A Daddy's Financial Tips

Hello. Hello. I know it’s been a while, but it has been for good reason. I’m excited to announce my wife and I welcomed our second child into the world a couple of weeks ago, and Daddy has been busy! Well I’m back, and since I’ve now gone through this miraculous process twice, I thought I would kick things back off by sharing a few financial tips when it comes to having a baby.

• Be prepared before your due date! This isn’t just a financial tip, and as I can now attest with our second child coming two weeks earlier than originally expected, it is critical. Have the nursery ready, have some essential supplies purchased, and have some clothes bought. Have the car seat properly installed and your personal and professional calendar winding down. It’s truly awesome to welcome a little one, but it’s also hectic, overwhelming, and exhausting. You don’t need unnecessary stress that can be avoided, and financially, you don’t want to be in the position of having to buy and pay for things out of necessity without careful consideration and without the opportunity to thriftily shop around.
• If your income will be impacted due to maternity leave or paternity leave via unpaid time off or disability insurance versus your typical salary, budget for this before the baby! I would suggest you work towards boosting your cash reserve so that your lifestyle can remain the same even though your income will be reduced. Frankly, I might even suggest that you save up more than you think you’ll need to offset your lower income because having a baby is an expensive time between all the medical expenses, all the necessary purchases, and the one-off’s that become needed, but weren’t originally expected.
• If you’re buying nursery furniture that can be converted as the child gets older, do you really intend on utilizing that feature? If so, you may want to consider going ahead and buying the additional pieces before they become discontinued and you end up getting stuck with the typically pricier, convertible furniture you didn’t use or couldn’t convert.
• Similarly, before you buy the car seat, consider the car seat’s life expectancy. When does it expire (yes, most have expiration dates)? How big of a child is it made for? Will it last until the child can face forwards, will it last until the child no longer needs a car seat, or is it just for the first couple of years? We ended up purchasing two car seats the first time around, and I’m glad that we did, but as an inexperienced dad-to-be, I can tell you I didn’t know I’d need more than one car seat for one kid when we bought the first car seat.
• This is a little opposite to my message of urging you to be prepared, but don’t be over prepared for the first few months of life. By that I mean don’t go crazy buying insane amounts of newborn diapers and 0 – 3 months’ clothes. Your child will likely need a size 1 diaper at some point, and then size 2, and then size 3, and so on. Your child will also need clothes for the rest of their life, not just the first three months, and they grow quickly! All I’m saying is that those newborn diapers and super tiny outfits may not be useful for very long, and they are not free!
• Realize that all baby outfits likely face the same fate: spit-up or worse. There are some latest and greatest name brand baby outfits out there that cost quite a lot, and if you want a few, or you can afford lots of them, then go for it. That said, there are a lot of very reasonably priced very nice looking outfits that aren’t nearly as expensive and will share the same fate of being at the mercy of stain-removers and the washer and dryer. Dress your baby how you want to dress your baby, but don’t let their fashion derail your finances!
• I don’t often recommend specific companies or services, but get Amazon Prime. The ability to order extra baby mittens, diapers, wipes, formula, a baby scale, or an outfit for your favorite team’s game and get it without leaving your house in a day or two is unbelievable. They cannot be making money on my family right now with all the shipping fees that are free through Amazon Prime, and don’t worry, we do recycle our cardboard!
• Take care of the new baby’s business. This starts with the application for a Social Security Number and a birth certificate in the hospital, but your homework is not done. You need to get your baby added to your health insurance, dental insurance (if you have it), and vision insurance (if you have it), and most of the time this has to be done within 30 days of the birth and requires a Social Security Number and a proof of birth. The forms are long and the interactions with these government agencies and insurance carriers is not particularly fun, but it must be done correctly and in a timely manner.
• If you don’t have wills, power of attorneys, and health care directives, now is the time (your will is how you name a guardian for your children). If you do already have these documents, go back through them and examine your retirement plan and insurance beneficiary designations to make sure your wishes would be fulfilled and your child would receive what you would intend them to. If, like us, you now have more than one kiddo, make sure you have the proper wording in your documents and beneficiary designations to not accidentally exclude any of your children!
• Finally, be careful with unnecessary extras. “Unnecessary” can be a matter of opinion, but with all the digital sharing of everyone’s baby’s everything and all the “super cute” products available for purchase out there, be careful. I would suggest you not order anything after 9 PM to make sure you’re not sleep-buying and anything terribly pricey without talking to the other parent to keep the peace.

