDP, inflation, and consumer spending has slowed, they are still showing modest increases. All of that, plus expected tax cuts, strong corporate balance sheets, and central bank support, seems to have outweighed any negative news and buoyed both the US and Global indices. The result: the Dow, NASDAQ, and S&P 500 are up 8.03%, 14.07%, and 8.24% respectively; and the Global Dow is up 9.54%. That strong economy spurred The Federal Reserve Bank to raise the Federal Funds rate another 1/4 point. 

So what can investors do to assuage their worries about the future? Jason Zweig’s interview with Peter L. Bernstein offers some answers. In the interview (which took place years before the Great Recession) Zweig asks: How can investors avoid being shocked, or at least reduce the risk of overreacting to a surprise? Bernstein responded with this wisdom: 

“Understanding that we do not know the future is such a simple statement, but it’s so important,” he said. “Survival is the only road to riches… I view diversification not only as a survival strategy but as an aggressive strategy because the next windfall might come from a surprising place. I want to make sure I’m exposed to it. Somebody once said that if you’re comfortable with everything you own, you’re not diversified.” 

Berstein then posed this question to investors: “Can you manage yourself in a bubble, and can you manage yourself on the other side?” 

I’m happy to say that our approach is consistent with Bernstein’s Yoda-like guidance. We continue to actively diversify our client portfolios, reallocating fixed income with international and global bonds, inflation-protected securities, and real estate. “Survival is the only road to riches.” And while no one knows what the future holds, we promise not to overreact—no matter what surprises come our way. ~

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Declare your (financial) freedom!

Declare your (financial) freedom!

As we head into the Fourth of July weekend, almost everyone I know is making plans for a celebration. Barbecues. Fireworks. Family and friends. It’s a time-honored tradition of celebrating the declaration of our independence from England way back in 1776. And while we should never take those liberties for granted, one thing that can give you a great reason to celebrate every day is your personal financial freedom.

Sound like an impossible dream? No matter what the state of your finances today, here are five steps to help pave your way toward true financial freedom:

  1. Freedom from illiteracy. According to this 2015 S&P Global Financial Literacy Study, nearly half of the U.S. population rates as financially illiterate. Financial illiteracy’s close companion, innumeracy, or mathematical illiteracy, is also a challenge. Even many highly educated people don’t understand the impact of compounding, the difference between “good debt” and “bad debt,” or why working with a financial fiduciary is vital to financial success. No matter where you are on the spectrum, make it your mission to be a lifetime learner when it comes to money, investing, and your finances. The more you know, the better your decisions will be. A great place to start: read How to Think About Money by Jonathan Clements. This easy read will have you on your way to worrying less about money, making smarter financial choices, and squeezing more happiness out of every dollar.
     
  2. Freedom from chaos. If your financial files are in a constant state of chaos, you can bet your financial life is in pretty bad shape as well. No matter what the reason, know this: you’re not alone. Finances are complicated, but the longer you procrastinate, the more complex the challenge will be. If you can’t get yourself to dive into that growing stack of papers, or if you simply don’t know where or how to begin, set your pride aside and reach out to your financial advisor to get help now. Need more inspiration? Read my blog For your finances, getting organized can be the greatest challenge.
     
  3. Freedom from debt. Debt is a huge problem in the US. In 2017, the average US household held more than $8,000 in credit card debt, up 6% from last year. And that doesn’t even include auto loans and other “bad debt” which, in contrast to “good debt” such as a home mortgage, student loans, and business loans, doesn’t have the potential to generate benefits over time. Because “bad debt” reduces your income, adds no value to your wealth, and forces you to pay more every month for an item that is losing value, it’s one of biggest threats to your financial freedom. Use a debt snowball to reduce and eliminate the debt you have today, and avoid taking on more debt in the future. For more on how debt can impact your future, read my blog There’s no such thing as an unexpected expense.
     
  4. Freedom from mindless spending. Financial independence requires understanding that every dollar matters, and being mindful about how you spend each and every dollar you have. Does that mean every dollar has to be relegated to paying down debt or saving for the future? No. But it does mean creating a budget to plan how much you need to save and how much you can spend every month. By creating a cash budget, you’ll already feel liberated because you’ll be in charge of your finances, instead of letting your finances be in charge of you. To dive deeper into budgeting and learn how making mindful choices with your money can help you relax about your finances, read my blog Cold, hard cash! (Are you paying attention?).
     
  5. Freedom from the unexpected. A recent survey from Bankrate revealed that 57% of Americans don’t have enough cash to cover a $500 unexpected expense. If you too are living paycheck to paycheck, it’s time to create a “freedom fund” to cover 6-12 months of living expenses. While that may sound like a lot of cash, think of it like paying off a debt to your future self now, build it into your budget, and pay yourself first every month. Once your “freedom fund” is at the ready, you’ll be amazed by the sense of relief you’ll experience when you’re no longer living paycheck to paycheck. Want to learn more about this approach? See my blog Celebrate retirement planning week: Create a “freedom fund.”

Financial independence isn’t only for the wealthy. By being mindful about your finances now, you can intentionally work toward a level of freedom that ensures you can always stand on your own two feet. Best of all you’ll have financial peace of mind so you can relax about your money. That’s the kind of freedom you’ll want to celebrate every day of your life! If you need help getting there, I’m always here to help!

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Are you ready to become an investing Wonder Woman?

Are you ready to become an investing Wonder Woman?

The new Wonder Woman movie broke every box office record last weekend, and critics and audiences continue to shout praises, calling it one of the most entertaining—and empowering—movies this year. I had a great time seeing it myself, and while I’m no critic, I thought it was the perfect summer treat: a big, noisy movie with a woman super hero. What could be better?!

But while yes, having the power to win the battle of evil in the “war to end all wars” would be pretty great, what I really wish is that I could give every woman Diana-level confidence in a superpower she already has today. That superpower, of course, is investing.

Here’s the great news for all you warriors out there: Another study just came out that showed that women are better at investing than men. That’s something to celebrate! As a group, we plan better, we take less risk, and (this should be no news to anyone!) we’re more patient—and these are all factors that add up to larger returns in the world of investing. But here’s the not-so-good news: we lack the confidence of Diana. Despite the data, women continue to see men as better, smarter investors. Among 1,500 women polled last December, only 9% thought women would earn a bigger year-end return than men. That’s a disconnect that matters. After all, if we don’t see ourselves as smart investors, how can we ever overcome the earnings gap and finally take control of our own finances?

Whether you’re one of the doubters or you have complete confidence on your investing skills, here are five things every woman can do today to become an investing Wonder Woman:

  1. Own the fact that you have the mindset to be a wise investor.
    Diana has the skills to fight evil. You have what it takes to be a great investor. Know this. Research shows that when women take the helm for our own retirement planning, we tend to be smarter, more levelheaded investors. And yet in most families, men have the trusted relationship with a financial advisor, while women take on the role of a “financial child” in the household. It’s time to take a different path. Trust that you have what it takes to make smart investment decisions, and talk to your advisor yourself to be sure your investments address your own needs and are aligned with your own values. And if you need to build up your knowledge of the basics, start with my blog post When did it become ok to be financially illiterate?
     
  2. Make retirement planning your number-one priority.
    Longevity is a huge issue for women. According to the Centers for Disease Control and Prevention, women can expect to live about five years longer than men. At the same time, between taking time off to care for children and our own aging parents, a persistent wage gap that reduces our take-home pay as well as our future Social Security payments, and a historically lower pay rate, we typically have fewer resources to fund our longer lives. That means it’s critical that you start planning for retirement as early as possible. While you may not be able to overcome some of the gender barriers that can haunt any woman’s account balance, the combination of persistence and compounding can help close that gap.
     
  3. Pay your future self first.
    If you’re like most women, it’s easy to put saving for retirement on the back burner. But let’s face it: there will always be bills to pay and extra expenses to manage. To be sure your retirement doesn’t get lost in the financial shuffle, work with your advisor to determine how much you need to save, and then set a schedule to pay yourself first—every month. The more automated your contributions can be, the better. And rather than feeling deprived, think of that savings as a “freedom fund” for your future self. A June 2016 studyshowed that 83% of women in the US aren't saving enough for retirement. Don’t represent that statistic! By being diligent now, you can create your own financial freedom—no matter how you choose to spend your time later in life.
     
  4. Make conscious decisions about 'image' purchases.
    As a professional woman and business owner, I know all too well how expensive the societal pressures can be for women to spend on our images. We are judged by appearances much more than men, so the cost of a wardrobe, manicures, haircuts, and more can take a very real bite out of every paycheck—which is already smaller than a man's. (Just ask Hillary Clinton, who has said she was thrilled to put away her makeup after losing her Presidential bid last year; I doubt any male candidates felt the same relief!) It's a double standard, and whether you are paying your bill at Nordstrom or the plastic surgeon, it all adds up. Remember: your image is important, but that doesn't mean you need a Prada suit to look your best. Decide which purchases are necessities, which are optional, and be honest about what you can really afford.
     
  5. Fight like a superhero for equal pay!
    Women still earn less than 100% of a man’s dollar, and that will likely never change without pay visibility. For decades, corporations have promoted a culture of secrecy about pay. This reality puts women and minorities at a distinct disadvantage. After all, how can we advocate for ourselves if we don’t even know what our co-workers earn? By removing the taboos around pay transparency, we can end this inequality once and for all. At the same time, we need to start placing a real, tangible economic value on caring for children and aging parents—work that is largely taken on by women. By offering benefits such as disability insurance, health insurance, and Social Security credits for this very real and necessary work, we can finally begin to recognize that the care being provided is a valuable part of the fabric of our community and our society as a whole.

Women can be great investors, but our mindset alone isn’t enough to change our trajectory. Just like Diana, Princess of the Amazon, we need to take real action. We need to see ourselves as the smart investors we are, focus on saving for our own futures, and balance our need to create a great image with our need to gain a greater financial advantage. And we need to fight the good fight for equal pay—even if it takes Diana’s God-killer Sword and Lasso of Truth to spur on salary transparency! Lastly, even Wonder Woman counts on the rest of the Justice League to help her succeed. Find a team you trust, and start taking control of your financial life today. Your future self will thank you for taking your job as an investing Wonder Woman seriously—no shield required.

Photo: TM © 2017 DC Comics

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Ready to be a successful investor? It’s time to rewire your brain

Ready to be a successful investor? It’s time to rewire your brain

If I asked you to make a list of your biggest financial mistakes, what would be on it? Overspending today and not saving for tomorrow? Taking on too much debt? Pulling your money out of a down market, or being guilty of too much hubris when the market was up? Investing in that “sure thing” that wasn’t so sure after all?

No, I’m not psychic. (If I were, I’d most certainly have beaten the market into the ground years ago!) The sad truth is that everyone can add at least one of those mistakes to their list at one time or another. Why? Because so many of the most common mistakes stem from the fact that we are hardwired for financial failure. And hardwiring is extremely tough to fight.

Jonathan Clements does a great job explaining this phenomenon in his most recent book, How to Think About Money. I covered Clements’s Steps 1 and 2 in my blog posts Money really can buy happiness and How long do you plan to live (and are you planning for it?), and while those steps were certainly important, Step 3, Rewire Your Brain, deals with issues I see my clients struggle with every day.The good news according to Clements (and I wholeheartedly agree) is that it is possible to be more sensible about how we manage our money, but changing that wiring takes great mental strength. Rewiring does not mean you need to be smarter or more educated than anyone else—you just need to stay focused on the right things at the right time. Here are four things you can start doing today to start to change your thought patterns and truly begin to think differently about money:

  1. Save like crazy. It sounds so simple, doesn’t it? But unfortunately, our brains aren’t nearly as rational as we’d like to think. Many people lack the self-control not to overspend, so they take on too much debt. My friend Lydia was always one of the most “fabulous” people I knew. She always had the best clothes, the cutest shoes, and the fanciest car. But Lydia was a victim of her own fabulousness. While she was dressing to impress, she wasn’t saving enough for retirement. Now in her late 60s, she has to continue to work—not by choice, but by necessity. In contrast, there’s the story of Carol Sue Snowden, a librarian who lived modestly and then made headlines for gifting the library where she worked over a million dollars in her will. As Clements says, “Growing wealthy is ridiculously simple, but it isn’t easy.” It requires saving early, saving often, and focusing on becoming wealthy tomorrow—not appearing wealthy today.
     
  2. Embrace humility. Are you a victim of the Lake Wobegon Effect? In Garrison Keillor’s fictional town of Lake Wobegon, “all the women are strong, all the men are good-looking, and all the children are above average.” The Lake Wobegon effect is the tendency to overestimate your capabilities and see yourself as better than others, and it’s a common affliction. The antidote? Embrace humility—and require anyone managing your money to do the same. Because when it comes to investing, average is good! But our hardwired brains want so badly to be above average that we feel a need to beat the market, or we hire someone who says they can beat it for us. But historically, active investors lag the market indexes. That means that “buying and holding” almost always wins in the end. While your neighbor may be bursting with the news of an approach that helped him beat today’s market, you can bet he’ll be quiet as a mouse when his returns fall behind. “The meek may not inherit the earth,” says Clements, “but they are far much more likely retire in comfort.”
     
  3. Find value. If you find it difficult to ignore fluctuations in the market, you’re not alone. It can be a challenge to turn off that voice in your head that starts making noise when the market dips. Remember this: your goal is to seek long-term value in your portfolio. Ultimately, the market is efficient (really!), and that efficiency makes it extremely difficult for anyone—even the most seasoned money managers—to beat the market over the long term. Focus on investments that are poised to deliver value, and then stay put. (For more on how to win this battle with your brain, see my blog post Market volatility making you crazy? 5 tips to managing your emotions.)
     
  4. Stay grounded. When the market does bounce around (and considerable bounces are inevitable), think like a smart shopper: when the market is down, the companies who offer stock haven’t fundamentally changed, which means their stock is on sale! Avoid mental errors such as over-confidence, loss-avoidance, anchoring, confirmation bias, and more. Stay focused on the long term, secure in the knowledge that market prices of securities will fluctuate, often wildly, in the short term. Over decades, the trajectory has always been up. By staying grounded in the knowledge that you own shares in real businesses whose value is derived from dividend yields and earnings growth, you will achieve the investment success to which you are entitled.

It’s natural: every time you think about money, your hard-wired, reptilian brain tells you that your very survival is threatened. But in this case, following your instincts may be the very worst thing you can do, leading to financial mistakes that can truly threaten your future. It requires great mental effort to save, stay humble, find value, and stay grounded, but by challenging your thought patterns, you can train yourself to think differently about money and help drive your own success.  And if you need help with the rewiring, give me a call. I’m here to help!

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Taking a stand for women’s health and wealth

Taking a stand for women’s health and wealth

Every Mother’s Day, our firm does something special for the women in our client family. One year we sent candy. Last year we donated to the Alzheimer’s Association. This year we donated to another nonprofit: Planned Parenthood. Our email was delivered a few days before Mother’s Day, and we were happy to receive many thankful notes in response. What I didn’t anticipate—and what drove some serious self-examination on my part—were the negative responses. There were only a few, but the vehement objections from women whom I respect and whose relationships I value made me wonder how an organization that does so much good in the world has the power to elicit such a response. I think what happened says a lot about the world we live in today and the long-term view of women’s health and wealth.

If you know me at all, you know I’ve been fighting my whole life to help women thrive in the face of oppression. I began working in the corporate world at a time when women had to fight for the right to smoke at our desks (not a good choice in retrospect, but having the same rights as our male colleagues was the point!), wear pants to work, and not be confined to a role as a “Gal Friday.” An issue that goes hand-in-hand with the fight for those rights is the fight for our reproductive rights.

Whether you agree with abortion or not, it’s a basic fact that, throughout history, women have had—and will continue to have—abortions. The reasons are as varied as the women themselves, which is why I believe not one of us has the right to judge or restrict that choice. And while I honor the views of others who feel differently on religious or other grounds, I also believe that regardless of those beliefs, all women should have access to safe healthcare, including ending an unwanted or unsafe pregnancy. I am old enough to have seen the repercussions of illegal back-alley abortions first hand, from the aftermath of poor (or no) follow-up care, to infertility, to death. I believe that the separation of church and state should protect the right to healthcare services that prevent these tragedies.

All of that said, my intent when choosing Planned Parenthood as our Mother’s Day charity this year wasn’t rooted in a desire to make a political statement. On the contrary, my goal was to contribute to an organization whose dedication to safe, accessible health services for women is unmatched. It's undeniable that Planned Parenthood has become a lightning rod for activists on both sides of the abortion issue. I believe that’s unfortunate, in that it misdirects people’s passions. After all, regardless of your stance on abortion, who can argue against the fact that safe, accessible reproductive health care is something every woman should have? The current political environment has managed to polarize our thinking to the point that we can’t even agree on the things we agree on. The issue of abortion rights has landed smack at the intersection of religion and politics, and while Planned Parenthood may invite its reputation as a hotbed of activism, I wonder how they could take any other stance and still promote the rights of women. It’s an issue that I hope all of us can somehow get past in the future.

We women still have a long way to go when it comes to equality as citizens of our society. Access to healthcare is just one piece of the challenge, and it coincides with the financial obstacles that continue to plague us. I worked my entire corporate career earning 60 to 70 cents on the dollar compared to men who did the same job, and today’s statistics aren’t much better. Women continue to pay the price of the “non-job” of child rearing with delayed retirement, lower Social Security checks, and lower personal wealth than men. As a financial advisor, I see these challenges play out every day. Women my age have paid a big price to get where we are today, but I have done this gladly. I believe that by fighting for women’s rights, I am helping to knock down at least part of that wall for future generations of women. I hope that my efforts will foster a greater sense of safety for tomorrow’s women in every area of their lives—including their health and their wealth.

I am sorry that our donation to Planned Parenthood offended even one client, yet after re-examining the matter with more careful research, I continue to support this organization. On this issue, I’d like to cross the political aisle and continue to stand up with Planned Parenthood as I fight the good fight for women’s health and wealth. I hope you choose to join me.

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When risk is a good thing, embrace it!

When risk is a good thing, embrace it!

Risk. It’s a word that makes most of us feel uncomfortable—at best. Even if you’ve been blessed with an appetite for adventure, when it comes to taking risks with money, you may find your stomach feeling a bit queasy. While I can’t recommend skydiving or cliff jumping (especially for my retired clients!) taking the right amount of risk with your money isn’t a bad thing. In fact, it’s often the best way to help grow your assets to meet your retirement goals.

Anne is one of my favorite examples of a smart risk-taker. She loves (and I mean loves!) Las Vegas. She loves pitting the thrill of victory against the agony of defeat—even when it is her money at stake. And yet, despite her penchant for slot machines, she’s clearly not much of a true thrill-seeker. She has had the same gambling budget since the first day she walked into a casino over 30 years ago, and she’s never lost more than she can afford to lose. “I started with $100 of ‘play money’ in my wallet, and I promised myself I’d never let myself dip below my $20 reserve,” she says with a smile. And she does have something to smile about. Over the years, Anne has won (and lost) thousands of dollars, just playing the slots. “For me, it’s my favorite form of entertainment,” she says. “It’s a ‘safe’ risk that makes my adrenalin go crazy!”

A ‘safe’ risk. What an interesting term.

The dictionary definition of risk—“exposure to danger, harm, or loss”—sends a pretty clear message that risk is something we should avoid if at all possible. And yet, as counterintuitive as it may sound, when it comes to investing, risk is the one thing that drives reward. In fact, in a capitalist economy like ours, investors are paid to take risk. It’s that simple. Every time you invest in a company you are, in essence, assuming ownership of that company and are entitled to the rewards that owners receive. When earnings grow, you reap the rewards. If the company fails, your investment will fail as well. That’s the risk.

In skydiving, the risk is pretty clear—particularly if your parachute doesn’t open! In investing, risk is a bit more complicated. To understand why investment risk is something to embrace, let’s look at the three basic kinds of risk:

  • Credit risk. When a bank loans money to a borrower, there is a risk that the borrower may default on the loan. If that happens, the bank loses the principal of the loan, and the interest associated with it. That’s credit risk. Your own credit rating dictates your ability to borrow money and the interest you pay, and the same is true for bonds. Lower-yield Treasury bonds are “safer,” so they pay less than high-yield or “junk” bonds. That means that, as a bond investor, when you take more risk by lending to less credit-worthy borrowers, you get paid more interest.  
     
  • Term risk.When you buy a bond or CD, you are lending money for a fixed period. When the bond is due, your money is repaid. When you lend money for a few days, that’s a short term. When you lend money for ten years, that’s clearly a longer term. Long-term is riskier than short-term because you don’t expect the borrower’s situation to change in a month, but in 10 years? Anything can happen. That’s term risk. That is why a one-month CD pays far less interest than a five-year CD. So, term risk is another way investors get paid more to take on more risk.
     
  • Equity risk.Every time you hold stock in a company, you accept the risks of ownership. As an owner, you are paid a share of earnings, and the value of each share increases with company growth. Because of the risk of ownership, investors are paid an equity risk premium to bear uncertainty, price fluctuations, bear markets, business failures, and other perils. Earning the equity risk premium is how investors get paid more for owning stocks.

As an investor, by definition, you must be willing to take some level of risk to reap the rewards. Whether you take on credit risk, term risk, equity risk, or a combination of all three, risk creates value. While risk and reward may not be a perfect relationship, if you add time and discipline to the equation, it’s nearly perfect. It’s what capitalism is all about, and it’s what gives every investor (including you!) the opportunity to leverage assets for continued growth.

Of course, just like Anne and her slot machines, the smartest way to play is to know how much risk you can accept. If you’re a younger investor with years of saving ahead of you, you have time on your side. You can breeze through a bear market, happily buying up equities at sale prices, and waiting for the inevitable bull market to come your way decades from now. If you’re already retired, you may still have years ahead to enjoy growth, but you’ll need a strategy to meet your changing income needs. Whatever your life stage, remember that risk is your friend. Unless you’re skydiving, in which case I can only recommend that you check that parachute just one more time before you jump!

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What would you change if you were rich?

What would you change if you were rich?

I’m a theatre lover, so it won’t surprise you that I know the lyrics to “If I Were a Rich Man” from the classic musical Fiddler on the Roof by heart. In the song, Tevye sings about how his life would change if he were, indeed, a rich man. For the peasant Tevye, his dreams are pretty simple. But have you ever asked yourself how you would change your life if you were rich?

I sat down with Jack and Mary last week and asked this very question. Both recently retired, they’re financially fortunate. They have been very careful with their money, have saved a significant amount and, as icing on the cake, five years ago they received a large family inheritance. Logic would say that they should be able to relax now and simply enjoy the benefits of a well-planned, well-funded retirement. But when it comes to money, logic doesn’t always prevail. Instead of enjoying their assets, they focus on being frugal—to an extreme. And because Jack is even less comfortable spending money than Mary is, it’s a source of tension in their relationship.

To help de-stress the situation, I gave Jack a little homework: I asked him to simply write down what he’d do differently if he felt rich. When I read his answers, I couldn’t help but think of Tevye’s simple dreams. Why? Because while they aren’t the dreams of a fictional peasant, Jack’s dreams are almost as simple., Jack said that if he felt rich, he would eat more sushi, buy more books on his Kindle, and eat out at nice restaurants more often. If he felt really wealthy, he said he would think about replacing his 10-year-old car, fly first-class on an airplane (at least once!), and treat himself to a new camera. Even in his wildest dreams, Jack is anything but a spendthrift!

My good friend Ava is another example of someone who has turned frugality into an art form. Divorced when her children were still small, she was determined to create a financially sound life for herself and her family. She spent as little as possible, saving every penny she could in jars labeled as “lunch money.” Today Ava’s “lunch money” amounts to tens of thousands of dollars. She may not be rich (yet), but she’s well on her way to a very comfortable retirement. The problem? She rarely lets her frugal mindset—or herself—take a luxury vacation. Over the years, I’ve done everything I can to persuade her to use some of her savings to do things that will make her happy today.

