Should you “Inaugurate” a New Financial Plan on January 20th?

new financial plan

Time for a New Financial Plan?

The market’s wild ride after the presidential election might have you wondering if a change in leadership should mean a change in your financial strategy.

While no one can ever predict with certainty what will happen to the market – or even on Twitter these days – there are two important points to remember.

It Matters Less than We Think

The first is that there has been a long-term upward movement in the market through many changes of administration.

Ironically, who’s in the White House makes less difference than we think it will in terms of overall market performance: markets are driven by market conditions more than by the policies individual Presidents advocate. As Barry Ritholz noted in an excellent piece in the Washington Post last week, during President Grover Cleveland’s first term stocks rose 53 percent while in his second term they fell 2 percent. That wasn’t because President Cleveland forgot how to make stocks go up – it was overall market drivers that made a difference. So for medium and long-term goals – like saving for retirement or your children’s education – taking the long view with your investments is critical.

How Much Risk is Too Much?

The second point is that everyone has a different level of risk tolerance.

That is why it’s critical that you have access to a sophisticated risk tolerance tool that really drills down to who you are, instead of only generic questions about age, income and whether or not you call yourself “aggressive” or “cautious.”

If you’re risk adverse and you’re anxious about a crash or a downward trend that may affect your short term plans, you can always use January to re-balance your portfolio and lock in profits. As a wise investor once said: “no one ever lost money taking a profit.” If your risk tolerance is higher, you can view the volatility as an opportunity to maximize the possible potential for your investments. By continuing to contribute regularly to a savings or investment plan, you take advantage of the power of dollar-cost averaging and compounded interest to make your money work for you. If you had sold in the sharp downturn last January, for instance, instead of sticking to your plan, you would have lost out on the dramatic returns afterwards.

Of course every January is a good time to meet with your advisor to rebalance your portfolio based on your own changing circumstances, tax needs, and risk tolerance. But, fundamentally, your plan is still your plan, no matter who wins the presidential election. Your goals are still your goals and compound interest still compounds. If you have worked with a good – fiduciary, fee only – financial advisor to create a workable plan based on your life goals and your circumstances, then staying the course – with minor adjustments – is very often the smartest plan. Data overwhelmingly shows that it’s “slow and steady” investing – not playing a guessing game by jumping in and out of investments – that ultimately wins the race.

Other Sources:
What is a Financial Plan?
The Importance of Personal Finance Knowledge
Financial Planning for Millennials: Overcoming the Fear Factor

 

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

 

 

Election Volatility Had You Spooked? Think of Your Goals

election volatility

Were you keeping an anxious eye on your investment accounts leading up to last nights’ election? Are you relieved they seem to be climbing again?

In spite of the plunge in the futures market last night as it became apparent that Donald Trump would beat favored Hillary Clinton to become America’s 45th President, much of the market has now climbed back even higher than it was yesterday and are close to their all time highs.

That’s important to note for several reasons.

As our friend Josh Brown put it, “it starts with understanding why you’re investing in the first place—a detailed financial plan with hard objectives and goals.” To do that, we work with our clients to focus on short-, medium- and long-term goals so that you can understand what your time frame is and what is needed to achieve it.

The short-term nature of much of the volatility that characterizes the markets is exactly why dollar-cost averaging is such a smart way to invest. If you stick to a plan of investing in new shares on a regular basis—no matter what the current cost is—you will be buying during dips as well as peaks.

The volatility we’re experiencing now—similar to the volatility we experienced earlier in the year during “brexit“—are also great litmus tests to determine whether you have a properly diversified portfolio and whether or not it’s an accurate match for your risk tolerance.

If you know your true risk tolerance and have already planned effectively, you’ll have a balanced portfolio that contains the right balance of stocks and other less volatile instruments before volatility sets in. With a fully diversified asset allocation strategy, there will be parts of your portfolio that go up, as well as other parts that go down, during times of stress. That way you’ll be comfortable sticking to your investment strategy and plan through peaks and dips. Not only that, but you will have purchased those less volatile instruments before pundits start shouting and everyone starts panic-purchasing, driving the costs up. (For more from Brad Sherman, see: Don’t Let Emotions Hinder Your Investing Goals.)

