Life Happens – Plan Wisely and Be Ready

We often hear the expression “Life Happens.” The idea is everywhere from ads, life insurance,  nonprofits organizations, the list goes on. We get it!  Yet, we fail to put into practice what we understand and know to be true. I can tell that I know from experience that “Life Happens” and when it does, why you need to be ready. This blog is a bit different from my other ones. It is not just information that I am passing along to you about how to budget, invest, or save, but is my perspective on the WHY. I can tell you about budgets and saving, and it is just that – me TELLING you something. It is education. You can believe me as a CPA and a person with a financial background and passion for helping people succeed financially, or you can dismiss my WORDS. But this is more than WORDS!  This blog is about EXPERIENCE and the WHY behind the words. We all know that experiencing something is much more motivational than words, and because I truly am passionate about helping people, I want you to have a more positive experience when LIFE HAPPENS- and it will HAPPEN!  

I’m going to jump back to the experience, so you can better understand the WHY. Hopefully, you will take away information from this experience about the importance of being financially ready for the unknown, yet the inevitable. Of course, I can’t fully prepare you for the unexpected and the unknown because that is the story of the life of each one of us. Nobody knows how the story will play out and how each chapter will unfold. So, that is not the message here. The message is to change your perspective on money, so you will be ready for the unexpected. You have the ability to change catastrophic situations into something less ruinous, at least on the financial side.  

Stepping back, let me lay the background. Since jumping into the arena of helping people through my platforms to achieve financial freedom by things such as creating budgets, paying off debt, investing, and estate planning, I have had the opportunity to connect with many wonderful and inspiring people like you. These people are intelligent, insightful, and hungry;  wanting to be successful in their goals. Like you, my wife and I also had these lofty and ambitious goals. Going back seven years, we really were motivated to become debt-free. We knew the importance of this concept and how much we wanted to achieve this goal. At that time, however, we did not TRULY understand the WHY to the same extent as we do now that we are LIVING the “Life Happens” chapter of our lives.  

Our Life Happens Chapter:  Over the last seven years, my wife and I have reached some ambitious goals. We graduated from college, pursued our professional careers, paid off $76,000.00 of debt and a mortgage. Things were great, and they even got better. On September 4, 2021, we became parents to our amazing daughter, Logan. We were on top of the world! We welcomed into our world a healthy baby who was born without complications. Included into the plan was for me to quit my day job as a CPA and continue to grow Budgetdog full time, staying home to care for Logan and help others along their financial journeys. This also came to fruition. Continuing this chapter, things were still going along smoothly and as hoped and planned. Logan was thriving, Budgetdog was booming, and we were financially independent. Then “Life Happened” unexpectedly, without warning, and beyond comprehension. Truthfully, we are still reeling from it and can’t fully grasp the extent of what happened on January 29, 2022.  

The odd thing about such tragedies is that most people, when recalling them, remember every minor detail as if it happened just moments ago. As I was getting ready to make a presentation to a company on a call, my wife, Erin, frantically ran into the room yelling that something was wrong with Logan. We did not have any clue what was going on with her, so we rushed her to the hospital where we were told that she had suffered a seizure. They assured us that it was not that uncommon for babies to have seizures, so we left the hospital feeling somewhat better but still unnerved and confused as well as inept. Seizures? What did that mean? Why? The questions were daunting and innumerable to say the least. But then, in less than 24 hours, the seizures started again, and we were back in the emergency room. Now we found ourselves in a situation where Logan was being admitted to the hospital, and after a five-day stay, we became fully aware that she was having many seizures, but they were NOT “common.” Skipping ahead in this chapter, after many runs to the ER, many stays in the hospital, running more tests and speaking to too many specialists to count, we were devastated to learn that Logan was diagnosed with Dravet Syndrome. This is a rare syndrome, not disease, that impacts one in 15,700 children. It manifests itself differently in each child, ranging from mild seizures that begin in early childhood to early death in those with extreme cases which is about 15 to 20% of those diagnosed with Dravet Syndrome. Where Logan will fall, we do not know. We struggle every day to control her seizures, to visit the multitude of doctors and specialists on her “team,” to help her develop and grow as any baby her age would and should, and to manage LIFE under this dark and terribly frightening cloud. Yes, we know very well – all too well – that “Life Happens!” 

But that is the point. Life does happen to all of us. We can never be prepared for the unexpected. What is written in the chapters of our lives is unknown and unexpected. But, and here is the WHY, how prepared we are, and I can only speak financially, will help when these situations come our way. Our situation with Logan continues to unfold. Sometimes the more we learn, the more frightening and dire things seem. But this situation is not going away; it is who Logan is. This has stopped us in our tracks. Certainly it has given us a different perspective and meaning about the fleeting nature of life, the importance of relishing each precious moment, the insight about being kind and good to others because we never know what other people are going through in their own lives, the wisdom of how often we get caught up in minutia, and the importance of faith and prayer in our lives. And with this new insight and wisdom, I also know more than ever and want to communicate the need for the WHY.  