Happily, we’ve made great progress. I’ve had more than a few calls lately that burst with excitement: “Lauren, you’ll be so proud of me!” Ava is finally remodeling her home (something we’ve talked about for over a decade!), and she’s now planning to go to a yoga retreat… in Hawaii. I couldn’t be happier for her. She’ll never overspend, but at least she’s allowing herself to enjoy the fruits of her labor—and her “lunch money.”

If you’ve built your life around saving, it can be quite a challenge to suddenly change your mindset, no matter what the numbers tell you. As an advisor, I know that I can’t solve internal problems with external solutions. You can look at all the charts and projections in the world, but that won’t change how you feel on the inside, and that’s what matters most when it comes to financial confidence and peace of mind. So what’s the answer?

Start by recognizing that the process is different for everyone, and that it takes time. Just as it can be difficult for someone who has overspent their entire life to put boundaries on their spending habits, if you’ve never let yourself feel comfortable spending—even when you have the money to spend—it can be difficult to open your wallet without feeling those old pangs of guilt.

The next step is to take a close look at your assets and your budget. Are you under-spending? If so, do you know why? Are you scared of outliving your money? Did your parents teach you that saving was “right” and spending was “wrong”? Perhaps start by journaling about it to get to your essential truth. Ask yourself why you have trouble spending. And if you’re ready to have some fun, ask yourself the Tevye question: How you would change your life if you were rich? Your answers may surprise you!

Of course, finding the level of spending that’s right for you is a balancing act, and very few of us have such unlimited assets that we can completely forget about budgeting. A trusted advisor can help you understand how much money you have today, establish a realistic budget based on your cash flow, and help you start to internalize your boundaries moving forward. It can be a freeing experience, but it has to come from the inside.

My friend Donna is newly widowed, and understanding how to set her spending boundaries is a learning process. She calls me often for help. “Can I buy this?” she asks. My reply is always the same: “I don’t know… tell me, exactly how long are you going to live?” We both laugh, and then we move on to the reality of helping her find her new balance. It will come. Until then, I just keep reminding her that she does have assets. Her real challenge is to gain the confidence and peace of mind to know she’s not overspending, while still being generous to herself. Donna deserves it. Don’t you?

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In Your Best Interest: Our Spring 2017 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


MARKET HIGHLIGHTS: Q1 2017

We’re living in interesting times. 
 

In the aftermath of the Brexit vote, last week the UK gave formal notice to the European Union that it would formally exit the EU in two years. The UK’s unprecedented decision will have unexpected consequences. On the home front, the Trump presidency continues to deliver unwelcome surprises. A key example: Trump’s baffling cabinet picks, which include Steve Mnuchin, a 17-year Goldman Sachs executive, as Secretary of the Treasury. So much for “draining the swamp.” Trump (fortunately) failed to deliver on another campaign promise: to repeal and replace the Affordable Care Act, which some attribute to the administration’s lack of political skill and experience. It seems business interests, not the wellbeing of our citizens, are the thrust of this administration’s agenda. On the flip side, the Democratic resistance learned some lessons from the Tea Party movement and rallied its base to participate actively in the budget and legislative processes. This new activism means the budget, as well as any pending tax reforms, will need bipartisan support to proceed. 

Beyond the political headlines, market indices continued to reach new levels. Buoyed by rising corporate profits and expectations of corporate tax cuts, the S&P climbed 5.5% for the quarter, and both the Dow and Nasdaq reached—and held—historic highs. The Dow hit the magic 20,000 mark in January, and consumer inflation topped the Fed’s 2% target rate for the first time in five years, which drove March’s interest rate increase of . percent (25 basis points). While rate hikes sometimes cause an unfavorable reaction in the market, this increase seems to have been priced in, and investors nodded their collective approval and moved on. 

All of these factors, combined with unfailing investor confidence, added up to deliver a solid quarter, with each of the indexes listed below posting impressive gains over their fourth-quarter closing values. 

One notable star in the market constellation was Apple (AAPL), which reported record Q1 revenue and earnings. It is counterintuitive, but Apple is now classified as a value stock rather than a growth stock. Based on its market cap, Apple has another claim to fame: the stock is the largest component in both the Dow and the S&P 500—an interesting indicator of the power of innovation and globalization, and the importance of technology moving forward. 

As we begin Q2, the fundamentals are certainly in place for continued economic growth. Employment, hourly earnings, disposable income, and consumer spending are all on the rise, and consumer prices are up 2.7% for the year—the highest rate of growth in almost five years, and solidly above the Fed’s 2.0% target for inflation. Even the core rate, which excludes energy, is holding steady at 2.2% since February 2016. As 2017 progresses, we look forward to continuing to leverage the power of investing to support your personal financial goals.

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How long do you plan to live? (And are you planning for it?)

How long do you plan to live? (And are you planning for it?)

Back in January, I dove into Jonathan Clements’s fantastic book How to Think About Money. My blog Money really can buy happiness introduced the first step in this great guide: Buy more happiness. The second step may be even more important, in part because it’s something almost everyone I know seems to be in denial about. What is step two? Bet on a long life!

It’s quite an anomaly. Humans embrace anti-aging remedies and strive for immortality, but when planning for our financial life, we frequently place our bets on living fewer years than is reasonable to expect. The data is out there. We are living longer. In 1900, the average life expectancy was just 52 for men, and 58 for women. What a difference a century makes! Men and women who are in their mid-60s today can now anticipate living to age 90, and 10% can plan to celebrate their 95th birthdays! Knowing that, why do so many people plan their finances as if they were still living in the olden days? If our golden years are likely to last two to three decades, it’s time to start getting serious about planning to sustain a long, happy, healthy life. And while there are lots of pieces to the planning puzzle, here are five ways to help propel you on the right path forward:

  1. Reset your expiration date. For years, we’ve been conditioned to see our 60s as the final stage—the denouement—of our lives. Get over it! The fact is, if you only live to your 60s, you’ll be among the unfortunate few. The good news is that once you change your mindset and reset your target date, almost every decision you make about the future will change. Your approach to investing will shift (see #2). You’ll suddenly have permission to make a mid-life career change and finally explore a passion that brings even greater joy in the decades ahead. Instead of seeing the years ahead as a slow, inevitable decline, you’ll start to look at—and hopefully realize!—all of the breathtaking opportunities ahead.
     
  2. Invest (and keep investing!) in stocks. When it comes to investing, the golden rule is to “invest early and often.” Thanks to the magic of compounding, the longer your dollars stay invested, the greater the compound (i.e. exponential) growth. My client Polly is my favorite example of this in action. She and her husband bought shares of great companies in the 1950s, reinvested dividends, held the splits and spinoffs, and didn’t react the to “the market.” When her husband died a few years ago, she was assured a secure widowhood and is planning her charitable legacy. Intuitively Polly and her husband know that capitalism works. Markets work. Downturns happen, but over the long term, the market continues to climb skyward. Invest as early as possible, and you can sit back for the ride.

    Twenty years ago, there was a rule of thumb to “hold your age in bonds” to protect your savings from any untimely downturns in the market. Why doesn’t that rule apply today? It assumed that retirement would last only a decade or so. Imagine a 30-year-old pulling out of the market to “protect her assets” at age 50. It’s unthinkable! In the same way, while you may choose to get slightly more conservative in your later years, staying in the market continues to provide the greatest potential for continued returns. Invest—and keep investing—and you’re much more likely to enjoy a lifetime of financial freedom.
     
  3. Delay claiming Social Security. The Social Security claiming decision is one of the most critical retirement decisions most American will make. For most of us, it should be a no-brainer. Claiming benefits before Full Retirement Age (FRA) costs you a bundle. In fact, between age 62 (when most people become eligible for Social Security benefits) and FRA at age 66 or 67 depending on your birth year, your monthly check increases by 5% a year. Waiting until age 70 increases your benefits even more, by a whopping 8% for each year you delay, up until age 70. Knowing that the chances are good that you’ll live another 15-20 years (especially if you’re a woman), why would you not take advantage of this guaranteed, inflation-adjusted longevity insurance? You can’t get much better! (For more details, see my blog Social Security & Women: Tackling the Challenges.)
     
  4. Consider other income streams.  While traditional pensions are largely a thing of the past (consider yourself lucky if you do have one!), guaranteed lifetime income is something for which we all strive. Consider options such as income annuities (an entirely different product than deferred annuities, which I hate, and so should you!), fixed income strategies, and longevity insurance (a less expensive option that starts paying a guaranteed income when you reach a certain age, say 80 or 85). Everyone’s situation is different, so be sure to work with your advisor to do a detailed analysis and identify the options that are best for you. The most important thing: don’t delay. The earlier you put your plan in place, the more optimal your outcome.
     
  5. Stop worrying about dying young. One of the biggest arguments I hear from clients when it comes to longevity planning is, “What if I die earlier? Won’t I be leaving money on the table?” It is true that most analyses will provide a “break even point” for Social Security and certain insurance benefits, and if you do die earlier than hoped, you may have given up a small percentage of potential earnings. But just look at the alternative: by making your decisions based on a long life—not a short one—you can create more income, which gives you more choices and more freedom, no matter how long you are lucky enough to live. Focus on the amazing possibilities a longer life has to offer and bet on living it to the fullest!

If you groan, roll your eyes, and say “God forbid” when someone mentions the possibility of living beyond 100, give me a call to discuss how to make your money last. The sooner we start planning, the more prepared you’ll be if (when?!) you reach that triple digit!

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There’s no such thing as an unexpected expense!

There’s no such thing as an unexpected expense!

When I met Carolyn for the first time in January, she was distraught. What finally got her to pick up the phone and get financial help was this year’s extreme rainy season—and a big financial surprise. “I didn’t even realize how old my roof was, or that it needed repair, until the water started coming in!” And come in it did. Carolyn had been out of town on business when the leaks opened up, and her home was a mess by the time she found it three days later. Her homeowner's insurance was covering the interior damage (minus a hefty deductible), but she was told she needed a whole new roof. The cost: $22,000. A high-earning corporate executive, Carolyn had lots of credit, but her emergency fund was non-existent, and a new roof was one thing she couldn’t put on a credit card and pay off over the next few months. She needed cash, and she needed it now. “I thought I was in great shape financially,” she told me. “Who knew I’d need so much cash with no notice?”

The answer? I knew. Or at least I could have provided a pretty close estimate, even though I’d never met Carolyn until she walked through my office door that afternoon. I’m no psychic (if I were, there’d be no need for financial planning!). How did I know Carolyn would need that much cash for a home repair? It’s all in the numbers. It’s all in the budget. I repeat: There’s no such thing as an unexpected expense!

All I needed to know was this: Carolyn owns a home in Newport Beach. If her home is worth anything close to the median price of about $2M, a 1-percent rule tells me that her home maintenance will average about 1% of the purchase price of her home—or $20,000—per year. Suddenly $22,000 doesn’t sound that surprising at all! But without a budget, every expense was unexpected. Without a budget, Carolyn didn’t have a clue.

The 1-percent “rule” means that when you purchase a large, illiquid, expensive-to-own asset like a personal residence, almost everything will have to be repaired or replaced eventually. I guide people to set aside a replacement fund of 1% of the purchase price each year for these very predictable costs. The work may not occur each year. It could be a roof, a kitchen, a driveway, plumbing… but it will be something. It always is.

The new roof is just a drop in the bucket (pun intended) when it comes to Carolyn’s money challenges. She was earning a substantial income but wasn’t setting aside cash for irregular discretionary expenses. She had no revolving debt, and she was saving for retirement. But her cash flow planning was a non-starter. In hindsight, maybe her leaking roof was a good thing; it was just the wake-up call she needed to get her to take action.

We began by finding the cash she needed to fix her roof (thank goodness for her good credit and a good chunk of home equity!). But we didn’t stop there. Next, we worked together to create a budget so she knows what she earns, what she spends, and what she can afford. She began to use eMoney (my favorite personal financial management software) to be sure she stays on track. She’s now building an emergency fund rather than relying on credit cards, and she’s earmarking cash reserves for those not-so-surprising expenses such as car replacements, home repairs, annual vacations, and even a planned future nip-and-tuck. The next time a large expense hits her, I have no doubt she’ll have the funds in place to cover the bill.

What Carolyn has discovered is that cash planning is the foundation for a solid financial plan. A cash budget creates a wonderful sense of financial freedom. “I always thought budgeting was like dieting—that I’d always feel deprived—so I just didn't look at how I was spending,” she told me. “Now, I feel the exact opposite. Because I know how much I have and where I want to use it, I don’t get stressed about an expensive dinner that I know is in the budget. Even better, I know I’ll never have surprises, and I don’t worry when I see my credit card statement arrive!” She’s also building a “freedom fund” to be sure she has the funds to support her dreams down the road, whatever they may be. (Read my blog Celebrate Retirement Planning Week: Create a “freedom fund” to learn more!)

Like many of my clients, Carolyn has discovered one of the great financial secrets: cash planning is empowering. Remember, there’s no such thing as an unexpected expense! Making intentional, conscious choices about when, where, and how to spend your hard-earned dollars is key. Align what you want with what you need and (finally!) relax about your finances.

Ready to get started? Check out 7 Steps to a Budget Made Easyor use NAPFA’s find an advisor guideto find a fee-only financial advisor near you.

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Climate, weather, and your money

Climate, weather, and your money

If, like I do, you happen to live—or at least spend time—in Southern California, you know that there are two topics on everyone’s lips at the moment: Donald Trump, and the torrential rain. Depending on who you happen to be talking to at the moment, either topic is sure to elicit one of two responses: optimism… or sheer panic. In both cases, taking a look at the differences between climate and weather can help quell the storm.

Here in Southern California, we live in a desert. Despite our earnest efforts to pretend we live in a climate that can support lush lawns and the greenest gardens, our Mediterranean climate is dry in the summer, nearly every summer. Our winters can be wet, but not always. And while shifts in the atmosphere may bring short-term changes to the weather, our physical location on the planet is what drives our climate—which, if it changes at all, changes extremely slowly over thousands of years. (To be clear, I do believe we humans play a critical role in climate change, and that it is changing, just not as quickly as the weather!) The recent rains have lessened the severity of our five-year drought, but because of our climate, there will always be a shortage of water. To survive, we will always need to plan for that reality.

The same is true when it comes to investing. Bull markets and bear markets battle it out based on changes in the economic weather, but our climate, which is rooted in capitalism, remains steady. The markets are always (always!) rising, which is why investors wisely choose to place their money on Wall Street rather than tucking their hard-earned dollars under the mattress each month. History shows us that the climate for investors in the US is favorable, and that reality doesn’t change, regardless of the current weather pattern.

I had lunch with Maggie this weekend. In her 90s, she still has substantial assets, but for obvious reasons, we’ve allocated a meaningful part of her portfolio to bonds. While she understands that that bonds provide stability in her portfolio, Maggie can’t help but wish her portfolio was busy taking even more advantage of the recent surge in equities. Instead of mirroring the DOW’s 16.6% increase since November 1, she’s watched her portfolio fall by 1% in the same time period. It’s not much of a drop, but when the headlines are filled with record-breaking highs in the equities space, it’s hard to sit on the sidelines. She’s never doubted our plan, but looking up from her coffee, she asked timidly, “Should we change course?”

I replied without an ounce of hesitation. “We shouldn’t change a thing.” As I said to Maggie, and what I believe with absolute certainty, is that while the weather has shifted, the climate remains the same.

You don’t need to take my word for it. Warren Buffett just published his always-anticipated Berkshire Hathaway (BRK.A, BRK.B) shareholder letter (you can read the full 29-page missive here). As usual, his thoughts are straight to the point, as well as pointed, and even humorous. This excerpt reiterates my thinking well:

“Early Americans… were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it. This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. I’ll repeat what I’ve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.”

He goes on to say this:

“American business—and consequently a basket of stocks—is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that… During such scary periods, you should never forget two things: First, widespread fear is your friend as an investor, because it serves up bargain purchases. Second, personal fear is your enemy. It will also be unwarranted. Investors who avoid high and unnecessary costs and simply sit for an extended period with a collection of large, conservatively-financed American businesses will almost certainly do well.”

Maggie isn’t the first person to ask me if it makes sense to steer in a new direction in light of the recent market weather. After all, the current bull market is already well past the average length of a typical bull market. But so is California’s rainfall for the year. Is the market overheating? No one knows for sure. Not even Warren Buffett. What we do know is that the weather is unusual. But though we may want to break out an umbrella every now and then, the climate itself hasn’t changed. Only the weather has shifted. That’s true when looking at the White House as well, which can impact the forecast for the economy and, ultimately, the market. Heed Warren Buffett’s words and trust that “our nation’s wealth remains intact” and “As Gertrude Stein put it, “Money is always there, but the pockets change.”” The key is to continue to make wise, rational investment decisions to help ensure the money in your own pockets stays where it belongs—even during the fiercest of storms.

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How to Win Big in Retirement (and Life)

How to Win Big in Retirement (and Life)

Picture this: a group of a dozen women and men; most are retired or semi-retired, diving together for seven full days in a tropical paradise. Every person in this “older crowd” is not only healthy enough to get themselves to the Gulf of Mexico to enjoy an activity they love, but they’ve also achieved a level of financial security that, while it may not have them swimming in money, at least has them swimming with the fish. No matter what challenges they have faced in the past, these are people who are truly succeeding at retirement.

How did they achieve the Holy Grail and “win big” in retirement? That’s what I found myself asking as I enjoyed my days with this great group in Cozumel last week. As a financial advisor, this type of winning is my goal for all of my clients, and I wanted to understand how this group had gotten where they are today. So I listened to their stories.

My friend Chantal (my travel companion and dive buddy for this trip) told me that, for her, “retirement is freedom.” After years or hard work, she wanted to be free to enjoy life on her terms. To make it happen, she decided to retire but to continue to do some part-time work as an expert witness (she has a Ph.D. in Pharmacology). The rest of her time is her own. Chantal looks at the world as an opportunity, and even when things go a bit sideways, she has a way of always looking at the sunny side of the situation. (It’s no wonder I love having her by my side as a fellow traveler!)

When Ken, our travel leader in Cozumel, was ready to leave the corporate world, he started thinking about what would make him happiest. He had been the leader of his dive club for years, and diving was and is his passion. He decided to semi-retire and turn his passion into a business. Channel Island Dive Adventures was born, and Ken (and all the rest of us) couldn’t be happier!

Chantal, Ken, and others I chatted with on the trip have something other than diving in common. (While it may sound like an easy fix, I don’t think diving is the key to a successful retirement!) Interestingly, what they share seemed to jump straight from the pages of the book I was reading during the trip: How to Fail at Almost Everything and Still Win Big (Kind of the Story of my Life) by Dilbert cartoonist Scott Adams. This semi-memoir isn’t a great piece of literature, but it’s a fun, inspiring read, and it drove home everything I was seeing and hearing during my weeklong adventure. What I realized is that nearly everyone in our group followed what Adams lays out as his steps for “winning big.” They worked for Adams, who opened—and soon closed—two restaurants, was fired from multiple jobs, and who managed to leverage his failures into fame and fortune as a successful cartoonist. And they worked for my fellow divers, all of whom seem to be living their retirement dreams—on their terms. Here are the three common keys to success: 

  1. Make fitness and sleep a priority. No matter how much money we have to spend in retirement, none of that will do any good unless we’re healthy enough to enjoy life! Keep your body moving. Walk. Do yoga. Lift weights. Do whatever you can to keep your body fit and active. And while there are never enough hours in the day, most people need to spend about 8 hours sleeping to function at their best. According to this article in AgingCare.com by the National Institutes of Health (NIH), “older adults need about the same amount of sleep as younger adults—seven to nine hours of sleep per night.” Not getting enough? The article also offers tips to help make it happen.
     
  2. Reduce stress. Easier said than done, I know, but the impacts of stress on your body and your mind are many. It’s one reason I began a dedicated meditation routine last year. And while there are many approaches to help reduce stress, remember that stress is caused by the things you don’t do. Take care of the things that increase your stress levels first.
     
  3. Have a positive attitude. Scott Adams’ stories about his life are great examples of turning lemons into lemonade. Corny as it is, that kind of positive attitude can change how you see the world—and how the world sees you in return. According to this great article in the Huffington Post, “positive thinking” is no longer a fluffy term that is easy to dismiss. In fact, research shows that “positive thoughts can create real value in your life and help you build skills that last much longer than a smile.”

How can you win big in retirement? Start with these three steps. Of course, getting your financial ducks in a row is also key. Work with an advisor you trust, and be sure to look at every aspect of your financial life—including your retirement goals. Stress really is caused by the things you don’t do. By planning well for your future, you can reduce stress, increase happiness and, indeed, win big in retirement. 

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Caveat Emptor: It’s your money. It’s your responsibility.

Caveat Emptor: It’s your money. It’s your responsibility.

When Linda and Bill came into my office, I could sense their hesitancy right away. And when they told me their story, I could understand why they were so apprehensive about meeting with a financial advisor. They had, quite simply, learned not to trust.

Like many people, they’d realized they needed to stop being “do-it-yourselfers” and begin working with a financial professional. What they didn’t know was how to find a good advisor whose advice was based on their needs—not the advisor’s pockets. Unfortunately, it took them many years to understand the difference. “When I retired, our advisor gave me all the reasons why I should roll over my retirement savings into an IRA, and it seemed like a good idea,” said Linda. “But what I didn’t understand was that it was probably more of a good idea for him than for me.” That understanding came when a friend pointed out the fees she’d paid—and how much her advisor had earned in commissions from the transaction. Linda handed me the article her friend had shared with her that called out the practice of advisors receiving big perks (“say, a six-day, five-night resort vacation in Maui”) for selling a particular product. Ouch. Then Bill chimed in: “When I was 68 and had been collecting Social Security for two years already, someone told me I should have waited to claim until I was 70…that it would have added 30% to my monthly check,” he said. “When I asked our advisor why he hadn’t advised me on this, he said I’d never asked. I hadn’t, but I didn’t know what I didn’t know!”

The conversation got me thinking: with news about Trump signing an executive order delaying the DOL Fiduciary Rule—and even potentially doing away with the Dodd-Frank Wall Street Reform and Consumer Protection Act, investors need more education than ever. And if these regulations do fall away in the wake of the new administration, caveat emptor—or “let the buyer beware”—should be the phrase on everyone’s lips, and it should be driving every financial decision you make, from how and where to invest your hard-earned savings to whom you choose to work with to help guide your financial decisions.

The good news for consumers is that many of the anticipated benefits of the DOL Fiduciary Rule have already taken root. The media attention on the rule brought the idea of “fiduciary responsibility” into the mainstream, shining light on the difference between a fiduciary who is legally bound to act in the best interest of his or her client and ensure no conflict of interest, and a non-fiduciary advisor who is typically compensated by commission and is held only to a suitability obligation. (For more on this topic, see my blog When did it become ok to be financially illiterate?) But even with that knowledge, how do you choose an advisor who is not only working in your best interest, but is also a good fit for you?

The first step is to do your research. Get referrals from investors and other financial professionals, and be sure the advisor is a fiduciary who is, indeed, working in your best interest. When you meet face to face, here are five questions to ask to help you get the information you need to make a smart, informed choice:

  • What are your credentials? The most trusted in the industry are Certified Financial Planner® (CFP®), Personal Financial Specialist (CPA/PFS), and Chartered Financial Consultant (ChFC). This article talks about the benefits of each.
     
  • How are you compensated? Fee-only advisors minimize conflict of interest by receiving compensation only from the client. Fee-only advisors receive no commissions or other perks for the products they recommend. Other compensation models include fee-based, which is a combination of fees and commissions, and commissions only. If the advisor does earn commissions, ask if they come from product sales, from securities trading, or both, as well as specifically how much that commission is. (Yes, it’s okay to ask!)
     