Volatility is what makes the stock market the stock market.

The one thing that is certain about the markets is that there will always be volatility and uncertainty.

Even if we are currently experiencing a bit more than just normal market volatility, remember that the markets have historically rebounded extremely well after corrections (drops of at least 10%).

If current market conditions or any paper losses you may be experiencing are making you feel uncomfortable—or keeping you up at night—please give me a call and let’s talk about re-allocating your assets

If not, just remember that dollar-cost averaging is a great long term strategy for your investments.

 

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Options for Your 401(k) When You Change Jobs

401k

Leaving one job for another to pursue your goals, follow your passion, or just make some interim changes? As you leave – taking with you new experiences, knowledge, and relationships – don’t forget one more important thing: your company 401(k) account.

In the midst of job – or life – changes, it’s all too easy to get distracted and forget to pay attention to a 401(k) from a previous employer. It could be because the plan stops sending statements, or it could just be that you’re focusing on what’s going on in your life right now. There may even be a few you’ve lost track as the years pass.

Consider too, that even if you have kept track of your old 401(k) accounts and know exactly what’s in each of them, you many not realize that you have other options besides just leaving the account and investments as is. (For related reading, see: 6 Questions to Ask a Financial Advisor.)

Know What You Have

Do you know what’s in each of your 401(k)s? A recent study in the Journal of Finance has found that conflicts of interest in 401(k) plans can lead to serious opportunity cost for individual investors. Your managers may be prioritizing the profits of their institution by investing your money in their own funds, even if that is not the best investment option for you. As John Oliver recently demonstrated, these conflicts of interest can cost millions over the course of a single retirement plan’s life. Awareness is key. Make sure you look at old 401(k) statements from past employers to determine if they are being managed properly according to your needs and situation.

What Are Your Options?

If you do determine that your 401(k) plan from a previous employer is not being managed properly, or as beneficially to you as it could be, the good news is that you have options. You can roll the funds into a new employer’s 401(k) plan or into an IRA account that you already hold. Rolling over a 401(k) into an IRA has potential benefits that could include:

  • Lower management and expense fees
  • A wider range of investment options
  • Consolidating multiple accounts into one retirement account
  • The option to work with a fiduciary financial advisor with whom you are comfortable and whose recommendations are in your your best interest at all times

Can’t Find Your 401(k) Statement?

If you have lost track of an old 401(k) account, don’t worry, there are ways to search for it. Here are a few suggestions:

  • Contact your old employer’s HR department: if they can’t help you, they may be able to direct you to someone who can.
  • Search The National Registry of Unclaimed Retirement Benefits to see if your account is listed.
  • Ask your financial advisor to help you track it down.

A well-managed 401(k) plan can be the gift that keeps on giving. But once you’ve left a company, take a good look at your plan and decide if it makes sense for you to leave the funds there, move them into a current plan, or move them into an IRA where you, and a Fee-Only fiduciary financial planner, can take advantage of a broader range of investment choices.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Don’t Let Emotions Get in the Way of Your Investing Goals

discussing personal finance 1280×720 (1)

We all love to see quick results. Whether it’s career progress, a workout plan, or an investment portfolio, it’s exciting to see fast results. And it can be frustrating when progress doesn’t come quickly: when you’re not learning those guitar chords fast enough or your portfolio isn’t shooting ahead of the Dow.

Achieving real progress and real gains usually takes time in spite of tantalizing offers to get rock-solid abs in seven days, learn to flip houses in two weeks, or a discover sure-fire stock that’s the next Apple.

Wanting to See Quick Results

It’s human nature to crave quick results but when it comes to investing, your emotions – or a desire for quick gratification – can get in your way of building a solid financial plan. (For more about Behavioral Finance, see: 8 Common Biases That Impact Investment Decisions.)

In a recent article for The Motley Fool, columnist Morgan Housel made some excellent points about how we limit our chances of seeing real progress by letting our emotions get the best of us.

