Why Playing It Safe Could Hurt Your Retirement

playing it safe

A new survey from Bankrate indicates that many Americans hold quite a low view of the stock market. In answering what was the best way to invest money unneeded for at least 10 years, real estate (25%) and cash (23%) took the top spots, followed by the stock market and gold (16% each) in a tie for third. This comes on the heels of Bank of America finding that cash levels in portfolios are at their highest since November 2001.

In a time of volatility in the market, many Americans, particularly those who are young and/or without a huge amount of money to invest, are hesitant. They prefer the certainty of a house or even cash under the mattress to the unpredictability and seeming inaccessibility of the public markets. On the surface, this seems like the safer option, and we understand why many people feel this way. Loss aversion is countered by having a tangible stack of cash that will always be there.

Unfortunately, it’s wrong and can be dangerous in the long term.

What many cash-focused savers don’t realize is that because of inflation, the value of cash fluctuates over time—just like a stock. As Alex Gurevich, CIO of HonTE Investments, points out, that means that cash is subject to bubbles similar to tech in 2000 or the mortgage crisis. Moreover, saving only cash eliminates access to the market’s long-term returns; $10,000 invested in the S&P 500 in 1980 would yield $166,600 at year-end 2015, adjusted for inflation. Even with the ups and downs, in the long run the stock market remains the best place to invest for retirement. (For related reading, see: Why Investors Can Be Their Own Worst Enemy)

Saving cash is still important for short-term emergency funds. But if simply stockpiling cash is your long-term plan for retirement, you probably have no shot unless you’re very wealthy.

Many people may avoid the stock market out of a fear of the bad days when the market tumbles. Some people panic when the market dips (for example, in the event of a major world event like Brexit) and sell most or even all of their stock. Besides the fallacy of panic-selling at play here (you’d be selling low rather than buying low and selling high), by withdrawing from the stock market you miss out on the good days as the price of shielding yourself from the bad. Reporter Spencer Jakab points out in the Wall Street Journal that a couple good days a year produce the entire year’s returns, on average. (For related reading, see: Behavioral Finance: 8 Common Investor Biases That Impact Investment Decisions)

“Investors sit out on some really good days by trying to avoid bad ones,” Jakab writes. “Nearly all of those happen around scary episodes such as October 1929, October 1987 and in 2008 following the collapse of Lehman Brothers. Pretend, for example, that you took your money out of the market following the choppiest episodes over the last 20 years and wound up missing the epic rebounds that made up the 40 best days. You actually would lose money.”

The stock market can be threatening and, sometimes, punishing. But the solution isn’t total withdrawal; on the contrary, find an advisor you trust and create a plan that makes you more comfortable about investing. As Ben Carlson writes, “The alternative for stepping out into the unknown is the known of never building your wealth.”

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.

Fear Keeps Millennials on Investing Sidelines

Millennials are nervous about investing. Recent surveys have shown that 70% of millennials keep their savings in cash rather than invest it in the stock market.

But by not investing early on, these people in their 20s and early 30s miss out on the key advantage they have at a young age: time. Because your investment returns are compounded, the earlier you start investing the more — and longer — will the returns add up, ultimately leaving you with more money in the bank.

So what are millennials waiting for? Many of the concerns holding them back from the market boil down to a lack of information about investing. Some of the most common fears are:

‘I have no idea where to start’

Many potential young investors have no idea where to start even if they wanted to buy just one stock. And then they don’t know how to choose which stock or fund to invest in. Since most people don’t get personal finance education as part of their schooling, investing can seem enormously daunting and precarious.

A little online research can demystify many of the basic investing concepts, such as how compounded interest works, how patience can be beneficial, and how to not overreact to temporary dips in the market. Working with a financial advisor to develop a plan and ease into an investing strategy also can help reduce your stress and anxiety about entering the stock market.

‘I haven’t even paid off my loans — I can’t start saving’

Concern about debt, particularly student loans, is understandable and widespread among millennials. Student loan borrowers have an average debt of almost $30,000 for undergraduate loans. The question of whether to pay off student loan debt more aggressively or use the extra money to start saving is a tough one because people don’t have the same financial situations. Your debt, cash flow and spending circumstances are unique and will require a plan that’s customized to you.