  • May I see your ADV? Every Registered Investment Advisor is required to file a Form ADV with the SEC. The ADV outlines the details of the practice, including compensation, experience, service offerings, and any disciplinary history. Consider the ADV your advisor’s resume.
     
  • What services do you offer? Know what you want and, even more importantly, what you need. Investment management may be at the top of your list, but what about financial and retirement planning? Do you need a Social Security claiming strategy? Do you have the right type of insurance and the right level of coverage? What about estate planning? Understand what your advisor offers and if she has a network of trusted professionals to support the needs she doesn’t provide in-house.
     
  • How can you help me simplify and improve my personal finances? Like Linda and Bill, you may not know what you don’t know. This question can help you uncover unexpected ways the advisor can help you make changes that can lead to greater financial confidence and a better long-term financial outlook. After all, your financial success—today and far into the future—is the ultimate goal.

In our own Investment Policy Statement (and no matter who you choose to work with, be sure you receive and review this contract carefully!), we break down the roles and responsibilities of the three key partners in the road to financial wellness: the custodian (whose job it is to hold and protect your assets), the advisor (whose job it is to design and implement a financial and investment plan based on your needs and goals, and to regularly monitor the performance of that plan), and the investor—that’s you!—who has three key responsibilities: 1) to oversee your advisor, 2) to understand what you want to achieve and communicate those goals to your advisor even as they change over time, and 3) to carefully review your statements and be sure you understand how your money is being invested, how you are being charged, and if your plan is fulfilling your needs. If you’re clear about those roles and responsibilities and do your part, a well-chosen advisor should serve you well.

No matter how you feel about what role the government should play when it comes to protecting consumers, ultimately, you alone are responsible for managing your money. Trusting your advisor is important, but the person you really need to trust is yourself. Keep in mind the definition of caveat emptor: “the principle that the buyer alone is responsible for checking the quality and suitability of goods before a purchase is made.” And remember, it’s your money. It’s your responsibility.

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Rising above the noise to find the truth (and a little bit of sanity)

Rising above the noise to find the truth (and a little bit of sanity)

“And if all others accepted the lie which the Party imposed—if all records told the same tale—then the lie passed into history and became truth. 'Who controls the past' ran the Party slogan, 'controls the future: who controls the present controls the past.’”

– George Orwell, 1984


I read a fascinating article in New York magazine about what happens when a lie hits your brain. It wasn’t new information—Harvard University psychologist Daniel Gilbert presented his findings more than 20 years ago—but it was new to me. And it just may be more important now than ever.

What Gilbert proposed was that our brains are forced to do some stunning acrobatics whenever we hear a lie. First, the lie is told. And when that happens, our brains have to accept that information as true to understand and make sense of it. That means that even if we know something is a lie, in that first critical moment, our brains tells us the information is true. Thankfully, we’re usually able to take the next step, which is to certify mentally whether the information is true—or not. According to Gilbert, the challenge is that the first step of mental processing is easy and effortless. The second? Not so much. It takes time and energy. Which means if we become distracted or overloaded, it’s all too easy for us to never take that second step. Suddenly, something we knew to be a lie begins to sound more and more reasonable. In fact, in a more recent study, researchers tested this hypothesis, asking people to repeat the phrase “The Atlantic Ocean is the largest ocean on Earth.” After repeating it enough times, the participants started to believe the statement to be true. Why? Their brains just took the easier route to closing the loop on processing new information. Scary, but true.

I’m embarrassed to say that I can think of too many examples in my own life when I’ve done the same thing. You probably can too. Every one of us is guilty. But in our defense, it’s not our fault. As humans, we all have a limit to our “cognitive load”—or how much our brains can process at one time. When we’re hit with a constant stream of information, our brains reach that limit, and we’re no longer able to take that important second step of mental certification. And, boy, is that cognitive load being challenged lately! Every day we’re inundated with noise on every topic. Television. Radio. Newspapers. Magazines. Facebook. Twitter. Every outlet is screaming for us to pay attention, and whether it’s the media or our friends flooding our brains with information, we’re spending an incredible amount of time trying to discern facts from “alternative truths.” The result: our brains are overloaded… and downright exhausted.

As an advisor, my mission is to help my clients rise above the noise to make careful, thoughtful financial decisions. In this environment, it isn’t easy! The media and everyone’s well-meaning friends are overflowing with information. Unfortunately, some of that information can be misleading. For example, the media has focused on the market indices for years. As a result, so do investors—even if they know that the fact that the Dow hit 20,000 yesterday has nothing to do with their long-term financial outlook. But for the media, this magic number is an easy target. They can report on it. They can speculate on it. They can create headline-grabbing sound bites about it. The result: a whole lot of noise that carries about as much importance as reporting on the path of a rollercoaster when all that matters (really!) is where the ride ends.

What’s the solution? We need to lessen our cognitive load. We need to slow down the noise, slow down our brains, and regain our mental strength. For me, that means turning off the television and the radio. I’m able to slow down and think more clearly when I read written information rather than listening to “talking heads.” This is true in finance and every aspect of my life. And when that doesn’t work? I meditate. (For more on how our brains can inhibit or ensure our own happiness, check out Daniel Gilbert’s bestseller, Stumbling on Happiness.)

Whenever I feel challenged by the noisy world around me, I remember Viktor Frankl’s famous quote: “Everything can be taken from a man but one thing: the last of human freedoms—to choose one’s attitude in any given circumstances, to choose one’s own way.” Perhaps by taking the time to slow down and rise above the noise, we can each make that choice and, indeed, choose our own way.


Comments? Please email me. I’d love to hear your thoughts!

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Money really can buy happiness!

Money really can buy happiness!

We’ve all heard it said a million times: money can’t buy happiness. Well, I’m here to tell you some great news! It seems money can buy happiness after all. There’s a catch, though. It doesn’t happen in the way you might think. But stop. Let me back up for a minute to share with you how all this started swimming around in my head, and why I can’t stop thinking about it.

Last weekend, I had some precious time to read, and I picked up Jonathan Clements’s book How to Think About Money. What drew me to the title wasn’t Clements himself, or even the fact that I’m always up for new ideas about money and finance. The attraction was the fact that William J. Bernstein wrote the foreword to the book, and I’m a big fan of his. (His book If You Can: How Millennials Can Get Rich Slowly is simply fantastic.) So I dove in, and I am absolutely thrilled I did. One of the reviews of the book called it “financial feng shui,” and I agree completely. The book includes five steps covering “how to think about money.” The first step covers (you guessed it) happiness. Specifically, how to buy more happiness. If you thought it wasn’t possible, Clements offers some valuable food for thought.

First, he points out that we simply aren’t very good at figuring out what will make us happy. That’s probably no news to anyone. So many of us live the majority of our lives doing work we don’t enjoy, commuting way too many hours of every day to get to that work, and then coming home exhausted to a home that costs us way too much time, energy, and money to afford and maintain. Clements recognized the conundrum, and he turned to research on happiness to put the pieces of the puzzle together. Here are just a handful of the things he learned from the academics:

  1. “Money can buy happiness, but not nearly as much as we imagine.” 
    All of us have purchases that make us happy, but how happy do they make us over the long term? Is buying the new car more exciting than how we feel driving it six months down the road (pun intended!)? And how dependent is our happiness on our own comparison of the “stuff” we own compared to our friends and neighbors? I may be thrilled with my new Hyundai…until I look around and see myself surrounded by BMWs and Mercedes. And yet, if my parents always drove older cars because they couldn’t afford new ones, I may feel thrilled to realize I’ve upped the ante, at least in this regard. Happiness is complicated! But ultimately it’s up to us to choose how we lead our lives—including how we live and, yes, how we spend our money.

  2. “We’re often happier when we have less choice, not more.” 
    Think about it: decisions are stressful! Even little things like deciding what to wear each morning can cause some stress. Bigger decisions—like where to live or which job to take—can keep us up at night and lead to some very real anxiety. I remember when I first read The Life-Changing Magic of Tidying Up: The Japanese Art of Decluttering and Organizing by Marie Kondo, I was struck by just how much stuff I’d accumulated… and spent my hard-earned money on! When I started asking myself if all of these belongings really “sparked joy,” I was surprised at how little of them did. (For more thoughts on getting rid of all that stuff, read my blog It’s that time of year: change is on the horizon.) Ultimately, it’s not the stuff that brings us joy. There’s something much better that money can buy.

  3. “We place too high a value on possessions and not enough on experiences.” 
    So if our “stuff” doesn’t define us and make us happy, what does? Experiences. Specifically, experiences with family and friends. Interestlingly, anticipation is a big part of the equation. I know when I’m planning a vacation, the anticipation is half the joy! But even more, experiences create memories that become part of the fabric of who we are. At Christmas, I decided to take my whole family to see Disney’s wonderful new movie Moana. We all went together, sat in the big, comfy seats, munched on treats, and had a great time. Every one of us walked out of the theater happy and filled with memories that will last a very long time. Was it expensive? Yes! But no more than an Apple watch. And while my grandson may have been happy in the moment as he slipped a new watch on his wrist, I know this experience was much more worthwhile. It made us all truly happy.

That’s just the tip of the iceberg— just step one out of five—but I hope it’s enough to get your wheels turning and wondering “what really makes me happy?” Everyone wants and needs to have enough money to live. That’s a given. But how we spend that money really can buy us happiness, but only if we make careful, deliberate choices based on what will bring us happiness over the long term.

I must add that being able to make these choices in the first place requires achieving some level of wealth to begin with. As Clements writes in his introduction, “Growing wealthy is embarrassingly simple: We save as much as we reasonably can, take on debt cautiously, limit our exposure to major financial risks, and try not to be too clever with our investing.” And if that seems simple, but not easy, This email address is being protected from spambots. You need JavaScript enabled to view it. . As always, I’m here to help!

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In Your Best Interest: Our Winter 2017 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.


MARKET HIGHLIGHTS: Q4 AND 2016 IN REVIEW

There’s no doubt that 2016 will be remembered for two major events that sent shock waves around the world: the election of Donald Trump as the 45th president of the United States, and the UK’s Brexit vote. And while those events certainly created some doubts as to the political direction of the US and Great Britain, neither outcome was able to dampen the growth of the US economy. As a result, the Fed raised interest rates for the first time since last December, noting that although inflation is currently below the Fed’s target of 2.0%, the Committee expects inflation to rise to its target level in the near future. 

That said, the year delivered a pretty bumpy ride to get us where we are today. A plummeting Chinese stock market pushed stock prices down and bond prices up, and Great Britain’s decision to exit the European Union wreaked havoc on equity prices, but the impact was short lived and stock prices rose again in Q3. Perhaps the biggest surprise of all was the dramatic surge in stock prices following the Presidential Election. The unexpected Q4 market rally had everyone watching for the Dow to break 20,000 for the first time, but that momentum stalled heading into the New Year, and only time will tell whether the trend will continue following President-elect Trump’s first few months in office. At year-end, the numbers across all financial markets landed on a positive note, bringing a little extra holiday joy to investors. 

This time last year, I encouraged everyone to stay disciplined and stay the course. For those who did, that tenacity paid off—in spades—and by the end of 2016, each of the indexes listed above posted year-over-year gains, some reaching all-time highs. The Dow recorded its best performance since 2013, gaining almost 13.5% from its 2015 closing value. The large-cap S&P 500 proved less volatile during the year, yet closed 2016 up almost 11.0%. The Russell 2000 came in as the year’s biggest gainer, soaring almost 20.0% over last year’s closing value. 

Numbers like these keep investors happy, but it’s important to remember that volatility is almost certain in the coming year. A carefully constructed, well diversified portfolio can help protect against the ups and downs of the market as equity prices, bonds, and currency values fluctuate in response to global, political, and economic events moving forward. The US dollar is strong, and our economy is continuing to improve. Unemployment is down, GDP is up, and inflation and consumer spending remain stable. I expect the worldwide rise of populism to go beyond rhetoric and bring surprises that may cause stock prices to fluctuate (as they always do!) as long-term market values continue to climb higher (as they always do!). We look forward to continuing to work together, leveraging the power of investing to support your personal financial goals.

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Get ready for a great New Year’s resolution (and to stick to it!)

Get ready for a great New Year’s resolution (and to stick to it!)

When it comes to New Year’s resolutions, there are three distinct camps: those who refuse them; those who make them—and break them by January 3; and those who make a true effort to improve themselves and their lives by making a change in the coming year. As someone who is continually striving to live a better, stronger, healthier life, I’m in that third group. And while I’m not always successful, I really do try.

Every year I make a list of my intentions for the next 12 months. As you’d expect, it includes the usual suspects. Lose some more weight. Reduce my golf handicap. Walk and meditate every day. But as I began to think about my list for 2017, I knew it was time to take the whole idea of resolutions a step further. I wanted to come up with personal and financial goals that were concrete—and that I knew I cared deeply enough about to be sure I followed through.

Then, last week, I got a brilliant idea: reach out to others for insight! I started emailing friends and clients right away, asking for their own personal and financial resolutions for the coming year (and promising to change their names in my blog to keep their thoughts anonymous). As I anticipated, the responses were each glorious in their own way…and they gave me the encouragement I needed to make my own resolutions as honest, direct, and thoughtful as possible. It seems almost everyone is dedicated to making 2017 a truly meaningful year.

The personal resolutions I received ran the gamut, including cutting back on sugar or alcohol, sleeping more (or hitting the snooze button less!), and being mindful about personal choices and the relationships that matter most and, as one friend wrote so eloquently, “to live more in the moment with love and gratitude.” Not surprisingly, aging was a big driver for those in my own generation, and their resolutions seemed to seep with sage wisdom. “As we age, we are confronted with losses in terms of our own health and the health of others and losses in many other aspects of living,” wrote Cynthia. “It is a natural and normal part of aging. My choice is to focus on gratitude rather than the losses.” Beautiful. For Liz, her own health is becoming an even greater priority. As a result, she is taking dieting to a whole new level, resolving to transition to a vegetarian or even a vegan diet to add some years to her life. “At 67, I’m beginning to feel vulnerable,” she says. Oh, how I can relate! Susan wants to meditate every day, Emma is working to “be less reactive when someone says something that upsets me, and try to put a smile on at least one person's face a day,” and Carol intends to “count every moment as the most precious there is” and to “live in the now.” (All three women would feel right at home in my Sangha meditation group, which you can read about in my Yom Kippur blog.)

As I read through the financial resolutions, I was suddenly filled with gratitude, knowing that I’ve helped more than a handful of people evolve to where they are today when it comes to money. Many said they were committed to paying off all their credit card debt, building a real budget and emergency fund, or eating out less to save more. Nicole is making an effort to “start planning for retirement, and to be happy with what I have.” What a perfect starting point. John’s goal is more specific: “I want to reduce my spending by at least $1,000/month.” Similarly, Anne realized that watching individual stocks was driving her crazy, so she converted her portfolio to a broad mix of ETFs. What a great way to remove the emotions from investing. Kelly wants to “keep abreast of what’s happening” in finance, and Marcia wrote the she plans to “continue taking on more responsibility financially.” (As a huge advocate of being your own financial fiduciary, this was music to my ears! Read more in my blog on financial literacy.)

All of these (and the many others I so gratefully received) are fantastic. Of course, the challenge for most of us is sticking to our resolutions. Over the years, I’ve found that writing down my resolutions—and putting that written reminder somewhere I will see it daily—makes a huge difference. It can also help to have an “accountability partner,” someone you can trust to hold your feet to the fire and press you forward right when that potentially life-changing resolution feels like it’s about to fall by the wayside. And, as is true for any change in behavior, do what you can to turn your resolution into a real habit. As soon as I read Beth’s resolution, I knew she was ready to tackle this part of the challenge. She not only wants to “recommit to improving my keyboard skills,” but she has a plan to make it happen by establishing a routine of playing the piano for a minimum of one hour each week. Every one of us would be wise to do the same. If creating new habits is a challenge for you, check out the WOOP approach—a scientifically based (and easy-to-use) method for increasing your motivation and, yes, ensuring those New Year’s resolutions become a reality in 2017.

When Pat responded to my query about New Year’s resolutions, he returned the challenge: “I'll share mine,” he wrote. “But I'd like you to share yours with me. I trust that you'll do that!” Plus, he upped the ante a bit with two pretty spectacular resolutions. The first was to “Be a good example to my children for financial management and security.” The second: “Devote 10% of my time, energy, and financial resources to ACTION for the climate change problem.” Wow.

To live up to my end of the bargain, here are my resolutions for 2017. I welcome you all to be my accountability partners to help keep me on track throughout the year. I’m happy to do the same in return.

Financially, I want to gain the courage to believe in myself fully, and to commit to the economic value of what I do. (Despite being a feminist to the core, I tend to undervalue and under-price myself, charging a ‘woman’s dollar for a man’s work.’)

Personally, the list is long, but the most important changes are to be less reactive to others, to entertain at home more often and, most importantly, to not be so co-dependent with others by understanding that I can’t stop others from failing—I can only improve myself and my choices.

And to help those who will likely suffer the most as a result of the policies of the incoming Trump administration, I want to find a way to help protect children, the environment, and women’s rights. Oh…and, yeah. And as corny as it my sound, I want to help shift us toward world peace. If none of us stop striving, perhaps one day we can make that dream come true!

I wish you all a happy, healthy, and prosperous New Year!

 

 

 

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5 reasons why you shouldn’t worry about rising interest rates

5 reasons why you shouldn’t worry about rising interest rates

A funny thing happened on Wall Street last week. After all the hoopla around raising interest rates and how it would send investors into a dither, Janet Yellen and the Fed finally made a move, raising rates by .25%. The reaction on Wall Street? Nothing. Nada. Zippo. In fact, the Dow climbed even closer to 20,000 the day of the announcement.

If you were paying attention to the headlines for the weeks leading up to the Fed meeting, that certainly wasn’t the reaction the media was expecting. But if you look at all the factors behind why no one seemed to care, it makes a whole lot of sense. Here are five reasons why many investors couldn’t care less about rising interest rates… and why you probably shouldn’t care either:

1.     The hike was priced into stock prices.
The Fed’s decision had been widely anticipated, so investors were already trading based on the assumption that rates would be raised by at least a quarter percent. As the market continued to climb over the past four weeks, you can bet that every trade that took place happened with the hike as a forgone conclusion. And though rates did go up, no surprises at the Fed meeting meant no surprises on Wall Street the day after.

2.     When you invest, you’re investing in real companies—not “the market.”
When you go to the grocery store, you go to buy tomatoes and milk, not the grocery store itself. The same is true with stocks. Interest rates inevitably impact the market as a whole, but when you invest in stocks, you buy ownership shares of real companies. Apple. GM. Exxon. You own something tangible that continues to grow in value, no matter what interest rates are at the moment.

3.     Bonds are relatively stable assets.
The value of bonds dropped the moment rates went up, but that doesn’t mean you should suddenly switch to a 100% equity-based portfolio. Interest rates are inversely correlated to bond prices, which is why bonds are considered to be every portfolio’s safety net. First, they’re used specifically to hedge against much less predictable equity prices. Bonds are rationally priced based on term and credit quality. U.S. Treasury bonds are considered the world’s “risk-free” asset, with all other bonds measured by the “spread” between its credit rating and U.S Treasury bonds. Second, bond prices are mathematically quantifiable. That’s not the case for stock prices, which are determined at an auction between buyers and sellers and are impacted by fast-changing factors, such as the US and global economies, political instability, investor sentiments or sometimes seemingly nothing (like traffic jams). So don’t run from bonds. Instead, keep reinvesting in this stable asset class to balance risk and reward across your portfolio.

4.     Interest rates can be unpredictable.
Sure, the economy is getting stronger. Unemployment is low. The dollar is strong. Inflation is creeping upward, if slowly. But even with the small hike, interest rates are still at historic lows (remember the ‘70 and ‘80s when interest rates were in the teens?). While the Fed sets the benchmark rate, the market sets longer-term rates, and the resulting “spreads” reflect investors’ sentiments about risk. Since there’s no way to know when rates will rise or to predict the shape of the yield curve (even the “bond kings” often guess wrong about the future), it’s wise to use bonds to stabilize your portfolio and provide liquidity to meet your cash needs throughout your retirement.

5.     Higher interest rates don’t hurt your wallet over the long term.
Yes, rising rates hurt bond values, but as older bonds are sold and reinvested at higher rates, you can potentially increase your long-term returns. It’s also good to keep in mind that high quality, shorter-term bonds perform a lot like cash, providing necessary liquidity in a “safe” investment. (Note that this is not the case for high-yield bonds, which behave more like stocks.) Plus, while stuffing cash assets under the mattress has been a fine choice for the past decade, in a rising interest rate environment, your cash assets can finally start earning interest again. What a thought!

Ultimately, the Fed only sets benchmark interest rates. The increase only directly applies to the target of the federal fund's rate, which banks use to lend to each other overnight, by 25 basis points or .25% to a range of 0.50 to 0.75%. For the rest of the world, the market dictates the rates based on supply and demand (which is why mortgage rates can fluctuate no matter what the Fed rate may be). Of course, the market rate is often aligned with the Fed rate, so all interest rates are expected to continue to rise throughout 2017. Just remember that higher interest rates are the reward for strong policies that have been in place ever since the financial crisis. Those policies—including sustained low-interest rates—fueled growth, and today we have a stronger economy to show for it. That’s good news for anyone who is doing more with her money than stuffing it under the mattress.

Want to understand how your own portfolio can sustain rising rates?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

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Aging parents? Offering help early can ease the way

Aging parents? Offering help early can ease the way

Getting older is a trip.

When I was just a little girl, there were two sisters—probably in their 60s—who would walk our neighborhood every evening. I remember watching them walk and chat and laugh together. It seemed like I would never be that old! Then, as my sister and I were chatting and laughing our way through the English countryside this summer, I realized: we’ve become those sisters!

Of course, walking with my sister is one of the enjoyable things about getting older. Not everything about aging is quite so pleasant (what an understatement!). And while physical decline is something every one of us dreads, one of the bigger threats to our health and happiness is mental decline. As a financial advisor, I see the effects of it every day on the lives of my clients. Watching my clients age is hard, not only because it reminds me that I’m no spring chicken myself, but because I know that, inevitably, there will come a time when they won’t be able to manage their finances themselves. The hardest part? If they don’t realize they need the help of a trusted family member or friend—or they aren’t willing to accept that help once it’s offered.

Money has never been an easy thing to talk about. At any age, it takes courage to open that checkbook, investment report, or credit card statement and face reality. For some, it is because of shame—that they should have earned more, saved more, or invested more wisely. Others have a deep-rooted fear of losing all they’ve accumulated—either because someone will come along and take advantage of them, or because they’ll make a monstrously poor decision that will suddenly wash away their wealth. It’s no wonder so many seniors have such a hard time with this important transition.

We’ve all seen it. Sweet Aunt Sally is suddenly defensive when anyone offers help, and angry whenever there’s a hint of suspicion that her capacity is diminishing. Or Grandpa Bill starts angrily accusing everyone of trying to control his every move—and his money—even when it’s clear he needs help to get safely through his day. When the people we love are so easily agitated, we’re often not sufficiently brave or skillful to bring up the elephant in the room.

I’m not a psychologist. I don’t know the complex psychology behind how seniors react and deal with the decline of their cognitive abilities, but I’ve certainly seen it manifest itself into troublesome financial decisions… over and over again. That’s precisely why, as adult children or caring friends, we need to find a way to broach the issue—at the right time and place.

I recently visited my client and good friend Cindy at her home in Sedona. Hours away from her adult children and family, at 84, she relies heavily on her live-in caregiver. From managing her physical care, to picking up her prescriptions, to balancing her checkbook and managing her daily cash flow, her caregiver seems to do it all. I had to raise a red flag. “She’s a great resource for you,” I said to Cindy. “I know that you trust her, but do you have any mechanisms in place to be sure she doesn’t take advantage of you?” Initially, Cindy was defensive. “It took me forever to find someone I could trust. I don’t even want to think that of her.”