The WHY does matter because it can help in a catastrophe. It can make a crisis into something that is more manageable. We know that Logan’s diagnosis is a life-long situation. It is who she is. We also know that we are in a financial situation that helps alleviate some of the financial stress. As parents, we are helpless, but we can try to provide the best care we can give her which is very expensive. Currently Logan is one of only three children in the United States under the age of two who was able to start on Fintepla while in the hospital, which is just one of the multitudes of daily medications. Logan’s Dravet specialist, Dr. Perry, who is part of an amazing team at Cook’s Children Hospital in Fort Worth, TX, pushed for her to be able to receive it despite the fact that it was FDA approved only for children over the age of two. But she needs it. The catch was that at first, because it was not approved for babies her age, we were going to have to pay for it. The out of pocket expense was going to be $5000.00 a month. What do you do as a parent?  That is a huge amount of money, especially over the course of a year. That is the WHY.  Because we had previously paid off our house and have no debt, we knew we could cover the monthly cost for the drug. We were hoping that insurance would kick in once Logan turned two, but we also knew we were financially able to handle this expense for her and provide the best medicines and care we could to help her. Since being prescribed the medication, Dr. Perry was able to get it covered by insurance. But this is only the beginning of the journey for us and Logan. There are things that will not be covered, and even with insurance, medical bills will be high. Again, the WHY.  Medical debt accounts for 67% of bankruptcies. That is staggering. Think about that. One day you are financially okay, paying your bills, meeting your minimums, and along comes LIFE. That is exactly the reason I am such a huge proponent of getting your finances in order and being financially free.  

Because Life Happens, and we all know if does, whether it comes in the form of a car wreck, some type of medical crisis, things breaking and needing to be repaired, or just the high cost of living on a normal basis, you can’t wait to get your finances in order and have the curve balls that life throws at you become even more catastrophic than they already are. We are all going to have to face challenges, crises, and catastrophes at some point in our lives. How we deal with them in a philosophical way will be up to each of us. I can’t speak to that. But life is too short to constantly be worrying about money. It is too stressful and unnecessary. You don’t have to be a victim or a statistic. Don’t be the 67% who go bankrupt due to medical bills or who lose their home from a life-altering situation. Live life fully. Be present in the lives of your loved ones. Be a good steward of your money, earning, saving and giving. So the WHY of being fiscally responsible and financially independent is because when Life Happens to you, when it is that critical chapter in your life, you can get up swinging harder than ever. Don’t lose! Life is too short, too precious, to lose. I know because I am fighting for Logan – she is my WHY.  

Estate Planning Decoded- The Why, How, and Who

WHY? 

Nobody wants to think about the inevitable – death. We all know it will eventually happen, but it is not something we like to think about or talk about. Why we do this is human nature, we tend to think that as long as we don’t talk about it, it will not happen. Hopefully it will not happen anytime soon! But it will happen. And because it WILL happen, and sometimes in an untimely or tragic way, it is vitally important for us to make sure all necessary plans are in place to help secure the lives of our loved ones. That is where estate planning comes in.  

Estate planning is necessary to ensure that assets will be secured for loved ones upon death or incapacitation as well as making sure children, if there are any, are cared for according to the person’s wishes. It does not need to be complicated, but you do want to make sure that it is done properly to ensure that money and property is passed on according to your desires and the maximum amount of money is transferred to your beneficiaries rather than having legal hang-ups and punitive or unnecessary taxes.  

HOW?  

While the process does not have to be complicated, it does have to be done properly.  Certainly you could handle it yourself, but you need to be careful as this is not something that you can leave to chance or mistakes. Remember that your family will not be in the best frame of mind at the time that the estate distribution comes into play, so you definitely do not want things to be further complicated. To that end, it is probably best that you have a team of specialists help with your estate planning. Some estates are easier than others depending on the amount of assets and the complexity of the plans for beneficiaries. You need to assess your personal situation and think through who you will need to help in the process of your estate planning. I recommend that you have an insurance agent, a CPA, a certified financial planner (CFP), and an attorney help you through the process of planning your estate. 

WHO and Roles: 

Insurance Agent:  Often overlooked and underestimated is an insurance agent. Having a good insurance agent who is well-versed in the different types of insurance policies and the one that best fits the needs of his or her client is crucial. Please note that I have discussed life insurance before, whole life and term, and I recommend term life insurance over whole life insurance. But in addition to helping clients with insurance, insurance agents often provide valuable advice and tools regarding estate planning. They can provide information regarding your estate well in advance of the actual estate planning process.  