Keep in mind, however, that your years as a young professional are your prime saving period. If you can stomach not using all your extra money to pay off loans, you could reap the long-term benefit of investing early. Paying down a high-interest loan is a priority. But if the interest is low enough, consider creating a financial plan that allots some of your savings to an IRA or 401(k). Over time, the return on that investment, with the help of compounded interest, can make the trade-off worthwhile.

If you don’t have high-interest loans, creating a long-term, comprehensive financial plan that includes saving and investing is the best way of making sure you’ll have the funds you’ll need in the future, whether it’s to pay down debt, buy or rent a house, or make any other important expenditure. If you live on a tight budget, controlling and mapping out your spending becomes even more important.

‘I don’t trust, or can’t afford, financial advisors’

Many advisors require high asset minimums that may be well out of reach for young investors. And even then, the advisor could put your money in inefficient investment products that could generate commissions and other hidden fees for the advisor and inflate your investing costs.

Many advisors are not legally obligated to act only in their clients’ best interest; they merely have to suggest “suitable” investments. In many cases this means investments for which they are paid a commission. But those who uphold the fiduciary standard are required to put their clients’ interests first. And fee-only advisors are paid solely for the advice they give you, and not through commissions on the products they recommend.

Millennials are right to be wary of the industry, but there are advisors who won’t put their profit goals ahead of yours. Look for a fee-only fiduciary advisor. You may also want to work initially with a fiduciary advisor who charges by the hour if advisors with asset-management minimums are out of reach.

You need a financial plan that’s customized for your own situation and goals. But that doesn’t mean you can afford a delayed start. The sooner you map out a financial plan and start saving and investing, the bigger the payoff will be down the road.

This article was originally published on Nerdwallet.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 Conflicts of Interest Around 401(k)s

401k

A new study in the Journal of Finance has found that conflicts of interest in 401(k) plans can lead to serious losses for individual investors. More specifically, the 2,500 funds surveyed were less likely to eliminate underperforming funds that were their own rather than another provider’s fund. This can be very costly to retirement savers. Clemens Sialm, a professor of finance at the University of Texas at Austin and one of the study’s authors, explained that the bottom 10% of funds continued to underperform by about 4% if kept on the menu of funds available to investors.

With all of the attention lately focused on reducing these conflicts of interest where financial managers invest your money in their own funds (among individual financial advisors rather than institutional), it is surprising to see the bias getting coverage on an institutional level. As of June 2015, $4.7 trillion were invested in 401(k) accounts, plus another $2.1 trillion in non-401(k) defined-contribution plans. As John Oliver recently detailed, these conflicts of interest can cost millions over the course of a single retirement plan’s life. (For related reading, see: Financial Failings of NBA Legend Antoine Walker.)

Why the Conflicts Exist

The reason for the existence of these conflicts of interest is simple. Managers are prioritizing the profits of their institution over the success of the retirement plans they oversee. And there is no question that it is a raw deal for the investor. We’ve previously covered how many actively managed funds don’t even beat the market in the first place, and this study confirms that failing funds aren’t even taken off the menu of options. Imagine if your local restaurant kept undercooking their chicken and everyone was getting sick, but they refused to change the recipe.
Many employees at big asset management firms are now suing their own companies to liberate their own retirement plans from management. These people know it’s a scam, and God forbid that their own money gets caught up in it, but by and large they are OK with selling you inefficient funds. (For related reading, see: 6 Questions to Ask a Financial Advisor and Do You Need to Change Your Financial Advisor?)

These current events—and the study—indicate that conflicts of interest are pervasive in all aspects of the retirement planning industry, whether it’s a 401(k) through your employer or via traditional financial advisors. Dealing with this reality requires vigilance on your part. To return to the analogy of the undercooked chicken, it would be an easy case to deal with since everyone could tell that the chicken was making them sick. But what allows traditional asset companies to get away with conflicts of interest is that many people are simply too busy to monitor their accounts—that is, to find out if they are sick or not. If the undercooked chicken gave you an illness that was hard to detect, it would be much easier for the restaurant to get away with it.

