Financial Questions

[lestertheemt]

I will be the first to admit that I am the least financial savvy individual there is. Where on earth can I learn about investing, IRA's and such? Is there such a thing as "Finances For Dummies"??

[BenRaines]

What would you like to know? I know it all. :) Well I have been accused of being a knowitall. I would suggest a site like schwab.com or vanguard.com or fidelity.com

You can do a lot of research and learn a lot from their sites. They have interactive videos, online brochures, etc. Once you have studied those sites feel free to ask me any questions and I will give you some unbiased advice since I am not selling anything.

Ben Raines

[gabelpa]

First stop is your bank, at least it would be for us in the UK. Also, your bank's competitors. Although, with interest rates as they are now, many banks won't be able to offer high savings rates. After all, it's the money they make on loan interest and investments that is used to pay the interest on the saver's accounts.

[Just_A_Guy]

Are you interested solely in investing, or looking generally at how to manage your finances, plan for retirement/college, etc? If the latter, Dave Chilton's The Wealthy Barber is eminently readable.

[Michael_Newman]

My grandmother worked for the government in Washington DC. Like many people in large cities where home ownership was out of reach, she chose to rent a small apartment all her life. She also took public transportation and saved by not owning a car and not for paying insurance or for parking.

She took all of the extra income and invested it in Blue Chip Stocks.

On the other hand, some people choose to take their extra income and buy a home.

The choice is yours, and if you are really fortunate - you may have extra income above the costs of maintaining a home.

If you choose to rent the rest of your life, I suggest downsizing the rental costs so you have liquid cash to start with a sound plan.

All my best,

Michael

MORMON FORTUNE BUILDERS - HOW THEY DID IT

AMAZON BOOKS LINK

[skippy740]

BEFORE going to your local bank or any other investment firm for advice, please recognize that they have 4 rules that they HAVE to live by in order to make a profit:

1) they want all your money

2) they want it on a systematic basis

3) they want to hold on to it for as long as possible

4) they want to give you as little back as possible

IRAs, 401k and many other financial tools - while necessary in financial plan building - are designed to LOCK YOURSELF OUT OF YOUR MONEY while you are saving.

While you may think that they are giving you "objective" advice, the 4 rules above are the rules that THEY live by and ask YOU to live by as well.

[pam]

My advise...Purchase a good sturdy waterproof strong box. You will need a shovel. Put money in said strongbook. Take said shovel, dig a hole in backyard. Put strongbox in hole. Take said shovel and replace the dirt over the strongbox.

Not really of course. Actually I'm as ignorant as anyone when it comes to stuff like this.

[skippy740]

First steps - protection & savings:

You must do these simultaneously.

Insurance Protection:

Auto/Homeowners/Liability You should have auto insurance with TOP coverage, but high deductible. You should have renters insurance/homeowners insurance - also with high deductible. You should have liability insurance = your level of assets.

Why? If you're going to build a financial castle, you must have a MOAT. In today's world, you protect your castle with insurance.

In today's litigious society, it makes a lot of sense to protect yourself in case of lawsuit.

Disability Insurance If you can't work, your medical bills increase while your income stops. You won't be able to contribute to other company retirement plans. Gotta have the insurance. Get your group DI FIRST. Then look into personal coverage that you own. This protects the protection by making it separate from your employer (and we all know that we don't stay at certain jobs for a long time anymore).

Health Insurance You're going to get sick before you become disabled. Gotta have it. It protects your assets and your income. Group is generally best.

Legal documents Wills, Trusts, Power of Attorney & Health care directives. This is so your wishes are made known before you aren't around or able to make them yourself.

Life Insurance Start with term insurance. There are a lot of wealth strategies revolving around permanent insurance, but just start with term insurance - and get it separate from your employer. This protects your castle even when you're laid off or voluntarily quit.

SAVINGS All that insurance with higher deductibles assumes that you have some liquidity. You should have 50% of your annual income in some form of savings - life insurance, CDs, money markets - anything that PRESERVES the value.

Also note that if you're disabled, most policies require a time deductible (around 90 days). If you have 6 months cash, you're fine. If you have a claim on your auto policies, you have cash on hand to take care of it. If you become unemployed, you still have 6 months cash reserves to rely on.

This is the FIRST step that we should ALL take into account BEFORE beginning our investment activities.

If you are saving in a 401k, I would have it in money market because you CANNOT afford to lose money you've EARNED on your JOB to investment losses. You can do that with the earnings of your savings, but not what you're working hard for. (If you've already lost money, better keep with it until it grows, but notice that you can't enjoy that money and it doesn't give you comfort at this time.)