CPA: Another important person in estate planning is a CPA who understands a client’s financial estate and the need for safeguarding assets often before the client does. In addition, most CPAs have an understanding of estate tax laws and the financial implications of what happens when these laws are not followed and assets are not secured. Let’s keep in mind that the reason for estate planning is to secure assets for a person’s loved ones. Having assets tied up in undue taxes and litigation can be excruciating for a family upon the death of a loved one. In addition to understanding these laws, CPAs are also adept at helping to appraise the value of the estate as well as identifying cash flow requirements. Lastly, the CPA can complete and file the final tax return for the deceased along with Form 706 which is the United States Estate Tax Return (and Generation-Skipping Transfer) that is used along with the deceased client’s state 1040 form. As you can see, the role of the CPA is vital.

CFP: I advise you to utilize a certified financial planner (CFP) before death as they are key in managing assets, providing advice about different types of investments, and planning cash flow. In fact, they will manage cash flow during a client’s life and after death. Choose your CFP carefully and make sure he or she has specific knowledge of insurance along with estate taxes and laws in order to best meet your needs in the present and in the future.  

Attorney: The last key person on the team is an attorney. Some attorneys specialize in estate planning and understand all of the nuances of the laws associated with estates. They create all of the legal documents, forming the framework, and file them appropriately, so estate assets are protected, children and dependents are provided for, and all wishes and desires are noted. It is vital that these documents are properly created and filed in order for them to be recognized as “official.”  Lawyers are recognized as the ones who can legally draft documents and file them; it is their job. Therefore, it is best to leave this responsibility to the professionals. In addition, the same attorney who drafts and files the documents for a person’s estate can also be used during the probate process and the distribution of assets to beneficiaries. A different attorney may be used for the probate and distribution process, but many find it is more streamlined to keep the same attorney for this process.  

Process: Obviously you do not need to run out today and secure all four of these professions and plan every detail of your estate. You need to assess where you are in your life especially regarding your assets, and your responsibilities. If you are young, single, and just starting your career, you would not need to secure the services of all of these professionals. At this point, you probably can take care of most of your investments on your own and can file your own taxes since they are pretty simple unless you have extenuating circumstances. However, as you progress in your career and life, earning more money, acquiring more assets, and taking on more responsibilities, you will want to add these professionals to your team. Think about the purpose of each of these. Certainly you will want to utilize them accordingly. Along the way, as your wealth grows, you will want to secure your assets. Additionally, if you marry and/or have children, you will want to ensure they are financially secure in the event that anything happens to you and your income is no longer there for them. That is the time for you to add a good insurance agent to your team. Little by little, you will want to evaluate your life and your financial situation and add the right components in order to best provide for your family when the inevitable comes.

Like I noted earlier, nobody wants to think about death, but we all know it will happen. Therefore, it is best to be prudent and plan for that day. It is one of the most important and loving things you can do for your loved ones.  

The Stock Market – Gloom and Doom 

It seems like all we hear anymore is gloom and doom – especially about the financial world!  Interest rates are creeping up, and some analysts predict a crash in the housing market and the economy. It is fair to worry about money because for some items, money is not going as far as it used to a year or so ago. People are expressing their concerns about investments such as 401Ks. Many are asking whether or not to invest in the market that keeps dipping. From the news, some contend that the best thing to do is to crawl under a rock!  My advice is to stop listening to the insanity. Remember hype is what spurs on the “news.”  Don’t buy into the fear. More importantly, if you start buying into the idea that the stock market will fail or even crash, you are betting against yourself.  Let’s take a breath and think through all of the hype in a logical way.  

First, let’s understand the stock market and its purpose. For the practicality of understanding, lets imagine a scenario. You want to get into the stock market, so you invest in an index fund or exchange traded-fund (ETF), Vanguard Total Stock Market Index Fund (VTSAX), or even better, Vanguard Total World Stock Index Fund ( VTWAX). Your Coworker asks you why you are getting into the stock market now and warns your that a crash is coming.

I guess he has a magic crystal ball telling him that…

Now let’s think about this logically. In order for these to fail, every company that is part of VTSAX or VTWAX would have to become defunct.  What is the likelihood of this to happen? Correct! It is virtually impossible.

What is the Stock Market Really? Going deeper in understanding the stock market, I like to remind everyone what the “stock market” fundamentally is. The stock market is YOU. Let me explain this concept. If you invest in VTSAX that covers the United States, long term, you must assume that the United States economy will fluctuate, having highs and lows. But people are what fuels the companies and, in essence, are the market. The companies operate using leverage from all of us – not just investors. We are great consumers. We need gas, food, water, and housing. The more we need and want, the more we have to work in order to buy these things. In turn, companies will continue to produce goods, services, and materials. They will continue to create new, innovative, and revolutionary goods and services, generating more positive results for their companies and more profits. These profits are one factor in incentivizing investors who will continue investing.  Occasionally, the governing entities will intervene and will impose sanctions and regulations.  We know and expect that. It is the way the government works as well as our economy.  Long term, this is nothing to worry about.  Educated investors anticipate this. We also understand that the free market adjusts to change and will adapt, just as we will adapt. These changes and adaptations often lead to great improvements and an improved society.