Having a baby is one of life’s most amazing experiences, but without careful preparation, thoughtful consideration, and prudent restraint, it can be financially challenging. Certainly, get your precious baby what they need, and splurge and get them a few things that are just neat or fun to have to celebrate the occasion, but be sensible. Remember, your new baby is going to need you for at least 18 more years, and anything you don’t spend now can go towards their car, their college, or their wedding!

I’ve got to run. Someone’s awake and it’s my turn!

Tom

Don't Mix Politics With Your Portfolio!

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2MuchCents is not a political blog, and it never will be. I hesitated to even write this post, but too many of my friends and clients have been wanting to invest based on their politics. You can’t be excited about the economy the night before the presidential election and want to liquidate all your investment accounts the next day. You can’t be conservatively invested the night before the presidential election and want to invest in all stocks the next day. Strike that. As I have experienced over the past ten months, evidently you can, but you shouldn’t.

In light of my trying to convince you that you shouldn’t let your side of the political aisle drive your investment philosophy, I did some research. Below, please find a graph illustrating my findings. On the vertical axis, you will see the cumulative returns of the Dow Jones Industrial Average (DJIA) during each presidential administration since 1901. On the horizontal axis, you will see C-SPAN’s 2017 presidential rankings of each presidential administration since 1901. These rankings are based on historians considering things like public persuasion, crisis leadership, economic management, international relations, pursuing equal justice for all, and performance within the context of the times.

What do you think?

Do you like the stock market returns during the time of Calvin Coolidge? With apologies to President Coolidge, do you remember any of his accomplishments (he lowered the national debt and cut taxes)?

Theodore Roosevelt, John F. Kennedy, and Woodrow Wilson were three of our most beloved presidents. Teddy Roosevelt was a “Rough Rider,” he stood up to monopolies, he facilitated the construction of the Panama Canal, and he had an awesome mustache! JFK was a decorated Naval hero, he cut taxes, he worked towards civil rights for African Americans, he was responsible for the Equal Pay Act, and he didn’t blink during the Cuban Missile Crisis. Woodrow Wilson led the United States to victory in the First World War, he created the Federal Trade Commission, he helped secure women the right to vote, and he established the eight-hour workday with additional pay for overtime. Do you find yourself wishing that one of these presidents was back at the helm, or do you find yourself wishing for better stock market returns?

When I look at this chart, I see two trends. First, Democratic presidents over the past 116 years tend to be highly ranked. Second, as the trend line shows, presidents who presided over periods of significant stock market growth tend to be remembered fondly and highly ranked. Now we could discuss whether significant stock market growth during an administration is due to a president’s policies, their predecessor’s policies, or just the luck of the draw, but that is for another day and another setting.

When I consider this chart, I see some blue dots (Democratic presidents) I like and some red dots (Republican presidents) I like. I see some blue dots I don’t like and some red dots I don’t like. I see some stock market returns I like and some stock market returns I don’t like. However, the blue and red dots I like don’t seem to always line up with the stock market returns I like. I bet that’s the case for you, too!

I don’t place wagers on sporting events for a lot of reasons. One of those reasons is that I was born and raised in metro Atlanta, so I unfortunately have a pretty good idea about how my local teams are going to do in big games. Another reason is that despite my fun superstitions and routines, I have come to accept that there is no real relationship between the love I have for my team and their performance. It’s one thing to bet $100 on the Braves, Falcons, or Bulldogs, but it’s an entirely different thing to bet your nest egg on your politics!

They say you shouldn’t mix business with pleasure. It would also be my counsel not to mix your politics with your portfolio!

