financial advice

Are Robo-Advisors Worth It?

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robo-advisor

Are Robo-Advisors good enough at what they do? As most regular readers of this financial planning blog know, I used to be a professional Certified Financial Planner for several years. That gives me a lot of insight into just what a financial advisor does and does not do for their clients, and how much that is worth. Susie Orman is a former financial planner who decided that the whole profession was basically rubbish. Other former financial advisors are now out there saying that these professionals are indispensable. The truth, as with most things lies somewhere in between. So, how does a robo-advisor stand up to a real financial advisor? Are robo-advisors safe? And, most importantly, are robo-advisors worth it? What Is Robo-Advisor? Let’s start with getting some facts straight. First, robo-advisor is a fancy, sensational term for bold headlines. The reality is that the so-called robo-advisors are just computer programs that build an investment portfolio, usually out of mutual funds and ETFs, for you. There are no robots sitting behind desks anywhere (although that would be cool.) Second, a robo-advisor isn’t an advisor or financial planner so much as an investment manager. Robo-Advisor vs Financial Planner The reason these things …

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Do I Need a Financial Advisor?

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which 529 plan is right

To read financial advice magazines and websites, you might think that anyone who uses a financial advisor is either dumb, or very rich. These money publications all say that with a little research and education, everyone should be able to do all financial planning and investing themselves to achieve financial independence. In the real world, however, real finance doesn’t always work that way. Getting Stuck Doing Finance Theoretically, getting your finances in order and investing can be a fairly simple process. However, it turns out that in reality, there are all of these places to get stuck. Once you get stuck, you lose all of your forward progress. Eventually, enough time passes and you have to start all over. As a financial advisor, I met with dozens of potential clients who walked out of my office without signing up to work with me. The vast majority never went forward with doing anything. Chances are, they met with a different advisor years later having done nothing in between. This all occurred to me while trying to work with fellow writers to set up their own online writing businesses. No matter how straightforward the instructions seemed, folks kept getting stuck. What struck …

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New Biden Covid Student Loan Help

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student loan payments covid

A whole lot of Covid financial relief protections were scheduled to end in December. As expected, some of those money helping tweaks have been extended in 2021. For example, the Biden administration recently extended the mortgage foreclosure moratorium and forbearance protections. Student Loan Relief Flexibility On January 20, 2021, various student loan relief measures were extended through September 30, 2021. Student Loan Interest Rate Set to Zero Most federally owned student loans have had their interest rate set to zero percent during the pandemic. This continues through September 30, 2021. The zero percent interest rate is pared with student loan payment suspension. Technically called administrative forbearance, student loan payment suspension allows borrowers to skip student loan payments without late payment penalties, or any other negative effects. If you have lost your job, or are having other financial difficulties during the Covid pandemic, then this is a useful way to help save some money for use toward other things. Is Acorns safe? However, if you are not having financial difficulties, and are still getting your normal paycheck from your job, this is an excellent opportunity to improve your overall financial health. Although your loan administrator will automatically place your student loans …

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7 Deeply Out of Favor Stocks?

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7 Deeply Out of Favor Stocks? 1

Marketwatch is a finance website that survives by cranking out hundreds of articles per day. There isn’t hundreds of articles per day worth of actual financial news out there each day, so there is a bit of filler. Sometimes, I scroll right by. Sometimes, I wonder if a particular bit of financial analysis is legit. Analyzing Financial News Articles Check the person’s track record first Once you’ve been in the financial writing business for a while, you develop some contacts that you can go to for quotes and looks at finances and the stock market. If you have a big enough platform, financial gurus and analysts will come to you for some publicity. All you have to do is fill in the words around their quotes and fire up some graphs. Ironically, what is NOT part of the job is seeing how and when a particular analysts has fared in the past with their predictions. Accountability is not part of the finance writing world. A smart investor starts by seeing what, if anything the finance person has said in the past, and how right, or wrong they were, beyond the flattering, “He picked the last run up in technology stocks!” …

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Wrong Stock Market Predictions

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Wrong Stock Market Predictions 2

I read a lot of finance stuff. Most of the time, it’s a lot of the usual advice and tips wrapped up in new clothing. Finance and investing don’t really change that much. The exception is taxes, which change at least a little bit every year due to new tax court decisions, and the adjustments made to many tax numbers automatically each year due inflation. I keep reading about finance and investing both to keep my skills and knowledge sharp, and unfortunately, also to have some knowledge of whatever the latest finance and investing fads are. Investing for the long-term with a well diversified portfolio is the “eat less calories, burn more calories,” of finance. Everything else is a gimmick to achieve the same, while making is sound better (and easier). Tony Robbins Merchants of Doom I’m currently reading Tony Robbins’ Unshakeable. I like Robbins’ finance books. They repeat a lot of the sound financial advice that has been around for a while, often with a little more flair, and a lot more Tony. That is, Tony likes to name drop, which is fine, because he interviews some of the great minds for his books, but it’s always funny just …

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What Is Fiduciary Responsibility?