I get it. But because Cindy was in a potentially vulnerable situation, I carefully continued. “I have a thought,” I said. “As your financial advisor, I know how you manage your money today. Will you give me written permission to contact your daughter if your finances ever start to look sketchy? Or if you start asking me to make financial transactions that are inconsistent with your plan? That way I’ll know you’re protected.” Cindy’s face immediately eased into a smile of relief. Having a solution seemed to ease her mind and put her on more solid footing.

Aging is a given—for all of us. Cognitive decline is inevitable, and research shows that our skills at financial decision-making are affected early in the aging process. At the same time, our emotions get more reactive and our capacity to handle new challenges declines. It’s a deadly combination. If you’re spending the holidays with your own aging parents, I urge you to be on the lookout for any signs of cognitive decline. Are they confused about basic things? Do they get agitated when they’re offered help or suggestions? If so, here are three next steps to consider when the ”happy and hectic” joys of the holidays are over:

1.     Help put an A-team in place. Everyone needs an A-team to assist with critical decisions, and your mom or dad may need one more than ever to manage the transition into older age. Read my blog When all feels lost, it’s time to find your A-team for a detailed list of the seven players I recommend you help find and recruit a strong team right away.

2.     Offer to start helping with the finances today. Change is coming. Suggest a Standing (not Springing) Durable Power of Attorney that gives you the legal authority to help manage your parent’s finances right away—without having to go through the legal process of having him or her deemed incapable. See if you can agree to a firm date, perhaps a specific birthday, when you can take over completely. Agreeing to this transition in advance can reduce or even eliminate the fear and anxiety about how and when to hand over the keys to the coffer.

3.     Schedule a family meeting. Communication is the key to family bliss—especially when it comes to money. Be sure all your siblings understand your parent’s wishes so no one is accused of manipulating the finances later on. Make a list and cover all the details to be sure the right people have the right information when they need it in the future. Even perfectly prepared legal documents can’t help anyone if they’re not in the right hands.

Over the holidays, take the time to relax and have fun together. But if it seems like Mom or Dad may need help today—or even within the next five years—make your New Year's resolution an important one and begin the conversation. By talking about the changes that are coming, you can help one or both parents prepare for an easier, more secure future.

Need help broaching the topic or putting a plan into action?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

 

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Giving when (and where) it’s needed most

Giving when (and where) it’s needed most

For many, Thanksgiving begins the giving season. The holiday is a time to be thankful and to give to charity—whether that means volunteering to feed the homeless on Thanksgiving Day, or offering time, money, and physical goods to a worthy cause. In recent weeks, it’s been thrilling to see the outpouring of charity to non-profit organizations. Charities that support the environment, immigration, and equal rights for women and LGBT people have seen a swell of support—adding up to an unprecedented outpouring of donations. The Sierra Club saw a 400% increase in its average monthly donations in November, and the American Civil Liberties Union (ACLU) broke its own donation records this month as well, collecting $2.4 million from nearly 39,000 contributors.

If you’re feeling equally enthusiastic about giving this Thanksgiving, it’s a great time to put your money where your heart is. Major cuts in federal support for many of these non-profits may be in the works, and it’s likely that tax incentives for giving will decrease in the coming years. The good news: there are a number of ways you can maximize your giving immediately. Here are just a few ideas:

Donate from your IRA. Last year, Qualified Charitable Distributions (QCDs) from individual IRAs were finally made permanent. A great tool if you are overfunded in your IRA, a QCD allows you to donate up to $100,000 of your tax-deferred IRA savings annually—and the portion you donate qualifies toward your annual Required Minimum Distribution (RMD). Even better, it isn’t added to your Adjusted Gross Income for tax purposes, which strengthens your gift by enabling you to give even more.

To qualify, you must be 70 ½ or older on the date the donation is made, all funds must be transferred directly from your IRA to the charity (most charities are prepared and more than happy to assist with the paperwork!), and the transfer must be completed before you receive any other distribution toward your RMD.

Create a Donor-Advised Fund. If you have significant assets to donate today, this type of philanthropic fund allows you to receive a current-year tax deduction (under the current rates) while providing support for the charity of your choice for years down the road. Because any gifts to a Donor-Advised Fund are irrevocable, you receive the tax credit for the current year only. You also have the option of donating non-cash assets such as stocks or other complex holdings directly into the fund. This not only helps you avoid capital gains tax, but that savings enables you to give even more to the causes you’re helping to support. Your contribution is treated as a gift to a 501(c)(3) public charity, and you are allowed to deduct up to 50% of your adjusted gross income for cash gifts, and 30% for appreciated securities.

Once assets are gifted to the fund, the investments can be sold or reinvested for continued growth without generating any capital gain tax to you as the donor. And though you’ll receive the tax deduction right away (that means 2016 if you can pull it all together by year end), you can donate the account proceeds at any time—in the year the gift was made (and credited to your taxes) or in any subsequent year.

Donate stocks or other investments “in kind.” The Dow just broke yet another record this week, topping 19,000 for the first time in history. That’s great news—in part because there are substantial benefits when you donate appreciated securities directly to charity. When you sell your securities directly, you’re likely to get hit with some hefty capital gains tax, which can significantly reduce the funds you have remaining to gift. Luckily, there’s a way around this conundrum.

By donating your appreciated assets “in kind” to a charity, they receive the actual stock (or other assets), rather than the proceeds from the sale of the asset. As a result, you save the Federal capital gains tax and any state taxes. Benefits to you include a lower adjusted gross income (AGI), and the market value of the donation as an itemized charitable contribution. The charity benefits as well; because the gain on the security is tax-free to a qualified 501(c)(3) charity, the organization is able to sell the security tax-free. Leaving taxes out of the equation means more dollars to your beneficiary charity.

No matter how you give, deciding where to give is an important choice. There are numerous sites to help you research potential charities to be sure that they’re legitimate and that your dollars will actually be used to help your intended recipients. Take a look at Charity Navigator and Charity Watch to help you determine the best options. And when you do make a decision, I recommend making significant contributions to a select few rather than smaller contributions to many. Not only will your gift have a greater impact, but you’ll likely feel a stronger connection to the charities that matter most to you—and vice versa.

Of course, the most important thing is simply giving what you can, when you can, to the charities that matter most to you. Remember that every dollar makes a difference. In times like these, when certain causes are in greater need than ever, I hope you’ll consider giving what you can.

Need help setting up a donor-advised fund, QCD, or other vehicle for charitable donations? Please contact us right away to be sure we can meet the December 31 deadline. As always, I’m here to help.

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Trumped

Trumped

For me—a woman, a feminist, a liberal, a democrat—what happened on Tuesday night was more than unexpected. No matter how you voted (and note that only about 50% of Americans exercised their right to vote), the results stunned the world. An ABC reporter said it was the “biggest upset in 100 years.” Others have likened the outcome to the Brexit surprise in England.My take is that Trump showed us that humans are still driven by animal spirits, and when those animal spirits are roused, they are easily riled. When people are persuaded to fear for their personal safety, they leave sanity behind.

So here we are. And while there are many (many!) questions in our future, the most pressing question that many of you have asked is: what’s next?

From a market perspective, it’s likely the situation will mirror what followed England’s Brexit vote. The markets do not like surprises, which is why the Dow Futures were down 800 points once it was clear Trump was going to win the election.So it was even more surprising that US Equity prices were relatively flat this morning, and even closed slightly higher by the end of the day. Perhaps the market will remain positive, but a Trump Presidency has the whole world concerned about the immediate future of the world’s most significant economic, military, and moral power. This uncertainty may create volatility in the US and global markets. Volatility is something to be mentally prepared for, but (and here’s the good news) it’s not a situation that requires tactical changes to your portfolio. Here’s why:

1. Our portfolios are constructed based on academic evidence and economic fundamentals.
While a change in our country’s administration can feel overwhelming, the foundational elements of your investment strategy have not changed. The US has been in a slow and steady recovery from the Great Recession, and despite the rhetoric of the election, our economic fundamentals are stronger than they’ve been in years. Also, while presidential elections do add a layer of uncertainty—and the markets don't like uncertainty—they historically don't have a long-term effect on market performance. Over time, money will find value, and that is unlikely to change. Now is the time to trust the fundamentals.

2. In times of volatility, deserting the market is the worst possible financial decision.
While there’s not even a hint of a market crash at the moment, take a moment to think back to 2008. We all know someone who panicked and pulled assets out of the market and went to cash. Those who did are still trying to recover. Many never will. Those who stayed calm and trusted the market are on stronger financial ground than before the market plummeted. Stay calm. Don’t react to headlines. And trust your strategy.

3. Our government remains the best government in the history of the world.
Don’t misunderstand me; as a feminist, I am utterly disappointed that Hillary Clinton—a women who is highly qualified and supported by the most respected and well informed Americans—just lost an election to a man who I and many others believe lacks the qualification, temperament, and moral fiber to be President. However, while the US government is not perfect, it is carefully designed with checks and balances to prevent swift and undesirable change. Even if Trump wants to fulfill some of his most volatile campaign promises, we must trust that those checks and balances will prevent damaging change and, ideally, sustain recent progress in civil rights, environmental protections, and fiscal responsibility.

When President Obama addressed the nation this morning, he was as eloquent and elegant in his message as always. He said, “Even if we lose, we still move forward.” I have to believe that. Despite our differences, let us all keep moving forward with strength, hope, and tenacity. In our personal relationships, our political ambitions, and our financial lives.

Hillary said it well in her concession speech. “Our campaign was never about one person, or even one election. It was about the country we love and building an America that is hopeful, inclusive, and big-hearted.” That’s the message that will keep me focused on the future. Because, as President Obama stressed in his speech, “The sun will come up in the morning.” It did. It will. And we too shall shine.

If you’re concerned about the results of the election and how it may impact the markets, your investments, and your future, let’s talk. As always, I’m here to help.

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Leonard Cohen: Lessons from a master in the art of aging

Leonard Cohen: Lessons from a master in the art of aging

It seems the Nobel judges and I have a bit in common. I’ve always viewed certain musicians as master poets. At the top of my list of lifelong favorites: Kris Kristofferson, Bob Dylan and, of course, the inimitable Leonard Cohen. Bob Dylan recently grabbed many headlines with the announcement that he was awarded the Nobel Prize in Literature this year “for having created new poetic expressions within the great American song tradition.” (As of this writing, Dylan has still not responded to the Nobel Academy to acknowledge the honor.) At the same time, Dylan’s slightly older friend and musical peer Leonard Cohen has been making headlines of his own. At age 82, when most people of his generation are happy simply to have time to relax, Cohen is doing anything but settling down. Last week he released a new album, “You Want It Darker,” and in typical Cohen fashion, he hasn’t shied away from topics many choose to avoid. In the title track, he declares “Hineni, I’m ready, my Lord.” When asked recently if he was truly ready to die, his reply was this: “I may have exaggerated.” Classic.

In a recent interview in The New Yorker, Cohen discussed aging, and what it means to him on a very personal level:

“At a certain point, if you still have your marbles and are not faced with serious financial challenges, you have a chance to put your house in order. It’s a cliché, but it’s underestimated as an analgesic on all levels. Putting your house in order, if you can do it, is one of the most comforting activities and the benefits of it are incalculable.”

As is often the case, I agree wholeheartedly with the man. Aging is a great gift, and if we take the steps needed to “put our house in order,” we can appreciate our later years even more. Perhaps even ease oh-so-slowly into that moment when we are, in fact, ready to die. What does it mean exactly to put your house in order? As a financial planner, my mind immediately goes to money. If you plan well enough that you don’t have financial challenges when you’re older, you can free your mind up for the rest of the equation. (For more on planning for the financial burdens ahead, read my blog, Aging: 4 steps to walking a smoother path toward the inevitable.)

Money isn’t the only factor in that critical equation. Many believe essential work—something that engages your mind, your spirit, and even your soul—is vital. Cohen is an amazing example of someone who has continued to produce essential work as long as possible. Perhaps the lack of distractions in old age has helped him be so prolific. He says that, compared to other times in his life, the lack of distraction “enables me to work with a little more concentration and continuity than when I had duties of making a living, being a husband, being a father… the only thing that mitigates against full production is just the condition of my body.”

If Cohen is any example, it seems that putting your house in order also includes deciding what you want to achieve in your last decade or two of life, and how to make it happen. We often think of artists as being the tortured ones—they struggle for years to achieve their goals, and even then they’re often not appreciated for the result. But Cohen has a passion that has kept his mind and his soul engaged his entire life. For the rest of us, it may take some introspection to discover what we want now that we finally have the time to achieve something new.

My good friend Sue Alpert discovered her own “second half of life” passion after she became a widow. Following her own experience, she dedicated her life to helping others prepare for the death of a spouse or other loved one. Her mission is to help others reduce the chaos that can swallow a new widow or widower whole by encouraging people to prepare for the business of loss. (You can take her quiz here to see how prepared you are for loss, and learn the proactive steps you can take to tackle important planning and organization before it’s too late.)

If you don’t have your financial house in order, now is the time to talk to a financial advisor and make it happen. And if you’re struggling to identify your own essential work—what you want and need to achieve in your second half of life—I recommend looking at the Halftime Institute, a program designed to help pursue significance later in life. Marc Freedman’s book, “Encore: Finding Work that Matters in the Second Half of Life,” is another inspiring resource. (To learn more about Marc Freedman and Encore, see my blog Inspirations: Finding Purpose in Your second Half of Life.) If you find what you’re seeking, I’d love to hear your story.

Leonard Cohen remains one of my heroes. I’ve already downloaded the new album on iTunes and I can’t wait to listen to every word. As for the new Nobel Laureate, Bob Dylan, he’s practically a youngster at 75. Time will tell how much this other great poet may teach us about aging in the years to come.

Not sure your financial house is in order?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

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Yom Kippur, forgiveness, and the joy of letting go

Yom Kippur, forgiveness, and the joy of letting go

As I write this, the sun is setting, Yom Kippur is about to begin, and I’m struck by the sheer joy of letting go. Forgiveness and self-compassion are powerful things, and it seems there’s been so much negativity in the world lately—particularly around the upcoming election—that it feels wonderful to be wrapped in a greater sense of peace.

I’ve been seeking a lot of that lately. I mentioned in my last blog that I’ve joined a Sangha meditation group that meets on Tuesday nights, so I’ll miss that tonight as I celebrate Yom Kippur. I just received this note from the woman who leads the group:

We will miss you tonight in our meditation group, but I wanted to extend to you the wish that you receive the forgiveness that is in your heart as sunset arrives. You and I spoke about the meaning of Rosh Hashanah and Yom Kippur when we met last. Meeting a New Year with atonement for the faults of the past year is both a cathartic and compassionate practice.

Her words mean a lot to me for two reasons. First, sharing my Jewish beliefs with her made me realize how all faiths share the same sentiment. Judaism has created a ritual of forgiveness in the Days of Atonement. The Christian faith includes a personal, forgiving relationship with God. And Buddhism’s ideas of Zen and Karma are rooted in the same idea: that we must love ourselves first before we can expand that love to others.

As a financial advisor, I’ve found that I have to take this idea very much to heart—especially before sitting down with a client. Not only do I have to be at peace with myself to provide the best possible care and service to the person in front of me, but I also have to be at peace with the world around me—including the financial market. That peace of heart and mind allows me, and hopefully my clients as well, to rest emotionally. And I believe this is the only way to make wise decisions about money, investing and, ultimately, life.

Back in August, I read Carl Richards’ New York Times blog titled The Cost of Holding On. It opens with this story from Jon Muth’s book “Zen Shorts”:

Two traveling monks reached a town where there was a young woman waiting to step out of her sedan chair. The rains had made deep puddles and she couldn’t step across without spoiling her silken robes. She stood there, looking very cross and impatient. She was scolding her attendants. They had nowhere to place the packages they held for her, so they couldn’t help her across the puddle.

The younger monk noticed the woman, said nothing, and walked by. The older monk quickly picked her up and put her on his back, transported her across the water, and put her down on the other side. She didn’t thank the older monk; she just shoved him out of the way and departed.

As they continued on their way, the young monk was brooding and preoccupied. After several hours, unable to hold his silence, he spoke out. “That woman back there was very selfish and rude, but you picked her up on your back and carried her! Then, she didn’t even thank you!”

“I set the woman down hours ago,” the older monk replied. “Why are you still carrying her?”

How many of us spend our energy and precious resources carrying around problems from the past? And how often does that impact the decisions we make moving forward? We’ve all seen it in our own lives. A friend who is afraid to love again after a nasty divorce. A colleague who pulled out of the market and lost his savings during the recession and is too scared to invest again. Another who can’t forgive an adult child and is ripping her family apart at the seams. All because they’re carrying on to old pains, old fears, and old burdens.

We’re all human, which means we all have faults. Yom Kippur—whether you’re Jewish or not—is a perfect time to accept our humanity, accept our faults, and forgive ourselves as well as others. We may always be thinking about the past and the future, but by making a choice to live in the moment as much as possible, I hope we can all find joy in letting go.

Need guidance to help let go of old financial burdens? Let’s schedule a time to chat. As always, I’m here to help.

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Riding the surge: a diver’s approach to managing expectations

Riding the surge: a diver’s approach to managing expectations

The older I get, the more I realize what a powerful impact my expectations—or lack thereof—can have on my state of mind. Last weekend was a great example. A friend and I had scheduled a dive trip on a boat called “Truth” (no, I am not making this up. Our destination: San Miguel Island, just off the coast of Santa Barbara. However, when we booked the trip, we were told quite plainly that 1 out of 3 trips to the island are rerouted to other nearby islands due to weather. Luckily, the Channel Islands (of which San Miguel is one) include more than a handful of other beautiful spots, so when we went to Santa Rosa and Santa Cruz instead, there was peaceful acceptance—not disappointment. I wasn’t attached to the idea of getting to San Miguel; I had no unmet expectations. “Truth” delivered on its only promise: to take us somewhere we’d never been. We had a fantastic experience. But I have to wonder... would I have enjoyed it less if I’d had my heart set on seeing San Miguel?

It’s possible that my insight has less to do with getting older and more to do with what I’ve been learning in my Sangha group, a study of Buddhist thinking where we’re working on discovering compassion and happiness by training our minds to shift the focus from ourselves to others. Perhaps my newfound interest in Zen has already given me a whole new perspective on the difficulty of expectations—in life, in relationships and, yes, in investing.

As I’m sure you heard, the Fed met last week to decide whether or not to raise interest rates. What I found most interesting about the meeting wasn’t the actual decision to keep rates where they are (it was a given that the Fed would either raise rates just a quarter percent or stay put), but the market’s response both pre- and post-announcement. How did the market react? It didn’t. Sure, there were some small fluctuations in the market in the days leading up to the meeting, but nothing like we’ve seen recently when investors were anticipating a rate hike. I believe the reason for that relative calm was the lack of expectations. There were no surprises, so the waters were calm.

Unfortunately, in situations when our expectations aren’t aligned with reality, even the littlest changes can often feel like quite a storm.

Before my dive weekend, I met with my client Laura. She was facing a financial decision: Now in charge of her aging parents’ finances, she asked me for help deciding if she should continue to pay premiums on her father’s life insurance using the policy’s cash value or pull out the cash to reinvest the money elsewhere.Her father is 88, and the death benefit of the policy is $1.5M. I did the math and recommended she maintain the insurance policy, but her expectations told her otherwise. First, she stated that she expects her father to live to the ripe old age of 102. If he does, she would need to pay the policy premiums, and some of the cost would not be covered by the available cash value of the policy. Second, she said she expected she could earn at least 8-9% on the reinvested assets, which would exceed the $1.5M payout in 10+ years. Were her expectations of dad’s life and investment returns realistic?  Probably not. With different expectations, the decision would have been different.

Years ago, I had a client with the opposite expectation. Allen was 45 years old when we sat down to build his retirement plan. As part of the process, we decided to work from the assumption that he would live to be 87. We spent the next two hours putting together a solid, long-term plan that included some needed catch-up contributions to his IRA. All the pieces were in place, and we were both happy with the final plan. But 10 minutes after he left my office, my phone rang. Allen had changed his mind. “Can you refigure the numbers? I’m pretty sure I’m only going to live to be 78.”

Of course, longevity isn’t the only expectation that can steer us in the wrong direction—or rock our boat when expectations are unmet. If I go to Vegas expecting to spend $250 of my “fun money” at the casino, I’ll still be smiling when it’s gone. And if I happen to win $50 or $100, I’ll be overjoyed. Why? Because my expectations were exceeded. In contrast, if I bought a house in 2006 for $650K expecting to sell it at a profit in a few years, I would have been devastated to see its value drop to just $450K by 2012. My perspective in both cases is rooted in my expectation of the outcome.

Expectations turn up everywhere. Investing. Relationships. Life. In diving, there’s a phenomenon called a “surge.” If you’ve spent any time in the ocean, you’ve probably felt it yourself: when the waves hit the rocks, the energy creates back and forth movement in the water. If you’re swimming, that force can push you away from where you want to go. Experienced divers know that fighting the surge is impossible, and if you try, you’ll end up wasting valuable energy. But if you ride the surge—relaxing with it when it pushes back, and then swimming with it when it propels you forward—it can be a beautiful thing. You may feel like a tempest-tossed, but you’ll eventually end up right where you want to be. How liberating.

When it comes investing, managing your expectations is key to keeping your emotions at bay when the market or your financial situation fluctuates, and it’s vital to staying on track toward your long-term goals. The best way to do that: have a plan based on research and knowledge—not just your gut—so you can trust that “riding the surge” will, ultimately, get you where you want to be. And if you find it difficult to set a course and free yourself from expectations, we can chat. As always, I’m here to help.

P.S.
Speaking of expectations: Did you happen to see Stephen Colbert’s commentary about the lopsided expectations for Monday night’s presidential debate? In his words, the expectations were that Hillary had to be “confident but not smug, knowledgeable without being a know-it-all, charming but not affected, commanding but not shrill, also likable, warm, authoritative—and not coughing. Meanwhile, Donald Trump had to not commit murder…on camera.” Oh my. Here’s the clip if you’d like to bring a little levity to the less-than-light quandary we’re facing on November 8!

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Market volatility making you crazy? 5 tips to managing your emotions

Market volatility making you crazy? 5 tips to managing your emotions

I like to say that if my clients are worried when the market does somersaults, then I’m not doing my job. And yet, I know that no matter how much I talk about prudent portfolio risk and why our focus on the long-term mitigates the impact of short-term market fluctuations, it can be a challenge to turn off that voice in your head that starts making noise when the market dips. The nagging questions can persist. How will this affect my income? Should I be making any adjustments? Will I really have enough to retire or take care of myself?

While those questions may always rear their ugly heads when the market is in the red, here are 5 tips to help you stay on top of your emotions—and on track toward financial success:

1.     Admit you’re human
In fact, embrace it! Why? As humans, we are never (ever!) free of emotions. That means that the majority of our decisions—as much as 90%—are based on our reactions to events and, yes, our emotions. Which also means that a measly 10% of our decisions are based on technical realities. If you can accept your humanity and realize that emotions play a huge role in everything we do, then you just might be ready to be an investor. (For more on juggling being human with the rollercoaster ride of investing, take a look at my blog Finance and feelings: Navigating life’s twists and turns.)

2.     Get clarity about your personal values and goals
Since emotions drive our actions, it’s important to realize that each one of us has “money scripts”—absolute truths that seem to have come from our mother’s milk and that dictate how we think about money. We’re taught to be generous… or thrifty… or that “charity begins at home.” We’re given rules like “tithing is required” or “the children come first” or “children should stand on their own two feet.” We’re told that our “net worth” is our “real worth.” (For more on this topic, see my blog Money Rules.) But in the real world, these learned truths may not be so true after all.