Luckily, the tide is beginning to turn, and you can impact change, even with your 401(k). You should become an advocate for your own money. Contact your HR department and ask to see the performance of the menu of funds. See who’s managing it, how the menu has changed and evaluate the extent of conflicts of interest.

Ultimately, independent, conflict-free advice and management is the best cure for the industry’s problem. (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.

Financial Failings of NBA Legend Antoine Walker

Former NBA All-Star forward Antoine Walker possessed a varied skill-set that enabled him to play both inside and outside. A big man who also shot the three, Walker was notorious for his hilariously erratic shot selection and, later in his career, an aversion to running that led to lazy play.

The quality of financial advice Walker received throughout his career was evidently very close to the quality of his shot attempts, as he filed for bankruptcy in 2010, two years after he retired from the game. In a recent column in the Players’ Tribune, Walker writes a letter to his younger self detailing what went wrong and what he could have done better.

Surprisingly, there are a few money management lessons that anyone—NBA star or not—can apply. (For related reading, see: Do You Need to Change Your Financial Advisor?)

Actively Screen Advisors
Screen advisors before you hire them, and after you do, make sure you know where your money is going. Walker frames his letter with the importance and difficulty of saying “no,” whether to friends asking for money or, most crucially, a friend of a friend who asked for money to start a real estate venture.

The advisor, who Walker met at a dinner with NBA colleagues, started Walker Ventures with bank loans guaranteed by Walker’s personal portfolio, an incredibly risky move. Walker let the advisor have complete control of managing the properties since he was playing basketball nine months of the year. Ultimately, Walker Ventures was forced to close after the housing crash with $20 million of debt. The advisor went to jail, and Walker was forced to file for bankruptcy.

There were a couple ways this could have been prevented. First, Walker didn’t do much due diligence before making the deal. He could have run it by another advisor, who probably would have told him it was structured as an extremely risky venture. Second, because of his schedule, Walker did not adequately check up on the investments.

Many people, particularly young investors, share Walker’s desire to make some money outside of their main job, especially to save for retirement. Finding a financial advisor who is trustworthy, and right for your unique needs, is very important. (For related reading, see: 6 Questions to Ask a Financial Advisor.)

The Upside of Having Someone Say No
Walker’s trouble with the real estate venture was compounded by his reckless spending. While he confesses that he spent lavishly on himself, including a $350,000 Maybach car, it appears that what took the biggest bite out of Walker’s wallet was his spending on family and friends. “I gave them whatever they wanted and spoiled them. You can’t do that,” Walker said in a CNN/Money interview. “It ended up being an open ATM throughout my career.”

While most of us don’t take our friends to a Gucci store and let them buy whatever they want—as Walker has said he did—spending without at least an idea of what is manageable is a problem many people encounter. For young professionals in particular, overspending can seriously hinder retirement saving.

A good financial advisor will do more than simply invest your money. They will incorporate periodic spending goals, major expenditures like vacations, and life events like a new home or wedding into your comprehensive financial plan. Sometimes, this could mean advising against a big purchase for the sake of a long-term goal.

Obviously, we don’t all have $110 million to blow like Antoine Walker. But lackadaisical spending control and being too busy to check on our investments or advisors are traps anyone could fall into. Ensuring that your money is in the right hands is a universally important objective. (For related reading, 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.

Advisors Repapering Your Account: What to Know

repapering

The White House’s report on conflicting financial advice estimates that there is a staggering $1.7 trillion invested in products that generate conflicts of interest for advisors—meaning products that advisors earn a commission for selling to clients—leading to a loss of 12% in a retirement account’s value over 30 years.

To combat this, the Department of Labor is enacting a new rule requiring advisors to be held to a fiduciary standard, meaning they need to always act in your (the client’s) best interest. If an advisor still desires to sell conflicted products, they will be required to have you sign a Best Interest Contract Exemption (BICE). This contract also gives you the right to partake in a class-action suit against your advisor if the conflicted product is not ultimately in your best interest. (For related reading, see: Do You Need to Change Your Financial Advisor?)

