Should you bail on stocks?

Stress Level Conceptual Meter Indicating MaximumIt’s a trick question, of course. If you’re asking it, then it’s time to review your long-term investment strategy (or to come up with one, if you haven’t done so).

The bottom line is that trying to time the market is a loser’s game. Those who say they can do it are blowing hot air up your skirt. Sure, some people sell in time to avoid the worst of a downturn–and then they typically miss the rebound that inevitably follows.

If you’re investing for a goal that’s decades away, such as retirement, then the day-to-day fluctuations of the market are irrelevant noise. Even if you’re close to retirement age, you’re still going to need a hefty exposure to stocks to give you the growth you’ll need over time to offset inflation. You can’t expect gains without declines, though. They’re part of the deal.

If you really feel you need to do something, then get a second opinion on your current asset allocation–how your investments are divided among stocks, bonds and cash. You can get free advice from sites such as FutureAdvisor or look into low-cost options from Vanguard or Schwab, among others. Another option is to hire a fee-only planners who charge by the hour or who charge a retainer or a percentage of assets. The Financial Planning Association has tips on choosing a financial planner. Once you have a target asset allocation, you’ll have a map to follow regardless of what the market does.

 

How you can benefit from the robo-advisor price war

iStock_000014977164MediumDigital investment advisor Wealthfront snagged some headlines this week by dropping its minimum investment from $5,000 to $500 and calling out its competitors, particularly Betterment, for charging too much.

Which is kind of unfortunate, because it could leave people with the impression that Betterment is gouging people, when it (like most of the other robo-advisors) charges a fraction of what other advisors do, and Betterment has no minimum investment requirement.

Betterment’s charge ranges from .15% to .35%. On accounts under $10,000, Betterment charges a minimum monthly fee of $3 unless investors set up auto-deposit. Wealthfront manages the first $10,000 you invest for free, and charges one-quarter of one percent (.25%) above that.

By contrast, many human advisors charge 1%, or even more, to manage investments. If you’re not familiar with robo-advisors, you can read about them here and here.

Roboadvisors, in other words, are providing the cheap, conflict-free investment management that many people, especially those without big portfolios, have been waiting for. They’re even a possible lower-cost solution for those with big portfolios, now that Vanguard is offering a robo-advisor service paired with access to human financial advisors for a .3% annual charge.

If you’re intrigued by the idea of low-cost investment management, don’t let a little dust-up between competitors dissuade you. Check out your options and make up your own mind.

 

Your financial advisor: just a car salesman?

Retro Car Salesman C

Is this your financial advisor?

Wall Street is trying to prevent new rules that would require financial advisors to put your interests ahead of their own. Big brokerage firms have said they simply won’t serve the middle class if they can’t offer conflicted advice to them. Even more telling, MetLife Inc. CEO Steven Kandarin recently used a car salesman analogy that compares financial advisors to Ford and Chevy dealerships. Car salesman aren’t required to point out the better deal across the street, Kandarin asked, so why should financial advisors?

If you think the people advising you about your life savings should only be held to the standards of car salesmen, then do nothing. If you think they should be held to a higher standard, contact your Congressional representatives now:

http://www.usa.gov/Contact/US-Congress.shtml

Q&A: Financial advice and family

Dear Liz: Regarding the brother who has the financially irresponsible sisters, in general I agree with you about not pestering people who don’t want advice. But with family, it’s different. It is quite obvious to me and other readers that this man is concerned about his sisters coming to him later in life even if he didn’t state that in his letter. Telling them he won’t help when they come to him later in life (and they will) isn’t realistic. Maybe his continual pestering will finally make them come to their senses.

Answer: If you’ve had any problems in your own life — you needed to lose a few pounds, say, or stop smoking — think about how you would have received the “continual pestering” of a sibling on the issue.

Announcing to his sisters that he won’t help them financially before they ask may have an unintended side effect. If Mom has any money left when she dies, she may well allocate more of it to the sisters under the assumption that they’ll “need” it more because their mean old brother won’t help them.

Q&A: Unsolicited financial advice

Dear Liz: Your answer to the financially savvy brother whose advice is lost on his sisters was a bit harsh and shortsighted, so my guess is that you may not know anyone who has siblings who will continue for the next few decades to need help. It is hard to deny a sibling help while enjoying the benefits of prudent saving. It is harder to watch a sibling suffer, even if they should have avoided it. Seems to me completely different from giving advice about child rearing, which I might add is sometimes simply a statement of the obvious and one that should not even have to be mentioned, like don’t let your kids scream in public. This young man is almost certainly going to live with either guilt over not supporting his sisters when the mother dies or the frustration of having to give up hard-earned funds to avoid the guilt. You should have said he needs to write them a letter citing the guidance given and making it clear not to come to him when they get in trouble.

Answer: Thank you for providing a perfect example of why people find unsolicited advice so annoying.

The brother asked what he could say to his sisters to make them more financially responsible and to his mother to make her realize she should stop supporting them. The answer, of course, is nothing. There are no words that can make other people change unless they want to change. Since his family has made clear they’re not interested in his advice, continuing to offer it would be pointless.

The brother didn’t express concern that he would wind up supporting either his mother or his sisters. Even if he has such concerns, writing such a letter would be churlish, at best. If he’s asked for help, he can make his position known then.

Vanguard–the new robo-advisor?

