November 19, 2013

A Calculated Leap of Faith

Credit: pakorn
Do you love your job? If you do, that’s awesome! If you don’t, why are you still doing something you don’t like? Maybe you’re like most people and view your job as “just okay,” hopefully with more good days than bad.

I was flying back from meeting with a client last week and was reading everything I could get my hands on to try to drown out the wedding shower planning going on behind me. I was shocked to read that a recent study found that 80% of workers in their twenties want to change careers. That statistic strikes me as really high, but it inspired me nonetheless to share a few thoughts with those of you out there considering changing careers, whether you’re in your twenties or not.

First, try to bite the bullet and keep “suffering” through your current job as you explore ways to incorporate a portion of your desired career into your current routine. I’m not trying to rain on your dreams; I’m just suggesting that you gently test the waters before you do something drastic. You may find that hand-making wooden furniture, singing at a jazz bar, or making a whole lot of tiny cupcakes isn’t as glorious as you once thought, and by first approaching your desired career as a hobby or occasional activity, your finances probably won’t take that big of a hit.

If you've found that biting the bullet with your current employer or occupation is no longer a feasible option and you’re even more enthused by incorporating part of your desired career into your current lifestyle, it’s time to take the leap of faith. It’s time to take the leap of faith as long as you and/or your family won’t irreparably suffer should things not go according to plan. I’m still not trying to kill your dreams because life is pretty short, but sometimes you have to do what you have to do. Work is called work for a reason, and there is a reason someone is willing to pay you to do what you do. Despite being told as children that we could be whatever we wanted to be, a job you don’t completely enjoy that provides food and shelter may be better than a job you love that doesn’t. That said, if you’re convinced the risks of changing careers are worth the potential rewards, I’d advise you to make sure your spouse is completely on board and significantly boost your rainy day fund before you hand in your two weeks notice.

If you've taken the leap of faith, love your new career, and can adequately provide for your loved ones, congratulations! If you’ve taken the leap of faith and found that the grass wasn’t greener and you’re financially struggling more than you can withstand over the long haul, it’s important to know when to leap back. What I mean is that it’s important to know when to pack it up and return to your more practical, or at least more financially lucrative, career. You obviously want to make the leap back before financial ruin, but in some occupations it’s important you also consider how long you can be out of the field and still be able to pick up things relatively close to where you left off. If you made the leap of faith and things didn’t work out, don’t feel bad! At least you pursued your dreams; not everyone can say that.

Jumping from being a CPA tax preparer to a CPA/CFP financial planner was a big leap for me. I admire those of you chasing your dreams who have the courage to take even bigger leaps. Whether a big leap or a small leap, if you’re contemplating a career change, I wish you luck, but please make sure it’s a calculated leap of faith.


November 15, 2013

The Best Time to Invest

Credit: Stuart Miles
One of the most common questions I get in my line of work is something to the effect of “When should I begin investing?” or “When should I invest this particular portion of money?” Many brokers and financial advisors would talk to you about their ultra short-term market expectations or about trying to time the market (investing right before the market goes up a lot), but you won’t get any of that hypothetical schmoozing from me. A dictator’s unforeseen actions, a politician’s ill-conceived comment, or a shocking corporate scandal can throw even the best short-term market forecast out the window, so more often than not, I reply to someone asking me about the ideal time to invest with a very simple answer: “Probably now.”

“Now” is not a cop out. “Now” is not due to lack of knowledge or experience on my part. “Now” is not because the sooner you invest, the sooner I can talk with you about investment allocations and options. “Now” is about statistics, probability, and history. (Please click on the link and watch the video created by Time Magazine showing how $1 invested in the U.S. market has grown from 1927-2012 as well as what was in the headlines of Time.)

From a long-term investment return point of view, I think it’s safe to say that the last 85 years have been pretty awesome, but that’s not to say things haven’t been volatile. What if I told you that the S&P 500 has either been up more than 20% (which is a lot) or down (you lost money) for 18 of the last 32 calendar years, meaning returns have been between 0% and 19% (moderate growth) in only 14 of the last 32 calendar years? Well the market has been, so in order to be in a position to possibly enjoy some future, compounded long-term investment returns (like the ones you just saw if you're a good person and watched the video), I’d argue that you need to go ahead and pursue a prudently diversified long-term investment strategy and agree to stay on the market roller coaster. I just don’t think “guaranteed” annual returns of any substance are possible.

Another statistic worth mentioning is that, according to J.P. Morgan’s September 30, 2013 Guide to the Markets, the S&P 500 has had an average intra-calendar year drop of 14.7% every year since 1980. This means that the stock market has been down an average of 14.7% at some point during the calendar year despite its strong overall returns! I know of no other statistic that more clearly emphasizes the importance of a strong and patient stomach for market volatility. I also believe that in order for investors to have a stomach for market volatility, they need to have enough cash on hand, an understanding of their long-term financial strategy, and confidence in their financial advisor.

I’ve thrown a video and a couple of statistics at you that you may have found a little surprising and encouraging, but I’m not sure I’ve yet made a solid case for why investing now is likely your best course of action. You should consider investing now because over a long enough time frame the stock market has always gone up, and if you’re a betting person, the market has gone up more than it has gone down. Please understand that I am not saying you will have a better long-term investment return if you invest today versus tomorrow. What I am saying is the odds are in your favor!

If the current risk of market volatility is holding you back from investing, please know that there will always be market uncertainty no matter how long you wait to invest. There is a lot of recent and not-so-recent history to support investing now. In the battle of current market uncertainty versus market history, I personally choose history, but if you’re still not sold on this, I’d be happy to share some more of my thoughts with you and offer some techniques that can help you finally put some of your cash to work over time.