Look carefully at your values and goals, and understand your personal truth. Throw out anything that doesn’t fit your reality. Define your personal values and goals, and then determine how much money you need to support them. Start with how much you need for the basics—food, clothing, shelter, medical—today and in the future, and then decide how you want to use the excess. What’s most important to you? Consider things like funding your grandchildren’s education, traveling, starting a business, supporting a cause, or leaving a family legacy. The options are limitless, and they’re highly individual.

3.     Be humble
There’s an Old English proverb that says it well: Enough is as good as a feast. When it comes to investing, your ultimate goal should be simple: save enough to support your goals. Remember, when investing, average is good. If your goal is to beat the market, you’re bound to assume an unwise amount of risk. A more humble approach is to trust the rules of investing, carefully balance risk and return, and set a goal of accumulating  enough assets to support your life. You may not experience the “thrill of victory,” but you’re also much less likely to suffer the “agony of defeat.”

4.     Get help
Getting the help of an objective third party can help remove the emotion from investing and support smarter, more rational decisions. My clients Doug and Marie used to have terrible arguments about money. They had very different values and goals, and that disconnect created highly emotional conflicts. When we started working together, I asked them each to write down their feelings about money, as well as their values and goals. Now, even if they don’t agree, they at least understand each other’s perspective. And when they do disagree—or their emotions start to override smart financial decision-making—they “just call Lauren.” 

5.     Stay true to your goals
Judy had been retired for just over five years when the market crashed back in 2008. It was a dramatic time when many investors were letting their emotions dictate their decisions. Pundits posited that the market would never be the same and that staying put would be a sure path to financial ruin. Judy watched friends pull everything they had out of the market and put their assets into “safe” places—short-term CDs, bonds, and even savings accounts. They all said they’d “get back in” when and if the market recovered. Judy knew her plan was sound; she knew her goals, and she stayed invested.

It took a while, but the market recovered. In the past two months, it’s set new record highs, with the Dow jumping past 18,000. As a result, when we reviewed Judy’s portfolio last week, she was thrilled to realize that she has almost the same amount in her account as the day she retired over 12 years ago. That’s the strength of the market. That’s the power of long-term investing.

When you have a solid plan in place that’s designed to support your values and goals, short-term shifts in the market don’t have the power to deliver financial catastrophe. In fact, if you’re still contributing to your savings, market dips will help your long-term outcome by giving you an opportunity to buy more for less. Even when you’re in the distribution phase, we design your portfolio to insulate you from volatility. And if you start to doubt yourself? Go back to step one and remember: you’re human. Then review your values and goals, and trust that you’re on track to have enough to live the life you were meant to live.

Need help building—or sticking to—a solid, long-term investment approach? This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to chat. As always, I’m here to help!

[Photo credit: Daniel Ito]

 

 

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Aging: 4 steps to walking a smoother path toward the inevitable

Aging: 4 steps to walking a smoother path toward the inevitable

At this moment, I’m on a long-awaited trip to Europe with my sister. We’re no youngsters, but we're certainly not elderly by any stretch. As we begin our six-day walking tour of the beautiful Cotswolds, I’m filled with gratitude that both my sister and I are physically fit and able to do this together. I know it won’t always be this way.

Aging is a fact that most of us don’t want to face. By accepting and planning for our (or our parents’) inevitable fragility, we can make life a whole lot easier down the road—especially when that road isn’t paved as smoothly as we would like!

Decide who will be in charge
Meredith is in her late 80s, and she has some significant signs of dementia. But now that she really needs help, she is too childlike and forgetful to know it. She refuses to trust anyone—her children, her sister, her doctors, or her financial advisor—and has decided to stay in her house alone until “I go out feet first.” The financial and emotional pressure on her family is huge.

One of the most important things you can do early on is decide who will be in charge when things start to shift. Deciding where, when, and how to live only gets more difficult, which is why it’s vital to make smart, deliberate choices before any serious decline makes doing so even more difficult—if not impossible. To build trust and ensure a smoother transition, decide who will be in charge early on, and sidestep any disagreements in the future by making it legal. Get a Healthcare Power of Attorney that gives someone else the power to make medical decisions based on your wishes, as well as a Durable Power of Attorney that gives someone else the legal authority to manage your finances when (not if!) you’re mentally or physically unable to do so.

Explore housing options.
When Mark was diagnosed with Alzheimer’s five years ago, he and Judy wanted to keep things simple by staying in their own home, but they both failed to accept how quickly his health would deteriorate. By the time they moved to a continuing care retirement community (CCRC) last spring, the disruption caused Mark’s symptoms to accelerate.

Senior housing is a conundrum. While there’s often an emotional desire to stay at home, physical and mental limitations that come with age often make staying put a challenge. Even if cost isn’t an issue (though it often is), how long does it make sense to live alone—or at home with a partner who is disabled? When is the right time to move? And to where? There are many options available, including those that are pretty well known—independent living facilities, CCRCs, and assisted living communities—as well as some lesser known options such as co-housing and naturally-occurring retirement communities (NORCs). To learn more about the options that are out there, see my blog House hunting seniors: Finding the right option for optimal living.

Plan for the costs of aging.
Michael was a lifelong athlete, and any doctor would have predicted that he’d live a long, healthy life. Even so, to be sure his income was protected, he bought disability insurance when he was in his 50s, “just in case.” It was one of the best decisions he could have made. Michael suffered a spinal cord injury when he was in his late 60s, and the policy has paid for his care and comfort ever since. Without the policy, the impact on his finances—and his family—would have been devastating.

According to the California Partnership for Long-Term Care, nearly half of people aged 65 and older who go into a nursing home will spend between $94,900 for just one year of care, and just under $500,000 for 5 years of care. Nearly 12% will face even higher costs. There are various options to help cover these costs, including insurance policies (life, health, disability, and long-term care), health savings accounts (HSAs) that use pre-tax dollars to invest for long-term medical expenses, and retirement savings. Talk to a financial advisor to create a plan that suits your needs (even those you can’t anticipate). From monitoring cash flow, determining how and when available assets will be used, and ensuring the person in charge of your Durable Power of Attorney has all the information and access he or she needs, a trusted financial advisor can help put every piece of the puzzle in the right place at the right time.

Agree on when to stop driving.
The hardest thing I had to do when my husband Ed became disabled was take away his car keys. I knew he’d be angry, so I secretly notified the DMV that he needed testing. Of course, he knew it was me who busted him, but I had no choice; I knew he was putting himself and others in danger every time he got behind the wheel. Even after his license had been revoked, I had to park the car away from our home so he wouldn’t be tempted to “just take a short little drive.” He hated losing his independence. Who could blame him?

Decide now how driving ability will be determined (and not by the senior!). AARP offers a Smart Driver Course for drivers over 50, as well as an online seminar to help talk to seniors about driving ability—or lack thereof. And, of course, there’s the DMV, as well as a family doctor who may be the first to recommend that a senior turn in his or her keys. By agreeing to an objective third-party decision maker before the time comes, no one has to feel like the bad guy, and everyone will be safer on the road.

It’s time to face the facts: we’re all getting older, and with age come change. Take the time to make some of these key decisions now, and that path will be much smoother when the time comes. Perhaps even more importantly, get help with the choices that matter most. Talk to your doctor about any changes in your health. Talk to your financial advisor about how to plan for future expenses. Websites focused on elder care and groups like AARP and the Alzheimer’s Association can also offer valuable support and guidance. For more information on getting the right help at the right time, see my blog When all feels lost, it’s time to find your A-team.

Need some guidance as you build a better plan for long-term care? This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a time to talk once I’m back from my trip. As always, I’m here to help.

 

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Is “retirement” the only answer? Take time to rethink the possibilities

Is “retirement” the only answer? Take time to rethink the possibilities

As a financial advisor, you would think I’ve seen a million definitions of retirement. What’s surprising to me is that I haven’t! In fact, not all, but certainly most of the people I work with tend to see retirement as an absolute goal and an endpoint. That’s why I’ve made it one of my primary goals to break that definition wide open and help every client rethink their possibilities.

At 52, Leslie is well into a very successful and lucrative career in aerospace. When we sat down for her financial review last summer, she hit me with the question almost before I’d said hello: “When can I retire?” I was taken aback for a moment. The last time we’d talked, she’d seemed satisfied with her job, and she was bursting with excitement about a new project she was working on at the time. “You’re only 52 Leslie,” I said (with just a little envy!). “What’s the urgency?”

She slumped back in her chair, and every part of her seemed to collapse. “I’m just so tired of it all. The corporate craziness. The fighting for each new project. The hamster wheel. I love the actual work, but I don’t know how much longer I can stand the process I have to go through to roll up my sleeves and just do my job.” Anyone who has ever worked in the corporate world can commiserate. But I’ve known Leslie for years, and she looked and sounded like she was truly at the end of her rope. Suddenly what I expected to be a pretty eventless review meeting was carrying much more weight.

The first thing I did was look at the numbers, and they looked pretty good—so good, in fact, that my calculations showed that Leslie could realistically retire in just two years, at age 54. For many, that would be a dream come true, but I knew that for someone like her, it could be a recipe for discontent, if not downright disaster. So I started asking some important questions. I didn’t focus on budgets or savings or future expenses. What I wanted to explore was what she wanted the next 50 years —or even the next 10—to look like. Here are just a few of the questions I asked:

If you aren’t going to an office every day, what do you see yourself doing—every day?

Do you see yourself living in the same place you are today? Do you have a dream destination?

How do you socialize? Are most of your friends work colleagues, or do you have other circles of friends? What about extended family? When and where do you get together?

What activities do you do outside of work? Is there anything you do that might become a second career?

Are you active in any charitable work? Do you volunteer?

You seem to love what you do. Is there a way to transfer your skills to another organization? Would you be interested in teaching?

If not, will you be happy not doing the work you’ve been passionate about for years?

Is there something else you love that could replace that passion?

If you could have chosen a different career, what would it have been? Is there anything you’ve always wanted to explore but never had the time to pursue?

As we sat sipping our coffees and chatting, I didn’t maneuver Leslie’s thinking; I just worked with her to paint her picture of her future. Her frustration at the office had prevented her from looking beyond her “day job.” At first, this type of “playing” wasn’t easy. Toying with the ideas felt like breaking out of a well-sealed box. But once she got there, we were suddenly onto something! “I’ve always wanted to write,” she confessed. “Not a novel or anything like that. Not fiction. But I’ve never seen a textbook that clearly explains the concepts we use every day in aerospace engineering. It’s this vacancy of information that would be so valuable for anyone entering the field.”

As soon as the words were out, everything about her seemed to change. She was literally on the edge of her seat, her eyes were bright with excitement, and her voice was as happy and clear as the last time we’d met when she had gushed about that old project. What a transformation.

It’s been a year since that meeting. On the surface, not much has changed. Leslie is still working at her job in aerospace. She’s still frustrated with corporate politics and the battle for projects. Yet her outlook has changed dramatically. She is planning to leave her job next year, and she’s headed for anything but a traditional retirement. After our talk, she began to research the process of writing a textbook. She shopped around a proposal to multiple publishers, and one has already expressed interest in her book. It’s a long, multi-year process from proposal to publication, but Leslie is well on her way to making her “retirement” dream come true.

No matter how near or far retirement is for you, I invite you to take a good look at yourself—your goals, your passions, your dreams—and rethink how you envision living your own retirement. And no matter what size your nest egg may be when the time comes, I hope you make choices that bring the most thrilling opportunities to life.

Want some guidance exploring your definition of retirement?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help!

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Cold, hard cash! (Are you paying attention?)

Cold, hard cash! (Are you paying attention?)

Cash. It’s by far the most important piece of wealth management. And yet it is often the very last thing most people want to focus on. Time and time again, when I sit down with a new client, the first thing on their agenda is reviewing their account statements, while the first thing on my agenda—always—is to take a look at how they’re spending and saving their hard-earned cash. It’s not the sexy part of finance, but much like building that less-than-beautiful foundation to support your beautiful home, careful attention to cash flow and cash management is vital to building and preserving long-term wealth.

Tonya and Ray came to meet with me last week. In their mid-50s, they want to be sure they’re on track by saving enough for retirement and making smart choices about pre- and post-retirement taxation. They’ve also decided it’s time to get help with their investments (better late than never!). They came armed with lots of documentation: account statements, tax returns, and even a monthly budget. They seemed to have all their ducks in a row.

Then I took a closer look at the budget they had set in front of me. There were buckets for mortgage, utilities, insurance, and car payments. But everything I saw listed was a fixed expense. These are the expenses that are predictable and unchangeable. What was missing were buckets for their non-fixed expenses—the very items we can manage to achieve the two biggest goals of wealth management: eliminating debt and growing assets.

I asked the obvious question: “How are you spending your cash?” Tonya was quick with an answer: “It’s right there, in the ‘credit card’ bucket. We charge everything so we can easily keep track of it all.” Sure enough, there was a line item labeled ‘credit card’ with a budgeted amount of $2,000/month. “Ok, I asked, but where is that $2,000 going? Exactly?” They both chimed in with a lot of answers. Groceries. Gas. Restaurants. Car maintenance. Pet food. Prescriptions. Theatre tickets. Clothes. And they were clearly very proud that it was all contained in one manageable bucket. They assured me this method was working well for them.

But was it?

Luckily, in Tonya and Ray’s case, because these expenses were all on a single statement, we were able to track every expense. We drilled down into the details and looked at just a single month to see exactly where their cash was going. The numbers surprised us all. While they guessed they had spent $1,000 a month on meals and entertainment with another $1,000 slotted for necessities, the numbers told a different story. Two concert tickets at $125 each; monthly gym memberships of $120 each; one movie night at $36; four rounds of golf at $195 each (which they assured me was an unusual splurge), including two lunches at the resort for $90 a pop. While they were limiting themselves to one “nice” dinner out each week, they had spent $485 in that category, plus they’d added a handful of less extravagant meals, lunches, and lattes that racked up to $530. Total on meals and entertainment: $2,501. When we added in the other items included in the ‘credit card’ bucket (plus a few other surprises like $260 for housekeeping and $100 on supplements), what they were spending was more than double their original $2,000 monthly budget. Clearly, the budget wasn’t working after all. Without a method for closely managing cash, Tonya and Ray had been blind to the enormous rippling effect of their lack of daily money management and their invisible spending habits.  

Tonya and Ray are not alone. All too often I find that even the most financially diligent investors fail to have a basic financial planning document that includes a detailed record of their cash flow. Twisting arms doesn’t work (trust me, I’ve tried!), but by biting the bullet and following these three steps, they (and you) may finally get on the right path:

  1. Identify your top 3 goals—and make building an emergency cash fund #1. Regardless of the state of your finances, having cash on hand to cover unbudgeted expenses is key. Having an emergency fund equal to at least three months of your total household income is essential to avoid having to take on new debt in the future. Goals #2 and #3 might include paying off credit card debt, saving for a car, or funding next year’s vacation. (Read more on the power of an emergency fund in my blog When did it become ok to be financially illiterate?)

  2. Identify your income and your fixed expenses. Income is what you’re bringing home each month—salary, distributions, etc. Fixed expenses include mortgage or rent payments, insurance, utilities, and non-credit-card debt such as car payments. Be sure you know what’s coming in and what’s going out every month.

  3. Build your detailed budget. Err on the side of too much detail, and create a line item for every expense category. Separate your needs from your wants, and keep an eye on your top 3 goals from Step 1, includingcontributing to your emergency savings and paying yourself first for retirement (see my blog Getting back to basics in the New Year for more on this important topic).Be specific, and be certain your expenses don’t exceed your income! I encourage you to use a basic household budget worksheet like this one from Kiplinger. While there are apps available to help, none of them can do this work for you, and they can be more of a distraction than a benefit.

If the word “budget” reeks of giving up your spending freedom, rest assured that careful management of your cash flow is certain to have the opposite effect. By parsing your spending, aligning your spending habits with your personal goals, and projecting your cash flow into the future, you will gain the financial freedom you’ve been seeking all along—guaranteed. And the effects are long lasting too. When done well year after year, you’ll slowly but surely develop a comfort level with your actual life costs. You’ll realize you know whether something is “in the budget” without having to look at the numbers. And when changes happen like buying a home, changing jobs, growing a family, or ending a relationship? It will be that much easier to adjust to life’s transitions, whatever they may be, and rest easy knowing you (finally!) have your cold, hard cash under control.

Need help taking charge of your cash flow? This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to meet. As always, I’m here to help!

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House hunting seniors: Finding the right option for optimal living

House hunting seniors: Finding the right option for optimal living

It seems everywhere I go these days, there’s one thing on everyone’s minds: where (and how) to live after retirement. In the past week alone, the topic has come up everywhere I turn. In my office, of course. But also at my bridge club, on the golf course, and even at my hair salon. And everyone seems to be grappling for answers.

I have to begin by saying this first: just like everyone else, I don’t have any easy answers. It’s such a complex question, and the “right” solution is going to be different for everyone based on everything from your age and general health to your social and environmental preferences. But one thing is for certain: with the tsunami of Baby Boomers hitting their later retirement years, this issue is only going to escalate. As I look at the options that are out there today, I wonder if finding new, better solutions is going to be up to us seniors rather than the companies who have been busily trying (and in many ways failing) to deliver on what we need to live the most fulfilling lives possible in our last stage of life.

At the moment, the most common options for seniors include:

  • Aging in place. This has been a popular discussion for years now, both among seniors and in the press. It’s attractive to many because most of us have spent a good part of our lives making our houses our homes. Whether we’ve been in the same place for decades or just a few years, we’ve nested here. It’s where the things we love exist, and it’s where the people or the memories of the people we care about the most reside. It’s comfortable. But it’s not optimal for everyone. The cost of in-home care is not covered by Medicare, and the costs of care can be exorbitant. Plus, it can be lonely, especially of your home isn’t in an urban environment where company is just past your doorstep.
     
  • Independent living communities. These communities are usually built by corporations for a profit, so they can be costly, but they can be the perfect fit for some. Many of my closest friends call Laguna Woods home, and they’re constantly telling me how wonderful it is and how strong the community is there. Another friend is looking at Rancho Mission Viejo, a new 55+ development just east of Laguna Niguel. It’s luxurious, but those luxuries come with a hefty price tag. The pros of these communities include local facilities, a close-knit group of other seniors, and lots (and lots!) of activities. The cons: every neighbor is a senior as well, so there’s no diversity and no “younger” energy. Plus, by necessity, these larger communities are often a city unto themselves, so getting beyond the gate requires driving, which is not always an option in later years.
     
  • Assisted living communities. Also called Continuing Care Retirement Communities, these facilities are designed for seniors who require a variety of levels of care and provide everything from independent living options to full-time nursing care and, in some cases, even hospice facilities. This type of community can be particularly attractive to couples who want to age together in a facility that offers various levels of care in a single location. Though they’re often expensive, a couple can move there together as early as age 55, sometimes even into a single family home, and then shift their joint or individual level of care as they age. Interestingly, as a board member at Heritage Pointe, a senior living center in Mission Viejo, I’ve seen an unexpected evolution to the structure. As the independent residents have aged, the facility has become more of an assisted living facility than a hub of senior activity. As a result, it’s not attracting younger retirees, so the mission of the facility has evolved as well. Until we identify a solution to the challenge (which we will!), this facility—and I’m sure others like it—are in a bit of a quandary.
     
  • Co-housing. Personally, this concept intrigues me. The concept is that seniors who have the same preferences work together to purchase and design their own housing situation—where they want it, and how they want it. I’d love to live in Dana Point after I retire, but it’s doubtful I could afford an “aging-in-place” option there, and there are no independent or assisted living communities in the area. By banding together with like-minded seniors, it may be possible to purchase an ideal property and either lease commercial property on the site to provide essential services, or ensure the property is located near the services we would need. It may sound like a new twist on the old commune, but I think it could really work this time around!
     
  • Naturally Occurring Retirement Communities (NORCs): This is my other favorite. A twist on “aging in place,” NORCs are community-based programs formed in neighborhoods where the residents are already living and aging. Rather than having to leave their own homes, services and facilities evolve out of the community, and are built or formed to serve its aging residents. On the plus side, seniors are able to stay in their existing neighborhoods and maintain close relationships that can dramatically improve quality of life as they age. And with built-to-serve facilities, they can receive a certain level of care. On the downside, while some NORCs establish assisted-care and other medical-level facilities within the community, high-need care is not part of the standard structure.

If you’re overwhelmed with this major decision, know this: you are not alone! There’s so much confusion and emotion about this major life choice, and it’s no wonder. Everyone understands that buying a first home is a huge decision—one that’s rife with excitement and new beginnings because it’s understood that what you choose will contribute to your quality of life in this first stage of adult life. Choosing where to spend the last phase of your life is perhaps an even bigger decision. Plus, the options are limited. The only advice I can offer is to make that decision while it’s still your decision. Don’t wait until you’re “ready”—that time may never come or, when it does, the decision may no longer be your own. No matter how overwhelming it may be, consider the options (or even better, create your own!) and make the right choice for you.

Have insights or suggestions based on your own experience? Please email me your thoughts. I’d love to hear them!

 

 

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Facing divorce? 5 tips to protect your financial future

Facing divorce? 5 tips to protect your financial future

I don’t think there’s anyone among us who doesn’t have a story about 2008. Whether you lost a significant chunk of your retirement savings (at least temporarily), watched your parents struggle, or saw your colleagues panic and your friends lose their homes, it was a devastating period. The market has been volatile ever since even as it slowly and surely climbs to new highs. However, there’s a situation many people—especially older couples—face all the time that has the power to bring on even greater long-term financial devastation. What is this monstrous risk? Divorce.

Denise emailed me last week, and I was surprised to hear the elation and relief in her voice. “I’m finally doing it,” she said. “I’ve wanted a divorce for years, but I finally got the courage to make the leap. Even better, Doug feels the same, so I think it will be pretty easy. Amicable even.”

Before the words were out of her mouth, I felt my stomach drop. I hated to burst her bubble, but I also know the reality all too well. When couples divorce, no matter how “amicable” the situation may be, financial distress is inevitable. Add even the slightest bit of hostility to the mix, and you can be sure that distress will increase.

While I wish there was a way to ease the road ahead, or at least add even a tiny sugar coating, the fact is that there’s rarely a way to avoid the personal financial downturn that comes with divorce. No matter how much you’d both like a different outcome, this will be your “personal 2008.” Your assets will be divided in half. You will have two households to support, two retirements to fund and, if children are involved, two “family” vacations to pay for—all further compounded by legal fees to iron out custody details on top of everything else.

Don’t get me wrong: I would never wish for anyone to stay in a marriage only for financial reasons. Life is too short for a couple to stay in a non-productive, dysfunctional relationship. However, the sooner both parting parties face the fiscal realities of divorce, the sooner they can begin to make the appropriate adjustments to move forward financially. It’s a tough mandate considering the emotional turmoil in motion, but it’s a must.

Rather than breaking the news to Denise on the phone, we scheduled a meeting to look at the details. When we sat face to face, here’s what I shared:

  1. Be prepared for a lifestyle change. I’ve seen people stuck in faulty assumptions, unable to let go of lifestyle changes, even keeping an unaffordable house “for the kids’ sake.” Often, downsizing in every way is not only optimal, but mandatory. If your happiness is based on living in the same place and affording the same luxuries, you’re in for a rude awakening. This shift is huge, and you need to understand the ramifications at the outset.
     
  2. Be realistic about your budget. Yes, this includes supporting two households, and that will eat up a major chunk of any expendable income, but mortgage and rent are not the only factors. As soon as you have a clear picture of your monthly income, you’ll need to create a budget that matches that number to avoid an increase in debt due to overspending.
     
