We are a big believer in being cost effective and if something free does the job for you, all the better!
You Deserve The Better Way to Invest
Evidence-Based Investing (“EBI”) is not a topic that is well known to many investors. And of those who have heard of it, only a few understand it.
EBI is patterned along the lines of Evidence-Based Medicine, which is designed to optimize decision-making for patient care. Stressing the use of evidence from well-designed and accepted research has shown to lead to a better patient outcome.
According to the Centre for Evidence-Based Medicine at the UK’s University of Oxford, “Evidence-Based Medicine is the conscientious, explicit, and judicious use of current best evidence in making decisions about the care of individual patients.” That approach to informed decision-making has spread to other fields, such as investing.
EBI is then the conscientious, explicit, and judicious use of current best evidence in making decisions about the implementation and management of an investor’s portfolio. This would be a major change for many investors who have been using a conventional investing methodology.
Why is this important? Perhaps reviewing the history of investing will provide a broader perspective.
The History of Investing
The first instance of investing was the purchase of land, which was farmed for personal use. Later, it was investing in your own small business. Put another way, you were investing in yourself. Later, with stocks, investing allowed diversification by buying into an ownership position of other person’s business. Or with bonds, investing was done by loaning others money by purchasing their debt.
In order to better know which stock or bond to buy, an investor would go to a “broker-dealer.” The broker-dealer would provide a recommendation and then complete the transaction, of course, for a commission.
In time, mutual funds were developed, where the fund manager would decide (based on his or her “expertise”) what to buy and sell within the mutual fund. Since their inception, broker-dealers have loved the concept of the mutual funds. They require only a little bit of homework on the part of the sales person (since the fund manager already did most of it) and they generally drew a big commission. In fact, many broker-dealers started their own mutual funds. In this way, they not only received the commissions on the sale but they also captured a share of the management fee, as well.
The strategy of the mutual fund managers was to buy and sell stocks and bonds with some frequency to “beat the market.” This approach often caused high trading costs, was not tax efficient and was expensive due to the hiring of “experts” to predict what to buy and sell. This active management style seldom beat their benchmarks over time but it did allow many financial services companies to get rich.
The “under performance of the benchmarks” and associated high costs led to the development of index funds, most notably by Vanguard. An index fund holds the stock of those companies listed within that index and in their predetermined percentage.
For example, the Dow Jones Index Fund would hold the 30 stocks that comprise the Dow Jones Industrial Average and in the percentage as indicated by the index. These index funds were not designed to beat the market but rather to capture the returns that the market provided while keeping costs low.
While index funds are good, there are some specific shortcomings. The biggest problem occurs when the index is reconfigured. Then, all of the financial services companies that offer that specific index fund will have to sell the same stocks on the same day and then they must all buy the same incoming stock. That results in a depressed stock price (of the stock sold) and an inflated stock price (of the stock bought), which may or may not be warranted.
The above snapshot would be described as “conventional investing.” Most financial services companies and their employees operate under this approach and are governed by the “suitability standard.” This allows the companies to put their interests (i.e. their products and associated fees) ahead of what is really in your best interest.
There is a better way than the conventional approach and it is EBI!
To start, we know what does not work well with conventional investing:
- The vast majority of active money management fails to out-perform benchmarks over long time frames.
- Financial services companies are good at designing and selling high priced products that are often subject to conflicts of interestsunder the suitability rules.
- Higher investment fees negatively impact performance.
- Past performance is not a good method for selecting a money manager.
- Market timing seldom works, over time.
- When it comes to investing, investors tend to make behavioral-based decisions and, quite often, mistakes.
The well-founded evidence which we know does work includes:
- Your portfolio’s asset allocation should be based on your investing goals, timeframe and influenced by your risk tolerance and risk capacity.
- Your portfolio should be highly diverse, containing stock (US and non-US), bonds, REIT’s and cash equivalents.
- Tax efficiency helps boost portfolio returns.
- Low cost investing leads to higher returns.
- Small stocks add greater return, over time, for the risk taken.
- Value stocks offer a return premium, as well, over time.
- Passive fund management out-performs active management, over time.