November 05, 2013

Open Enrollment

Credit: Ambro
Let’s be honest: open enrollment stinks. At best, your human resources department goes over your medical, dental, and vision insurance plan options with you at a staff meeting and offers to help you fill out the forms. At worst, your human resources department sends you a bunch of information and a bunch of forms and asks you to make a bunch of decisions by yesterday. Either way, it’s probably not anyone’s favorite time of the year. It’s certainly not mine!

This year is particularly vile. With all of the changes going on in the realm of health care, there are a lot of new rules and revised wording in plan options, and most of the information I’ve had the joy of reading for friends, family, and clients seems to be a grotesque concoction of insurance jargon written by a group of long-winded lawyers. Fret no more, though. I’ve got 10 tips to help you get through your next open enrollment period:
  1. Read it - all of it. It’s probably a daunting amount of confusing material, but we’re talking about your medical insurance benefits, and possibly your spouse’s and children’s medical benefits. You are about to make irrevocable decisions (at least until your next open enrollment or qualifying life-changing event) that could have real consequences (both medical and financial) to your overall well-being. Make sure you’re giving your elections the time and due diligence they deserve.
  2. When in doubt, ask. If you don’t have any questions after reading through your materials, you should probably read them again! No question is too small, and you don’t want to find yourself wishing you had asked your “little” question back during open enrollment while you’re at the check-in counter in the ER!
  3. What’s changing? This is probably the easiest and best question you can ask your human resources department (or your insurance provider if your company is keeping the same provider it had last year). If you are a really organized person and can get your hands on last year’s plan, lay this year’s plan next to it, side by side, and go at it. Highlight the differences so you can know the new rules of the game and be ready to go with a different plan option if needed.
  4. What costs are increasing? Unless the benefits you are being offered are being reduced, there’s a pretty good chance your health insurance expenses are going up. We can argue about whether the government, the insurance companies, the hospitals, or the doctors are behind this, but at the end of the day, what matters is that your costs are still probably going up. It’s important to know what specific areas of your plan are becoming more expensive. Are your premiums (the amounts you pay for insurance coverages) going up? Are your deductibles (limits you have to hit before the insurance company starts substantially paying for health care costs) going up? Are your co-pays (fixed charges for visiting a doctor) going up? These increases should be considered when determining which plan option is best for you and your family.
  5. In-network or out-of-network? An in-network doctor is one who your health insurance provider is contracted to work with, and an out-of–network doctor is one who your health insurance provider is not contracted to work with. Typically in-network doctor visits will cost you less because your health insurance provider has already negotiated set prices with the doctor for his or her services. If you love your doctor and are not cost sensitive, this may not mean much to you, but if you’re neutral towards your doctor, I’d suggest you make sure he or she is in-network, and if not, find a doctor who is. This is particularly worth looking into if your company is changing providers or you are looking into an obstetrician.
  6. Consider dental insurance. If your company offers dental coverage, give it a look. I know it’s more coming out of your check, but you may find that for a relatively minimal cost you can have a lot more coverage and flexibility should that dreaded toothache strike. If you go to your dentist regularly, and you should, it’s possible your savings on basic preventative care could be almost equal to the cost of your insurance.
  7. Consider vision insurance. I’ll just be frank and tell you that, in general, I rank basic health insurance needs in order of importance: medical, dental, and then vision. In a lot of cases, if something serious happens to your eyes, it’s possible your medical insurance will be there for you. That being said, vision insurance can also add a lot more coverage and flexibility to your insurance arsenal should something happen to your baby blues. Particularly in years where you know your prescription has changed, you need new glasses, or you need new contacts, your savings on those appointments, products, and services could almost equal the cost of your insurance. I’d give it a look (pun intended).
  8. Make sure everyone is covered. This may seem obvious to some people, but trust me when I tell you this tip is embarrassing to some people. Please, please don’t leave off a spouse or a child who is eligible and needs insurance benefits. Even if your company and the insurance provider can fix your paperwork mistake, by the time you get through the process, you’ll wish you hadn’t forgotten anyone.
  9. Ask about wellness programs. This suggestion may be a tad early, but I am beginning to see, read, and hear about more and more programs companies and insurance providers are putting in place that offer rewards, incentives, and in some cases, reduced costs to employees who participate in wellness programs. These programs can be yoga classes, gym memberships, online classes about eating right, and lots of other things, but if you’re interested in getting healthier and potentially getting some perks for doing so, see if you can participate in a wellness program.
  10. What do you want your health insurance to do? I saved what I think is my most important tip for last. Many people I know go with whatever plan option has the lowest premium, and I’m not sure that’s the smartest move. In my book, health insurance is a last line of defense to protect you and your family’s assets should something really serious come about medically. Personally, I always look for the plan options that offer the highest coinsurance. Coinsurance is how medical expenses are shared between you and your insurance provider once the deductible is met. If there is an option that offers 100% coinsurance (or close to it), it will probably have a relatively high deductible and be one of the options that takes a bigger bite out of your paycheck, but it will likely offer more financial protection should a very expensive medical issue come up. If you don’t have the healthiest family history, you or your spouse are thinking about having a child, or your abdomen felt really bad the last time you had spicy food, I would certainly encourage you to consider this type of plan. Playing with your insurance election is not how you get a raise. Remember, if you have an adequate rainy day fund, you should be able to handle a higher deductible. If you follow this tip, you may curse me every two weeks, but I would wager there will eventually be a year where you will be glad you went with an option that offered more protection to your overall wealth. 
Today’s tips are pretty general, so please let me know if there’s something specific I can try to help you with. Just like you, I do hate reading the insurance lingo, but I love helping others.