When do you start to invest? After your protection is in place and your liquid savings is established. Don't be in a rush to begin investing. What good would a 50% increase on your investments do you if you are unprotected in the case of lawsuit? Or it vanishes due to disability? Or it loses money AND you lose your job?

Kinda long, but some of the things I advise my CLIENTS on when they meet with me.

Meet with your own insurance agent or investment advisors in your own state.

[skippy740]

Attached is an article on the value of permanent insurance as it was published in a CPA publication.

Note: this was written by an estate planning attorney.

WebCPA - Permission Slip

[skippy740]

Once your protection is complete and you have 50% of your annual income in savings, you are now able to begin putting your savings contributions towards investing.

I would invest in this order:

- Bonds: such as Treasuries, municipal bonds, corporate bonds. These produce income and are not usually as volatile as stocks. Income

- Stocks: Blue Chip stocks, growth securities (basically stocks &/or business interests). Capital Appreciation & Dividend Income

- Other: Collectibles (baseball cards or other things that you know of that are tangible that you have a unique knowledge in), Real Estate (your home & perhaps other investment properties) & tax shelters. Income, Capital Appreciation & Tax advantages

As you build your portfolio, you will be greatly reducing your portfolio risks by investing in the "stable" bonds first, then later increasing your risks to stocks.

This is GREATLY better than just picking a stock portfolio based on your age. WHY? Because of some of the points in the link above. Also, most people have a much lower LOSS tolerance than they say they do. This way, you're building your temperance to market volatility.

Note: Not everyone will agree with me on this style of planning. I might even be accused of trying to "sell insurance" to everyone. (I'm not, nor can I as I am not properly licensed in all 50 states).

The fact is, is that it works and the math verifies it. It is also proven to work with our world today. It also fits with provident living planning principles (save, live modestly & prepare for the future).

Too much risks and no protection makes for a shaky foundation for your financial future.

If you'd like to learn more about this kind of planning, find someone who is familiar with the LEAP system. (LEAP = Lifetime Economic Acceleration Process) These advisors are typically found with insurance companies (as they can offer you the guarantees of the insurance without having all their income tied to you keeping a large investment balance with them so they can get paid).

Edited March 16, 2009 by skippy740

[lestertheemt]

ok...................alittle over whelmed:o

both dh (dear husband) and I have 401k----------------------

I would like to invest (don't know if thats the right word) a little (don't want all our eggs in the same basket) but I also don't want those funds locked away in something that we can't get it out in cause something major does happen.

so...............................yep still confused:confused:

[bytor2112]

ok...................alittle over whelmed:o

both dh (dear husband) and I have 401k----------------------

I would like to invest (don't know if thats the right word) a little (don't want all our eggs in the same basket) but I also don't want those funds locked away in something that we can't get it out in cause something major does happen.

so...............................yep still confused:confused:

I have been in the financial planning business a long time and own a private practice and manage money for a living. Advice? Find a reputable adviser and make an appointment and have an open and frank conversation with him/her. They should help you establish a plan for investing based on your financial goals and your tolerance for risk. Remember, investing is about achieving LONG term financial goals, it is not get rich quick.

IRA's and other retirement plans are designed to grow your money, tax deferred until...you guessed it, retirement. You can access your money in a retirement plan, but if you are not 591/2.....a 10% tax penalty is imposed, unless you are disabled.

Short term less volatile places for money that may be needed in an emergency, should be held in CD's, money markets, etc.

Best advice, work with an adviser.....make sure he/she has the time to work with you. Yes, there are fees associated with acting on the advice, but it is worth it.

[skippy740]

ok...................alittle over whelmed:o

both dh (dear husband) and I have 401k----------------------

I would like to invest (don't know if thats the right word) a little (don't want all our eggs in the same basket) but I also don't want those funds locked away in something that we can't get it out in cause something major does happen.

so...............................yep still confused:confused:

The biggest thing you just realized is that this is NOT a "do it yourself" project.

The reason I outlined all those topics was to basically ILLUSTRATE that point. How can someone coordinate and integrate all those topics WITHOUT being in the financial planning industry?

The question is WHO? WHO do you turn to for this advice?

Certifications aren't a "be all and end all" to the competency of the advisor. CFP, ChFC, RFC, CLU, CFA, CIMA are some of the most well known and respected, but it doesn't guarantee that they will look at all aspects of your financial life.