- As an investor seeking advice, your interests are better served under the Fiduciary Rule rather than the suitability rule, which is common with conventional investing.
This “Best Evidence” for proper investing emanates from academia and professors such as Harry Markowitz* at City University, New York, Myron Scholes* and William F. Sharpe* at Stanford, Robert C Merton* of MIT and Harvard, Merton Miller* and Eugene Fama* of the University of Chicago, Kenneth French of Dartmouth College, as well as others. (* designates the Nobel Prize in Economics)
As you might expect, the concept of “Best Evidence” is not one disseminated by the financial services companies such Merrill Lynch, Morgan Stanley or Fidelity. Nor does it come from insurance companies or others that sell a product.
“Best Evidence” is also not a topic found in articles published by Money Magazine or Kiplinger’s. And it won’t come in the form of advice from television’s Jim Cramer or any of his kind. Of course not; those are all intended to maximize advertising dollars and “Best Evidence” simply does not bring in advertising money.
If you want to improve your outcome when investing for a successful future, you may need to change your investing approach. Switch from the conventional investing methodology (often filled with conflicts of interest) to one that is truly in your best interest, the Evidence-Based Investing approach!
Financial Planning for Young Professionals
As a “Young Professional” at the beginning of your career you have a unique opportunity to create a stable financial foundation on which to build your financial life. The money traits, savings, and spending habits that you adopt now will shape your financial future, all the way into retirement and beyond.
The financial issues you face as a young professional are far different than those of an individual getting closer to retirement age. However, there is little in the way of sound written advice on the financial issues you might need to consider, so we’ve written an eBook that covers most common Financial Planning topics.
Our free eBook contains 8 chapters that cover: Managing Current Spending, Debt Management, Investing and Investments, Retirement Planning, Estate Planning, Insurance, Employee Stock Programs, and Topics for Young Families. Each chapter introduces the topic, defines the important aspects for Young Professionals, and provides general recommendations on how to handle common decisions and problems.
Our goal is for you to have enough knowledge and education to begin to make better financial decisions and to learn to balance current needs with future goals. Later, as your assets grow and especially as financial matters become more complex, professional help may very well be needed but for now, with this basic understanding, you can create a good foundation for your financial future.
Securing your Financial Well-Being Workbook for Widows and Widowers
The death of your spouse or partner is one of the most difficult challenges of your life. No matter if you are a widow or widower you will be required to make a series of decisions to try to regain balance in your life.
There have been numerous books written to help you cope with your grief, emotions and social adjustments. There does not seem to be a concise “how to” workbook that outlines what needs to be done to help you keep track of your progress in making the necessary changes.
As a financial planner and advisor, I would not attempt to address the necessary steps to regain your emotional, social or physical well-being but we have drafted a workbook for those that have lost their partner/spouse to help you to regain your “financial well-being”.
There are two goals for this workbook. The first is to provide a structure or methodology so that you can regain your financial well-being and have financial peace of mind. The second is to help you to avoid making poor financial decisions, which can occur without having a good understanding of your current financial situation and what you will need in your future.
Hopefully this will help guide you though a process to better understand what needs to be done now as a result of your loss, help guide you to “getting it done” and lead to a better understanding of where you currently are at from a financial standpoint and how to best secure your future financial well-being.
Proper Estate Planning Documents
Every adult with any kind of asset needs the protection provided by proper estate planning documents. The best and “safest” place (to ensure that your plans are adhered to exactly) to obtain these documents is from an estate planning attorney who can provide you with appropriate and sound legal advice.
For individuals turning 18, and with no dependents, no real estate and very little in the way of assets, the purchase of estate planning documents can be expensive. Still, having estate planning documents is in your best interests and the best interests of your future heirs.
The following websites provide standardized estate planning documents for residents of California. Residents of other states might find similar websites, appropriate for where he or she lives.
If you choose not to use an Estate Planning Attorney, please follow the relevant instructions for the proper completion of the following documents. Once complete, be sure to sign the documents in front of a notary and then provide a copy of the documents to those individuals named within.
Power of Attorney – Allows control of your financial matters if you cannot.