Adaptations and Change: What Does It Mean?  Overall, we humans do not like change, and we are prone to listening to biases. It is just the way we are programmed. We also, generally speaking, are somewhat limited in our scope and range of thinking on a worldview or a broad global view. Who can blame anyone for that? There is SO MUCH information out anymore that it is almost impossible to sort through everything – especially all of the NOISE and disinformation. My advice to you is to stop listening to all of the craziness out there. I know it is difficult, and we have the propensity to want to gather together. Certainly to some there is comfort in knowing others are in the same boat – even if it is sinking! But you need to stop listening and buying into all of the gloom and doom.  Read and educate yourself.  That is one of your best defenses against failing in the stock market.  Remember that large corporations and entities study human biases and trends. They use this information and algorithms to their advantage – not yours. They are hedging on the hysteria of the masses.  Educate yourself and understand that you are investing in the market for the long term. Look at the marker trends over a long period of time. The market is pretty tried and true. It will dip and fluctuate as it always does, but I am betting on us consumers. Remember we are the market. Stay calm and ride this out.  

For more information on investments, putting together a budget, prioritizing debts and making a plan to be debt free, and anything else financial, reach out to me for help. This is my passion and my mission.  Also, make sure you are following me on Twitter, Instagram, and Facebook to catch all of my free content, and make sure you subscribe so you catch every new blog post!

The 8 Reasons You Should Consider a Trust

In working with many clients, I often get questions that are a little out of the realm of budgets and financial portfolios. One of these questions pertains to trusts. While it is not directly a financial question in terms of investing or budgeting, it does deal indirectly with money and assets, yet is one that is often overlooked. It is in some ways like wills. Some people, while verbalizing that wills are necessary, still refuse to draw up a will.

Why?  And how does that turn out when the inevitable happens? 

I’ll save this topic for another blog. Trusts are also somewhat of an enigma which often tends to scare people into inactivity, causing even more problems in the long run. So let’s dispel some of the myths about trusts and delve into the eight main reasons why they are beneficial and even necessary.  

Asset Management and Control: People set up trusts in order to transfer assets to a trustee or trustees. Trusts can be managed by individuals and/or corporations including lawyers. Establishing trusts can also be a way not only to manage and control one’s assets but is also a way for the grantor to continue to increase wealth while establishing the control of what will happen to their assets.  

Privacy: There are times when it is best when the conditions of a trust or the exchange of assets are private rather than public. Information in a will becomes public record after the will is filed with the probate court which is the case for most estates since the assets in the will are eventually distributed. This is not the case with a living trust called an inter vivos trust or a trust between the living.  In inter vivos trusts, the conditions and assets are kept private.  

Tax Control: For income purposes, trusts and inheritances are considered as gifts, so trusts and the distribution of assets from trusts to the beneficiaries are not taxed.  That is good news.  These laws began changing for the masses in the 1990s, and now, as of 2022, the lifetime gift exclusion is $12.06 million. There are also amounts for married couples that are double that at $24.12 million. Trusts can save both the grantor and the grantor’s family money in regards to current income taxes and transfer taxes.  The IRS does not tax the beneficiary in most cases since the money in the trust has already been taxed.  

Disposition Control:  The grantor of a trust at times may wish to put certain restrictions on the disposition of assets. There are a variety of reasons such as ensuring that the beneficiaries do not act irresponsibly with the assets allocated to them. Trusts allow the grantor to do this.  So, for example, if the grantor does not want a minor to receive assets or wants to put restrictions on when the assets and how the assets will be disbursed, it is possible to set that up in the trust.  This allows the grantor control over the disposition of the trust, thus enabling the grantor an alternative to an outright asset transfer.  

Protection of Trust Assets: In trusts, the assets are protected, thus insulating the monies and properties from claims that could be associated with them by creditors or debts. This is assurance to the grantor that the assets will be there for the beneficiaries of the trust.  

Distribution Flexibility:  Trusts allow for flexibility in the way the assets are distributed.  This enables the grantor of the trust to provide accordingly and also to allow for changes in financial status or life changes.  An example of this is when the trust is first established, the grantor may envision that the assets be divided equally between beneficiaries. However, fast forward into the future, and, now, not all three beneficiaries have the same financial needs. The grantor of the trust is able to write the trust in such a way that accounts for these situations which can be a relief to the grantor.  

Avoidance of Conservatorship:  In the event of a family member who is physically, mentally, or emotionally unable to provide financial care for himself or herself, a trust is a wonderful way to deliver the necessary financial means for long-term care. Often in these situations, by law, a conservatorship is named who is charged with managing the assets. There are times, however, when the trust is written, leaving the assets with a trustee who is entrusted with managing the money for the person who is not able to financially care for himself or herself which then bypasses the conservatorship.  But, this is dependent on the situation and the way in which the trust is established, so it is necessary to check with a professional when in this situation. Nonetheless, the trust provides the necessary money to financially provide for the individual who needs long-term care.  