Frustration

“Most investing mistakes and frustrations come from trying to run a marathon in an hour,” Housel writes about the difference between short and long-term investing. “Companies earn profits, and over a long period of time those profits accrue to shareholders. If you leave it at that – and you should – investing is such a basic game that doesn’t require much action.” (For more, see Why Investors Can Be Their Own Worst Enemy.)

If we stuck to that game plan and utilized a long investment horizon to really take advantage of compound interest, the progress you would see would be impossible to ignore. Compound interest is a great way to look back and see the progress of your investments over a long time horizon. We summarize it like this:

Compound interest is often compared to a snowball. If a two-inch snowball starts rolling, it picks up more snow, enough to cover its tiny circumference. As it keeps rolling, its surface grows, so it picks up more snow with each revolution. If you invest $1,000 in a fund that pays 8% annual interest compounded yearly, in 10 years you’ll have $2,158.93, in 20 years that will be $4,660.96, in 30 years it will be $10,062.66, and in 40 years it will be $21,724.52. All it takes is patience to turn $1,000 – the price of one ski weekend – into $21,724.52. 

A main problem many investors have is they fail to allow for this long time-horizon to play out. Housel’s next point builds on this when he says…

Progress Happens Too Slowly to Notice

“Progress happens too slowly to notice; setbacks happen too quickly to ignore.” This ties into the idea of prospect theory and Housel summarizes this concept well: “Pain hurts more than the same level of gain feels good.” This is similar to the concept of loss aversion where investors make emotional decisions that unfortunately lead to doing the exact opposite that one should do. Take 2008, for example, when the markets lost almost 40% in a short period of time. Those who made emotional decisions and exited the markets quickly not only locked in a significant loss but likely missed out on one of the biggest bull markets in history as the market tripled over the next six years.

So much of this is human psychology. Having a dollar that stays a dollar doesn’t feel like you’re losing money. And losing a dollar often hurts more than gaining a dollar feels good. It’s like sports — losing a close game generally makes people feel lower than winning a close game makes you feel good. That’s what makes our job so interesting — working with people to park their psychology at the door, not just today, but forever. Not easy, but when done correctly you can really start seeing that elusive “progress” word come into play. (For more, see: Why Playing It Safe Could Hurt Your Retirement.)

Avoiding Catastrophic Mistakes

“Most investing success boils down to avoiding catastrophic mistakes.” You don’t need to be the world’s greatest stock picker to benefit from investing. Far from it actually. As Housel puts it: “Few good decisions are needed to do well over time.” Instead, what we need to do is avoid making the catastrophic mistakes that typically come from making an emotional decision and not planning properly. Market corrections happen. They will happen again. Without proper planning, it is easy to fall victim to the pitfalls of prospect theory and end up making an emotional, short-term decision that can derail any progress that you have made.

To summarize, all of this boils down to a simple line of thinking. When it comes to investing, leave your emotions at the door. If you are uncomfortable with your investments, that is something you should take immediate action in. You may be invested in a portfolio that is too risky based on your goals, risk tolerance and needs. You may just not fully understand how you are invested which makes you nervous. Worst of all, you may have no plan what so ever. Start by reevaluating your goals, short, mid and long term. Create a plan and road map to accomplish those goals, and then stick to it. (For more, see: Which Investor Personality Best Describes You?)

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Got a Raise? Here’s How to Avoid Lifestyle Creep

lifestyle creep

We work with a lot of young professionals and because of that, we get the pleasure of seeing many of our clients progress up the ladder in their career. With this often comes more responsibility but also more money. A raise is something you should be proud of as it represents the payoff from the sacrifices you have made and the hard work you put in. This calls for a celebration, as it should!

At the same time, it is crucial to make sure you don’t fall victim to the dreaded lifestyle creep, famously coined by financial planner Michael Kitces. The basic concept of lifestyle creep is that as your discretionary income goes up (you get a raise), your standard of living goes up with it. For example, before you stuck to a dining budget where you only ate out on weekends, but now you are doing so two times a week.