Advanced Healthcare Directive – Allows others to make healthcare decision if you cannot.
Will – Passes your assets on your death.
HIPAA release – Authorization for health information release.
Getting Your Digital Estate in Order
Digital Estate Planning is a proactive process designed to help manage your digital assets upon your incapacity or death. With many bank, brokerage, credit card, bill pay sites and other types of accounts going online (and in some cases, only allowing online access) digital estate planning has become an increasingly important part of traditional estate planning.
It is important that for all of your accounts, which have online access and passwords, that you also have offline documentation which you keep in a known location. That will allow your trustees, designated Power-of-Attorneys or executor’s access to these accounts as and when needed. It is recommended that this documentation be stored in a secure location, preferably near or with your other estate planning documents and that they be updated regularly.
To help you gather all your account information in one place download our Digital Estate Planning form (a fillable PDF). You’ll want to update the information whenever you open, modify or close an online account.
If you are unconscious and cannot express your health-care wishes, the quality of your care could be impacted. Medical personnel need to know who to contact and how to contact them as fast as possible.
Below is a link to an “Emergency ID card” that you can complete, print out and carry with you so hospital personnel may quickly contact the appropriate people to act on your behalf.
The card is offered in a fillable PDF format designed for you to complete on your computer. The alternative is to print out the blank document and complete it by hand.
Do your friends and family a favor and send links to this site so they too will be better equipped in a medical emergency as well.
If you would like other useful information you may wish to subscribe to our blog “Money Matters“.
Just Give Me the Answer$: Expert Advisers
Address Your Most Pressing Financial Questions
By Sheryl Garrett, CFP®, with Marie Swift and The Garrett Planning Network, Inc
Hiring a financial planner is often something people associate with the wealthy. But according to financial guru Sheryl Garrett, everyone should be able to work with a financial professional and take control of his or her financial fitness. In Just Give Me the Answer$: Expert Advisers Address Your Most Pressing Financial Questions, Sheryl Garrett along with Marie Swift and Members of The Garrett Planning Network have provided the answers to the most pressing financial questions consumers ask as they pass through various life stages. Sprinkled with real-life stories and specific examples, Just Give Me the Answer$ is a one-stop resource for anyone looking to get – and keep — their financial house in order.
Money Without Matrimony
By Sheryl Garrett, CFP®, and Debra A. Neiman, CFP®, MBA
This book provides financial planning tools and strategies that enable unmarried couples to solve the financial, legal, and discriminatory dilemmas inherent in their living situation. The authors take a real-world approach to the issues, providing specific advice and direction for the more than 5 million couples across the unmarried spectrum. It is an invaluable guide for anyone, of any age, who is unmarried and lives with or is considering living with a partner.
By Rick Kahler, CFP®, and Kathleen Fox
This book will help you discover your unconscious money beliefs and break their power, transforming the role of money in your life. It will give you practical, down-to-earth guidance along a new path to help you achieve fulfillment and prosperity far deeper than just financial success.
The Number: A Completely Different Way to Think about the Rest of Your Life
By Lee Eisenberg
“The Number” is the amount of money you need to have socked away in order to be confident that your post retirement life will meet your expectations. Everyone’s Number is different – and while it is important to save enough to last – Eisenberg says Americans need to also determine how they want the rest of their life to look. “It’s not just ‘how much’ but ‘what for’” he says. He provides a charmingly written consideration of an aging generation’s retirement worries and of the investment business designed to profit from them. Heartfelt discussions of goals, health and health care, “downshifting” to enjoy life while spending less money and the meaning of post retirement life pepper its pages. His perceptive analysis of real and fictional people’s financial hopes and strategies will inspire readers to reconsider their Numbers and their methods for investing. Sheryl Garrett, founder of the Garrett Planning Network, George Kinder, co-founder of the Kinder Institute of Life Planning, and many other leading financial planners are profiled in the book. Eisenberg provides additional thoughts on his web-log (www.thenumberbook.com).
By Lynette Khalfani
If you want to be debt-free and achieve financial freedom, you need an action plan to guide you. This book is your step-by-step plan and it’s simple and easy to understand.