What to Ask Before the Switch

If you employ a traditional financial advisor who was not previously bound to a fiduciary standard, there is a very good chance your money is part of the $1.7 trillion losing returns because of conflicted advice. And when your advisor comes to you to “repaper”, i.e. have you sign a BICE or any other paperwork related to their switch to a fiduciary, you should find out how much your advisor was making from commissions on products that may not have been in your best interest.

Traditional advisors are worried about you saying, “hold on a second” when they begin compliance with the fiduciary rule. As this AdvisorHub article points out, “brokers who are heavily concentrated in retirement accounts may delay moving until they determine if they will have to “repaper” commission accounts into fee-paying accounts because of the rule.” Paul Reilly, CEO of traditional financial advisory company Raymond James, said that “Raymond James itself is looking closely at each prospect’s book to determine how much it is flavored by IRA accounts that could become less profitable.” During the campaign against the DoL rule, Reilly encouraged Raymond James employees to help oppose the  DoL’s fiduciary proposal. Additionally, if an advisor is planning to transition, many are scrambling to do so before November 11th, after which FINRA will notify all of their clients of the transition and encourage clients to ask what it means for them financially.

Now that the fiduciary rule is going into effect, firms like Raymond James are sweating the switch to fee-only fiduciary accounts and increased oversight of their activities by regulators. Make sure you’re prepared for that conversation with your advisor by reading my previous article, 6 Questions to Ask Your Financial Advisor. If you learn that you are one of the many, many investors losing 12% due to conflicted advice and want to work with an advisor who will work only in your best interest, you may want to schedule an appointment with an advisor that doesn’t have such conflicts. (For related reading, see: Going the ETF Route? What You Should Know.)

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.

Going the ETF Route? What You Should Know

CNBC recently published a story on the growing popularity of exchange-traded funds, or ETFs. According to the article, 81% of advisors surveyed said they used or recommended ETFs to their clients in 2015. We have been advocating ETFs as a secure, flexible investment for our clients since the days when they weren’t as popular.

Here’s a look at some ETF basics. (For related reading, see: Why Investors Can Be Their Own Worst Enemy.)

What Are ETFs?

An ETF combines features of stocks and mutual funds. Like a mutual fund, it is composed of a group of stocks, giving investors access to a diverse array of securities with only one transaction, an investment in the fund. And like stocks, an ETF can be bought or sold on the open market at market-determined prices. ETFs are usually used to track specific indexes of the securities market as a whole or of specific sectors. The first ETF in 1993 was created to track and match the performance of the S&P 500 index.

Why Do We Use Them?

ETFs have a number of advantages for investors who are saving for retirement. These include:

  • Transparency: While the holdings of a regular mutual fund are only reported every quarter or year, ETFs report their holdings every day since they are traded and the holdings are a reflection of an index. Knowing exactly which positions you are invested in can help with fine-tuning your portfolio according to your risk tolerance.
  • Lower costs: The passive nature of ETFs allows them to have significantly lower costs than a mutual fund. In short, actively managed funds, as the name implies, execute a far greater number of trades than passive funds like ETFs, which are generally not overseen by a fund manager on a daily basis. As a result, ETFs usually incur much lower costs than actively managed funds. (For more, see: Don’t Expect to Win With Actively Managed Funds.)
  • Flexibility: Mutual funds, whether active or passive, can only be sold at the end of the trading day. On the other hand, ETFs are traded throughout the day and their price continually updated.
  • Tax efficiency: There are several factors underlying the structure and operations of ETFs that make them more efficient than a lot of mutual funds. To buy shares of a mutual fund, you must exchange cash for shares directly with the fund. There is no middleman; therefore, when the fund realizes capital gains on an investment, those gains are passed through to the individual investors and you must pay tax on it. When purchasing shares of an ETF, the shares in the ETF are purchased through a middleman called an Authorized Participant, not the fund itself. (The AP purchases shares from the fund when they are originally issued.) This degree of removal from the fund and the capital gains it realizes can help you avoid significant taxes on long-term capital gains. Additionally, since ETFs don’t make as many trades as actively-managed funds, there are fewer chances for an event that could generate capital gains, which will be taxed.