IiStock_000014977164Medium‘ve written a lot recently about digital advisors (including the piece I wrote for AARP, “Do-it-yourself made easy“). Wealthfront, one of the leaders in this space, now has $1.7 billion under management.

That seemed pretty impressive, until I saw a recent piece in InvestmentNews about Vanguard’s Personal Advisor Services. Although still basically a pilot program, the “human-augmented online advice platform,” as IN termed it, now has $4.2 billion under management.

For all that’s been written about the start-ups who use powerful algorithms to manage your portfolio while you sleep, it’s the the Vanguard offering that may be the game changer. Vanguard can offer everything the start-ups do–asset allocation, automatic rebalancing, ultra-low-cost investment choices–in the mantle of a trusted firm known for its integrity and thrift. The cost? Three-tenths of one percentage point, or $300 a year for a $100,000 portfolio. That’s only slightly more than the .25 percent the newcomers typically charge.

Advisors charging more certainly will argue they’re adding value. But if you’re paying much more for financial management, you might want to at least take a look at what you can get for less.

 

Friday’s need-to-know money news

crop380w_istock_000009258023xsmall-dbet-ball-and-chainToday’s top story: How to decide which debts you should pay off first. Also in the news: Financial topics you should never discuss at work, a key tax move you need to check before the end of the year, and how to offer financial advice to your adult kids.

Which Debts Should You Pay Off First?
How to develop a strategic pay off plan.

3 Financial Topics You Should Never Discuss at Work
Keep these conversations off-limits.

Don’t Let December End Without Looking at This Key Tax Move
Preparing for 2015 taxes.

How to Offer Financial Advice to Your Adult Child
Approaching a difficult conversation.

Plan Out a Year of Life as a Retiree To Jump-Start Your Saving
Giving your savings a boost in the right direction.

4 In 5 Millennials Optimistic For Future, But Half Live Paycheck To Paycheck
A look at the financial lives of millennials.

Tuesday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: How to get the most from your credit card rewards program. Also in the news: What to consider before moving, when to work with a financial adviser, and why low interest rates on student loans are becoming a thing of past.

Maximizing Credit Card Rewards: 5 Ways to Earn Big
Making your credit card work for you.

What Every Retiree Should Consider Before a Move
Consider these before buying boxes and duct tape.

Personal Financial Planning: Do It Yourself or Go With a Pro?
Is it time to bring in the big guns?

Federal Student Loan Interest Rates Heading Up
The days of low interest rates are a thing of the past.

How Much Does a $20K Car Loan Really Cost You?
Buckle up.

Friday’s need-to-know money news

Zemanta Related Posts ThumbnailToday’s top story: Consolidating you debt when you have bad credit. Also in the news: Maximizing child tax credits, what to do in your 20’s to protect your financial future, and the importance of verifying personal finance advice.

Can You Consolidate Your Debt With Bad Credit?
You might need a backup plan.

Are You Missing Out On These 11 Kid-Centric Tax Breaks?
Wringing every penny out of your kid at tax time.

5 Things You Must Do in Your 20s to Protect Your Financial Future
Goals, goals, goals.

Trust But Verify Personal Finance Advice (Huffington Post)
Only you can protect your money.

Study Finds Many of Us Still Lack Basic Personal Finance Skills
And that’s a big problem.

Advisors to women: Don’t quit

Zemanta Related Posts ThumbnailWomen with young children often discover that child care costs eat up much of what they earn. If they’re married to a big earner in a high tax bracket, they could lose most of the rest of their wages to high marginal tax rates.

But advising them to quit working is short sighted, two Certified Financial Planners suggest in the most recent issue of the Journal of Financial Planning.

Jerry A. Miccolis and Marina Goodman note in “Advising Married Women on Investing–in Themselves” (may be restricted to FPA member access only) that child care costs usually drop when the kids enter school while the mother’s income typically rises over time. Stopping out, meanwhile, often leads to lower lifetime earnings. The authors suggest women view those early years, when they’re working for not much financial gain, as an investment in their future–sort of an extended internship, if you will. They write:

“[W]ork experience leads to career advancement, which could have a quantum-level impact on her financial future. Say a woman spends five years working while getting no financial benefit due to taxes and child care costs. Her youngest then enters school and suddenly child care costs plummet. After five years of experience, she may get promoted and now her income may be $75,000. If, instead, she was just starting out at that point, she would be earning $50,000. (We’re ignoring inflation in this simple example—it would, of course, merely magnify the effects.) The difference is not $25,000. It is more like being an entire professional level higher for the next 30 years. Over the course of a career it can be the difference between middle management and eventually being in the C-suite.”

The authors note that “A woman’s ability to earn a decent salary is the most comprehensive insurance policy she can have.” Staying employed, even part time, and keeping up any professional credentials can help her family if her partner loses a job, becomes disabled or suffers a business setback. It can also be an insurance policy for her in the far greater risk of divorce:

“Even among upper-income families, many women would still experience a significant decline in lifestyle upon divorce, especially if they have no means of supporting themselves. The risk that a woman will get divorced is greater than the sum of the risks of her husband’s premature death, disability, or just about any other financial catastrophe all put together.”

This information may be most relevant for the kinds of women financial planners are most likely to advise: college-educated women with careers, rather than jobs. The price for stopping out may be less if you’re in a low-wage, low-skilled job rather than one where significant financial advances are possible. But any parent contemplating time away from work should be looking at the longer term financial picture, and those who choose to stay home should make sure they have significant savings to help offset their greater financial vulnerability.