The Prosperity for Life Financial Organizer
By Suzanne Fails, CPA, CFP®
This easy-to-use financial planning tool contains checklists and worksheets to help you accumulate and store vital personal and financial information. Each section has reminders and ideas about important financial planning tasks. Now you can experience peace of mind knowing that your crucial information is organized and at your fingertips.
Ten Weeks to Financial Awakening: A Guidebook to the Creation of Your Own Financial Plan Using Quicken Software
By Paul Lemon
This isn’t really a book, it’s a complete financial planning program that will help you organize and control your finances and take control of your financial life. This book guides you step-by-step to developing your own financial plan.
The Ultimate Credit Handbook: How to Cut Your Debt and Have a Lifetime of Great Credit
By Gerri Detweiler
A former director of Bankcard Holders of America, Gerri Detweiler draws on her years of expertise in counseling consumers with credit problems to write the definitive handbook on how to have more credit, get out of debt and live a lifetime of financial stability and prosperity.
College Money Handbook
This book is an annually updated reference guide to more than 1,600 individual colleges’ student financial aid appropriations. It is designed to help prospective undergraduate students and their families discover what they might look for in financial aid from particular institutions, aid them in making comparisons between institutions and help them make decisions related to financial aid. The front matter provides a concise overview of the student financial aid system.
Suddenly Single: Money Skills for Divorcees and Widows
By Kerry Hannon
This book provides divorced or widowed women with essential information that can transform their lives. The book should be viewed as an essential survival kit for all suddenly singles.
The Budget Kit
By Judy Lawrence
This book has a simple, no-nonsense approach to understanding and managing one’s financial life. The recommendations and examples are superb, and the “big picture” is communicated effectively. The book is a complete kit by itself, and the associated Web site offers more outstanding advice and useful tools.
Does Your Broker Owe You Money
By Daniel R. Solin, Esq.
This book discusses how investors can avoid being victimized by brokers and how to get their money back if they incurred losses on account of broker misconduct. An excellent primer for those wanting to get “the inside skinny” of the brokerage business. Shows investors the various forms of broker fraud, and helps them determine if they have a claim. Gives you the tools to assess if you have a claim and advises you on what your next steps should be.
You Don’t Have to Be Rich: Comfort, Happiness and Financial Security on Your Own Terms
By Jean Chatzky
Chatzky, who is with NBC’s Today Show and Money Magazine, creates an insightful book that shows can show you how to make financial decisions to make you truly happy no matter your financial means. Practical advice. Highly inspiring.
The Richest Man in Babylon
By George Clason
A collection of parables written in the 1920s, this book is a timeless, inspirational work. Great advice on the subject of thrift, financial planning and personal wealth, that is just as sound today, as it was 80 years ago.
Your Money or Your Life: Transforming Your Relationship With Money and Achieving Financial Independence
By Joe Dominguez and Vicki Robin
This is a best-selling book on how to get control of your money and your life. The authors help you take a look at how you handle your money, and whether it is a reflection of your values.
The Millionaire Next Door
By Thomas Stanley and William Danko
Contrary to what many may believe, most millionaires are not flashy. This book gives you a good look at the profile of a typical millionaire, how they got there, and how you can learn from their habits. Who knows, you might even become the next Millionaire Next Door.
Saving Money: An Easy, Smart Guide to Saving Money
By Barbara Loos
Formerly published under the title I Haven’t Saved a Dime, Now What?!, this book has been repackaged, and sold under the Barnes & Noble Basics label. It is designed to walk you through the often puzzling and worry-producing world of money.
Seven Stages of Money Maturity: Understanding the Spirit and
Value of Money in Your Life
By George Kinder, CFP®
This is a book that searches for the spiritual meaning in wealth, and tells the stories of three composite characters throughout the book. You learn how to evolve through the seven stages (innocence, pain, knowledge, understanding, vigor, vision, and aloha) necessary to achieve financial and emotional security. Named as “one of the most influential people in the financial planning industry” (Investment Advisor magazine, June 2003), George is the founder of The Kinder Institute of Life Planning, a personal empowerment and training organization that offers the highly-acclaimed Seven Stages of Money Management Workshop.