We recently wrote about how a former NBA star filed for bankruptcy after earning more than $100 million on the court. Read below on some tips to help you avoid some of these mistakes.

Why Lifestyle Creep Is a Problem

Living above your means is a recipe for financial trouble. We constantly preach that it’s not about how much you make, but how much you save. By earning more money, you have the opportunity to save more. Take advantage of these opportunities by really thinking about what is a necessity vs. what is a luxury.

Read below on some tips to help you avoid some of these mistakes.

  • Write down and revisit your goals
  • Maybe your goals have changed, maybe they haven’t. By revisiting them, remind yourself what is important to you and you can then make sure that is what you are spending your money on.
  • One additional suggestion is to not make any purchases with the money you are receiving from your raise for the first month after receiving it. This gives you time to digest the news and will give you the ability to make more rational purchase decisions. If you still want to buy it after a month, then go for it.
  • Create and update your budget
  • If you don’t already have a budget, now is the perfect time to create one. If your boss gives you a $10,000 raise, that comes out to about $830 per month before taxes. With your goals in mind from tip No. 1, lay out all of your expenses and determine where the money should go each month. By having a set schedule, you reduce the urge to make impulse purchases because you see a large number in your checking account. (For related reading, see: The Conflicts of Interest Around 401(k)s.)
  • Set up automatic saving account deductions
  • Now that you have a defined list of goals and a budget to help you achieve them, it is time to put the plan into action. There are numerous banks that we recommend to our clients that give you the ability to create multiple savings accounts to bucket your savings based on your goals. Create accounts for each of your goals and set up automatic transfers to these accounts from each paycheck you receive.
  • In addition to your emergency fund account and other savings goals, make sure to give yourself a fun account that can be used to spend on celebrations such as getting a raise!
  • Increase or max out your retirement contribution
  • As part of your budget, look at how much you are contributing to your retirement account each month. If you have the opportunity to increase your contribution, that is a great option to consider. If you have an employer-sponsored retirement plan such as a 401(k), not only are you saving more for retirement, but you are also lowering your taxable income that just increased because of your raise. You may even qualify for an employer match, which makes these savings even greater!

After working so hard to get to where you are now, you should give yourself a chance to enjoy that success and celebrate. The important part is keeping an eye on the big picture and not letting your short-term emotions get in the way of achieving your true financial goals. By creating a plan that is realistic and one that you feel you can stick to, you dramatically increase your chances of success. (For related reading, see: How to Cut Back on Spending Like a Billionaire.)
This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Teachers: Who is Managing Your 403(b)?

teachers 403b

With autumn just around the corner, many teachers have returned to their classrooms. The end-of-summer teacher ritual of decorating, stapling and contacting parents has made its return. I know from personal experience, though, that teachers would be wise to use any spare time to investigate their retirement accounts and determine whether their money is being deployed as effectively as possible.

My mom was a public school teacher and single mother. You can imagine how slim her finances were. Still, she managed to save up some money despite her paltry salary. After a while, however, she found out that the managers of her 403(b) plan were not investing her money as effectively as they should have been. A lot of her savings were tied up in a high-cost annuity that could have been invested in much cheaper options. These people, who were employed by the county to help her money grow, were actually eroding her savings. (For related reading, see: Do You Need to Change Your Financial Advisor?)

Digging Deeper Into Your Retirement Account

My mom’s experience is what drove me to operate as an independent, fee-only, fiduciary advisor. Those words mean that a fiduciary will never do to clients what my mother’s managers did to her—we are legally obligated to act only in clients’ best interests. Most schools will offer a 403(b) plan for teachers. However, as with the custodians of my mom’s savings, these plans can often be managed by a third party, non-fiduciary advisor who may not act in clients’ best interests. Non-fiduciary advisors are held only to a suitability standard, which means that they are obligated only to make investments that are suitable for you.