Transferring Assets Outside of Probate:  After death, if the deceased has assets, regardless of a will, the will and/or estate must be authenticated which is called probate.  Often an executor or executrix is already named in a will, so the named person has the responsibility of administering the process of probate.  The process can be drawn out and can be costly, so it is incumbent to avoid probate as much as possible.  Trusts, especially those with revocable living trusts, avoid probate because they are not set up as part of the deceased’s will.  Therefore, the disposition of assets is streamlined and avoids costly fees that are often associated with wills.  

Let’s face it. We all work hard for our money and don’t want to waste it.  Most of us want to leave something to our families upon our deaths.  Trusts allow us to do so in ways that avoid many headaches, taxes, fees, and undue stress.  They are certainly something to be aware of, especially as we accumulate wealth.  For help discerning if a trust is right for you, contact me so we can dissect trusts on a deeper level.  For all of your financial needs, contact me and follow me on Budgetdog.  My mission is to help people make the most of their financial situation.  

Lies about the S&P 500 That Nobody Tells You

When it comes to the stock market, most people realize that it is like playing poker or Russian roulette. Day trading and trying to time the market are risky. All types of investing in the stock market have some level of inherent risk. The stock market has its highs and lows; its good times and bad times. People make money and lose money, and most people understand that investing in individual stocks or picking certain stocks that will definitely make money is not always a reality. But when it comes to the S&P 500, often people take a different stance, assuming and spouting about how it is such a safe investment.  Perhaps. But be aware that there are still risks before blindly buying into what others say about the S&P 500.  

There are four major falsehoods that you need to understand regarding the S&P 500. The first and probably the primary one is that the S&P 500 is a safe investment. The fact that it is an investment in the stock market should tell you that there is no assurance that it is “safe.”  What does that even mean?  I will contend that an index fund like Vanguard 500 Index Admiral share ($VFIAX) is a great investment and a good foundation for many portfolios, but I would never say it is “safe” unless you mean over a long period of time. So if you are thinking about investing in it for 40 years or so, you could probably conclude that it is a fairly secure and prudent investment.  However, there can be pretty much volatility in it if you are looking at a shorter time frame.  Personally I own stock in the 500 largest companies and feel it is a good investment and addition to my portfolio.  But I am also fully aware that there are risks that come with investing in it. Over its history, the Standard & Poor’s 500, shortened to S&P 500 which dates back to 1957 as we know it today as a stock market index, tracking the value of 500 corporations listed on the New York Stock Exchange (NYSE) and on the NASDAQ Composite, has seen a positive year 73% of the time. That means that 27% of that time, since 1957, it has been in the red.  But more than that, looking deeper into the statistics of the S&P 500, since it is necessary to take into account volatility, the high point has been 50% or more and the low point has been less than 40% or more.  So…going back to the question about whether or not it is “safe,” is quite a subjective question.  But there is more to consider with the S&P 500.  

The second false notion about the S&P 500 is that the return is below that of other more “exciting” or “flashy” investments like individual stocks. There seems to be an idea that individual stocks yield higher returns. True, false, maybe.  There is so much that goes into this idea that there is not a definitive answer. Statistically, from 1926 until 2015, 96% of stocks, collectively, underperformed one-month U.S. Treasury bills. Wow! To me, that is not a great statistic from my financial perspective. Yes, some stocks perform well over the course of time, but the majority of them actually underperform on a large scale. I always advise against timing the market, but with individual stocks, you have to know when to get in and when to get out in order to be financially successful.  That is so risky and many lose trying to play that game. This leads us to the next falsehood about the S&P 500.  

The third misconception about the S&P 500 is that it only goes up.  It is such a part of human nature, especially the part that deals with money, that I only hear the complaint from investors that they thought the S&P 500 was a “good investment” during financially turbulent times. It seems like investors crawl out from nowhere to complain that their S&P 500 fund has lost money.  I never hear from anyone when it is up, only complaints when it is down. Newsflash! That is all part of the game of the stock market.  Investing is not science and is not a guarantee.  Additionally, being down can have benefits if you plan accordingly. How?  Think about buying one share and only paying $200.00 compared to having to pay $300.00 for that same share. I want to buy at a lower price, just like going to the store and buying things when they are on sale.  Don’t we like sales?  Well, think of it as that – a sale. We are able to buy things on sale and save money or maybe buy more.  Financially, this is good, if you plan accordingly and plan for the duration. This leads us to the last misconception.