Serious Money, Straight Talk about Investing for Retirement
By Rick Ferri, CFA
Serious Money explains why stockbrokers, investment firms, financial consultants and the mass media do not always have your best interests at heart. In this hard-hitting book, author Richard Ferri takes the investment industry to task for spending too much effort on selling and too little on meeting the needs of serious investors.
Who Gets Grandma’s Yellow Pie Plate?
By Marlene Stum
This is a sensible, down to earth guide on how to handle the distribution of family items from one generation to the next. The goal is to have the process be a celebration of the deceased person’s life, rather than allowing emotions to harm or destroy family relationships.
A Random Walk Down Wall Street: The Best Investment Advice for the New Century
By Burton Malkiel
This is an investment classic, originally published in 1973. It has just been updated, and now takes into account the dot-com meltdown. Among other topics, Malkiel gives an entertaining history of past market bubbles, and explains why it’s not worth trying to beat the market. There is also a life-cycle guide to investing in the market.
- What is a Financial Plan?
- Who or what is a Financial Planner?
- Who would benefit most from your services?
- What is “Fee-Only” financial planning and why should that be important to me?
- I understand the benefits of working with a Fee-Only financial planner, but I might need to obtain financial products. How will I be able to do that?
- I already have substantial assets and (I think) am doing quite well financially. Can you help me?
- What types of investments does your advice cover?
- If you develop a financial plan for me, am I obligated to comply with the recommendations?
- What is your investment philosophy?
- How do you price your financial planning services?
- How much will my financial plan cost?
- Are the fees your charge me tax deductible?
- Once my financial plan is completed, will our relationship end?
A financial plan is a set of answers to the important questions on issues that impact you and your future. Written out, a financial plan makes it easier to communicate your intentions to other advisers (e.g. your CPA, attorney, etc.) or your family members. It also serves as a reminder of where you are now, where you want to go and how you intend to get there.
The fact is anyone can say that they are a financial planner. Some mortgage brokers, insurance salesman, stockbrokers, Registered Investment Advisors, money managers, CPAs and even some attorneys use the term. However, in terms of financial planning, their education level and capabilities can and do vary broadly. The field of financial planning is comprised of several focuses which include estate planning (legal), taxes and general finance (CPA/accounting), risk management (insurance) and investment (securities/real estate/banking). Historically, most financial planners have evolved out of one of these four areas. However, in recent years, a number of colleges and universities, including UC Santa Cruz, locally, have developed programs in financial planning. A graduate from such a program will have a good understanding of all the areas of financial planning. Much more, say, than the somewhat narrow view of a person with experience in just one field.
While it is important to ask a planner about their education and experience perhaps the more important concern is their objectivity. Very often, someone will purport themselves to be a “financial planner.” The reality, though, is that they are trying to sell you something. The concern is that even if he doesn’t have the best solution for your situation, the salesman cum financial planner might sell you a product anyway. The other problem in a commission situation is the lack of transparency. You do not know what you are paying your financial planner because the commission is a hidden fee.
The alternative to a “salesman” approach is the “fee for service” concept. Pay the planner by the hour or for a specific project or service. Some planners work on a retainer basis, i.e. they charge a set fee for the year. Some, mostly money managers, are paid on a percentage of the assets that they manage for the client. Any planner should be comfortable and willing to discuss the cost of his or her services.
When dealing with an advisor who is a fiduciary, you can be confident that your interests will always come first. Registered Investment Advisors or RIAs are required by the state and/or federal law to act in your best interests at all times and to fully disclose compensation arrangements prior to service. This is not the case with a sales-oriented advisor.
When you seek out a planner, look for one who has formal education in the various disciplines of a financial planner. Also, ensure that he or she is unbiased in his or her recommendations (i.e. is not attempting to sell you a product) and has had a good amount of experience.
Any individual who is seeking financial peace of mind can benefit from our services. We have found that clients generally fall into one of four life stages. Those just getting started tend to be between the ages of 18 and 29. Those who are building for their future are aged 30 to 49. Those who are nearing retirement age are from 50 to 64 years old. Then there are the retirees who are typically aged 65 and older.