These advisors can buy investment products that are the best for their own pockets, not yours. In fact, the Indexed Annuity Leadership Council is one of the many groups suing the Department of Labor over its new fiduciary rule. Additionally, several big insurance companies are projected to see reduced earnings as a result of a predicted decrease in annuity sales when the fiduciary rule takes effect. (For related reading, see: The Conflicts of Interest Around 401(k)s.)

By contrast, fee-only, fiduciary advisors make only the investments that are the most suitable. We aren’t looking for efficiencies or working for sales commissions on the products we recommend to you. Fiduciaries strive to provide the best advice to investors looking to build a strong foundation, like teachers. These advisors grow with you, not at your expense by profiting off the products assembled for you.

Teachers, we encourage you to spend some time finding out more about the practices of your retirement fund manager. It’s vital to find out whether they are a fiduciary, how they make money (fee-based or fee-only), and how personalized their investment strategy is.

READ MORE: Comedian John Oliver recently did a segment on the subject of retirement planning that addresses this. You can check out our 4 quick takeaways from the monologue.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

How to Cut Back on Spending Like a Billionaire

How to Cut Spending

Even the richest few people in the world maintain some financially cautious habits. Warren Buffett (who, by our math, is worth more than all of the NFL’s teams combined) famously still lives in the same Omaha house he bought for $31,500 in 1958. Many of the world’s wealthiest don’t indulge in extravagance, even with billions at their disposal (and when they do, it’s not always a happy ending.)

While this ranges in degrees of neuroticism from simply wanting to give most of the fortune to charity to an Indian tech mogul monitoring employees to track toilet paper usage and make sure they shut off the office lights, wealth is not accumulated by throwing money away. (For related reading, see: The Importance of Personal Finance Knowledge.)

Frugalities of the Rich

While of course most people don’t have $51 billion like Mark Zuckerberg, there are undoubtedly some lessons to extract from the financial behavior of the wealthy. All of them have certain habits where they save money. Dish Network chairman Charlie Ergen packs a brown-bag lunch from home every day and Zuckerberg reportedly drives a Volkswagen hatchback (although this could just be a Peter Gregory-style “Silicon Valley” mannerism).

At the same time, neither of these routines are specific requisites for financial success. But they do indicate the importance of planning expenditures and saving where possible. That’s where a financial advisor can be of help. We don’t believe in telling you to lose your favorite habits. If you enjoy a latte from Starbucks every morning, then by all means you should keep getting that latte. But good financial planning includes understanding trade-offs between keeping things you enjoy and cutting down on things you can live without. (For related reading, see: 6 Questions to Ask a Financial Advisor.)

Planning cash flows goes a long way toward reaching this goal. It is impossible to know how much you need to trim (or have room to grow) without first taking stock of what’s coming in and what’s going out. If your different bank and credit card accounts are the canvas, the actual cash flows are the paint that makes up the picture of overall financial health.

A good financial planner shouldn’t act like a strict parent that never lets their kid eat dessert or play outside. Their goal should be to work with you to understand your financial situation, both in broad strokes and the details of monthly spending. That way, they can help you make decisions about where best to deploy your spending money. This isn’t always easy—sometimes trade-offs have to be made. But when even billionaires are bringing lunch from home, we all owe it to ourselves to thoroughly examine our spending habits. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

The Importance of Personal Finance Knowledge

Financial Knowlege

For years, the Financial Industry Regulatory Authority (FINRA) has tracked American personal finance knowledge through a survey about saving habits and basic financial principles. FINRA recently released the results of its 2015 survey, which includes the fact that only 37% of those who took the survey could answer four of the five questions on a basic financial literacy quiz. Four out of five is FINRA’s baseline for high financial literacy. Back in 2009, 42% of the respondents were considered to meet this level of financial literacy. (If you’re curious, you can take the quiz here.)

We’ve previously written about biases in financial habits and the desolate state of personal finance education in high school and college, and this study re-confirms our suspicions. Way less than half of the American population has a sufficient understanding of the basic ideas necessary for successful saving and financial planning! That is nearing crisis levels.