-Tom

You Might Need to Check Your 401(k) if…

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Several weeks ago I was attending a comedy show and one of the comedians was Jeff Foxworthy. If you live in the southeast, you are probably familiar with Foxworthy and some of his acts and stories including his famous “You Might Be a Redneck if…” jokes. For those of you outside the southeastern United States, Foxworthy often defines a “redneck” as “someone with a glorious lack of sophistication.” Parts of his routine may be slightly exaggerated, but it’s quite funny because it is relatable to some of the good people of the south. For example, Foxworthy would tell you that you that you might be a redneck if you have ever cut grass and found a car, if you've ever bought a used baseball cap, and if you've ever deliberately hit a deer with a car, but I digress…

One part of my job as a financial planner and investment advisor is to help clients properly consider their employer’s retirement plans and properly coordinate their plan’s investment options with their risk tolerance, time horizon, and overall investment strategy. In my experience I have found that this is a financial area that many people do not consider as closely or as frequently as they should. A long airline flight out west to visit some clients gives a guy from the southeast some time to think, so I thought today I’d mix one of Jeff Foxworthy’s most famous skits with some retirement plan warning signs. I present to you “You Might Need to Check Your 401(k) if...”

• If you aren’t positive how to log into your employer’s retirement plan website, you might need to check your 401(k) Plan.
• If you don’t know the custodian or administrator’s name who is in charge of your employer’s retirement plan, you might need to check your 401(k) Plan.
• If you don’t know how much you’re contributing each pay period, you might need to check your 401(k) Plan.
• If you don’t know your company’s matching contribution, or if they even have one, you might need to check your 401(k) Plan.
• If you’re not sure how your contributions are invested, or if you ever chose for your contributions to be invested in the first place, you might need to check your 401(k) Plan.
• If you don’t really have a reason outside of “gut feel” or what your co-worker told you they did for why your contributions are invested the way they are, you might need to check your 401(k) Plan.
• If your contributions are invested heavily in your company’s stock, you might need to check your 401(k) Plan.
• If you aren’t certain you have confirmation of your plan’s primary and contingent beneficiaries, you might need to check your 401(k) Plan.
• If you aren’t sure you ever did anything with your employer retirement plans from previous jobs, you might need to check your old 401(k) Plans.

It doesn’t matter what your employer's retirement plan is called. It can be a 401(k) Plan, a 403(b) Plan, a Thrift Savings Plan, a Retirement Savings Plan, or anything else. What matters is that you can affirmatively answer that no, you don’t need to check your employer’s retirement plan after each of my above phrases. If you don’t need to check your retirement plan, that’s great, and I urge you to keep up the good work. If you found some of my phrases troubling, concerning, or even embarrassing, it really is no laughing matter, and I hope you’ll quickly rectify the situation.

As always, please let me know if I can help.

-Tom

You Have to let it Simmer

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One of the questions I get most often is why investment advisors don’t jump in and out of the market. Most recently I was asked “Why don’t investment advisors drastically change their portfolios when something bad has clearly happened?”

The answer you have probably heard, and maybe even from me, is because frequently trading your portfolio begins to cease looking like investing and begins to resemble gambling. How many people do you know that often come back from Vegas with more money than they left with? You don’t jump in and out of the market because to do so effectively you have to correctly time the market twice; you have to have the insight to know when to sell high when most investors will be pouring in money in a euphoria and you have to have the insight to know when to buy low when most investors will be sprinting for the exits in temporary fear. Even if you do somehow manage to time the market correctly, you’ll be burdened with more transaction fees and taxes as a result of your more frequent trading. That’s why most professional investment advisors don’t jump in and out of the market, and as far as jumping in and out of the market after something bad has clearly happened, professional investment advisors don’t do that because the "bad event" has already occurred and some of the market’s biggest gains often come on the heels of something less than ideal.

After 9/11 did you want to be invested? Think back to 2008-2009 right after Lehman Brothers collapsed and the Great Recession began. Did you really want to be invested? What about in 2011 after the credit rating of the United States was downgraded? Did you want to be invested then? At the time of those events, my answer would have been no. When events like that happen in the future, my answer will be no again, but it has to be yes. You have to stay invested.