The fourth falsehood is that the S&P 500 takes too long to get rich. This is not necessarily true.  Here are a few stats to help disprove this idea. If a twenty-year-old person invested $1000.00 per month for 22.5 years, they would amass $1,000,000.00 at the age of 42 and a half. This is not taking into account any other investing. The average age for a millionaire is 49. So, just think about having a million dollars and not yet even being 43 years old.  Perhaps you want things faster than that or more money than that? It is hard to beat the market, and few do. From 2000 to 2021, the AVERAGE investment returned 2.9% while the S&P 500 returned 7.5%.  Looking at that in dollars and cents, if a person invests $10,000.00 in 2000, in the twenty years just noted, the average person would have accumulated $17,847.00, but the S&P 500 investor would have accumulated $44,608.00. I personally would rather have the $44,608.00!  Plus, when investors lose in the market, they have a lot to make up. Think about this. If an investor has $400.00 but loses 50%, he or she only has $200.00. Ouch!  In order to catch up, just to the $400.00, you must recover 100% – not 5-%. In order to recover, you have to increase your gains substantially.  Actually, here is what you have to gain in order to recover from your losses:

LossPercentage to Recover
-10%11.11%
-20%25%
-30%42.86%
-40%66.67%
-50%100%
-60%150%
-70%233.34%
-80%400%
-90%900%

Obviously, the more you lose, the more you have to gain in order to recover which becomes exponentially more difficult or almost impossible.  It is not a game, nor is it something to take lightly.  Overall, the S&P 500 can be a sound investment, but it should be one in which you plan on keeping for a duration of time and one that you do not expect to make you an overnight millionaire. Invest wisely and understand what you are doing with your money. 

For more in-depth personal financial advice and information, contact me. We can look at your unique situation and plan for your financial future and success. Don’t forget to follow me on Instagram and Twitter, and to continue reading my Blogs.  

The Crystal Ball of Stock Picking Doesn’t Exist

If you were to ask me, as MANY people do, what stock to invest in, I could give you an answer.  However, it would NOT be the answer that you probably like. In order to give you a definitive answer for which one stock for you to invest your money in, I would have to have a crystal ball. Many people want that. I would be a billionaire – several times over – IF I could answer that question. 

But I can’t and here is why. 

First there are too many variables.  This is where it gets sticky and why some people get irritated that NOBODY can provide one answer.  I can give you explanations and answers, but it is not an answer to what one stock should you invest your money in right now. We will look at several examples to help explain why there is not ONE answer to the question but rather answers to questions about the stock market.    

Example #1:  A person contacts me about what stock he or she should invest in on a particular day. Let’s pretend I pick Apple, which I would never really say, but for example sake the answer is Apple, and this person decides to take my advice and invest on that date in Apple.  So this person, thinking this is the magic answer, invests all of his money in Apple stock ($AAPL) which is currently down 27.72% for the year.  Obviously our example investor is losing money, so he, not knowing the intricacies of the stock market or Apple as a company, sells at almost a 28% loss.  Since I told this investor to put his money in $AAPL stock, and he lost money, he is quite unhappy with me.  He doesn’t stop there, however, since all he wants is a quick answer and even quicker money.  So this person finds the next financial guru on the internet, asking the same question and probably getting the same result.  WHY?  Let’s go back to what I said earlier.  There are too many variables.  Instead of this person wanting to know what stock to invest in, he would have been better served to find out ABOUT the stock market and about his goals and disposition as an investor.  That’s where the answer lies.  

Example #2:  Similar scenario as example #1, but when this person contacts me about what stock he or she should invest in on a particular day, my answer is more vague. Instead of saying he or she should invest in Apple stock, I ask questions about his or her investment strategy, length of time in which he or she intends to invest, disposition of investing such as moderate or aggressive, and tolerance level.  Nope!  This is not what this person wants to hear either or see played out, so, again, this person moves on until he or she can find someone who is going to tell them to invest in such and such stock AND that stock makes money.  But in the real world, it does not really work like that.  So let’s look at one more example, to get a better answer and outcome.    

Example #3:  Again, similar scenario, but when this person contacts me about what stock he or she should invest in on a particular day, my answer again is vague, asking questions about investing and goals, BUT we are able to discuss building a portfolio and managing the portfolio along with his tolerance level and understanding of the market.  In addition, we dialogue about stocks he thinks would be good for his portfolio including diversification.  He asks questions, not about a particular stock that will make him an overnight millionaire, but about the marker and stocks in general.  He pushes me for an in-depth understanding of the market.  We have an exchange about multiple asset classes, multiple investment type products, personal risk type and profile, dollar cost averaging, and not trying to beat the market. This person understands the importance of time and contributions as being the key and “magic answer” to being successful in the stock market.  This person gets it and will be successful.  He is asking questions, discerning what he learns, and asking more questions – bigger questions that will yield profits.  

So… IF you ask anyone in what one stock you should invest your money in, you should get more questions rather than the name of one particular stock.  Ask the right questions, the bigger questions. 

Think about the following quotation: “If you give a man a fish, you feed him for a day—if you teach him to fish, you feed him for many days.” While the origin of the quote is debated, the message is applicable to many different situations and industries, including the stock market and investments.  So, my answer to this question about what stock to invest in is more questions.  I am here to teach people about the stock market, so each person can be successful and that is my crystal ball.  Follow me, and read my blogs, and sign up for my emails for everything financial.  I am here to help you, to guide you, to coach you, and to educate you on your financial journey.  