Make no mistake–an ignorance of personal finance, while probably unintentional, has serious consequences. Just over half of respondents said they are worried about running out of money in retirement, only one in five are willing to take risks when investing, and 57% say they set long-term financial goals. But, when taken together with those statistics, the most concerning part is that 76% have a high self-assessment of their financial literacy.

As finance writer Jeff Sommer points out in his recent column, this means that Americans don’t know very much about personal finance and saving, but think they do. The positive self-perception is also the only figure to have significantly increased since 2009.

Improving financial conditions can create a false sense of security for many savers who think their current status makes them recession-proof. This is a huge reason why I decided to start my own firm. I recognized the alarming lack of awareness about saving, spending and the markets, and noted many common bad habits that can lead to trouble in an economic downturn. (For related reading, see: Behavioral Finance: How Bias Can Hurt Investing.)

The lack of education is compounded by the unavailability of many big-name institutions who offer financial advice and wealth management services to many. Traditional wealth management practices often have high account minimums that make their financial advice unreachable for most people. Moreover, even if you can open an account with a wealth manager, they may not be required by law to act in only your best interest, which can lead to inefficient investments for you that pay them commissions.

The reality is that many people are scared by the thought of investing. Since many Americans are mostly in the dark, they may not know where to go or how to start. That’s why it’s important to use online resources and educate yourself on all aspects of personal finance. (For related reading, see: 6 Questions to Ask Your Financial Advisor.)

This article was originally published on Investopedia.com

***

The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Summer Interns: Time to Focus On Long-Term Gains

Summer Intern

The light at the end of the tunnel is nearing for America’s summer interns. Full-time offers will be tendered, sighs of relief exhaled and paychecks cashed. Interns who receive offers will be bright-eyed with lofty visions of moonshot careers at their new place of employment. As these interns begin to accept the end of college and pivot towards the start of the rest of their lives, we strongly encourage them to start considering a long-term financial plan.

Sure, it is tempting to put most of your extra cash earned this summer in your checking account for drinks, trips to visit friends or to buy yourself something nice. The decidedly less glamorous option is to put a chunk of that cash into a Roth or Traditional individual retirement account (IRA). But, almost certainly, that is the option for which your future self would pat you on the back. (For related reading, see: The Conflicts of Interest Around 401(k) Plans.)

Early Planning Is a Tough Sell

We know this is a tough sell for most college students. Salaries and long-term financial security aren’t big concerns for today’s generation as it has been before. Even on Wall Street, where compensation is high, interns seek other qualities in a company. For example, interns at investment bank Jefferies said they valued relatable leadership, a family atmosphere and inclusion. So we get that saving for retirement may not be where your mind is at—especially if you received an offer and want to celebrate. (Which, by all means, you should.)

We aren’t here to suggest you start living a life of austerity now that college is almost over. But you must consider that right now is the best time in your life to put a bit of money away for retirement. The power of compound interest means that the earlier you start saving, the greater your returns will be. It doesn’t matter how small the amount—money invested in the stock market can grow exponentially over time because it compounds year over year.

In our experience, many college-aged people don’t know where to start, even if they are interested in opening an IRA. The choice between, for example, a Roth or Traditional IRA can be opaque and intimidating. And then, once an account has been opened, where do you actually invest the money? How can it be monitored? (For related reading, see: 6 Questions to Ask a Financial Advisor.)

To pile on top of that, as you graduate and find a new pad, start work and are presented with options for employer-sponsored retirement plans, you might be forced to consider trade-offs. Should you work on paying off your student loans or invest that money into growing your retirement account? Or, you might ask yourself, why invest at all when I can just keep my earnings in cash?

All of this “adulting” can be overwhelming, and unfortunately often leads to poor financial decisions. (For some guidance, we highly recommend John Oliver’s take on saving and financial advice.) But one thing you can be confident of is that starting to save now has almost no downside. If you aren’t totally sure of your ability to open an account and invest on your own, follow John Oliver’s advice and contact a low-cost, fiduciary financial advisor who can work with you to grow your investment.

We recognize that putting a chunk of your income towards retirement at such a young age isn’t sexy. But it has enormous benefit and will set you on a path of financial wellness. It’s the right thing to do. (For related reading, see: Why Playing It Safe Could Hurt Your Retirement)

 

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.