  3. Include retirement in your planning. Couples who remain together can anticipate the reduced expenses that come with a single dwelling and shared expenses. Going solo means you’ll need even more to support your non-earning years. If you’re over 50, consider making “catch-up” contributions to your retirement. If that’s not possible, at the very least, be sure you are contributing every month to help ensure you don’t outlive your assets as a single.
     
  4. Don’t count on the promises of your attorney. While I do hope that most divorce attorneys are striving to act in your best interest, we’re all optimists at heart and, even more so, some attorneys will tell you only what you want to hear. Wait until your case is closed to spend money that’s not yet in your pocket. Once your Marital Settlement Agreement is final, you’ll have an accurate sense of your financial capacity. Until then, keep your wallet closed as much as possible.
     
  5. Keep an eye on the details. If you’re on your spouse’s health insurance plan, those benefits may end when your divorce is final. If you decide to sell your home post-divorce, you may face capital gains taxes if the appreciation is greater than $250K. However, if you sell “incident to divorce,” you and your spouse may both qualify for a $500K exemption from capital gains instead of just half that amount. (A transfer is incident to divorce if it occurs within one year after the marriage ceases, or if it is related to cessation of the marriage.) Details add up and have a major impact on your financial health—now and down the road. Work with a professional advisor to be sure you know which decisions matter most, and when.

When Denise and I finished talking, she wasn’t on the same cloud nine. Reality checks are rarely comfortable. But she did tell me she felt much more prepared for what was to come. “It may not be as easy as I thought it could be,” she said, “but I’m still certain we’ll all be happier over the long term. I know I have some serious homework to do!”

If you’re facing divorce, I urge you to take a close look at your finances and make the best possible decisions as you walk this new path. Whether you’re wearing rose-colored glasses or are mired in the common distress and shock of it all, taking time out to review the money side of the equation may make it much easier to find joy as you enter a whole new phase of life. 

Need help working out the financial details of your divorce?  This email address is being protected from spambots. You need JavaScript enabled to view it.  me to schedule a confidential session. As always, I’m here to help.

 

 

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Market Alert: Putting the Brexit in Perspective

Market Alert: Putting the Brexit in Perspective

The news was big last night. The British cast their votes, and the outcome was what many had feared—especially David Cameron who resigned in the wake of the historic Brexit vote. He said he will stay to “steady the ship,” but this ship needs some smart hands on deck to safely escape this storm.

The reaction in the US is much more predictable. Global uncertainty never bodes well for stock prices, and that proved true at the opening bell this morning. And yet, at least as I write this morning, the Dow index or (“the market”), is still down less than 3%. To put that statistic in context, just six months ago the market dipped more than 3% in a single day. Since then, we’ve seen a step-by-step recovery. It hasn’t been a smooth upward climb, but even in its volatility, the market has continued to grow at a slow and steady pace.

There’s intense analysis happening at the moment regarding the implications of Britain leaving the European Union, but in reality, only time will tell. What may be most important to remember from a financial perepective is that time is what matters most. It will take time—months or even years—for the situation to play out economically and politically. As an investor, it’s important not to react to the news. While it’s normal to feel unsettled when the market falls, fear is your biggest risk when it comes to long-term financial success.

Here’s what’s important to know:

  • Keep your seatbelt fastened. The market has given us all a bumpy ride for years now. While we’re nowhere near the Dow’s 15,000 level we saw just last year, the uncertainty overseas is sure to continue to shake things up—just as China did last year, and oil prices did in Q1 of this year. The US election in November may also have an impact on market indices. Just be prepared
     
  • Despite what’s happening in the UK and Europe, the US economy is gaining strength. US earnings are solid, employment is up, and there are no indicators of a pending slide. As long as US consumers continue to gain confidence, this should not change.
     
  • Interest rates are likely to remain low. In the wake of the Brexit, the odds are low that the Fed will opt to raise interest rates any time soon.
     
  • Stocks are on sale. Today’s stock prices have no relationship to the underlying value of the companies they represent, and our portfolios are built on strong companies with growth momentum. If you still have time on your side from an investment perspective, now is the time to purchase stocks—not run from them.
     
  • If you’re taking distributions, sit tight. Retirees are often the most fearful in a downturn. And while fear may spur some to pull out of the market, that’s the best way to ensure an immediate loss. If you’re concerned about the impact of the market on your retirement income, let’s sit down and look at the situation together.

The Brexit vote is today’s big news, but my perspective on the market remains the same as one year ago when I wrote Beyond the headlines, it’s an up market after the market tumbled in reaction to the “Grexit,” Greece’s potential exit from the EU. By looking at the big picture, I hope you can watch the global events play out while remaining confident in your personal financial plan.

Of course, if you’re unable to ignore the headlines, and your confidence begins to wane, let’s schedule a call to talk through your specific situation. As always, I’m here to help.

 

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Investing 101: creating the right recipe

Investing 101: creating the right recipe

My Kindle is always filled to the brim with new e-books—many of which I read simultaneously. And while Dorothy L. Sayers’s wonderful and classic Lord Peter Wimsey mystery series is perfect for lazy beach reading, what has my attention at the moment is the much more mind-bending How to Bake Pi: An Edible Exploration of the Mathematics of Mathematics by Eugenia Cheng.

Wait! Don’t run! What’s fabulous about Cheng’s approach is how she uses cooking (and, more precisely, recipes) to explain some pretty complex mathematical theories, some of which I think I’m fully grasping for the first time. Of course, it’s no surprise that my mind immediately began to translate this idea to the world of investing, and I’ve already found the analogy of following a well-balanced “recipe” to be a great tool for introducing some important financial concepts.

Cathie, a brand new client, came to my office for our first meeting, and before I even had a chance to begin the conversation about her financial needs and goals, she blurted out a big barrier to success: “I don’t like the stock market.” She went on to tell me why. “My father taught me the value of real estate, and that’s the only way I want to invest.” Whoa. I had to put on the brakes and throw our whole discussion into reverse. And with the help of How to Bake Pi, I found myself talking about the importance of recipes. And cooking. What I shared was this:

Investing, quite technically, is “the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.” And yet investing is just a means to an end—to reaching your personal goals. Everyone’s goals are unique. They might include retiring early, opening a business, putting your children or grandchildren through college, or traveling the world. The options are endless. Whatever your goals may be, it’s important to follow the right recipe, blending all the available “ingredients” in a way that produces the desired outcome.

Think of it this way: flour by itself isn’t very appealing. The same is true for salt, a raw egg, vinegar, and baking soda. But when these ingredients combine with others, we can create a vast menu of outcomes—anything from pancakes to a buerre blanc sauce to a chocolate pudding. It just depends on the recipe or method we use to get there. Each ingredient presents an opportunity, and the more complex the menu, the longer the grocery list. To determine the best recipe to reach Cathie’s goals, we needed to consider every ingredient in our investing “pantry.” Stocks, bonds, mutual funds, real estate, and more. And it was most important to focus on the desired outcome—not the individual ingredients.

There’s chemistry involved in cooking and investing. Taking away stocks would be a lot like throwing out the flour and trying to bake a great loaf of bread. Can it be done? Yes. But it surely won’t create the same outcome as the recipe with flour. Of course, time plays an important role as well. If the loaf of bread doesn’t have enough time to bake, we end up with an inedible, gooey mess. But when we combine the right ingredients and bake them at the right temperature for the right amount of time, the result may even exceed our expectations.

By the end of our discussion, Cathie agreed to keep our pantry of ingredients full, and I had a clear understanding of her short- and long-term goals so I could determine the most appropriate recipe. I’ll certainly include real estate as part of the equation since she has a “taste” for that particular ingredient, but by agreeing to let me toss in the right amounts of stocks and bonds plus a dash of low-cost mutual funds, we’ve created a time-tested recipe that should deliver just what she’s looking for.

Ready to explore a recipe to help cook up your own financial freedom? This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

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Retirement stress: When “living the dream” doesn’t come easy

Retirement stress: When “living the dream” doesn’t come easy

I came into financial planning in the second half of my career. It is truly a calling for me. As a CFP®, I adhere to a code of ethics that holds competence as a core principle and requires a commitment to lifelong professional education. Because there is always more to learn and new ways to help my clients achieve their goals, I recently began coursework through the Sudden Money Institute to become a Certified Financial Transitionist®. It’s a natural fit for me, and I’m thrilled to say that after completing Part One of the program, I’m already putting some of the lessons into action.

One of the topics we covered in the first session last weekend was the importance of mindset in how one defines and handles the stress that comes with every life transition. Mindsets exist at two ends of the spectrum, with a growth mindset at one end and a fixed mindset at the other. People with a growth mindset see stress as a challenge, while people with a fixed mindset see stress as a threat. Every transition comes with stress, but your mindset dictates how you respond when something you care about is at stake.

Oddly (or so I thought so at first), one of the most stressful transitions I could think of with my clients is one that is viewed as a positive change: retirement. In nearly every case, approaching retirement is full of a crazy amount of stress. So much for that vision of the happy couple laughing hand in hand as they stroll on the sand! Instead, retirement often comes with a ton of uncertainty, fear, disagreement, and emotional chaos. Here’s an example:

My clients Wendy and Brian have been looking forward to retirement for years. Brian is five years older than Wendy, so he retired a few years ago. Wendy is still working at a job she loves, but Brian wants to travel, hike and fish, and do all the things he’s afraid they’ll soon be too old to enjoy. They agreed on a retirement date for Wendy, and with my help, they’ve been working toward that goal. Now that date is just around the corner, and instead of feeling joyful, Wendy is completely stressed out. When she and Brian met in my office last week, I could feel the tension between them, and despite my best efforts, I couldn’t seem to help them focus on the rational aspects of their retirement plan. Both Wendy and Brian were swimming in emotion, and their upset was palpable. When life changes, money changes—and that’s stressful.

Wendy’s mindset about retirement was a fixed mindset. She had a negative view of stress, and every decision felt life-threatening. When I asked Wendy what she was thinking and feeling, she said, “I realize how confused I am about what my life will look like after I leave my job. Who will I be? What can I afford? Will we have enough money to live like we do now? Brian wants to travel the world, but I’m not sure that’s at the top of my list,” she said. “Everything feels upside down. I realized I’ve been running so hard to get to the end of work that I haven’t been able to face what is beyond. What is retirement? There are so many things I need to understand before taking the leap!”

Brian’s mindset about retirement was a growth mindset. He realized all the changes he would have to address, but he was excited and challenged. Although Wendy and Brian were in sync with their goals and dreams, their different mindsets triggered very different responses to the stress that comes with the transition to retirement. Given that there are two sides to money—the technical and the emotional—our work together will address the emotional side first so Wendy and Brian can rise to the challenge of the next phase of life, connect with others, and learn and grow together.

If your retirement (or another life-changing event) is around the corner, here are three steps to get you started on a path toward your “new normal”:

Step 1: Examine your mindset about stress
By taking a deeper look at how stress triggers your responses, you can harness the power of stress and position yourself to learn and grow. Do you act or react to major change or loss? Are you reactive and closed off, or are you responsive and open? Acting puts you in a growth mindset, while reacting puts you in a fixed mindset. Explore ways to take control of change. Share your stories and your history so you can better understand yourself and those who share your life.

Step 2: Know what’s at stake in the future
This iswhere you move towards the stress to name it, understand it, and embrace it. When life changes, money changes, and this is important. At this stage, it’s important to name your fears. Are you afraid of being a bag lady, or are you afraid of failing to live the life of your dreams? Maybe you’ve always wanted to write a novel, but your career got in the way, and you now have the time to realize your dream. Maybe you want to see the Northern Lights or spend more time with grandchildren or take up a second career (perhaps a service-based career like the opportunities I talked about in my recent blog Inspirations: Finding purpose in your second half of life). There are no rules. Take the time to explore how you want to live it so you can make it happen.

Step 3: Harness the power of stress
With a growth mindset and a clear idea of what is at stake—for you—you will be more open to opportunities and learning. Now you can work on the technical side of money; set realistic budgets, set meaningful goals, and strive to build a community of friends and family. Remember that after 50, changes come fast and furious, so when the next change comes (and it will), you’ll have created the capacity to be responsive rather than reactive. You’ll get a little older; you’ll get a little wiser, and the trade-off will be a good thing!

When I meet with Wendy and Brian meet next week, we’ll follow these steps, taking the time to dig into each area to help them find a deeper connection, decrease stress and, most importantly, have a shared growth mindset that will serve them well through this transition and all the rest to come.

Remember: endings bring transitions, and every transition leads to a new normal. Fostering a growth mindset through transitions will enable you to harness the creative power of stress so you can get to your “new normal” with as little uncertainty, fear, disagreement, and emotional chaos as possible.

Having troublesliding smoothly into retirement? This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help!

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Mental health, money, and breaking the silence

Mental health, money, and breaking the silence

Here we are again, talking about another month dedicated to something, but this is one I simply couldn’t let pass by without addressing it. May is Mental Health Month, and it’s something near and dear to my heart. While this awareness campaign has been happening every May since 1949, this year’s theme of Life with a Mental Illness calls on individuals to share what life with a mental illness feels like for them and tagging their social media posts with #mentalillnessfeelslike. (You can read the collected posts on the Mental Health America site.) The goal is to break down negative attitudes and misperceptions surrounding mental illness and to let people suffering from mental illness know they’re not alone in their feelings or their symptoms. Breaking the silence is an important mission. All too often, mental health issues are hidden away, giving them the power to have a negative impact on our lives.

I read an article in The Atlantic a few years ago by a successful professional and Duke graduate who felt that impact heavily. Despite her passion for telling her story, she used a pen name because “The stigma that surrounds mental health is suffocating, and I don’t feel comfortable talking about it with most of my friends and family, and certainly not my boss or colleagues.” She talks about how the need to keep her mental illness a secret has impacted her professional life, as well as relationships with friends and family. It’s a sad and all-too-common story that, hopefully, is beginning to shift.

As a financial advisor, I’m very aware of another often hidden consequence of mental illness: financial distress. I’ve learned firsthand that, in many cases, high levels of debt and financial chaos are directly tied to mental health, with financial issues either resulting from or leading to mental health issues. I’m not alone in my findings. A 2011 study by a team of UK researchers found that “financial strain and debt are strong risk factors for mental-health problems.” A separate study in 2012 found that “adults in debt were three times more likely than those not in debt to have (common mental disorders).”

It’s easy to see the connection. Binging, which often involves spending, is one way to numb the feelings of anxiety, stress, and depression that can come with mental illness. “Retail therapy” is something people often joke about, but shopping binges are a very real problem for many people with mental health issues. If you’re depressed, shopping gives you a way to surround yourself with cheerful people and boost your endorphins with the pleasure of a new purchase. But when shopping becomes binging, it can result in skyrocketing debt—which causes more stress and, yes, more depression. It’s a vicious cycle, and the best way to break that cycle is awareness.

Clinical psychologist and mental health advocate David Susman offers these five steps to reduce stigma about mental illness:

1.     Don’t label people who have a mental illness.
Don’t say, “He’s bipolar” or “she’s schizophrenic.” People are people, not diagnoses. Instead, say “He has a bipolar disorder” or “She has schizophrenia.” All of this is known as “person-first” language, and it’s far more respectful, for it recognizes that the illness doesn’t define the person.

2.     Don’t be afraid of people with mental illness.
Sure, they may sometimes display unusual behaviors when their illness is more severe, but people with mental illness aren’t more likely to be violent than the general population. In fact, they are more likely to be victims of violence. Don’t fall prey to other inaccurate stereotypes, such as the deranged killer or the weird co-worker depicted in the movies.

3.     Don’t use disrespectful terms for people with mental illness.
In a research study with British 14-year-olds, the teens came up with over 250 terms to describe mental illness, and the majority were negative. These terms are far too common in our everyday conversations. Also, be careful about using “diagnostic” terms to describe behavior, like “that’s my OCD” or “she’s so borderline.” Given that 1 in 4 adults experience a mental illness, you quite likely may be offending someone and not be aware of it.

4.     Don’t be insensitive or blame people with mental illness.
It would be silly to tell someone to just “buckle down” and “get over” cancer, and the same applies to mental illness. Also, don’t assume that someone is okay just because they look or act okay or sometimes smile or laugh. Depression, anxiety and other mental illnesses can often be hidden, but the person can still be in considerable internal distress. Provide support and reassurance when you know someone is having difficulty managing their illness.

5.     Be a role model.
Stigma is fueled by lack of awareness and inaccurate information. Model these stigma-reducing strategies through your comments and behavior and politely teach them to your friends, family, co-workers and others in your sphere of influence. Spread the word that treatment works and recovery is possible. Changing attitudes takes time, but repetition is the key, so keep getting the word out to bring about a positive shift in how we treat others.

I would add one more to his list:

6.     Don’t be afraid to share your experience with mental illness.
I’m proud of my daughter Jamie for sharing her story on Facebook as part of Mental Health Awareness Month. In her post, she shares her experience living with anxiety, OCD, and bi-polar disease, and writes, “There is nothing wrong with you, and there is nothing wrong with me. It’s a real issue probably facing more people than you will ever realize. Be proud like me that you were able to face your issues, confront them, talk to someone about them and treat them. We all deserve a normal life. We all have struggles. If yours is some kind of mental illness, don’t be ashamed. You are not alone. Don’t be afraid to share with others…”

While changing perceptions about mental health may not come easily, the shift is happening slowly but surely. My friend’s daughter Emma is another great example. In her junior year of high school, she was suffering from severe anxiety and depression. A star student, her condition got so bad that she had to withdraw from regular classes for a semester and continue through independent study. When she returned for her senior year, she agreed to talk about her experience in the school newspaper. The day the paper was distributed, Emma’s mother got an urgent call from a close friend. “Have you seen the paper?! Did you know she was doing this? Are you ok?” And while the friend’s reaction was full-blown alarm, when Emma got home from school, she shared a completely different experience. “It was great Mom,” she said. “So many people came up to me and thanked me for doing the interview…they thought they were the only ones at school who had an issue until I spoke out.”

Hopefully, Jamie and Emma’s generation will erase the stigma of mental illness. If they do succeed, I have no doubt we’ll all be better off for it—mentally, socially, and financially.


Has a mental health issue impacted your personal finances? This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to talk about how to get back on track and regain your financial confidence.

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Inspirations: Finding purpose in your second half of life

Inspirations: Finding purpose in your second half of life

Retirement. It’s a concept that certainly means different things to different people. But is it time to change how we define it—completely?

While I was away on my abolutely blissful vacation in Belize last week, I finally had time to dig into Marc Freedman’s book, Encore: Finding Work that Matters in the Second Half of Life. It has me utterly inspired. It’s no secret that I’m passionate about retirement planning—and not simply from a financial perspective. I feel part of my personal mission is to help people of all ages discover how to be truly happy both pre- and post-“retirement,” however they choose to define it. But as I read the book, I found myself swimming in new ideas.

First, I realized that I am in an “encore career,” Freedman’s term for a later-in-life career that has a greater purpose and serves a greater good. My path to becoming a financial advisor wasn’t straightforward, but once I found my passion, I was able to apply the myriad skills I’d learned in my prior career and in my life to help others. The result: I’m fulfilled every day because my life has greater meaning and value.

I’m not alone. In his book, Freedman shares his experiences watching others go through similar shifts. But it’s not always easy, in part because of society’s expectations of those of us in the second half of our lives. Think about it: Here is a person at the height of professional ability. A person who has accumulated a career’s worth of knowledge and personal insight. And our culture suggests that now is the perfect time to bring that growth to a screeching halt and, in essence, dive into a second childhood. To reduce our activities to simple leisure as though we’re no longer capable of achieving or providing any good in the world. So we substitute busy-ness for purpose. We focus on building a better golf game instead of building a better world. As a result, people who have been successful in their careers are often thrown sideways when facing a traditional retirement. It’s no wonder!

But what if we took a completely different approach to “retirement”?

This is precisely what Freedman is trying to help foster. He founded Encore.org, a non-profit organization with the mission of “building a movement to tap the skills and experience of those in midlife and beyond to improve communities and the world.” By engaging millions of people in later life as a vital source of talent to benefit society, he hopes to help create a better future for young people and future generations. If it sounds lofty, just take a look at some of the personal stories on the site, and you’ll soon see how very real it can be.

What Freedman found is that highly skilled individuals—attorneys, physicians, volunteers, business leaders, artists, teachers, and more—thrive by finding new ways to apply their expertise in new, meaningful ways. He even created the Purpose Prize to recognize and reward passionate change-makers in the second half of life who are tackling the world’s most urgent problems though social entrepreneurship and innovation. The organization has awarded over $5 Million in prizes to people working in everything from early childhood education to eradicating homelessness.

As I read his ideas and stories, I couldn’t help but wonder if our highly publicized “retirement crisis” isn’t a crisis at all, but rather a major shift—and an incredible opportunity for change. What if every one of us was able to find an encore career that not only gave us greater personal purpose but also helped build a better world? How much change could we drive together? How much happier would our communities be when filled with older, wiser women and men doing good for others? How much stress would be diminished if these encore careers could support the financial needs of those who have been “aged out” of their earlier careers and are seeking something new?

Of course, as a financial advisor, I understand that this type of change takes money (see my blog on creating a freedom fund for more on that topic!). I was lucky when I transitioned into my encore career; I had a solid “freedom fund” on hand, so I was able to take the time to explore options, identify dreams, and discover my purpose. I was blessed to work with Stanlee Phelps, an amazing life and business coach who helped me find my path. Since becoming a financial advisor in 2003, my passion has never waned. After reading Freedman’s book, I decided that now is the time to take it one step further. Before I made it home from Belize on Saturday, I signed up for a year-long course to become a Certified Financial Transitionist™ (CeFT™), beginning in June. This training will give me even greater knowledge and skills to guide my clients through financial transitions, including managing the physiological, sociological, and psychological impacts of change. I can’t wait.

No matter where you are in life, I urge you to read Freedman’s book. You just may find yourself no longer looking for a “job,” but instead looking for a way to help others. And that small but significant shift may lead you to a new life’s work that is much more fulfilling—and financially rewarding—than you ever dreamed possible.

Ready to start rethinking your approach to retirement?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

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When did it become ok to be financially illiterate?

April is Financial Literacy Month, and echoing my blog on Retirement Planning Week, all of these dedicated days, weeks, and months get tiresome. But when it comes to financial literacy, I believe the focus is critical. What concerns me is that many people outside the world of financial planning seem to view understanding basic finance as a luxury. For many, it has become acceptable to be financially illiterate. Sadly, this is especially true for women; I’ve observed far too many otherwise smart women laugh off their lack of financial knowledge, and it sets off all my inner alarm bells. (At the risk of being curt, I will say that ignorance is never cute or endearing. Can you imagine someone—anyone—joking about being illiterate in any other context?) Male or female, each of us is responsible for our financial future, and being numerate and understanding basic financial concepts is vital to be sure you’re making smart choices along the way.

If my concern has you wondering about your own financial literacy, now is a great time to review the basics. Let’s start with three of the biggies: debt, compounding, and the value of a fiduciary:

How is good debt different from bad debt? Debt is a huge problem in the US. In 2015, the average US household held “bad debt” of more than $15,700 in credit card debt and $27,000 in auto loans, and “good debt” that included about $48,000 in student loans and $169,000 in home loans. When used wisely, “good debt” such as a home mortgage, student loans, and business loans has the potential to generate benefits over time (though the decision to assume any debt deserves careful consideration). In contrast, “bad debt” like auto loans and credit card debt (which is also a loan) reduces your income and adds no value to your wealth. Every month that you don’t pay off your credit account in full, you are charged interest, so you’re paying more (and more!) for an item that is losing value.