So how do they fit with our investment strategy? We think that your best chance at building wealth through the markets for retirement is to work with a fiduciary advisor to utilize a long-term approach that emphasizes diversification, tax efficiency, risk management and cost effectiveness. We believe in the efficient market hypothesis, which dictates that in the long run, it is nearly impossible to beat the returns of the market by picking individual stocks and market timing. Therefore, an ETF is generally a stable—but flexible—tool for long-term growth if used properly. (For related reading, see: 8 Common Biases That Impact Investment Decisions.)

 

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.

Instituting Investing Rules: Lessons from the Brexit

The world had its eyes on the United Kingdom on June 23, as returns from their national referendum on whether to withdraw from the European Union began to roll in. The ultimate victory of the “leave” camp sent shock waves through political and financial sectors, as investors saw the British pound crash to a 30-year low and markets experienced a significant drop.

Rules-Based Investing

The Brexit tale is only just beginning, and its ultimate effects are anyone’s best guess. That said, there is a lot to be learned from what’s already happened. We think that in the aftermath of Brexit, you need investing rules that you stick to hard and fast.

The market crash post-Brexit panicked a lot of investors. Of course, investors and advisors should have basic philosophies that they stick to, even in times of market crashes, such as not following the herd and selling off when a stock is lowest. (You can read more about the detriments of panic selling here.) But it may be beneficial to establish some firmer rules for exactly what qualities the investments you make will have.

For example, consider the following from Kevin O’Leary, Shark Tank judge and O’Shares chairman: “Imagine if you could create the perfect portfolio manager that had no style drift, that never, ever got emotionally involved in a stock, that only used the most hardcore rules on balance sheet testing, and never, ever strayed from that. That’s what rule-based investing is. It takes out one of the challenges I’ve found as an investor over the decades.”

In other words, you have to eliminate emotion from your investing. As a retirement saver, this can be incredibly difficult after big market swings, whether up or down. We’ve previously explained why active management doesn’t win and one of the benefits of passive investment management is that since it takes a long-term view, it reduces the role of emotion in investment decisions. Creating investing rules can be a good extension of this strategy.

 

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.

Do You Need to Change Your Financial Advisor?

Financial Advisor

In his song “Real Friends” musician Kanye West raps, “Real friends. It’s not many of us. We smile at each other. But how many honest? Trust issues.” West wonders whether those around him are there because they really have his best interests at heart, or if they only care about him for his money.

Given recent developments in the financial advisory industry, many Millennials might be wondering the same thing about their financial advisor. The Department of Labor (DOL) will soon be enacting a new rule that requires all financial advisors handling a retirement account to abide by a fiduciary standard, which means always acting in the best interests of the client and not the advisor’s or corporation’s profits. It might be surprising, but that is currently not always the case. If your advisor is not a fiduciary, he or she may not be obligated to act only in your best interest. You can read more about the new rule and our take on the fiduciary obligation here.

Opponents of the rule, unsurprisingly the financial services industry’s lobbyists, who largely oppose the rule, point to a study saying that it will decrease access to financial advice for small investors since advisors “cannot figure out how to make money when working with them.” Without the fiduciary obligation, how do advisors currently profit from younger investors? Forbes recently published an article by the Morgan Stanley team where advisor T. Gregory Naples says that with Millennial clients he,

“starts them out in managed mutual funds until they reach $50,000. After that, he often switches them to more transparent and lower-cost stock and bond funds managed by institutional money managers.”

Breaking it Down

This is a huge admission. Let’s break down exactly what Naples is saying. Crucially, Naples admits that, until you hit $50,000 assets under management (AUM), he invests your money in more expensive, less efficient funds. Many of these “actively managed” funds, which try to beat the market’s returns, have higher costs because of labor and number of trades they execute. After this period, once your AUM gets to a point where Naples can more easily make money off of you through fees, he puts your money into more efficient places it should have been all along.