Donald Trump Takes a Stand on 401(k) Investments

Head in the Sand - Trump 401k

GOP presidential nominee Donald Trump has had one of the most hectic campaigns in recent memory. He has made so many newsworthy remarks that it is hard to keep up. One day last week was particularly impressive as he made over 10 news-making assertions in under 24 hours. These included initially refusing to endorse House Speaker Paul Ryan, doubling down on his feud with Gold Star parents Khizr and Ghazala Khan and predicting that the election will be rigged. (For more, see: The Conflicts of Interest Around 401(k)s.)

Whether you support him or not, simply finding the time in the day to make all those remarks (and more) is impressive. But there was one opinion in particular that caught our eye, via CBS’s Sopan Deb. Trump made the below statements during an interview with FOX Business Network’s Stuart Varney:

Varney: For the the small investor, the average guy, right now, would you say, yes, put your 401(k) money into stocks?

Trump: No, I don’t like a lot of things that I see. I don’t like a lot of the signs that I’m seeing. I don’t like what’s happening with immigration policies. I don’t like the fact that we’re moving tremendous numbers of people from Syria are coming into this country and we don’t even know it. Thousands of people, thousands and thousands of people. There’s so many things that I just don’t like what I’m seeing. I don’t like what I’m seeing at all. Look, interest rates are artificially low. If interest rates ever seek a natural level, which obviously would be much higher than they are right now, you have some very scary scenarios out there. The only reason the stock market is where it is—is because you get free money.

Trump’s Approach

Even if you are his number one fan, please don’t hire Donald Trump to manage your 401(k). First of all, setting aside the economic truth of what Trump is saying and whether his fears will ultimately influence the market as much as he thinks, every factor that he mentions in his response is short-term. As Trump is 70 years old, focusing on what’s coming immediately down the line is understandable. But most investors have longer to go until retirement and therefore need to be invested in the stock market’s long-term gains, particularly those investors without Trump’s level of wealth. (For more, see: Why Playing It Safe Could Hurt Your Retirement.)

As Bloomberg points out, Trump’s strategy basically amounts to timing the market. We believe that in the long run, due to the efficient market hypothesis, you can’t beat the returns of the market through individual stock selection and market timing. Therefore, the safest thing to do is to stick with the market, while of course monitoring constantly and rebalancing.

Trump’s approach could be a recipe for long-term disaster. Fidelity Investments has compared how investors who pulled out of the market near its bottom in 2008-09 fared versus those who stayed. Those investors who stuck with the market ended 2015 $82,000 richer than those who withdrew, on average. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

So even if Trump is completely correct, it is not a good strategy for a long-term retirement saver, which is the demographic he was asked about. If Donald Trump applied his advice to your 401(k), you’d probably do worse than if you ignored him, even in the case of a market correction.

Asked about alternatives to the stock market, Trump would likely point to real estate (we wrote about that here), which is where most of his dealings have been. The answer is somewhere in between a diversified portfolio with investments in real estate (if you can afford it), but also stocks, bonds, the money market, etc. If a market correction really is coming as Trump predicts, then the best hedge against it isn’t to pull all your money out of equities. Rather, for most savers, we think the best protections are a long-term financial plan and a diversified portfolio, both of which account for short-term market volatility.

This article was originally published on Investopedia.com

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The views expressed in this blog post are as of the date of the posting, and are subject to change based on market and other conditions. This blog contains certain statements that may be deemed forward-looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected.
Please note that nothing in this blog post should be construed as an offer to sell or the solicitation of an offer to purchase an interest in any security or separate account. Nothing is intended to be, and you should not consider anything to be, investment, accounting, tax or legal advice. If you would like investment, accounting, tax or legal advice, you should consult with your own financial advisors, accountants, or attorneys regarding your individual circumstances and needs. No advice may be rendered by Sherman Wealth unless a client service agreement is in place.
If you have any questions regarding this Blog Post, please Contact Us.