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What’s today’s best investment? Here’s your answer.

What’s today’s best investment? Here’s your answer.

If you have investments in stocks (and I hope you do!), you know that the markets climbed in 2017. And climbed. With an incredible 71 new highs, the markets closed the year up 21% on average, with Emerging Market Stocks (MSCI EM index) leading the pack at 38%. For investors, it was a year to celebrate. But the question now is: where do we go from here?

If you listen to the media, the answers run the gamut from moving everything (yes, everything!) to cash to throwing everything you have (again, everything!) into the high-flying market and cashing in on the rewards. The reality is a lot less exciting. For long-term investors (which I hope you are!), excitement is rarely a good thing. Here’s why:

  • Investing should not be a thrill ride.
    If you want a thrill, go take a spin in a sports car. Let your investments be the reliable sedan that gets you where you want to be, when you need to be there. Investors are paid to take risks. Anticipate the ups and downs, but trust that your well-constructed portfolio will grow at an average of 5% to 7% over the long term. When your neighbor brags about her tremendous gains, don’t fret if yours aren’t quite so amazing. Chances are your portfolio is more conservatively allocated, which means that when the market does turn (which it will, eventually) you’ll continue to be reliably moving forward—with just the right amount of risk for you.

     
  • Toying with a portfolio does not deliver better results.
    On Monday, the news broke that Warren Buffet won his $1 million bet with a top hedge fund manager that he could do better than a hedge fund with a passive, low-cost stock index fund over 10 years. Instead of trying to time the market like his rival, he simply rode out the market—even during the depth of the recession. The result: Buffett’s stock fund achieved a 7.1% compound average return. The hedge fund return: just 2.2%. The US stock market has delivered positive returns in 29 of the last 38 years, delivering gains of more than 20% in 14 of those years. That’s the only information Warren Buffett needed to know to win the bet.

     
  • Even if the market does take a turn, a diversified portfolio won’t get very exciting.
    Again, that lack of excitement is a good thing. In 2017, the stock market saw amazingly low volatility—just 3% at its most volatile point. That’s shockingly low considering that most years, even great ones, usually see pullbacks of 10 to 15%. That means your diversified portfolio didn’t need to rely on its bond holdings last year to protect it from stock volatility. But while your bond holdings likely delivered portfolio returns that were under those of the S&P 500, they’ll be there to calm the waters when the cycle changes in the future.

You get it. A well-constructed, diversified portfolio delivers stable, reliable results over the long term. But what about new investments? With the market so high, what is today’s best investment?

My client Susan got quite the surprise this Christmas when her mother gifted her $14,000. Plus, she received an unexpected work bonus of $50,000. (Cheers to the improving economy!) She called me last week with the big question: “With the market where it is now, should I just hold $64,000 in cash? I don’t want to put it into a market that everyone says is about to turn.”

Susan is not alone. It’s easy to believe the headlines and assume that stocks can’t possibly continue to rise. And yet, historically, that’s precisely what they do. Market analysts and the media have been shouting about an inevitable downturn for years now, and while that grabs a lot of “eyeballs” (which publications both online and off need to sell advertising), they can predict the future as well as you or I can. In other words, they can’t. The one thing we can predict is that the market will continue to rise… over time.

So should Susan take the money that’s burning a hole in her pocket and invest it in stocks today? My answer was not that simple.

I told Susan that before we even began to think about investing, I wanted to review her overall finances. Susan and her husband have an emergency fund, so they have that fundamental element solidly in place. They’d had some home repairs in November and paid for them with a $10,000 check from her HELOC. Plus, they had racked up some holiday debt to the tune of $5,000. The total: just over $15,000 in debt on which she would have to pay interest until it was paid off. Plus, her daughter is a junior in college, and between tuition and room and board, those costs are putting a strain on the family budget.

My recommendation: use the money to pay off the debt entirely, and fully fund the remainder of her daughter’s college, minus what is now in her 529. Once all that was subtracted from the $64,000 windfall, $6,000 remained. Susan would be out of debt, and her daughter’s college expenses would be paid in full through graduation, eliminating that added financial stress each month. We agreed to invest the remaining $6,000 in her portfolio, allocating the money according to her existing strategy.