Later on, he mentions examples illustrating the power of compound interest, but neglects to mention that the unnecessary fees you are incurring from the inefficient funds he has invested your money into will eat away at the returns you get from the compound interest. This illustrates the folly of the argument that the fiduciary rule will drive young investors away. Young investors who are just starting out are, in fact, much better off being driven away from advisors with non-fiduciary practices like Naples. Entrusting your money to a non-fiduciary, traditional financial advisor as a young, new investor is like intentionally hitchhiking on a road known for having murderous truck drivers when there’s a much safer road nearby. (Read more about 6 Questions to Ask A Financial Advisor)

People naturally gravitate towards big firms with name recognition. But as the Naples quote demonstrates, these large, non-fiduciary firms may not always be the best option, particularly for young investors. What the back-and-forth over the DOL rule reveals is that non-fiduciary advisors often don’t even really want your money. Most seek accounts with higher balances. So why go where your money is not wanted?

 

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.

4 Things You Can Learn From John Oliver About Retirement Planning

On his HBO show Last Week Tonight, comedian John Oliver recently turned the national spotlight on the wealth management and retirement planning industry. In light of a new Department of Labor rule requiring all financial advisors to act as fiduciaries for retirement accounts, in which we strongly believe, Oliver skewered the opaque tendencies of brokers and traditional financial advisors. He urges viewers to bring their business to a transparent fiduciary who has your best interest at heart.

Oliver’s segment serves an important purpose — many regular people who trust a traditional financial advisor with their money, or millennials who are just now beginning to think about retirement planning, simply don’t know the many ways the advisor could be robbing them of their hard-earned money. While not everyone is as clueless as the woman whom Oliver ridicules for asking CNBC host Suze Orman whether she should spend $4,000 to get an elf-spotting certification in Iceland, the many ways traditional financial advisors hurt their clients are often hidden unless the client does the digging themselves. With that in mind, here are four major takeaways from Oliver’s monologue.

1. Many financial advisors may not have your best interest at heart — but you can find one who does.

As Oliver notes, “financial advisor” is a vague term. Even so, many traditional financial advisors  are not fiduciaries, and instead operate on commission. (An advisor who is a fiduciary must always act in the best interests of you, the client.) This means they can execute trades and strategies that line their own pockets with little regard for your financial well-being. We believe that this is unacceptable; as a result, we operate as a fee-only fiduciary that does not receive any sort of commission. While some advisors make money by endorsing a particular investment or product to their clients, we are paid only by our clients.

2. The “active management” of many funds and advisors can destroy your capital.

As we’ve previously detailed in this blog, you shouldn’t expect to win with actively managed funds. Not only do these funds fail to outperform the market, but in doing so they also accrue massive fees due to the large amount of trades they are making. While compound interest grows your investment over time, interest isn’t the only thing that compounds — fees do as well. Oliver cites a study in which an index of stocks, selected by a cat throwing a ball at them, outperformed an actively managed fund overseen by experts. The cat earned returns of 7%, while the pros garnered only 3.5%. Oliver summarizes the situation succinctly: “If you stick around doing nothing while everyone else around you [messes] up, you’re going to win big.” At Sherman Wealth Management, we believe sticking with investments that focus on low cost and tax efficiency is the best way to save for the long term. ETFs are an investment vehicle that we utilize to accomplish this goal.

3. It doesn’t have to be this complicated, and it might be getting simpler.

There are easy steps you can take. Start saving now — it’s never too early. When screening financial advisors, ask if they are fiduciaries. With your money in the hands of a fiduciary who puts your best interest first, you can be confident in your advisor’s motivations. 

Feel like the little guy/girl who can’t get the time of day from your “financial advisor”? Read our post – Why Go Where Your Money’s Not Wanted?

4. These principles aren’t abstract — they have real consequences for real people, like you.

To demonstrate all of this, Oliver examined the 401k his own employees at HBO were using through their provider. The retirement fund charged 1.69% fees, and their broker refused to offer low-cost, low-fee plans. The advisor even messed up the calculations on the compounding interest, making his original math off by over $10,000,000. These are not the actions of someone who values his/her clients more than a paycheck; on the other hand, we value our partnership in our clients’ future success.

Where Oliver went wrong is when he questioned why anyone would invite their financial advisor to their wedding. We are proof that a relationship like that is possible between client and advisor. As a fiduciary, when we consistently act in the best interests of our clients, we end up building strong friendships with them.