Ask some successful people you know who THEY turn to for advice in financial affairs. That will probably lead you quite well - and ask THEM to introduce you to their advisor. (Believe me, the advisor will LOVE that.)

[Guest Alana]

Maybe I should just copy our 3 month investment paper that comes to us and ask 'what does this all mean!?!?!' I love managing my personal finances, but these investments are like some other language. It's all automatic and we've never changed it from the 'default' investments. I'm little scared of what it looks like right now:P At least none of it is out of our pocket, it's all from the company.

[Iggy]

Advice? Find a reputable adviser

What are the guide lines in finding that reputable adviser?

[skippy740]

What are the guide lines in finding that reputable adviser?

Unfortunately, this is a very complex question.

The "usual" answer is to find someone who is licensed in multiple product lines so they can "advise" you in helping you achieve your goals. This usually includes a life, health and annuity insurance licenses, a stock broker's license (series 7) and a fee-based license (series 65 or 66). Some advisors have a series 6 instead of a 7, so they can only offer you mutual funds or insurance contracts with variable sub-acccounts (much like mutual funds).

I myself, have a Series 7, Series 66 and my state's insurance licenses.

Another way to elevate your search is to find those professionals who have chosen to pursue some industry credentials, such as CFP, ChFC, CLU, RFC, CIMA, CFA, etc. These people have studied for many years to attain such distinction.

I myself, have the ChFC designation and the RFC designation. I plan to earn the CLU designation within the next 2 years. The ChFC and CLU are conferred by The American College in Bryn Mawr, PA and are the oldest designation programs of its kind.

Perhaps a better question to ask is this: Who should I AVOID?

I would avoid working with someone who is licensed in only ONE discipline. If you work with an insurance advisor, chances are... he'll promote insurance to you. That's not a bad thing - as long as that is what your situation calls for. But it's quite tempting to look at every situation as though the client is a nail when you are a hammer.

I would also avoid working with someone who talks in "code" or "advisor-speak". If someone can't explain what they do on simple terms... then they don't know what they're doing. They need to communicate as an EQUAL PARTNER in your financial success.

Another hint: Fees or commissions doesn't matter.

Some people may argue that they're a "fee-based" advisor and don't earn commissions on the sale of products. In this way they say they're "unbiased".

I say they're wrong.

I say that they no longer have an incentive for you to IMPLEMENT any part of a recommended plan. They got their fee and they gave you their advice. Now you get to figure out what you want to do with that.

I think that's irresponsible.

Many advisors at wirehouses (Merrill Lynch, Smith Barney, Morgan Stanley) have investment minimums in order to bring on a client. They are typically $100,000+. If you are below that, they probably won't take you on because they won't be PAID for it. (Also, don't forget my 4 rules about financial institutions.) Advisors at banks work the same way.

When these institutions are only looking to work with people who have means, then how to the rest of us find help so we HAVE means in our future? They are looking for the money while Middle America has to do without quality advice? I don't like that one bit.

Insurance advisors who are also licensed in securities will probably offer you a pretty good deal. They don't have company-imposed investment minimums. You probably will need some kind of insurance. They don't need to charge you a fee to make a good income on the sale of a product that you would need to enhance your situation. They can offer you a review on your investments and insurance. (This is the kind of situation that I'm in.)

I would ask around for a good insurance advisor - if you don't have the assets mentioned earlier in my post. Get referred to someone. Ask your CPA for someone. Go through your local Chamber of Commerce directory and see if there's a name that you might recognize.

What you want to get is a comprehensive service that will require you to bring in extensive documents. They should ask you for your social security statement, your auto & home owners policies, your insurance policies, banking statements, 401k, IRA, pension, 457, 403b, 412i, 529, mortgage, approximate home values, etc. I find that a good advisor who isn't lazy in their approach can, will and should ask you for all that documentation - regardless of how they are compensated.

Then, the next question is: What is the objective of their review of all your documentation? What is the goal? For my clients, the goal is MAXIMUM protection, MINIMUM cost, greatest flexibility, reduce overall risks to the client on an economic basis.

I have a tendancy to ramble on with topics such as this. Let me know if this helps any. If you need clarification, please post or PM me.

[skippy740]

Beware of working with someone who says "you need" - like "you need X" and "you need Y".

These advisors just don't get it. You either WANT it or you don't.

Don't tell me that I'm "deficient" because I don't have something that you say that I "need". When I "need" something... I go out and get it.

After all, you've lived without it this long, I'm sure you don't really "need" it anyway.

But you may WANT it.

Just a subtle difference that I can't stand in other advisors.