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Do I Need a Financial Advisor?

So often in life we try to do things ourselves, not wanting to pay others to do what we think we can do ourselves such as painting and landscaping. Is it because we think we are lazy if we don’t do things ourselves or that we just think these jobs are easy or not that complicated, so we can easily do them?  I think the answer is different for everyone, and it depends on the “job.” For example, my wife and I have tried our hand at several projects such as painting and realize, for us, sometimes it is best to leave certain jobs to the professionals who make a difficult and tedious job look easy.  Other tasks, however, after educating ourselves and acquiring the necessary information and tools, we roll through the task without a hitch, personalize it to meet our taste, and save money that would have been unnecessarily wasted.

Investing is one of those areas where you can acquire the necessary tools and information, so you can be the “expert” in YOUR investing and save money that is unnecessary to spend.  So when people ask me whether or not they need a financial advisor, I would say you DO NOT, but you DO need to understand some things and educate yourself on some of the basics before deciding to take on this task alone.  let’s discuss whether or not you need a financial advisor.  Let’s break these down and discuss whether or not you need a financial advisor.  

What You Need To Know To About Financial Advisors: 

There are three things you need to consider when deciding if a financial advisor is right and necessary for you.  These key factors are: portfolio value, financial value, and emotional value.  

Portfolio Value:  In a study that Vanguard conducted in 2020 of 44,000 advisor-backed accounts that had been previously self-managed, they found that the advisors helped account owners with their portfolio construction, their risk tolerance understanding and behaviors, the tax efficiency, the fees, and the rebalancing of the portfolios.  From that group, two-thirds of the individuals changed their equity allocations by at least ten percentage points.  In addition, more than 90% of those investors changed their international allocations, most increasing their foreign holdings, helping to eliminate their home-bias.  So, this all sounds like you DO NEED a financial advisor.  Yes, these are all positives.  However, what the advisors did and do is NOT complex.  With some education, I think you can do this yourself.  Just as I told you in the beginning, sometimes my wife and I outsource but if and only when it is not to our advantage to do it ourselves.  

Financial Value:  The role of a financial advisor is to set up your portfolio. Most will meet with you once a year, when you ask for the check-in, and they pick and choose what THEY think is best for you.  They make money off of your portfolio, so your earnings pay their AUM fee.  An AUM fee is the assets under management.  This fee and the AUM varies from each financial institution.  You need to be aware of the AUM fee and the way it is calculated since some financial institutions include things like bank deposits, mutual funds, and cash into their calculations or snapshot of your accounts. Just be aware of AUM fees and make sure to ask direct questions if you decide to seek out the help of a financial advisor.  On average AUM fees range from one to two percent.  This may not seem like it is high, but it can really be massive over a span of time.  Let’s look at how costly this can be.

Example: You contribute $500.00 a month for 30 years. The total contribution would be $180,000.00. If the growth was 7% without any fees, this account value would be $588,032.77. Let’s add in some of the fees that may appear “insignificant.”  At 0.50% AUM, the same $500.00 a month for 30 years, would amass to $536,000.00 with $52,000.00 being paid out in fees.  At 1.00% , the amassed amount would be $498,000.00 with $98,000.00 in AUM fees. Lastly, at 2.00% AUM fees, the amassed amount would be significantly less at $409,000.00 with $178,000.00 in fees.  As you can see, fees DO matter.  My advice is to pay close attention to AUM fees if you choose to utilize a financial advisor.  

In addition, be aware of the type of services your financial advisor offers.  Some, if you are lucky to find one who is actually concerned about your overall financial health, might also offer help with financial planning, wealth management, paying down debt, building an emergency fund, and managing college savings. So they can serve a purpose.  Vanguard’s 2020 study notes that eight in ten people have an 80% change or greater of achieving their financial goals. That is a good percentage.  However, make sure you research the financial advisor very carefully, the services he or she offers, and all of the fees as well as how the fees must be paid for the financial advisor.  

Emotional Value:  This is so much more important than knowing and understanding the what or the how. You must know yourself and your financial investing comfort.  Know how you would react to different financial situations. This is a pinnacle piece in assessing your financial situation and decision making.  Personally I think this is paramount since most of us have not lived through real market turbulence and market volatility. Think through real life scenarios to assess your emotional investing resiliency and temperament. For example, what about your financial situation if you lose your job, another pandemic occurs, your significant other passes away, or you are left without any inheritance? How would you react to any of these situations?  Maybe we should add something about the current market volatility?Would you hold onto your investments, keeping them intact, or would you sell? Be totally honest with yourself?   

Keeping all of this in mind, especially your portfolio value, financial value, and emotional value, you should be able to make the decision whether or not to use a financial advisor. If you do decide to go the route of securing a financial advisor, there are four things you must ask the advisor first.  