At Sherman Wealth Management, we have long been at the forefront of the fiduciary movement for transparency and conflict-free advice. At a traditional insurance company or wire house, advisors will often recommend expensive funds produced by their institution; on the other hand, we can take a more holistic view of investments to determine which are best for you. We believe in growing with you, not at your expense.

We encourage you to trust your retirement to an advisor who will act only in your best interest. Curious what that looks like? Schedule a free portfolio analysis and strategy session with us.

Check out the full John Oliver video here.

 

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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.

Where Millennials Can Turn for Financial Advice

Sherman Wealth Management | Fee Only Fiduciary

We live in a fascinating time. The biggest wealth transfer in history is beginning, as Millennials will soon become the wealth bearing demographic in this county.  Not surprisingly, as we pointed out in a recent blog post, personal finance is a huge issue for many Millennials. But where can a Millennial turn for advice?

Goals, dreams, jobs, family plans, etc. are going to vary widely, but there a few common themes that seem relevant across the spectrum. We constantly write on many of these issues, so decided to summarize the topics for you and answer some of those nagging questions.

 

  • Getting started is often the hardest part. Beginning a savings plan early is key, which makes planning all the more important. We constantly preach the importance of determining your short, intermediate and long term goals and then focusing on creating a plan on how to achieve them. Having the “money conversation” is a great way to get started. Remember, it’s not how much you make, but how much you save. Read more here on getting started with the money conversation.

 

  • Student Loans/Debt – A common financial hurdle for many millennials is navigating student loans. So how do you determine if your focus should be on accelerating the payoff of that debt or maximizing saving instead? We wrote about that here.

 

 

  • Knowing Who to Trust – Even if you understand the advantages of investing in the stock market, it’s not always easy to find a professional you can trust. A recent facebook study shows that over 50% of millennials have no one to trust for financial guidance.

 

FB Study

Source: insights.fb.com

 

A few months back we wrote a piece titled “Why Go Where Your Money’s Not Wanted” that touches on the point of many financial institutions turning down Millennials as clients. Most of the corporate institutions prefer high-net worth clients because it creates “efficiencies of scale” and a higher profit margin on larger trades. As frustrating as the requirement for a high minimum balance is for first time investors, it’s actually one of the main reasons I created Sherman Wealth Management. It was important to me to make sure top notch financial advice was available to anyone and everyone,  particularly to those who are starting out on the path to wealth accumulation. We created this guide to make sure you are asking your potential financial advisors the right questions to determine if they are right for you. – 6 Questions to Ask Your Financial Advisor

 

  • Marriage – Getting married is more than just substituting the word “ours” for “yours” and “mine”. It’s combining your finances, histories, dreams, aspirations, possessions – even your music – and making all of that “ours” too. If you have started to think about marriage, or are married already, there are a few financial discussions you should be sure you have.  Since a significant part of those pre-marital dreams and aspirations involve money, having multiple financial conversations before marriage (or right after, if you’re newlyweds!) can help you start married life on a firmer footing, with regard to financial goals. Here are two blogs we wrote for those getting married or already married.

 

  • Buying a house – There are studies out there saying that Millennials are not buying houses. A prudent home purchase often can be one of the most stable and solid investments a young person can make. So why the hesitation? Some Millennials wonder if given the rate increase and current market turmoil – if this is really the right time to purchase a first home, or if renting makes more sense for you right now? We wrote about this exact topic here.

 

  • Kids – Babies change your life in many ways, including requiring large amounts of time and money. While you may already be thinking about childcare costs and options, or about paying the medical bills that accompanied your new child, there are several other – important – financial considerations you should be thinking about even before the new baby arrives – 5 Planning Tips for New Parents

 

If this all seems overwhelming, don’t be discouraged. Personal finance is a journey and everyone is going to take a slightly different path. Taking the initiative to educate yourself on these topics is a great 1st step.

We are passionate about improving financial literacy in our society which is why we try to write blogs like these that will be useful to those trying to navigate the rocky waters on personal finance. If there are additional topics you would like us to write about, we would love to hear your thoughts! Email us at info@shermanwealth.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.