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Fiduciary responsibility, sometimes referenced as fiduciary duty, is the best term in finance, with the possible exception of fungible. So, what is fiduciary responsibility, and do you need someone with a fiduciary duty to help with your finances? Fiduciary is a fancy word for the concept of doing what is in the best interest of someone, typically a client or a trustee. Most people are shocked to find out that most financial planners, financial advisors, stock brokers, and the like do not have a fiduciary duty to their clients. In other words, the guy you have managing all of your money is not required, by law, regulation, or contract to act in your best interests. Rather, they typically have a much more easier standard called suitability. Suitability means that the investments or other recommendations they make are merely suitable for someone like you, not the best for you. So, if it isn’t wildly inappropriate for you to be investing in Apple stock, then they can recommend Apple stock, even if they feel like another investment would be better. Any attempt to ever make any of these financial professionals required to be fiduciaries is met with immediate and ravenous attack from …

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Who Needs a Financial Planner?

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financial planner helpful

Ask any financial advisor, and they’ll tell you that everyone (with money, at least) needs a financial planner or advisor. Ask any do it yourself financial planning type and they’ll tell you that no one need a financial advisor or planner. The answer, of course, is much more complicated than that. However, there are some people who are very likely to actually need a financial advisor. Big Money Quickly People who suddenly come into large amounts of money almost always benefit from a professional financial advisor. Unlike those who slowly grow into their fortunes, people who suddenly acquire wealth don’t have time to slowly build up experience with bigger finances. Consider someone who takes 5 years to grow into a $1 million net worth. That first year, they realize there are some tax things they need to consider. During the second year they find out other things, that maybe only really impact people with more than $500,000, and so on. But, when the money comes all at once, there is no time to build up that experience, and, unfortunately, many financial mistakes are irreversible. People who sell their company, or whose stock options finally come in, or otherwise come into a …

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Use Accounts to Save and Budget

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I talk a lot about the psychology of money. The reality is that no matter how much something makes sense mathematically, it just may not work for most people because money isn’t just something we move around on a spreadsheet. One of the most common questions I see are in the form of “What should I do with $5,000,” or “How should I invest $3,000?” The answer is to put it in your savings unless you currently have enough money saved for your emergency fund and short-term goals, otherwise, put it in one of your investment accounts. People don’t like this answer. Why? Money psychology. Use More Accounts to Save One of the problems with money on a personal financial level is that it comes and goes so easily, often without really noticing or appreciating it. Consider a man (or woman) age 35. He earns $120,000 per year, has a mortgage, a car payment, some nice hobbies and he puts money away for his kid’s college and his own retirement. Honestly, that’s pretty great and he should be (and is) pretty happy. Financially speaking, this means that each month he earns $10,000. His company takes out $5,000 for taxes, insurance premiums, …

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Paying Off Your House Mortgages and Money Psychology

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By any measure, the math says that paying off your home is not a smart move financially. Then why is it that so many people see paying off their home as a great goal? There are three reasons really. One is out of date thinking, the other is a financial myopia, the last one is No Discipline Syndrome. Out of Date Out of date thinking, or as I like to call it “Old Timey Wisdom” (like in Oh Brother Where Are’t Thou – Old Timey Music). Old Timey Wisdom is wisdom that was once true in different times but may not hold up today. Just one generation ago, paying off your house meant financial security. Often, this was a major deal to this generation, because one generation before a lot of people lost their homes at various times, but most notably during the Great Depression. The wisdom became that as long as your house was paid off, you never had to worry about a huge part of your financial security. So what is different today than just a few decades ago? Well, then, it was likely that the first house you bought could be the one you lived in your …

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Bumper Sticker Financial Advice

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Bumper stickers are an interesting way to convey an idea. They aren’t very big, so the message must be small. They tend to be ignored, so the message must be clever. You can’t ask the person driving the car what they mean, so they must be clear in any context. On the other hand, a lot of the information is lost when a message is conveyed as a bumper sticker. Entire political debates boiled down to a certain sounding phrase are one example. In the financial world, bumper sticker financial advice often comes from books where repackaging existing financial ideas in new sounding ways is the fastest way to personal finance stardom. Pay Yourself First What Does It Mean?   One of the most ubiquitous financial planning as a simple phrase is, “Pay yourself first.” What pay yourself first means, literally, is that you should set aside money to be saved or invested before spending money on anything else. The concept works like this. If each week (or month, or whatever) you get a paycheck if you pay yourself first, then you won’t spend too much money and you’ll save for your future. Sounds good, and it is. In practice, …

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