The majority of our clients tend to fall into the last two categories. For those in the first two, we recommend that they first read our e-book for young professionals and consult with us after they have implemented the recommendations from those sources.
Fee-Only means that we are not paid from any source other than our client. We do not accept sales commissions; we work solely for our clients. Because we do not sell financial products such as investments and insurance, there are no third-party relationships or outside influences to taint our thinking and financial recommendations. In addition, our firm is a Registered Investment Advisor (RIA); as such, we must comply with a host of regulations designed to protect the consumer.
5. I understand the benefits of working with a Fee-Only financial planner, but I might need to obtain financial products. How will I be able to do that?
While we do not sell financial products, we will offer specific recommendations and opinions regarding the various products that may be appropriate for you. If, for example, you need to obtain an insurance policy or a new mortgage, invest in a portfolio of mutual funds, find an estate-planning attorney or a tax professional, we can direct you to the resources you need to obtain these products and services.
6. I already have substantial assets and (I think) am doing quite well financially. Can you help me?
Yes. In general, people who need more sophisticated financial planning or advice will find our services beneficial. If someone has a myriad of accounts in many different places we can help you simplify your portfolio and still meet your goals. Or if you are looking for a professional review or for a second opinion to ensure that you are on track we can provide that, as well. We can also help you define an appropriate asset allocation so that you can meet your goals.
We provide advice for all types of securities, including mutual funds, stocks (as they relate to your portfolio holdings), bonds, bank deposits and annuities. We also provide guidance on mortgages, budgeting and cash flow issues, 401(k), 403(b) and other retirement programs, life and disability insurance, etc. If it has to do with money and finances, we can provide counseling, guidance and/or resources for you.
Absolutely not. Our recommendations are exactly that. They are offered to meet your needs and objectives, but you are under no obligation to act on them. In today’s competitive market, it makes sense to shop around for the best available product or service. For instance, if we believe you have a need for life insurance, we will suggest the type of policy, which riders and what amounts may be best for you. It is totally your decision to acquire more coverage or not. At your request, we can direct you to several companies that can provide a quality product at competitive prices. The same applies to estate lawyers, accountants, money managers and mortgage brokers. We will recommend a name or two, but it’s entirely up to you to decide whether or not to pursue our recommendation.
As financial planners and investment consultants, we believe in the following fundamental principals with regard to designing an investment portfolio and making specific recommendations. We believe the purpose of a client’s investment portfolio is to fund current and/or future financial objectives. That the design of the portfolio must take into account the client’s financial objectives, tolerance for risk, needs for current income or liquidity, and special considerations such as income tax and estate taxes. The important thing that we want to stress is that no one can predict the future. It is difference of opinion that makes a market. Investment and economic “experts” provided with the same information often come to different conclusions. We do not suggest that we can, or that any of the money managers that we recommend, will make the correct decision every time. We do believe that studying the historic trends and relationships of investment classes can provide valuable insight. We also believe the appropriate allocation of investment assets for your goals and risk tolerance is the most important component in developing an investment portfolio. We believe that having a diversified, well-balanced portfolio, following long-term buy-and-hold strategies, with low costs and having patience will increase the likelihood that you will achieve your long-term financial objectives. See our Investment Philosophy.
The fees are based on the project that we are asked to complete or on the actual time involved in meeting with you (in person or over the phone), researching and analyzing your current situation, and providing specific recommendations. At the end of our “Get Acquainted” meeting we will provide you with a fee quote.
Financial planning fees are determined on a project basis; the total fee for a financial plan will vary from client to client and is based on the specific needs and complexity of your situation. An estimate is provided at the conclusion of our “Get Acquainted Meeting,” but only after your personal needs have been fully identified.
Yes. Section 212 of the Internal Revenue Code permits an itemized deduction for tax and/or investment advice in the miscellaneous section of Schedule A. It is subject to a 2% floor of the adjusted gross income on a personal tax return.
The actual “engagement of specific services” may end but many of our clients choose to meet with us periodically. Because financial planning is a process, not an event, we offer periodic reviews as requested and/or as are needed.