What is compounding and how does it affect my retirement savings? The advice to “save early and often” is based on the idea of compounding. Simply put, compounding is the ability of an asset to grow exponentially—to generate earnings, which are then reinvested to generate more earnings. To illustrate: if you invest $1,200 annually beginning at age 25 and that money earns 11% annually (based on the historical long-term average of the S&P 500), in 10 years your savings will reach $22,000. With compounding, in 20 years you’ll have saved not just double the amount, but $85,000. In 30 years, that number jumps to $265,000, and in 40 years you’ll have socked away $775,000 to help fund your pending retirement. Time is the Archimedes’ Lever of investing. The earlier you start saving, the more you can leverage the power of compounding, and the easier it is to meet your goals.

What is a fiduciary? The recent DOL fiduciary rule has been making headlines lately, which has put a spotlight on fiduciaries. If the term is new to you, a fiduciary is required to always actin the best interest of the client. This is in contrast to non-fiduciary “advisors” who may receive a commission for products they recommend, adding their wallet to the list of priorities. Working with a fee-only advisor who is a fiduciary is a necessary part of financial planning. At the same time, it’s important to be your own fiduciary. I was recently working with a client whose husband died suddenly at just 52 years old. When I asked about his earnings and their joint assets, she had no clue. “When you reviewed your tax return last year, what were the numbers?” I asked. She had no idea. Every year she simply signed her name. By paying attention to your taxes, attending meetings with your advisor, and participating in the estate planning process, you can gain financial literacy and actively serve in your best interest.

Of course, financial literacy isn’t just about understanding the terms. It’s also about learning how money works in the real world, how to budget and invest, and how to make informed and effective financial decisions to ensure you have the resources you need to support yourself in the future. Start with these three concepts to be sure you’re on the right path:

Set a realistic spending plan that includes emergency and retirement savings. A study by the Federal Reserve Board recently reported the shocking statistic that 47% of respondents said they would have to rely on credit cards or selling belongings to come up with cash for a $400 emergency. To avoid the same fate (or change it if you’re already there), review your income and expenses, set a realistic budget, and include building an emergency fund (much more than $400 please!) and “saving early and often” for retirement as part of your plan.

Be sure you know the truth about your financial situation: MaryAnn and her husband had been living high on the hog for years. Their extravagant lifestyle included houses, cars, boats, horses, and world travel. Both she and her husband had sizable incomes, and MaryAnn assumed their finances were in great shape. When her husband lost his job, she quickly learned that their lifestyle was a house of cards built on debt. When she and her husband divorced after a 30-year marriage, her choice to remain in the dark about their joint finances had a tremendous impact on her life. No matter how much you trust your partner to take charge of the finances, be sure you know the facts and that you’re acting as a fiduciary to you and your family.

Work with an advisor you trust: Unveiling your finances—especially any financial missteps—requires a huge amount of trust in any situation. If you were raised to believe that finances should remain a secret, it’s time to become a family rebel. Be sure you know the basics, and then put your trust in an advisor who is truly acting in your best interest and can help you get on track financially as quickly as possible.

Want to learn more about financial planning and how it can impact your life—today and in the future?  This email address is being protected from spambots. You need JavaScript enabled to view it.  to schedule a time to chat. As always, I’m here to help.

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In Your Best Interest: Our Q1 2016 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.

Market Highlights: Q1 2016

There are two distinct ways to partricipate in the stock market: speculating and investing. Speculators get paid when they sell something to someone else for more than they paid. Speculation involves trading and can deliver dramatic wins and losses. It is a zero sum game because for every buyer there is a seller on the other side of the trade. Investing, on the other hand, is rooted in economic fundamentals and analysis. Investors get paid when companies pay ever-growing dividends that are reinvested and compounded. Investing leverages lower-risk investments to deliver more predictable, consistent returns.

My goal is to invest, grow, and protect your assets. And while speculation is best left to those with a bigger risk appetities, every quarter I must act like a speculator and deliver the current “weather forecast.” But I do so with a caveat. Why? Because in investing, the short-term forecast doesn’t matter. Just like the laws of physics keep the world spinning, the laws of capitalism and economics (and the “miracle of compounding”) reward investors—no matter what the “weather.” The forecast may be wrong about tomorrow’s “big storm,” but surely spring will become summer.

That said, the first quarter of 2016 didn’t include any major storms (even if the seas weren’t entirely calm). The S&P 500 and the Dow Jones Industrial Index eeked out gains of .77% and 1.49% respectively after a late rally. NASDAQ tech stocks, international stocks, and smaller US company indexes all declined slightly, simply because supply is outpacing demand. 

The Federal Reserve’s March report delivered a snapshot of the current economy. It observed many positives: strong job gains and lower unemployment, rising household spending fueled by declines in oil prices, advancing business investminvestments, and slow but steady recovery in the housing sector. On the (slightly) down side, the strong US dollar has weakened exports, and inflation is below the Fed’s 2% target. In reponse, Yellen and the Fed chose to hold off on raising interest rates—a move they hope will encourage the desired upswing in inflation and work force participation.

There was also a variety of non-financial, but signficant global events that may impact the econonomic outlook. President Obama visited Cuba and announced a plan to open trade and tourism with the US. The Presidential campaign veered into the cult of personality, emotion, and violence. Millions of Syrian refugees fled their homes to escape civil war only to be denied refuge and a safe home for their families. Terrorist attacks shook the world again in Ivory Coast, Belgium, Pakistan, Iraq, and Turkey. And orders for the new Tesla 3 are beating all expectations as consumers strive to reduce their carbon footprints.

No quarterly market update would be complete without a forecast, so here it is: Expect longer days, rising temperatires, and a few storms and droughts. Just as predictably, stock prices will fluctuate, speculators will trade, and techonology will amaze us. Enjoy the change in the seasons and be a patient and confident investor!

Questions or concerns? Send me a note. As always, I’m here to help. 

 
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Celebrate Retirement Planning Week: Create a “freedom fund”

Have you noticed that every day or week is dedicated to something? It was Siblings Day last weekend. There's National Doughnut Day (a fundraiser for the Salvation Army), National Hot Sauce Day (January 22), and yesterday was Scrabble Day. Among all the frivolity, there are some worthwhile campaigns, including National Retirement Planning Week, which began this past Monday.

The attention on retirement planning begs this question: Does retirement planning need an "awareness week"? Absolutely! While no one needs to be made more aware of doughnuts, anything that gets people to pay attention to something that will help them live a better life is worthwhile. As a survivor myself, I hope Breast Cancer Awareness Month pushes women to get that mammogram they’ve been putting off. As a financial advisor, I hope Retirement Planning Week pushes you to take a serious look at where you are today—and where you need to be when it comes to funding your future income. At the same time, I’d like to make a unique push for redefining retirement planning as most people think of it today.

When I first met Katherine ten years ago, she was enjoying a fantastic career at a large, global company. She was traveling the world, entertaining, and a living a high-end, high-cost lifestyle that included a sizable mortgage. She came to me to start planning for retirement. The challenge: she was already in her mid-50s. And while she was earning a bundle, she had almost nothing stashed away to support her once those big paychecks stopped coming in. The first time we met, I suggested we rethink her approach; rather than “saving for retirement”, I recommended she start building a “freedom fund” for the future. Katherine loved the idea. She looked at it like a credit card payment that had to be paid in full each month, and she was religious about her contributions.

Five years later, calamity struck. The company she’d been with for the bulk of her career went bankrupt and laid off 80% of its employees, including Katherine. At the same time, she was hit with a frivolous lawsuit and had to spend thousands of dollars to defend herself in court. Luckily, her freedom fund was at the ready. She was able to pay herself each month while she figured out her next career move, and she paid her legal fees without having to take on any debt. Within 12 months, she had reestablished her career—this time as an independent consultant—and was once again growing her freedom fund. She’s not looking to retire any time soon, but she’s paying off that debt to herself now so she can focus on enjoying life when the time comes.

At 65, Katherine is redefining “retirement.” Like many her age, she’s continuing to earn, but she stopped looking for a “job” the day she walked out the door of her last one. Katherine is part of the growing gig economy. While much of the coverage about this new way of working focuses on millennials, many pre- and post-retirees have jumped on the lucrative bandwagon of taking on a portfolio of work to bolster their income, and possibly delay retirement completely. For many, the Great Recession brought an unplanned early end to their careers, and they found themselves overqualified and, frankly, over the hill when looking for a new job. Like ‘Cassie’ in the classic musical A Chorus Line, they found they couldn’t take a step back from being a star to being just another player—no matter how much they wanted to be. They took a new approach to working and turned the job economy on its head. From consulting gigs to driving for Uber to freelancing, older workers are finding new ways to make ends meet and completely rethink how they view life after 65.

When it comes to retirement planning, there are two sides of the equation: what you spend, and what you have coming in. To have resources you’ll need, start your freedom fund today. Or take a fresh look at how you’re funding the plan you already have. If continuing to work after 65 is appealing, consider joining your peers in the growing gig economy. It can be a great way to stay mentally and physically active while keeping some income rolling in the door.

However you define retirement, realize that it’s a complex balancing act—emotionally, physically, and financially—that you should start thinking about long before you receive that gold watch. To make the most of it, view your retirement income as a debt you owe yourself, and pay it in full every month. By the time you do decide to stop working once and for all, you’ll be truly debt free, and the last thing you’ll need to worry about is retirement income. How’s that for retirement planning awareness?

Need help creating your retirement “freedom fund”?  This email address is being protected from spambots. You need JavaScript enabled to view it.  today to schedule a time to chat. As always, I’m here to help.

 

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Closing the financial gender gap

There’s a downside to specializing in financial planning for women. While I take great pride in the fact that I spend much of my time helping women build financial confidence and create stronger financial futures, my job can get seriously frustrating. Why? Because no matter how much the gender gap is mentioned in political speeches, and no matter how wrong we know the disparity is, it doesn’t seem to be going away any time soon. According to the American Association of University Women’s recent report “The Simple Truth About the Gender Pay Gap,” women earn an average of 79 cents to the dollar compared to men. Women of color and older women fare even worse. In other words, 79 cents is the best-case scenario, and it’s a pretty bad starting point.

When it comes to saving, this earnings gap is magnified. With lower earnings, women have 20% less discretionary income available for saving. Less savings means women are less prepared for retirement, less able to retire as early as men do, and often have less retirement income even when they do stop working. The result: a shorter, less comfortable retirement. It’s no wonder women tend to suffer from “bag lady syndrome,” that less-than-pleasant term for the fear of ending up penniless and homeless. And while it may sound extreme, this fear is very real for far too many women.

Of course, the gender gap isn’t the only dynamic at play here. Women—particularly baby boomers and older—were raised with the idea that a solid financial “plan” meant finding a reliable man to provide financial support, and maybe getting a teaching credential just in case. To find a husband, women often spend their limited resources on presentation (clothes, makeup, hair, nails, and more) in hopes of attracting their financial security blanket. While younger women may scoff at the idea, in reality, the myth that men are some sort of financial guardian for women is still alive and well. Perhaps even worse, women tend to hand over the financial reins to their male partners, often hiding their heads in the sand when in comes to money. It’s a dangerous way of thinking. It taints our relationship with money, including our ability to be financial grown-ups and a full economic partner. It inhibits our financial confidence, and it limits our ability to take charge of our financial health and close the gender gap once and for all. 

My client Lydia is a great example. When her husband Jim died seven years ago, figuring out how to transfer assets and how to invest the money was the last thing she wanted to deal with. Jim had always handled the money, and she felt lost in this “whole new world” of financial planning. Jim’s stockbroker offered to help by rolling Jim’s annuity into a new one. When Lydia signed the agreement, she didn’t understand the surrender charges on the new annuity or even what she was signing. The broker played the role of helping the grieving widow well while he captured a hefty commission for himself. Lydia came to me when she sensed she’d been betrayed. Luckily, we were able to unwind the transaction, and since then she’s become educated and financially empowered. I only wish she—and many women like her—had never been in the situation in the first place.

Whether a woman is married, divorced, widowed, or single, I believe half the battle in closing the gender gap is changing our attitudes about money. The gender pay gap has barely budged in more than a decade, so it’s likely to be with us for some time, but here are six ways we women can do our part to help change the game:


  1. Be financially self sufficient in your marriage or any relationship.
    I can’t tell you how many women I’ve worked with who “trusted” their partners to do right by them and were bitterly disappointed. Take equal responsibility for your financial health. Remember: building your financial future isn’t anyone else’s job. It’s not your husband’s job. It’s not your advisor’s job. It’s yours.

  2. If the bottom line goal is to create wealth, make erasing debt your #1 priority.
    If bringing home 21 cents less then men for every dollar you earn makes you mad, consider this: If you have $5,000 in credit card debt, you could be paying as much as 40 cents more on every dollar you spend. Consumer debt compounds negatively, drags on your wealth, and strips away your ability to “outsave” men. Do everything you can to eliminate the debt you have today, and be realistic about spending to be sure it doesn’t creep back up in the future.

  3. Invest in yourself.
    Make financial choices that increase your earning power. Learn new skills. Get your MBA. Earn a professional certification. (Note: “Investing” in Botox, designer handbags, and little dogs are not part of this plan!)

  4. Invest early and often to take advantage of compounding.
    The more your money has time to grow on its own, the more wealth you’ll have to fund your retirement. Start as soon as possible and increase the amount you invest and save each year. If you get a raise, save half of it and spend the rest. 

  5. Getting divorced? Hold on to assets that generate long-term wealth.
    While you may feel emotionally attached to your home, a house is not an investment asset. Focus on retirement funds and other savings vehicles that can produce income 20 years down the road.

  6. Maximize your Social Security benefits.
    With lower earnings, it may be tempting to start claiming Social Security as soon as you're eligible, but delaying your claim just eight years from age 62 to 70 can increase the value of your benefit by as much as 76%. For women, that pay raise can do wonders in helping support a longer lifespan.

I hope the gender pay gap will someday become a thing of the past. Until that happens, make it your mission to change the things you can control. Get educated about financial planning, take responsibility for your financial future, and be sure you’re on track for a long, happy, healthy retirement.

Need help with taking charge of your finances? Let’s schedule a time to sit down and explore where you are today and how to plan for tomorrow. As always, I’m here to help.

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For your finances, getting organized can be the greatest challenge

Photo credit: Nels HighbergIt’s a common nightmare: You walk into a classroom to take a test, sit down at the desk, and when you look down at the paper in front of you, you have absolutely no clue what you’re seeing. The topic. The material. Nothing. You panic…before waking up in a cold sweat.

Over a year ago, Susan called me asking for financial help. “The closer we get to retirement, the more we argue about money,” said the voice on the phone. “I’m scared. I don’t want to end up as a bag lady!” We made an appointment for Susan and her husband to some into the office for an initial meeting, and I asked her to bring their financial statements along to start the conversation. It seemed like we were off to a good start.

Then the day of the meeting arrived. My phone rang at 8:00 a.m. and Susan’s voice was even more desperate than before. “I think we have to cancel.” She sounded like she was almost in tears. “I’ve been trying to pull stuff together all week, and I can’t find what you need. I don’t know where to start.” I felt terrible. I realized I’d given Susan an assignment she was wholly unprepared to complete. She was living the nightmare.

When it comes to financial planning, the challenge of getting organized is as common as nightmares themselves. And unfortunately, it keeps people who need help as far away from a financial advisor as they can get. If you’re in the same boat as Susan, you might be thinking: “If I can’t even organize my finances, how can I ever hand it over to an advisor?” Or worse: “Any advisor will think I’m completely incompetent if they see what a mess I’m in.” So the fear of not being able to do it “right” and the fear of being judged stands in the way of getting help. Taking that first step can feel like climbing Mount Everest (including the lack of oxygen!), but knowing these facts can help:

Your finances are complicated.
You may feel they shouldn’t be, but they are. And unless you’re a financial planner yourself, you may not even know what all the pieces of the puzzle are—much less where they are.ideally in a concise, single-page overview) but you also don’t have to worry about the unknown any longer.

Procrastination is a killer.
As complex as your finances may feel today, the longer you wait to get help, the more complicated and out of control they’re likely to become. Don’t wait to clean out your files, pay off your debt, or put money in the bank before getting help. Woody Allen’s Alvy Singer stopped doing his homework was because: “The universe is expanding!...and someday it will break apart and that will be the end of everything…so what’s the point?!”And while I believe there is a point, he’s right: your universe is expanding. Next year you’ll have more assets (hopefully), more financial needs, and more complexity. Ten years from now, your challenges will be that much greater. Don’t procrastinate. Time is of the essence!

The older you are, the more help you may need.
Yes, finances often get more complicated with age, but there’s a bigger issue that comes with getting older. Unfortunately, the ability to understand and analyze your finances decreases with age. Even if you’ve always managed your finances in the past, as you (or your spouse) age, the task will inevitably become more challenging, and mistakes and misjudgments can happen more and more. It’s never easy to recognize changes in your abilities, but if managing your finances is getting harder, it’s time to ask for help.

There are only three prerequisites. (Hint: Being organized isn’t one of them!)
The only requirements for working with a financial advisor are 1) the desire to improve your financial health, 2) a basic understanding of how a financial advisor can help, and 3) a willingness to pay for that help. An advisor will help you make sense of your finances and then work with you to create a plan to help build your wealth and protect your assets in the future.

When Susan called that morning, it wasn’t difficult to calm her fears. “If you ask for directions to my office, what do you think my first question will be?” I asked. Without hesitation, she replied, “Where are you coming from?” Exactly. I assured her that to help her and her husband move forward, all I needed to know was where they were now. “Just bring what you have, and we’ll take it from there.” I could hear her sigh of relief. She didn’t have to live the nightmare after all.

Susan and her husband showed up that morning with three bulging boxes of files. But we didn’t start by diving in right away. Instead, we talked about the even more important and much more simple aspects of their financial lives: their ages and years until retirement, their children, their living situation, and their estimated savings. We discussed their goals for retirement, and what each of them felt would truly make them feel at peace financially. It was just the first step in the right direction.

Are you ready to take the first step toward a more solid financial future? Let’s schedule a time to meet. Bring your file boxes if you’d like, but the only thing you need to know for certain is that you need—and want—help.

Photo credit: Nels Highberg
Illustration credit: Carl Richards

 
 
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Finance and feelings: Navigating life's twists and turns

“Take the emotion out of money.” At one time or another, you’ve probably heard this advice, whether you’ve heeded it or not. But is it the best advice?

Last week I was happy to host a presentation and discussion with Dave Jetson, a therapist and financial counselor who would certainly disagree with those words of wisdom. In his work and his writings (his latest book is Finding Emotional Freedom: Access the Truth Your Brain Already Knows), Dave focuses on helping individuals explore and heal money issues.Over the course of the evening, Dave shared how our emotions impact our financial decisions, and how three parts of our brains—our “trauma child,” conscious brain, and inner child—all compete for our resources and dictate how we save and how we spend. As a financial advisor, I found Dave’s thoughts and research to be in line with my experience observing how feelings can cloud judgment and, all too often, derail the best-laid financial plans.

It’s no mystery that money is an emotional hot topic for almost everyone. Even though we know intellectually that money is simply a necessary tool to support our goals, most of us can’t help but have feelings (and often lots of them!) about money. And those feelings, whether they’re conscious or not, can cause some very real issues when it comes to making smart decisions.  Issues that typically cause the most conflict are rooted in our fears about money, safety, and survival. Dave refers to this fear as the reaction of the “trauma child”—the part of us that, at a very young age, formed our deep-rooted reactions to money. Like Dave, I’ve found that it’s important not to ignore these feelings when they come up, but instead to connect with them and share them—especially when making decisions together with your partner. Here’s an example:

My clients Julian and Karen have very different perspectives about money. Julian was raised by a single mother and money was always a challenge, so he has a lot of fear about being able to provide for his family. To manage his fear, he is hyper rational about money. He serves as the financial regulator in the family, setting the budget and the savings rates, and taking full responsibility for meeting their financial goals. His wife Karen, on the other hand, was raised in an affluent family and never had to worry about money. Since Julian takes the reins financially, she doesn’t have to worry about survival, so she’s free to focus on keeping the family healthy and happy. That structure seemed to work well, until recently when they faced a financial crisis that challenged their thinking. When their pre-teen daughter showed signs of serious depression and needed a residential treatment program, Karen called me in tears. Julian was refusing to spend the money needed to pay for his daughter’s treatment, and talking to him about the issue was leading nowhere.

I was so glad she called. Clearly this crisis was bringing some big emotions into play, and those feelings were clouding the real issues. Whether it was their “trauma children” interfering or some other issue, I knew I needed to tread carefully. But I also knew that, ultimately, they both wanted the same things: a happy, healthy, financially secure family. With that as a basis, I was able to help. I asked them to meet with me as soon as possible to talk through the issue and see if we could agree on a solution. When we sat down together, I began by asking them to revisit their shared values. Next, we talked about their fears. Julian opened up about his fear of getting off track from their savings plan. “We don’t even know if this treatment will work, and it will set us back a lot. How can we be sure we have enough money to cover the expense and still be on track for retirement?” Karen shared her fears for her daughter. “Depression is a serious issue. What is it worth to us to be sure she can recover and be safe and happy?” Then she shared about her sister’s depression growing up and how much it had scared her. “I couldn’t do anything for her, and it made me feel helpless.”

As we talked, I could see the walls come down. In less than an hour, Julian and Karen had “felt” their way through the issue instead of “thinking” their way through it. They both had a new appreciation for where the other was coming from and, most importantly, they were re-focused on their shared values and goals. Julian was able to see that this crisis was a small wrinkle in their big-picture plan—not a derailment—and Karen was no longer angry at his initial reaction to what she saw as an urgent need.

It may sound a lot like a full-fledged psychotherapy session, and while I’m certainly not a therapist, financial planning is, by definition, a type of intervention. The purpose of creating a financial plan is to help identify your values, understand your goals, and create a tangible path to achieving your short- and long-term objectives. But even with a great plan in place, there’s always (and I mean always) an unexpected twist and turn. At one time or another, every family will face a crisis that drives them back to that emotional place and forces them to deal with a “trauma child” throwing a fit that can threaten to undo even the best-laid plans.

As Dave Jetson shared last Thursday, “Our ‘trauma brain’ is the same as our financial brain.” That’s why it’s important to pay attention to what we’re feeling first, and then tackle the dollars and cents of the equation. So the next time you’re facing a financial decision that has you feeling less than peaceful, take the time to connect with what you’re feeling rather than “taking the emotion out of money.” I expect you’ll find it’s a much easier path to wise, rational decisions—about money and just about everything else.

Need help figuring out how to navigate your emotions to make better financial decisions? Let’s schedule a time to chat. As always, I’m here to help.

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Movies, the Oscars, and your money

It’s Oscar season in Hollywood. And while that may not usually have much to do with your finances, this year’s best picture nominees are chock full of money lessons that will prove valuable long after the awards are handed out next Sunday.

The Big Short

The Big Short is all about the why, what and (most importantly) how of the 2008 financial crisis. From my perspective, the real lesson for investors doesn’t come from watching a band of misfits leverage a highly unique opportunity into big profits. These were the (very) few who made big money from the housing crash.

The tragic stories of what happened are of regular people who lost their homes and their fortunes. As a financial advisor, this was one of the most difficult times in my career. My clients and friends were swept up in the real estate frenzy. So many people came to me asking, “How much house can we afford?” When I gave a true and honest answer—which included putting 20% down, staying away from adjustable rate mortgages, and looking at the long term—they thought I was a crazy, ignorant dinosaur. Sadly, some didn’t take my guidance and bought because they were caught up in the noise. “All of our friends are buying! We’d be nuts not to invest when it’s a buyer’s market!” The movie’s depiction of a Florida stripper with five homes may have been a dramatic illustration, but smart people believed that the market was different this time, and real estate was the quick fix.

Lesson learned: In any risky market, there will be big winners—and big losers. When you see an opportunity that sounds too good to be true, it probably is. Stay focused on your strategy, make decisions based on reality (not frenzy), and be a winner for the long term. Not sure you have enough to get by? Check out How much do we really need? A lesson from the Mayo brothers.