So what is today’s best investment? My answer is the same as it was for Susan. Your best investment is you.

You’re much more than an investor. You are living your own life. You have your own tax bracket, legacy wishes, and dreams for the future. Whether you have $5,000 to invest or $500,000, look at your financial big picture and make money decisions that help you live your best life—with greater financial confidence than ever. That’s a return the stock market will never, ever deliver. If you have questions or need guidance, know that no matter what the market brings tomorrow, we’re here to help today.

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Finding joy in January: 4 simple steps to sidestepping the post-holiday blues

Finding joy in January: 4 simple steps to sidestepping the post-holiday blues

Ah, December. It can be a whirlwind of activity filled with friends and family, and it seems the whole month is fueled by the motto of “Eat, drink, and be merry!” Even as I write, the flood of wonderful food and delicious drink is flying at me fast and furious. Last week alone I had a holiday party on Saturday, my daughter Jamie’s birthday celebration on Sunday, Hanukkah with the kids on Monday, dinner with a friend Tuesday, my bridge group on Wednesday—and the indulgence didn’t stop there. At home and at work, I’ve been giving and receiving food gifts galore. Latkes. Cookies. Candies. That Harry & David popcorn! And bottles (and bottles) of wine. It seems our culinary generosity goes hand in hand with our generosity of spirit this time of year, and I wouldn’t trade either for the world.

Of course, we all know the party can’t go on forever. Here are four simple steps—starting today—that can help you make the merriness of the holidays last all year round:

  1. Give experiences to make your holidays merry.
    Instead of buying costly gifts for his children this year, my friend Mark opted to take his family to Escape the Place, an “escape room” in Lake Forest for a special holiday adventure. CaroleAnne (our favorite marketing consultant!) gave her mom a day of singing together at the Holiday Sing-Along at Disney Hall. Jamie and I celebrated her birthday with an evening at a special restaurant. Celebrate with experiences that are meaningful to you, and the memories of your time together will last much longer than even the “hottest gift of 2017.”

     
  2. Take actions that deliver generosity—without breaking the bank.
    It’s easy to think that generosity requires spending (and often over-spending) money. But there are many other ways to be kind and giving. On Christmas Day this year, I volunteered to serve meals to the residents at Heritage Pointe while the staff enjoyed a day off. Rather than buying expensive hostess gifts for every party, my friend Laura bakes her “family secret” biscotti, seals a few in a mason jar, and includes a note: “Do not open until January 2!” What a great way to stretch her budget and extend the holiday joy into the New Year!

     
  3. Get moving—and get still.
    The mind/body connection is powerful, and even if you managed to fend off those extra pounds during the holidays, a routine of something—anything!—physical could keep the blues away as well. Walk. Swim. Hike in nature. Head to a yoga class. And if you aren’t already a fan, try meditating. My Sangha meditation group has helped me learn how to reap the benefits of stillness and mindfulness, and there are even mediation apps for your phone (check out Buddhify or Headspace). Whatever change you choose, try to make it your favorite new habit in 2018.

     
  4. Be intentional about changing your state of mind—especially after the holiday excesses.
    Rather than merely accepting the holiday blues, take steps to change your state of mind. I’m a lifelong journaler, and I plan to include gratitudes in my morning pages. Have a date with yourself for a drive up the coast. Visit a museum. Or just relax with a great cup of coffee at a new bistro. Even the simplest things can change your state in a heartbeat: read, move, meditate, laugh, or hang out in nature. With a little intention, you can cultivate a state of mind that exudes positivity.

We celebrate in ways that make the post-holiday holiday blues seem inevitable. It doesn’t have to be that way. Like any habit, creating a joyful state of mind takes planning and practice. With these simple steps and a good dose of clear intention, you really can get there! And if post-holiday finances are creating a bit of less-than-joyful stress, let’s talk. After you finish off that last glass of New Year’s Eve bubbly, remember, as always, I’m here to help!

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Sex, religion, politics… and money. Breaking the silence.

Sex, religion, politics… and money. Breaking the silence.