  • How do you get paid?
  • What is your background and are you a Fiduciary?  
  • How much access do I have to you?
  • What is your investment philosophy

If, however, you decide to forgo a financial adviser, take time to educate yourself.  My Investing 101 book is a great resource for your starting place.  Also, turn on my post notifications on Twitter and Instagram and subscribe to my Youtube for timely financial advice on topics such as Cryptocurrency.  Check out Budgetdog for help budgeting, financial planning, paying off debt, and all things financial. Always feel free to contact me for more specific advice and answers to your questions.

A Money Hack That Would Have Saved Me Six Figures!

Did you ever think about what your life would be like if you could live it backwards?  And how often have you said, “If I only knew then what I know now”?  Often people lament about “If Only” and the “Shoulda, Coulda, Woulda” of situations.  That is exactly what this is! If I only knew about this hack when my wife and I were trying to pay off our mortgage and all our debts, things would have been paid off quicker, and we would have saved a lot of money – six figures to be exact. 

Well… it is too late for me, but it is NOT too late for you.  Learn from my mistakes, so you don’t make the same ones.  This hack would have saved me $120,000.00, and it may save you even more.  

So, how?

Let’s talk about a Professional Mortgage Loan.  These loans allow those with high earning incomes to secure financing for homes with fewer restrictions than those imposed by conventional loans.  They are designed for high wage earners such as doctors, certified public accountants, lawyers, pharmacists, and other high-income-potential professionals.  

Professional Mortgage Features:  Some of the features, pros and cons, of these loans compared to traditional mortgage loans include the following:  

  • No Private Mortgage Insurance (PMI)
  • Better Financing Options 
  • Ability to Qualify with FUTURE Incomes
  • Ability to Qualify with Deferred or Income-driven Student Loan Payments

Let’s delve into each of these, so you have a better idea of these features and how they could save you money.  

No Private Mortgage Insurance (PMI): Private Mortgage Insurance referred to as PMI is insurance that protects the lending company in the event that the borrower fails to make payments.  It is a safeguard for the bank or lending institution, but it is costly for the borrower.  PMI normally ranges from 1% to 3% of the amount financed along with the borrower’s credit score.  FHA loans are government-backed mortgage loans that are insured by the Federal Housing Administration (FHA) and always carry with them PMI.  With conventional mortgage loans, the PMI is removed when the borrower has 20% equity in the home.  Let’s crunch some numbers, so you can better understand the potential savings.  

My situation:  My wife and I put 3.5 % down on our home, had an FHA loan, and, therefore, had to pay PMI of about $150.00 per month.  We paid PMI for five years totaling $9,000.00.  Because I was a CPA at the time, instead of an FHA loan, I could have opted for a Professional Mortgage Loan instead, thus investing the $150.00 a month.  Over the course of thirty-five years, that $150.00 monthly investment could have grown to about $120,000.00.  

Better Financing Options:  Professional Loans allow borrowers to qualify for higher loan amounts with less money down.  This is due to the fact that the lending institutions want to build a relationship with high-earning customers and realize that the income for the professionals will continue to rise beyond their beginning salaries.  For example, a doctor in residency does not earn what he or she will as an attending physician or specialist.  Knowing that, Professional Loans allow qualified borrowers to exceed the normal 2% to 2.5% of gross income.  In addition, Professional Loans allow lower down payments than conventional or FHA loans and some don’t require any down payment at all. Some Professional Loans allow borrowers as much as a $2.5 million loan amount with as little as 5% down.  My take is that this is where borrowers can really get in trouble as it is easy in this situation to overextend.  I am not in favor of being over extended even when there is the potential and likelihood for increased wages.  

Ability to Qualify with FUTURE Incomes:  Most conventional loans require paystubs, establishing a work history along with a myriad of other documents and credit history.  Professional Loans do not require the same type of paperwork.  In fact, some only require a copy of an employment contract and letter from the employer in order to qualify.  This means that a borrower can qualify for a loan almost immediately rather than having to wait to establish a work history.  In addition, the loan amount is not contingent on the current amount of income but can take into account the income potential.  Again, as noted above, this is a potential for becoming financially overextended.  

Ability to Qualify with Deferred or Income-driven Student Loan Payments: Professional Loans often qualify those with high earning incomes based on their income-based payments and exclude student loans that are in deferment. This changes the debt-to-income ratio, thus allowing these borrowers to qualify for these loans.  

Conclusion:  So instead of saying you wish you knew something or wishing you could go back and do things differently, if you are in a high earning profession, you may want to look into Professional Loans before considering a conventional or FHA loan. Do your research. There are a variety of these Professional Loans at different banks and lending institutions, so you will want to hone in on your own profession for specifics.  For more help, contact me at Budgetdog.  I would be happy to help walk you through this process and compare this to other conventional loans to uncover the best options for you and to see how much money you could save.  I don’t want you to say, “If only.”