The Martian

Matt Damon’s astronaut in The Martian was, above all, a survivor. Even when all seemed lost, he went back to the basics: his knowledge of science and rationing his resources. With no food or water on Mars and very limited supplies on hand, he leveraged every resource he had to create what he needed. To grow food, he used seeds from the potatoes he had (fertilized with excrement that was stored on board). To make water, he combined unused fuel from his vehicle with carbon dioxide from his own body (plus a lot of plastic tenting). He figured out how to use old technology to communicate with NASA. And, through it all, he analyzed how long he had to make his resources last, and he rationed what he had to make it happen.

Lesson learned: Planning for your future requires a lot of the same skills. Carefully build your financial resources, leverage the money you accumulate to build more wealth and, once you stop working, budget what you have to be sure it can support you through what is hopefully a nice, long retirement. Need a refresher on the basics of financial planning? See Getting back to basics in the New Year.

Bridge of Spies

Based on a true story, Bridge of Spies is my hands-down pick for best picture. Not only because it’s a wonderful, intriguing spy movie, but because it offers the most important financial (and life) wisdom of the year.

Tom Hanks is Jim Donovan, an unassuming and quiet lawyer who gets wrangled into defending an accused Russian spy at the height of the Cold War. The spy, Rudolf Abel (brilliantly played by Mark Rylance) is a painter with a deep, quiet soul. Even as he is accused, put to trial, and faces a potentially deadly return to his home country, his integrity and his unwaveringly calm and unworried demeanor remain. Multiple times in the film, Donovan asks him, “Do you never worry?” Abel’s consistent response: “Would it help?” The words struck me over and over again as I watched this man face a series of complex, frightening situations with the same quiet resolve. He was grounded in his own truth, knew that worrying would not change the outcome, and focused on living his life in the beauty of the moment.    

Lesson learned: When it comes to money, it’s easy to worry, but if you have a careful, long-term strategy in place, you should be able to sit quietly and let your money work for you. Ignore the headlines, don’t focus on the short-term ups and down of the market, and don’t worry. After all, “Would it help?” Want to know why I’m not worried about the markets? Read Volatility, escalators, and yo-yos.

Of course, that’s only three, but every nominated film had some great lessons to offer. Here’s the quick rundown of the rest:

The Revenant, Room, and Mad Max: Fury Road were about as different as you can get, but they all focused on surviving…and thriving. Each of the main characters showed resiliency and a keen ability to adapt to any and every new circumstance that came their way. Lesson learned: Make a plan, adjust it as needed, and live happily ever after.

Brooklyn is a beautiful film about personal choices. Lesson learned: Whether you have few options or many, be sure to make the choices that support your financial life and your life as a whole. Here’s to finding true joy.

Spotlight tells a fascinating, real-life story about journalists who do what it takes to reveal the truth—even when they’re pressured to make headlines. Their goal was to do the right thing and serve the victims, rather than take the quick and easy route. Lesson learned: Too many journalists are paid to create stories that generate advertising revenue and miss the real story. When it comes to your money, ignore the headlines and focus on getting the facts.

If you have time, I highly recommend rolling out your own red carpet, popping some champagne, and taking in each of these great films—with at least a bit of an eye (of course!) to what they say about you, your money, and the choices you make that support a truly rich life in every way.  Enjoy!

Want to share your personal insights from these—or other—films? Email me. I’d love to hear your thoughts and recommendations.

 

 

 
 
 
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How much do we really need? A lesson from the Mayo brothers

I just read an inspiring article about the Mayo brothers, founders of the internationally recognized and renowned Mayo Clinic in Rochester, NY. While I certainly knew the name and the clinic, I was unaware of the brothers’ unique outlook on life—and money.

Considering the amount of wealth the two accumulated over the course of their lifetimes, it would be easy to assume they were focused on gaining assets. In fact, the opposite is true. Instead, William Mayo posed an intriguing question in a speech when he and his brother Charles presented a sizeable endowment to the University of Minnesota in 1913. That question wasn’t “how can we drive greater profits” or “how can we create a stronger brand.” Instead, his speech was rooted in a simple question: “How much do we really need?”

Here’s a quote from his speech that Mitch Anthony included in his wonderful article Drawing A Line On ‘Enough’:

“Contented industry is the mainspring of human happiness. Money is so likely to encourage waste of time, changing of objectives in life, living under circumstances which put one out of touch with those who have been lifelong friends, who perhaps have been less fortunate. How many families have we seen ruined by money, which has taken away from the younger members the desire to labor and achieve and has introduced elements into their lives whereby, instead of being useful citizens, they have become wasteful and sometimes profligate.”

Like the author, I’m struck by the parallel between what the Mayo brothers were seeing more than 100 years ago and the attitudes of many of today’s pre- and post-retirees who “have arrived” into wealth. When our society is so focused on saving money to support lives of leisure, is it any wonder that so many people find it difficult to be truly happy, regardless of their level of wealth? I wonder how much happier we would all be if we put the same level of energy and focus on finding our own “contented industry” and living a life of purpose—both before and after retirement—as we do on counting the dollars we have to support our leisure time.

It may sound like a lofty idea, but as a financial advisor, I see how much this shift in perspective can affect our happiness every day.

  • Maria called me in crisis. Her husband quit his job—again—and she’s in a panic. “We need his income, but every time he decides a company isn’t right for him, he’s out of work for months. How can we pay our bills?” Clearly, Maria isn’t going to change her husband’s behavior. She has a high-paying job as a marketing executive, and she’s been with the company for years. Do they have enough to be financially secure and support their family? As their advisor, I believe they do—even without a second paycheck. It may be time for Maria and her husband to discuss what they can do to “right size” their lifestyle to match their financial reality.
     
  • Chris just turned 66, but she can’t even conceive of retirement. She loves what she does, and she’s a great example of someone who is really living a life of purpose. She doesn’t work to make money. Instead, she does something that makes her happy, and the money she needs flows from that work. When we discuss future planning, she’s happy to know she has the freedom to slow down and only accept jobs with people she likes—and jobs that aren’t a traffic-jam away. Does Chris have what she really needs? I’m certain the answer is yes. She’s one of the lucky ones.
  • Sandy has just weeks to live. Diagnosed with advanced ovarian cancer less than a year ago, she recently learned she is one of the few patients whose cancer does not respond to chemo. She has just transitioned to palliative care, and she and her husband Dennis are planning a quick trip from their home in Tennessee to Florida where, as her husband says, “she is always happiest in the sunshine and warm breezes.” I spoke to Sandy and Dennis yesterday, and they are facing this reality with grace. They laughingly said to me “we saved too much…we didn’t take enough vacations!” Of course, no one plans on an early death, so saving was important, but in my eyes they’ve both always had what they really needed: they focused on living life with purpose—even when their bank accounts were overflowing.

When it comes to having what we really need, perspective is everything. Every time I’m feeling stressed or down I find joy by driving down the highway, walking at the beach, or dining at a restaurant with a view of the gorgeous Laguna Beach coast. Of course, it would be easy to see the abundance of wealth surrounding me when I’m there with a sense of envy, but I choose to focus on how lucky I am to be where I am in the moment and appreciate what I have. And while I’m not living in one of the mansions on the beach, I love that I get to spend every day helping others. I love that doing something so fulfilling allows me to enjoy a modest lifestyle. And I love that I have “enough” time and money to spoil my grandkids just a little.

Do I have what I really need? When I’m sitting looking out at that beautiful California sunset on a perfect winter evening, I’m pretty certain I do.


Need help figuring out how much you really need—and how to get there from here? Let’s schedule a time to chat. As always, I’m here to help. 

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When all feels lost, it’s time to find your A-team

There’s no doubt about it: women live longer than men. While every one of us wants to live a long, rewarding life, the fact that we live longer also means that, sooner or later, most women are likely to become widows. It’s not something anyone wants to think about, but when it does happen, it’s vital to know what, when, and how to take care of your finances to be sure you protect your assets and get on to solid footing moving forward.

How do you even begin to go about such an overwhelming task when your life has just changed completely? As a rule, we women are incredibly strong and able to rise to the tasks ahead—no matter what they may be—but one key to success is not going it alone. Now is the time to put together your A-team.

Liz, in her mid-70s, took a fall and was in a short-term rehab facility when her husband died unexpectedly. She suddenly had to manage everything from funeral arrangements to estate planning issues—all while being stuck in a hospital bed herself. Luckily for Liz, she had a lot of help from her daughter, Emily. Not only was Emily there to help do the legwork Liz couldn’t manage herself—everything from grabbing documents from her husband’s safe deposit box to meeting with the funeral director—but Emily also advised her to get immediate help to tackle the legal and financial aspects of dealing with her husband’s death. As a longtime client of mine, Emily recommended she call me first. When Liz and I talked that day, the first thing we did was put together her A-team—a group of seven individuals who each play a critical role helping her begin her life without her husband.

Widowed or not, if you don’t already have an A-team in place, here are the seven players I recommend every woman find and recruit right away:

  1. Your person. The TV show Grey’s Anatomy coined the phrase, “You’re my person.” It stuck, and for good reason. Everyone needs that one person they can count on, no matter what. For Liz, her “person” was Emily. For you, it may be an adult child, colleague, neighbor, family member, or best friend. Your “person” is the one you can trust to be there when you need help and who makes you feel safe.
     
  2. Your executor, successor, or co-trustee. An executor or trustee is responsible for making sure all assets of the deceased are accounted for and transferred to the right party, and to ensure that all debts and taxes are paid. An executor is legally obligated to meet your husband’s wishes as indicated in the will or Trust, and to act in the best interest of all beneficiaries. In most cases, this will be you—the new widow. Acknowledge that you need help with this big job.
     
  3. Your attorney. I’ve had multiple clients ask, “Do I really need to pay for an attorney?” The answer: YES. While it may seem attractive to “save” legal fees by dealing with probate, estate, and trust issues yourself or by getting help from a friend, you need a professional who understands every aspect of what must be done. Ask people you trust for recommendations, and then choose the professional who feels right for you. Getting appropriate legal help will save you headaches—and money—later on.
     
  4. Your accountant. Tax strategies can play a significant role in preserving your assets following the death of your spouse. I can’t underestimate the value of a good CPA to help you protect your estate. If you don’t already have a trusted accountant, again, get recommendations from others—preferably women who have been through your situation themselves.
     
  5. Your banker. In the immediate future, you’ll need cash to maintain your lifestyle—especially if any of your assets are tied up in probate. Your banker can help you identify all available funds, give you access to available cash (note that some funds may not be accessible for some time), and help you take over your husband’s banking responsibilities.
     
  6. Your insurance agent. At the top of your to-do list will be contacting the companies with which your husband holds life insurance policies. A good insurance agent will help with much more than that. As a widow, your needs have changed. Your agent can help identify appropriate life and health insurance to be sure you—and those who depend on you—are protected.
     
  7. Your financial advisor. Just last month a new widow was referred to me by her estate planning attorney. Her first question to me: “If I have a CPA and an attorney, why do I need you?” I explained that the role of a financial advisor (myself or another) was to invest her assets appropriately, help her work through her financial to-do lists, and create an individual plan for her financial future. As a fiduciary, I would also quarterback the actions of everyone on her team on her behalf, making sure everyone is working together toward her success.Four weeks later, we’ve assessed her financial big picture, adjusted her personal portfolio (her husband’s assets have not yet been turned over to her), worked with an insurance agent to get her proper coverage now that her husband is gone, and continued working closely with her estate planning attorney. We still have a lot to do, but I know our work has already helped her gain a new level of financial confidence.

When you are a new widow, you are swirling in emotion. Yet there are so many things you must manage immediately. From obtaining death certificates to poring through legal documents, paying bills, and more, you have too much on your plate. The good news you’ve been waiting for is this: with your A-team in place, you’ll have all the help you need to increase your sense of independence and gain control over your life.

Need assistance putting your own A-team in place? Whether you’re widowed or simply want to gain better control of your entire estate, I’m happy to help you build the right team for you.  

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In Your Best Interest: Our Q4 2015 Newsletter

Click here to view the full newsletter, including recent news, important dates, financial tips & tools, and more.

Market Highlights: Q4 2015

The Force Awakens” was the theme in 2015—on the big screen and in real life. Just as the characters in Star Wars were forced to face their old rivals, global conflicts increased around the globe and the market reacted. Economic stress in Greece and China, falling oil prices, and terrorist attacks in Paris and San Bernardino, CA, impacted equity markets worldwide.

Of all the stock indexes, only the NASDAQ posted a gain for 2015. The S&P 500 index of large US companies ended with the first down year since 2008 while smaller and riskier US companies lost 5.7%. Developed international companies were down 3.3% despite a strong Q4, commodity-dependent Emerging Markets lost 17% for the year as oil prices reached an 11 year low, and bonds prices fell in the quarter as Treasury yields increased. 

When you look at your year-end statement, you may see that portfolio values trailed the Dow and the S&P 500. The reason? A diversified portfolio includes non-correlated assetsstocks that go up or down at different times—including energy and commodity stocks that fell due to low oil prices. Americans are smiling at the gas pump, but their portfolios are feeling the hit. Bonds investors were also disappointed as higher quality, short-term instruments that often provide defense against lower stock prices delivered less-than-expected yields.

Clearly it’s good to be an investor when you stay disciplined and stay the course. Despite the flat numbers, the three- and seven-year annualized returns of the S&P 500 were 12.7% and 12.4%, respectively, and the MSCI EAFE delivered 2.3% and 4.7% in the same timeframe. And remember, while the price of equities declined in 2015, you did not lose value. To restate Benjamin Graham’s advice to Warren Buffett, “Price is what you pay, value is what you get.”

On another positive note, at the end of December, the Federal Open Market Committee raised interest rates .25% for the first time since 2006. The increase reflects the Fed’s view that the US economy is strengthening, and their decision was based on positive economic data: unemployment ended the year at 5.0%, GDP growth slowed to 2.0%, and inflation remained below the Fed’s 2.0% target.

So what will 2016 hold? The only thing we can predict with any degree of certainty is that the US will have a new President. Bull market or bear market, no one knows. Investors should certainly expect continued volatility in equity prices, but as I’ve said time and again, the market is always headed in one direction: up. Our strategy is a disciplined approach to capital markets—staying diversified, keeping costs low, managing taxes, and rebalancing when needed—and we will continue to work with you to align your investment approach with your life goals, whatever they may be.

There’s no doubt the world is changing at a record pace, and it may feel like your life and goals are changing just as fast. The Force has indeed awakened, but we’re always here to help…no matter what the universe throws our way in the future.

 

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Getting back to basics in the New Year

It’s the first full week of 2016, and already many people have lost the excitement around their New Year’s resolutions. If you work out anywhere—the gym, the beach, the tennis court—you see it every year: you need bona fide crowd control in the first week of January. By week two, you can see through the swarm. By week three, things are back to normal (except that the gym is a bit richer after raking in all those well-intentioned new memberships).

Luckily, when it comes to financial resolutions, they can be much easier to keep than a new workout routine—as long as you set realistic goals, create a plan, and stick to it. The movie The Big Short does a fantastic job at calling out how complex and complicated the world of finance can be. Highly quantitative, there are aspects of it that only statistical geniuses can truly comprehend. But real financial wisdom is pretty simple. Not easy, but simple. Sticking to your plan often requires taking a step back from the financial wizardry and the ubiquitous financial “news” and applying some good old common sense.

My great friend Rick Kahler, a financial and life planner in Rapid City, South Dakota, writes a wonderful blog called Financial Awakenings. When I read his most recent entry, it reminded me how important this back-to-basics approach is to financial security. Regardless of age, and regardless of level of wealth. Yes, you know this stuff…but it’s good to be reminded as you clarify your 2016 goals.

Here are Rick Kahler’s top 10 back-to-basics musts from his January 4 blog, Classic Money Advice:

  1. Understanding and managing your thoughts, feelings, and beliefs about money is as important as understanding how money works. Our brains are hardwired to make poor financial decisions. Exploring your money history and learning to identify your unconscious beliefs about money can change your financial behaviors forever. It is crucial to gaining and keeping control of your finances and becoming comfortable using money as the valuable tool it is.

  2. Building an emergency reserve to cover living expenses for six months to a year if you lose your job or experience a business slump isn’t just a good idea, it’s a necessity. If you are retired, having one to three years of cash available to cover living expenses can help you avoid taking money out of investments when their value has declined.

  3. Retirement will happen, sooner than you think. Start early—as in the day after college graduation—and be consistent in investing at least 20 percent of your paycheck in your 401k, IRA or SIMPLE plan.

  4. Learn to appreciate the word “budget.” Creating a plan to track and manage income and spending is an essential skill to survive and thrive financially. Numerous free or inexpensive tools, like Mint.com and Quicken, can help.

  5. Run from consumer debt. If you can afford a credit card payment after you purchase something, you can afford to save first and buy with cash. Personally, I use credit cards for almost every purchase for both convenience and cash back or travel rewards. However, it’s imperative to pay the card off every month, without fail.

  6. A house is a home, not an investment. Don’t buy more home than you can afford, and don’t buy without a down payment.

  7. No asset goes up forever. Price declines, even crashes, are a normal part of investing. It’s essential to understand that the value of your portfolio will fluctuate. Be prepared to ride out downturns. Selling in a down market is “the big mistake” that will cost you dearly.

  8. The fundamental strategy for managing market ups and downs is asset class diversification. This doesn’t mean having money in different banks, with different brokers, or in different mutual funds. It’s about having a good balance of mutual funds that invest in US and International stocks, US and International bonds, real estate investment trusts, commodities, market neutral funds, Treasury Inflation-Protected Securities, and junk bonds.

  9. There are no free investments. Pay attention to the fees and taxes associated with any investment, as well as how the advisor recommending any investment is compensated.

  10. Pay yourself first. The most successful savers and investors I know simply take all their fixed expenses, taxes, and retirement contributions off the top of every dollar earned, then spend the rest. That means learning to live on 30% to 50% of every dollar you earn. This may sound unreasonable or even impossible for anyone who is just starting out, raising a family, or getting by from month to month. Certainly, it isn’t easy. But one of the most valuable financial habits to create, beginning with your very first paycheck, is to save something for the future instead of spending everything that comes in.

These are all great, but “pay yourself first” is one piece of advice that changed my own life. When I was a twenty-something divorcee and mother of two young children, I read Sylvia Porter’s Money Book. At that time in my life, it was true that “even a pack of lifesavers was a financial decision.” From Sylvia Porter, I learned that spending is what I paid everyone else, and saving is what I paid myself. I took action, and I started setting aside just $5 per pay period (this was just before the advent of the 401k in 1978). The result: every few months I’d get a crisp new US savings bond. It was my first step to a more secure financial life and future.

So here’s my challenge to you for the New Year: Ask yourself what specific step you will take in 2016 to help build your own financial security. It may be from Rick’s list, or it may be something else entirely. Whatever it is, set it, plan it, and stick to it. I’d love to hear how it impacted your life when we hit week 52 next December.


Need assistance identifying your next step and putting it into action? Let’s schedule a time to chat. As always, I’m here to help.


 

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’Tis the season for gifting

Photo credit: Sarah ParrottMost of us receive many gifts during the holidays, and when a beautiful gift arrives that was carefully selected just for you, it warms your heart. That’s how I felt when I received a gift acknowledge-ment from ElderHelp of San Diego last week. ElderHelp is a non-profit organization dedicated to helping seniors stay in their homes, and the note said that a donation was given in our name from Cindi Hill of Hill Compliance Advisors, our compliance consultant. As someone who spends a large portion of my time seeking out innovative solutions to help my clients retire on their own terms, this was a particularly thoughtful gift.

If you’re still looking for the perfect gift for someone who doesn’t need any more “stuff” (or, like me, is on a diet and certainly doesn’t want any food STUFF!), giving to their favorite charity may be just what you’re looking for. Of course, gifting can take many forms, and many are also tax deductible, which can give the ability to be even more generous than you might think.

Facebook CEO Mark Zuckerberg clearly understands the value of a tax-deductible charitable donation. If you’ve been paying attention to the news at all, you’ve surely heard his announcement that he and his wife Priscilla Chan made a promise to their newborn daughter to give away 99% of their Facebook wealth “to advance human potential and promote equality.” And while some have criticized the Chan Zuckerberg Initiative for its tax-deductible status, what many fail to realize is that the tax benefits won’t simply put more money back in Zuckerberg’s pocket. Zuckerberg and his wife have been very careful about how they are donating assets, creating an LLC to maintain a great deal of control over how the gifted assets are used. Theirs is a great example of a well designed charitable giving strategy that truly becomes “the gift that keeps on giving.”

Sure, most of us (I can safely say none of us!) don’t have that level of expendable assets to gift, but there are many ways to support your favorite charities this holiday season while also achieving year-end tax benefits. I know my own inbox is overflowing with year-end appeals from charities I know and love, as well as many that are new to me. Whatever you choose, keep good records and remember that all donations must be made by December 31 to be eligible for 2015 tax credits. Following Mark Zuckerberg’s lead, it’s a great time to take control of your money by directing it to the charities that mean the most to you instead of giving it to Uncle Sam.

Clearly there’s not much time to plan, but here are a few options to consider:

  • Set up a Donor-Advised Fund. These philanthropic funds give you a current-year tax deduction while making thoughtful, intentional gifts in subsequent years. Since many smaller nonprofits aren’t set up to receive gifts of stock or other complex holdings, this is a great option if you’re donating non-cash assets. Plus, by giving to a donor-advised fund, you avoid capital gains tax. Your contribution is treated as a gift to a 501(c)(3) public charity, and you are allowed to deduct up to 50% of your adjusted gross income for cash gifts, and 30% for appreciated securities. If you’re interested in this option, we can help, but call us immediately to be sure we can get everything in place by year-end.
  • Look for charities on www.charitynavigator.org. If you’re not sure where to give—or are worried about your money going to a less-than-reputable organization—the site rate’s charities by financial health, accountability, and transparency, and you can easily browse charities by categories such as human services, environment, education, animals, arts & culture, public policy, and more. All charities listed qualify for 501(c)(3) tax-exempt status. If you do choose to give, be sure to tell you advisor and your CPA to ensure proper tax crediting.
  • Donate from your IRA using a Qualified Charitable Distribution (QCD). If your IRA is overfunded, not only are you in an enviable position, but year-end legislation finally made QCDs from IRAs permanent (in the past, the rules came and went, making it a gamble to take this approach in hopes of a tax benefit). Donations are limited to $100,000 of tax-deferred IRA savings annually, and offer a significant advantage over taking a taxable IRA distribution and then contributing the proceeds to charity, as QCDs are not included in adjusted gross income.
  • Donate household items. If my last blog inspired you to declutter, Boxing Day (the day after Christmas) is a great time to box up items and send them off to new homes via Goodwill, The Salvation Army, the Vietnam Veterans of America (who will usually pick up items at your door within 24 hours). Clearing out your pantry and making a donation to your local food bank is another great option (we give to Second Harvest). Whatever charity you choose, be sure to save your receipts for tax time.

Of course, if you’re just looking to give and tax benefits aren’t a priority, there are always great causes to be found on GoFundMe—helping families in need due to death, injury, or other personal tragedies; supporting individual volunteers, natural disaster recovery, and more. All told, Americans make 30% of our annual donations in December. I hope you’ll take part in the “season for gifting,” however you choose to give.


Need help setting up a donor-advised fund, QCD, or other vehicle for charitable donations? Please contact us right away to be sure we can meet the December 31 deadline. As always, I’m here to help.

 
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Index

09 November 2016

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All written content on this site is for information purposes only. Opinions expressed herein are solely those of Lauren S. Klein, President, Klein Financial Advisors, Inc. Material presented is believed to be from reliable sources and we make no representations as to its accuracy or completeness. Read More >