Most of us learned early on to avoid three things in polite conversation: sex, religion, and politics. Oh, how times have changed! Today, sex, religion, and politics seem to be the hottest topics—in the news and on the tips of everyone’s tongues. Unfortunately, few of these conversations are spurring rational, thoughtful discourse (often quite the opposite). And while it’s unlikely any of us can personally shift what seems to be the new societal norm, the one conversation we can shift is the one about taboo-topic number four: Money.

In my last blog post, I wrote about the importance of having “the money talk” before you get married. But what about the rest of the time? Talking about money before you say “I do” is important, but breaking the silence and keeping that conversation going in every relationship in your life can deliver some fantastic benefits. A stronger financial partnership with your spouse or partner. Better balance between your long-term and short-term goals. More financially aware children. A better understanding of your aging parents’ financial needs. And less money-related stress for everyone.

It’s a grand goal, but fostering healthy money conversations can be a challenge, especially when we’ve been taught that money talk is as taboo—if not more so—as sex, religion, and politics. In my own family, my parents seemed always to be talking about money. While it seemed to be their favorite topic, the taboos still existed. They talked (and argued) about money, but they never, ever mentioned amounts. Were we rich? Were we poor?  I never knew. But I do know I walked away with my own deeply held beliefs about money, and not all of them were good.

I’m not alone in that experience. I meet many people who don’t know a thing about their parents’ assets. They don’t know if Mom and Dad have enough saved to fund their old age (which can have a dramatic impact on the finances of their adult children). They don’t know if their parents have an estate plan, if they have any significant debt, or how they plan to pass on their assets to the next generation. Worse yet, many people carry on that tradition of money secrecy into their own relationships—and bring a whole lot of money “baggage” along for the ride.

It’s a tough cycle to break. Not only do many of us lack the vocabulary to talk about money, but breaking free from our old ways of thinking can be a huge challenge. If a friend or co-worker asks how much money we make, we cringe and wonder, “How can she ask me that?! She broke the rules!” The better question is, “Why wouldn’t she ask?” Does the question bring up negative emotions? Self-judgment? Pride? Ego? Shame? Consider this: What would the conversation be like if we could let go of those emotions and have a real conversation about money?

While you might not be ready for the leap of discussing your salary at work (though I urge you to get there eventually), the place where it is vital to start talking about money is in your own home. The first step: explore your money mindset by looking at the conversations you have with yourself about money. Ask yourself these questions and think deeply about the answers. Don’t be surprised if your answers run the gamut—from easy or exciting, to stressful or shameful, to downright emotional. Remember that there’s no right or wrong. Just be as honest with yourself as you can:

  • Talking about money is                       ?
  • Talking to my romantic partner about money is                       ?
  • Talking to my parents about money is                       ?
  • Talking to my children about money is                       ?
  • At work, money is                       ?
  • My parents taught me that money is                       ?
  • My religion taught me that money is                       ?
  • My biggest fear about money is                       ?

Once you’ve thought about your own responses, ask your spouse or partner to do the same—and then share your answers with each other. It’s a great way to open up the channels of communication and understand your unique perspectives about finances. It may suddenly make complete sense to you (and to him) why your spouse has a hard time putting money away for that next vacation, or why your stomach drops every time you take on even a little extra debt. There’s nothing like good communication to foster understanding.

Of course, understanding your partner’s perspective isn’t the same as agreeing with it. Money problems rank as the number-one reason for divorce, and it’s no wonder. In her book Breaking Money Silence: How to Shatter Money Taboos, Talk More Openly about Finances, and Live a Richer Life, wealth psychology expert Kathleen Burns Kingsbury suggests couples agree to the following rules for whenever money is a part of the conversation:

  • Be respectful.
  • Use “I” statements.
  • Listen actively.
  • Don’t mind-read.
  • Practice curiosity.
  • Agree to disagree.
  • Reward yourself.

Following these basic guidelines can help you turn money arguments into real conversations that spur the rational, thoughtful discourse that can lead to better decisions, better finances, and yes, better relationships. And if you find that you need assistance appreciating each other’s differences and working together toward a more sound approach to your finances, a financial advisor—especially one trained in mediation techniques—can be a tremendous benefit. As always, we’re here to help.

Let the conversations begin!