Check out the link below to visuals from Putnam Investments. I found these incredible statistics as I was researching and working on my correspondence with the individual who most recently inquired about market timing.

https://www.putnam.com/literature/pdf/II508.pdf

Two of the Dow Jones Industrial Average’s biggest days occurred within eleven months of 9/11! Seven of the Dow’s best days since 2001 occurred between October 2008 and March 2009! One of the Dow Jones’ biggest days in the last 15 years occurred within a week of the unprecedented US credit downgrade! If you had invested $10,000 in the Dow at the beginning of 2002 and stayed invested, you would have had around $28,700 by the end of 2016 and have averaged an investment return of around 7.3% per year. If you had jumped in and out of the market and missed those ten best days I just mentioned that were relatively right after 9/11, the Great Recession, and the US credit downgrade just happened, you would have only had around $14,700 by the end of 2016 and averaged an investment return of around 2.6% per year! If, instead of the ten best days, you missed the twenty best days, you would have only had $9,600. You would have lost money over a fifteen year period due to missing twenty days!

I love to cook. One of my specialties is spaghetti with a homemade meat sauce. It’s ground beef slowly cooked with salt, pepper, Worcestershire sauce, and hamburger seasoning. I carefully dry the cooked meat on some paper towels on top of a plate. The meat then joins my pot of tomato sauce and I add in garlic salt, pepper, and Italian seasonings. I then slowly melt in some parmesan cheese to make the sauce richer and a little thicker. Like my mother taught me, I always taste with a clean spoon, but I keep sampling and throwing in a little more of this and that until it’s just about right. Then I put a lid on the pot and let it simmer. It’s only after simmering with an occasional stirring that all the ingredients truly come together and I end up with my desired result. Long-term investing is similar. Add the proper ingredients, tweak a little as needed to taste, and prudently monitor, but you’ll only get your desired result if you let it simmer.

-Tom

Your “Silent” Partner

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I would like to tell you a few stories…

I’m meeting with a husband and wife and they’ve got some bonus money they’re trying to decide what to do with. I raise the question as to whether they’d like to pay off their mortgage or invest the funds and the husband quickly answers “Invest the funds!” The wife subtly looks out the window.

I’m meeting with a husband and wife and we’re reviewing their investment allocation. They have chosen to be a little more aggressive than I’d typically recommend for someone with their monthly withdrawal needs. I suggest they boost their personal cash accounts and increase their allocation to fixed income in their investment accounts while reducing their international stock and small cap stock exposure. The husband shakes his head before the words are barely out of my mouth and informs me that they’ll keep the pedal to the metal. The wife is suddenly interested in her shoes.

I’m meeting with a husband and wife and we’re going over how much they have saved in college savings accounts for their children’s upcoming college expense needs. I show them they have set enough to cover more than 4 years at most universities even though their kids aren’t sure where they want to go or if they will have any scholarships. The wife tells me their kids might just go to an Ivy League school, and she gets out her checkbook and starts writing checks to make some additional contributions to their children’s college savings accounts. The husband spontaneously becomes interested in his cell phone.

I’m meeting with a husband and wife and I suggest we examine their estate planning documents as it has been several years since they’ve been executed. I talk about the importance of making sure their wishes would still be fulfilled, but the wife says that won’t be necessary because it’s not fun to think about. The husband takes a sip of his water and awkwardly asks me what my expectations are for the market for the next twelve months.

The title of “husband” or “wife” is meaningless in this post. The subtly looking out the window, the sudden interest in one’s shoes, the spontaneous interest in one’s cell phone, and the awkward subject change are not. These body language cues, gestures, and reactions are significant.

In my experience as a financial advisor I’ve learned there is oftentimes a more vocal spouse. There is oftentimes a “CFO Spouse,” one that is more involved or interested in the family finances. There is nothing necessarily wrong with this norm, but I’ve also learned the value of engaging the less vocal, less-CFO spouse if they’ll let me. Sometimes they have questions that have gone unanswered and concerns that have gone unaddressed. As you may have surmised from the stories above, I’ve found cases when one spouse would sleep a lot better if their mortgage was paid off, one spouse would feel a lot better if they were a little more conservatively invested, one spouse would be in support of setting aside a little less for the kids, and one spouse would be more confident in their situation if certain difficult and time-consuming conversations were had.

I hope my words are food for thought and will serve as a good heads-up. As a financial advisor (and husband) I can tell you that if your spouse isn’t happy, nobody’s happy!

-Tom