December 15, 2015

What a Year!

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This time last year, my wife and I were trying to decide whether to move or not. This time last year, I was just beginning to actually think about being a dad. This time last year, I was a senior financial planner still learning the ropes.

Now, my wife and I’ve sold our first home and bought our second home. Now, I’m not quite “Superdad,” but I can change diapers faster than a locomotive and I’m able to soothe my teething son in a single bound (well most of the time…). Now, I’m a wealth advisor, and finally doing what I’ve always wanted to do, yet I still learn something new almost every day!

2015 has been a year of change, and for the most part, a year of blessings. There have been a lot of peaks, but there have also been some valleys. Overall, I consider myself pretty lucky. What a year!

During the course of this mania, I learned several financial and life lessons first hand:
  • The emotions, stress, and time consumption associated with a real estate transaction is insane. It’s a second job! However much you budget for a move, you’re going to be low. There’s a financial advisor joke out there that goes something to the effect of “What do you call downsizing? Half the house for just about as much money!” I used to laugh, but now I don’t. We weren’t downsizing. We were upsizing to our first house big enough for a family with a yard, and moving ended up costing us significantly more than we expected. All I can say is buy less than you think you can handle and maybe have more than one inspector or buy a home warranty!
  • Baby furniture, car seats, strollers, clothes, formula, diapers, toys, and doctor visits can really add up! Remember that old game show Supermarket Sweep? Those people grabbing the expensive turkeys were crazy! Give me a cart on the baby formula and diaper aisle next to the greeting cards and I bet I’d be pretty hard to beat! Adding another mouth to feed does not financially benefit many households (despite the tax deduction), but being a parent is more miraculously wonderful and fulfilling than I ever imagined! In happier financial news, the “going out” expenses and vacation expenses do seem to naturally tick down, partially compensating for the costs associated with the mountains of diapers!
  • Earlier in 2015 I was promoted from a senior financial planner to a wealth advisor. That meant that the firm I work for was ready to take off my training wheels and entrust me with working with clients on my own. That is a trust from my employer, and the clients I serve, that I do not take lightly. I continue to encounter new situations, I continue adding experiences, and I continue to learn new techniques and strategies to help people grow and preserve their nest eggs, save a little on taxes, give a little more to their favorite charities, and achieve personal goals. This year I got to be the anchored beacon to clients experiencing their first market correction in almost six years, I got to help a number of people who were in emotional and financial pain from suddenly being laid off, and I got to help a number of widows and children walk through the grieving process and the financial distribution and redeployment process of bequeathed and inherited assets. Money should not be anyone’s life, but money is part of everyone’s life. My job is not always easy and it’s not always fun, but being able to help people when they need it most is what motivates me to do what I do.
In 2016, my wife and I are going to go on the offensive against our mortgage and pay a little more than we have to so we can be debt-free a little sooner. In 2016, my wife and I are going to contribute a little more to our 401(k)s and continue to make our annual Roth IRA contributions so we can build up a reasonable retirement nest egg as soon as we can. In 2016, we’re going to save week after week and finish furnishing our new home. Those are our financial goals. What are your financial resolutions?
If you’re one of my loyal readers, you probably noticed that I didn’t post quite as much as I have in previous years. If you wondered why, now you know (move, baby, job responsibilities, etc.). Still, 28 posts in 2015 isn’t too bad, and I promise you, I have just as much energy and excitement about 2MuchCents as I ever have. Life happens, but I’m going to try to average at least two posts every month. And as always, if you have a question or an issue that you think I could help you with, please reach out to me. I’ll make time for you!
2016 posts will include why you should unplug from work, some things you need to consider if you or a loved one are considering a move to a retirement center, how to live in harmony if you and your spouse have very different incomes, some suggestions on what you need to teach children about money, a look at some financial mistakes we all make, and how to make sure you don’t face any tax penalties by hitting a “safe harbor.” I hope you’ll check them out!
Merry Christmas to all, and to all, a good 2016!

December 07, 2015

Normal Investors – Status Quo

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Think back to Thanksgiving. Remember the turkey, the dressing, the delicious side dishes, and the waiting on Aunt Ethel to finish warming her green bean casserole? Think about where you were sitting. Was this where you always sit? If you typically celebrate Thanksgiving in the same way, at the same place, with the same people, I bet you were sitting in your usual place. Given the chance, would you have chosen a different seat? Unless you’re still stuck at the “kid’s table,” you’re over an air vent, or that really smelly cousin is next to you, I bet you would prefer not to change seats.

Where do you bank? If it’s with a big, national bank, I bet there’s a pretty good chance it’s where your parents banked or where you have banked for a long time. Why do you still bank there? Is the interest rate spectacular? Is the customer service spectacular?

Why do many people sit at the same spot every year at Thanksgiving? Why do many people bank with the same bank for all of their lives? I think it’s because it’s easier to stay with what you know. It’s easier to stay with what you have. It’s easier to keep the status quo. An inherent desire to keep the status quo is a fifth tendency I believe many normal investors have.

In my line of work people usually come to me for one of two things. Some people want me to analyze how they’re doing financially and to let them know if they’re forgetting anything major or if they’re doing anything blatantly wrong, but a majority of people want me to analyze their financial situation and make recommendations as to how they can improve or enhance their financial standing. In both cases, I often end up trying to get people to tweak their financial status quos. From my experience I’ve found that trying to convince someone to diversify out of a particular stock they’ve always had can be like trying to convince a teenager they can’t keep dating someone, trying to tell someone they need to reduce their lifestyle a little can be like trying to tell a sports fanatic they can’t watch all of their team’s games, and trying to get someone to change their insurance coverage can be like trying to get someone to change an ingredient in grandma’s legendary potato salad recipe. Even if people concur with my recommendations, achieving the implementation of those recommendations, can be another thing entirely.

This status quo tendency to stay with what you know and are used to negatively impacts many investors. It can cause someone not to prudently diversify their investments. It can cause someone not to reallocate/rebalance their portfolio at the top of a bull market or at the bottom of a cyclical pullback. It can even cause someone to never invest at all!

Another part of the status quo tendency is that many people, like myself, don’t enjoy making difficult or complicated decisions. Consider organ donation. Are you an organ donor? Are you not? Don’t you want to help others? Don’t you want every chance to live before your organs are “harvested?” Let’s consider organ donation in Europe. Look at the chart below showing the percentage of citizens in certain European countries who are organ donors.

Why are there so many less organ donors in Denmark, the Netherlands, the United Kingdom, and Germany? It’s because in Denmark, the Netherlands, the United Kingdom, and Germany, you have to opt-in to be an organ donor. If you go with the default, you are not an organ donor. In the other countries illustrated in blue, the opposite holds true. You have to opt-out to not be an organ donor. If you go with the default, you are an organ donor. I find this pretty convincing that many people feel it’s easier to go with the status quo than really spend the time and energy considering and implementing a difficult decision like whether to be an organ donor or not; or whether to diversify investments, cut spending, or adjust insurance.

Change can be good, but change is not always better. It’s my job to give people confidence when they have a good thing going, and to give people questions to ponder and recommendations to consider when I believe the status quo can be improved upon. Don’t just be a normal investor. I encourage you to really consider your status quo, and to tweak it if necessary.