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Getting married? Unless you’re royalty, it’s time to talk money!

Getting married? Unless you’re royalty, it’s time to talk money!

On Monday, Prince Harry and Meghan Markle announced their engagement, and the media (and everyone I know!) is buzzing about the news. The royal wedding is scheduled to take place in May at Windsor Castle, and I’m sure the bride-to-be already has her eyes set on a wedding gown. The good news for them is that, while I’m sure they’ll have many challenges of their own to face in the years to come, one issue they’ll happily be able to sidestep is money.

Unfortunately, all too many soon-to-be couples who are far from royalty make the mistake of sidestepping the money talk before marrying. It’s a move that can lead to painful consequences.

  • Angela is money wise and has a generous spirit. Her husband Alex is very controlling, especially about finances. They have a healthy marriage, except when it comes to money. She enjoys spending what they can easily afford, but she knows that even the smallest expense will be an issue for Alex. Rather than argue with him, she regularly borrows or withdraws money from her 401(k). They don’t discuss it—until tax time when her 1099 arrives, and her withdrawals are right there in black and white. Her rationale: at least they only argue about finances once a year.
     
  • Bruce is the self-appointed CFO of his family—but he doesn’t have the skills to do the job well. When money is tight, he tries to keep the shortfall under the radar from his wife, Lisa. But that approach only works for so long. Soon the bills begin to mount and the truth is revealed. It’s a pattern that Lisa (and I) have watched repeat itself over and over again.
     
  • Patricia, a long-time client, died recently, and I’m now working with her adult children to manage their inheritances. Her daughter’s husband is already planning how to spend the windfall; he seems to have mixed emotions about the fact that his wife now has her “own” money. In contrast, Patricia’s son and his wife seem to be excellent financial partners; they’ve already placed the funds in a joint account and are working together to decide whether they want to spend, save, or invest the assets.

I have to wonder how things might be different if these couples had ironed out the details of their financial lives together from day one.

Whether you are marrying for the first time, blending families, or enjoying a later-in-life union, your life partnership is about more than your love for each other. Some of the best marriages have been broken by that troublesome nemesis that is money. The good news is that, with proper planning, money can also serve as a foundation for a wonderfully healthy marriage. But it all starts before you say “I do.”

What every couple should understand is that marriage is (hopefully!) rooted in love, but it’s also a business transaction. When you marry, you are forming a legal partnership that involves many rights and responsibilities. Before you take the next step from two legally and financially independent people to becoming a married couple, take the time to work out the business details of your relationship. Think of it like opening a shop together—and have a little fun.

Start by taking a close look at your current financial reality. Consider each of your personal incomes, what you spend, and what you save and invest. Determine your individual net worth and share your credit scores. This information serves as the starting point for your financial future. Next, combine your balance sheets and agree on how, and if, you want to use your joint assets together.

Next, create a set of bylaws and assign roles and responsibility. Who will serve as the CFO (learn from Bruce: don’t assume the role for yourself!) and who will be the bookkeeper? Agree upon how you will make financial decisions, including your household budget and large purchases such as a new home, a major remodel, or a new car. Talk through a process to handle financial challenges or disagreements. (Yes, they will happen!) If there are children from a prior relationship, what do you need or want to do for them? Will you both help fund their education? Will you pay for their weddings? At what age will you stop offering financial assistance? If you have siblings, friends, or aging parents who may need financial help, how and when will you be willing to step in?

Now comes the fun part: creating your shared vision for the future and drafting your strategic plan. This is when you align your dreams and set the path for a happy tomorrow, and it’s one of the most important things you can do as a couple. If your spouse imagines a simple retirement cabin on a lake and you fantasize about the hustle and bustle of Manhattan, there’s bound to be conflict down the road. Share your vision for five, ten, and twenty years into the future, and discuss how to combine your ideas and bring those dreams to life.

The last step is to put your plan in writing. Like any successful partnership, your agreements must be written down. Putting pen to paper clarifies the details, and it’s the best way to avoid miscommunication now and for years to come. Finally, review it all every year—because as we all know, life happens. And when you need help aligning your reality with your goals—or creating a shared management process that works for both of you—a financial advisor can be a tremendous help. The newest royal couple may never have to worry about managing debt or how to invest their nest egg, but for everyone else tying the knot, now is the time for the money talk! 

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Just for caregivers: 7 Dos and Don’ts to protect your financial future

Just for caregivers: 7 Dos and Don’ts to protect your financial future

Caregiving. It’s something I can speak to firsthand. When my late husband Ed suffered a severe stroke decades ago, I suddenly confronted a whirlwind of emotional, physical, and financial stress. It’s no wonder that I found myself having flashbacks when I read the results of a recent survey of 2,000 caregivers. The findings are frightening, but they tell a story that won’t surprise anyone who has been a caregiver for someone they love.

According to the survey, nearly three out of four respondents said that their personal financial situation causes them stress, and 92% said they help manage the finances of the person for whom they are providing care—from paying bills to handling insurance claims to dealing with debt. While struggling to manage another’s finances is certainly stressful, caregivers also tend to allow caring for a loved one to impact their own finances. Of those who help their family members financially, 30% said they’ve cut back on their living expenses to do so. Twenty-one percent have dipped into retirement savings. And 24% had trouble paying their own bills.

It’s a heavy burden. Financially and emotionally. The vast majority of caregivers—nearly 70% according to the National Center on Caregiving—are women. Since women as a group struggle more than men financially, this puts us in even greater peril to achieve financial security and confidence during our lifetimes.

I’ll tell you straight out that it is our giving nature—not our financial smarts—that puts us in that peril. My own story is a perfect example. There I was, a successful financial advisor, helping my clients make the best possible financial decisions. Yet, during Ed’s long disability, I was challenged by my new reality—being the sole earner while also being a caregiver. I was overwhelmed with the emotional side of the equation. As I was leaving the hospital to take Ed home, the case manager’s words filled my heart with even greater fear: “I guess it’s time to start spending down your assets.” And though I knew better, her chilling words cut me to the core. After all, my goal was to take care of my husband, but I was also a financial planner and swore not to put my financial security at risk.

Ed and I had been on track financially. Yet despite carefully managing spending (and feeling guilty every time I turned my focus to money), by the time Ed died, I had gone from financially comfortable to more than $80,000 in debt. Did I know what we were spending? Yes. But I simply couldn’t get myself to look at the numbers. As a result, I made some major financial missteps.

The good news: you can learn from my mistakes to avoid making them yourself. Here are my 10 “dos and don’ts” that can help every caregiver make better, smarter financial decisions—even when you’re in an emotional fog:

  1. DO recognize that your loved one may no longer have the ability to make wise decisions,financially or otherwise. Like caring for a child, you will need to make hard decisions—even when your loved one resists.
     
  2. DO have proper powers of attorney for healthcareand financial matters in place before a health issue arises—and use them when the time comes!
     
  3. DO have a written record and spending plan. Tracking expenses and knowing your budget is vital.
     
  4. DON’T confuse highest cost and what is best for your loved one. Consider the physical and mental needs of your loved one when choosing the best care option. A beautiful facility with extensive activities may not make sense for someone who is confined to a wheelchair or has advanced dementia.
     
  5. DON’T let your personal relationship with caregiver employees impact financial decisions. Be sure you’re paying the market rate for care, and maintain an arm’s length employer/employee relationship.
     
  6. DON’T give in to emotional blackmail.Make the best decisions based on your loved one’s current health and financial situation—not based on old promises to others or to yourself.
     
  7. DON’T neglect to keep your own financial house in order.Caring for a loved one can easily become your only focus, but caring for yourself and your future is just as important.

I learned the hard way what to do—and what not to do—when managing finances as a caregiver. Since then, I’ve focused my practice on helping women make smarter financial decisions, especially in situations when emotions can lead to disastrous results. One of the most important things you can do to help keep your finances afloat is recognize that your own emotional biases can lead to poor financial decisions—no matter how smart you are. To help stay on track, work with a financial advisor who can help you step back and look at the big picture.

As they say before every flight, in case of emergency, put your own oxygen mask on first so you’re able to help others. The same is true when you’re serving as a caregiver. By making your own financial security a priority, you can increase your capacity to care for your loved one—without sacrificing your own future.

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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 >